An initiative of IICD and bridges.org

The bridges.org/IICD Case Study Series on ICT-Enabled Development sets out to illustrate how ICT contributes to development in Africa. The aim of this series is to help ground level initiatives imagine the possibilities of what can happen if they use ICT successfully to overcome development obstacles, and to contribute to the existing body of knowledge on the digital divide.

I. Overview: The UUNET Bandwidth Barn

Initiative: The UUNET Bandwidth Barn provides infrastructure support to small and medium-sized enterprises (SMEs) focused on information and communications technology (ICT) products and services in the Western Cape Province of South Africa. The Bandwidth Barn offers shared office space for these SMEs to reduce their overhead costs for services like Internet connectivity, telephone, and reception, and brings the benefits of"clustering" to the budding ICT sector in Cape Town.

Implemented by: The Bandwidth Barn is a flagship project of the Cape Information Technology Initiative (CITI), a public-private partnership led by executive director Masedi Molosiwa.

Funding or financial model: The companies housed within the Bandwidth Barn each pay rent to cover a portion of the running costs for the building. Operations are also subsidised by CITI and its sponsors, primarily UUNET. CITI is a non-profit organisation funded by the Western Cape Province and City of Cape Town Governments, as well as more than 40 corporate members including UUNET, Microsoft, Telkom, and other national, regional, and local businesses.

Timeframe: The Bandwidth Barn was launched in January 2001. CITI was created in 1998.

Local context: South Africa suffers from 37% unemployment [1] and local economic growth is one of the most critical development problems facing the country. At the same time, South Africa has experienced a significant "brain drain" during the last two decades, as many of the country's most highly skilled workers have sought work abroad. The emigration of skilled citizens cost South Africa an estimated 67.8 billion Rand (US$8 billion) between 1997 and 2000.[2]

Although ICT-based development offers promise for the country, the brain drain is particularly grave in the technology sector. The Western Cape Province has three major universities graduating computer engineers, but many of these graduates have emigrated to other countries. Although a survey by South African ICT magazine ITWeb reported that planned emigration is currently on the decline in South Africa (24% in 2001, 16% in 2002, and 5% in 2003) [3], another recent survey found that the overwhelming majority of South African ICT graduates would leave the country if they could.[4] And overall, the lack of a strong ICT sector continues to exacerbate the problems, driving these graduates and other potential ICT entrepreneurs away. In the Western Cape Province, ICT clusters have developed in and around affluent white suburban communities, but the growth of the high-tech sector has not taken place in rural areas or affected the unskilled poor.

The development problem/obstacle addressed: Many studies suggest that fostering the growth of small business can be a successful strategy to promote economic development and curb the brain drain. [5] However, small businesses have special problems: infrastructure and technology support is expensive, basic business skills are often lacking, and it is hard to build credibility and find the first customer. For SMEs in the ICT sector that require high bandwidth, the cost of Internet connectivity alone can be a significant obstacle.

How ICT is used to overcome the problem: The Bandwidth Barn provides a "hub" around which small ICT businesses can centre their operations. By housing a number of small businesses in one building, the Barn allows participating entrepreneurs to pool their resources for many basic operating costs, including costs for office space, reception, telephone lines, and Internet connectivity. In addition to helping entrepreneurs minimise their internal costs, the Barn also provides mechanisms through which they can exchange industry information, and better interact with each other, the government, and national and multinational corporations. Currently about sixty businesses are tenants of the Bandwidth Barn. Many resident entrepreneurs have partnered with each other to provide business advice, moral and technical support, and even to obtain contracts with government or corporations abroad. CITI offers mentoring assistance to the SMEs and routinely hosts Listening Lunches and workshops at the Bandwidth Barn to help local businessmen learn essential entrepreneurship skills. The Bandwidth Barn has formed a focal point around which stakeholder groups have engaged with city, provincial, and national ICT policy-making processes. And largely due to the Bandwidth Barn and CITI's other activities in the region, Cape Town has received acclaim in prominent newspapers around the world for being an emerging ICT centre in South Africa, which is good for the region's ICT sector as a whole.

Next steps: In 2002, CITI began its "LaunchPad" initiative to enlist business professionals in the community to provide customised support to black-owned entrepreneurs, in the hopes of elevating the proportion of businesses in the Bandwidth Barn that are wholly black-owned. CITI is now partnering with other small business clusters -- such as the InnovationHub in the Gauteng Province of South Africa, Enterprise Ireland in the Republic of Ireland and GorillaPark in the United Kingdom -- to facilitate business connections for Western Cape Province entrepreneurs and to share wisdom. One of CITI's biggest priorities going forward is facilitating relationships with international markets, exchanges, and entrepreneurs in the hopes that Cape Town could become a significant centre of ICT outsourcing, possibly following India's model.

Geographical area targeted: The Western Cape Province, South Africa.

Contact information:
Judith Middleton
Business & Marketing Manager
Judith.Middleton@citi.org.za
Tel: +27 (0) 21 409 7000
Fax: +27 (0) 21 409 7050
URL: http://www.citi.org.za
128 Strand Street, Cape Town, South Africa 8001
P.O. Box 7210, Roggebaai, South Africa 8001

II. GAUGING REAL IMPACT

This section considers whether and how the Bandwidth Barn has made a Real Impact at the ground level by looking through the lens of basic best practice guidelines for successful initiatives. The bridges.org 7 Habits of Highly Effective ICT-Enabled Development Initiatives are used here as a framework to highlight what the Bandwidth Barn has done well.

The 7 Habits of Highly Effective ICT-for-Development Initiatives

1.Implement and disseminate best practice.
The Bandwidth Barn's founders studied the cluster development models presented by the Department of Trade's Michael Porter as well as Ifor Ffowcs-Williams' practical theory of cluster development. They invited Ffowcs-Williams to host a workshop two years before their initial attempt at building a physical hub for the cluster. CITI has consistently met with government and business officials to share wisdom and best practices. CITI hosts workshops on the brain drain problem, and works with universities to curb the emigration of South Africa's ICT graduates. CITI has numerous knowledge sharing partnerships with South African organisations like the InnovationHub. CITI sponsors "Listening Lunches" at the Bandwidth Barn to provide a forum for discussion of technology issues among public and private sectors actors.

2.Ensure ownership, get local buy-in, find a champion.
From the beginning of its existence, the Bandwidth Barn had champions in government and business. Many of them were instrumental in "generating the buzz" surrounding CITI's efforts to transform the Western Cape into an international ICT hub. CITI -- and thereby its offspring, the Bandwidth Barn -- was conceived as a public-private partnership and its funding reflects this explicit neutrality. CITI also cites excited volunteers as a cornerstone of its success over the past few years.

3.Do a needs assessment.
Before CITI created the Bandwidth Barn, it repeatedly heard that affordable space and bandwidth was a problem for early stage entrepreneurs. Previous efforts in cluster development also yielded valuable insights in terms of needs and recommended efforts. In keeping with its vision to serve the entire Western Cape, CITI commissioned a Sector Scan in 2001 and an ICT Census Report in 2003, which will be available soon.

4.Set concrete goals and take small achievable steps.
In its attempts to establish a physical hub for the new ICT industry, CITI began by offering three needy small businesses office space in its first office centre. When more and more entrepreneurs expressed interest, it moved to the first Bandwidth Barn in downtown Cape Town. Two years later, after validation from continued funding and entrepreneurial demand, CITI moved the Bandwidth Barn to a modestly bigger space, with the opportunity to grow if necessary.

5.Critically evaluate efforts, report back to clients and supporters, and adapt as needed.
Keeping stakeholders on board has been an institutional concern throughout the history of CITI and the Bandwidth Barn. In 2001, CITI made its Annual Report a focal point for discussion among its stakeholders, and used the opinions gathered to shape its priorities. More recently, CITI brought together government, business, and development community officials for an open discussion about its future and that of the Bandwidth Barn. As a result, black-owned enterprises were identified as a necessary priority, and CITI instituted its LaunchPad initiative to attract black entrepreneurs to the Bandwidth Barn and keep them involved in its related entrepreneurship activities in the region. In 2002, the Government of Cape Town commissioned a case study on CITI's entire history, which was performed by Infonomics SA.

6.Address key external challenges.
One of CITI's biggest challenges for scaling a model like the Bandwidth Barn is attracting enough ICT graduates. CITI has therefore been involved in educating local universities about entrepreneurship as an option for ICT graduates as well as giving technology students business feedback on their ideas, so that they can hit the ground running when they graduate. Western Cape ICT companies face both a challenge and an opportunity in expanding their operations to international markets, and CITI has formed the "Cape Lab" initiative to help teach entrepreneurs about international markets and forged links with peer organisations like Enterprise Island in the UK to help address this issue. CITI has dealt with potential political challenges by keeping the government on board at all times and getting involved in various levels of political discourse.

7.Make it sustainable.
To keep costs low for Barn tenants, it's important that the building is subsidised. Industrial sponsorship, like that provided by UUNET, is therefore necessary for sustainability. The Bandwidth Barn is sustainable because it is CITI's flagship project. Due to CITI's other efforts in bringing corporations together and attracting investment to the Western Cape Province, the Bandwidth Barn has become a symbol of the ICT sector in the region. Future sustainability therefore depends on CITI's success at promoting the ICT industry in the Western Cape Province, and CITI's Bandwidth Barn being at the centre of it.

III. LESSONS LEARNED

We asked CITI executive director Masedi Molosiwa to share his views on the Bandwidth Barn's greatest success, the challenges faced, key constraints and dependencies that affect the Barn, opportunities for future improvement, and other lessons learned. This is what he had to say:

'The UUNET Bandwidth Barn has been successful because of the close collaboration and support from the various levels of government, industry and CITI. The incubator is unique because CITI does not acquire equity in the ventures. Therefore, the tenant mix tends be reflective of a cluster that is dynamic as opposed to being determined by an investment mandate. The relocation to new expanded premises indicates that value is provided to the ICT sector - specifically SMEs.

Our challenge is to broaden the UUNET Bandwidth Barn value proposition beyond cost-effective bandwidth access and infrastructural support. The tenants require support in developing their businesses in areas such as strategy formulation, business development and this includes sales and marketing. Our measure of success is the extent to which the businesses flourish and create job opportunities in the process.

The incubator business model is based on cost recovery with fairly low margins. Our ability to increase donor funds that will subsidise the input costs is a real challenge.

Finally, the passion from the Board of Directors, mentors and the operational team has highlighted as a key to the continuing success. It is the commitment towards realising the dream of the Western Cape as a leading ICT cluster that fuels the progress."

IV. THE STORY
This section presents a narrative description of the BandwidthBarn that highlights why this use of ICT for development is particularly interesting.

During the last decade of the Internet boom in North America and Europe, business leaders in the Western Cape Province of South Africa hoped that Cape Town could become the next great centre of the ICT revolution. The conditions were certainly ripe. Several local universities had been churning out a steady flow of computer engineers for a number of years. Many Cape Town residents speak English, which would make communication with most of the leading ICT industry easier. The stunning geography and weather had already prompted a steady stream of foreign tourists to the Province. However, the grim reality was that most South African engineers and other highly skilled workers were leaving the country in droves, costing the country billions of Rand.

Business and government officials began to think that encouraging cluster development in the Province could stoke the local ICT industry, curb brain drain, and help make Cape Town an international centre of ICT businesses. Learning from previous attempts and the developing theories of "cluster development", they formed the Cape Information Technology Initiative (CITI) in 1998. After hosting three entrepreneurs in its first meagre office, CITI decided to apply its clustering principles in a very tangible way. In 2001, CITI created the first Bandwidth Barn, which brought together a number of Cape Town ICT entrepreneurs in one place and gave them a reasonably priced Internet connection. But they got a lot more than just that. Simply being located next to so many other entrepreneurs, whom they might have initially thought of as competition, had tremendous advantages for these small businesses. Beginning entrepreneurs could bounce ideas off each other, borrow each other's equipment, and share experiences in growing their businesses. CITI calls this behaviour "co-opetition", or cooperating to compete better. In fact, through partnerships with other Bandwidth Barn residents, many entrepreneurs were able to compete for and win bigger deals than they might have ever hoped to win by themselves.

In March 2003, after CITI received continued sponsorship from UUNET, it established the second Bandwidth Barn on Strand Street, close to the heart of Cape Town. Nearly sixty residents now inhabit the Bandwidth Barn. Although all tenants depend on ICT for their work, they have a variety of operations from Ikineo's marketing in Asia, to Application Junction's software development for the U.K., Allegiance Advisory Services' financial and business advice, and TrustEnforce's online dispute resolution. An estimated 30% of tenants have international customers, and about 17 earn more than 20% of their income from abroad. [6]

CITI helped extend the benefits of the Bandwidth Barn "cluster" by partnering with universities and other incubators to help spread the wisdom they have learned so far. CITI has used its strategic position between business and government to lobby for changes in national and local policy. CITI envisions the Western Cape duplicating India's success in attracting offshore software development projects and international software support centres. Along these lines, CITI regularly holds workshops with topics like "How to expand your IT business internationally" for Barn tenants and Cape Town technologists alike. CITI has also formed a partnership with Enterprise Ireland, in the Republic of Ireland, to allow local entrepreneurs to communicate and do business with their peers abroad. Many Bandwidth Barn tenants operate entirely in other countries, administering servers in America and writing software for Europe all from their desk in Cape Town. As more local technology businesses extend their reach internationally, CITI hopes that more bright minds will stay and become part of South Africa's economic renewal.

[1] Estimate made in 2001 according to the United States Central Intelligence Agency's online report ''CIA - The World Factbook 2002'', available at http://www.cia.gov/cia/publications/factbook/geos/sf.html.

[2] According to the Paris-based Institute for Development Research, as reported by Vicki Robinson in ''Brain Drain to Brain Gain'', 22 January 2003, Mail & Guardian, http://www.queensu.ca/samp/publications/pressarticles/2003/drain.htm.

[3] See ''Brain drain turns, survey finds'', 7 May 2003, ITWeb,
http://www.itweb.co.za/sections/business/2003/0305071136.asp.

[4] According to a survey conducted by the Youth Development Trust (YDT)
completed in March 2003, http://www.ydt.co.za/idrcproj.htm.

[5] See bridges.org, ''Measuring Success in Entrepreneurship Support
Initiatives: What Works and What More is Needed'', 2 June 2002,
http://www.bridges.org/publications/56.

[6] See ''UUNET Bandwidth Barn Helps Start-Up I Businesses'', 27 May
2003, SA Computer Magazine,
http://www.sacm.co.za/Feature.asp?NewsID=6287&Cont=News.

__________________________________
Author: bridges.org
Date: 12 September 2003

Acknowledgement: Bridges.org has been involved with CITI and the Bandwidth Barn since 2001, and has watched its progress over the years. This case study also draws on information presented in the more detailed study of CITI, "Lessons in Cluster Development: The Cape IT Initiative (CITI) 1998-2002", Infonomics SA, January 2003, available at http://www.citi.org.za/library.

About the bridges.org/IICD Case Study Series on ICT-Enabled Development

This case study series on ICT-enabled development aims to disseminate best practice examples of how information communication technology has been successfully used by ground level initiatives to alleviate poverty. Case studies are an effective tool for examining what works best, what fails, and why. The intention of this series is to share knowledge and catalyse lessons learned about ICT by local organisations and the international community. The current focus is on efforts based in Africa.

The case study series is an initiative of the International Institute for Communication and Development (IICD) and bridges.org, two organisations that share the goal of encouraging the effective use of ICT in developing countries. IICD is an independent non-profit foundation, established by the Netherlands Minister for Development Cooperation in 1997 and based in The Hague. Bridges.org is an international non-governmental organisation based in Cape Town, South Africa. This initiative is supported by the Building Digital Opportunities Programme (www.iconnect-online.org), funded by the UK Department for International Development (DFID), the Directorate General International Cooperation (DGIS), the Swiss Agency for Development and Cooperation (SDC).