The cluster effect: Why ICT startups thrive together

First published 16 Feb, 2025

Tech-driven startups are key in driving innovation and industry growth. I say tech-driven since some confuse startups with fintechs or general tech-based firms. The success of these firms creates jobs and boosts the economy, and recognising this, some countries have implemented policies to support such startups.

In the 1980s, the U.K. introduced policies to cultivate an enterprise culture, which worked because its economy was strengthened. The South Korean government has been directly involved in Asian research and development investments through indirect incentives to nurture startups. Similarly, India has encouraged high-tech companies to form clusters, particularly in the ICT sector.

Beyond governmental support, several factors contribute to a startup’s success. Capital is the most obvious since it provides startups with the resources and time to address challenges and pursue innovative projects. Barriers to entry also play a key role; high barriers may favour established companies but restrict new entrants. A diverse product or service range and distinctive marketing strategies can support a startup’s competitiveness. Effective communication with external entities—including other companies, government bodies, and academic institutions—is essential, with an emphasis on balanced, reciprocal interactions.

However, startups often face limitations due to their size and nascent stage. Common issues include unclear or flawed business models, inadequate business development, and insufficient capital.

Interestingly, these challenges can be addressed when companies developing similar products or services cluster geographically. Such proximity facilitates easier promotion to investors, access to shared knowledge and expertise, and reduced costs in sourcing skilled human capital. This is what “agglomeration” or “clustering,” means, and it offers a supportive startup ecosystem.

The concept of clustering has existed since the 1990s, building upon earlier ideas of geographic concentration. Clusters are regions where interconnected companies and institutions co-locate for collaboration and competition. While this setup offers advantages like exclusive market insights and swift responsiveness to consumer preferences, it can also lead to uninformed perspectives and restricted market views.

The triple helix model underscores the importance of interactions among industries, universities, and governments within clusters. Balanced collaboration among these entities is vital for regional innovation and cluster growth. For instance, Silicon Valley evolved from a university-led model to a dynamic interplay among academia, industry, and government.

In practice, the dynamics within clusters vary based on their foundational objectives. Silicon Valley emerged from university-industry collaboration, while Texas’s Silicon Hills resulted from proactive government support. Similarly, Silicon Saxony in Germany was established through policies involving both federal and local governments. These examples show that different stakeholders can drive clusters—government, private sector, or academic institutions—and each configuration offers unique advantages.

In Africa, the clustering approach has been important in supporting tech startups. Nairobi, sometimes called the “Silicon Savannah,” has become a hub for innovation, supported by a synergy of government initiatives, private investments, and academic collaborations. The Kenyan government’s policies, including new laws specifically designed to support startups, attempt to set up a conducive environment for startups, while institutions like iHub provide collaborative spaces for entrepreneurs.

Lagos has also taken a similar approach to strengthening its tech ecosystem. The Lagos State government has proposed the Innovation Bill, which offers tax incentives and simplifies processes for startups. The law wants to address challenges in registration, incorporation, and access to patents to accelerate startup growth. The Lagos Free Zone provides a business-friendly environment with benefits like tax exemptions and profit repatriation to attract local and international tech companies.

Initiatives like the Tony Elumelu Foundation are important in empowering African entrepreneurs through training, mentorship, and funding. The foundation has supported thousands of entrepreneurs across the continen.

While the ideal cluster harmoniously integrates universities, private companies, and government efforts, the balance among these players varies by region and purpose. Understanding each cluster’s unique dynamics and objectives is essential for tailoring support mechanisms that actively foster startup success.

Kenn Abuya

Senior Reporter,

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