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ICTA Whitepaper - Final
ICTA Whitepaper - Final
Breaking the Barriers with Technology: A Special Report on the Kenyan ICT Market
An examination of Kenya's ongoing technology-powered transformation and push to transition to a Knowledge Society and regional ICT powerhouse
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Table of Contents
In this White Paper .................................................................................................................................................... 2 Situation Overview .................................................................................................................................................... 2 A Brief Look Back: The Emergence of Kenya in the ICT Map.................................................................... 2 Kenya's Current ICT Landscape ......................................................................................................................... 5 Leading Kenya to the 'Tipping Point' ................................................................................................................ 6 Looking Ahead: ICT's role in the future of Kenya .............................................................................................. 8 Breaking the Barriers by Streamlining Government Services ........................................................................ 8 Breaking the Barriers with ICT-enabled Industries and SMEs....................................................................11 Breaking the Barriers through a Thriving ICT Sector ...................................................................................15 IDC Essential Guidance .........................................................................................................................................18 Acknowledgements..................................................................................................................................................19
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Situation Overview
A Brief Look Back: The Emergence of Kenya in the ICT Map
Information and Communication Technologies (ICT) have assumed a highly strategic role in the development of the Kenyan economy in the current millennium. Between the years 2000 and 2012, the country's wider transport and communications sector, of which ICT is a part of, grew by a Compounded Annual Growth Rate (CAGR) of 7.7 percent, outperforming all other sectors of the national economy.1 IDC estimates that ICT spending in Kenya covering the domains of hardware, packaged software, and IT and telecommunication services has surged considerably over the past five years, growing from 8.9% of gross domestic product (GDP) in 2006 to an estimated 12.1% of GDP in 2013.2
Kenyan National Bureau of Statistics, Quarterly Economic Performance Release World Bank, GDP values in Current US$; IDC, 2014, Covers spending on hardware, packaged software, and IT and telecommunications services as per IDC taxonomy.
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FIGURE 1
Kenya's ICT Spending as a Percentage of GDP, 2006-2013
5
4
12.0%
11.0%
3
2
10.0%
9.0%
1
0
8.0%
7.0%
2006
2007
2008
2009
2010
2011
2012
2013
Calling the Kenyan experience an 'emerging technology revolution' would not be a gross exaggeration. The enactment of the Kenya Communications Act in 1998, which introduced competition in the mobile communications sector and liberalized the larger telecommunications market, was the critical catalyst that triggered the countrys ICT development. In 1999, prior to the issuance of the first two mobile licenses, there were only 15,000 mobile subscribers throughout the country. Effectively, less than one in a thousand Kenyan adults had mobile phone service.3 Market liberalization guided by effective regulation of the sector spurred on a cycle of greater consumer demand and increased competition among service providers which manifested itself through incremental network capacity and a decline in tariffs. An estimated US$4.24 billion was invested into mobile services between 2001 and 2012.4 The landing of four undersea fiber optic cables (TEAMs and SEACOM in 2009, EASSy in 2010 and Lion-2 in 2012) brought an additional 8.56 terabytes per second capacity to the country, resulting in faster connectivity rates.5 In addition, Internet and data services providers allocated another $80 million to infrastructure investments between 2005 and 2012. As a result, as of September 2013, there were 31.3 million mobile subscribers in Kenya, equating to a mobile penetration rate of 76.9 percent. Approximately 19.1 million Kenyans now have access to the Internet, equating to a penetration rate of 47.1 percent.6
Communications Commission of Kenya, Communications Statistics Report 2008 Communications Commission of Kenya, Quarterly Sector Statistical Reports from 2001 to 2012 5 http://www.bizrika.com/news-item/planned-undersea-cable-to-double-kenyas-bandwidth-capacity 6 Communications Commission of Kenya, Quarterly Sector Statistical Reports, September 2013
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13.0%
TABLE 1
Select Indicators of Kenya's Mobile and Internet Expansion, 2000 -2013
Key Indicators Mobile subscriptions (millions) Estimated Internet users (millions) Average mobile tariff per minute (KShs) Annual mobile investment (KShs, billions)* Annual data/internet investment (KShs, billions) Source: Kenyan Ministry of Information, Communications and Technology, Communications Commission of Kenya Note: * Includes investments in Telkom's fixed network after 2008;** As of September 2013; NA = not available.
NA NA NA NA NA 0.20 0.76 0.83 1.17 53.87 2.76 3.42 3.91 NA NA 11.85 19.17 23.66 28.92 38.67 44.60 21.22 29.44 40.26 27.13 34.59 33.83 NA NA NA NA NA 29.50 24.20 26.10 21.60 15.50 12.10 10.30 3.30 3.50 NA NA NA 0.20 0.40 1.00 1.05 2.77 2.87 3.04 3.65 7.83 12.54 14.03 19.10 0.11 0.59 0.90 1.60 2.55 4.61 6.48 9.30 12.93 17.36 20.12 25.28 29.70 31.30
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013**
While a liberal regulatory environment, greater market competition, and infrastructural investments created an environment conducive the growth of mobility and internet access in Kenya, various other factors have also greatly influenced the uptake of ICT in the country, including: Policy and legal framework as key government intervention. The government's policies and actions of recent years have helped the ICT sector thrive. Key interventions include the setting of lower mobile termination rates and the issuance of unified telecommunications licenses, among others. In 2006, the national government announced its Vision 2030 roadmap, a strategic blueprint for economic and social development covering the period 2008 to 2030 which positions ICT as a key development pillar. Various other official documents, from the Jubilee Government Manifesto, to the Connected Kenya 2017 ICT Master Plan continue on the same vein by placing great focus on leveraging ICT for national economic and social 4
development. The government itself has championed the implementation of innovative ICT ideas. Some novel government-backed schemes include the Kenya Open Data Initiative to boost transparency; the Shirikiana cloud enabled shared services initiative to pool common resources in the Public sector; the Huduma Kenya effort to expand the reach of government services; and the Tandaa grants to promote local digital content, among others. The mobile money revolution. ICT has had a transformative impact on Kenya's financial sector as evidenced by the continued growth of mobile money services in the country. Today, Kenya has among the most successful and innovative mobile money services in the world. As of 2013, 31 percent of Kenya`s GDP is now transacted through M-pesa mobile telephone banking by an active user base comprising 74 percent of the country's adult population.7 ICT incubation. Incubation has been another key driver, nurturing ICT innovation and creating an entrepreneurial mindset. In 2008, Ushahidi was born as one of the first ICT innovations in the country. Its success blazed a trail for the establishment of incubators like iHub, Strathmore University`s @iLabAfrica, Nailab, and m-lab. Through its ICT Incubation Program, the Kenya ICT Authority has also supported ICT incubation using a private-public partnership model to support startup companies become commercially successful. Increased local footprint of multinational ICT firms Due to a greater focus on the African continent, a number of multinational firms have set up shop in Kenya. In 2009, IBM opened its East African headquarters in Nairobi to serve the growing demand for IT services in the region (and recently expanded its presence by launching its first African research lab in the country).8 Seeing the opportunity and potential of the market, other MNCs followed suit including Google, Huawei, Nokia-Siemens, Samsung, Qualcomm, Microsoft and GE. Beyond their contributions in the area of job creation and remittance of requisite taxes, ICT vendors' efforts to create awareness about the importance of ICT via awareness campaigns and capacity building initiatives are helping to underscore the importance of ICT at a grassroots level.
FIGURE 2
Kenya ICT Spending, 2013 Actual and 2014-17 Forecast (in US$ Millions)
7,000
6,000
(US$ Millions)
2,000
1,000 0 2013 2014 2015 2016 2017
Software
Source: IDC, 2014
IT services
Hardware
Telecom services
Factors contributing to the ICT market's growth include the anticipated spending on technologies arising out of various infrastructure projects such as the Konza Techno City, the new terminal at Jomo Kenyatta International Airport, and the Lamu Port project. The construction of a fifth undersea cable that would double the amount of current bandwidth in the country is currently in progress9. The country is also currently extending and enhancing the redundancy of its National Optic Fibre Backbone Infrastructure (NOFBI) network in order to expand fiber capacity to all parts of the country.10 Recent regulations introduced, such as the Central Bank's mandate for banks to set up disaster recovery sites as a measure to improve security, will also contribute positively as will projects receiving support from international agencies, such as the World Bank-funded Integrated Financial Management Information System (IFMIS) or the USAID-sponsored enhancements in health systems.
improvement. As illustrated through the various global indices in Table 2 that benchmark national innovation, ease of doing business, national competitiveness, and ICT development, Kenya has attained a prominent position when viewed against other nations in Africa. However, further traction must be gained for the country to figure as the foremost technology hub on the continent and among the global leaders in ICT. And this is precisely the vision outlined by the Government of Kenya in its 2013-17 National ICT Master Plan is to boost Kenyas position to that of a regional ICT hub and a globally competitive digital economy.
TABLE 2
Kenyas Latest Rankings on Various Global Indices
Index Description of Index Global Rank E-Government Development Index This Index measures the willingness and capacity of national administrations to use ICT to deliver public services by assessing the scope and quality of online services, development status of telecommunication infrastructure, and inherent human capital. The Networked Readiness Index This Index measures the propensity for countries to exploit the opportunities offered by ICT. The index is comprised of three components: the ICT environment offered by a given country, the readiness of key stakeholders to use ICT, and the current usage of ICT. Global Innovation Index Global Competitiveness Index Knowledge Economy Index This Index provides a ranking of world economies innovation capabilities and results by utilizing metrics related to its innovation inputs and outputs. This Index provides an assessment of national competitiveness benchmarked against other countries worldwide. It measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity. This Index represents a countrys overall preparedness to compete in the Knowledge Economy. It is based on four pillars, namely the economic incentive and institutional regime, innovation and technological adoption, education and training, and ICT infrastructure. Ease of Doing Business Index This Index measures regulations directly affecting business within a country based indices such as dealing with starting a business, obtaining construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. ICT Development Index This Index measures the digital divide and compares ICT performance across countries. It is based on 11 ICT indicators, grouped in three clusters, namely ICT access, use, and skills. Source: World Economic Forum and INSEAD, Global Information Technology Report 2013, World Economic Forum Global Competitiveness Report 2013-14, United Nations E-Government Survey 2012, World Bank Knowledge for Development Program 2012, IFC and World Bank Doing Business report 2014, INSEAD, World Intellectual Property Organization and Cornell University, The Global Innovation Index Report 2013, International Telecommunication Union Measuring the Information Society 2013 116th (out of 157) 14th 129th (out of 189) 13th 111th (out of 146) 11th 99th (out of 142) 96th (out of 148) 10th 9th 92nd (out of 144) 8th 119th (out of 189) African Rank 7th
United Nations Department of Economic and Social Affairs, 2005 and 2012 Global E-Government Survey
pillar in Kenya include low automation levels of operational processes within the government, the existence of departmental silos, and disparate non-standardized data formats that make information difficult to access.
Key Priorities
ICT can serve as a cornerstone in the governments effort to improve public sector transparency and efficiency, cut bureaucratic red tape, and better engage with citizens. Given its key role in the economy, introducing such incremental efficiencies to the Kenyan government sector will not only positively impact its internal operations, but the lives of citizens and the productivity of the countrys private and non-commercial sector as well. This sentiment is affirmed by the Jubilee Government Manifesto: We understand that ICTs do not operate in a silo. The adoption of ICT across all our policy positions is critical if we are to meaningfully utilize ICT in the way we do business.13 The pillar e-government services aims to attain three key goals by the year 2017, namely: increasing public value of e-Government services with 50 percent of adults accessing at least one e-service; 80 percent of users indicating they are very satisfied with the quality of government electronic services; and improving the e-Government Development Index and Ease of Doing Business ranking internationally to below 90 and 100, respectively, by 2017. A three-pronged strategy to attain the aforementioned objectives is outlined in Table 3 below:
TABLE 3
Strategic Aims for Streamlining Government Services
Strategic Aims Simplify and automate integrated end-to-end e-Government processes. Detailed Actions Develop a one-stop non-stop service model, re-engineering required processes, leading to the creation of citizen, business, and investor portals; End-to-end automation of three widely-used services, the universal single registration system, company registry system, and national land information management system and associated Huduma services Leverage e-Government services to help boost growth of the private sector Promote e-Government as the service channel of choice Create a pro-business environment and boost the growth of the private sector, especially the ICT industry, through partnerships in innovative projects and seamless e-Government services Improve the effective delivery of Government services by adopting IT enabled services (ITES) customer support perspective to support e-service delivery
Source: ICT Authority Kenya, ICT Master Plan Taskforce Report, 2014
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Brynjolfsson, Erik. "ICT, innovation and the e-economy" European Investment Bank Papers, Volume 16 Number 2 (2011) 68. http://www.eib.org/attachments/efs/eibpapers/eibpapers_2011_v16_n02_en.pdf
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FIGURE 3
Inter-quartile Range in Gross Profit Margin in US Industries, 1962-2005
Kenyan SMEs have demonstrated that they have the ability to adopt various technologies that have a compelling cost-to-value proposition. For instance, today more than 95 percent of SMEs in the country already own mobile phones.16. While SMEs may use ICT for communication, social networking and general information acquisition, there seems to be lack of awareness of the range of opportunities that ICT offers. At the economic base of the pyramid, for instance, few SMEs are currently exploiting their mobile phones full potential by using applications (with the exception of M-PESA). This is due to a lack of awareness, confusion about the difference between applications, phone functionalities, and Internet, and challenges in the use of applications.17 Greater ICT adoption by SMEs across a wide range of industry sectors can support the effort to economically empower these organizations by opening a myriad of opportunities, such as gaining wider access to local, regional and global markets, improving communications with prospects and customers, allowing for better competitive positioning, streamlining logistics, improving knowledge on production of quality products, and reducing market research and networking costs, among others.
Key Priorities
The aim of boosting ICT utilization levels across a number of key sectors, and for SMEs in particular, will be supportive of the Vision 2030 goal to develop Kenya into a regional technology hub, and foster a domestic ICT sector with a larger contribution to GDP. The pillar ICT as a Driver of Industry looks to stimulate evolution in the sectors via several flagstone projects presented in Table 4 on the succeeding page:
Kiveu, M. and Ofafa, G. (2013). Enhancing market access in Kenyan SMEs using ICT. Global Business and Economics Research Journal, 2(9): 29-46. 17 World Bank working paper, Mobile usage at the base of the pyramid in Kenya , http://documents.worldbank.org/curated/en/2012/12/18806923/mobile-usage-base-pyramid-kenya
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TABLE 4
Priority Sectors and Flagship Projects for ICT-enabled Industries
Sector Health Flagship Projects An integrated national health system that will integrate the various systems that are developed and implemented in the health sector, including the physician management system, drug supply chain system, and hospital management system. A central health data repository shared by all health institutions, as well as a health e-portal that will provide services and summary statistics to relevant and authorized stakeholders. Education The on-going school laptop project to provide teaching and learning tools for pupils entering standard one in primary schools beginning in 2014. It is envisioned that this project must include a review of the existing school curricula, conversion of courseware into digital form, ICT training for teachers, and broadband internet connectivity to the schools. Automation of academic and administrative processes at all levels of education in order to have all education information online. This will include an education eportal that provides services and summary statistics to the public. Security An integrated security, intelligence and surveillance system project will be implemented. Central to the effort will be a personal information data hub, a crossagency database and master data platform, data warehouse, crime analytics, and profiling platform, as well as broadband connectivity in police stations. The system will provide law enforcement with real-time data on incidences and suspects. Agriculture A National Agriculture Commodity Exchange will be implemented to facilitate commodities trading by providing reliable, timely and accurate marketing information and intelligence to farmers and other stakeholders via mobile phones and other end-user devices and enable farmers sell produce via the exchange. An electronic animal monitoring system that is able to track livestock ownership for security reasons and feeding practices will be implemented. This will provide end-to-end data of farm animal produce. Financial Services A national payment gateway project will be implemented to facilitate secure online payments by supporting multiple financial institutions to carry out electronic transactions and simplify the processing of payments. Trade, Transport, and Logistics A Single window system to facilitate cross border trade through the submission of regulatory documents such as custom declarations, applications for import/export permits, certificates of origin, trading invoices, etc on a single entry screen. National physical addressing system will provide street addressing, numbering and coding of all properties to facilitate logistics-based economic activities. Transport integrated management system (TIMS), which includes the automation of key processes in the transport industry, including driver testing, PSV/TLB licensing, traffic violations and prosecutions, motor vehicle inspection, etc. Source: ICT Authority Kenya, ICT Master Plan Taskforce Report, 2014
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Office of the Government Chief Information Officer, Hong Kong Special Administrative Region
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A recent study focusing on the Internet Economy by McKinsey Global Institute rates Kenya as a leader in Africa along with Senegal in terms of the relative economic contribution of the Internet as measured by its iGDP (or the Internets relative contribution to the overall economy as a share of total GDP). It totals all the activities linked to the creation and use of Internet networks and services in four major categories: private consumption, public expenditure, private investment, and trade balance. The report notes Kenyas iGDP is dominated by private consumption, while the largest component of Moroccos iGDP is a trade surplus resulting from its business process outsourcing (BPO) industry 20, highlighting the need for Kenya to grow a more diverse ICT sector. The opportunity for Kenya lies both in ICT related innovations that create a new market where one did not previously exist, as well as in leveraging ICT solutions to deliver productivity and efficiency enhancements to all sectors of the economy.
19OECD 20
Internet Economy Outlook, 2012 McKinsey Global Institute, Lions go digital: The Internets transformative potential in Africa , 2013 http://www.mckinsey.com/insights/high_tech_telecoms_internet/lions_go_digital_the_internets_transformative _potential_in_africa
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Key Priorities
The following outcomes are expected by 2017 within this strategic pillar: the creation of at least 180 thousand jobs alongside the establishment of 55 ICT entities, at least 10 successfully commercialized application innovations and domestic retention of at least 60 percent of revenues raised from ICT intellectual property, an increase in the countrys Networked Readiness Index and Global Innovation Index ranking by 15 points, the classification of ICT as an independent sector by 2016, an additional 2 percent value-added contribution to GDP by 2017, and wide recognition of Kenya as a regional ICT Hub. A robust action plan is needed to transform the vision of a globally competitive domestic ICT industry into reality. The objectives and actions outlined to achieve this are presented in Table 5 below:
TABLE 5
Strategic Aims for a Thriving ICT Sector
Strategic Aims Work with the relevant State Departments to promote ICT innovations and their commercialization Grow the number of IT Enabled services (ITES) companies and the range of services provided Detailed Actions Establish innovation centers of excellence (CoEs) and science and technology (S&T) parks for R&D for developing ICT applications and services. Promote technology innovation through Government Create programs to support commercialization of innovations Promote commercialization of Government ICT services. Promote Intellectual Property Rights (IPR) to safeguard innovations Promote outsourcing of Government ICT operations Encourage local firms to outsource Develop the ITES industry to go international Integrate ITES into all national policies and develop industry ITES standards to create depth in understanding of ITES to ensure growth of the industry Grow and monitor the local ICT industry Develop standards and guidelines for software and hardware manufacturing that are internationally recognized and accepted as best practices Support Kenyan ICT companies through local procurement and export promotion frameworks Form effective partnerships to create an excellent growth environment for local ICT companies. Provide incentives to promote digital local content development Categorize ICT as a stand-alone sector with its own classification standards Facilitate data collection on ICT as an economic sector by relevant Government departments and agencies Source: ICT Authority Kenya, ICT Master Plan Taskforce Report, 2014
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South Korean Ministry of Science, ICT, and Future Planning, 2013 Annual Report on the Promotion of the Korean ICT Industry
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Acknowledgements
This report was co-authored by IDC analysts Mukesh Chulani, Jebin George, and Leonard Kore. In addition, it would not have been possible to produce the document without the detailed information and valuable perspectives shared by Onesmus Mbogo, Esther Muchiri, Vincent Njoroge, and Jeremiah Okello. In putting this white paper together, IDC benefited greatly from discussions with officials at the Kenya ICT Authority, specifically Victor Kyalo and Eunice Kariuki, as well as from interviews with key leaders from business and academia, including John Waibochi, Aquinas Wasike, and Dr. Kamau Gachigi.
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