Economic Update

Government plans to establish Kenya as the “silicon savannah” received a boost with the awarding of a $390m contract to build key infrastructure for Konza Technopolis, a master-planned property development targeting Kenya’s ICT sector.

In early July the government contracted Italian construction firm ICM to build roads, water and sewerage systems for the $14.5bn smart city project, which is under way 60 km south of Nairobi.

The KSh40bn ($390m) deal covers engineering, procurement, construction and financing. Work has already begun on the sewer system and access road, as well as internet, power and water infrastructure, according to Victor Kyalo, principal secretary at the Ministry of ICT. 

Construction broke ground last November on the city’s first building, an eight-storey unit of the Konza Complex that will house early investors along with the city’s administrative functions. It is scheduled to finish by the end of 2018.

Government and private players to finance $6bn Konza project

The construction developments are part of the Konza project’s first phase, a 400-acre development being readied for 2022 that officials project will cost over KSh600bn ($5.8bn). The government has committed to financing 10% of this to develop core infrastructure, with the rest to be funded by the private sector. Cumulative state investment as of end-2016 reached some KSh3bn ($28.9m).

When completed, Konza – which also includes plans for schools and universities, housing, offices and room for light manufacturing – will have the capacity to provide space for up to 230,000 people, generating 17,000 direct and 68,000 indirect jobs.

In July the Konza Technopolis Development Authority (KoDTA), which is responsible for the project, opened invitations to investors to bid for more than 150 parcels of land across the first phase’s 400 acres. Meanwhile, John Tanui, CEO of KoDTA, told local media earlier this year that he expected up to 10 lots to be allocated in September. Tanui said Konza had received more than 400 expressions of interest over the past year from investors looking to set up a base there, including seven local universities.          

Execution of the project faces delays

The project has not been without its challenges, however. Talking to local media in May, Bitange Ndemo, a professor at the University of Nairobi’s School of Business who helped design the project in 2009, said some incentives for the city had taken too long to receive government approval and that the lack of a coordinating committee to guide Konza’s development had contributed to delays. 

Funding is another issue: Ndemo added that to keep the project on track, the government would need to invest five times more per annum than the KSh1.1bn ($10.6m) it has for the last three years.

Economic strategy prioritises ICT development

Despite these perceived problems, the project’s forward momentum underscores the emphasis the government is putting on developing its ICT sector.

The country’s guiding economic strategy, Kenya Vision 2030, prioritises the development of Kenya’s business process outsourcing industry, and ICT more generally, in the hopes of supporting innovation, research and employment.

The targets in Vision 2030 – which include Konza as a flagship project – rely in part on the rollout of sector-specific initiatives, including the Ministry of Information, Communications and Technology’s Medium-Term Plan 2013-17 and the National Broadband Strategy (NBS), which targets universal internet access.

There is some way to go before those objectives are realised. Although the ICT sector grew by 4.7% in 2015, its contribution to GDP sat below 1%, according to the Kenya National Bureau of Statistics, at KSh58.7bn ($572.9m).

However, there has been some concrete progress in boosting activity beyond the start of works on Konza. Broadband penetration has increased significantly, for example, from 6.3% of the population in 2013, to 28.7% by year-end 2016. The figure rose again to 30.3% in March, with a 2017 target of 35% outlined under the NBS.

While IT development remains at a nascent stage, the country has also managed to develop a critical mass of software and programming firms, attracting both developers and early-stage funders.

Kenya hosts a range of incubators and accelerators such as iHub and 88mph in Nairobi, as well as venture capital and angel investors. Its start-up scene is one of the best-funded in Africa – alongside Nigeria’s – with press reports suggesting the country accounted for 17% of venture capital-backed start-ups on the continent and benefitted from $4.7m in venture capital funding as of March 2015.