Reliance on mobile broadband wanes as underwater cables connect the country

An aggressive approach to building infrastructure has yielded significant benefits for Kenya, bolstered by growth in mobile money platforms, which has helped encourage start-ups and expand digital value-added services. The country’s Connected Kenya 2017 master plan for ICT and broadband development clarifies its step-by-step vision for growth and its needs for foreign investment along the way.

Statistics 

According to consultancy McKinsey, the share of Kenya’s economy that was generated as a result of internet usage was calculated at 2.9%, second only to Senegal’s 3.3% in the sub-Saharan region, and comparable to France and Germany. Kenya’s online migration has been overwhelmingly thanks to mobile phones, and 43% of Kenyans reported going online on a daily basis. The internet penetration rate was 53.3% as of March 2014, according to the Communications Authority of Kenya (CA), the telecoms sector regulator.

According to figures listed in the CA’s “Quarterly Sector Statistics Report” for the third quarter of 2013, Kenya registered a major drop in internet subscriptions – 760,971 in the three-month period. This decline does not necessarily mean fewer people were using the internet in Kenya, but rather reflects a regulator-mandated drive by local mobile telephony providers to deactivate unregistered SIM cards. That process began in 2013, as part of a broader effort to better track mobile phones and their usage.

Mobile phones are the chief access point to the internet for most Kenyans, and their widespread use in the country is a textbook case of telecoms as a leapfrog technology. That reliance on mobiles is, however, expected to fall in the future. Four international subsea cables currently connect to the domestic grid – The East African Marine System, Seacom, the Eastern Africa Submarine Cable System and the Lower Indian Ocean Network 2 – and these are complemented by the government’s National Optic Fibre Backbone Infrastructure on land. As a result of the additional capacity, broadband prices have plummeted in recent years. Kenya now has capacity to spare, and is focused on building domestic networks so consumers and businesses can tap into it. Whilst the government’s broadband strategy is to ensure access in every home, commercial applications are expected to provide a meaningful boost as well. One example is the country’s potential for business-process outsourcing (BPO) operations, an area the government has sought to expand for years given its potential for job creation.

Early Adopters

While there is plenty that needs to be done in education and vocational training to further Kenya’s ambitions to become a centre for research and development (R&D), the labour force is off to a good start. “We have a robust private sector and Kenyans are entrepreneurial,” said George Kosimbei, a professor at Kenyatta University and the coordinator of its Chandaria Business Innovation and Incubation Centre. “We have a tradition of looking for private sector solutions rather than relying on the government.” One of the more famous examples is that of Evans Wadongo, whose eyesight suffered from doing his homework as a child under a kerosene lamp in his rural home. After graduating from the Jomo Kenyatta University of Agriculture and Technology, he designed a solar-powered lamp, and via development funding had managed to distribute it for free to at least 10,000 families by 2010.

Research & Development 

A number of multinational technology companies have chosen Kenya as a location for establishing Africa-focused R&D laboratories. Examples include IBM, which established a presence in 2013 at the Catholic University of Eastern Africa, on the outskirts of Nairobi in the suburb of Karen. Another new entry is Phillips, which announced plans in March 2014 to set up an Africa Innovation Hub in Nairobi. Facilities like IBM’s are searching for projects they can sponsor that have the potential to make a large impact. The lab has identified theme areas, such as education, financial inclusion or utilities, and within these clusters aims to find one or two start-ups to work with that have an idea in need of support and expertise. Philips’ plan is to relocate existing and relevant-to-Africa research efforts to its Nairobi lab, including projects focused on smokeless cooking appliances, affordable solar-powered products, respiratory monitors for children with pneumonia and community care services. Unsurprisingly, Kenya – the largest economy in East Africa – plays host to a wide range of multinational tech firms as well, including Microsoft and Cisco Systems, which use the country as a base. Microsoft has made Kenya an Africa headquarters, for example.

Sector Organisation

Government oversight of ICT policy and planning was consolidated in 2013 under the ICT Authority, a new agency created for the purpose. The ICT Authority took over responsibilities from the Kenya ICT Board, the Directorate of E-Government, and the Government Information and Technology Services. The authority will advise the government, implement state policies, enforce ICT standards in government and supervise public electronic services, as well as co-ordinate the sector and market Kenya as a local and international ICT hub. A major goal of creating the ICT Authority was to reduce overlapping roles and responsibilities in the public sector. The agency is a parastatal under the organisational umbrella of the Ministry of ICT. The ICT minister, Fred Matiangi, was still in the process of staffing the ICT Authority in late 2013 and early 2014. He had appointed Edwin Ochieng Yinda as chairman of the board of directors in December 2013 and added six board members in January 2014.

ICT Master Plan

Currently, the guiding force behind technology sector planning is the country’s ICT master plan, which is called Connected Kenya 2017. This is Kenya’s broad statement of intent for its technology sector to 2017, serving as an overall framework to guide future programmes and initiatives. The main goals of Connected Kenya 2017 are to ensure access to the internet for all Kenyans and Kenyan institutions and organisations; for Kenya to emerge as an ICT hub for Africa; to make available as many public services as possible over the internet; and to nurture a transition to a knowledge-based society. The plan also aims to boost ICT’s GDP contribution to 8% and create 180,000 jobs.

The goal of becoming an ICT hub seems particularly attainable. Kenya’s technology sector faces many of the same challenges as those in most other developing countries, but it has also already achieved some significant success, as evidenced by the decisions of firms such as Philips and IBM to locate research facilities in the country. The plan groups initiatives to achieve these goals into three key pillars: boosting ICT’s role in providing public services, facilitating private-sector development of ICT businesses and the use of technologies in other areas of the economy.

The ICT Authority is the main implementing agency for Connected Kenya, and it expects an annual review of the master plan will likely result in a slight change to adjust to new realities, but it has already highlighted funding as the main execution risk. According to the report, “Government ICT projects are not funded enough for the duration of their useful life to keep them current and relevant and so their intended objectives are not effectively met.”

First Pillar 

Amongst the plan’s three pillars, the plan addresses government operations first. The key goal is to ensure online access to public services for at least 90% of Kenyans. Three areas of service have been targeted as top priorities: health, education and agriculture. Plans for health care include establishing a health-information management system, strategies for telemedicine and controlling counterfeit drugs, and developing mobile applications to share medical information. In agriculture, the aim is for a sector of connected farmers using social networking and other collaborative tools to mitigate climate risk, improve pricing transparency and share best practices. The plan also highlights youth as an area for attention, including making connectivity affordable for youth groups and service organisations. For education, the plan aims to connect academic centres to online resources and boost online education for adults. Kenya’s primary-school population is about 8.5m, and currently around 5% of public schools have computers, according to media reports. The implementation phase has highlighted additional challenges relevant for Kenya – rural electricity access is one, and teachers also, in many cases, lack the necessary computer literacy and skills.

Ancillary efforts that dovetail with the plan’s goals are ongoing. One of the most visible examples in early 2014 was Kenya’s One Laptop Per Child programme, a government effort to spread technology take-up via schools. However, the Public Procurement Administrative Review Board recently cancelled a tender won by India’s Olive Technology to supply 1.3m laptops to the Ministry of Education for KSh24.6BN ($280m). The two other finalists, China’s Haier Electrical Appliances Corporation and HP of the US, protested the outcome after it was announced, and the review agreed with their complaints. It said that Olive failed to meet specific qualifications for the tender, which required bidders to be original equipment manufacturers with at least KSh8bn ($91.2m) in annual turnover in the three years previous. Delivery of the first 400,000 laptops was to have been made at the end of March 2014. As of autumn 2014, Olive had appealed the revocation of the tender and the court case was still ongoing.

Second Pillar 

The second pillar of the master plan focuses on developing ICT businesses in the private sector. The headline goals include growing the private ICT sector to a value of $2bn. The aim is to have 500 new companies, 20 new innovations that government can help to spread internationally and 50,000 new jobs. Government support includes developing science-and-technology parks and other centres for training and innovation; creating a set of standards for hardware and software development to guide local developers; recognising and rewarding innovations; creating a system of mentors; and promoting intellectual property (IP) rights. IP protections are covered in six areas of Kenyan law: the constitution, the Industrial Property Act, the Seeds and Plant Varieties Act, the Trade Marks Act, the Copyright Act and the Anti-Counterfeiting Act.

Third Pillar 

The third pillar of the Connected Kenya plan contains sector-specific prescriptions for increasing ICT usage in various industries. For financial services, for example, Kenya plans a law to govern electronic transactions, with the aim of bringing certainty and introducing standards that will encourage uptake. ICT is seen being used by tourists in planning and logistics for their vacations, to automate functions in the manufacturing value chain, and to improve transport and logistics through online trading portals and trade information-management systems. Regulatory reforms are a feature of some of Kenya’s other government plans for ICT, including its National Broadband Strategy (see analysis).

BPO and IT-enabled services (ITES) are two areas in which the government sees significant potential for private-sector growth. In late 2013 the arrival of ADEC Group of the Philippines was hailed by local press as a significant step in building BPO capacity. ADEC, which operates BPO centres worldwide, signed a lease with the Export Processing Zones Authority to open an office that is expected to serve African clients. “We chose Kenya as the next country for our expansion plans due to its highly skilled workforce, stable infrastructure and need for sustainable growth – which is crucial to creating a healthier future for the region,” said ADEC group CEO James Donovan.

Broadband 

Key infrastructure for BPO includes broadband, and the government’s aggressive approach to increasing gateway capacity appears to be paying off here, as there is now sufficient capacity to lure companies like ADEC. While work needs to be done to build broadband capacity domestically, including last-mile connections, for corporate customers high-speed access is available. One of the four cables now connecting the country to the global network came via a public-private partnership (PPP) initiated by the Kenyan government, and for foreign investors, that type of vehicle for infrastructure build-up is likely to be used again to continue developing capacity. The East African Marine System PPP structure is one that officials hope can be replicated for other projects. The government first sought a private sector partner in Etisalat and initially took on 85% of the cost and ownership, then it privatised the bulk of its share, reducing its stake to 20%. Buyers included telecoms providers, and owning a stake in the project gave them the ability to access capacity from the cable.

On a smaller scale, local entrepreneurs have often focused on innovations such as mobile phone applications. As consumers with smartphones remain a limited market, the focus is generally on SIM Application Toolkit (STK) apps, which can be housed on a SIM card. Locating apps on a SIM card means they can be used on basic handsets, which lack storage and require-menu-based functionality.

Incubation Facilities

Domestic incubation facilities are generally found at universities, and in most cases are young enterprises themselves, with just a small number companies having graduated through the process. Financing models are varied – ranging from a reliance on large corporate sponsors, which sometimes tie that money to a specific research goal, to ones following independent or broader mandates and seeking out funding in smaller chunks from a longer list of donors.

Incubation centres include the Chandaria Business Innovation and Incubation Centre, on the campus of Kenyatta University; Nailab; iBizAfrica, on the campus of Strathmore University; and M:Lab East Africa. A next step in the maturation of the sector, according to Aly-Khan Satchu, CEO of Rich Management, would be investment from abroad. “We’re seeing a lot more innovation, and a Kenyan company attracting an international investor would bring some more attention.”

The biggest government incubation project is Konza Techno City, dubbed the Silicon Savannah. The development site is located around 60 km from Nairobi on the road to Mombasa, Kenya’s second city and home to its major port. Konza is envisioned as a large mixed-use development that focuses predominantly on housing matured technology companies, as well as an incubator, space for offices and laboratories, and a university. The construction of Konza is expected to help promote both the usage and acquisition of ICT services, and it is anticipated that the project will be a major economic driver.

Konza is expected to be completed by 2030 under the auspices of the purpose-created Konza Technopolis Development Authority, but phase one will see 400 ha of development sufficient to house 30,000 residents. The government has allocated KSh793m ($9m) for the project across multiple agencies, according to Matiangi, although it has run into procurement problems that have caused delays.

Outlook 

The challenges facing Kenya as it works to adopt new technologies are common to countries in the development stages, including insufficient infrastructure and the task of managing costs so that more of a company’s or government’s technology budget can be spent on innovation, rather than keeping up with modern hardware requirements. Where Kenya has an advantage, however, is the accomplishments that it has seen to date, such as the success of mobile money service M-Pesa, its international broadband connectivity and the nurturing of a start-up culture that has drawn praise worldwide for creating a relatively attractive labour pool for technology companies.

The government’s determination to extend broadband access to all Kenyans is likely to reinforce the burgeoning innovation culture that has taken root and provides for a promising medium-term outlook.

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The Report: Kenya 2014

Telecoms & IT chapter from The Report: Kenya 2014

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