Kenya’s IT sector has risen to become an important contributor to economic growth, as the expansion of mobile broadband, WiMAX and fibre optic networks has driven internet usage and subscribership in recent years. Rising private sector investment in new IT infrastructure will support the government’s efforts to achieve universal internet access, as highlighted by both the Kenya Vision 2030 economic development strategy and the corresponding National Broadband Strategy (NBS). Increasing internet usage has also driven growth in both the e-commerce and start-up segments, with Nairobi standing as East Africa’s most vibrant technology hub. Although access gaps remain and high-speed internet availability is largely constrained to major urban centres, the combined efforts of the public and private sector should see Kenya meet its ICT goals by 2030.
Sector Oversight
ICT development in Kenya is overseen by the Ministry of Information, Communications and Technology (MoICT), which was created in 2004 and tasked with formulating, administering, managing and developing the country’s information, broadcasting and communications policy. It regulates the information and communication sectors, and oversees the Department of Information Services and the Department of Public Communications. The Communications Authority of Kenya (CA), a parastatal agency operating under the MoICT umbrella, also plays an important role in national IT development. The authority is responsible for spectrum allocation and enabling development of new 3G and 4G LTE networks, which are driving internet growth in the country.
Furthermore, the MoICT oversees the ICT Authority, which was created in 2013. An amalgamation of the former Kenya ICT Board, Department of e-Government and Government Information Technology Services, the authority works to coordinate the sector and promote Kenya as both an international and regional ICT centre. The authority is also tasked with rationalising and streamlining all government ICT institutions.
Strategy & Implementation
The MoICT is guided by Kenya Vision 2030, which emphasises development of Kenya’s business process outsourcing (BPO) industry and ICT as a method to improve domestic security, and the NBS, a sector-specific strategy targeting universal internet access as a driver of macroeconomic growth.
Although the ICT sector grew 4.7% in 2015, it’s contribution to GDP sat below 1%, according to the Kenya National Bureau of Statistics (KNBS), at KSh58.7bn ($572.9m). Officially launched in July 2013, the NBS Medium Term Plan 2013-17 is a cornerstone policy of the broader Kenya Vision 2030. The plan aimed to provide quality broadband services to all Kenyan citizens by 2017. Under the strategy, quality broadband is defined as 24/7 connectivity delivering minimum speeds of 5 Mbps to individuals, homes and businesses, including high-speed access to voice, data, video and online applications. More specifically, the government aimed to achieve broadband speeds of 40 Mbps in urban areas by 2017, rising to 2 Gbps by 2030, and rural broadband speeds of 5 Mbps by 2017, increasing to 500 Mbps by 2030. The plan also sought household broadband penetration of 35% by 2017 – up from 6.3% in 2013 – 100% penetration in schools and health care facilities, and to have 70% of internet service providers sharing infrastructure.
In order to achieve its targets, the NBS focuses on five pillars critical to successful implementation: capacity building; development of supportive policies and regulatory frameworks; improving financing and investment; developing infrastructure, with an emphasis on connectivity and devices; and development of content, applications and innovation.
A number of flagship projects under the NBS include the construction of a 30,000-km national fibre optic backbone, establishing ICT incubators in all public universities and launching a series of ICT training programmes and national data centres to better improve digital literacy and the development of local content.
Government Support
The government envisions its role in broadband development as focusing on supply-side promotion of broadband services, as well as providing a supportive and enabling environment to stimulate interest in public-private partnership (PPP) models in order to efficiently deploy infrastructure across the country. As part of its strategy to achieve universal access, the government has increasingly utilised its Universal Service Fund (USF). Launched in 2009, the fund collects taxes and levies on telecoms operators, in addition to public funding and international grants, in order to expand broadband services nationwide. “ICT services are very widespread. In terms of in 2G mobile access, we have a 94.4% coverage rate. By the end of 2016 we expect to have 100% coverage, and we are using the USF to accomplish this,” Joseph Mucheru, cabinet secretary at the MoICT, told OBG.
The MoICT announced in late June 2016 that the government plans to install infrastructure enabling free Wi-Fi services across all 290 of the country’s constituencies, to be developed in partnership with members of the National Assembly. The Digital Literacy Programme, which aims to connect over 23,000 K-12 schools to ICT infrastructure, including laptops and broadband, is another critical initiative for the NBS. The country-wide programme began on September 30, 2016 after trials in select schools proved successful in March and June of that year.
Benefits
The rationale behind these initiatives is clear: in a June 2015 report on broadband connectivity in Africa, the World Economic Forum (WEF) reported that a 10% increase in broadband penetration in low-and middle-income countries can result in a 1.38% increase in economic growth. It noted that internet speeds are also important, with a WEF network readiness index showing that countries in the top 10% of preparation and use of broadband technology have witnessed twice the level of improvement since 2012 as those in the bottom 10%. “The general population has become more aware of the benefits of ICT services integration and how they can impact the localised economy,” Francis Wangusi, director-general of the CA, told OBG. Citing good legislative practices and the establishment of the Kenya Internet Exchange point in 2002 – which acts as a local hub for traffic between broadband service providers and content providers – the WEF writes that Kenyan policies had a direct and dramatic impact on internet access, which rose from 1% in 2002 to 39% in 2014. The exchange also significantly reduces operating costs and retail prices, and supports local content and employment.
Recent Growth
The KNBS reports that internet subscriptions increased significantly in 2015, jumping by 45.7% from 16.4m in 2014 to reach 23.9m. This had a noticeable impact on internet and broadband penetration, which rose from 38.3% and 9.9%, respectively, in 2014 to 54.2% and 16.4% in 2015.
Significant growth also continued in 2016, and the CA reports that Kenya had 26.6m internet subscriptions at the end of the year for an estimated 39.6m users. In keeping with broader trends, mobile data continued to comprise the largest share of subscriptions, at 99% of the total. As a result of this sustained growth, the total number of mobile data subscribers rose from 23.8m users at the end of 2015 to reach 26.5m in the final quarter of 2016, an 11.5% increase.
Other forms of internet also recorded increases in the final three months of 2016, according to the CA. Fixed-wireless subscriptions increased year-on-year (y-o-y) by 52.4% to record 29,724 subscriptions, and satellite subscriptions increased by 19.4% y-o-y to 584 in total. However, fixed fibre optic data subscriptions fell 65% y-o-y and stood at 39,255.
The CA reports that this brought total internet penetration to 89.7% by December 2016. The number of broadband subscriptions simultaneously rose from 7.2m at the end of 2015 to 12.7m at end-2016, reaching a penetration rate of 28.7%. Importantly, internet speeds have also been improving, and KNBS reports that speeds for computer modems and transmission carriers increased by 66.9% to 20,293 bits per second per capita, largely as a result of growth in the fibre optic segment. The CA also reported that the amount of international internet bandwidth in the country has been on the rise, growing from 1.55m Mbps in October-December 2015 to 2m Mbps in the same period of 2016. The surge in demand for bandwidth has been primarily driven by the increase in popularity of e-commerce in Kenya, in addition to the education, health and agricultural sectors, which have benefitted from IT services and innovation.
Data Dominance
Much of Kenya’s recent internet growth has been driven by deployment of new next-generation networks, with Kenya’s big three mobile operators — Safaricom, Airtel Kenya and Telkom Kenya (operating under the Orange brand) – reporting that substantial data demand is outpacing growth in the traditional voice and SMS segments.
Safaricom, the largest provider in the country, reports that its mobile data revenues jumped by 40.8% in FY 2013/14 to hit KSh9.3bn ($90.7m) and leaped again, by 59.2%, in FY 2014/15 to reach KSh14.8bn ($144.4m). Although the cumulative voice and messaging segments continue to represent the most significant income stream for telecoms operators, the gap between messaging and data revenues has narrowed rapidly in recent years, while data revenue growth easily outpaces voice revenue growth. Safaricom’s messaging revenues rose by 15.1% in FY 2014/15 to hit KSh15.7bn ($153.2m), a figure just slightly ahead of data revenues, while voice revenues rose by 3.6% in FY 2014/15 to end the year at KSh87.4bn ($852.8m). “From a competitive perspective, the market is very alive. Customers tend look at the bouquet of services – data, voice, SMS – and the price of the bouquet,” Stephen Chege, director of corporate affairs at Safaricom, told OBG.
This general trend continued during FY 2015/16, with Safaricom reporting that voice revenues rose by 3.9% to hit KSh90.8bn ($885.9m), while messaging revenues rose by 10.5% to KSh17.3bn ($168.8m). For the first time in the company’s history, data revenues were substantially higher than messaging revenues, rising by 40.8% to record KSh21.2bn ($206.8m).
Start-Ups
Kenya is seeing an increasing number of firms looking to provide services on the back of new infrastructure. While IT development is still in a nascent stage, the country has managed to attract a critical mass of developers and early-stage funders, earning the nickname Silicon Savannah. The boom is perhaps most noticeable, at least in comparison to other African markets, in the country’s financing landscape. Kenya hosts a range of incubators and accelerators such as iHub and 88mph in Nairobi, as well as venture capital funds and angel investors. Its start-up scene is one of the best-funded in Africa – alongside Nigeria – with international 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.
Start-ups are also emerging outside of Nairobi. In the township of Baringo, located in the lower Rift Valley, local entrepreneurs developed Kenya’s first antivirus software programme, Bunifu. In Juja, four local start-ups are being incubated at the Nairobi Industrial and Technology Park, which was launched by the Jomo Kenyatta University of Agriculture and Technology in partnership with a number of private sector participants. Hardware firm Taifa Laptops, which has already produced over 4000 locally assembled laptops, is one such company.
Konza Techno City
The country’s Silicon Savannah moniker may be significantly enhanced by the completion of the planned Konza Techno City – a state-backed development. Located roughly 60 km south of the capital and spanning an area of approximately 5000 ha, Konza City is envisioned to be a mixed-use, high-density, pedestrian-friendly city, which will emphasise the development of four critical industries: education, life sciences, telecommunications and, most significantly, BPO. The new city, if successful, is forecast to create over 20,000 direct and indirect jobs at the end of its first phase in 2018, eventually contributing 2% of GDP.
In January 2016 Joseph Mucheru, cabinet secretary at the MoICT, announced the government was planning to fast-track development at Konza City. In the FY 2016/17 budget statement, the government reported that significant progress has been made on the project’s first phase, which will create space for 5000 new residents, including approval of a local physical development plan and construction of access roads in the surrounding area. The government reports that the first phase will be completed by the end of FY 2018/19.
Outlook
Kenya’s IT sector is set to play a more significant role over the coming years, driven primarily by surging mobile data uptake, a burgeoning amount of start-ups, the BPO industry and growth in e-commerce. Supportive government policies have already driven growth in both internet usage and broadband coverage. Although access gaps persist, significant growth in investment and a rapidly expanding population of tech-savvy Kenyans point to positive trends in 2017.
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