WHITE PAPER

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

Sponsored By:
0

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

Copyright Notice: This IDC research document was published as part of a continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC services. Copyright 2014. Reproduction is forbidden unless authorized. All rights reserved.

In this White Paper

This IDC white paper, developed with the sponsorship of the ICT Authority of Kenya for its Connected Kenya event, describes Kenyas emergence in the field of ICT and its plans for a future where technology plays a more central role in the nations socio-economic development. It discusses the context and key drivers behind the surge in Kenyas adoption of technology, the countrys current ICT landscape, and relative ranking vis--vis other countries within key international benchmarking studies relevant to the domain. The report further evaluates how ICT can potentially make a difference in the future of Kenya across three areas: electronic government services, ICT-empowered industries and businesses, and the ICT sector itself, prior to a discussion of IDCs essential guidance.

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.
1 2

FIGURE 1
Kenya's ICT Spending as a Percentage of GDP, 2006-2013

ICT Spending (In US$ Billions)

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

Source: IDC, World Bank, 2014

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
3 4

ICT Spend to GDP Ratio (In %)

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.

Kenya's Current ICT Landscape

In 2013, the ICT market in Kenya reached a value of US$5.16 billion, of which telecommunication services accounted for 71.9 percent, hardware made up 22.3 percent, and IT services and software represented 3.0 percent and 2.8 percent, respectively. Spending is expected to continue growing over the forecast period to reach a value of US$5.86 billion in 2017. Albeit coming from relatively small bases, growth will be boosted by strong IT services (17.2 percent CAGR) and software (16.1 percent CAGR) spending, while also seeing positive momentum from the much larger markets of hardware (3.7 percent CAGR) and telecommunication services (1.7 percent CAGR).
http://www.gsma.com/mobilefordevelopment/mmu-releases-infographic-on-the-kenyan-experience-withmobile-money 8 http://www-03.ibm.com/press/us/en/pressrelease/38568.wss
7

FIGURE 2
Kenya ICT Spending, 2013 Actual and 2014-17 Forecast (in US$ Millions)

7,000
6,000

(US$ Millions)

5,000 4,000 3,000

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.

Leading Kenya to the 'Tipping Point'

A 2010 World Bank report on the Kenyan economy noted the rapid uptake and transformative impacts of a surging ICT sector in the country, particularly in successfully extending a home-grown platform for financial access to the wider public through mobile money. It also raised the possibility that given the positive momentum created by market reforms and ICT adoption, Kenya could be on a 'tipping point' towards a period of rapid sustained growth.11 While Kenya has indeed made solid progress in terms of its ICT uptake levels, IDC believes there remains much room for further
http://www.bizrika.com/news-item/planned-undersea-cable-to-double-kenyas-bandwidth-capacity http://china.aiddata.org/projects/30384 11 World Bank, Kenya Economic Update December 2010, Issue Number 3; The concept of the 'tipping point' was popularized by the author Malcolm Gladwell in reference to the moment upon which a phenomenon attains sufficient critical mass after which it 'tips' into a period of exponential growth.
9 10

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

Looking Ahead: ICT's role in the future of Kenya

For Kenya to achieve the full benefits of ICT, three focus areas have been identified as key strategic pillars as part of its 2013-17 National ICT Master Plan. These three pillars are in-line with the Vision 2030 roadmap to transform the country into a modern, globally competitive, middle income nation offering a high quality of life for all citizens, as well as the Jubilee Government Manifestos vision of leveraging ICTs to propel Kenya into Africas high-tech capital and create a Silicon Savannah. The first pillar of the ICT Master Plan covers the domain of e-Government services, by seeking to ensure that the provision of e-Government information and services support national efforts to improve productivity, efficiency, effectiveness and governance. The second pillar is ICT as a Driver of Industry, which aims at transforming key economic sectors, and Small and Medium Enterprises (SMEs), in particular, through ICT; and the third pillar is Developing Kenyan ICT Businesses to deliver exportable quality products and services that are comparable to the best in the world, which will in turn help to develop a thriving local ICT sector.

Breaking the Barriers by Streamlining Government Services

Rationale
Historically, governments globally have had processes characterized by asymmetric information, meaning that information was not equally shared among all parties involved. Traditional government enterprise architectures were typically designed around transaction-based models with usability as an afterthought few if any government systems were designed with the concept that agencies would share information with other agencies and citizens, or that citizens would select the services they want, when they want, and through the channels they choose. However over time many governments have increasingly focused on improving their service delivery capabilities. The Government of Kenya, for instance, has gradually increased the efficacy of its electronic government services vis--vis international and African peer nations by seeking out opportunities to deliver more holistic, citizen-centric, transparent, and automated public services. Kenya has nudged upwards in the United Nations Department of Economic and Social Affairs e-Government Development Index, from a rank of 126th globally or 14th place among African nations in 2004, to 119th rank internationally or 7th place in Africa in 2012.12 While the change in Kenyas international ranking demonstrates that there has been some progress in its e-government development, it also signals wide room for further improvement. Among the greatest obstacles impeding development of the strategic
12

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

13

Jubilee Government Manifesto, Transforming Kenya Securing Kenyas Prosperity (2013-2017)

A Glimpse of the Future

Looking into the future, the success and further expansion of its one-stop, non-stop service model will have allowed the Kenyan government to create a platform for greater inter- and intra-agency cooperation in order to provide high-quality electronic services. Government entities will be able to capture and make relevant adjustments to service features based on the inputs of employees who directly serve citizens as well as the feedback of citizens themselves, and therefore become more citizencentric organizations. In the future, systems such as IFMIS will allow a more transparent view of finance and budgeting across the wider public sector, from national ministries down to county governments. The government as a whole will also begin to become more forward looking by emulating private-sector best practices, such as deploying knowledge management solutions to capture resident knowledge and sharing citizen needs, requests, and information with key agency service providers, deploying business process management to automate processes, defining and applying uniform service standards across all contact centers (i.e., wait times and claim-processing times), then providing this information to the public and proactively communicate current performance levels against established standards. At this stage, the majority of information will be shared electronically among Kenyan government entities, increasing the efficiency and the quality of services. All of Kenyas government entities will be able to offer multichannel choices of communication and deploy innovative tools and practices that make it easier for the public to engage with government and each other. Citizens who disseminate government information online through Web 2.0 technologies can count on the government to respond to requests with agility, accuracy, and consistency. Internationally, the Government of the Emirate of Dubai can be considered a good example for Kenya within this domain. Dubai has taken great strides to consolidate and align assets across government entities and private suppliers in order to deliver enhanced citizen services. Some of the 'connected government' initiatives already in place within Dubai include a Government Information Network to exchange secure information among entities, a unified Government Resources Planning System (GRPS) to centrally coordinate internal operations, and a roster of shared services for electronic payments (ePay), electronic surveys (eSurvey), multi-channel contact (AskDubai), mobile messaging (mDubai), cross-government information exchange (SYNC), a unified government services repository (GESS), and hosting portal services (eHost). The Emirate of Dubai also recently disclosed that 38 percent of all its government services are now accessed and fulfilled exclusively via the online channel. Equally important is that over 90 percent of users of e-Government services have indicated being satisfied with these, a positive sign for the future. To demonstrate its commitment to providing government services across a wide choice of access channels, all government entities in the Emirate have an aim to provide their services via mobile phones, text messaging, and other portable devices by 2015.14

14

Department of Dubai Smart Government, 2014

10

Breaking the Barriers with ICT-enabled Industries and SMEs

Rationale
SMEs, defined as formal and informal commercial entities having between 11 to 99 employees and an annual turnover between KShs. 500 thousand to 800 million, have been identified as a high priority enterprise segment that can drive the achievement of Kenyas Vision 2030. In Kenya, SMEs comprise about 75 percent of all businesses, employ approximately 4.6 million people (30 percent of the working population), account for 87 percent of new jobs created, and contribute to 18.4 percent of the GDP. However these organizations currently face binding challenges that make it difficult for them to realize their full potential. These include limited market access and poor access to information, finances and technology, among others. The current GDP of Kenya is in excess of US$ 40 billion, which could go even higher if SMEs relative level of contribution to the economy is amplified by breaking down their major barriers to doing business. Making SMEs across key strategic sectors an integral part of the economy can help spur Kenyas socioeconomic development. Figure 3 illustrates this point by examining the business performance variance within US-based industries. From the 1960-80s, the inter-quartile range for enterprise gross profit margin (i.e. the difference in the gross profit margin between firms at the 75th percentile and firms at the 25th percentile) held steady at about 20 percentage points. However, starting in the mid-1990s the gap in business performance between ICT-usage leaders and laggards in the United States started to increase substantially, and by 2006 stood at nearly 35 percentage points.15 These results are consistent with the idea that the cluster of innovations arising from ICT developments starting in the mid-1990s provided forward-looking firms a competitive advantage over others via adoption of ICTs.

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
15

11

FIGURE 3
Inter-quartile Range in Gross Profit Margin in US Industries, 1962-2005

Source: European Investment Bank, 2011

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
16

12

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

13

A Glimpse of the Future

The 2013 World Economic Forum report asserts that digitization has a measurable effect on a nations economic growth and job creation. It further suggests that emerging markets would be able to translate a comprehensive digital boost into helping lift over half a billion people out of poverty over the next decade. Accordingly, there is a great opportunity for Kenyan SMEs in the various sectors identified under this strategic pillar to embrace digitization. While the majority of sector-wide processes in the country may still not be digitized, the groundwork being laid via the relevant flagship projects will help SMEs mature in their thinking about the value of ICT. For instance, the ICT skills capacity-building effort being exerted as part of the school laptop project will lead to future entrepreneurs and business owners who are more IT savvy; the National Agriculture Commodity Exchange should lead to farmers and agricultural traders who are more successful in their businesses; a single window cross-border trading system should lead to exporters who are able to more seamlessly conduct their business operations, etc. Ultimately, successful initiatives will enter a positive feedback loop, generating buzz, interest, and utilization among local businesses. As a result, SMEs will push (or themselves innovate and invest) so that once segregated island systems are fully interconnected, further expanded, and harmonized with each other. New ICT systems will then be developed to account for unmet or entirely new requirements, fulfilling the goal of transforming Kenya into a regional technology hub, and fostering a domestic ICT sector that makes a larger contribution to GDP than at present. Improving the ICT capabilities of SMEs is a key strategic imperative for many other governments internationally. Among them, the Hong Kong government supports the adoption of ICT among SMEs through the Office of the Government Chief Information Officers (OGCIO's) Sector-specific Program (SSP) and IT Training Program for SMEs (ITTP). Since 2004, government programs have supported 24 projects in 17 business sectors benefiting over 17,000 practitioners from SMEs. These projects mostly focus on IT skills training, as well as development of websites and software applications. A new SSP was launched in 2013, setting aside US$3 million for sponsoring projects that develop applications and solutions for individual SME sectors. Two portals, InfoCloud and InfoSec were launched which provide SMEs with information on cloud computing and IT security, including user guides and best practices.18

18

Office of the Government Chief Information Officer, Hong Kong Special Administrative Region

14

Breaking the Barriers through a Thriving ICT Sector

Rationale
By identifying the development of a globally competitive domestic ICT industry as a strategic pillar of its National ICT Master Plan, Kenya recognizes that a thriving domestic ICT sector can deliver commensurate value-add to the local economy. Research by the Organization for Economic Cooperation and Development (OECD) confirms the ICT has contributed in the range of 7 to 9 percent contribution of total value-added in the business sector in OECD countries.19 This potential level of economic contribution highlights the importance of developing the ICT sector.
FIGURE 4
ICT Sector Value-added as a Subset of Business- Value-added, 1995-2009

Source: OECD, 2012

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

15

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

16

A Glimpse of the Future

Given successful attainment of its strategic aims, Kenya will be able to develop a more vibrant multisectoral and self-integrated ICT business ecosystem that drives economic growth in traditional economic sectors as well as create new intellectual property. Konza will provide a model of an industrial park, which will be emulated at various levels of scale in the counties. Other Innovation Parks or Technology Clusters will also begin to spring around universities and cities, attracted by incentives like tax breaks and subsidized office space, thereby bringing employment and kick-starting innovation and entrepreneurship. Home grown ICT businesses out of the innovation centers of excellence and science and technology parks will be able to leverage their detailed knowledge of local requirements to develop solutions for key domestic industries such as agriculture, transportation, water, and healthcare, which if successful, could then be marketed internationally with government export promotion frameworks and private investor support. The significant prioritization of outsourcing of government ICT operations will act as a incentive for new firm establishment and employment. Ultimately, having a successful and growing ICT sector will provide employment for competent graduates of technology programs. Beyond amalgamating solutions developed internationally, Kenyas ICT innovations will utilize locally developed software and hardware components. Examples of hardware designed in Kenya-for Kenya already exist, such as BRCK, the cloud managed wireless router and backup battery device designed by the Ushahidi team. In addition, software companies in the incubation labs and elsewhere are already building business applications like Peach CRM, Kopo Kopo and Tangaza payment platforms, and Virtual Citys Agro Manager and Supply Chain solutions. Promoting and incentivizing such innovations will benefit not just the ICT Sector but become engines of growth for the wider economy. Internationally, South Korea is an exceptional case of a nation that has utilized ICT to help propel it from one of the poorest countries to a technology superpower. In 1962, devastated by civil war, Korea had merely US$ 87 of Gross National Income per capita, equivalent to that of Ghana at that time. With the ICT industry reaching a ratio of 135.5 percent of GDP in 2012, the country is now a world leader in hardware manufacturing, particularly semi-conductors, mobile phones, and televisions, as well as in the online game industry. 21 Among the key factors behind Koreas success in the ICT sector is the robust support of its national government, which remains active throughout the effort of planning and implementing national projects. The South Korean government has effectively used various policy tools, ranging from master plans, regulations, and creating funds as supporter or enabler of the ICT development. The government also gives significant importance to R&D, and heavily funds and partners projects in domains such as electronic information (semiconductors, etc.), information and communication media (information home appliances, etc.), next generation communication networks (mobile, etc.), software and computing (knowledge information protection, etc.), knowledge service (ubiquitous sensor networks, etc.), and industry convergence technologies.

South Korean Ministry of Science, ICT, and Future Planning, 2013 Annual Report on the Promotion of the Korean ICT Industry
21

17

IDC Essential Guidance

This white paper has presented several compelling examples of how ICTs can make a difference to a countrys socio-economic realities. Clearly, there are gains to be had by Kenya taking advantage of its positive momentum in adopting ICTs to transform itself into a knowledge society and figure among the foremost technology hubs on the continent. IDC provides the following three areas of essential guidance that we believe will have strong bearing on Kenyas ability to successfully actualize on its potential. The first is to the need to ensure all key ICT industry stakeholders, across the private, public, notfor-profit, and academic sectors do their fair share to promote a comprehensive digital boost in the country. ICTs are firmly entrenched within the national agenda. The alignment of the National ICT Master Plan with the Kenya Vision 2030 sets a clear roadmap for creating a digital ecosystem. Success will now be determined by the degree to which parties can align themselves, work with each other, and execute against the plan. In the end, even the best vision statements and action plans will not make a difference unless there is a concerted effort by key parties towards their attainment. The second is the requirement to stay on top of rapidly evolving ICT developments in order to understand how Kenya can continue to play a role. The sector is experiencing many disruptive changes. In particular, the degree of innovation, convergence, and the use of new technology services models globally are accelerating. It will be a key need for Kenya to be able to consider these market changes, reflect, and react with the aim to shift to ever-higher value national technology capacities. A key part of this is institutionalizing the recognition, support, and reward of ICT innovations. The third is the need for the government to be vigilant in monitoring and taking expedient action to ensure that the Kenyan ICT ecosystem remains primed for growth. Be it in the area of financing critical infrastructure, attracting foreign investments, establishing Public-Private partnerships, legislating ICT-sector friendly laws and regulations, negotiating international treaties and conventions, skills capacity building efforts, employment creation, or Research & Development funding and incentives, the government must effectively manage the various levers that will stimulate the sectors healthy development.

18

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.

19

This publication was produced by IDC Government Insights in April 2014.

20