The Dalberg Report

Kenya

Introduction

Infrastructure: Kenya’s existing infrastructure and approach to extending capacity is promising. Its combination of wireless broadband networks and fibre optic cable infrastructure could be a model for the rest of Africa, effectively addressing backhaul challenges by including electricity transmission and distribution lines alongside cables.1 The government has taken a lead role in providing infrastructure, as seen in the TEAMS project, while partnering with Safaricom and KDN to increase bandwidth across the country.

Usage conditions: Strong underlying conditions for usage have translated into significant Internet use. Internet access has grown tremendously to cover 34% of the population.2 Thirty-seven percent of the population at the base of pyramid have Internet-enabled mobile phones and 25% report Internet use. Broadband use, however, remains low, with penetration rates below 1%.

Activity and impact across sectors: A plethora of programmes across agriculture, health and the SME sectors remain in pilot mode, few have reached large scale. Startups seem to have taken the front seat, but the backend systems that provide the foundation for growth and wider, deeper impact receive less attention. National ID systems and large scale, interoperable health information platforms, for example, have been stalled or shelved, while consumer apps continue to procure donor funding.4 Integration of apps to government platforms has been slow limiting commercial viability of apps and the social economic impact. Mobile money and eCommerce are beginning to converge through applications like Pesapal, though eCommerce policy and protection of transactions is still murky. More financial products are likely to emerge as Safaricom’s user growth on M-Pesa, currently 18% of the company’s revenue, plateaus. Widespread access to these payment platforms has enabled service delivery across other sectors, such as rent-to-own solar financing through mKopa, consumer health savings products, and livestock and crop insurance.

Role of government: Kenya’s government leadership has been widely acclaimed, particularly for its drive to increase access to bandwidth. Its next hurdle will be to drive backend digitisation initiatives to create shared platforms and systems for new applications and consumer solutions. Having a standardised platform for, for example, a national ID system, would allow private sector developers to build additional eGovernment service portals and add-ons that are compatible. Driving broadband growth in the health and education sectors, meanwhile, will help achieve the respective Ministry policy goals to extend learning and training services via the web.

ICT Sector Overview

Kenya has added 4.6 million internet users to its current base of 13.5 million, one year growth of 33% by September 2012. Broadband uptake has also accelerated, bringing in 0.5 million new users in the same period.

Kenya’s growth has been attributed to strong national leadership, particularly the establishment of a strong regulator and the inclusion of ICT as a pillar for national growth in the Vision 2030 plan. Vision 2030 was followed up by the ICT Strategy in 2006, and ICT Master Plan 2012 that frames ICT as a vehicle to drive broader industry growth, create jobs and meet citizens’ needs via eGovernment. The Master Plan was jointly formulated by a wide range of ministries and stakeholders.

The Kenya ICT Board, established in February 2007 to attract ICT investment and implement projects in the sector, has developed effective regulation of the patchwork of operators and agencies created by the 1998 Communications Act.

Various ministries have made ICT adoption strategies and initiatives in support of the Vision 2030 plan. The Ministry of Education, for example, has created the Kenya ICT Fund as a public-private partnership to increase Internet access in schools, digitize the core curriculum and publish national exam results online. The Ministry of Agriculture aims to increase productivity and improve farmer livelihoods by consolidating technical information in an online Kilimo Library and publishing daily market prices for various crops. The Ministry of Health’s National eHealth Strategy builds atop the eGovernment Directorate and Shared Services Strategies, targeting improved health information systems, information sharing with citizens, and extending online health worker training.

However, not every ministry is accelerating ICT development. In October 2012, the Ministry of Finance proposed a new VAT on all M-Pesa transactions that will increase the cost of mobile money. Kenya has a number of investment funds focused on early stage ICT that have generated software and pilot businesses, including the ICT Board’s Tandaa innovation grants programme. As demonstrated in the case studies, many are focused on developing solutions to the country’s specific socioeconomic challenges.

While in West Africa regulation is expected before products are developed, in Kenya innovation has driven markets forward, with regulation emerging in response.7 For example, the Freedom of Information Bill to enforce data privacy and security has not been approved, despite the success of Kenya’s domestic tech incubators. Though M-Pesa launched in 2007, it took until 2011 to enact the National Payment Systems Act, which designated the Central Bank of Kenya as regulator and supervisor of all payment systems and service providers.

Market Structure

Kenya’s mobile market is vibrant, with penetration of over 7%, or 30 million subscribers, up 17.5% from last year. Safaricom continues to hold dominant market position while Airtel, Telkom/Orange and Essar maintain smaller shares.9

Kenya’s 7.7 million Internet subscribers access the web primarily through mobile devices.

There is significant competition among ISPs. Seven main companies, including Kenya Data Network, AccessKenya and Wananchi Online, constitute a decent portion of the wireless customer market. Mobile operators, however, are the largest ISPs, with Safaricom having sold more than 3.5 million broadband modems by the start of 2010.

Kenya has access to four sea cables providing 5Tbps to the country, 90% of which is supplied through Telkom Kenya Limited’s EASSY project. Increased capacity in SEACOM over the past year has also helped reduce broadband prices, which already halved between 2010 and 2011.11 This is aided by the government’s National Optic Fibre Backbone Infrastructure (NOFBI) programme.

Case Studies

  • By improving supply chain management and market information Virtual City Agrimanagr has increased farmer incomes by 13%
  • Enabling businesses that increase farm gate prices through accurate weighing could shift $75 million to those most in need within five years and generate $55 million in financing
  • Digitising claims processing for Kenya’s National Health Insurance Fund has helped lower administrative costs by nearly 50%
  • Kenya ICT Board’s Pasha Centres and loans have supported SME growthand expanded access to eGovernment and other internet services
  • AMREF’s eLearning course to upskill nurses in Kenya has increasedtraining capacity by 35x while keeping nurses in the work force
  • M-Kopa is enabling off-grid electrification by leveraging the popularity of Kenya’s mobile payment networks
  • Kenya education network
  • Kenya open data initiative