ICT being integrated into Kenya's public service provision

As the government continues efforts to incorporate ICT into its service delivery, it is implementing the Connected Kenya 2017 master plan to guide the country’s ICT and broadband development. The plan, which aims to see the sector create up to 180,000 jobs and contribute up to 8% of the value of goods and services produced in the country, should stir greater demand, while generating funding for local software and services. Fred Matiang’i, the cabinet secretary for ICT, told local press in July 2015 that he expects more than 60% of public sector services to be delivered electronically by the end of 2016. This followed forecasts in May 2015 that growth in the ICT sector would reach more than 15% by the end of 2015, a steady rise over 13.4% in 2014.

Indeed, the 2015/16 budget provides the Ministry of Information, Communications and Technology with KSh11bn ($121m), supporting a key sector in achieving the aims of the Vision 2030 framework. Underscoring this momentum, growth in the sector is expected to rise to 20% by 2017. This is largely down to government investment in a series of key ICT projects, the development of technological infrastructure and a focus on facilitating private sector partnerships.

E-Government

Service areas on the government side include the iTax portal, Huduma Centres (under the Ministry of Development and Planning), the Integrated Financial Management Information System and the eCitizen portal. The Revenue Authority’s iTax portal was commissioned in 2014. The web platform uses an automated procedure for administering taxes, with registration and filing, as well as enquiries, handled online. Some 2m taxpayers were reportedly using the system in 2015. In August 2015 the Kenya Revenue Authority (KRA) announced that it would from then on accept only value-added, pay-as-you-earn and income tax returns via the online method.

Huduma Centres are public governmental offices within the Huduma network (rolling out to 47 counties with the initiative’s first phase). Huduma is a “one-stop-shop” service for electronically accessing and paying for government services. Services covered include renewing drivers’ licenses, obtaining duplicate national ID cards, and registering claims for health and social security along with student financial services and single business permit and stamp duty assessment and payments, among other services.

The Integrated Financial Management System is an automated means for planning budget, procurement, expenditure management and reporting in Kenya’s national and county-level governments. The eCitizen portal, rolled out in August 2014, is an online means to accessing government departments, including the Ministry of Land, Housing and Urban Development, the KRA and the National Transport and Safety Authority. The portal manages services like marriage licences and business registration, including the option to pay for services using mobile money.

ICT Improvements 

There is room for improvement in the hosting space and also in cyber security, which is seen as a weak area needing to be made more robust as the tech sector expands and more Kenyans are brought into the digital universe. “The rising number of smartphone users will support growth in mobile money usage and cashless payments, especially as the industry looks to provide new value-added services such as consumer payments, cash disbursements and collections in value chains such as agriculture, healthcare, education, power, water and other fast moving consumer good value chains,” Ken Njorge, Group CEO at Cellulant, a mobile payment solutions company, told OBG. “The good news is that better infrastructure is being built around mobile payments and the industry will be able to mitigate any fraud or theft that might be associated with the growth of cashless payments,” he added.

There is also the need for improvements to routing traffic, incentivising content providers to come to Kenya to cache. The first Kenya internet exchange point was established in 2000. Prior to that internet traffic was routed through Europe and the US. In 2014 a regional internet exchange point was launched in Mombasa, a landing point for undersea cables. It was meant to improve reliability through redundancies and further encourage local hosting, and also intended to reduce operating costs for regional traffic being routed through Nairobi and the expenses of traffic exchange across ISPs. This regional IXP was closed down in mid-2015 after an agreement between the telecoms lobby, the Technology Service Providers of Kenya, and the Amsterdam Internet Exchange, which had developed the project together, due to insufficient users (Google was drawn to the IXP, along with three Kenyan entities).

One example where an open space for innovation and competition could develop is via an M-Pesa application programming interface (API), launched in September 2015 and called G2 (M-Pesa second-generation platform). The API can open services to innovation from third-party developers, who will be allowed to build new solutions for payment systems. M-Pesa is promoting the API for innovation in solutions for business-to-business, business-to-consumer and consumer-to-business payments.

Infrastructure Capacity

Price competition between market leader Safaricom and Airtel has encouraged infrastructure and service improvements, which are set to have particular effect on heavy bandwidth users. The upgrades in 2015 span price, as well as improvements in quality and reliability, including through internet bundle pricing schemes and removing earlier user limitations. In May 2015 Telkom Kenya (Orange) switched its CDMA network in Kenya to GSM, after finding that CDMA was not competitive with 3G and long-term evolution services. The Communications Authority of Kenya regarded this as a contributing factor behind the fall in fixed-line subscribers later in the year. It was followed with infrastructure expansion in support of its 3G network, which was launched in Kajiado County, with the deployment of 41 regional base stations.

Those using internet and mobile activity as part of their own business platform or as a node in their business model are likely to see particular benefit from greater market competition and improvements in service and technology going forward. UK-based Liquid Telecom launched its Anycast DNS service in Kenya in 2015, which averts downtime by permitting its users to reach multiple servers at the same time.

Skills Gap

While Kenya continues to face a skills gap, much of the groundwork is there and more recent momentum signals an improvement in this regard over the short and medium term. The World Economic Forum’s (WEF) Global Competitiveness Report 2015-16 ranked Kenya 94th out of 140 countries, with a score of 3.3 in terms of the country’s technological readiness. This was similar to the nation’s results for higher education and training, which placed Kenya at 98th place with a score of 3.8. It fares better when it comes to the quality of education, where it ranks 63rd with a score of 4.1, and for on-the-job training, where it comes in 37th with 4.4. Closing the skills gap for ICT is being accomplished through support from the private sector, often via partnerships between the government and technology companies. One example is Oracle’s Centre of Excellence at Nairobi’s Strathmore University, launched in September 2014.

Incubators

A number of incubators and accelerators have emerged in recent years. iBiz Africa is one such example and aims to fill the domestic skills gap for ICT and business innovation. As of summer 2015 the unit has helped more than 100 start-ups, with one acquisition so far under its belt, Bernard Chiira, the incubation manager at iBiz Africa, told OBG.

Gearbox, a hardware maker-space for design that launched in Nairobi in 2015, is another example. It aims to overcome constraints on the industrial side of production and business innovation. Tapping into the engineering graduate stream is part of Gearbox’s model, which provides an engineering space for sharing ideas and skills. An optional accelerator programme will also be available for members. For now the majority of local start-up ideas tend to be “at the bottom of the pyramid”, as Hannah Clifford, project manager at Nairobi Garage, told OBG. This tends to be in business-to-business solutions. At the Nairobi Garage, a tech co-working hub located in the capital, most desk space is used by for-profit companies.

Funding

As with other ICT sectors on the continent, the funding that comes in is primarily from the private sector. Growing interest in innovation and the entrepreneurial space has not yet been matched by funding from the private sector. Support for start-ups in Kenya tends to remain concentrated at the higher levels of a business’s trajectory – $1m and above – meaning small players can be left aside and lacking in access to the much-needed capital for take off.

In early 2015 the Kenya Information Communications Technology Authority and the Netherlands Trust Fund initiated a three-year project to fund ICT start-ups and other small and medium-sized enterprises (SMEs), with funding reportedly totalling $1.2m. The programme is specifically targeting expansion into foreign markets. Local ministries involved with the project include the Ministry of Information, Communications and Technology, and the International Trade Centre, together with the Dutch Centre for the Promotion of Imports from Developing Countries.

Many collaborative projects are coming online, such as the Ministry of ICT’s Enterprise Kenya programme, which is aiding tech innovations. “The new Enterprise Kenya initiative shows the potential offered by increased collaboration between the public and private sectors within the ICT space. With governmental support, the ICT sector can become one of the country’s prime growth engines,” Mike Macharia, group CEO of Seven Seas Technology, told OBG.

Underscoring the rapid rate of growth of the start-up scene, Kenya had just two IT start-up hubs in 2010, but this number jumped to 16 by 2013, with several more coming on-line since then. The Savannah Fund, a technology venture capital fund, is one important source of funding for Kenyan start-ups and for entrepreneurs elsewhere in the region. As of 2015 the organisation had handled 16 investments totalling more than $12m. These were in five regional countries – Ghana, Kenya, Uganda, Nigeria and South Africa – and reportedly resulted in the creation of more than 150 full-time jobs. The fund specialises in investments of between $25,000 and $500,000 in technology start-ups with potential for high growth.

While robust data comparison is still limited, the start-up funding platform VC4Africa found in 2015 that start-ups in Kenya were drawing in the highest levels of investment regionally. Their research further found that African start-ups as a whole tend to lead to an average of 5.7 jobs being created per venture, and that 49% of all ventures across Africa brought in revenue within the first year. Just under half, or 44%, of the start-ups they studied had been able to raise external capital, with the average amount of capital obtained rising from $129,348 in 2013 to $205,374 in 2014. The researchers found that Kenya, along with Nigeria, were most likely to attract funding for their first $100,000 from external investors.

Hardware

High tariffs and value-added tax on component parts, for instance, have historically meant that importing completed IT devices and hardware will be less expensive than producing locally. There are two rates of tax – 16% on taxable supplies that are not in the zero-rated category and 0% on zero-rated supplies (taxable with the right to input tax reduction if eligible). There are positive signs from the government that a way to address this and other obstacles is being found by using Kenyan businesses for sourcing and producing locally. High tariffs and VAT on component parts for instance has historically meant that importing completed laptop computers is cheaper than producing locally, as explained by Kamau Gachigi, executive director of Gearbox. In 2015 the government also introduced VAT exemptions for ICT inputs that can be used to locally assemble electronic devices. This aims to encourage local start-ups to produce their hardware and other products within Kenya, rather than resorting to outsourcing due to historically high import costs for parts.

Import costs will help nascent engineering support and open prototype facilities at hubs like Gearbox, iHub and others. The hope is that it will give a serious boost to local start-ups as they strive to expand.

Outlook

Kenya’s ICT sector and its start-ups arl-laying the groundwork for greater growth in the near term. Indeed, there will be ample investment opportunities in nascent subsectors, including local engineering and hardware, software development and business solutions, and this will increase as regulation comes into place, further reducing the barriers to necessary imports as well as for e-governance.