Kenya yet to do all it can to be East Africa’s online land of opportunity

The online world is now so omnipotent that it is easy to forget how recent a phenomenon it is. Over the last 15 years, the number of regular Internet users has increased from around 150 million to more than four billion, becoming truly global in the process.

The online economy, as an innovation, is clearly not going to be a flash in the pan. If anything, the development of an “Internet of things” will increase its importance.

Technology giant Cisco believes the Internet economy could be worth up to $19 trillion (Sh1.7 quadrillion) across the world in the next decade.

The Internet is one of the main drivers of economic growth, particularly for the world’s emerging economies. The online economy has contributed more than 10 per cent of total gross domestic product (GDP) growth in China, India and Brazil over the past five years. But not in Africa.

Despite surging rates in Internet access, most African countries have been left behind.

Internet economy

According to management consultants McKinsey, the total contribution to African GDP from the Internet economy is a mere 1.1 per cent — well below the 3.7 per cent recorded by developed nations and 1.8 per cent in emerging countries — and equivalent to around $18.5 billion (Sh1.7 trillion) across the continent.

A good-sized chunk of sub-Saharan Africa’s Internet economy is in Kenya, making it a regional leader in a laggard region.

McKinsey’s iGDP index calculates that the Internet’s contribution to Kenyan GDP is 2.9 per cent, higher than Canada and Italy, and only marginally lower than France and Germany. Only Senegal, at 3.3 per cent, is higher in Africa.

Meanwhile, the proportion of Kenyans with regular access to the Internet continues to increase, reaching 52 per cent in December 2013, up from 41 per cent the previous year according to Government statistics.

Indeed, McKinsey claims that Kenyans are the most frequent Internet users in Africa, with 47 per cent connecting each day, followed by the Senegalese at 34 per cent.

Mobile subscriptions have also increased from just over 3 million in 2004 to more than 32 million in 2014, with mobile phones accounting for around 99 per cent of total Internet subscriptions across the country.

ICT spending has grown from 8.9 per cent of GDP in 2006 to an estimated 12.1 per cent of GDP in 2013.

In 2013, the ICT market in Kenya reached a value of $5.16 billion (Sh472.5 billion), of which telecommunication services accounted for 71.9 per cent, hardware 22.3 per cent, and IT services and software 3 per cent and 2.8 per cent, respectively.

The Government expects the market to keep growing gradually to reach a value of $5.86 billion (Sh536.6 billion) in 2017.

Meagre returns

But despite the grand plans, high levels of Internet access and use, and the M-Pesa success story that is the envy of the continent, on a range of global indexes relating to ICT education, security and research used by the World Bank and World Economic Forum, Kenya only ranks in the middle of the African league table.

And while, $5.16 billion is nothing to be sniffed at, one senses that the Internet economy remains a superhighway of untapped potential.

So why the relatively meagre returns?

One reason is that connectivity remains frustratingly slow.

The average Internet speed used by Kenyans is 1.9 megabits per second (Mbps), compared to a global average of 3.9 Mbps, according to Akamai’s State of the Internet report last May.

Only 5 per cent of Kenyans use broadband, where connection speeds are usually greater than 4 Mbps.

Patchy connectivity and a lack of secure Internet servers makes businesses and consumers less likely to make transactions online.

The other is investment. Private sector and Government spending on Internet-related projects currently amounts to a mere $3.70 (Sh338) per Kenyan.

ICT spending by African businesses is tiny compared to the rest of the world — half the level in Asia and one-20th that of North America.

One solution would be for the Government to offer incentives for commercial banks to lend to online start-ups.

The commitment from the Government to grow the sector certainly appears to exist.

At the heart of Kenya’s national ICT development plan is Konza Techno City, a $14.5 billion (Sh1.3 trillion) project to create an information and communications technology hub.

It is expected to generate more than 100,000 jobs by the end of the decade, with the long-term aim of becoming a world- class destination for business, education and research.

While some have questioned the wisdom of placing the country’s ‘silicon city’ more than 100 kilometres away from Nairobi, the project is a sign of ambition by Kenya’s leaders. As the saying in Hollywood’s Field of Dreams goes: “If you build it, they will come.”

The Government also needs to do more to increase Internet access to prevent it becoming a preserve of the high and middle income, city-dwelling Kenyans. The Universal Service Fund set up in 2013 aiming to raise Sh1 billion from the industry to expand mobile and Internet services, particularly in rural areas, is a start but nothing more.

“Providing greater connectivity across the continent would have a profound impact on GDP, business growth and social outcomes,” the McKinsey report says.

Strong driver

The Government has also been relatively slow to adapt to putting its own services online.

Only a quarter of Government services and information systems have gone online so far, compared to Rwanda where the government has made a concerted effort to make its education, procurement, and commerce services available online.

It prompted European Commission Internet Advisor Megan Richards to describe Rwanda as “a very good example of a country trying to bring the Internet to its people” at a summit in Brussels just before Christmas.

At a conference in Sun City last year, Cisco Vice President for Africa, David Meads, said that an Internet economy worth $500 billion (Sh45.7 trillion) was within reach for sub-Saharan African countries over the next decade.

Meanwhile, in its annual report in December, the International Data Corporation forecast that ICT would be “a strong driver of GDP growth in key countries such as Kenya, Nigeria, and Rwanda”.

There is no reason this cannot become a reality. The potential for generating new intra-African trade through mobile money transfer payment systems, financial inclusion initiatives, cloud technology and big data, just to name a few, is endless.

The opportunities for sub-Saharan Africa to close the gap on the BRIC economies still exists. And as the data shows, Kenya is well positioned to become East Africa’s ICT hub.

bizbeat@standardmedia.co.ke