SILICON SAVANNAH: INFORMATION TECHNOLOGY AND OUTSOURCING IN KENYA AND BEYOND – 2011

Monday, April 23, 2012
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In 2008, Kenya articulated its determination to compete on the world stage in several arenas. Vision 2030 is an initiative comprising six primary pillars that are to be achieved by the year 2030 at which point Kenya would emerge as a newly industrialised nation. One pillar is the mandate to promote Kenya globally as a flagship ICT hub and investment locale. In accord with this mandate, the Permanent Secretary for the Ministry of Information and Communication, Dr. Bitange Ndemo, recently announced the ministry’s goal to grow the contribution of ICT to Kenya’s GDP from 3% to over 10% by the year 2015.

Recently, three undersea fibre-optic cables have improved the country’s access and bandwidth, and further enhancement is expected as investment in the underlying infrastructure increases. The Kenya Information and Communication Technology Board has spearheaded a program to develop digital villages to allow rural area dwellers to also benefit from technological advancement.

A pioneer in mobile technology
With communication technologies scarcely seen elsewhere before developing and emerging in Kenya, the country is proving to be a pioneer in ICT. M-Pesa, a mobile money transfer service introduced in 2007, allowed Kenyans to enjoy the expediency of mobile phone banking before many of their compatriots in developed nations ever heard of the concept. M-Pesa allows the movement of digital funds between mobile phone users without requiring an account with any bricks-and-mortar bank. M-Pesa has not only improved the speed and lowered the cost of transferring money but has also allowed a larger number of unbanked Kenyans to interact in the local economy by enabling them to complete financial transactions. A majority of corporations polled in Kenya have attributed a transformation to their bottom line to the availability of mobile money and transfers.

Monopolies and Regulation
The Kenyan mobile market is extremely competitive, and is regulated by the Communications Commission of Kenya (CCK), which partly aims to quell anti-competitive behaviour that would impede market growth. Leading player, Safaricom, had by mid-2010 basked in the proverbial sun for almost a decade, prior to the entry of Bharti Airtel Limited into the Kenyan mobile service provider market. This resulted in welcome benefits to the consumer by reducing costs and sparking innovation, improving the quality and the nature of mobile market offerings. Further initiatives by the CCK to balance the market are expected to open the market further for fledgling players.

Budding Innovative Technology Development Community – Opportunity for investment
Many new and innovative applications, generated by a burgeoning software development community, are capitalising on the highly developed mobile technology market and its rapid local and regional adoption. A growing number of incubation and innovation centres, such as the Innovation Hub (known as ‘i-Hub’) are give budding developers the opportunity to advance their creations in concert with other bright minds. Other innovation centres include Nai Lab and KeKobi, which together with i-Hub host approximately 3,000 software developers. The emergence of talented software, computer and technology developers has been recognised by a number of venture capitalist firms that are readily providing funding for promising ideas. Human IPO, a company that acts as a match-making conduit between technology start-ups and investors is one of a number of such outfits that are succeeding in Kenya’s mushrooming ICT economy.

Recently, Equity Bank, one of Kenya’s most successful indigenous banks, partnered with Canada’sUniversity of Waterloo to create yet another incubation centre for technology developers. The project aims to provide funding to these  innovators. Equity Bank will accomplish this by growing its debt financing portfolio by liaising with venture capitalists interested in the ICT sector and ready to take on loans to fund developers’ ideas. Venture capitalists active in the Kenyan technology sector include eVA Fund, Open Capital and East Africa Capital Partners among others.

Global recognition of Kenyan crafted innovation
Of note are the creative yet functional inventions emerging from the Kenyan market. Virtual City, a company based in Nairobi, won the 2010 Nokia Global Growth Economy Venture Challenge award, beating innovators from more established technology centres such as India and China. The firm develops a mobile distributor solution, designed to improve efficiencies for small enterprises dealing in consumer goods, and has successfully married widely adopted mobile technology with the needs of an economy heavily reliant on agriculture. Several of the companies enjoying success are those that have developed technology that takes the market into account and is practical for the Kenyan population. Kenya has no shortage of talent, and whereas some innovators have obtained financial backing, a larger number lie in the background with untapped potential only realisable with the infusion of investment capital.

Increasing presence of international players and investors
Companies such as Google, IBM and Microsoft have established operations in Nairobi in recognition of the burgeoning technology sector and its innovative development community. The influx of international players is a trend that is likely to continue given the immense opportunities in Kenya.

Business Process Outsourcing initiative
The fact that Kenya’s population that is young, considerably well-educated and English-speaking, coupled with its strategic placement in terms of geography and time-zone, has led to plans of promoting Kenya as a leading provider of business process outsourcing (BPO) services. The Kenyan government has requested funds to rent space at Sameer Park, an extensive office complex outside the city centre for occupation by small technology firms, primarily infant BPO companies.  This is yet another effort by the Kenyan government to promote Kenya’s ICT brand and grow employment by the creation of an estimated 80,000 jobs by 2014. A technopolis called Malili that is to sprawl over an area of 5,000 acres beyond the outskirts of Nairobi is to be developed in the same vein.

Investor-friendly legislation and developments
Kenya adopted a new Constitution in 2010 after several years of citizen input and parliamentary debate. Widely embraced by Kenyans, it embodies transformation in several areas long in need of attention; for example, enhanced protection of human rights. This seems to have stabilised the country and generated an optimistic political outlook. Foreign investment is increasingly reflective of this and the country’s economy continues to grow, with the ICT sector showing one of the sharpest trajectories.

Currently in advanced stages of review in parliament is the Information and Communication Technology Bill, which is expected to address issues related to data privacy, data security, cyber-crime and piracy, a development that is likely to enhance the confidence of investors, entrepreneurs and developers in the technology sector.

Tax holidays and other financial incentives
In 2009, the government eliminated import duty and the 16% VAT tax on new mobile handsets and ICT equipment. It also allowed internet providers to offset the cost of purchasing fibre-optic bandwidth for 20 years. These concessions have resulted in  a considerable reduction in cost to consumers.  In 2010, the Kenyan government received the prestigious Global System for Mobile Communications Association Government Leadership Award in recognition of its role in extending the benefits of mobile technology to more consumers through the various tax incentives.

Enhancements in Intellectual Property Protection
The Kenya Copyright Act is a robust piece of legislation protecting the rights of inventors of creative and technological works. The rising significance of the Kenya Industrial Property Institute (KIPI), an organisation tasked with registering all industrial property rights, such as trademarks, patents, industrial designs and utility models, as well as the Kenya Copyright Board (KCB), responsible for registering of copyright notices, reflects a ripening intellectual property protection sphere.  Kenyan courts increasingly see litigation claims in this area, and the judiciary’s growing exposure to these issues should encourage developers and investors in technology.

Kenya is steadily on its path to becoming an icon in the African ICT market. The market is fertile for the absorption of foreign investment that is highly likely to reap favorable returns. The infusion of capital, foreign and otherwise, into the technology sector is undoubtedly a necessary catalyst to the actualisation of Kenya’s potential as Africa’s next ICT hub.

Written by John Syekei and Njeri Olweny

Njeri Olweny is a Senior Associate and John Syekei is a Partner at Coulson Harney Advocates and Head of Intellectual Property.