A new report by German electronics manufacturer Siemens has reaffirmed Kenya’s position as one of Sub-Saharan Africa’s leading frontiers for digital innovation. Kenya comes second only to South Africa in its potential to realize digital maturity, the report indicates.
“South Africa has emerged as the country (in sub-Saharan Africa) with the highest potential to realize digital maturity, closely followed by Kenya, Nigeria, and Ethiopia,” notes the African Digitalization Maturity Report 2017 by Siemens.
The report considers factors such as economic maturity, skills and digital literacy, infrastructure and environment as key indicators of digital maturity across the continent. Economic maturity assesses the size, growth, and sophistication of the economy. “Digital technologies are likely to be more rapidly adopted in larger and faster-growing economies that boast an established or growing middle class,” the report notes.
Environment refers to the existence of a legal, regulatory and business environment that nurtures and protects the development of digital businesses. Infrastructure, on the other hand, refers to the level of investment in ICT infrastructure and takes into consideration indicators such as affordability and bandwidth. Finally, skills and digital literacy measures the level of the human capital endowment of a country.
South Africa leads in all the aforementioned metrics. This puts it in a unique position to capitalize on what the World Economic Forum (WEF) refers to as the Fourth Industrial Revolution—that is, economic growth that is driven by digital technologies, a sharp increase in knowledge access, and innovation in data processing and storage capabilities.
Kenya is also uniquely positioned to reap the dividends of the Fourth Industrial Revolution. The East African economic powerhouse closely rivals South Africa in digital maturity, despite the fact that its $55 billion economy is about a sixth the size of South Africa’s $350 billion economies.
Kenya also trumps Nigeria in digital maturity. This is certainly no mean feat, considering Nigeria is the largest economy in Africa, boasting of a GDP of $521 billion, according to World Bank statistics. The West African economic stalwart is close to ten times the size of Kenya’s economy.
In light of Nigeria’s economic clout, it is paradoxical that Kenya outpaces it in terms of digital maturity. Nigeria’s dismal performance— relative to its size—in digital maturity underlines the importance of sound economic policy.
Nigeria has, through the decades focused on oil at the expense of other sectors of the economy, fallen behind in this key sector. “Nigeria has a relatively undiversified trade profile. It is currently experiencing several policy challenges in diversifying the economy beyond oil,” notes the report.
Ethiopia, on the other hand, still has a fledgling ICT sector. ICT infrastructure is still largely underdeveloped, though the government has been ramping up activity in this space in recent years. Only 7% of Ethiopians have access to a 3G network while a paltry 2.9% of households have in larger and faster-growing economies that boast an established or growing middle class,” the report notes.
Environment refers to the existence of a legal, regulatory and business environment that nurtures and protects the development of digital businesses. Infrastructure, on the other hand, refers to the level of investment in ICT infrastructure and takes into consideration indicators such as affordability and bandwidth. Finally, skills and digital literacy measures the level of a human capital endowment of a country.
South Africa leads in all the aforementioned metrics. This puts it in a unique position to capitalize on what the World Economic Forum (WEF) refers to as the Fourth Industrial Revolution—that is, economic growth that is driven by digital technologies, a sharp increase in knowledge access, and innovation in data processing and storage capabilities.
Kenya is also uniquely positioned to reap the dividends of the Fourth Industrial Revolution. The East African economic powerhouse closely rivals South Africa in digital 7pc.
Only 7% of Ethiopians have access to a 3G network while a paltry 2.9% of households have consistent access to the Internet, the report notes. consistent access to the Internet, the report notes.
In Kenya, 64% of households have access to a 3G network while 16% have consistent Internet access. In Nigeria, 55% have access to a 3G network while 8.5% have consistent Internet access. South Africa leads, with 93% of households having access to a 3G network and 37% having consistent Internet access.
Internet access is one of the most reliable indicators of digital maturity. This is because access to the Internet unlocks terabytes of data that fuel the knowledge-based
economy and spur innovation. Though South Africa leads in this respect, Kenya carries a lot of potential in view of increased investments in fiber-optics, 4G rollout and 3G expansion in recent years.
Moreover, Kenya can bridge the gap between itself and South Africa if it improves internet access, quality of human capital, and strengthens the regulatory environment, particularly for digital businesses.
Kenya to outpace South Africa
If we were to adjust for economic size and maturity, there are decent chances that Kenya could outpace South Africa in digital maturity. This is because the impact of digital innovation has been more disruptive, transformational and visible in Kenya than in anywhere else in the continent.
A compelling example of how impactful innovation has been in Kenya is the mobile money transfer service, M-Pesa. The platform, which is owned by listed telco Safaricom, has not only revolutionized money transfer in Kenya but also acted as a catalyst for positive socio-economic change.
M-Pesa has deepened financial inclusion by availing financial services such as savings, loans and cash transfers to huge segments of the population that had previously been locked out of the formal banking sector due to banks’ infrastructure limitations.
The deepened financial inclusion that M-Pesa has occasioned has had a huge socio-economic impact, underlining the potential of technology to drive development in Africa. A study conducted in Kenya and published in December 2016 in the Science Journal—an international weekly published by the American Association for the Advancement of Science—submits that the rapid expansion of M-Pesa has helped eradicate extreme poverty in Kenya. The majority of the beneficiaries are women.
In comparison to households in areas without M-Pesa agents, women-led families with access to a large number of agents set aside 22% more in savings between 2008 and 2014. And they bought 18.5% more basic goods. During this period, among the poorest families —those who had been living below the $1.25 a day poverty threshold— nearly 1 in 10 of these families with access to M-Pesa got a sufficient boost to lift them out of extreme poverty, the study indicated.
The success of M-Pesa, both commercially and in terms of social impact, is a clear indication that Kenya has the potential to leapfrog players such as South Africa and emerge as the continent’s leading tech hub. Nevertheless, there are some barriers that could impede the growth of Kenya’s tech sector.
Affluence is a key determinant of Internet access in Kenya, explain- ing why international digital businesses such as video streaming service, Netflix, and taxi-hailing app, Uber, are still largely restricted to Nairobi’s middle-class. The farmer in Kitale or Limuru, which is even closer to Nairobi, still cannot access such products due to limited Internet access.
In comparison, South Africa is close to the international benchmark in ICT affordability, according to the WEF’s Networked Readiness Index. This partly explains why digital businesses such as video streaming service ShowMax—a competitor to Netflix—register greater traction in South Africa than in Kenya.
To outpace South Africa, Kenya needs to institute measures that democratize internet access, including subsidizing access for those who cannot afford. Such measures undoubtedly call for strong will in the political leadership of the country.
Strong political will
A government that appreciates the importance of a knowledge-based economy and the potential of digital businesses will naturally muster the political will to support innovation. Political will is essential to instituting certain important policy interventions.
For instance, policies aimed at transforming Nairobi into a “smart city” by getting high-speed fiber Internet to informal settlements—where 60 percent of Nairobians live—will largely depend on the government’s ability to challenge hardened slumlords who stand in the way of sound urban housing policy.
There is sufficient anecdotal evidence supporting the observation that political will is indispensable to unlocking the potential of innovation and digital businesses. As an example, former President Mwai Kibaki firmly supported measures such as lowering the cost of broadband and bridging ICT infrastructure gaps. These measures, which wouldn’t have been successful had the president not supported them, set the stage for the digital revolution that has now put Kenya on the map.
“The president (Mwai Kibaki) fully supported the rapid change that brought the TEAMS cable— the foundational step in Kenya’s emergent ICT entrepreneurial revolution,” noted Prof. Bitange Ndemo in a February op-ed on the Business Daily.
Ndemo, who is the former Permanent Secretary for the ICT Ministry, recently co-edited the book, “Digital Kenya: An Entrepreneurial Revolution in the Making” with academic researcher Tim Weiss. The book captures
Kenya’s digital revolution through the years and outlines the factors that drove this revolution. In the book, government support is seen as a key catalyst for the digital revolution in Kenya, highlighting the importance of a strong political will.
The government needs to ensure that it improves the overall ease of doing business. Kenya has done relatively well in this regard, having received recognition as the third most improved country globally in the World Bank’s Ease of Doing Business Survey in 2017. Kenya moved 21 places up to position 92 in the rankings, which feature 189 economies worldwide.
Legislation and digital literacy
Other areas that need improvement—particularly areas that directly touch on digital business—are ICT-related laws. Kenya still fares poorly in terms of intellectual property laws, despite these laws being essential in nurturing homegrown innovations and attracting multinationals.
According to a study released earlier in the year by the U.S. Chamber of Commerce, the actual enforcement of IP laws in Kenya is weak. Furthermore, regulatory bodies lack resources and expertise to deal with IP infringement cases.
The U.S. Chamber of Commerce study, titled Roots of Innovation, ranked Kenya position 31 out of the 45 economies it surveyed. It noted that the IP law gaps were especially severe in digital innovation, adding that the judicial system was sluggish in determining cases before them. Consequently, Kenya loses about $80 million in tax revenue, capital flight and public safety risks due to IP infringement, the study shows.
It is therefore important for Kenya to expedite the process of fine-tuning its IP laws to align with global best practice. This will allow it to spur homegrown innovation and also attract innovators who would have otherwise shied off.
Equally important is an improvement in the general level of education. Digital literacy needs to be integrated into basic education so that computers and digital savviness are second-nature to the next generation of Kenyans.
Integrating IT with basic education is an approach that is gaining increased acceptance across major economies globally. For instance, Denmark is one of the first countries to include computer science in its primary school curriculum. U.K., Israel, New Zealand, and Australia are others that have done the same, according to findings by the WEF.
If Kenya takes similar measures—for instance by fast-tracking the laptop distribution program to primary schools—it will be able to substantially improve its digital maturity. “Digital technologies flourish in knowledge-based economies which also typically boast higher levels of educational attainment and provide better quality education,” notes Siemens in its report, high- lighting the catalytic role that digital literacy plays in digital maturity.
Increased availability of smartphones and devices such as laptops will also undoubtedly play an important role in increasing digital literacy, particularly among the older generations who can’t go back to primary school and receive the promised laptops.
The government must, therefore, be careful not to impede the availability of these devices in the market through excessive taxation on those who import them. Private sector players, especially retailers of devices and providers of Internet, should also focus on increasing access and giving users greater opportunities to interact with devices and the Internet.
It is through frequent interactions with smartphones, tablets, laptops, and the Internet that users become more engaged and more digitally literate. This is because digital literacy is primarily acquired through experience—formal instruction comes much later if it comes at all.
This is why the prevalent use of digital platforms such as social media is always an accurate indicator of how digitally literate a country is. Countries such as the U.S., which lead globally in digital literacy, also have the highest levels of user engagement on social media and other digital platforms such as mobile apps.
In concluding, Kenya’s digital revolution will have a tremendous long-term impact on businesses and the economy. Understanding it and capitalizing on it is paramount for any business keen on staying ahead of the curve.
Tellingly, technology and digital disruption have now become a popular discussion around Kenyan boardroom tables, especially for companies in industries that have already been disrupted by digital innovation such as financial services, security, and media.