Emerging digital technologies such as artificial intelligence, machine learning, blockchain, Fourth and Fifth Industrial Revolution (4IR and 5IR), Internet of Things (IoT) and 5G technologies are supporting countries to transform their economies through disruptive innovations[1] and service delivery models such as open banking[2] and ride hailing applications[3]. In the last 15 years, the global digital economy has grown tremendously and is estimated to be US$ 11.5 trillion, equivalent to 15.5 per cent of the global GDP and growing 2.5 times faster than global GDP.
Kenya’s digital economy is anchored on 5 pillars: Digital Infrastructure; Digital Government; Digital Business; Innovation-Driven Entrepreneurship; and Digital Skills and Values. Digital infrastructure pillar enables the provision of affordable, accessible and reliable digital services. Digital government pillar focuses on the use of ICT for efficient, transparent and inclusive government services while the Digital Business pillar guides the development of a robust digital market supported by digital financial services. The innovation-driven entrepreneurship pillar offers innovations that are essential for digital economy. A critical review of these pillars highlights the gaps that require to be addressed to build a robust digital economy.
Digital Infrastructure pillar
Kenya has implemented various digital infrastructure initiatives to unlock opportunities for economic growth and development. This has ultimately increased the mobile and Internet penetration in the country. Globally, Kenya is ranked number 77 by the Network Readiness Index of 2022 on People, Technology, Governance and Impact. Similarly, Kenya is ranked 58 globally based on availability, affordability, relevance and readiness of Internet by the Inclusive Internet Index (2022). Kenya’s mobile and internet penetration is among the highest in Africa. There are several telcos licensed for 4G and 5G services. With massive roll out of 5G mobile technology, Kenya is on the path of democratizing Internet. Further, Kenya has less than 30,000 km of optic fiber linking 57 towns across the country.
Despite massive investment in digital infrastructure, the 2019 Population Census data indicates that less than 19 per cent of Kenya’s population are using Internet. Access to affordable broadband Internet by households remains a challenge due to limited last mile coverage by service providers and costly Internet services. Tapping on the Universal Service Funds to bridge the digital divide gap in the unserved and underserved areas can empower the low-income last mile users and Micro, Small and Medium Enterprises (MSMEs).
Further, the Bottom-Up Economic Transformation Agenda has identified the Digital Superhighway as a priority to accelerate the growth of the Digital Economy. Under this priority, the government plans to lay out an additional 100,000 km of the national fiber-optic network to provide Internet to all schools, government institutions, offices, metro-cities, health facilities, rural businesses, homes and public spaces. To improve affordability and availability of the Internet services, the National Digital Masterplan has prioritized the establishment of 25,000 Internet-hotspots across the country to provide Internet services to innovators, youth and entrepreneurs. Under the Kenya Digital Economy Acceleration Project, the World Bank has approved US$ 390 million to finance the first phase of the programme that aims to expand access to high-speed Internet, improve the quality and delivery of education and selected government services, and build skills for the regional digital economy.
Key ICT projects such as the National Addressing System, National Public Key Infrastructure, and Konza Technopolis City are yet to be fully implemented. It is important to fast-track these projects, including the Konza Data Centre and smart city facilities to create more jobs and accelerate the Digital Economy. With the enactment of the Data Protection Act, which requires certain categories of personal data to be stored in the country, more data centres are expected to be established to offer storage services. Further, with the implementation of the Act, thousands of jobs will be created since all organizations processing personal data will require to put in place mechanisms for data storage and protection, including hiring a data protection officer to protect personal data.
Digital Government pillar
Kenya is ranked among the top 15 countries in Africa by United Nations E-Government Survey of 2020 due to increased investment in infrastructure and provision of online services. E-government has brought services and engagement opportunities directly to all citizens. Communities in remote areas can access services at home or through digital kiosks in the villages. Some of the e-government services offered include e-tax, licenses and registrations, e-parking and smart city services. There are over 52 physical Huduma centres across the country.
Government to Citizen (G2C) platform is a flagship project providing services, including business name search and registration, notice of marriage, registration of marriage, driving licenses, land searches and clearances, passport and visa applications. To increase the uptake of digital government services, the government is digitizing and automating all critical government processes throughout the country, with a view to bringing at least 80 per cent of all government services online at greater convenience to citizens. Notably, about 2,800 government services are available online with a target to make 5,000 government services available on a digital platform by the end of 2023. This move will not only make government services available but also improve revenue collection by the government. In addition, the government plans to create Smart ID cards that provide all citizens with a unique identifier.
Although significant progress has been made to increase access, transparency, equity, efficiency and effectiveness of government services, provision of e-services faces specific obstacles such as poor connectivity, low digital literacy, digital inclusion, privacy and cybersecurity.
Digital Business pillar
Kenya is ranked highly by global indices on E-commerce. The country accounts for 7.7 per cent in Internet Economy and 9 per cent for software programmers in Africa, based on e-Conomy Africa 2020 report. The report projects that Kenya will be accounting for 15.17 per cent in Africa by 2050. It is also observed that Kenya has potential to leapfrog on E-commerce due to its strategic location, 600 plus postal office countrywide and high mobile phone and Internet penetration. Kenya is home to several domestic E-commerce platforms such as Jumia, Masoko, and Twiga Foods.
Government measures to promote cashless payments have significantly increased the usage of mobile money. The number of mobile money subscriptions, agents and value of transactions have increased significantly with the onset of the COVID-19 pandemic. For instance, the value of transactions increased from Ksh 364.5 billion in March 2020 to Ksh 708.06 billion in December 2022.
Notwithstanding, the growth in e-commerce uptake in Kenya is in nascent stage, largely driven by mobile commerce. The 2019 Population Census data indicates that only 4 per cent of the population searched, ordered or bought items online, and the majority are between 15- and 44-years old living in urban areas. This is attributed to lack of a comprehensive legal and policy framework for e-commerce, inadequate data to support planning, unreliable and costly delivery services to the last mile level, low trust for digital businesses and lack of affordable broadband Internet services. Developing and implementing a comprehensive e-commerce policy and legal framework through a multi sectoral approach will promote the growth and development of e-commerce.
It is noted that a huge number of mobile phone user’s own 2nd generation-based devices with limited Internet speeds to support e-commerce activities. There is a wide digital divide between rural and urban areas and across counties in ICT device ownership and usage. The average ownership of household of desktop computer/ laptop/ tablet in Kenya stands at 8.8 per cent, which is considerably low. A report by the United Nations Conference on Trade and Development (UNCTAD) documents Kenya as having the largest share of its population with cryptocurrencies in Africa. The report observes that 8.5 per cent of the population or 4.25 million Kenyans own cryptocurrencies. In an attempt to tap on the digital currency, the Central Bank of Kenya (CBK) developed a concept note on applicability of a potential Central Bank Digital Currency (CBDC) in Kenya, which was subjected to public discussion in February 2022. Further, CBK recently launched the Kenya quick response code standard (KE-QR Code Standard 2023) to increase usage of digital payments. The Standard will promote financial inclusion by enabling institutions of various sizes and customer focus to increase adoption digital payments.
Innovation-Driven Entrepreneurship
Given that there are more than 60 active tech hubs supporting growth of digital innovations in Kenya, the country is seen as a powerhouse for digital innovations. According to research by Start-up Funding, Kenya tops the five most popular investment destinations in Africa for startups. According to GSMA report (2014), Kenya had about 40,000 ICT startups that created about 160,000 jobs. The main contributing reasons behind Kenya’s impressive performance on innovations include the establishment of supporting key institutions such as Kenya National Innovation Agency (KENIA), National Research Fund, and Kenya Industrial Property Institute (KIPI). Various funds are available to innovators, including Youth Fund, Financial Inclusion Fund, and Innovation Fund.
Digital innovations are key to a country’s resilience against the economic, climate and pandemic-related shocks such as the COVID-19 pandemic, and so is enforcement of the Ministry of Health guidelines. For instance, the Ministry of Health has a digital platform for COVID-19 immunization records. Innovations support inclusive growth by providing access to services for all. Further, the National ICT Advisory Committee established in 2021 identified tens of innovations to enhance Kenya’s resilience during the pandemic.
Despite a robust innovation culture in Kenya, many innovations fail to scale up due to financial and market limitations. Thus, creating an enabling ecosystem to support local innovations across the country will unlock the potential of many innovators. To this end, the Government’s recently established Startup Fund is instrumental in supporting innovators and entrepreneurs.
Digital Skills and Values Pillar
The development of quality ICT human resources is a prerequisite to the development of a robust digital economy. Investment in digital skills is key in unlocking the numerous opportunities that come with the digital economy. Locally, 22 public universities and 14 chartered private universities offer ICT-related degree programmes. Further, various tertiary training institutions equip students with technical and soft skills to make youth employable. For instance, Ajira Digital Programme is empowering over one million youth to access digital job opportunities. However, female enrolment in ICT-related programmes is less than 40 per cent, and most of the ICT jobs are dominated by males. There are low and intermediate digital skilled experts with few professionals possessing advanced digital skills. To accelerate the growth in digital economy, Kenya requires to develop high-end ICT skills to design and support complex digital systems and innovations.
The Government of Kenya has recognized the importance of software development in supporting the achievement of national development goals. Among the flagship programmes is the establishment of two major software industries that will employ over 100,000 software engineers to develop software/systems for the region, and for the global market. One software factory will be based in Bomet County under public-private partnership arrangement. These upcoming projects are expected to create employment opportunities for the youth and spur the country’s data economy growth. These initiatives will further boost the number of software engineers, who are above 60,000 as at 2020 compared to Nigeria which leads in Africa with more than 85,000 software engineers.
The Government of Kenya has delivered tablets to over 23,000 primary schools, some connected to Internet, over 228,000 teachers trained under the Digital Literacy Programme (DLP), but effective use of learning technologies remains a challenge. According to the Kenya National Bureau of Statistics (KNBS) data, less than 13 per cent of learners used online learning in 2020 during the COVID-19 due to limited last mile coverage, and costly Internet services. It is important for the government to accelerate rolling out of e-learning programmes, offer incentives to investors and implement adequate e-learning infrastructure to enhance resilience in insecure places and during outbreaks of pandemics. It is noted that computer science is an examinable subject at grade 7, which will further enhance digital skills among learners. Similarly, the government is integrating coding syllabus for schools with a goal of preparing learners for future jobs. To ensure that digital skills are available in the country, the government plans to establish 1,450 village digital hubs for citizen digital literacy training, film production and public access to government services.
Cross-Cutting Issues
The Communications Authority’s statistics indicate a significant increase in number of cybersecurity threats detected in the last five years. For instance, over 79 million threats were detected in January-March 2022 compared to 3.4 million detected in January-March 2018. The Economic Survey report of 2023 by the Kenya National Bureau of Statistics indicates that the number of attacks increased to 700 million in 2022 from 25 million in 2018. The demand for remote working tools has increased cyberattacks that exploit the vulnerable remote working tools. Strengthening collaborations by all actors in response to intrusions and creating more public awareness on cybersecurity will significantly stem down cyber threats.
Other equally important policy issues that require to be addressed include the increasing amount of electronic waste (e-waste) that poses a significant challenge to the ecosystem. Kenya is a net importer of electronic equipment and devices that sometimes are second hand. If this is not managed, the high level of e-waste will affect the environment. Specifically, the government is keen to establish environmentally friendly recycling and disposal mechanisms and programmes for e-waste across the country.
Digital Economy has continued to attract government attention as demonstrated by the recent creation of the Ministry of Information, Communications and Digital Economy. As noted earlier, the government has committed to establishing the digital superhighway to towards universal broadband availability and supporting the delivery of public services. The government plans to construct 100,000 km of national fibre optic connectivity network and digitize all government services.
Other policy efforts by the government include the establishment of various strategic policy and legislative frameworks. The Kenya Vision 2030, Digital Economy Blueprint, National ICT Policy, National Digital Masterplan, National Cybersecurity Strategy and National Payments Strategy are key in transforming Kenya into a knowledge-based economy. In addition, Kenya has enacted a key legislation for promoting digital economy through the Data Protection Act, 2019. Therefore, a favorable policy environment is accelerating Kenya’s digital growth to showcase leadership in the technology space. In addition, Kenya has potential to accelerate its digital economy by fast-tracking the development of national policies and strategies that guide the adoption of the emerging technologies such as Artificial Intelligence, Big Data, Blockchain, Virtual Reality, and electric mobility.
Further, the effects of COVID-19 pandemic re-awakened the need to accelerate digital transformation not only in Kenya but globally. Digital technologies will continue opening new possibilities and opportunities in gig, open and creative economies, thus fostering digital economy in the country. With the right mix of policy actions on digital technologies, Kenya has huge potential to lead the continent in exploiting the expected US$ 180 billion digital economy by 2025.
[1] Innovations that create new markets and value networks, and eventually disrupt existing markets and value networks. These innovations improve a product or service in ways that the market does not expect.
[2] Open banking allows for financial data to be shared between banks and third-party service providers using application programming interfaces.
[3] Applications that connect passengers and local drivers for a customized ride.
By Dr Humphrey Njogu, Principal Policy Analyst, Infrastructure and Economic Services Department
