ICT for Trade and Economic Growth - Kenya Study Presentation at CODI V in Addis Ababa May 3, 2007

1. Meoli Kashorda ICT facilitated trade and growth in Kenya 1 ICT for Trade and Economic Growth- Kenya Study Presentation at CODI V in Addis Ababa May 3, 2007 Dr. Meoli Kashorda, MIEEE MIET Professor, Faculty of Information Technology Study ICT Expert Dr. Mbui Wagacha Independent Consultant and Study Economic Expert

2. Meoli Kashorda ICT facilitated trade and growth in Kenya 2 Agenda Kenya � some facts! Objectives of study Study methodology and sources of data ICT terminology Trends and impacts of ICT policy, legislation, and regulation Telephony and Internet growth E-government strategy Software industry and ICT services ICT facilitated domestic and international trade Findings for large and medium sized enterprises Findings for small and micro-enterprises Conclusions and Recommendations

3. Meoli Kashorda ICT facilitated trade and growth in Kenya 3 Key facts about Kenya Top-ranked in Global Happiness Index (or Optimism Index) Definition � HI = Achievement / Expectations Major cities of the developed world organize annual marathons to honor Kenyans Boston, London, New York etc. Over 1 million tourists per year travel warnings notwithstanding Kenyans are surprised it is so low Over 50% of population lives on more than $1 per day ICT indicators Mobile customers = 8 million Internet users = 2.7 million Time Server and J-root name server at IXP! Population 32 � 34 million; GNI per capita = $530; over 130,000 university students Most Kenyans, including political leaders, do not know or care about Knowledge Economy and associated Index!

4. Meoli Kashorda ICT facilitated trade and growth in Kenya 4 Objectives of Study Assess the ICT and trade policy environment Demonstrate potential economic benefits of ICT in trade facilitation Assess the awareness and usage (readiness) of ICTs by SMMEs Develop and propose relevant policy recommendation to government

5. Meoli Kashorda ICT facilitated trade and growth in Kenya 5 Methodology and sources of data Empirical work and evidence from other studies Trade and ICT policy trends in 9 years legislation, policy, and strategy documents Impact on ICT growth and penetration ITU 2006 World Telecommunications database Firm-level ICT readiness assessment of SMEs SMME ICT survey 2005 (Research ICT Africa data) and World Bank Investment Climate Survey 2003 Focus Group Discussions and Roundtable

6. Meoli Kashorda ICT facilitated trade and growth in Kenya 6 What are Information and Communications Technologies? Use ICT as an umbrella term to mean Computing (software and hardware), telecommunications (mobile, fixed, Internet), and broadcasting Convergence of computing and telecommunications has already happened Convergence of industry Convergence of services Convergence of regulation Kenya is still in the Big IT domain; the IT programs are really Information Systems programs Accreditation Board for Engineering and Technology (ABET) Kenya is still in the Big IT domain; the IT programs are really Information Systems programs Accreditation Board for Engineering and Technology (ABET)

7. Meoli Kashorda ICT facilitated trade and growth in Kenya 7 Firm-level assessment of ICT infrastructure to facilitate trade

8. What is Network readiness index and what does it measure? Three important stakeholders Individuals, businesses and government Readiness Example Individual variables Public expenditure on education Tertiary enrollment Affordability of internet and telephone services Adult literacy, ICT Example business readiness Ease of obtaining telephone lines (fixed) Quality of business schools Cost of Internet or business phone subscription Government readiness Government prioritization of ICT Government procurement of ICT Government online presence Usage Individual: PCs, Internet users Business: PCs, technology absorption Government: government on-line services, success of automationThree important stakeholders Individuals, businesses and government Readiness Example Individual variables Public expenditure on education Tertiary enrollment Affordability of internet and telephone services Adult literacy, ICT Example business readiness Ease of obtaining telephone lines (fixed) Quality of business schools Cost of Internet or business phone subscription Government readiness Government prioritization of ICT Government procurement of ICT Government online presence Usage Individual: PCs, Internet users Business: PCs, technology absorption Government: government on-line services, success of automation

9. Meoli Kashorda ICT facilitated trade and growth in Kenya 9 What is the firm-level motivation for using IT systems? Business or organizational strategy Leadership believes IT matters! IT business value framework Study has a special focus on firm-level ICT diffusion and usage

10. Meoli Kashorda ICT facilitated trade and growth in Kenya 10 Why the focus on ICT at the national level? Knowledge economy � basis for competitiveness is knowledge and innovations Four pillars: Institutional, educational, innovation, and informational infrastructure Knowledge Economy Index (KEI) and the Knowledge Assessment Methodology (KAM) Networked readiness index (NRI) What happens if trading partner has higher KEI or NRI?

11. Meoli Kashorda ICT facilitated trade and growth in Kenya 11 Some empirical evidence of ICT-Growth-Trade Benefits of ICT cut across Developed and Developing Countries; Developing Country benefits are HIGHER Example of mobile phone: For an increase of 10 units per 100 people: GDP growth up 0.6 percent per year in Developing countries (twice as high as in Developed Countries (Prof. Fuss, London Business School) (Over 70 billion Ksh for Kenya)

12. Some empirical evidence of ICT-Growth-Trade (cont�d) Example of Internet Use: Increases Total Exports by 4.3 percent; Increases export from low income to high-income countries by 3.8% See Clark and Wallsten (2004) Developing countries with initial poor access to Internet gain most

13. Meoli Kashorda ICT facilitated trade and growth in Kenya 13 Networked Readiness Index (2004-2007) The teledensity for Mobile phones is now over 40 lines per 1000 people. Two mobile operators licensed Fixed operator is a monopoly The teledensity for Mobile phones is now over 40 lines per 1000 people. Two mobile operators licensed Fixed operator is a monopoly

14. Meoli Kashorda ICT facilitated trade and growth in Kenya 14 Does Kenya use indexes (KEI, NRI, HDI) in its policies? NO Does it simply ignore them? Deliberate or ignorance? Denial Data is not accurate, Kenya is way ahead of neighbors! Inform National and Enterprise ICT strategies Basis for competitive analysis or SWOT analysis Drive the ICT facilitated trade strategy But Network Readiness Indexes as important as other economic indexes like Consumer Price Index (CPI) Unfortunately the world is measuring our networked readiness index and using it to make decisions! ITU ICT-OI, EIU, WEF/INSEAD etc.

15. Trends in Kenya ICT regulatory environment Kenya Communications Act (KCA)1998 Current legislation All liberalization and regulation under this law Institutions created by KCA 1998 CCK (Communications Regulator), Appeals Tribunal, National Communications Secretariat (Policy arm), Telkom Kenya Ltd, Postal Corporation of Kenya Kenya Communications Regulations 2001 Rules for regulation derived from KCA 1998 Interconnection agreements

16. Meoli Kashorda ICT facilitated trade and growth in Kenya 16 Implementation of KCA 1998 and KCR 2001 Phase 1: Deregulation of former monopoly incumbent and sector liberalization but � Partial implementation of KCA and KCR Exclusivity period for incumbent operator 1999-2004 Leased line prices did not fall; Slow growth of Int�l Internet bandwidth Duopoly in mobile services but rapid growth of mobile users Phase II: Enforcement of license conditions starting Dominant operator status unknown and affects regulation

17. Meoli Kashorda ICT facilitated trade and growth in Kenya 17 What is new in the ICT Policy 2006 and proposed bill KIC 2006 addresses the following additional issues: Broadcasting legislation Legal framework for E-commerce and E-government (none existed) Establishment of universal Service Fund KIC 2006 expected to be published and enacted in 2007! ICT policy 2006 already published

18. Meoli Kashorda ICT facilitated trade and growth in Kenya 18 ICT Tax regime No duty or VAT on PCs in Kenya No duty or VAT on PC parts (2006) Prices of PC falling Total Mobile Airtime Tax = 26% Excise duty = 10%; VAT =16% Conceptually at par with taxes on alcohol and cigarettes Roundtable recommended reduction of excise tax to 5% to increase user base Use excise tax to build rural infrastructure/Universal Service Fund

19. Meoli Kashorda ICT facilitated trade and growth in Kenya 19 Does Kenya have an national ICT strategy? ICT policy published January 2006 Associated convergence ICT bill still in Parliament Kenya Communication Act 1998 not fully operationalized! E-government strategy 2004 Implementation at this time focuses on infrastructure (the easy part!) ICT in Education strategy being developed National university strategy under development and includes ICT ICT Master Plan ICT policy analysis studies? Areas of strength or competitive/comparative advantage? Outsourcing destination? Export software industry? ICT parks?

20. Meoli Kashorda ICT facilitated trade and growth in Kenya 20 Does the current ICT policy and regulatory framework support trade? Effect of policy on telephones Availability and affordability Effect on Internet Availability, speed, and affordability Effect on firm-level or organizational ICT infrastructure? LANs, PCs, networked applications?

21. Meoli Kashorda ICT facilitated trade and growth in Kenya 21 Availability - Growth of Kenya Fixed and Mobile Services

22. Meoli Kashorda ICT facilitated trade and growth in Kenya 22

23. Meoli Kashorda ICT facilitated trade and growth in Kenya 23 Trends in mobile tariffs since 1999

24. Meoli Kashorda ICT facilitated trade and growth in Kenya 24

25. Meoli Kashorda ICT facilitated trade and growth in Kenya 25 Geographical dispersion of leased lines (business Internet)

26. Meoli Kashorda ICT facilitated trade and growth in Kenya 26 Growth in Internet Infrastructure in Kenya KENIC and KIXP examples of successful Public Private Partnerships Time Server and F-root name servers installed in Kenya KENET a national research and education network All universities connected KENET-Google partnership Estimated 2.7 million users Challenge � Internet bandwidth in Kenya very expensive! Economies of scale problem?

27. Meoli Kashorda ICT facilitated trade and growth in Kenya 27 Growth in international Internet Bandwidth 700 MB700 MB

28. Meoli Kashorda ICT facilitated trade and growth in Kenya 28

29. Meoli Kashorda ICT facilitated trade and growth in Kenya 29 2.7 million in 20062.7 million in 2006

30. Meoli Kashorda ICT facilitated trade and growth in Kenya 30 International Internet bandwidth costs per Mb/s Average purchase price by Internet Gateway Operator licensees Average � USD 2,200 per Mb/s Maximum � USD 3,000 per Mb/s Minimum � USD 625 per Mb/s ! Depends on bulk purchasing and long-term contracts Licensing regime affects end-user prices 4 Optical fibers planned for Kenya! EASSY, TEAMS

31. Meoli Kashorda ICT facilitated trade and growth in Kenya 31 Growth in PCs per 100 inhabitants

32. Meoli Kashorda ICT facilitated trade and growth in Kenya 32 No dataNo data

33. Meoli Kashorda ICT facilitated trade and growth in Kenya 33 Business Internet Usage (2003)

34. Meoli Kashorda ICT facilitated trade and growth in Kenya 34 ICT usage by SMMEs (2005)

35. Meoli Kashorda ICT facilitated trade and growth in Kenya 35

36. Meoli Kashorda ICT facilitated trade and growth in Kenya 36 What applications will promote usage of ICT by business and government? Mobile SMS applications Banking, information access, content ERPs, retail and business applications for small business? Networked business applications need much lower tariff to be sustainable New ICT policy plans to promote software development But no support yet! Cheap software required by business Business and IT education Have had the opportunity of developing a business teaching case with SafaricomHave had the opportunity of developing a business teaching case with Safaricom

37. Meoli Kashorda ICT facilitated trade and growth in Kenya 37 ICT applications in Government Is Government using the Internet? What E-government applications have been deployed? ICT infrastructure without applications is useless! Implementation of E-government strategy will create many opportunities for large software companies Winners will be Enterprise Resource Planning software and database system companies (e.g., SAP, Oracle, Consultants)

38. Meoli Kashorda ICT facilitated trade and growth in Kenya 38 Why is Internet usage low in SMME sector? Roundtable and focus group agreed on following factor in order: Management mindset is the most significant barrier Business culture that does not promote transparency especially on pricing ICT diffusion and affordability Low uptake of E-commerce not directly related to laws but limited internal readiness and usage of ICT Baseline survey recommended

39. Meoli Kashorda ICT facilitated trade and growth in Kenya 39 Mobile and wireless applications Innovations in mobile applications in high demand in Africa Pre-paid service innovations Emerging SMS applications Mobile Internet applications Mobile e-commerce and e-learning applications Applications in tourism and agriculture? High level of software development proficiency required Certification of software developers and software houses! Incubate software development companies

40. Meoli Kashorda ICT facilitated trade and growth in Kenya 40 Key Recommendations Phase II Communications Regulation will require: Feedback based on data analysis on a regular basis very important Kenya telecommunications cost study and Internet market analysis excellent examples Local database of tariffs, users, infrastructure maintained by regulator to ensure effective policy analysis All operators and service publish tariffs

41. Meoli Kashorda ICT facilitated trade and growth in Kenya 41 Key recommendations (cont) Communications Regulation Avoid partial regulation or conduct detailed impact analysis of decisions using data Is there competition among ISPs? Internet gateway providers? PDNO? Dominant operator? Demand-side data analysis necessary for effective regulation Are services affordable? How about quality? Focus on enforcement of rules now NOT licensing Ensure fair competition and prices will drop

42. Meoli Kashorda ICT facilitated trade and growth in Kenya 42 IT regulation KIC 2006 bill needs to become law now Development and use of sector specific readiness index and policies Similar to NRI with local variables Use index to set targets Promote development and use of networked applications in enterprises and government Local firm-level connectivity is the real problem in Kenya Align regulation to important sectors of economy Develop sector specific index

43. Meoli Kashorda ICT facilitated trade and growth in Kenya 43 Recommendations (cont) Embed ICT measurement and data collection to be embedded in CCK, tax, and statistical offices Kenya does not yet know the total size of ICT sector Implementation of policy and strategy depends on leadership capacity of businesses, government, and educational institutions Conduct a competitive analysis of ICT to establish national areas of focus Focus on change management and project management Training � business schools? Performance management

44. Meoli Kashorda ICT facilitated trade and growth in Kenya 44 Firm-level ICT strategies Companies listed in NSE are effective users of ICT Large and Medium-sized also effective users of ICT It is stronger leadership Business and management education for small and micro-enterprises very important Analysis of affordability issues necessary It is NOT just the PC � the applications are more important for diffusion

45. Meoli Kashorda ICT facilitated trade and growth in Kenya 45 Leadership and change management is ALL we need Focus on leadership and management NOT technology Management skills Data analysis skills Kenyan businesses and government need to be ready for KIC 2006 No regulator or government has been stopping Kenya from interacting using ICT Transaction need recognition of electronic signatures

46. Meoli Kashorda ICT facilitated trade and growth in Kenya 46 Recent Developments Kenya Transparency and Communications Infrastructure Project ($150 million approved by World Bank) E-government applications starting with E-procurement and digital villages Capacity support for Kenya Education Network in terms of Internet bandwidth subsidy, data centers, and human capacity Support for Business Process Outsourcing (ICT sector) ICT board to oversea project 5,000 KM national optical fiber backbone Undersea optical fiber (EASSY, TEAMS) by early 2008 Solves availability and affordability Are SMMEs ready?

47. Meoli Kashorda ICT facilitated trade and growth in Kenya 47 END