Kenya ICT Board Monitoring and Evaluation Survey Results

1. Kenya ICT Board Monitoring and Evaluation Survey Results 22ND November 2011

2. Agenda • Project Background • Market Overview (Key Indicators 2010, Kenya IT Market Value (US$M) Forecast 2010-2015, Kenya IT spend by Vertical segments) • ICT Ecosystem Overview - Vendor Survey (market Structure, challenges, opportunities, Vendors performance, outlook) • International Benchmarking • ICT Skills Survey Highlights • Residential Usage and Penetration Highlights • Business Survey Highlights • Recommendations

3. Project Background

4. Background • Survey Highlights • Aims to provide ground-breaking primary research that encompasses numerous market sub -segments and different stakeholders • It will leverage on existing secondary market research in order to consolidate existing discrete market information • It will have a repeat cycle to gauge the progress and impact of KICTB and other stakeholders’ initiatives. • The survey is consultative as well – where multiple stakeholders are both respondents (i.e. What are your issues?) and also beneficiaries (i.e. What to do?) • Timely – to augment development of existing KICTB projects – Pasha centres (rural access) , Tandaa (digital content), Wezesha (asset financing) as well as other government ICT initiatives • Survey Objectives • Understanding the Kenyan ICT Ecosystem and trends in the market. • Sizing the ICT Market and its sub segments (hardware, software, services, etc) in Kenya. • Compiling a baseline of key ICT KPIs • Benchmarking key Kenya ICT indicators against six countries • Understanding the ICT Skills availability, demand and gaps

5. Kenya ICT Market Overview

6. Market OverviewKenya ICT Market Key Indicators

7. Market Overview ICT Spending by Technology Areas

8. Market Overview Spending by Vertical Sectors

9. Kenya ICT Ecosystem

10. Kenya ICT EcosystemStructure

11. Kenya ICT EcosystemHighlights 1/2 • There are an estimated 20-30 vendors present in the market most of whom rely on a small pool of major distributors and Tier 1 Value Added Resellers (VARs) and Dealers who combined account for the bulk of ICT Business in Kenya estimated at nearly 50-60%. • On average PC and Printer vendors each have between three to four distributors and at least six other partners (dealers and systems integrators) each at different market levels. • At the lower part of the pyramid are Tier 2 VARs and dealers, estimated to number more than 100 players and whose focus is part of the SME segment, the SMME and home user segment. These are players who typically do not have a country wide presence and would largely be found operating at a provincial level or even a national level (where SMEs have such a presence to require nationwide services) but at a smaller scale nonetheless. • These Tier 2 firms are mostly Kenyan owned companies serving other Kenyan owned businesses and occasionally securing parts of relatively good contracts in the government and education segments, where procurement of goods or services may require a local player.

12. Kenya ICT EcosystemHighlights 2/2 • The Tier I players largely comprise companies with both a national and regional presence, and in most instances are majority foreign owned companies spinning off regional offices in South Africa, UAE, India among other countries. • Owing to having a good foothold in their parent regions, coupled with access to industry best practices, fairly solid skills bases and access to capital, such companies have been able to target the market segment that includes multinational companies (MNCs), large enterprises and government, where such credentials bear heavily on decision making at this level. • Vendor competition on channel partnerships has intensified with main distributors being sought after by other vendors to leverage on their reseller network. Thus multiple brand handling by the channels is the norm even for channel partners who were "loyal" to certain vendors. • The channel is maturing fast with thinning out of grey shipments. • Telcos and telco channels are now selling PCs.

13. Kenya ICT EcosystemHighlights 2/2 • Vendors are keen on setting up offices in Kenya to serve the East and Central Africa region. • Vendors with a local presence enhance the brand image significantly as well as improve logistical support and increased marketing campaigns. • With more vendors setting up locally, the market has seen an increase in both the number of channel partners. • Government initiatives including infrastructure development, regulatory reforms (licencing frameworks), investment in public access centres, e-government projects, content creation, device subsidies, have all had a very positive effect in transforming the market, stimulating investment, ICT uptake and bolstering confidence in the overall ICT market. • Thus vendors have registered positive growth over the last three years of between 15-15% in business and with some posting growth in headcount of between 25-50%

14. Kenya ICT EcosystemKenya as a regional Hub • Kenya is without doubt the regional hub for most vendors with a regional reach spanning between three to six countries on average for vendors. • Aside from being a hub, it is also a stepping stone for these vendors to set up operations in neighbouring countries but still maintaining somewhat centralized marketing, inventory and support functions at regional levels. • Inherent in this structure are various opportunities including training, skills transfer, overall higher employment, technology leadership and increased investment. Among the countries Kenya based vendors have reach into from their Kenyan hub include: Uganda, Tanzania, Rwanda, Burundi, Ethiopia and Southern Sudan.

15. Kenya ICT EcosystemChallenges faced • Challenges • Currency fluctuation affecting imports • Overall low purchasing power especially in 2011 with high inflation putting pressure on disposable income. • Taxation on consumable products and unclear taxation framework to define various ICT imports. • Product/Service quality perception vis a vis other competing products/services in the market (e.g. pro-West stance or pro-more established brands) • Lengthy customs procedures - demurrage costs passed on to users therefore higher prices. • Sourcing highly qualified talent. • Doing business with the government – procurement laws.

16. Market Opportunities • Skills development. • Further infrastructure investment mainly last mile access and quality of existing networks is crucial for more pervasive adoption. • Reform tax environment to attract ICT investors. • Addressing the problem of counterfeit products (consumables, devices) , with support of relevant government departments (in terms of scrutiny, enforcement and standards). The success experienced by counterfeiters illustrates there is good demand for products. • Skills gaps are opportunities where channel partners can intervene themselves rather than leave it up to vendors to acquire and maintain the skills. Channel partners can develop their own existing staff to meet some of these positions and leave the vendor to have a basic presence - a sort of shift down the tier and in line with the earlier stated objective to deepen intimacy with customers and strengthen the channel. • Overall growth in the IT market will continue to stimulate growth in other areas. • Enhance the platform for increasing regional reach.

17. Kenya ICT EcosystemVendors’ Market Outlook • Investing in specific ICT Skills like mobile applications development and setting up innovation hubs. • Vendors have deliberate strategies to develop and use more local talent than imported. • Setting up innovation funds at academic levels and for developer groups • Entry of products relevant to the local market and environment (e.g. solar powered devices) • Increased participation in government driven ICT programmes. • Watching very keenly on developments with the Konza Digital City with a view to enhancing presence and regional investment. • Deepen customer relations as more intimacy is needed in the market. • Reforming go to market strategies in line with a changing ecosystem underpinned by technological and other developments. • Increase presence in the region, headcount and channel partnerships. • Enhance vertical sector and product specializations – skills, products, GTM approach. • Focus on infrastructure issues and how to address how lack of adequate infrastructure (power) affects uptake.

18. Benchmarking Kenya

19. Benchmarking Internet Users vs Connections as a % of population • In more developed countries the total number of connections vis a vis the number of users are evenly spread • In countries like Kenya, Nigeria and Morocco, there are lower numbers of connections but higher number of users indicating most connections are shared connections and largely comprise business connections (including publicly accessible connections like cyber cafes, education institutions).

20. Benchmarking Total Internet vs Household penetration • Kenya has a higher internet penetration vis a vis South Africa but mainly bolstered by mobile internet connections though with a lower proportion of households connected owing to a declining fixed network and poor development of DSL based services. • Kenya compares much better than both Nigeria and Rwanda on both counts • Egypt has a much higher overall and household internet penetration with a huge gap between Kenya of almost 25 percentage points at household level.

21. BenchmarkingComputer Penetration • Kenya has slightly higher PC penetration rates than Nigeria and Rwanda but still very far behind South Africa and Morocco, mostly owing to lower disposable income than these countries.

22. BenchmarkingHousehold Internet Access vs Household PC Access • In terms of PC Access at the household level, Kenya is only better than Rwanda. • It should be noted that Nigeria as a manufacturer of PCs (Zinox brand) that are locally affordable, accounts for much higher PC penetration at household levels but negligible household internet penetration given infrastructure issues (submarine cables arrived way after they did in East Africa)

23. BenchmarkingBusiness Internet Usage • In terms of business usage of the internet, Kenya is nearly on par with more developed countries like Egypt and Morocco and slightly ahead of Nigeria

24. BenchmarkingBroadband Access Tariffs • Despite additional capacity, cost of broadband is still a factor for business vis a vis other countries. • Nigeria has recently got a lot of international bandwidth but constrained somewhat by back bone, last mile access and electricity challenges. • Landlocked Rwanda largely relies on bandwidth from operators in neighbouring countries.

25. IT Skills Survey

26. IT Skills Survey Highlights IT Employment by Profession • Of the total IT employment in Kenya (~27,000 IT professionals in 2010), IT support people represent the largest portion (27%), followed by Applications Systems Analysts and System Engineers (13% each). • The structure of IT professions is slightly different for IT companies and end-users. While the IT management and administration professions prevail in the end-user segment, IT companies employ more IT development-related professionals. Source: IDC IT Skills Model

27. IT Skills Survey Highlights Demand Prediction by Professions • Roughly 9600 IT professionals are expected to be added to the Kenyan IT workforce. • The demand for individual IT professions differs by profession. • Software Developers (at 70% growth) and Project Managers (at 57% growth) are the professions expected to grow the fastest over the period 2011-2013. Source: IDC IT Skills Model

28. IT Skills Survey Highlights Availability of IT Professionals • Application Systems Analysts and Software Developers are the IT professions that are least available. Approximately 45% of respondents reported they are very difficult or difficult to find. • On the contrary, IT Support people and IT Administrators are much easier to find – only for less than 10% of respondents, they were reported as very difficult of difficult to find. Source: IDC IT Skills Research N = 158 Source: Business Survey

29. IT Skills Survey Highlights Demand/Availability Matrix for IT Professions Focus Consider Application Systems Analyst Difficult Software developer Availability System Engineer % of companies reported very difficult or difficult to find IT Manager/ Director IT Consultant IT Project Manager Team Leader Web Designer IT Administrator Easy IT Support Monitor Demand Low High New jobs growth between 2011 and 2013

30. IT Skills Survey Highlights Demand Prediction by IT Skills • The demand for individual IT professions differs. The most growing demand will be seen for IT Project Management Skills (136%) and Software development skills (135%). • IT Administration and HW skills are projected to grow at the lowest rate – less than 12%. Source: IDC IT Skills Model

31. IT Skills Survey Highlights Availability of IT Skills • Software development/deployment & Enterprise/business application skills are least available – for approximately 30% of interviewed organizations, these professions are very difficult or difficult to find. • Project management, security and mobile technology skills were also reported as difficult to find. • Internet-related & Networking skills are available and easy to find. N = 158 Source: Business Survey

32. Project Management IT Skills Survey Highlights Demand/Availability Matrix for IT Skills Focus Consider Difficult Software Development Enterprise/Business Applications Availability Security IT Project Management % of companies reported very difficult or difficult to find Mobile Technologies Data Storage Databases HW IT Adm. Networking Easy Internet Monitor Demand Low High New jobs growth between 2011 and 2013

33. IT Skills Survey Highlights Supply side: Skills lacking in graduates • Skills lacking in graduates: Interviewees were asked about the skills they thought their graduates were lacking in or particularly strong in, following are the skills plotted representing an average of the ratings. Problem solving Hardware skills Software skills Skills in graduates LACKING STRONG IN Structured & Innovative thinking Project management skills Team skills • Software skills and Problem solving skills rated the highest while hardware and project management skills rated much lower.

34. IT Skills Survey Highlights Demand Side : Skills lacking in graduates • When probed on the types of skills usually lacking in graduates, companies cited Innovative thinking, Problem solving and Project management/implementation as the top three skills that are lacking • Some of these findings were seconded by the university interviewees which indicated lower ratings on project management/implementation skills and innovative thinking. • Based on some interviews with ICT companies, Business/ Soft skills were cited as lacking in graduates as well as keeping up with technology trends; the view was expressed that the gap between theory and practice needs to be bridged via mediums such as internships Q: What type of skills are the graduates particularly lacking? Source: Business Survey

35. IT Skills Survey Highlights Overall business perception of IT Skills • Roughly a quarter of companies are not satisfied with the quality of IT professionals from educational institutions in Kenya • Approximately a third of companies have contacted or plan to contact external providers to manage the skills shortages. • Roughly half of the respondents believe that the lack of IT skills significantly impacts business and IT operations & performance. Source: Business Survey

36. IT Skills Survey Highlights Inhibitors – Supply Side/Educ inst view • Funding and Infrastructure constraints cause less availability of resources and labs; not all the educational institutions are adequately networked • Scarcity of experienced faculty and a general shortage of teaching skills for technology; it was also indicated that it is tough for educational institutions to match private sector pay • Last-mile connectivity to rural areas was also cited as an inhibitor. This severely limits the availability and accessibility of internet, both from a quality and price perspective • Quality of education: The view was expressed by more than one interviewee that skills obtained from many colleges and institutions are not adequate for the industry. Consistency of curriculum was a common theme, with the lack of guidelines emphasized. The watered-down value of certifications and lack of market-relevant courses in some educational institutions were other themes. • General lack of understanding of IT as a career

37. IT Skills Survey Highlights Inhibitors - Businesses view Q. In your opinion, what are the key factors hampering the availability of IT skilled professionals in the country? Source: Business Survey

38. Residents Survey Highlights

39. IT Skills Survey Highlights IT companies view of inhibitors of IT skills • Some large ICT companies were of the opinion that that the overall skills pool in the Kenyan market is rather limited. • The view was also expressed that there is more of a gap at the advanced skills level as many IT professionals with advanced skills leave the Kenyan market while there is not much of an influx of experienced professionals from abroad. • Another related issue is loyalty and attrition; IT professionals are perceived as migratory and there seems to be a fair bit of poaching; an opinion which is consistent with the business survey where 80% of the companies indicated that attrition has a minor to significant impact on their organizations. • Frequency and size of IT projects: The view was expressed that there may not be enough big IT projects that can result in a large pool of skilled personnel, consequently there are not enough projects that allow professionals to exhibit or develop their skills. • Availability of lower cost imported ICT labour was also cited as an inhibitor to skills supply.

40. IT Skills Survey Highlights Gap analysis framework IT Professionals from abroad Training/ Re-training Students who go abroad or pursue higher studies ‘Unqualified’ supply or Skills mismatch ‘Brain drain’ especially at higher Skill levels Attrition Gap Gaps filled by expats for short-term project duration Move to management tracks Demand

41. IT Skills Survey Highlights Dimensions of the gap in IT skills • Technical gaps • Enterprise/business application skills, software development, mobile applications • IBM and SAP related technology skills • Higher-level gaps • Shortage of experienced IT personnel • Poaching and moving abroad i.e. ‘brain drain’ reported; also technical staff moving to management tracks • Experienced professionals from abroad not coming in Gap in IT professionals • Graduate-level skill gaps • Project management • Problem solving • Innovative thinking • Gap between theoretical and practical skills; insistence of some experience from IT firms • Quality gaps • Candidates who have certifications and educational qualifications but do not bring the expected quality • Inconsistencies in course duration and curriculum within the courses

42. IT Skills Survey Highlights Overall Recommendation areas and initiatives Integrate ICT in education Expand capacities of universities and colleges Establish specialized training programs for graduates • Incorporate more ICT elements at secondary level • More attachment programs and internships with technology companies to learn and apply • Provide infrastructure and funding support • Address qualified teaching shortage; Evaluate & incentivize the supply • Focus on recognized skill gaps such as business skills and ‘soft’ skills • Partner with training/ICT companies; encourage investment to ensure training availability Harmonize and monitor supply & demand Focus on special interest areas Improve connectivity • Definitions and quantification of demand roles and types of skills • Policy on course design and criteria to fulfil these roles • Open up data to relevant stakeholders • Local context and relevance e.g. ICT in agriculture • Innovation areas similar to m-pesa • Incentivize reverse brain drain i.e. Kenyans based abroad • Provide last-mile connectivity through pricing incentives • Help middle and lower tiers of educational institutions to get connected Financing & Support Review ICT curricula Promote IT as a career • Specialized funding for ICT courses • ICT incubators with educational institutions • Tax relief & special funds for technology focus areas • More regulation, more rigor and standardization • Public-private partnership body to ensure curriculum standardization • Online mechanism with Assessment of IT skills online • Attract more people (especially youth and females) via promotional campaigns • Attractive industry compensation standards Government organizations, IT companies and Educational institutions would need to collaborate extensively in the above areas to achieve the ICT skills-related objectives related to the Strategic Plan and Kenya 2030.

43. IT Skills Survey Highlights Projects prioritization High Consider Implement Expand capacities of universities and colleges Review university curricula Focus on special interest areas Improve connectivity Establish specialized programs for graduates Impact Financing & Support Promote IT as a career Integrate ICT in education Harmonize and monitor supply & demand Low Low High Ease of implementation

44. Residents Survey Highlights

45. Resident’s Survey HighlightsInternet Usage at home Internet Home Penetration by Location Internet Home Penetration by SCL Base : Total Sample (750) • 26% of the surveyed HH use internet • Internet usage increases by SCL levels. It is highest in Mombasa (37%) Base = The figure in parenthesis represents the base of the respective category

46. Internet Usage at homeInhibitors for Not Using internet at home Q17. What are the reasons for not having internet connection at home till now? Highest in Eldoret (77%), in SCL D (77%), Highest in Kisumu (43%), in SCL C2 (39%), Highest in Nyeri (21%), in SCL AB (18%), among the 15-24 yrs (22%) Highest in Nyeri (32%), in SCL AB (17%) Highest in SCL D (36%), among the 45+ yrs (26%) Highest in Kisumu (11%) • Unavailability of PC is the main reason for not using internet from homes (58%) • The usage of internet within low SCL’s (D and C2) is mainly hindered by their inability to buy PC’s or pay for internet connection Base = The figure in parenthesis represents the base of the respective category

47. Kind of PC, Internet Device & Mobile Service Used • Q60. Which kind of mobile service do you use? • Q25. What kind of PC do you use? Base : Users of PC (519) Base : Users of Mobile Phone (746) • Q31. Which of the following devices have you used to access the Internet in the past 12 months? • Accessing internet is largely done from mobiles, either internet-enabled handsets (80%) or smartphones (15%) • A significant portion of PC usage (desktop or laptop) is dedicated to accessing the internet Base : Users of Internet (592) Base = The figure in parenthesis represents the base of the respective category

48. Purposes for Using PC • Q27. What is your primary purpose for using the PC? Overall Base : Users of PC (519) • Respondents use PC mainly to perform personal task (71%), especially old individuals 45+ years • Entertainment and education purposes drive respondents 15-34 yrs old to use PC. These reasons decrease significantly among older users (35+yrs) • Old males (45+ yrs) tend to use PC for work reasons much more than other demographics. Base = The figure in parenthesis represents the base of the respective category

49. Purposes for Using the Mobile Phone • Q59. Which of the following services do you actively use on your mobile device? Overall Base : Users of Mobile Phone (746) • Calling and texting share respondents' main usage of the mobile (around 97%) • The usage of internet enabled services and PIM mainly attracts the young category (15-24 yrs). Their usage decreases significantly by age Base = The figure in parenthesis represents the base of the respective category

50. Confidence in Using the PCOverall • Q47a. How confident are you in using… • Highest confidence is recorded in the areas of text processing (68%) and working with spreadsheets(57%) • PC users are least confident in maintaining the computer (checking and solving problems, 36%) and programming (31%) Base = Users of PC (n=519)