How MSMEs are being supported to tap digital economy opportunities

The government has made strides in its efforts to drive capacity building and digitization for Micro, Small and Medium (MSMEs), according to a study by Center for International Private Enterprise (CIPE). The study that aimed at enhancing the accountability of the government on progress made on the digital economy commitments and the ICT masterplan.

According to an independent report by ClerkMaster Consulting for CIPE and the Kenya Private Sector Alliance (KEPSA) Foundation, the Kenya Kwanza administration has received a 57% score for its efforts to upskill MSMEs, a 40% score for addressing digitisation costs, and a 51% score for cybersecurity initiatives.

“Digital economic transformation plays a significantly role in the global stage as a driver of innovation and competitiveness as well as determining the future global economic environment. The government’s efforts to address these challenges that are impeding MSME integration into the digital landscape are starting to bear fruits but challenges remain,” CIPE Program Lead Lim Hazel said.

In a bid to bolster the role of MSMEs within Kenya’s rapidly evolving digital economy, CIPE, in partnership with the KEPSA Foundation presented research findings of the MSME Digital Economy Survey which was launched in December 2022 as well as to offer policy recommendations in comparison with the government’s progress on the digital economy manifesto commitments and the ICT masterplan.

The study identified the key barriers hindering the MSMEs integration in the digital economy as limited digital skills and awareness, high internet and associated equipment costs, and cybersecurity concerns.

“Empowering MSMEs in the digital economy requires a targeted approach that addresses their unique challenges and needs. Without a clear focus on MSMEs, the broader policy dialogue on the digital economy risks leaving behind the very businesses that are essential to economic growth and prosperity,” KEPSA Foundation Executive Director Gloria Ndekei said.

The government has made progress on the following fronts:

• Established a robust software industry through the construction of a software factory in Mulot, Bomet County, estimated to cost KES 100 billion using Public Private Partnership (PPP) arrangement.
• The MoICTDE under Ajira Digital Program has trained over 350,974 on digital skills as of December 2023. An additional 200 from the last reported number.
• On the Ajira Digital Programme, roughly 2.05 million Kenyans have reportedly been engaged in the gig economy, an increase from 638,000 in 2019.
• Emobilis tasked with operationalization of AYEC and to date there are an estimated 57 AYEC across the country.

• The MOICT in January 2024 rolled out a Citizen Digital Skills program through a 10 days course at a discount of 40% of the earlier cost of Kshs. 2,500. The training was for the whole of Feb 2024 running of offer at a discount of 40% to 1500 to encourage enrollment.
• There are plans to equip one million learners with ICT skills for digital entrepreneurship in collaboration with technical and vocational training institutes.
• Emobilis tasked with the institutionalization of 40 Ajira Digital Clubs at selected universities and TVETS. It is not clear how many universities and TVETs have institutionalized ADC. Over 4000 UON students have undergone Ajira training and are part of the Ajira Digital Program.
• Plans to deploy 23,000 computers in technical and vocational training institutes.
• By September (2023), 77 vocational entities had received 6,700 desktops while a total of 8,159 virtual desktops had been supplied to institutions.
• As of April 2023, 25,000 km of the planned 100,000 km of fibre optic cable rollout, had already been done through a PPP model. This was highlighted in the 12th edition of the Connected Summit held in Diani early this year. The government is looking to complete the project in 5 years. To date, about 25,000 kilometers of the fibre optic cable rollout has been done.
• Of the planned free public Wi-Fi, with a target of 25,000 hotspots by 2027, a total of 14,690 spots have been identified, for installation of Wi-Fi.
• Of these, 194 of the Wi-Fi are already in marketplaces and county headquarters and 172 public Wi-Fi hotspots have been installed as community innovation hubs, while ICTA has installed another 95 hotspots totaling 461. No additional hotspot has been created since.
• Out of the planned 1,450 digital hubs to be domiciled at the ward level, where 290 hubs are to be established annually, only 174 have been installed. And no additional hub has been installed.
• The Communications Authority proposed to cut Mobile Termination Rates (MTR) to 0.12 shillings from 0.99 shillings. As of 17th November, the Authority capped the MTR’s/FTR’s to Kes 0.41 per minute. This will however take effect as from 1st March 2024 and will apply for a period of 2 years.
• Set up of East Africa Device Assembly Kenya Limited, located in Athi River. (October 2023), as a joint venture of local Mobile Network Operators and International device manufacturers, to drive digital inclusion through affordability of digital devices. The factory launched the local smartphone Neon Smart and Neon Ultra which retails at Ksh7,499 and Ksh8,999 respectively. The president initially said that the smart phone would cost 40 USD.
• Whereas the finance act 2023 proposed to reduce telephone and internet data services excise duty from 20% to 15%; however taxes covering import, excise and output VAT (Value Added Tax) would push the prices of the phones to an estimated KES 11,500. Currently Neo Ultra retails between KES 8000 to 10,559 while Neon Smart retails between KES 7499 to KES 7600.
• Strengthening of Kenya shilling against the dollar is expected to reduce the value of items including Neon Smart phone but the prices of phones have continued to rise.
• Though in the distant future, the discovery of Coltan could potentially help reduce the cost of mobile devices especially where locally manufactured components use Coltan.
• Several legislations dealing with various issues that can be applied in the use of digital technologies, affecting users, content creators as well as tech engineers, have been enacted; two critical pieces of legislation include:

• 1. Computer Misuse and Cyber Crimes Act 2018.
  2. Data Protection Act 2019
• Establishment of a sector working team to undertake comprehensive review of the policy, legal and regulatory framework governing the information, communications and digital economy covering the development (work in progress) and enactment of four draft policies including;

• 1. National Policy on Public Relations and Communication Management,
  2. National Addressing System of Kenya Policy,
  3. National ICT Policy Guidelines: 2020 and
  4. Access to Information Policy

• The ICT Authority handled cyber security through KE CIRT/CC (since 2017) and KCSFA (since 2015). Gazette Notice No.44 dated 9th Feb 2024, on the Computer Misuse and Cybercrimes- Seeks to operationalize the provisions of the Computer Misuse and Cybercrimes Act 2018 and strengthen the role of the National Computer Cybercrimes Coordination Committee (NC4) as the leading entity in coordinating Cybersecurity in Kenya.
• Establishment of the office of the Data Protection Commissioner to facilitate data privacy and security. This has been achieved and county level data protection officers are being set-up.
• Amendment of the Data Protection Act 2019, to strike a good balance between freedoms of expression and data privacy (Daft Data Protection (General) Regulations 2021 and the Data Protection Act, 2019).

Kenya faces a significant digital divide, with 44% of the urban population having access to the internet compared to 17% in rural areas. Widespread gaps in basic digital skills limit the wider usage and application of digital tools and services, while gaps in advanced digital skills limit business development.

“The digital economy, including cross-border services and e-commerce, has become a significant driver of economic growth and development, particularly in Africa. It contributes to democratic and economic development by expanding market access, promoting inclusive trade, and expanding tax revenue for governments to provide essential services,”said Hazel.

The digital economy has become a significant driver of economic growth in Kenya, with projections indicating that it will contribute 9.24% of the country’s GDP by 2025. The country’s ICT sector has grown by an average of 10.8% annually since 2016, and Kenya is now one of Africa’s leading digital economies. The National ICT Policy aims to grow the sector’s contribution to the digital and traditional economies to 10% of GDP by 2030.