Kenya’s Digital Economy Blueprint envisions a nation where every citizen, enterprise and organization have access to and effectively use digital technologies and resources to participate and thrive in a digital economy. Further, the government in the Bottom-up Economic Transformation Agenda (BETA) recognizes digital superhighway as critical in the achievement of government development priorities. Availing universal broadband throughout the country within five years and ensuring digital transformation in delivery of services to the public are among the government priorities. A digitally enabled economy can enhance market access, enhance production and/or technical efficiency and therefore promote social and economic development. Digital trade, for example, involves trade beyond the traditional physical shop approach. This can have the impact of expanding an enterprise’s customer base by transacting with digitally connected customers not limited to the business’s physical location. The use of new and innovative digital tools, including digital payment systems, is therefore a strategic priority for businesses, including Micro and Small Enterprises (MSEs).[1] In the digital age, governments are promptly addressing the new regulatory challenges while creating an enabling environment to enhance access and inclusivity within the digital economy. The digital needs for MSEs in Kenya are threefold: access to ICT equipment, digital capacity and skills, and digital infrastructure.
Access to ICT equipment
A review of the MSMEs Survey 2016 data reveals that only 15.5 per cent of MSEs use computers. This is attributed to the high cost of ICT equipment. ICT equipment used by MSEs includes computers, telephones, radio, television, production machinery and software. This equipment enhances efficiency and production. The Kenya Enterprise ICT survey 2016 indicated that almost half of enterprises (42.2%) consider ICT equipment as expensive. The key policy priority, therefore, is to enhance access to ICT equipment. This can be achieved through various approaches.
Adoption of bulk purchases to promote acquisition of ICT equipment where MSEs come together under their relevant MSE association to identify and purchase of ICT equipment required by members is one of the approaches. The revised consolidated cargo tax is based on transaction value per item as opposed to the previous tax method per kilogramme. This may not favour MSEs importation of ICT equipment. The government could take deliberate effort to review such tax directives to help MSEs meet their digital needs. Facilitation of such bulk financing can be achieved by the government once the MSE Development Fund is established. One of the mandates of this Fund proposed in the MSE Act No. 55 of 2012 is to finance innovation and transfer of technology.
A second approach is through the development and maintenance of a database of ICT hardware and software solutions manufactured locally, leveraging on the Innovation Database established by the Science, Technology, and Innovation Act No. 28 of 2013. One of the mandates of the Kenya National Innovation Agency is to establish and regularly update a database on innovation. The database, though not yet operational, presents opportunities for identifying innovative, appropriate, and affordable ICT software and devises available in the internal market. Kenya is ranked third in the 2002 Network Readiness Index (NRI), which provides insights on the application and impact of ICT in 131 economies. The country scored highly on sub-pillars on content informed by the score on mobile app development and on future technologies regarding adoption and investment of emerging technologies. Development of mobile applications and investing in emerging technologies is therefore an advantage that the county can leverage on.
The third approach is adopting micro-franchising which, depending on the product, can enhance access to relevant equipment from the large franchises to the micro franchises. There are, however, no policies or laws in Kenya governing franchise agreements.
Digital capacity and skills
The MSMEs Survey 2016 revealed low digital literacy among MSEs, with only 12 per cent of MSEs having received any ICT training. Further, the Digital Masterplan identifies digital skills as a key challenge due to low investment in the human resources required to develop and operate digital technologies. Although there are various institutions (including Kenya Industrial Training Institute (KITI), Kenya Institute of Business Training (KIBT), and institutions for higher learning) that provide relevant ICT training to enterprises, the main challenge is the cost and duration of the training. Most MSEs in Kenya (73.2%) are sole proprietors. They lack the resources and opportunity to operate a business and attend trainings. Additionally, the training is often not well aligned to the needs of MSEs. This is acknowledged in the 2012 National Industrialization Policy Framework, which shows that there is mismatch between the industrial labour market skills requirements and skills development.
Enhancement of digital capacity and skills of MSEs can be achieved through shop floor trainings where entrepreneurs are matched with competent trainers for a specified period and through provision of digital learning materials. This leverages on Kenya’s Sessional Paper No. 1 of 2019, Policy Framework on Reforming Education and Training for Sustainable Development, which places emphasis on the integration of ICT in curriculum delivery and enhancing access to digital learning materials. Establishment of a framework to support skills transfer to MSEs can, therefore, enhance practical digital skills. This, however, requires MSEs to have relevant suitable ICT infrastructure.
Also, leveraging on government initiatives through agencies such as the Micro and Small Enterprise Authority (MSEA), the Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Development, Ministry of Information, Communications and ICT Authority and initiatives such as Biashara Centres and Ajira Digital can collaboratively enhance provision of digital tools and skills based on the needs of MSEs. This calls for the establishment of a suitable collaboration framework, with frequent needs assessment to ensure that the capacity and skills building programmes are in line with the digital needs of MSEs.
Further, peer learning approaches can be utilized through MSEs associations to offer technical support to members. Business associations in Japan, for instance, are certified by the government of Japan as management improvement support providers to provide capacity building and technical support to small enterprises.
Digital infrastructure
The KIPPRA 2022 study on assessment of business environment for MSEs reveals low broadband Internet connection to MSEs’ worksites across counties, with a score of 3.94 out of a possible 100. The study further identified high connectivity charges, lack of Internet infrastructure to support the connection, and poor network connection as among the challenges faced by MSEs. Further, not all worksites had electricity connection, which is an important factor in facilitating digital connectivity. The key challenges related to electricity connection as cited by MSEs include high cost of installation, lack of designated workspaces, too many procedures involved to connect, inability to pay electricity bills, and long distance to the grid. This is compounded by occasional power outages. Addressing these issues is therefore critical.
The government priorities for infrastructural support for MSEs has been established in various policies. One of the policy priorities in the 2020 Sessional Paper on Kenya Micro and Small Enterprises Policy, for instance, is refurbished MSEs infrastructure, including worksites, centres of excellence, incubation centres, common user facilities, and industrial parks. The Digital Economy Blueprint and Digital Economy Masterplan further call for ICT-enabled industrial clusters and buildings, respectively. The 2019 ICT policy calls for the establishment of a National Integrated Infrastructure plan (NIIP). The aim of NIIP is to facilitate accessible, cost-effective, and sustainable ICT infrastructure at the national and county level. These priorities need to be operationalized through development and implementation of MSEs’ infrastructure master plan as proposed in the 2020 Sessional Paper.
The Universal Service Fund (USF) provided for in the Kenya Information and Communications Regulations 2010 is mandated to promote communications infrastructure and capacity building in ICTs. The current USF framework, however, does not adequately provide for the equipping of MSEs’ worksites, industrial parks, or village digital hubs with ICT. Expanding the scope of USF to support business centres in terms of Internet access is, however, an opportunity for Kenya.
Conclusion
In conclusion, the threefold digital needs of MSEs, namely access to ICT equipment, digital capacity and skills, and digital infrastructure need to be addressed through a combination of policy interventions. Thus, effective implementation of the 2019 National ICT Policy, Sessional Paper No. 05 of 2020 on Kenya Micro and Small Enterprises Policy, the MSE Act, and ST&I Act is imperative. There is also need to operationalize the MSEs Development Fund, the MSEs Infrastructure Masterplan, the innovation database, and review the scope of the USF. The third Medium-Term Plan (2018-2022) of the Kenya Vision 2030 also identifies some key policy priorities such as the National Addressing System Policy, and e-commerce policy. The National Addressing System policy is meant to enhance e-commerce through clear naming and identification of physical addresses. The e-commerce policy will establish the government provisions on privacy, customer protection, taxation, information, and network security for enterprises in line with the existing legal framework. It is, therefore, necessary to operationalize these policies in line with the digital economy agenda, being cognisant of the needs of MSEs. Though Kenya has a good policy framework relating to ICT and MSEs, there are opportunities for MSEs- centred approach to promote their effective participation in the digital economy, thus contributing to the country’s social and economic development. This includes development of a framework for the promotion of MSEs digital skills and knowledge; establishment of digitally enabled MSEs infrastructure; and facilitation of bulk purchases for ICT equipment and micro-franchising for MSEs.
[1] MSEs are enterprises with less than 10 employees.
Authors: Anne Gitonga, Senior Policy Analyst, KIPPRA
Githinji Njenga
