Kenya’s digital economy is projected to add KSH 662 billion to its GDP by 2028, according to the latest GSMA report, Driving Digital Transformation of the Economy in Kenya. This growth, propelled by progressive policy reforms, is expected to foster digitalisation in sectors such as agriculture, manufacturing, transport, and trade. The report also anticipates the creation of 300,000 new jobs and an increase in tax revenues by KSH 150 billion, underlining Kenya’s position as a leader in mobile financial services and digital innovation.

The Kenyan government’s digital initiatives are part of broader economic strategies like Vision 2030 and the Bottom-Up Economic Transformation Agenda (BETA), which emphasize technology integration across sectors to boost productivity and economic growth. The GSMA report provides a roadmap for expanding digital adoption, targeting areas that can drive growth and maximize economic gains through a combination of policy and infrastructure investments.

Kenya’s Position in Digital Transformation

Kenya has established itself as a frontrunner in digital finance and mobile money services, with its successful mobile money platform, M-Pesa, serving as a model for financial inclusion across Africa. The government views digitalisation as essential for sustainable growth, particularly to support employment opportunities for young people and rural communities. According to GSMA, the digital economy accounted for a significant portion of Kenya’s GDP in 2023, with the mobile ecosystem contributing KSH 1.2 trillion and generating KSH 212 billion in tax revenue. Yet, despite these gains, Kenya faces significant challenges, including a mobile internet usage gap and limited access to affordable smartphones.

The GSMA report suggests that closing the digital divide is critical for inclusive growth and recommends policy measures to address issues in device affordability and internet accessibility.

Launch of the Digital Africa Index

To support inclusive growth across the continent, the GSMA has also introduced the Digital Africa Index (DAI), a tool designed to measure digital adoption and usage in African countries. Kenya is among the top performers on the index, reflecting its advancements in mobile broadband access and digital services. The Digital Africa Index, along with the Digital Policy and Regulatory Index (DPRI), highlights areas where policy reform can remove barriers to digital expansion. For example, countries with low DAI scores often face regulatory challenges that hinder infrastructure development or limit market competition.

Expanding Digital Access and Employment Opportunities

The GSMA report highlights the potential of digital transformation in various sectors that comprise 58% of Kenya’s GDP. For instance, digitalisation in agriculture, a sector employing a majority of Kenyans, can improve productivity through access to information on market prices, weather forecasts, and crop management. Similarly, in transport, digital solutions could streamline logistics and reduce operational costs, making goods more affordable and enhancing competitiveness in regional markets.

Kenya’s digital economy is also a potential driver of employment, particularly for youth. With over 75% of Kenya’s population under the age of 35, digital industries offer new opportunities in e-commerce, digital finance, and software development. The report projects that digital expansion could create up to 300,000 new jobs by 2028, underscoring the importance of equipping the youth with digital skills to participate in the evolving economy.

Addressing the Mobile Internet Usage Gap

Despite Kenya’s mobile network coverage — with 99% of the population covered by 3G and 98% by 4G — only 33.5% of the population currently uses mobile internet. The GSMA identifies the usage gap as a significant barrier to digital inclusion and projects that it could narrow from 63% to 46% by 2028 if measures are taken to increase internet adoption. Reducing this gap would potentially bring over 1.5 million new users online, driving further growth in digital transactions and mobile money usage, both essential for broader financial inclusion.

Smartphone Affordability as a Key Driver of Digital Access

A related GSMA report, Barriers to Smartphone Adoption: Kenya Case Study, emphasizes the high cost of smartphones as a critical barrier to digital expansion. Although mobile penetration is high, affordability remains a challenge, particularly in low-income households. To bridge this gap, the report suggests implementing tax reductions on smartphones and promoting financing options to make devices accessible to a broader segment of the population. Policies that support affordable device access could significantly increase internet adoption and active mobile money accounts, deepening Kenya’s financial ecosystem.

Key Policy Recommendations for Sustaining Digital Growth

To unlock the full potential of Kenya’s digital economy, the GSMA report outlines several policy recommendations:

1. Reduce Sector-Specific Taxes: Reducing taxes on telecom services can encourage infrastructure investment and lower consumer costs, making digital services more accessible. Currently, high excise duties on data and mobile transactions discourage usage, particularly among low-income populations.
2. Streamline Licensing and Regulatory Processes: Simplifying licensing requirements and accelerating renewals can create regulatory certainty, promoting network expansion. Kenya’s Communications Authority has already made strides in facilitating easier market entry for telecommunications firms, but further improvements could stimulate additional private investment.
3. Promote Device Affordability: Expanding financing options and reducing taxes on mobile devices can make smartphones more affordable. As smartphone prices drop, millions more Kenyans could access the internet, enhancing overall digital inclusion and stimulating demand for online services.
4. Support Digital Skills Development: Developing digital skills at all levels of education can equip the workforce with competencies needed for high-value digital jobs. Currently, a skills gap exists in Kenya’s digital job market, with employers struggling to find candidates proficient in technical areas such as coding, cybersecurity, and data analysis.
5. Encourage Rural Connectivity: Given the rural-urban divide in internet access, investing in connectivity in remote areas can bring new markets online. Programs like the Universal Service Fund, which supports rural infrastructure projects, could play a pivotal role in extending connectivity to underserved areas.

Angela Wamola, GSMA’s Head of Sub-Saharan Africa, noted, “Kenya has made remarkable strides in expanding mobile coverage and services. However, substantial gaps persist. Bold policy initiatives are necessary to boost demand, lower supply costs, and foster investment in digital infrastructure. Such measures promise broad benefits beyond mobile, catalysing productivity across all sectors and generating myriad employment opportunities for Kenya.”

The Role of Mobile Money in Financial Inclusion

Mobile money, particularly M-Pesa, has transformed financial inclusion in Kenya, enabling millions of unbanked Kenyans to access financial services. As of 2023, mobile money transactions represented over 50% of Kenya’s GDP, and the service has continued to expand beyond basic transfers to include savings, loans, and insurance products. GSMA emphasizes that further innovation in mobile financial services can deepen inclusion, particularly by targeting underbanked segments like smallholder farmers and small businesses.

Government policy also plays a role in fostering digital finance. The Central Bank of Kenya (CBK) recently developed guidelines to support mobile money interoperability, allowing users to transfer funds across different networks, thereby enhancing accessibility and convenience.

Overcoming Infrastructure and Investment Challenges

Although Kenya has made significant investments in digital infrastructure, more is needed to meet the growing demand for data and internet services. The government has partnered with international investors to expand broadband networks, including undersea cables connecting Kenya to global internet infrastructure. However, funding gaps persist, especially in last-mile connectivity.

The government’s Public-Private Partnership (PPP) framework offers potential solutions, encouraging private sector participation in infrastructure projects. By leveraging PPPs, Kenya could accelerate network expansion while sharing costs and risks with private investors.

The Impact of Global Trends on Kenya’s Digital Landscape

Kenya’s digital economy is also influenced by global trends in technology and data regulation. For instance, data protection has become a major focus worldwide, and Kenya has introduced the Data Protection Act to align with international standards, such as the EU’s GDPR. Compliance with data protection laws is essential for fostering trust in digital services, especially as Kenya’s fintech sector attracts more global investment.

Global advancements in technology, such as 5G, also have implications for Kenya. Safaricom, Kenya’s leading telecom provider, launched its 5G network in 2021, but the high costs associated with the technology mean that 5G is still limited to urban areas. Wider adoption of 5G could unlock new possibilities in industries like manufacturing and healthcare, which rely on fast, reliable data transmission.

Conclusion: Kenya’s Digital Path Forward

Kenya’s digital economy holds immense potential to drive economic growth, employment, and financial inclusion, but realising these benefits will require coordinated policy action and sustained investment. By closing the digital divide, fostering affordable internet access, and supporting digital skills development, Kenya can pave the way for a more inclusive digital future.

As the GSMA report highlights, Kenya’s commitment to digitalisation is evident in its policy initiatives and infrastructure development efforts. However, further policy adjustments and targeted investments are essential to achieving the ambitious growth targets set for 2028. With strategic planning and international cooperation, Kenya’s digital economy is poised to become a cornerstone of its economic transformation, setting a benchmark for other African nations in the journey towards digital inclusion.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

25th October, 2024