TRADE, ECONOMIC GROWTH AND ICT IN KENYA

1
TRADE, ECONOMIC GROWTH AND ICT IN KENYA

• A STUDY FOR THE ECONOMIC COMMISSION FOR AFRICA
• Dr. Mbui Wagacha
• mwagacha_at_wananchi.com
• Prof. Meoli Kashorda
• mkashorda_at_strathmore.edu

2
Themes for ICT in Kenya

• Objective of Government
• Buy a cow instead of milking a calf
• Objective of some ICT Players
• Why buy a cow when milking a calf will give you
  all the milk you want?

3
OBJECTIVES OF STUDY

• ASESS ICT TRADE POLICY
• DEMONSTRATE POTENTIAL ECONOMIC BENEFITS OF ICT IN
  TRADE
• ASSESS ICT AWARENESS IN SMMEs
• DEVELOP PROPOSE RELEVANT RECOMMENDATIONS TO
  GOVT

4
METHODOLOGY

• EMPIRICAL WORK EVIDENCE
• PRODUCTIVITY ANALYSIS
• SURVEY (DATA FROM RESEARCH ICT-AFRICA)
• W.B. INVESTMENT CLIMATE SURVEY 2003
• ITU TELCOMS DATABASE

5
THIS PRESENTATION

• Learning from Global Experience ICT-Growth-Trade
• ICT in Kenyas Growth Trade Strategy
• Building an ICT/Growth/Trade Agenda
• Institutional Developments in ICT sector
• Fiscal Impact Issues
• ICT Investment-Growth-Macro Impact
• SME Survey- Manufacturing Services
• Production Framework of ICT
• Assemblers, Service Repair Telecommunications

6
1. Global ICT-Growth-Trade Country Strategies

• Strengthen Growth Competitiveness
• Strengthen ICT-macroeconomic-trade link

7
ICT-Growth-Trade (contd)DIVERSITY OF EXPERIENCES

• 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)

8
ICT-Growth-Trade (contd)

• Example of Internet Use
• Increases Total Exports by 4.3 percent
• Developing countries with initial poor access to
  Internet gain most
• Yet, WTOs Basic Telecom Agreement not
  universally accepted for liberalising ICT trade
  despite commitments by 70 countries. Why? Few
  benefits for non-producing countries of ICT
  hardware/software.

9
ICT-Growth-Trade (contd)

• Evidence on performance of SMEs is mixed
• Total factor productivity (TFP) UP
• 1 1 gt 2
• Mobile vs. transport costs vs time savings vs
  infromation search etc
• NO significant impact on enterprise return
• NEGATIVE impact on Labor productivity
• Hence need for training (learning curve for
  employees)
• POSITIVE impact on market expansion
• NO significant impact on export performance
• New markets for SMEs not necessarily penetrated
  using ICT
• Business relationships and trust factors persist
• Questions of ICT over-investt relative to labor
  skills, etc

10
ICT-Growth-Trade (contd)

• Commercial Practices ICT in Trade Business to
  Business (B2B) model
• ICT entrenches traditional buyer/producer
  directions of trade makes it difficult for new
  entrants empirical evidence for garments and
  horticulture Kenya, Bangladesh, S. Africa
• Relevant to trade
• Consumer to Business (C2B) model
• Not very relevant to trade

11
ICT-Growth-Trade (contd)GLOBAL LESSONS FOR KENYA

• HOW TO GO FOR GLOBAL TRADE GAINS
• Remove market failures in ICT-
• Enhance affordability and ICT competition in
  trade sector
• Focus an ICT-trained workforce
• Certify and publish on-line businesses that
  export markets can do business with in the
  different sectors agriculture, industry,
  services
• Promote a credible payments mechanism
• Address cyber security and cyber crime
• Promote E-Government as driver ICT innovation
  growth (OECD study). This means digitizing
  results of GOK and its activities Education
  Health Transport Finance Central Banking
  Immigration etc
• KCPE results by SMS or Internet
• KRA ETR
• E-procurement

12
ICT-Growth-Trade (contd)

• OTHER LESSONS
• Equitable Access (ICT is reaching barely 20
  percent of population in Kenya)
• Affordability and lower costs of ICT as plank for
  reaching the remaining 80 percent
• Deepen Trust Factors- To create new export
  markets, deepen existing ones. This means
  deepen PAYMT CODES STANDARDS COMMERCIAL
  DISPUTE RESOLUTION REGULATORY FRAMEWORKS, etc

13
2. ICT in Kenyas Growth Trade Strategy

• In ERSWEC (2003-2007, incl. Investment Programme)
  Trade is treated under the Productive Sectors
• Kenya runs surplus in EAC COMESA (40 of latter
  mainly industrial goods services) Runs
  structural deficits on imports mainly from OECD
  (imported inputs vs exports of garments agric
  incl. horticulture)
• HOWEVER, ICT Policy 2006 sets strategic, targets
  in tele-density bandwidth mobile subscribers
  ISPs etc LINK OF ICT TO THE DEMANDS OF SECTORS
  NOT YET MADE SUPPLY FACTORS ALONE WILL NOT WORK

14
ICT in Kenyas Growth/Trade Strategy (contd)

• ADDRESSING THE DEMAND SIDE IS A STRATEGIC ICT GAP
• FINDINGS OF PREVIOUS ECA PAPER ON KENYAS TRADE
  PARADOX
• TRADE LIBERALISATION PURSUES EXPORT PROMOTION AT
  EXPENSE OF DOMESTIC RESOURCE MOBILN INVESTMT,
  
• OVERALL GAINS IN TRADE THEORY COME FROM
  CONSUMPN, INVESTMENT CHANGE IN THE MEANS OF
  PRODUCTION IN THE PRIORITY SECTORS
• AGRICULTURE Main exports to OECD coffee, tea,
  horticulture 60 forex earnings ICTpurpose
  Modernize Increase productivity
• INDUSTRY Main exports to Africa ICTpurpose add
  ICT to sector, with fiscal incentives, Modernize
  Increase productivity hold African markets.
• SERVICES ICTpurpose Modernize Increase
  productivity of financial services, tourism,
  communications, transport etc
• IN ICT, LOOK AT SUPPLY SIDE IN CONTEXT OF DEMAND
  SIDE

15
WHY ICT MUST BE DEMAND DRIVEN, SECTOR SPECIFIC

• Prodn, Consumption, Trade

• KENYA EXPORTS TO WORLD
• AFRICA Industrial goods
• Services
• OECD coffee, tea,
• Horticulture, garments
• Scenario A STRATEGIC ICT
• ICT INCREASES PRODUCTIVITY
• ICT INCREASES COMPARATIVE
• ADVANTAGE
• ICT INSIDE VALUE CHAIN WILL
• SUPPORT PRODN
• FOR AFRICA OECD MARKETS
• Scenario B UN-STRATEGIC ICT
• Lose competitiveness in
• Africa markets
• Become High-cost producer
• in OECD markets

• WORLD EXPORTS TO KENYA
• Capital goods machinery, cars,
• ships, etc
• Inputs Fertilizer, seeds, chemicals
• Specialized services
• ICT INCREASES PRODUCTIVITY
• ICT INCREASES COMPARATIVE
• ADVANTAGE
• ICT INCREASES PENETRATION
• ESPECIALLY IN
• KENYAS AFRICA EXPORT
• MARKET- MAINLY INDUSTRIAL
• GOODS

16
3. Building an ICT/Growth/Trade Agenda

• Institutional Developments
• Fiscal Impact
• ICT Investment-Growth-Macro Impact
• SME Survey- Manufng Services

17
a. Institutional Developments

• Kenya Communications Act (KCA) 1998
• Set up
• Policy Body National Communications Secretariat
  Appeals Tribunal
• Regulation and Operations
• Communications Commission of Kenya Go from
  De-regulation Licensing to Regulation, e.g
  dominant operator, expansion, competition
• Posta
• Telcom ( monopoly gateway with Jambonet)

18
b. Fiscal Impact

• ICT taxes are new increased taxation complex
  issues, eg mobile used to generate income in
  Mandera but excise tax collected in Nairobi
• Due to monopolies and duopoly, Tax incidence is
  passed on to consumers
• Excisable Airtime (up by 35 2005-2006 alone)
  holds up GDP growth and is on consumers. Tax as
  luxury good (like whisky, beer and cigarettes,
  inappropriate)
• Operators monopoly pricing works against
  consumers
• Interconnectivity charges (Safaricom-Celtel) are
  a further margin against consumers, CCK should
  have acted
• OVERALL, THE FISCAL POSITION IN KENYA LOWERS
  AFFORDABILITY,SHIFTS TAXATION TO CONSUMERS AND
  OBSTRUCTS ICT DEVELOPMENT.

19
c. Making the ICT Investment-Growth-Macro Link

• Need to collect data on ICT investment by sector
  same way as CPI
• Begin Measures of ICT vs non-ICT productivity of
  investment
• Involves disaggregating of traditional Production
  Function or use of Vector Autoregression Methods

20
d. SME Survey- Manufng Services

• Manufacturing SMEs -61 firms
• Services SMEs-216 firms
• Results
• Number of firms with no ICT access is high
• ICT infrastructure and intensity of use differs
  among the economic sectors depending on nature of
  business and need for product specialization
• Post-box, Mobiles and fixed lines are the lead
  items in both sectors
• Of the ICT indicators, e-mail and Web use lead
  within the manufacturing and service sectors
  relative to computer usage. However, Web use is
  higher in the service sector than in
  manufacturing and a much higher rate of employees
  use computers in the service sector (40 percent
  or more) than do so in manufacturing.

21
4. Production Framework of ICT

• Assemblers Service Repair Telecommunications
• Mushrooming of Computer and telcoms equipt
  assemblers esp. in Nairobi 30 percent of
  computer requirements locally assembled
• Tariff structure (duty free computers vs duty on
  parts) inhibits investment and expansion
• Mixed policy signals- 2.5 duty on products from
  EPZ

22
Production Framework (contd)

• Telecommunications
• Telcom Kenya- exclusivity on fixed line
  telephony long-distance and international
  gateway Internet backbone
• Mobile cellular services still uncompetitive-
  Duopoly with high profits relative to other
  sectors.

23
MAIN RECOMMENDATIONS

• Support demand-driven sector specific content of
  ICT to drive investment-growth-trade
• Address market failures in ICT for Trade
  facilitation payments, commercial dispute
  resolution, cyber security and cyber crime, codes
  of conduct GOK on-line list of businesses
  certified to do business with on trust-factor
  basis
• Digitize Government
• Develop and Monitor sector-specific ICT
  indicators, e-readiness, the same way as we track
  inflation using in CPI of goods and services

24
THANK YOU

• THANK YOU ALL
• Mbui Wagacha