Learning from a Kenyan revolution
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Who would have thought, 20 years ago, that a poor African country would become a powerhouse of global innovation in Information and Communication Technology (ICT)? Definitely not me! As student on a long road trip through Africa in 1990, I often struggled to make expensive calls home to Europe. Making an international call typically involved finding an Indian-African merchant, who was one of the few people with a phone that could connect you to other parts of the world, in theory. In practice, I often waited for at least an hour and, when I was lucky enough to get through, paid the equivalent of what today would be about 600 Shillings per minute.
Now zoom back to today and look at the abundance of mobile devices, even in the poorest parts of Africa, and incredibly low calling rates. This year Kenyans could call the US from their cell phones for as little as 3 Shillings per minute! Something extremely remarkable must have happened. In describing the transformation of the telecom industry over the last 10-15 years in Africa, especially in Kenya, the term “revolution” is not an exaggeration.
Since 2000, the Kenyan ICT sector has grown on average 20 percent each year, outperforming every other sector by a wide margin (the second best performer was hotels and restaurants which grew at 8 percent). The ICT sector has been driving growth in Kenya: without it, instead of the 3.7 percent average growth it achieved, the economy would have seen lackluster growth of 2.8 percent (barely enough to keep up with population growth).
Figure: Telecommunications outperformed all other sectors
Source: World Bank estimates based on KNBS data
Even this year, when Kenya’s economy has been navigating through great turbulence with almost 20 percent inflation and a 10 percent current account deficit, the ICT sector has continued to perform strongly. Kenya now boasts more than 25 million phone connections, which is more than there are adults in the country! The Internet is spreading equally fast. By the end of the year, Kenya will likely have some 15 million internet users.
Other developing countries–particularly in Asia—have undergone similar transformations, but what sets Kenya apart is mobile money, one of the most remarkable innovations of the last decade. Mobile money, which allows cash to travel as fast as a text message, is not a mere extension of banking: it is a new form of banking (much in the same way as cell phones truly revolutionized the way we used and thought about phones). Unlike mobile banking, mobile money does not necessarily need a banking infrastructure. Mobile money has achieved in Kenya what decade-long experiments with micro-savings have failed to achieve across the world: rapid financial inclusion for large parts of the population. The essential difference is the low-cost transaction platform that mobile money provides. In 2006, before the advent of mobile money, only 20 percent of Kenyan adults had access to financial services. Today, just four years after its introduction, more than 80 percent of Kenyans are connected to the financial system.
The revolution has only started: now that almost everyone in Kenya has a phone (increasingly connected to the internet), many more innovations will emerge—think Ushahidi—because information is the hardest currency in the 21st century and is now available to everyone at low cost.
What are the lessons of Kenya’s ICT revolution for the broader economy of Kenya and for other countries? First, this revolution is not just for the young tech-savvy programmers that huddle at iHub. ICT is no longer a niche sector of the economy. It has become mainstream and affects virtually every actor and every sector of the economy. It’s misleading to talk about a so-called “new economy” because it has in fact changed the way the old economy is operating. Over the next years, the biggest innovations will probably come from the incubation of technology in “traditional” sectors. The financial sector is already in the midst of this transformation, with mobile money as the most visible sign.
Second, the “ICT revolution” can be an inspiration for other sectors of Kenya’s economy. Over the last months, calling rates fell so low that some observers even argued that the regulator should step in (people calling for higher prices is not a common occurrence in Kenya). What a contrast to other economic sectors! As textbook economics will tell you, it is innovation and competition, not sanctions and controls, that lead to lower prices for most Kenyans. Third, the mobile revolution can become a game changer for the poor. Mobile money presents an unparalleled opportunity to deliver a basic suite of modern financial services to “unbanked” billions across the world. Storing money safely and securely, even very small amounts, has empowered Kenyan women especially, giving them an independent place to store and manage their funds. It has improved personal security because people don’t have to physically carry cash anymore.
It is amazing to observe– in just a few years – how the mobile phone has morphed from a luxury tool into a household item and become one of the most powerful weapons in the fight against poverty. Kenyans should take pride in this development because they remain at the forefront of ICT innovation globally. There are some 35 million mobile money users in the world today: one in two is a Kenyan. Mobile money took-off in Kenya thanks to a combination of strong leadership and vision in business and government. And this won’t be the last time that an African country is a world market leader and an exporter of innovation!
Part of this article draws on an article with Michael Joseph and Philana Mugyenyi (Mobile money: A game changer for financial inclusion) in McKinsey’s What Matters.
It is right to use the word "revolution" when describing ICT development in Kenya. And this is also true to a lesser extent for the rest of Africa. Most of us Africans abroad went through the same experience as Wolfgang in 1990 when we had to call home from far away places like New York. It costed me 5 US dollars a minute to call Bujumbura/Burundi and I had to pass through a human operator who would call me back in order to connect me. My counterpart had to go to the main office of the then only public telecom company and spend at least 30 minutes before reaching me. The only other option was still the now forgotten telex. The following years, the fax machine helped a bit to reduce the costs. Now, the fax is almost old fashion. It costs about 5 cents per minute to call anywhere in East Africa. It is almost free for those with Skype and good internet connection. We can reach and be reached by any relative in the remotest village. He may not have enough units to call me but he still can ring me and hang up (to bip as they call it)in order for me to call him back or he can afford to send me an SMS. With mobile money, money transfer will soon become so cheap and instant that we may have the impression that we are next door to our relatives despite being tens of thousands of kilometers away. The implications are huge and positive but not yet well understood by many, including development partners. Kenyans and Africans in general may be the ones to teach the rest of the world how to harness these new tools to bring about new promising phases in this ongoing revolution for a better world.
Dear Wolfgang,
It is really fantastic to read your highly interesting article and I would not have thought this fact.
I wish to the other African countries to replicate this success taking an example from Kenya considering the telecommunication as 1 of the important sector for a national economy.
Kind regards
Zafer
Mr Wolfgang,
Thank you for this intresting article about moblile money in Kenya.I think, mobile money and mobike banking could improve the banking access in poor countries.
I'd like to ask if in Kenya or in other coutries, mobile banking or mobile money are already used for paying taxes.How did they do that?(i mean the relation between tax office, central bank, tresor).
Thanks.
Hasina
It is hard to understand what a revolution means to the people unless you understand the underlying circumstances.
Mobile money has changed the way we do things in Kenya. Before mobile money, I queued for over 2 hours at a KPLC office paying my electricity bill. Currently, paying that bill takes minutes. With KPLC migrating to prepaid metering, this has driven efficiencies in terms of collections, operations, e.g. fewer disconnections, and saving time for the customer. We hated paying electricity bills due to the looong process, as a result disconnections were the norm. Nowadays, with a prepaid meter, if you run out of units, you just use mobile money to top up, and power is back. Fast, efficient solutions - and this is just one state owned company.
Mobile money is now used by businesses as an accepted way of payment, you want to buy an airline ticket, pay via M-pesa, shop at the supermarket - pay via m-pesa.
I invite you to talk to the Kenyan people (or even visit) and understand what it has done for them, then only can you understand what a great revolution this has been. I am excited about the future - it holds so much potential for ICT in Kenya, and the economy as a whole.
Wow. This is so cool. Heard about their innovations on mobile payment, however, didn't know much beyond these walls how it's transformed their economy. Thanks for sharing the info.
Wolfgang writes:
"In 2006, before the advent of mobile money, only 20 percent of Kenyan adults had access to financial services. Today, just four years after its introduction, more than 80 percent of Kenyans are connected to the financial system."
How is that not a real revolution? He is obviously not talking about cheap phone calls or Youtube. I am sure the people--mostly women--who don't have to save their money under the mattress anymore can talk a lot about the "efficiencies" that this ICT innovation has made in their lives.
Wlofgang, obviously frothy telecommunications sector has hidden sub-par growth, stagnant economy -- paticularly alarming negative growth agriculture.
Beyond anticipated productivity boost from investment ICT, I also antipicipated a one-time boost in reported economic output -- reflecting newly captured 'informal' economic activity.
Your data reflect NO economic gain from APPLIED technolgy (beyond IT sector) nor newly captured economic activity (via mobile money).
Disappointing. Either ICT sector in a bubble -- or economic impact lagged and we'll see dramatic pick-up 2010 and beyond.
Ominously, Larry Madowo tweeted today: "Airtel crosses 50 million subscribers mark in Africa. But still losing money. In 16 different currencies"
True it is about the mobile banking. However, connectivity and band width still remains an issue in many areas in the country. Hopefully when the country makes effort to enjoy better connectivity, a great revolution will then be realised such as actualization of virtual learning.
Simon,
explain me why a decline from US$ 6 to 3 cent per call is not revolutionary? True it is not just Kenya. The revolution happened in the whole developing world but Kenya is exemplary, especially due to mobile money which provided the fastest expansion of access to finance ever.
However, as you highlight, the bigger question is if the success of ICT will turn around other sectors of the economy as well.
Thanks for contributing to the debate.
Wolfgang
Dear Jean-Claude,
thanks much for your insights and background.
Wolfgang
Have you seen this talk?
http://www.youtube.com/watch?v=D9_6G8J6VJg
Mr Wolfgang allow me to respond to Hasina's query.
I live and work in kenya (In the tax sector) and despite the revolutionary advances in mobile money transfer payment of taxes (and most government related payments) can not be done via mobile money. This would be a very effective way of payment as the audit trail is simple and clear thus reducing the avenues for fraud.
The ease and convinience of payments is unparalleled and can only be understood when one experiences the product.
One has to question the value of a so-called "revolution" if all it delivers is cheap phone calls and texts to family and friends and use of the mobile comms service to make credit transfers. Onme might even suggest this is just compensating for poor fixed line infrastructure and conventional banking services delivery! So is it a zero sum game?
Better comms will mean existing businesses will become more efficient - everything from agriculture to financial services will get more efficient.
BUT surely we woudl much more impressed if this article were explaining how kenya was having a REAL ict revolution that involved international business process outsourcing, software and mobile phone applications development, etc to serve the global economy. This is happening I understand to a limited extent, made possible by better international connectivity over fibre optic subsea cables, etc.
ICT revolutions are not just cheap calls and YouTube - it is what you do to deliver new and extra value with the connectivity and bandwidth that counts. I am sure the enterprising people of kenya will already be at work on that!
So we have better international connectivity and bandwidth, greater mobile network coverage and high cellphone penetration. Let's do something revolutionary! errr...how about cheap calls...not very grounbreaking. But mobile banking - brilliant!
But a real ICT revolution would develop big new added value in business process outsourcing, innovation in apps and software development, african multimedia, investment and expediting services to serve demand in the global economy - eg doing it better and cheaper than what has been seen in Asia. That woudl be a revolution. Otherwise what you have is simply compensation for the historically lamentably poor performance of the conventional telecom and banking sectors. I am sure Kenyans have many new ideas already bubbling. I read in FT of people in Nairobi with world class BPO operations who could not exploit them because of poor international connectivity - now with EASSy, SEACOM, TEAMs and the greta support from the telecoms Ministry the way should be clear for Kenya to forge ahead.
We've just returned from 6 weeks in the field taking a closer look at the cyber cafe (internet cafe) industry in peri-urban and rural Kenya, east of Nakuru in the Rift Valley all the way up the Coast to Malindi on behalf of a social enterprise called Village Telco. A few thoughts emerge on reading this post and reflecting on our interviews and observations.
This is truly a revolution on many levels observable and prevalent across socio economic strata - those who may choose set higher bars, without contextual understanding of the local landscape are welcome to miss the boat when its left the harbour.
From small market towns in rice growing districts (where we're told 3-5 mobile broadband modems are sold each month) to urban metro malls piloting pay as you surf (by mobile money) wifi hotspots in cafes and restaurants, the internet landscape (the ICT or even mobile landscape even) is rapidly evolving so much so that the country itself displays a fragmented distribution on the market maturity curve.
The two urban metros of Nairobi and Mombasa plateaued (wrt to cyber cafes as the key access point) and are showing signs of decline as the number of personal computing devices imported into the country show 100% growth year on year. Increasing policy driven digitization of government and educational services - from tax return pin numbers to examination registration or even booking bus tickets - mean that the small population centers are now steeply on the growth curve, with signs in certain provinces that this diffusion will only spread.
Couple this with more and more affordable and ubiquitious smartphones and data enabled handsets, those who otherwise wouldn't require either computers or the internet for their work, are going online due to the pull of social networks like Facebook. For an extremely socially connected and communicative society, this fact alone is driving data sales for mobile operators as the Facebook generation goes online - Kenya has an 85% literacy rate and the median population is in their mid teens.
Is it changing the way people do business or is it a revolution quite unlike one that could have emerged from Silicon Valley or Bangalore? I do believe so - as the critical mass of mPesa users as well as dropping costs level the playing field, enterprise level solutions traditionally the purview of large corps like an Oracle or a SAP such as payroll management and real time inventory control are migrating - cheaply and effectively - over the mobile platform, able to reach the unbanked on irregular income streams such as manual laborers or the tiniest village kiosk.
This shift is where the mobile platfom innovation will truly revolutionize - it has yet to occur in a more "tech" oriented India, but it won't be long before these cost effective and technologically relevant solutions to securely pay farm labour by phone without trucking cash into fields yet being able to manage wages for 5000 daily wage workers or more migrate to the Indian environment. The solutions make too much sense not to consider them, perhaps the next leapfrogging will be over the desktop/mainframe divide. In each case, as mobile money is the mechanism, those who weren't banked previously are automatically moving to a cashless economy.
Just some thoughts from the ground.
Dear friend,
You make good points and they all reflect the challenges Kenya and many other countries in Africa are facing. Many sectors are still performing poorly, most crucially agriculture, and if all sectors were performing as strongly as the ICT sector, Africa would not be poor anymore. However, if the “ICT revolution” had not happened” Kenya would clearly be poorer. In fact most Kenyans would be as poor as in 2000 (and thus poorer than in 1980). As you rightly point out the key question is if the ICT revolution will translate in gains in other sectors. The financial sector is already clearly on a path of digital transformation. Who will be next?
Wolfgang
This is a very interesting read Wolfgang and Niti's contribution too. It gives a fresh outlook to Kenya's ability to become an innovation driven country in IT and telecommunication.
It is true mobile money has contributed much to the growth of other sectors in the economy. It has made banks also to evaluate the way the deal with the Jua Kali sector, who for the longest time were ignored by main stream banking institutions.
Mobile Money become the obvious alternative to many who could not afford to open bank accounts due to their low income. It not only provided a conduit through which they could send support their relatives back upcountry much more easily but also keep their money close to their chest literally in the mobile phones.
The economy in East Africa will be grown through increased entrepreneurship at small scale levels.
Although Safaricom may still have to pay M-PESA related royalties to Vodafone in UK, the country and East Africa at large has began to grow a new crop of mobile entrepreneurs that will soon start receiving revenues globally for monetizing their novel new products. Take a look at finalists in this year's regional mobile apps. competition (http://www.pivot25.com). One may say a lot of those applications in the sectors of Health, Education, Governance, Gaming, entertainment etc as still at a nascent stage. However this is just but a beginning with deliberate efforts from government, development organisations and private sector itself to create, nurture and grow new mobile technology focused entreprises.
For instance the World Bank now funds m:lab East Africa, an incubation, training and app. testing facility exclusively focussed on mobile entrepreneurship. Other incubation and related services include iLab Africa, Nailab, 88mph, Kenyatta University's industrial incubators, University of Nairobi's Science and Technology Parks excetera - the list is becoming endless. Even if only a quarter of the new entreprises being incubated become successul and scale out, that would be new entreprises employing more people. More importantly though, those would be new entreprises on an exponential growth trajectory.
Already there are fairly strong SMEs enjoying the mobile revolution in Kenya with revenue streams and capital injection not only from within the country but globally. Consider the case of Virtual City, they have won a series of global awards recently, at times implying significant capital injection. They recently launched an appstore (http://www.hewani.co.ke). Although their appstore is hosting apps deployed through different mobile channels, it is now billed as the world's first USSD app. store. Other companies in the same class as Virtual City include Cellulant which is generating much revenue from outside Kenya from mobile based services especially mobile banking, Craft Silicon is another such company.
One of the biggest challenges for mobile entrepreneurs in Kenya is uptake of new mobile solutions. Local entrepreneurs have solutions in agriculture, health, education, tourism, governance and other economic sectors. This is not so much because of the solutions not being demand driven but more because of low awareness levels. The young entrepreneurs simply do not have marketing and awareness building budgets. However with device manufactures such as Samsung and Nokia pushing their own app stores and developer outreach efforts locally and aggressively so, it is only a matter of time, then we will begin seeing wide uptake of locally developed mobile solutions both globally and locally. Of course I need not simplify the issue of uptake to app stores and pre-installation on devices - there is more that can be done including mainstream media efforts.
The situation could be more complex what we are all able to express here and now. However we must at least acknowledge that the mobile innovation scene is vibrant in Kenya.
This is quite a good read Wolfgang.
It is true that Mobile money has changed if not revolutionized the Kenyan economy. As a Kenyan I'm particularly impressed by how fast the other sectors are fusing their products in line with mobile payments. One can now easily send money from their bank accounts to their bank account and vice-versa. Dividends earned from shares can also be distributed via m-pesa.
As Njoroge says with mobile money there is a trail and this will bear fruit eventually on the corrupt as the avenues will be fewer to transact and get away with it.
Dear Felix and Hasina,
Thank you both for your valuable contributions. Indeed, there seem to be two big questions in the mobile (money) revolution: (i) which country will take off next with mobile money? (ii) Which application will be next in revolutionizing the way we live and work, mobile tax payments sounds like a great next step, as it would indeed reduce the risk of fraud and corruption.
Best
Wolfgang
Dear Niti,
thanks for your great insights! Please contact my office when you are in Nairobi.
Best
Wolfgang
Wolfgang, great observations on the effect of ICT in Kenya. Some of the thought provoking comments/debates have also helped to shed more light on the issue. As noted, more still needs to be done in this and other sectors. In the meantime, the effects of innovations like M-Pesa cannot be understated. Africa is still largely data poor and any reliable method of collecting/accumulating any kind of data from the population, e.g. via M-Pesa will go a long way in assisting policy makers, investors, creditors, the citizens, suppliers, international community, etc to make more informed decisions relating to economic development and personal growth.
The problem with the west, is that the only images they have of Africa is hungry children & Mothers Crying, slums, wildlife and .. but we need to look beyond that. Kenya for example is the leading country in Mobile payments 35% of the population, which is around 14 million do mobile banking and Mobile payments.
kindly watch the you tube video and see what technology has revolutionized Kenya and how Kenya has become a Worlds leader in mobile financial services.
http://www.youtube.com/watch?v=D9_6G8J6VJg
Thanks again Wolfgang for the interesting post. Indeed lets share notes in 2012.
I would encourage your readers to keep an eye on the Pivot East Competition and Conference (Jan - Jun 2012). It should to be a grand showcase of mobile entrepreneurship in East Africa.
John Kieti
Dear John,
Thanks for your great post. Hope we can catch-up some time. I know there will be several events coming up in the new years where it would be good to compare notes.
Wolfgang
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