Selamta Magazine

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Business + Tech

Kenya's Mobile Tech Revolution

Nairobi takes its place among the global IT community.

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For several years now, cash has been disappearing at an alarming rate across the nation of Kenya. Workers in Nairobi and Mombasa have been commuting into town with surprisingly fewer shillings in their pockets than just a few years ago. The couriers who used to transport money from cities and towns to rural areas now travel empty-handed. Roadside vendors have started to advertise the fact that they would rather not accept paper currency.

All of this is not the result of a financial crisis or political upheaval; rather, it stems from a revolution of a different sort: a technological one. Over the past half decade, Kenya has emerged — seemingly from nowhere — as a hotbed of innovation in the area of mobile money-transfer systems and for other types of software and services for mobile devices.

Nearly 70 percent of Kenyan adults transfer money to each other via their mobile phones — the highest percentage of any country on earth — and more than US$320 million dollars are transferred via Kenyan mobile phones each month. According to The Economist, this adds up to a quarter of Kenya’s GNP. As a result, cash payments are rapidly being replaced by mobile-phone payments in virtually every sector of the nation’s economy.

This emergence of a digital transaction culture has also sparked a creative renaissance in Nairobi’s software-development scene, and the city is attracting attention from prominent members of the global IT community.

After a visit to the city in late 2010, influential tech blogger and Harvard researcher Ethan Zuckerman wrote on his blog that “Kenya matters because it’s one of the places where the future of technology is coming into focus, where a generation of creative people are building the future, one experiment at a time.”

While Kenya’s rapid adoption of mobile technology was in many ways unexpected, it did not emerge by happenstance. Rather, it was the result of several factors working together throughout the past decade: telecom infrastructure development, unique social dynamics and an enabling regulatory environment.

Mobile money movement

As recently as 1999, Kenya’s telecommunications infrastructure was rudimentary at best. There were only 300,000 landline telephones, and mobile phone service had only just been introduced. Later that year, Kenya’s telecom sector was deregulated, and the state-owned behemoth — Kenya Posts and Telecommunications Corporation — was broken apart.

The formerly state-owned wireless monopoly, Safaricom, soon grew to dominate the market for wireless services, even as several major international operators brought competition.

The mobile payments revolution was birthed in 2007 by Safaricom, when an SMS-based money-transfer system was introduced (originally as a solution for microlending programs) and piloted in Nairobi. The application was dubbed M-Pesa (pesa is Swahili for “money”), and its usage as a simple method of money transfer spread like wildfire among Safaricom’s large user population.

M-Pesa allows users to load money onto their phones (similar to how airtime is loaded onto pre-paid phones) and then send that money to another phone through a simple text message. The introduction of M-Pesa coincided with the explosive growth of mobile phone usage across many developing countries, including Kenya.

By 2012, more than 17 million Kenyans (roughly 70 percent of Kenya’s adult population) were using M-Pesa to pay for everything from groceries to public utilities.

A couple of sociological reasons have been cited for why Kenya took to mobile money transfers so quickly. For one, an extremely high proportion of Kenya’s urban population helps support family members in rural parts of the country. Over the years, hand delivery and sending bundles of cash through bus drivers were the main ways to transfer funds to the countryside. With security being an issue in many areas, the introduction of M-Pesa offered a safe, cheap and convenient alternative.

Additionally, when the idea of mobile payments was introduced, the majority of Kenyans did not have access to formal financial services. With the advent of M-Pesa, any mobile phone could operate like a mini banking center.

With Safaricom, users can bypass the formal banking sector — a point not lost on Kenya’s banking sector and government regulators. Although concerns were raised about whether M-Pesa should be legally viewed as a bank, a regulatory framework was set up with the Central Bank of Kenya; within this framework, Safaricom can operate efficiently without the burden of being regulated like a financial services provider.

Safaricom’s chief competitors, including Zain (now Airtel) and Orange, soon developed their own versions of M-Pesa, significantly broadening the market.

A nourishing environment for technology

Today, Kenya has become host to a flourishing ecosystem where numerous software applications, services and even social habits have emerged from the country’s aptitude, and appetite, for mobile transaction platforms.

One of the most significant software innovations to emerge from Kenya is Ushahidi, an application that allows large groups of people to submit crisis-related information via email, social media or text message, which can then be visualized on an online map.

The service was originally developed by Kenyan software developer David Kobia in response to the 2007 post-election crisis, when obtaining accurate, on-the-ground information became extremely difficult.

Because it can be deployed quickly and allows first-responders to analyze incident reports through a digital dashboard of sophisticated tools, Ushahidi has since been used in crisis-relief operations around the globe, including earthquake relief efforts in Chile, Haiti and Japan.

Ushahidi has received numerous international awards and grants for its work, and the organization’s founders have leveraged this growing acclaim and influence to stoke the flames of Kenya’s software community.

In 2010, using a grant from philanthropic investment firm Omidyar Network, the company established iHub, a co-working space and community center for Nairobi’s technology entrepreneurs and creative professionals. Located in a building off Ngong Road, iHub is a constant buzz of activity, hosting everything from business entrepreneurship competitions to all-night computer code-writing sessions.

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Sitting in the middle of all this commotion is Erik Hersman, one of Ushahidi’s co-founders and an American by birth who has spent most of his life in Kenya. He says that government support has been critical to allowing all of this innovation to flourish. “Kenya is not hamstrung by rigid regulations,” he says, “which are major obstacles in most other African countries.”

Dozens of new companies have been birthed from iHub, and the center has attracted attention — and funding — from international investors, researchers and leading tech companies (including Google, Microsoft and Nokia).

The Kenyan government’s Internet Communications Technology board has even partnered with iHub on several initiatives. The head of the ICT board, Paul Kukubo, is the former CEO of a local tech start-up. Kukubo had experienced firsthand the challenges of competing globally in the IT industry during the years when Internet connections were expensive and bandwidth was limited.

Today, Kenyan businesses can access world-class fiber-optic links to the rest of the world, and fierce telecom competition has significantly lowered connectivity prices.

Kenya’s government is determined to leverage this improved infrastructure to provide jobs and economic growth for Kenya’s next generation. In a 2010 interview with The Financial Times, Kukubo projected that if 1 million jobs could be created by Kenya’s IT sector, “the service economy should surpass agriculture in five years.”

The emerging success of Kenya’s mobile tech sector has also spurred several other national initiatives to put the nation on the global IT map. The government’s policy roadmap, Vision 2030, is heavily focused on infrastructure to create the foundation for sustainable economic growth.

New fiber-optic networks are also being planned to enhance the nation’s telecommunications capacity. Major global tech firms such as Siemens, HP, IBM and Samsung have already set up operations in Kenya, and the government hopes many more will follow.

Additionally, plans for a new technology-focused city called Konza have been laid out on a 2,000-hectare (roughly 4,940-acre) plot outside Nairobi. Konza will include office parks for science and technology firms, a university, retail outlets and residential facilities. Private investment is being sought for the elaborate plan, estimated to be completed in phases over a 20-year period at a total cost of US$7 billion.

The road ahead

Amid all the hype in the IT sector, however, the industry is still young, and only a handful of Kenyan IT success stories currently exist. Some Nairobi tech businesses — like those in Silicon Valley — murmur about a talent shortage, lamenting that a handful of successful companies seem to have swept up the best developers and programmers in the nation. Others have complained that the large influence and budgets of Kenya’s NGOs have kept many skilled professionals out of the private sector.

Obtaining financing is also a challenge for young companies whose only assets are often lines of computer code sitting on a hard drive. Ory Okolloh knows that well. She’s one of Ushahidi’s co-founders and is currently Google’s policy manager for Africa.

“A scenario I come across far too often,” Okolloh wrote in the March 2012 issue of MIT’s Technology Review, “is that a young African technologist with a great product . . . gets a chance to demonstrate it, to wide acclaim. But to translate it into an actual business opportunity, the innovator is expected to hand over cash or a 40-percent stake in the business.”

Yet with sights set on its world-changing potential, Kenya’s tech community is growing increasingly restless. No longer content with being known for mobile money transfers, the major players want to take their place alongside the world’s leading cities known for IT innovation.

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Ali Hussein, CEO of Nairobi web-development agency 3Mice, is a veteran tech entrepreneur with an interest in helping young technologies navigate their way in the business world. “The critical point in Kenya now,” he says, “is to convert all these IT innovations into viable businesses. Can we build the next IBM? Apple? Microsoft?”

The jury is still out on that, he says, but with proper training, mentorship and access to capital, he and many of his peers see great opportunities ahead.

But can Kenya’s emerging technology success be replicated in other African countries? Nations such as Ghana, Nigeria and South Africa have given birth to successful software ventures, and talented young programmers can be found all across the continent. Yet only Kenya has the unique combination of a large population of digital transaction platform users, strong public sector support and a growing global reputation for innovation.

If these factors continue to grow, all eyes will be on Kenya as it fulfills its vision of becoming a leading global hub for software innovation.

Amanuel Mengistu is Selamta's executive editor. Samuel Imende is a managing partner of a start-up African brand, ENZI footwear.

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