The Republic of Kenya is a developing economy, which is primarily dependent on agriculture and related industries. Agriculture constituted approximately 21.4 percent of the country's GDP in 2009.
Kenya possesses much scope for economic growth and the economy's recovery in recent years has been achieved due to measures such as incentives for farm production and development of small scale primary industries.
In the early 1990s, Kenya's economy suffered greatly due to inefficient management of agricultural and international trade policies. However, in 1993 the economy began to revive as it benefited from policies of economic liberalisation, privatisation and the support of international organisations such as the IMF and World Bank. However, the economy's growth stagnated once again in 1997. The overdependence of Kenya's economy on agriculture with low-priced goods and the severe drought in the country in 1999, which deeply affected agriculture production, have been some of the major reasons for the lack of modernisation in the country. Corruption, which is widespread in Kenya, especially in the judicial system, is another major problem. Other issues of concern for the country are an unstable political environment and the widespread problem of HIV/AIDS.
The economy's recovery since 2002 has been achieved through measures such as incentives for farm production and the development of small-scale primary industries. However, post election violence together with the global financial crisis leading to a reduction in exports contributed to a reduction in GDP growth to 2.2% in 2008, a reduction of 7% from 2007.
The growth of telecoms in Kenya has been slow until recently, mainly due to strict government regulations. The market has been partially liberalised only recently and has since been growing at a faster pace. The introduction of 3G services will aid the growth of the telecom sector.
Table 1 provides an overview of the country's key economic parameters.
|Population Growth Rate||2.69 percent|
|GDP (PPP)||USD 62.01 billion|
|GDP real growth rate||2.00 percent|
|FDI inflows||USD 42.0 million|
Source: CIA Kenya
Kenya's telecom market has had great potential for growth because of its previous low penetration levels in both fixed and mobile markets.
2004 saw significant changes in the country's telecom industry, with the incumbent operator Telkom Kenya losing its monopoly in the fixed-line and internationals bandwidth sectors. Licences were also issued to a regional carrier, third mobile operator and several new data carriers, thereby marking a significant change in the competitive landscape for telecom services across the country.
The last five years has seen rapid growth due to new players entering the market, the introduction of 3G services by the telecom operators and, very recently, duty being waived on new mobile handsets and the allowance of number portability.
The official telecom regulatory body of the country is Communications Commission of Kenya (CCK).
In 2009, the Government recognised these rapid changes and developments in technology and introduced the Kenya Communications (Amendment) Act 2009. They are now responsible for facilitating the development of the information and communications sector and electronic commerce.
Table 2 provides an overview of the country's telecom sector in terms of subscriber numbers and penetration rates.
|Segment||Subscriber (millions)||Penetration (%)|
|Fixed-line (3Q 2010)||0.362||0.96|
|Internet (3Q 2010)||8.7||22.1|
|Mobile (4Q 2010)||69.3||61.0|
Source: Communications Commission of Kenya
Mobile services in Kenya were pioneered with the launch of an ETACS network in 1993. But due to issues such as the high cost of handsets and high charges for the service, the number of mobile subscribers at the end of 1999 was only 20,000.
The number of operators providing mobile services in Kenya has now increased to four and with improving mobile infrastructure there is coverage in all major towns and highways in the country. The price of handsets has reduced due to the duty being waived by the Government and the increase in operators has intensified competition leading to price competition in the market.
Safaricom still dominate the market with a market share of 79% and the number of subscribers had risen to over 19 million in 2009.
The CCK is planning to introduce number portability by the end of July 2010 which will give mobile phone subscribers the option to switch between service providers without changing their phone number. This is likely to work to the benefit of the smaller operators.
The total number of mobile subscribers in Kenya at the end of 2009 was 19.11 million, resulting in a penetration rate of approximately 48 percent.
Total mobile subscribers in the country have increased at a rapid rate of approximately 459 percent from 3.42 million at the end of 2004 to 19.11 million at the end of 2009. The corresponding increase in the penetration rate during this period has been from around 5 percent to 48 percent.
The country's mobile subscriber base is expected to increase further over the next few years, resulting in a mobile subscriber base of 30.58 million and a penetration rate of 68 percent by the end of 2014.
Table 3 shows the forecasts for mobile subscribers in Kenya for the 10-year period from 2002 to 2011.
|Year End||Subscribers||Year End||Subscribers|
Source: industry sources, Blycroft estimates c. Blycroft 2011
Figure 1 illustrates the trends and forecasts for mobile subscribers and the penetration rate in Kenya for the 10-year period from 2002 to 2011.
Source: industry sources, Blycroft estimates c. Blycroft 2011
Safaricom was the first operator to launch GSM-based mobile service in Kenya in 1999. It has more recently launched voice SMS, mobile advertising, missed call alert and SIMEX. Their 3G network now covers Nairobi, Mombasa, Magadi, Eldoret and Naivasha with 301 3G-enabled base stations and they have recently acquired a 51% stake in One Communication Ltd to provide fixed and wireless data services.
The majority of its shares are owned by Vodafone Kenya.
Figure 3 shows the latest ownership structure of the company.
Source: Company Reports
Table 4 provides an overview of the operator's key performance indicators.
|Revenue (USD millions)||989.9|
|EBITDA (USD millions)||431.5|
|CAPEX (USD millions)||77.8|
Source: Company sources
Airtel (was Zain)
The second operator in Kenya's mobile market is Zain Kenya which was bought by Bharti in March 2010. They had 2.09 million subscribers at as at 31 Dec 2009, a reduction of 32 percent year on year.
Bharti's purchase of Zain is likely to see increased price competition among Kenyan operators as their model works on a lower cost base. They have demonstrated a penchant for negotiating lower rates from equipment suppliers due to its ability to place bulk orders. Zain had already started a cost reduction programme before the merger.
Essar Telecom Kenya (known as the brand Yu).
The company won the licence to operate mobile phone services in Kenya in 2003. After winning the licence, the carrier was engaged in several court cases involving shareholders' disputes and non-payment of licence fees, so delaying the service launch until 2008. Due to the resulting tarnished image in Kenya, the company has opted to launch its services under the brand name Yu.
They had 0.87 million subscribers at as 31 Dec 2009, an increase of 1344 percent year on year.
Telkom Kenya (Orange/France Telecom)
The company had been burdened with high operating costs, over staffing, high debt costs and low cash flow, and consequently over the last couple of years it could not invest in its infrastructure to cope with increasing competition. 2007 saw the workforce reduced by 50 percent to bring the loss making telecom carrier back to profitability.
The company's management transferred to France Telecom (FT) and the company's performance has improved. They had 0.76 million subscribers as at 31 Dec 2009, an increase of 111 percent year on year.
Some of the recent developments in Kenya's mobile market are as follows:
> In March 2010, Bharti Airtel bought Zain Africa excluding its operations in Morocco and Sudan for USD 10.7 billion. Bharti are known for working from a low cost base so prices will become more competitive. It is unclear whether they will continue to trade under Zain or change their name to Bharti.
> In 2008, Safaricom introduced 3G services in Kenya. 3G enabled handsets help users in connecting to a range of services such as internet access, e-mail communication and access to calendars and other multimedia services.
> Safaricom is in the process of deploying a completely integrated Customer Relations Management (CRM) software system aimed at handling interaction with the expanding base of the operator. They are one of the first companies to deploy a system in Africa.
> The Fair Competition and Equality of Treatment regulations, part of the Kenya Communications Regulations of 2010, require dominant players in the industry to report to the regulator before revising pricing. This has seen mixed reactions from operators in particular Safaricom have termed the rules unfair but other operators feel the regulations would oversee further growth in the sector.
Kenya's mobile market experienced rapid growth throughout the last decade and is forecast to grow even further over the next five years through the expansion in its mobile data services, particularly mobile banking.
Increased competition will be another driver of growth especially as Bharti have bought Zain and are known for operating from a low cost base. Lower handset prices and service tariffs will bring mobile services to the reach of a greater proportion of the population. Number portability will make it easier for subscribers to change between operators to take advantage of better pricing.
By the end of 2014, the total number of mobile subscribers is predicted to rise from 24.6 million mobile subscribers at year-end 2010 to 33.2 million, achieving a penetration rate of 79 percent.