Markets

Kenya’s Internet economy worth Sh100bn

 A cyber cafe in Nairobi. Business related to the Internet has a share of  2.9 per cent of Kenya’s gross domestic product. FILE
A cyber cafe in Nairobi. Business related to the Internet has a share of 2.9 per cent of Kenya’s gross domestic product. FILE 

Kenya’s annual economic output generated from Internet connectivity is worth Sh99.8 billion, making it the second highest in Africa relative to total yearly production, a new report has showed.

The data by business advisory firm McKinsey and Company shows business related to the Internet (iGDP) has a share of 2.9 per cent of the gross domestic product.

The McKinsey report shows that Kenya’s iGDP, which is a measure of internet contribution to total GDP, is close to that of France and Germany but is slightly ahead of Canada’s and China’s.

Kenya comes behind Senegal’s 3.2 per cent, worth about Sh39 billion, but its economy is much smaller at only $14 billion (Sh1.2 trillion) against Kenya’s $37 billion (Sh3.44 trillion).

“Senegal and Kenya, though not the continent’s largest economies, have Africa’s highest iGDPs, and governments in both countries have made concerted efforts to stimulate Internet demand,” said the report.

McKinsey estimate is close to the valuation of posts and telecoms sector captured in the Economic Survey 2013 as Sh82 billion.

The McKinsey survey took account of Kenya’s Internet infrastructure investment such as mobile broadband, fibre-optic cable connections to households, and power-supply expansion combined with the rapid spread of low-cost smartphones and tablets.

“There is a growing wave of innovation as entrepreneurs and large corporations alike launch new web-based ventures,” said the report.

It shows the achievements Kenya and Senegal have made in major internet-related infrastructure investments in the past five years, leaving behind the richest countries on the continent.

World Bank data shows that South Africa, Nigeria and Egypt have GDP of $384 billion, $263 billion and $257 billion, respectively, each of them a number of times larger than Kenya.

Experts say that Kenya has invested heavily in ICT infrastructure and systems in the past ten years and is reaping the benefits of this.

“I am not sure about the numbers or worth of the investments, but I can say companies have put a lot of capital expenditure into ICT in recent years,” said Danson Njue, a research analyst at Informa Telecoms and Media Group in Nairobi.

Mr Njue said tens of billions of shillings are being spent every year by companies because they are optimistic about returns to their investments.

“We have put a lot of effort in the ICT sector. For example, IBM is spending a good amount of cash just to put up a research centre in Nairobi. This is just one and there are many others. This is out of optimism that improving ICT access has good returns,” said Mr Njue.

The McKinsey report said Africa’s increased share of Internet access relative to GDP had come with economic growth and urbanisation.

The report said spending on the Internet by Africans could add $300 billion to the continent’s GDP by 2025, thanks to the take-up driven by mobile phone usage. This means 10 per cent growth annually.

Without the mobile phone usage penetration, the fast Internet growth and contribution to the GDP could however be slower in growth by up to six per cent per year.

“Following a decade of rapid urbanisation and strong economic growth, Africa is going digital. While just 16 per cent of the continent’s one billion people are online, that picture is changing rapidly,” said the report.

Africa’s iGDP (which measures the Internet’s contribution to overall GDP) remains low, at 1.1 per cent—just over half the levels seen in other emerging economies, said the report.

Other African countries ranked among the top are Morocco, Mozambique, South Africa and Ivory Coast.

Globally, Sweden leads with 6.3 per cent as internet’s contribution to the GDP. It is followed by Taiwan at 5.4 per cent and the UK at 5.4 per cent.