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Posted on April 22, 2020

Opportunities beyond Covid-19: It’s time for Kenya to nurture a fully digital economy

The recent months have been quite surreal for many across the globe. Recent happenings as a result of the Covid-19 pandemic have played out, in real life, scenes previously only depicted in Hollywood productions. We have seen far reaching actions such as total restriction of movement within and without sovereign boundaries. Normal operations of businesses have been interrupted with people being urged to work remotely where possible, and in extreme cases people being laid off as economies get disrupted.

Kenya has not been spared. As I write this, there are about 296 cases of people having tested positive of Covid-19 and 14 related deaths. The numbers are expected to rise as the government increases the scale of testing.  The government continues to urge people to self-isolate and work from home where possible, and has further declared a nationwide curfew to restrict movement between 7:00 pm and 5:00 am. It has banned movement in and out of Nairobi, the national capital, and the coastal counties of Mombasa, Kilifi and Kwale where most of the infections have been reported, except for essential services providers, to curb spread to the rest of the country.

The situation is particularly dire for people engaged in the informal sector, which accounts for at least 77% of all employment in Kenya. The government has announced a raft of measures aimed at cushioning this segment from the economic shocks they face. These range from a reduction in value added tax, corporate and turnover tax, as well as income tax amongst others. It remains to be seen if these measures will be adequate to prop up Kenya’s economy.

Addressing the nation on the pandemic, Kenya’s President Uhuru Kenyatta announced that the government had partnered with Google to ensure 4G internet connectivity throughout the country using high altitude balloons. This announcement received mixed sentiments as 4G connectivity may not be a priority in the midst of a health crisis like the Covid-19. This however got me thinking: what would this announcement imply if Kenya (christened the “Silicon Savannah” for its numerous innovation accolades) had a largely digital economy, rather than its currently largely informal economy? What if agricultural value chains were digitised enough for farmers to directly access markets via online platforms? What if it were possible for students across Kenya to use digital tools to enhance classroom learning? What if it were possible to access healthcare solutions via online platforms that would also make it easier to track and identify new cases of Covid-19 infections?

In an earlier blog, I explained that for financial innovation to really make a difference, it needs to be coupled with innovation in real economy sectors such as agriculture, education and health among others.

FSD Kenya’s innovation project conducted research to explore opportunities offered by digitising a nascent value chain in Makueni County, eastern Kenya. Tosheka Textiles – a social enterprise specialising in textile production and print design, decided to introduce sericulture (silk-rearing) in Makueni after the collapse of cotton production in the county. Being a nascent value chain, Tosheka believed that they needed to leverage digitisation to ensure smooth scale-up and demonstrate value to potential investors. We worked with Lelapa Fund that had designed Lelapaflow, a proprietary solution for simplifying the due diligence process for investors seeking opportunities in early stage enterprises. The solution was customised to digitise end to end processes for Tosheka as well as for their farmers.

Here are the key insights we gained from this small experiment that would be relevant to Kenya if we were to shift to a more digital economy.

  1. Data is readily available, just not easily usable

The sheer amount of data generated and captured by the farmers in ledger books in the course of silk rearing was impressive. The data captured included: detailed observations of changes that silkworms underwent, their activities including the time it took them, the number of worms dying at each rearing stage (instar) and tracked, weight of cocoons, and the dry weight of silk skeins. The amount of data captured was impressive. The only challenge was that it was stored in ledger books that made analytics daunting and slow. Similarly, data generated by the informal sector in Kenya is largely collected and stored in physical ledger books, pocket diaries, or even committed to memory. A digital economy would see all this data captured passively through trading platforms, and analysis could be done in real time thereby offering invaluable information that could be used to provide appropriate inputs and services to enhance productivity.

  1. Smart-phone penetration needs to increase

For data to be collected seamlessly in a digital economy, smart devices are required to act as interfaces between real economy sectors and digital markets. According to the 2019 FinAccess survey, smartphone penetration stands at 30% in Kenya. For Kenya to truly transition to a digital economy, smartphone penetration needs to increase. Only a small number of the farmers had smartphones, Tosheka had to equip its team of field officers with a tablet for data capture. Lelapa installed apps for the field officers who made frequent visits to farmers in order to transfer data captured in ledger books onto Lelapa flow. The ideal scenario would have been for the farmers to directly capture the data onto Lelapa flow using their smart mobile devices.  For the population to effectively engage in a digital economy, the cost of interfaces such as smart phones need to be reasonable to allow wide-spread adoption.

  1. Up-skilling is required to enable people to effectively participate in a digital economy

Varying levels of literacy and ability to leverage technology mean that significant investment needs to be made towards ensuring that people can fully harness the opportunities offered by a digital economy. A large component of the sericulture pilot was to train farmers to capture data in a structured manner, replicating what they would have done if they were using an app. A lot of effort was put in to ensure that insights from the data were fed back to the farmers for them to appreciate the value it offered them to enhance their productivity, identify mistakes and to give them prompts to seek for extension support from Tosheka. Digital extension services were identified as a potential game changer if silk production was to be scaled up across the county.

  1. Need to solve underlying real-economy constraints:

A key constraint for scaling up sericulture in Makueni was the production of castor leaves that the silkworms consumed. Although castor grows naturally as a weed in many parts of Makueni, the farmers had to spend significant amounts of time gathering the leaves to feed their silkworms. Tosheka had to contract farmers close to riverbanks to grow castor in order to ensure year-round productivity, as well as to reduce the copious amounts of time it took the farmers to feed their worms. A shift to a digital economy offers the opportunity to address some constraints plaguing the informal economy especially those regarding access to markets or both inputs and produce.  However, there is only so much that digitisation can do if other real economy constraints – such as the lack of key pieces of infrastructure (roads, internet connectivity, electricity etc.) – are not addressed.

  1. There is a role for government support

Ensuring 4G connectivity across the country is a great start, but deliberate and concerted effort is needed from government and industry in order to transition to a digital economy. Informality is a stumbling block to digitisation and the government needs to create adequate incentives for enterprises to formalise. Fully operationalising the Digital Economy Blueprint launched by the president in 2019 would also go a long way to realise its stated mission: “A nation where every citizen, enterprise and organisation has digital access and the capability to participate and thrive in the digital economy.

Our pilot research work in sericulture made us appreciate the potential in digitising agricultural value chains and enhanced our understanding of the complexity of adopting a digital economy. China has demonstrated that it is possible to leverage the digital economy for inclusive growth with its rural Taobao Villages – rural e-commerce hubs that feature Alibaba’s logistics, service and training to encourage farmers to engage in online sales of farm produce and local specialties.

The fact that digital marketplaces in Kenya have already seen an uptick in activity – as more Kenyans self-isolate and avoid public spaces – serves as a silver lining in these uncertain times. It also reinforces the argument for Kenya to fully embrace a transition to a digital economy.

Duncan Oyaro is Project Manager for Innovation at FSD Kenya. Twitter: @dunoyaro / @FSDKe

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