GSMA calls for policy tweaks to boost Kenya’s Digital Economy

By Steve UMIDHA

It can be tempting for a country like Kenya to turn to industrial policy, but a strategy mix supporting innovation more broadly can help boost economic growth, according to Global System for Mobile Communications or GSMA, which has recommended a host of tax tweaks if the country’s digital economy is to live to its potential.

In its 2024 Digital Economy Report, the global telecoms’ lobbyist wants Kenyan policy drafters to instead focus on low – hanging fruits, which it says if implemented, will close the internet usage gap from the current level of over 64% of the population to 51% by 2028.

This, it says will be a starting point in addressing the issues holding back Kenya’s digital economy.

GSMA has further urged Kenyan authorities to consider a suitable tax restructuring policy in the telecommunication industry to “purposefully drive usage.”

It says Kenya should consider implementating policies and programmes to improve device affordability as well as to provide a sustainable and predictable investment environment for stakeholders.

To achieve this, GSMA wants the Kenyan government to back by actions, the sector’s financial sustainability through tax deductions against spectrum payments, reduce the cost of energy to power infrastructure, approve a favourable spectrum pricing model, and quickening the otherwise slow licence renewal process.

“Supporting productive use of digital technologies by businesses across economic sectors, with targeted policies to improve digital skills and human capital, support MSMEs and start-ups and prioritise context appropriate technologies and local needs,” reads in part the report released Tuesday in collaboration with the Communications Authority of Kenya (CA).

That’s not all, the report further notes that Kenya’s mobile sector continues to face several policy and regulatory challenges that it believes risks undermining future sustainability of mobile infrastructure and jeopardising the gains achieved in digital and financial inclusion.

If these challenges are addressed, the association says, the mobile sector “can support a greater economic impact through increased access, adoption and usage of digital technologies.”

GSMA’s endorsements follow recent attempts by the National Treasury’s proposal to hike excise duty charged on telephone and internet data services from 15 per cent to 20 per cent.

By hiking taxes for calls and internet access, telecommunication companies might be forced to pass on the extra costs to Kenyan users. Despite Kenya being the most taxed country in terms of internet access, it has been leading in internet usage in East Africa according to research done by Statista.

This has been attributed to the rapid growth in e-commerce and social media usage in Kenya compared to Uganda and Tanzania.

Indeed, the mobile sector makes a significant contribution to the economy of Kenya. In 2023, for instance, it is estimated that the telecommunications sector contributed KES 1.2 trillion to the Kenyan economy, or around 8% of GDP, including the ecosystem, indirect and productivity impacts. This resulted in KES 212 billion paid in taxes to the William Ruto – led government.

Kenya’s Vision 2030, and the ruling coalition through its philosophy, has recognised the role of Digital technology as a driver of economic growth and development.

The sector has been classified as part of the five sectors that form the core pillars of this plan including, Agriculture, Micro, Small and Medium Enterprise (MSME) economy, Housing and Settlement, Healthcare, Digital Superhighway and Creative Economy.

But some of these noble ideas have failed or struggled to meet the public hype owing to the competing objectives from policy makers such as increasing domestic revenues and reducing poverty and inequality, while boosting private sector development to attract investment.

The mobile telecoms industry, and the digital sector more broadly, contribute significantly to the economy and to public services in Kenya.

Widespread adoption of digital technologies across the public and private sectors enables better interactions between individuals and a more efficient use of resources, thereby raising productivity and supporting innovation.

Titled “Driving Digital Transformation of the Economy in Kenya” GSMA report revealed that the digital economy will contribute 662 billion Kenyan shillings (about 5.13 billion U.S. dollars) to the country’s gross domestic product by 2028.