Study: High cost of phones, data cuts off the poor from e-economy

Engineer setting up a mobile transmitter in Othaya town on April 27, 2022. [Mose Sammy, Standard]

The prohibitive cost of smartphones, internet and mobile money services have marginalised Kenya's poor and low-income communities and excluded them from the country's multi-billion shillings digital economy.

This is according to a new study that warns the country's poor are not reaping the economic dividend of increased digitalisation and adoption of technology in the country.

This has fuelled the country's economy, with commerce and transactions increasingly being conducted online.

Dubbed "Silicon Savannah", the report says Kenya has emerged as a major player in the fintech space since the country's biggest telco Safaricom pioneered its M-Pesa mobile money service in 2007.

This has assisted people without access to the formal banking network.

"Mobile money transaction costs, the cost of data access and the price of smartphones with the capacity to run third-party applications have contributed to a digital divide that excludes low-income households from accessing digital services including financial services, and participating in the digital economy," says the newly published study.

Modern information

A digital divide refers to the gap between demographics and regions that have access to modern information and communications technology and those that don't.

The report says innovation and use of web and mobile applications such as M-Pesa have encouraged the growth of micro, small and medium-sized enterprises, which has advanced financial inclusion and employment as well as made the technology sector a key contributor to Kenya's Gross Domestic Product (GDP).

The new William Ruto administration is banking on this and has prioritised the integration of technology into more sectors to drive social and economic transformation and grow thousands of jobs for Kenyans.

However, the study authored by former ICT Principal Secretary Bitange Ndemo warns that low-income households may be left behind due to access barriers of high costs.

"While mobile money has supported the growth of the digital economy, social inequalities may be exacerbated by those excluded from the digital economy either because of low technical ability or due to the high costs of data access and mobile money transaction fees," it says.

The study says by some estimates, the usage of digital financial services has led to a one to two-percentage-point increase in economic growth in countries that have successfully adopted mobile money.

The study was published by Germany's Friedrich Naumann Foundation for Freedom

It is titled "From Mobile Money To Digital Cash" Learnings from Africa's Experience with Mobile Money for the Introduction of Central Bank Digital Currencies and was authored by Mr Ndemo and Aaron Thegeya.

Mr Ndemo is currently Kenya's ambassador to Belgium and the European Union. Its findings come at a time when the price of new mobile phones went up by at least 10 per cent last year setting up buyers for increased prices.

The Finance Act 2022 imposed a 10 per cent excise duty on the importation of cellular phones in addition to a Sh50 excise duty on every imported ready-to-use SIM card.

The study notes that mobile money ecosystems tend to be dominated by a few players, and each provider has the incentive to maximise traffic within its own network.

It warns this creates a major disincentive for network integration and interoperability, and dominant networks in particular have little incentive to integrate with new and smaller networks. In turn, this means that mobile money networks tend to be dominated by a small number of major players, and networks will tend to be fragmented across service providers.

There are over 34.5 million active subscribers to mobile money transfer services according to tot the Communication Authority of Kenya.