Kenya: Bandwidth Subsidy for BPO Did Not Hit the Spot

Friday, 12 June 2009

The government’s bandwidth subsidy, financed by the World Bank, was made on the assumption that costly connectivity was the key obstacle to developing a local BPO industry – but attracted the wrong players. In 2007, Kenya’s ICT Board introduced a bandwidth subsidy for local outsourcing firms to bridge the time until the first of several fibre optic cables would become operational. Connectivity costs have been seen as a major barrier to development of the nascent business process outsourcing (BPO) industry, so part of the USD7m provided by the World Bank for the Transparency Communication and Infrastructure Programme (TCIP) had been earmarked to provide a transitional subsidy for call centres’ connectivity costs.  Unfortunately, the subsidy did not roll very far: Implementation started late; there had been disputes over the exchange rate used to calculate the reimbursements, and out of the 30 or so companies that operate in the industry, only seven received funds. Overall, only KES35m (USD443,000) has been spent. Gilda Odera, chair of Kenya’s BPO Society, says the application process was unnecessarily rigid and intrusive. Several companies declined to participate rather than hand over large amounts of private data, and others that applied were rejected on technicalities. “The auditor made incorrect assumptions – he didn’t understand the industry well, and his word was final,” Odera said. “People felt that there was no good will. They felt that it was maybe more PR than a genuine will to provide subsidies.”  Paul Kukubo, CEO of the ICT Board, admits that the programme missed its mark, but for different reasons: The subsidy was offered because the board assumed bandwidth was the biggest barrier to growth. “But a lot of the people who came in to ask for the bandwidth subsidy were new businesses,” Kukubo says. Their problem wasn’t bandwidth costs, but a basic lack of capacity and understanding of the industry itself. Many small and inexperienced firms have cropped up in response to government incentives, which established BPO companies say is dragging down the industry’s reputation. The board is regrouping now to see how it can spend the remainder of the subsidy fund on “incubation”: capacity building programmes to make these BPO aspirants a little more “business friendly”.   Perspectives  Since the first fibreoptic cable is due to come online in the next weeks, the problem of costly and slow connectivity is now just temporary In retrospect, the high costs of connectivity appear to be only one obstacle in developing a BPO industry, and the pot of (seemingly) easy money attracted the wrong candidates. Whether transferring the bandwidth subsidy funds to an (as yet unspecified) capacity building programme for those newcomers is the best alternative is questionable: Call centre operators have argued that what Kenya really needs to do is to attract some large international investors with a thorough understanding of the sector and its operations to beef up the industry and create some real capacity, rather than confronting potential clients with a profusion of ‘jua kali’ companies. Most serious players ready to set up sizeable operations will presumably be able to absorb the bandwidth cost for a few more months. An analysis of Kenya’s BPO potential Outsourcing to East Africa : Growth Industry or Misguided Ambition? shows that the general obstacles to doing business in Kenya – expensive and unreliable power supplies, high security costs, heightened political risk – are probably just as much of a deterrent. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment