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iHub By Editor / November 12, 2012

Kenya | Can The Government Outsource to IT SMEs?

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By Chris Foster 

With the growth of ICT start-up and small enterprise businesses (SME) in Kenya, one of the questions that has frequently been asked is: What role can the government play in this emerging ecosystem?

One suggestion that has been put forward is that the government and state agencies should look to outsource IT services, procurement and IT application design to SMEs, driving growth of the local ICT sector. Government outsourcing to local SMEs is something that has been successful in the EU and US in driving SME sectors, and would seem to be a reasonably cost effective policy that the government could implement quickly to support the ICT sector.

Barriers to Government IT Outsourcing

But, even with this potential, there is little sign of this happening. At present there seems to be a number of barriers in Kenya which are preventing ICT SMEs from being involved in such outsourcing activity:

1) Lack of information and encouragement

Perhaps the key barrier is that there seems little drive for policies which include SMEs in government IT activity. This means that SME needs are simply not considered.

For instance, a report by infoDev from last year entitled ‘Transforming the East African ICT Sector’ (link: http://www.infodev.org/en/Publication.1040.html) interviewed a number of ICT entrepreneurs, who outlined a number of basic problems related to government outsourcing including:

“[a]…lack of readily available information on how to compete successfully. Additionally, there is a perception among SMEs that the procurement process unfairly favors foreign firms”

2) Tendering processes

Even when the information is available, the criteria to be able to undertake IT services are strict, and processes for applying require much time and bureaucracy. As the infoDev report goes on to say there are often 

“onerous application and experience requirements for government vendor selection”.

So, even if they might consider applying to undertake such activities, the requirements to compete are likely to discourage SMEs.

3) Long wait for payment

In my research on ICT SMEs, government employees interviewed also connected the low success of IT outsourcing to the slow payment when it comes to government contacts.

Typically it can take 8-9 months from the time of a job until the time of payment, far too long if you are a new business trying to gain financial viability. For instance, one government interviewee recounted that when the Kenyan government previously looked to outsource vehicle repair to SMEs, almost all SMEs withdrew from the scheme, simply unable to afford to wait so long for large payments.

So, it is clear that at present there are barriers in place and that we should be more pessimistic of the ability of government outsourcing to drive the ICT sector locally in the near future. However all may not be lost, there are some signs that even with these barriers there might still be potential strategies that can help.

Bridging IT SME’s and Government

Firstly, in the parallel social enterprise sector, intermediary ICT organisations have stepped in to overcome similar barriers. In Kenya, firms like Digital Divide Data (link: http://www.digitaldividedata.org/ ) and even the Kenyan ICT board (in the case of Digital Villages) are succeeding by becoming intermediaries, sitting between two very similar sets of players – large private firms with IT/BPO needs, and SME. Such intermediary ICT organisations have been active in advocating to large private firms to better consider the social enterprises, and have been successful in growing the sector. In addition they also bridge between the very different needs of these two actors.

Likely we will see the same start to happen with government IT outsourcing, where intermediaries, some private and some public, emerge to bridge between ICT SME and the government in a similar way (for example, this is already happening in some parts of India(link: http://onlinelibrary.wiley.com/doi/10.1002/jid.1580/abstract ). Such intermediaries, able to advocate for IT SME within government contracts, will likely drive the growth of government IT outsourcing, and will also play a role to bridge between the complex tendering requirements of governments and the more immediate needs of IT SMEs.

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Secondly, even though government IT outsourcing is not occurring directly, you’ll be surprised to know that the government is already helping many IT SMEs survive through a kind of indirect outsourcing.

If you go to any small cybercafe in Kenya and ask owners about the main uses of the internet, expect to hear mention of people using cybercafes for KRA pin/tax submissions, and during exam result periods youth flocking to cybercafés to check government education websites to find out their exam results. Perhaps unexpected, this growth of e-government schemes in Kenya can be seen as already being an important aspect of survival through indirectly outsourcing of government services to more informal IT SME.

To summarise, for ICT start-ups and SME there are barriers to government IT outsourcing. This means that it is unlikely that we will be seeing many IT SME bidding or taking government tenders in the short term, and reducing the barriers mentioned will be a slow process.

But, there are opportunities emerging now. SME’s that identify and partner with the emerging ICT intermediaries who will likely work with the government to outsource, may reap good rewards in the future. Meanwhile, IT SME ‘s who are focussing their strategies on lower income markets, should consider how they might take advantage of the ever expanding range of e-government schemes in Kenya, and how linking themselves into such indirect outsourcing could help to drive their growth.

Chris FosterChris is a PhD researcher at the University of Manchester, UK. His research work has been looking at Kenya’s ICT sector, particularly focussing on the role of entrepreneurs and innovation in driving ICTs to less affluent users.

 

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4 Comments
  • Can The .KE Government Outsource to IT SMEs? « PASHA BARINGO Digital Centre – Gdeisoft Resource Centre at 11:09:40AM Monday, November 12, 2012

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  • Can The .KE Government Outsource to IT SMEs? « PASHA BARINGO Digital Centre – Gdeisoft Resource Centre at 11:09:40AM Monday, November 12, 2012

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  • Eric Kotonya at 09:53:23AM Tuesday, November 20, 2012

    Great post Chris.

    I see great opportunity for Kenyan ICT SMEs in the next 2 years, driven by the need to procure lots of technology and training in technology for newly devolved government structures.

    Leveling the playfield is not possible through allocated quotas and policies alone – the SMEs ans startups must take the initiative and innovate their way to gain inclusion into the system.

    One way of doing this is through “cashless micro-outsourcing” for service industry startups. The procure-to-pay way of doing business inherently drags along with tax compliance, audited financial history, sourcing financing and competitive pricing. Removing cash compensation from service procurement opens up a new value system favorable to SMEs.

    By barter trading service delivery to government in exchange for personal job rating, young graduates can supply professional services to the public sector in a competitive space driven by delivery quality. In exchange, they would acquire real-world experience and a persistent rating for use in their resumes for cash-billable jobs in the private sector.

    With Kenya positioned as a global leader in mobile entrepreneurship today, and the mobile internet infrastructure and expertise flourishing, the tools are available locally to kick-start the process of mobile entrepreneurship. With a smartphone or tablet and connectivity, professional training and consulting services can be requested and delivered online in short sessions,with each task rewarded instantly upon completion by a client job rating.

    The government would save on cash while effectively and continually re-training its professional services (ICT, legal, financial services and business consulting) workforce in alignment to workplace demands.

    Reply
  • Chris Foster at 14:03:36PM Wednesday, November 21, 2012

    Thanks for the comment Eric.

    In the Indian link I included above this is kind of happening, albeit more indirectly. Some state projects have outsourced ICT tasks into new SMEs as a way to drive ICT entrepreneurship skills amongst the unemployed (although cash payment was still involved).

    The problem is that likely the government needs to ensure that ICTs are of a certain quality and supported in the long term, which often can only come through making contracts and cash based exchanges with SMEs.

    Reply

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