Outsourcing in Kenya, Subsidy for Statistics and the Fear of Exposure

Clearly, Kenya is laying its claim to a share of the global outsourcing market. And people are taking note.

As noted in the search insights below, interest in the concept went through the roof in 2008; contrast that to 2005 when India completely dominated.

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But despite the enormous interest, the projected growth of the sector in the midst of a global economic downturn and the foreseen coming death of Indian outsourcing, why is progress in Kenya’s Business Process Outsourcing sector slow on the uptake?

Two reasons: prohibitive bandwidth costs and the “fear of exposure” among some BPO firms.

Shillings and Sense

According to Dr. Bitange Ndemo, PS Ministry of Information, typical monthly internet connectivity charges are about $7,500 per megabyte (MB) of bandwidth; in most other parts of the world, it costs roughly $400 per MB. In India, it’s about $500 per MB. To say that the connectivity overhead is lopsided would be an understatement; Kenyan BPO’s would pay 15 times over for the same amount of bandwidth.

Fortunately, the Government has a huge vested interest in the development of BPO’s – they are expected to be among the main job creation engines under the Vision 2030 [pdf] master plan. So a deal with the World Bank was brokered to account for the disparity by provisioning a “bandwidth support capacity purchase” scheme under the Transparency and Communication Infrastructure Project (TCIP), that reimburses BPO firms for bandwidth utilization over and above $500 per MB.

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Schedule I contains the formula for the calculation with an example to illustrate:

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By subsidizing bandwidth costs, its effect greatly mitigated and thus, hypothetically, allowing a local participating firm to compete on the same terms (connectivity-wise) with other players on the global stage.

The program is designed to be temporal, existing up until the time the undersea fiber optic cable projects in progress are completed and the price of internet bandwidth drops, as anticipated, to about $400-500 per MB.

So what we have so far is a fantastic offer for “free” money. Yes, no such thing as a free lunch; the BPO’s have a few requirements to meet:

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Fear of Exposure

The rectangular box represents perhaps the crux of the eligibility clause, that is, “we are giving you funds but we will need to audit your books”. The purpose of the audit:

Audit Objectives

Seems reasonable? I think so.

However, according to this article from The Standard, Kenyan BPOs have yet to benefit from the subsidy. Funds available amounted to the tune of $8 million (KShs. 632 M) and 2 months later, only 4 firms have applied and are in the verification phase. Why?

“Most companies are uncomfortable that the information the Government and World Bank demands is stringent and personal. They are not sure who else will access the information, and they feel exposed if they comply”

“Some.. have raised concerns that the information required is too personal and the ultimate exposure too much. Some have argued that the reimbursement is not worth the exposure and have opted not to divulge their operations”

If the funds are not used, the ICT Board notes that they may be redirected to other deserving projects, like ICT Villages or increasing connectivity subsidies for Universities and other institutions of learning. So what’s the sticking point? Perhaps the “audit” component, because that’s the section calling for the accountability.

What is the scope of the audit?

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Too stringent? Per the verbiage of this contract – I think not.

Ratification of bandwidth purchase, usage, job growth statistics and FTE indicators – the project success is measured by those metrics!

Are you paying your payroll taxes? Tax compliance – goes without saying

Take-away

  • The reality is that organizations make decisions based on what best serves their interests. This opportunity, however, would result in significant cost savings that could allow the business to grow in terms of people and infrastructure.
  • Joining the program lets one stay ahead of the curve, before everyone jumps in after the bandwidth upgrades are complete
  • Confidentiality clauses are included to protect the ICT Board and the BPO’s, so in case of either party not acting bona fide, there’s a path for legal recourse.
  • For the firms that are not open the accountability… I see a smoking gun

The Real Take-Away!

Read the entire Kenya ICT Board/BPO Rules of Engagement.