By Herald Aloo/The Africa Report
Safaricom CEO Peter Ndegwa says subsidies and tax collection make a big difference for Kenya’s domestically produced phones to compete with cheap imports.
Safaricom has injected $1m (KSh151m) to kick-start production of locally-assembled smartphones in Kenya to ramp up penetration in the East African country, an investment that is expected to grow in the future, CEO Peter Ndegwa tells The Africa Report.
The investment will see Safaricom control a 25% stake in the East Africa Device Assembly Kenya Limited (EADAK), the affordable phone joint venture expected to roar back to life starting from next year.
The government-supported plant, situated in Athi River, has three other partners: Chinese phone manufacturer Shenzhen TeleOne, Jamii Telecom and the Industrial Technology Training Company Limited (ITTCL).
The company, which President William Ruto is banking on to fulfil his digital transformation agenda, aims to produce up to 3 million devices annually.
“I’m sure in future, as we increase the capacity of the device assembly, we need to be injecting in this country probably 2/3 times more that amount,” says Ndegwa, without revealing a specific timeline.
Once the EADAK project proves a success in Kenya, Safaricom can leverage its rich continental digital footprint, including its Ethiopia subsidiary, to bolster the export of affordable phones across Africa, according to the CEO.
READ MORE Safaricom’s entry into Ethiopia signals liberalisation drive
“We believe export will be even bigger, whether to our business in Ethiopia or other countries,” says Ndegwa. There is also an opportunity for EADAK to expand its production line to include tablets and other Customer Premises Equipment (CPEs) like routers.
EADAK has put a pay-as-you-go (PAYGO) model as a purchase alternative for those unable to make a one-off payment for low-cost gadgets. Under this credit model, which is expected to ride on Safaricom’s current Lipa mdogo mdogo (higher purchase), customers will pay an upfront fee of KSh1,000, and the rest will be settled in instalments.
Untapped areas
As of June 2023, there were about 63 million mobile phones in circulation in Kenya, representing roughly 124% penetration, with 32.1 million feature phones, whose functions are relatively basic and cannot be connected to the internet. There are 30.8 million smartphones in the country.
Kenya’s major cities and relatively populated regions dominate the current smartphone penetration, leaving northern parts of the country and other far-flung areas, which are still served by 2G and 3G networks, largely untapped.
With the 4G-enabled locally assembled devices retailing at between KSh7,500 and KSh9000, there is about a 30% price reduction compared to their equivalent imports, most of which cost KSh12,000 or more.
In terms of cost of the devices, we believe that subsidies are essential
“We’ve been intending that in a few years, every Kenyan should have a 4G enabled smartphone, and the primary issue has been the imported smartphones are expensive,” says Ndegwa.
“That’s why we decided as an industry, together with device manufacturers, let’s go for a locally assembled device.”
Cheap imports
Kenya’s manufacturing industry faces several challenges, including rising taxes, a declining shilling and high energy cost, which makes it hard for domestic products to beat the competition from cheap imports.
Phone imports from China and other Asian countries, where highly subsidised production has given them a competitive price advantage in Africa, particularly raise concerns as Ruto’s administration has not shown interest in offering waivers or subsidies to EADAK.
During the launch of the EADAK plant last month, Ndegwa warned that the locally-made devices might find it hard to compete with subsidised products. “In terms of cost of the devices, we believe that subsidies are essential.”
READ MORE China’s Transsion dominates smartphone market in Africa
Ndegwa tells The Africa Report that the cheap imports are mainly 2G/3G devices, which is not a focus area for the EADAK consortium. The number of imported 3G devices in the Kenyan market has significantly reduced in the past two years, with the few available ones, such as Itel A18, costing KSh8,000 at Safaricom shops.
Ndegwa also hopes the tightening tax leakages by the State will equally slash the inflow of cheap gadgets into the Kenyan market. “What has been happening is that some [people importing these] devices have actually not been declaring all the taxes.”
This article was posted on November 21, 2023 at 11:13 am EST/The Africa Report
