The World Bank Group has considered Kenya a hub for financial and digital services and a leader in a number of global innovator services compared to other economies.
Global innovator services has been on an upward trajectory to 20 percent in 2019 from the lows of 5 percent since the mid-2000s, driven mostly by trade in telecom, finance and ICT services.
In its Country Economic Memoranda Report dated October 17, 2023, the World Bank says many of the global innovator services tend to be concentrated in the larger cities, especially in Nairobi and Mombasa.
In Nairobi, global innovator services contribute to one-third (33 percent) of value added in the services sector and in Mombasa about one-fifth (19 percent).
Services exports are dominated by low-skilled tradable exports, although the share of global innovator services has increased since the early 2000s.
On average, low-skilled tradable exports have historically accounted for 60 percent or more of Kenya’s services exports, although that share has declined over the past 10 years.
This group of services, however, faces a series of constraints related to the high skill intensity and the difficulty of firms in these subsectors to find qualified workers in the Kenyan labour market.
Other constraints relate to product markets in these subsectors being restricted – especially in subsectors such as professional services and telecommunications – and a potential to further adopt more sophisticated technologies.
“…if global innovator services expand and absorb more labor from other, less productive sectors, as well as creating more opportunities in other, linked sectors, their continued development may ultimately reduce inequality,” the report reads in part.
Kenya’s growth strategy, if it includes the services sector – a Sector, says the World Bank, can contribute to long-term growth and job creation, including in non-services sectors through five ways.
SHIFT the services sector to higher-value-added activities
Knowledge-intensive “global innovator” services (such as IT, financial, and professional services) employ only 2% of workers in the economy, but they contribute to 14% of GDP and 19% of growth. Growing these services can provide important benefits but will also require a skilled workforce.
LINK services better to increase the enabling role
Services enable growth in other sectors, including manufacturing. However, compared to other countries, the linkages between services and other sectors are weaker in Kenya.
BOOST the productivity of the services sector
This means adopting better technology, making markets function better, and facilitating business entry. While some Kenyan firms are technological leaders, many are far from the global frontier. Services markets can also be made more competitive, including by addressing the presence of the state in certain sectors.
TRADE and investment
Restrictions to services trade and investment remain high and are higher than in the region. Substantial barriers to cross-border data flows also exist, hampering digital trade.
SECURE livelihoods
The services sector also matters from the perspective of inclusion: it employs many people, and part of the sector is highly informal. It also provides many services to the poor – with technology bringing new opportunities.
The U.S. was the leading innovator of financial technology (FinTech) globally for 6 decades but China has taken over, powered by smartphones and social apps.
In Africa, Kenya and Nigeria have emerged as FinTech hotbeds, and are using inexpensive, accessible tech to mobilize consumers in ways never seen before.
Kenya’s share of services in value-added is lower than all its regional, structural and aspirational peers, with the exception of Bangladesh and South Africa while it has a relatively higher contribution of services exports to growth.
