Konza Feasibility Study 2010 (Summit Strategies)

Konza Technology City

Summit Strategies Ltd

ICT Research & Consultancy Strategic information for decision support in info-communication business

Konza Technology City

Konza Technology City

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CREDITS

Prepared by:

Summit Strategies Ltd ICT Research & Consultancy

Strategic information for decision support in info-communication business Summit Strategies ltd ICT Consultancy and Research Landmark Plaza - 13th flr, Argwings Kodhek Road P O Box 62454 -00200, Nairobi Kenya tel: +254 (20) 3673 925/2637177 cell+ 254(701)016555,722) 520090 [email protected] www.summitstrategies.co.ke Proofreading & Layout Edited Expression

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Konza Technology City

PREFACE Konza Technology City presents a promising opportunity for Kenya to develop an alternative and complimentary path for economic development in line with Vision 2030 by exploiting ITES and IT Products in the ICT Park1. Konza also provides an opportunity as noted in the comparator countries to transform the country into a knowledge economy. Thus, this is a policy driven initiative as a tool for job creation and national transformation to launch the country to new frontiers. The first phase (20102015) commits heavy government exposure at political, legislative and funding levels as well as heavy marketing. Government can recoup this investment in later phases. The key focus areas of opportunity within the ITES are BPO, ITO, KPO and CSO as illustrated below: BPO

ITO

KPO

CSO

Horizontals

Most developed with local captive markets dominating - services include contact centres and digitisation

Emerging with software development as key area of focus targeting local and foreign markets

Activity in this space not significant if any and therefore provide opportunity

Emerging with few companies starting animation

Verticals

Banking Financial Service & Insurance Telecommunications Government developing a shared service platform, digitisation

A key strategy to realise this goal includes: •

To sell demand and only then sell talent and other infrastructural advantages. Availability of talent and infrastructure provides a foundation but is not sufficient to excite investors. There exists unexploited local demand, which will provide comfort to international actors

•

To sell Konza ICT Park as a product of the Eastern African region for the world. This takes advantage of the expanded East African Community market to provide language variety e.g. French from Rwanda and Burundi and the larger market access

•

ITES industry is people-based and thus will drive uptake at Konza by shifting people – Centre of Excellence (COE) for Africa at Konza, affordable housing for 85% staff housing, mass transport system to Nairobi, low cost of space among others.

With the strong government commitment as demonstrated in the purchase of the 5000-acre land for the City, the project could help generate 15000 ITES/ electronic manufacturing direct jobs (and 45000 indirect jobs) nationally in phase 1 by 2015. Konza itself would host approximately 8000 direct jobs by 2015. Revenue generated arising from Konza ICT activities would be USD244 million annually. In phase 2, the jobs created nationally would rise to 39000 direct jobs with half of the direct jobs in Konza ICT Park. Konza ICT Park jobs are expected to generate USD607 million annually. By 2032 the national market would generate 349000 jobs (approximately 1 million indirect jobs). Konza ICT Park is expected to host the bulk of the direct jobs while the rest are in other private sector driven initiatives. Total revenue generated at Konza ICT Park is projected at USD5.4 billion by 2032. This market will initially be driven by regional demand and therefore Kenya can exploit the first mover advantage by positioning Konza ICT Park as a regional product for the world. These figures are conservative compared with comparator countries and sites of Cyberjaya (Malaysia), Cyber City (Mauritius), SmartVillage (Egypt) among others and the projections are inspired by early trends of mature markets of India and Philippines. Recurring success factors in these comparator countries that inspire the design of Konza Technology City are: 1

Note that the ICT Park is within the Konza Technology City

Konza Technology City

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•

A very focused and visionary government commitment over the long term to give the private sector comfort through a proof of concept in the first phase of the project

•

Progressive inclusion of private sector to increasingly take over some of the risks

•

Parks are increasingly generic in design and implementation thus the differentiator is the value addition demonstrated through commitment and a superior operating environment, strategic access to other markets in the neighbourhood of the Eastern African region, market insights, access to talent, geopolitical stability and macroeconomic stability

•

A self sustaining ecosystem within the City and its neighbourhood comprising Incubation, Science Park, Research and Development, Centre of Excellence and universities.

This is a long-term project and will be developed through a sequenced approach with clear milestones driven by a high-level champion to handhold and transition the project into the future. The government identified the need to establish Special Economic Zones (SEZs) to cater for industrial activities and requirements for agro-industrial, manufacturing, Information and Communications Technology and Small and Medium Enterprise (SME). The SEZ framework will address key factors that enhance Kenya’s competitiveness as an investment destination through infrastructure provision, simplification of business regulations, value chain integration and clustering, expanded market access for SEZ goods and services, and reduced taxation. SEZ will be a vehicle to enhance investment attractiveness at Konza Technology City. This document is organised in three volumes. Volume 1: Comparative and Competitive Advantage, addresses the universe of ITES and trends in electronic manufacturing mapped against Konza Technology City. Volume 2: Market Opportunity and Magnitude of Demand, addresses the market dynamics of ITES and electronics manufacturing and Volume 3: A Comparative Analysis of SEZ policy and legal regime, which is a benchmarking analysis of similar international sites on SEZ incentive regime characteristics.

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Konza Technology City

CONTENTS EXECUTIVE SUMMARY.........................................................................................................................................................................2 DATA SOURCES AND PROCESS..........................................................................................................................................................4 THE IT UNIVERSE - DEFINING THE SPACE FOR ITES AND IT PRODUCTS..................................................................................5 The emerging universe of ITES as an opportunity..............................................................................................................................................................................................5 Quest for the ITES development; Setting the ITES roadmap through Kenya Vision 2030..................................................................................................5 Supporting ICT infrastructure......................................................................................................................................................................................................................5 Supporting institutional infrastructure...................................................................................................................................................................................................5 Challenges defining ITES................................................................................................................................................................................................................................6 The growing importance of ITES................................................................................................................................................................................................................6 ITES opportunity; mapping Kenya in the ITES   space.......................................................................................................................................................................8 The nascent ITES in Kenya; a private sector response..................................................................................................................................................................... 11 Electronic manufacturing opportunity and trends.......................................................................................................................................................................................12 Information Technology products.......................................................................................................................................................................................................... 12 Contract manufacturing and electronic assembly......................................................................................................................................................................... 13 The Kenyan experience in electronic assembly................................................................................................................................................................................. 13 Clustering effect: the case for Konza ICT Park.............................................................................................................................................................................................13 COMPARATIVE ICT PARK SITES OF INTEREST.............................................................................................................................. 15 Distilling lessons from comparator sites: a framework...............................................................................................................................................................................16 Internal to the Park........................................................................................................................................................................................................................................ 17 Industry - ITES and IT manufacturing................................................................................................................................................................................................... 17 External - National business operating environment.................................................................................................................................................................... 17 Remote forces.................................................................................................................................................................................................................................................. 18 EVOLUTION OF COMPARATOR ICT PARKS AND LESSONS FOR KONZA ICT PARK.............................................................. 20 Development initiative or commercialisation; the motivation......................................................................................................................................................................20 Institutional frameworks influencing ITES/IT products. ............................................................................................................................................................................20 Intergovernmental organisations........................................................................................................................................................................................................... 20 Industry associations.................................................................................................................................................................................................................................... 22 National............................................................................................................................................................................................................................................................. 22 Generic Park features.................................................................................................................................................................................................................................... 22 THE CASE FOR KONZA ICT PARK; A SWOT ANALYSIS................................................................................................................ 23 Strengths......................................................................................................................................................................................................................................................................23 Weaknesses...................................................................................................................................................................................................................................................................27 Opportunities...............................................................................................................................................................................................................................................................30 Threats...........................................................................................................................................................................................................................................................................31 THE KONZA ICT PARK ADVANTAGE............................................................................................................................................... 32 Comparative advantage............................................................................................................................................................................................................................................32 Competitive advantage..............................................................................................................................................................................................................................................32 Positional advantages................................................................................................................................................................................................................................. 32 Differentiation advantage......................................................................................................................................................................................................................... 32 Cultural links..................................................................................................................................................................................................................................................... 33 Attributes of Konza ICT Park...............................................................................................................................................................................................................................33 Government support.................................................................................................................................................................................................................................... 33 Space................................................................................................................................................................................................................................................................... 34 CONCLUSIONS AND RECOMMENDATION.................................................................................................................................... 34 ANNEX.................................................................................................................................................................................................. 35 Annex 1: Comparator Sites....................................................................................................................................................................................................................................36 Annex 2: Research resources................................................................................................................................................................................................................................49 Annex 3: Terms of Reference.................................................................................................................................................................................................................................53

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EXECUTIVE SUMMARY...................................................................................................................................................................... 56 INTRODUCTION................................................................................................................................................................................. 57 DATA SOURCES AND PROCESS....................................................................................................................................................... 57 Defining the space ITES and IT products..........................................................................................................................................................................................................58 Comparator countries/sites....................................................................................................................................................................................................................... 60 Typical infrastructure and services.......................................................................................................................................................................................................... 61 The Kenyan scene: ITES and electronic manufacturing...............................................................................................................................................................................63 1.1 Supporting institutional infrastructure.....................................................................................................................................................................................................63 1.2 ITES space.............................................................................................................................................................................................................................................................63 Business Process Outsourcing services-................................................................................................................................................................................................ 64 1.2.1 Information Technology Outsourcing (ITO)............................................................................................................................................................................ 66 Knowledge Process Outsourcing............................................................................................................................................................................................................. 67 Creative Sourcing Outsourcing (CSO)................................................................................................................................................................................................... 67 1.3 IT assembly............................................................................................................................................................................................................................................................67 Lessons in electronic assembly. .............................................................................................................................................................................................................................68 PROMISING HIGH-VALUE ACTIVITIES........................................................................................................................................... 69 2.1 ITES Investment Trends. ...................................................................................................................................................................................................................................70 2.1.1 Factors shaping investor demand............................................................................................................................................................................................... 71 2.1.2 Impact of ITES....................................................................................................................................................................................................................................... 72 2.1.3 High value ITES and IT products.................................................................................................................................................................................................... 73 2.1.4 IT products assembly......................................................................................................................................................................................................................... 75 2.1.5 Investor characteristics/profile...................................................................................................................................................................................................... 75 2.2 Investor nationality and export destinations...........................................................................................................................................................................................76 EMERGING AUXILIARY & SUPPORT SERVICES............................................................................................................................ 77 OVERALL MARKET POTENTIAL....................................................................................................................................................... 78 4.1 Methodology......................................................................................................................................................................................................................................................78 4.2 Market response survey....................................................................................................................................................................................................................................79 4.2.1 Sufficient and highly trained human resource pool............................................................................................................................................................ 79 4.2.2 Buildings types...................................................................................................................................................................................................................................... 79 4.2.3 Business relationships........................................................................................................................................................................................................................ 80 4.2.4 Access to property............................................................................................................................................................................................................................... 80 4.2.5 Business support services................................................................................................................................................................................................................. 80 4.2.6 Transportation and logistics support......................................................................................................................................................................................... 81 4.2.7 Utilities...................................................................................................................................................................................................................................................... 81 4.2.8 Sustainable eco-system.................................................................................................................................................................................................................... 81 4.2.9 Amiable working environment – a great lifestyle................................................................................................................................................................ 82 4.2.10 Support to migrate to Konza ICT Park..................................................................................................................................................................................... 82 4.2.11 Incentives for investment............................................................................................................................................................................................................... 82 4.3 Quantification of demand absorption forecasts. ...................................................................................................................................................................................82 4.3.1 Context.................................................................................................................................................................................................................................................... 82 Sensitivity analysis......................................................................................................................................................................................................................................... 85 4.3.2 Short term 2011-2015 – (phase 1 proof of concept, frontier bursting)......................................................................................................................... 86 4.3.3 Medium term 2015-2020 (phase 2- private sector leadership)........................................................................................................................................ 88 4.3.4 Long term 2020 -2032(mature market)..................................................................................................................................................................................... 88 ANNEXES............................................................................................................................................................................................. 91 Annex 1: Respondent list.............................................................................................................................................................................................................................. 92 Annex 2: Companies and Kenyan interest........................................................................................................................................................................................... 94 Annex 3: Other International ITES buyer Companies...................................................................................................................................................................... 96 Annex 4: Leading outsourcing companies.......................................................................................................................................................................................... 97 Annex 5: Respondent list............................................................................................................................................................................................................................100 Annex 6: Terms of reference......................................................................................................................................................................................................................104

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Konza Technology City

CONTENTS BACKGROUND AND CONTEXT...................................................................................................................................................... 108 Definition of special economic zones...............................................................................................................................................................................................................108 Government of Kenya special economic zone policy. .................................................................................................................................................................................108 Kenya’s current situation......................................................................................................................................................................................................................................108 Global benchmarks for special economic zones...........................................................................................................................................................................................109 SPECIAL MANUFACTURING AND IT ENABLED SERVICES ZONES......................................................................................... 110 Philippines: The UP-Ayala Land TechnoHub..................................................................................................................................................................................................110 Overview of UP-Ayala Land TechnoHub............................................................................................................................................................................................111 UP-Ayala Land TechnoHub Incentives................................................................................................................................................................................................113 POLAND: Invest Park...........................................................................................................................................................................................................................................115 Overview: Invest Park, Walbryzch Special Economic Zone (WSEZ).......................................................................................................................................115 WSEZ INVEST-Park Incentives..................................................................................................................................................................................................................117 Egypt: Smart Village Cairo..................................................................................................................................................................................................................................119 Overview of the Smart Village Cairo....................................................................................................................................................................................................119 Smart Village Cairo Incentives................................................................................................................................................................................................................119 China: The Dalian Hi-Tech Zone........................................................................................................................................................................................................................123 Background: Dalian City...........................................................................................................................................................................................................................123 Overview of the Dalian High-Tech Zone (DHTZ)............................................................................................................................................................................124 Dalian Hi-Tech Zone Incentives.............................................................................................................................................................................................................126 Vietnam: Saigon Hi-Tech Park.............................................................................................................................................................................................................................128 Background: Ho Chi Minh City...............................................................................................................................................................................................................128 Overview of the Saigon Hi-Tech Park...................................................................................................................................................................................................129 Canada: University of Waterloo Research and Technology Park. .......................................................................................................................................................133 Overview of the University of Waterloo Research and Technology Park..............................................................................................................................133 India: International High Tech Park Bangalore...........................................................................................................................................................................................135 Overview of the International High Tech Park Bangalore (ITPB).............................................................................................................................................135 International High Tech Park Bangalore Incentives......................................................................................................................................................................136 Cyber City : Mauritius.............................................................................................................................................................................................................................................137 Overview of the Cyber City.......................................................................................................................................................................................................................137 Cyber City Incentives...................................................................................................................................................................................................................................138 Panama Pacifico: Panama.....................................................................................................................................................................................................................................140 Overview of International Business Park............................................................................................................................................................................................140 Panama Pacifico Incentives....................................................................................................................................................................................................................141 Malaysia – Cyberjaya Flagship Zone...............................................................................................................................................................................................................143 Overview Cyberjaya Flagship Zone (CFZ)..........................................................................................................................................................................................143 Cyberjaya incentives...................................................................................................................................................................................................................................144 INCENTIVES AND INVESTOR RELATIONS COMPARISONS...................................................................................................... 146 KEY IMPLICATIONS AND RECOMMENDATIONS TO KENYA.................................................................................................... 149 ANNEXES........................................................................................................................................................................................... 151 Annex 1: References...............................................................................................................................................................................................................................................152 Annex 2: Terms of Reference...............................................................................................................................................................................................................................155 NOTES................................................................................................................................................................................................. 156

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ACRONYMS

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A/R

Accounts Receivable

BFSI

Banking, Financial Services and Insurance

BPAP

Business Process Association of the Philippines

BPO

Business Process Outsourcing

CAGR

Compounded Annual Growth Rate

CCK

Communications Commission of Kenya

CFZ

Cyber Jaya Flagship Zone

COE

Centre of Excellence

COMESA

Common Market for Eastern and Southern Africa

CSO

Creative Services Outsourcing

DHTZ

Dalian High Tech-Zone

EAC

East Africa Community

EPZA

Export Processing Zone Authority

FDI

Foreign Direct Investment

FTE

Full Time Equivalent

GATS

General Agreement on Trade in Services

GATT

General Agreement on Trade and Tariffs

GOK

Government of Kenya

HR

Human Resource

ICT

Information and Communication Technologies

IFC

International Finance Corporation

IT

Information Technology

ITA

Information Technology Agreement

ITES

Information Technology – Enabled Services

ITH

Income Tax Holiday

ITO

Information Technology Outsourcing

KICTB

Kenya ICT Board

KTC

Konza Technology City

KPO

Knowledge Process Outsourcing

LCD

Liquid Crystal Display

LED

Light Emitting Diode

MOIC

Ministry of Information and Communications

NIC

Newly Industrialised Country

NSI

National System of Innovation

PEZA

Philippine Economic Zone Authority

Konza Technology City

PPP

Public Private Partnership

SEZ

Special Economic Zone

SME

Semi-conductor Manufacturing Equipment

STPI

Software and Technology Park of India

UNECA

United Nations Economic Commission of Africa

UNIDO

United Nations Industrial Development Agency

VAT

Value-Added Tax

WSEZ

Walbryzch Special Economic Zone

WTO

World Trade Organisation

Konza Technology City

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Konza Technology City

Comparative and competitive advantage Vol 1 of 3 January 1st, 2011

Summit Strategies Ltd

ICT Research & Consultancy Strategic information for decision support in info-communication business

Executive Summary This is part of a three-volume report on the ICT Park component (also referred to as “ITES Park” or as the “BPO Park”) of the Konza Technology City (KTC) project. It comprises a Comparative and Competitive Analysis (Volume 1), a Demand Study (Volume 2) and a Comparative Analysis of SEZ Policy and Legal Regime (Volume 3). Volume 1 is underpinned by a benchmarking analysis of 11 similar sites internationally, out of which seven are selected in volume 3 due to its SEZ incentive regime characteristics. The study commissioned by International Finance Corporation (IFC) for the Ministry of Information and Communications of the Government of Kenya was undertaken in September/October 2010. The data sources include intensive literature review, indepth face-to-face interviews and case studies. The analysis of these data provides the foundation of the findings of this report. The specific terms of reference for this report are annexed. Comparator Parks selected for benchmarking Park

Country

Nature/Motivation

International High Technology Park

India

Mature market

Ayala Technohub

Philippines

Mature market

University of Waterloo Research and Technology Park

Canada

Mature market

Invest Park

Poland

Varied

Smart Village

Egypt

Government initiative

Cyberjaya

Malaysia

Government initiative

Cyber City

Mauritius  

Government initiative

Saigon Hi-Tech Park

Vietnam

Government supported

Dalian High-Tech Zone

China

Mature market

Panama Pacifico

Panama

Government supported

Aqaba

Jordan

Government supported

Electronic Manufacturing

Special Economic Zones

Konza Technology City presents a promising opportunity for Kenya to develop an alternative and complimentary path for economic development in line with Vision 2030 by exploiting ITES and IT products. Konza also provides an opportunity as noted in the comparator countries to transform the country into a knowledge economy. To realise this goal, certain actions need to be addressed at an early stage. At the outset, it should be clear this is principally a policy driven initiative. Policy and regulatory framework • Enhance efforts to re-brand the country with a positive image • Establish a high level inter-ministerial consultative body for efficient coordination of ICT Park initiative • Reduce decision points regarding ITES/IT investment • Commit to WTO/ ITA • Approve SEZ policy and enact SEZ law or at the very least reform the incentive schemes in the EPZA Act • Establish a single window agency to ease doing business in the ICT Park • Enact data protection law and strengthen intellectual property rights laws. Facilitation • Government to handhold for the first five years and commit to develop requisite infrastructure as proof of concept • Work on cost structure as a low cost destination in the near term • Enhance incentives as proposed in SEZ policy. Operational • Position Konza ICT Park as a product of Eastern Africa • Establish a proactive ICT Park management • Create an entity - Konza Development Authority - to drive its development • Mount a targeted high profile marketing - Sell Demand

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• • • •

Coordinate talent development Allow mixed use in the park for sustainability Promote an eco-system by building a Science & Technology Park, Incubation Centre and Centre of Excellence within the Park Manage local competition among government sponsored programmes – Dongo Kundu should not offer ICT Park services for now in competition with Konza

Industry level • Strengthen industry lobby platform to create standards and undertake self regulation To catalyse the market and enhance the opportunity for the ICT Park we propose the following strategy: - Sell demand and only then sell talent and other infrastructural advantages. Availability of talent and infrastructure provides a foundation but is not sufficient to excite investors. There exists unexploited local demand, which will provide comfort to international actors. - Shift to targeted and high profile marketing. Isolate no more than 3 countries, 3 major companies, 3 outsourcing companies and 3 services and focus national effort around them from a very high political level. - Sell Konza as a product of the Eastern African region for the world. Exploit East African Community to provide language variety e.g. French from Rwanda and Burundi and the larger market access. - Ease of doing business, competitiveness indices etc pose a very serious barrier to international investors. The country rating is not attractive for new investors and a deliberate action to improve the country’s perception and ranking is critical. In the meantime, introduce a world-class ITES player as an anchor investor to set market standards and catalyse growth of the local market. Country’s ratings do not matter to the local companies but those outsourcing from outside the country want an international player like IBM or Accenture etc to guarantee quality before they accept to outsource locally. - ITES industry is people based and thus drives uptake at Konza by shifting people – Centre of Excellence (COE) for Africa at Konza, affordable housing for 85% staff housing (US$60), mass transport system to Nairobi, low cost of space ( US$4 per sq ft per year).

Comparative & Competitive Advantage

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Data sources and process As set out in the Inception Report1, the Study  analysis is founded on a number of data sources providing both primary data as well as secondary data as described below. • Literature review – conducted extensive desk and internet research based on a structured document interrogation guide. The guide seeks to address the various components of the TORs. In this regard, at an early stage, the consultant developed an online space to share documents and online resources among the local and international members of the team. Some of the key resources address the evolution of  ITES, the evolution of ICT Parks, the  market demand and the direction of the market, the  response by government to nurture the industry  through options like Special Economic Zones(SEZ),  country experiences as well as case studies for the  outsourcing companies.  At the local level, the literature review focused on the evolution of the ITES industry and the emerging demand and government responses through policy, strategic and institutional infrastructures. Note that ITES is taken to include electronic manufacturing/assembly. • Case studies review – conducted detailed review of comparator countries with a focus on incentive frameworks like the Special Economic Zones to distil the  policy and legal regime and lessons for Kenya and in particular the draft SEZ policy and SEZ Bill. Other case studies is an in-depth review of comparator ICT Parks and lessons for Konza. The literature review helped shape the development of in-depth interview tools. • Questionnaire interviews –Purposively selected 142 respondents and sent a questionnaire online. The respondents represent regional distribution and are built from the list of those that have expressed interest in Kenya. Office of Permanent Secretary, Ministry of Information and Communications, Kenya ICT Board, BPO/ITES Working Group of the Prime Minister’s Office and the consultant’s in–house databases captured these potential respondents. Other sources include the International Association of Professional Outsourcers where the consultant selected the top 100. The key focus of this interview was to present empirical data on the awareness of Kenya as an outsourcing destination, the typical features of locators and especially the level of investment that a company can typically commit, the demand for space if any and staff growth projections. This information helps to get a market response and shape the modelling for demand. The response was extremely low from this process suggesting limited interest or awareness. • In-depth interviews -Selected key informants in the industry representing the leading actors in the ITES space (e.g. Accenture, IBM, Avasant), local companies that are already outsourcing (e.g. Kenya Airways), local ITES outsourcing companies e.g. Horizon Contact Centres for an in-depth interview. Other key informants include Kenya government and specifically the Ministry of Information and Communications, Office of the President, Prime Minister’s office, Ministry of Higher Education and Ministry of Trade. The team interviewed over 40 such stakeholders representing all parts of the ITES value chain. The list of the respondents is annexed. • India ITES investor conference -the consultant participated in an event organised by ITES/BPO Working Group of the Prime Minister’s office and met over 20 ITES potential investors interested in the African and Kenyan ITES market. They had very interesting insights on what works from their broad experiences. They had visited other markets in Africa and Asia and therefore were in a position to   give a comparative perspective of the Kenyan ITES opportunity. This extremely rich source of primary and secondary data provides a firm foundation for analysis and the development of this Report. These three volumes of reports represent a reasonable draft of mainly desk research of comparable international ICT park sites supported by a limited number of sector interviews, both local and international. The reports’ conclusions could have been enhanced if the Consultants had also the opportunity to engage directly with the zone authorities of the comparator sites, zone developers and main locators, and government stakeholders at the comparator sites to better establish the factors that led those governments to take a policy decision to set up and support initial ITES park development, the similarities or differences with Kenya and Konza, the implementation steps, process, costs and incentive regime involved, and whether the original goals were met in the end. Reliance of these reports by the GOK to support policy decisions needs to be construed in light of the extent of study represented by these reports.

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Inception Report dated September 6, 2010

Konza Technology City

The IT universe - defining the space for ITES and IT products Information technology as discussed in this chapter has revolutionalised services industry and to support this industry has spawned IT products industry. This chapter reviews both the IT services as well as the products and explores a space for Konza.

The emerging universe of ITES as an opportunity Kenya has taken a bold decision to exploit ICT as a potential alternative path for its quest for development and incorporated ICT at the heart of the Vision 2030 strategy.  The key expected outcome is job creation and the contribution to the GDP in the growth of the economy by up to 10% per year to place the country firmly in the Newly Industrialised Country (NIC) status by 2030.  Through this strategy, Kenya intends to take advantage of the fast growing IT-Enabled Services (ITES) sector and concentrate this effort under Konza ICT Park as a flagship project.

Quest for the ITES development; Setting the ITES roadmap through Kenya Vision 2030 Kenya’s desire to exploit ITES has been consistent and marked by a high-level statement of initiatives as well as action starting with inclusion of Business Process Outsourcing (BPO), a sub sector of  ITES in Vision 2030 and investment of key supporting infrastructure. Kenya Vision 2030 aims to make Kenya “the globally competitive and prosperous country with a high quality of life by 2030”. The achievement of this Vision is intended to firmly ground Kenya’s position as the business hub for not only East Africa but also the African region. Vision 2030 is anchored on three key pillars, namely : Economic; Social; and Political Governance. The ITES sector, which encompasses the BPO, is identified as one of the six sectors to contribute to 10 per cent economic growth rate per annum. To make Kenya one of the top off-shoring destinations in Africa, the government aims to: • •

Attract at least five major leading information technology (IT) suppliers, and at least ten large multinational companies and global BPO players to the country; and Strengthen at least five local players to become local champions through stand-alone operations or joint ventures.

The Vision 2030 therefore positioned ICT as an economic driver and sought to address the enabling environment for the sector.  Key components for the enabling environment are ICT infrastructure and the institutional support infrastructure. Konza ICT Park is intended as the focal point of the concentrated national effort to exploit ICT.

Supporting ICT infrastructure In the Vision 2030, the government identified and prioritised the basic infrastructure that needs to be in place and has proceeded to address these infrastructural issues.  Key among them is bandwidth. Since 2009, international bandwidth is connected to the country via three submarine optic fibres initiatives namely, TEAMS, SEACOM and now EASSy and shortly LION. The submarine optic fibre cables now provide the necessary redundancy for international connectivity as well as the quantity. With the commissioning of the submarine fibre initiatives, the price of bandwidth fell from a high of USD6000 to a range of USD400 per MB and the government wants the price to come down to USD50, a price that the government believes will enable Kenya to compete favourably with other leading outsourcing destinations. To distribute this capacity to the hinterland, the government as well as private sector have rolled out optic fibre cables across the country. The government’s initiative, National Optic Fibre Backbone Initiative (NOFBI) - a 4500 km fibre initiative, was intended to reach out to the rural areas to cover 80% of the districts. Simultaneously, the private sector led by the Kenya Data Network (KDN) has built a countrywide fibre network. Other operators include Telkom Kenya Ltd and Kenya Power & Lighting Company for national connectivity. Additionally, connectivity in major towns has been realised through metro rings in major cities provided by Jamii Telkom, Access Kenya and  Wananchi Telkom.  In total, the country has slightly over 10 000 km of optic fibre built across the country. The government through Communications Commission of Kenya (CCK) has reviewed the operating framework to support the introduction of broadband wireless through 3G and Wimax thus entrenching  high capacity bandwidth across the country. The key foundational infrastructure for ITES is therefore progressively expanding.

Supporting institutional infrastructure Alongside the technological infrastructure, the government established institutions to stimulate the growth of ITES. Establishment of the Kenya ICT Board (KICTB) and   BPO/ITES Working Group in the Prime Minister’s Office by the government demonstrate a continuing commitment and focus in this regard.

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Challenges defining ITES With the fast evolution of the ITES, the definitions have changed over time to keep pace with its changes as well as the perception of the promoters. For the purpose of this report, we take ITES to include and encompass the following:   • Business process outsourcing  (BPO) • Information technology outsourcing  (ITO) • Knowledge process outsourcing (KPO) • Creative services outsourcing (CSO) Further details of the respective category is described in Table 1  Table 1: Components of ITES: horizontal and vertical processes HORIZONTAL PROCESSES Business Process Outsourcing

Information Technology Outsourcing

Knowledge Process Outsourcing

Creative Services Outsourcing

Contact Centres

Software & Applications Development

Finance and Accounting Outsourcing

Animation

Back Office Operations

Embedded Systems

Legal Outsourcing

Game Development

Transcription

Data Centre, Systems & Network Administration

Research and Development

Content Development and Writing

Data Entry

IT Project Management and Consulting

Medical Outsourcing

Advertising and Marketing

Digitization

E-Commerce

Market Research and Analytics

Musical Arrangement and Scoring

Systems Integration

Education and Training

Film Production

IT Infrastructure Management

General Consulting HR Outsourcing

TYPICAL VERTICAL PROCESSES Top 4

Banking, Financial Services and Insurance

Telecommunications

Retail, Travel and Hospitality

Supply Management

Others

Pharmaceuticals

Automotive

Life sciences

Healthcare

Media

Engineering

Publishing

Marketing

In the rest of the report, ITES encompasses the activities as set out in Table 1 unless explicitly indicated otherwise.

The growing importance of ITES The cornerstone of ITES is the transformation of services from its proximity to the point of consumption. Before the advent and mainstreaming ITES, services had to be provided at the point of production and consumption. Information Technology (IT) unleashed and indeed divorced production of services from the proximity of the consumption and established a value chain.  With IT therefore, suppliers could provide services far from the point of consumption.  Reducing communications costs opened up access to cheaper labour costs and those labour intensive costs could be outsourced across town or across countries – this is essentially labour arbitrage.  This opened up the opportunities to trade in services and hence the birth of the ITES. With the increasing tradability of the services across borders, ITES became part of the GATS effort under Mode 1 export of services, since then, has been tracked as an export service by UNCTAD, and is growing at a rapid pace. From this humble beginning, ITES is now mainstreamed and comprises many services being offered and enabled by IT.  Companies

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in developed countries notably the USA, Europe and Asia have  exploited ITES to outsource certain activities to build competitiveness in their markets by reducing costs, creating efficiencies and often improving quality of their production. On the other hand, countries providing the outsourced services have gained in job creation, improvement of skills, closer linkages with developed countries as well as received increased Foreign Direct Investment (FDI).  ITES is growing rapidly and is expected to continue the rapid growth. While the growth projections by research organisations differ, all however agree that ITES will continue to experience rapid growth. International Data Corporation (IDC) for example estimated that worldwide offshore IT spend would rise from USD32Billion in 2010   to USD42Billion in 2013 while world wide BPO spend is expected to rise from USD119B to USD148B in the period as illustrated in Figure 1. Figure 1: Worldwide off shore IT and BPO spend projections

BPO USD Mill

Source: IDC

Comparative & Competitive Advantage

7

NASSCOM, the National ITES Association of India, on the other hand projects a growth of the BPO market from the USD200Billion in 2010 to USD890Billion by 2020 as illustrated in Table 2. Table 2: BPO market projections (US$ 000)

Segment

2010

BPO Market

200,000,000

ITES and BPO

122,000,000+

2020

Source

890,000,000

NASSCOM Mckinsey & Co

Breakdown Banking

40,000,000

Insurance

35,000,000

Travel/Hospitality

12,000,000

Automotive

12,000,000

Telecommunications

10,000,000

Pharmaceuticals

8,000,000

Finance & Accounts, Human Resource

25,000,000

Others

15,000,000

Source: NASSCOM, Mckinsey & Company

This promise of a rapidly growing ITES with attendant job creation nudged Kenya to take a decision to pursue ITES as an additional growth path. Thus, Kenya desires to leverage these market opportunities by developing the ITES sector in order to play a significant role in generating employment and economic growth. This study seeks to quantify the demand2 and the features that are critical to incentivise actors in the ITES space to not only operate in Kenya but also locate in Konza. Such incentives include operationalisation of a SEZ framework.3

ITES opportunity; mapping Kenya in the ITES  space  The range of the services under ITES is broad and increases by the day. Where is Kenya and what is the long-term strategy to exploit the space? Firstly, it is important to note that ITES has evolved and continues to evolve.  In mid 90s, the outsourced activities were simple rulebased tasks typically claims and loan processing, and transcription services. With increasing skill on the part of the outsourcing country and more confidence by the client company, the range and the complexity increased to high-level problem solving in early 2000. Today, ITES is firmly moving towards expert knowledge services. This includes research and development, legal and customer analytics. This evolution is illustrated in Figure 2.

2 3

8

The quantification of demand is presented in an accompanying report V2/3 The incentive framework is discussed in accompanying report V3/3

Konza Technology City

Figure 2: The evolving ITES landscape Source: THOLONS

The evolution of the ITES in terms of skill and complexity of knowledge required to accomplish an increasing range of activities provides a framework to understand the ITES space and where a country is positioned. To understand the ITES space and where Kenya fits, we categorise the services based on skills, ranging from low skills and knowledge intensity requirement, to medium or intermediate and to high-end skills and complexity. The lowest level is the low skilled services with lowest entry barriers in terms of skill, scale and the technology.  Such services include data entry, call centres and general transcription services etc. In general, services at this level are routine and the process is fully scripted requiring mostly the working knowledge of the relevant language.  A feature of this level of activity is  few economies of scale and therefore does not necessarily need the development of other manufacturing and/or other services for its competitiveness. In this regard, the spillover in terms of high supplier linkages is low (UNCTAD, 2004). Medium skill services require advanced skills to undertake tasks that are more complex. These tasks require judgement by the worker and the interaction is usually unscripted.  Thus, specialised training would be required and may offer economies of scale and linkage to other services and industry. The tasks include secretarial, data capture and processing, bookkeeping, account enquiries and specialised transcription.  According to UNCTAD 2004,  some of the services may require a critical mass of different skills in one location to provide a whole package. High-skill services are professional services and have the most skill intensive requirements. This spans all areas including finance and accounting, medical, legal, engineering, research, and design as well as software development. Due to their professional nature, these services require high levels of specialisation. They require agglomeration economies with different skills and enterprises interacting with each other to share work and stimulate knowledge flows. This requires a location that is conducive to this work (UNCTAD 2004). Mapping this categorisation on the Kenyan efforts to develop the ITES provides a framework to understand the current positioning and how to move forward. It also provides the framework and inputs required to move higher in the ITES value chain. The range of activities spawned by the ITES differs widely cutting across most professional services, internet related services, health, education etc.  Davis et al (2002) categorises the services broadly as administrative, customer service and technical services.

Comparative & Competitive Advantage

9

Administrative services are generally back-office services to support the organisation outsourcing the services. The skill range cuts across the whole spectrum i.e. from low skill level of knowledge intensity to the high-end skill edge. Thus low end include routine administrative work like document conversion to high-end accounting and the payroll or legal services. Customer services include the front-end activities that interface with the customer. Just like administrative services, the skill level and the knowledge intensity requirement range from the low to the high-end skill and knowledge intensity.  This range from the call centres services to high-end problem and dispute resolution. Technical services require highly specialised IT skills and range from transcription to high-end software development, research and development among others. Mapping the category of services offered to the skill level and the knowledge intensity required provide a framework to deduce a model to define a space that Kenya could operate from.  The taxonomy of the ITES is illustrated in Table 3.

Table 3: Taxonomy of ITES Skill level and knowledge intensity

administrative

Customer service

Technical

Low 

Data entry; clerical; digitization, document conversion

Call centre; routine queries; order taking; direct mail order processing, lead generation, Public Relation, Marketing alerts, sales and marketing, emergency alerts, political campaigns

Transcription; indexing and abstracting, captioning

Secretarial; data capture and processing; mailing lists; credit card application processing; bookkeeping, Human resource outsourcing; record management; legal outsourcing; Benefit Administration; record and file management

Account queries; after sales support; insurance claim processing, processing of warranty card and claims; help desk

Website design and management; medical records management; specialised transcription – medical, financial, legal

Accounting; payroll; electronic publishing; facilities management; management consultancy; legal services; logistics support; procurement; supply chain management; contract management; Due diligence; Medical coding; Billing and collection; Medical forms processing

Problem and dispute resolution;

Software development; R&D; Application hosting; technical writing; computer aided design; tele- medicine, engineering design; digital animation; data mining;

(routine – scripted)

Intermediate ( judgement, unscripted interaction)

High (professional services )

Source; Adapted from Davis et al (2002)

A feature to be noted is that highly complex tasks have increasingly higher margins. As illustrated in Table 4, the margins for BPO are lower than that of KPO. This is a motivation to migrate to high-end value services.

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Konza Technology City

Table 4: Differentiators BPO and KPO Parameters

BPO

KPO

Expertise

Process specific

Domain specific along with analytical, interpretation and judgmental capabilities

Resource Pool

Graduates

Professionals – Doctors, Lawyers, Bio-technology professionals, MBAs, etc.

Impact on core business

Low-Medium

High -impact on top line

Nature of work

Commoditized (Industrialized and repetitive activities)

Customized

Billing rates

Low-Medium

Medium-High

Margins

25-35%

40-45%

Impact on client business

Low-Medium

High

Dependence on IT /Telecom

High

Medium

Scalability

High

Medium

Source: THOLONS

The nascent ITES in Kenya; a private sector response

Private sector entrepreneurs responded and entered the market to exploit the opportunity partly responding to the government initiative or responding to the international evolution. As early as 2007,   heightened interest and the nascent steps in the early years are illustrated in Figure 3.

Figure 3: The nascent steps Source: Summit Strategies

Comparative & Competitive Advantage

11

From this position at the time of a 2007 study by Summit Strategies, many of these companies have closed down despite the continuing effort of the government to improve the operating environment for the ITES4. This study takes into account and learns from this experience and a range of studies carried out by the local as well as international consultants to help develop a model for future growth of the sector. The quick scan of published literature indicates that Kenya is making an entry at the low level. This has its challenges that include stiff competition at this level and therefore low margins. 

Electronic manufacturing opportunity and trends In this section, we review the opportunity offered by manufacturing and assembly of IT products taking advantage of Information Trade Agreement (ITA) By early 90’s, the increasing role of ICT in national development was evident and access of ICT equipment was critical for national development. In 1996, governments working under WTO framework concluded the Information Technology Agreement (ITA) and for the participating countries, ITA set a timeline for eventual elimination of tariff barriers. This unleashed faster growth of IT products for countries manufacturing the goods and a new source of export revenue as well as job creation. IT products provide an opportunity for Kenya to generate jobs and export revenue and the framework of how this can be achieved as a compliment to ITES is discussed in this report.

Information Technology products A study by Anderson and Mohs (2010) posits that ITA immensely contributed to the expansion of ITA trade rising from USD1.2 Trillion to USD4 Trillion over a 12-year period from 1999.  The paper demonstrates huge national growth of ITA trade as facilitated by ITA in the case of China, Philippines and Malaysia as well as Vietnam. In the case of China, the country gained Most Favoured Nation (MFN) access to major markets and became an increasingly attractive location for export oriented FDI (Anderson & Mohs 2010 p 15). These IT products are illustrated in Table 5. Table 5; Representative ITA products and number of HS codes by attachment

Attachment A1

Number of HS Codes

Sample products

112

Computers and computer peripherals: personal computers, laptops, work station, monitors, keyboards, hard drives, CD-ROMS drives, smart cards, printers, scanners, and other input/output units Telecommunications equipment: telephone sets, cordless phones, mobile handsets, pagers, answering machines, switches, routers, hubs, modems, fibre optic cables Semiconductors: microprocessors, integrated circuits, printed circuits, diodes, resistors Software: magnetic tapes, unrecorded media Office equipment: certain photocopy machines, fax machines, cash registers, adding machines, calculators, automatic teller machines Scientific and measuring devices: spectrometers, chromatographs, flow meters, gauges, optical radiation devices Other: loudspeakers, still digital cameras parts

Attachment A2

78

Semi-conductor manufacturing equipment (SME) : etching and stripping apparatus, vapour deposition devices, sawing and dicing machines for wafers, spinners, ion implanters, water transport, handling and storage machines, injection moulds, optical instruments, parts and accessories

Attachment B

13

Computers, electric amplifiers, flat panel displays, networks equipment, monitors, pagers, CD and DVD drives, plotters, printed circuit assemblies, removable storage devices, set-top boxes

Source: Anderson & Mohs (2010) adapted from WTO.

4 A more detailed discussion on the challenges of the local efforts on BPO is discussed in the accompanying report addressing quantification of demand.

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Konza Technology City

Countries taking advantage of the ITA framework manufacture or assemble the IT products as discussed in the following section.

Contract manufacturing and electronic assembly Contract manufacturing is a form of outsourcing where a firm manufactures components or products for another firm. By consolidating manufacturing from many clients, a contract manufacturer is able to build economies of scale and therefore build competitiveness on cost – again labour arbitrage. The contracting firm on the other hand is able to produce IT products without investing in factories. Key inputs quoted by the contract manufacturer include processes, labour, tooling, and material costs5. Countries with low labour costs as long as they are skilled have an opportunity to tap into this outsourcing business. At least three comparator sites6 namely China, Vietnam and Bangalore provide contract manufacturing. The leading companies include Hon Hai Precision Industries (Foxconn), and Jabil noted in the comparator sites. The services the contract manufacturing offered are mainly printed circuit board fabrication and assembly of complete units in consumer electronics among others. Most of the research and design for the comparators countries took place in Taiwan, Hong Kong and USA. Raw material was supplied from China, Taiwan, Japan and South Korea. To compete on price implies a low margin for manufacturers and therefore it is a volume business. Access to a huge labour pool is critical. All the manufacturing sites were under a SEZ framework. In addition to generating export revenue for the comparator country, the contract manufacturing created jobs. Vietnam for example reported that 300,000 jobs were created and sustained by electronic manufacturing by 2009. On the other hand, assembly sites include Panama, Shenzhen and Aqaba. The client companies include Dell, IBM, HP and Apple. Assembly is downstream business and skill requirement is lower than contract manufacturing.

The Kenyan experience in electronic assembly The government promoted local assembly in order to help build skills and capacity in the assembly of IT equipment. Some of the initiatives include: Zebra Computer a product of Telkom Kenya assembled in Gilgil Telecommunications Industries. The assembly was discontinued with the declining fortunes of the mother company. Madaraka Computer was an initiative of the Ministry of Information and Communications to assemble cheap computers. Three universities namely University of Nairobi, Jomo Kenyatta University of Agriculture and Technology, and Strathmore University were to act as incubators of the project while Kenya Technical Training College (KCCT - now Multimedia University) was to be the implementing agency. The initiative funded by Communications Commission of Kenya (CCK) and Safaricom Foundation for up to USD0.25M intended that the universities would do research for the components and pass over the findings to local assemblers. Target cost of the computer was projected at USD450,7 however the initiative did not take off as planned. Mecer Computers, a South African firm started assembling computers in the export-processing zone but had to close mid 2004. It cited high import tariffs of the inputs as the barrier8.

Lessons in assembly In all these instances illustrated, the following issues were some of the contributory factors to discontinuance of electronic assembly initiatives: - branding was an issue - the brands were unknown - the focus of the local market was inadequate to  create a sustainable business - the taxation regime favoured completely assembled units. These issues will need to be addressed for assembly to be a promising activity in Konza.

Clustering effect: the case for Konza ICT Park To place Kenya on the alternative growth path of development, the government acquired 5000 acres of land at Konza, 60 km from Nairobi along Nairobi Mombasa highway and commits to develop the site as the confluence of ITES activities in Kenya. An advantage cited is that by clustering, there are gains to be realised through linkages among the activities, and for policy makers 5 6 7 8

source; http://en.wikipedia.org/wiki/Contract_manufacturer   Are Park sites and countries used as comparators for the purpose of the study? These are discussed in the following section. http://www.balancingact-africa.com/news/en/issue-no-340/computing/kenya-to-assemble-cheaper-computers http://www.balancingact-africa.com/news/en/issue-no-384/computing/high-taxation-impedes-computer-assembly-trade-in-kenya

Comparative & Competitive Advantage

13

it provides a 360 degree view of the sector, and easy to zone the activities within Konza.  By being a Greenfield, the project moves away from legacy planning constraints and therefore will be custom built. In our quick overview of the comparator sites (discussed in the following sections), we came across Greenfield sites that have been developed ground up. This is notably the case of the Malaysia MSC and HITEC city in India and recent projects in China among others.  The initial finding is that in promoting such projects, governments have to be very heavily involved in high speed or dedicated transport facilities between the site to the main cities. Secondly, the government has to consider and provide a set of incentives to encourage investors to do business in comparator countries and particularly to decide to locate to Konza. Comparator countries have used Special Economic Zone (SEZ) framework to provide the necessary incentives for growth. SEZ Bill in Kenya has been developed in this context and is now ready for presentation to parliament. This study illustrates lessons from comparator IT Park sites and the SEZ countries and using the lessons develops recommendations for Konza ICT Park. Our working hypothesis is to position Konza as a product of Eastern African region for the world.  The following aspects inspire our working hypothesis: • Egypt is positioned to serve the Middle East region while South Africa is serving most of Southern Africa as well as Sub Saharan Africa. Konza could seek to carve a space for Eastern Africa and indeed Sub Saharan Africa and for the world • Studies and in particular a 2008 study by Summit Strategies on BPO phenomena in 15 Anglophone countries reported that countries that were successful in BPO activities adopted an inside-out approach. Such countries built their BPO industry from in-shoring as a foundation for off-shoring. The framework inspires Nigeria’s BPO development policy promulgated in 2008. The Kenya government’s effort to support local outsourcing  is a move in this direction • Previous studies on successful IT Parks report an advantage of operating as a constellation of ICT Parks. These constellations can be in country (Egypt) or regional (Internet city) and are effective in providing redundancy or time difference advantages. This is to be explored for  Konza • Being a Greenfield project it is feasible to create a lifestyle ground-up, building on the best practice from Africa and the world. • Unique value proposition to attract regional as well as global investment. This working hypothesis provides a foundation for the study and is tested through primary and secondary data collected and the subsequent analysis.

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Konza Technology City

Comparative ICT Park sites of interest ITES and electronic  manufacturing as discussed earlier is a  fast growing sector  and many countries have established or are establishing ICT Parks to exploit this opportunity. The experiences provide lessons for Kenya to benchmark its effort in this regard.  In this study, we have scanned globally and working with the client, identified a number of Park sites as comparator sites.  For the purposes of this study, the Parks sites as illustrated in Table 7 have been identified and studied in detail to provide the necessary lessons. Table 6: Comparator ICT Park Sites Park

Country

Area

Distance from City

App. project cost

ownership

International High Technology Park

India

28 ha

18Kms from Bangalore

USD38.8M

Private (Ascendas Ltd)

Ayala Technohub

Philippines

37 ha

Within Quezon

USD138M

Partnership between University & Ayala Land

University of Waterloo Research and Technology Park

Canada

49 ha

Within the University

USD 210M

Partnership University & Private Sector

Invest Park

Poland

245 ha

USD4.04Bn

Private (Invest Park)

Smart Village

Egypt

243 ha

28Kms from Cairo

USD2.6Bn first phase

PPP, govt 20% private sector 80%

Cyberjaya

Malaysia

2894 ha

50Kms from Kuala Lumpur

USD15Bn

Under PPP arrangements

Cyber City

Mauritius  

10Kms from Port Louis

USD100M

Govt through Business Parks Mauritius Ltd

Saigon Hi-Tech Park

Vietnam

17km from HCM

USD300M

Private

Dalian Software Park

China

Suburbs of Dalian

USD62M

Private (Dalian)

In the suburbs of Panama City (15 min drive)

USD700M

Private (London & Properties)

Part of Aqaba City

USD281M

PPP

Electronic Manufacturing

Special Economic Zones Panama Pacifico

Panama

Aqaba

Jordan

1113 ha

The selection of the ICT Parks was concluded after a global scan of such initiatives and the final list is intended to provide a wide range of experiences. The considerations include the following: -

- -

Evolution in the global market place - thus some of the Parks are relatively old having been conceived in mid 1990s and therefore provide needed information on typical Park evolution from conceptualisation to operationalisation. Some of the other Parks included in case studies have recently been established and therefore provide an inspiration to understand to what extent they have taken on board the experiences of the older Park sites Geographical spread -  the selection is spread across the continents and thus different time zones and therefore whatever advantage that could be related to time zones is taken into account National population size - to take into account the national dynamic,  the team selected  countries with large populations as well as those with low populations. This addresses the national dynamic that could be influenced by the population and whether the population size influences the activity of the ICT Park

Comparative & Competitive Advantage

15

-

- -

Language - while English predominates in the ITES sector, the team selected countries that reflect a wide range of national languages to understand how they were dealing with the language issue. Vietnam for example provides useful lessons in this regard. Level of national development - the comparator sites include  developed as well as the developing countries, and finally, Different political and social orientations – to understand how political and social orientation influences planning and execution of the ICT Parks under varying situations.

The diverse range of choice provides a rich framework to understand the dynamic of ICT Parks and is used to benchmark and provide insights on the way forward for Konza. The details of each of the sites is described in detail in the annex.

Distilling lessons from comparator sites: a framework A deep insight of the Parks, some successful and some not so successful illustrates common features for the Parks.  In all the Park sites,  a common feature is that there are factors internal to the ICT Park management, which it is able to influence and guarantee while other features are external and the Park can only take advantage of such features since they are part of the national or global effort. The various spheres of influence and corresponding actors are illustrated in Figure 4. Figure 4: Spheres of influence

Source: Summit Strategies

All the ICT Parks reviewed have a management team that have under their control a set of tools to ensure ease of doing business within the Park, while all the countries have enacted a set of an incentive framework to make the site(s) attractive and finally, the location provides opportunity to be exploited. The parameters for analysis are therefore set out along these lines.

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Konza Technology City

Internal to the Park The Park management have implemented features to make them attractive for the investors. These include the following; Infrastructure - Infrastructure at the Park site is critical to attract investors. Key infrastructure include among others the following; • ICT - all sites seek to provide excellent ICT infrastructure to provide adequate bandwidth, high reliability that is cost effective. • Physical infrastructure includes access roads within the Park • Utilities include clean power and water - a differentiator going forward is green and clean energy • Ambient working environment  - this is achieved by physical planning designs that allow  high level of greenery and large open spaces and generally low-rise buildings • Mixed use in the Park to provide for amenities, supportive and complimenting commercial activity within the Park. Mixed use provides all round lifestyle amenities and services and is also imperative to ensure economic sustainability. • One stop shop statutory facilitation at the Park level to ease doing business • An eco system to provide talent and incubation services within the Park. Most government driven parks have an incubator, a science park and and/or an industrial park. • Certification of the Park sites with global standards e.g. ISO 14001 compliance. These features are often within the control of the Park management. With the increasing number of parks, these features are standard and only give the Park the right to compete but is not a differentiator.

Industry - ITES and IT manufacturing At this level, ICT sector is one of the many actors to create the necessary conducive business environment and therefore how the sector evolves is critical to the success of the Park. Parks have established industry associations to positively influence the industry, create standards and often self regulate. India has a strong body – NASSCOM, and Philippines has a framework for selfregulation on data protection. The park operates within the context of the industry shaped by other actors.

External - National business operating environment In all the Parks, the country is fully engaged in the sector and has implemented or can influence a number of features to make the Park(s) attractive. These are described below: Enabling business environment An enabling business environment is a precondition for investment and is well illustrated in the comparator sites and countries.  Key areas of focus are: Stability of the country and the region - investors will  not risk their investments unless national  stability is evident. Political, social and business frameworks need to be stable and predictable. In very rare cases, other advantages could outweigh these considerations. We noted the case of Mindanao in Philippines where despite social instability, investors are trooping to the region and investing in BPO. This case is also noted in Sri Lanka.   The government has an overriding duty to assure stability as a precondition for ICT park success. Supportive inter-country arrangements - To expand the market for the ICT Parks, countries have gone a long way to enter into bilateral and/or multilateral arrangements. While some of the arrangements are very broad on trade, others are specific to the ICT sector. Some of the arrangements include the following: • General trade - General trade arrangements include global trading blocs (WTO), regional (ASEAN, COMESA, EAC), and bilateral (AGOA). Other arrangements include avoidance of double taxation among countries, repatriation of profits etc. Additionally, all the comparators countries have arrangements to facilitate ease of entry of key staff  through relaxed visa requirements • Specific to ICT- In addition to the general trade support arrangements, all the comparator countries have entered into multilateral arrangements specific to ICTs. All comparator countries are members of  Information Technology Agreement (ITA). ITA has expanded trade in IT products and some of comparators countries have recorded remarkable growth in exports of IT products as in the case of China and Vietnam National image and perception - Indices of doing business and the subsequent ranking are generally a reflection of the status of the country. Poor indicators are a very formidable barrier for new business and as noted in our interviews, this is a deal breaker particularly for top global companies. Indicators like Global Competitiveness Index by the World Economic Forum (WEF), Ease of Doing Business, and Corruption Perception Index among others are very critical. Most of the comparator countries rank well in such indices and indeed use the ranking as a tool to entice new business.

Comparative & Competitive Advantage

17

Incentives-All comparator countries have a range of incentives - tariff and non-tariff - to encourage investment. Without exception, all have a Special Economic Zone law in place and specifically the comparator Park site operate under the SEZ framework. The range of incentives is described in the annexes for each site. Economic performance - The national economic performance in comparator countries influences the success of ICT Parks. The Parks take advantage of government efforts to grow the economy. It is only after the maturity of the Park and generally the ITES that the Parks contribute to the economy through job creation arising from export of IT products, software and services.  Some of the economic considerations include; • Economic linkages - Backward and forward linkages to the economy in comparator countries were found important to ensure sustainability of the Park. Without the linkages, the Park activities are weakly anchored in the economy. Almost all the comparator Parks have incubators within the Park to nurture new business. • Local ITES market - While ITES and electronic manufacturing is export-led business, there was a notable effort to grow the local ITES market. In India for example, up to 30% of ITES business is local. Labour - ITES is a people business and highly qualified and motivated staff is required. Access to the labour pool and the training institutions to produce the necessary skilled labour is critical. All the sites are located near a growing pool of skilled workers. While academic institutions are ideal, investors also had their own specialised training facilities. Infrastructure - The Park has to be serviced by the national infrastructure and therefore high-class infrastructure is critical. This includes ICT and physical infrastructure.

Remote forces These are features outside the control of the Park and the national government and include location, climatic conditions, and global socio-economic trends among others. Comparator countries took advantage of these features in the following ways: Climatic conditions - Extreme climatic conditions  such as cold, very hot or natural phenomena  are not under the control of the state. Very hot temperatures imply very high costs of cooling data centres. Yet a lot of sun provides an opportunity to tap green energy using solar technology. Google Inc although not part of our study is keen to exploit solar energy as part of the green agenda. The extent to which a Park exploits such features could be a differentiator. Location - Location of a country and consequently time zones are features outside the  control of the Park or the national government. The differentiator is how these attributes are packaged for the benefit of the country. Most of the comparator sites used time zones as a differentiator. This is addressed in a later part of the report International socio-political dynamic - These are factors that the comparator country has no control over. A case in point is political direction in the USA which is the largest market for outsourcing. None of the comparator countries has influence on its politics especially as relates to job creation and the possible impact on outsourcing.

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Konza Technology City

Table 7: Benchmarking Konza against the comparator sites

Internal to the ICT Park

ITES Industry

Kenya rating

Comments

Infrastructure

N/A

Not yet developed

Certification of Park site

N/A

Not applicable

Supportive associations

Weak

National association to support industry wide growth weak

ICT Sector

Strong

ICT infrastructure well developed and provided competitively like comparator sites

Competition among

N/A

other ICT Parks

None operational however if incorrectly positioned will have to compete with private sector initiative at a very early stage e.g. Tatu City.

National business environment

Business environment

Weak

Poor global indices

Ease of doing business

Weak

Poor global indices

Economic performance

Moderate

Infrastructure

Emerging

Underlying infrastructure now supplied competitively through PPP

External

Climatic

Good

Location

National – business hub Site – has challenges which are discussed in the report.

Global social-economic dynamic

Weak

Creating synergy to align to the global trends

Comparative & Competitive Advantage

19

Evolution of comparator ICT Parks and lessons for Konza ICT Park The trend of ICT Parks is a global phenomenon that has grown over the last two decades and evolved over time to reflect the socio-economic changes. The global phenomena since 1990’s evolved from Technology Parks, to Science Parks and with the opportunity provided by ICTs in the digital economy, the trend now is ICT specific ICT Parks. The actors in the development of the ICT Parks are either purely government driven initiatives (policy driven) or purely private sector driven initiatives (market driven). While the nomenclature and models of development may have been different, the underlying principle has been common, namely to seek synergy and exploit advantages through networking of different market participants such as IT companies, universities, research and development institutes, and infrastructure service providers. The development of the ICT Parks has generally focused on either of the two routes - a development initiative to integrate and catalyse the rest of the economy towards an alternative path for development or commercialisation to generate revenue and jobs. As a development initiative, the nation reaps benefits downstream through the greater impact in national development often with the declared goal to realise a knowledge society. Government-sponsored initiatives tend to follow this route. Commercially driven ICT Parks will measure success through return on investment from the Parks notably sale of land, rental and management fees. In developed countries, most initiatives are market driven while in developing countries government play a significant role.

Development initiative or commercialisation; the motivation The motivation of promoting Parks varies depending on the promoter. For the government, the key driver is to re-orient the economy to a new ICT driven path and create new jobs. Commercial return on property is not the prime motivator because the benefits sought are technology development, job creation, industrial regeneration, economic growth etc. The governments also promote ICT Parks in recognition of the strategic importance of ICTs and therefore wish to position the country as a leader in the new economy. This is intended to enable the country to compete with countries with a competitive advantage based on extractive or large human resource. This is the case for Malaysia with the innovative Multimedia Super Corridor. The private sector on the other hand seeks to leverage on existing investment infrastructure, return on investments is the main motivation. Direct return on funds invested is sought from the commercial property market via sale of land, rental income or capital growth on property assets. Most Parks, however, fall somewhere between the two extremes; most seek some returns from land sales or rent or services to meet part or all of the costs. Such Parks attempt to generate enough surpluses to reinvest in the facilities and keep them at state-of-the-art level. This is predominant in countries with high recognition as an ITES investment destination. National marketing is not a consideration but the provision of facilities. The emerging strategy in developing countries is however a public private sector partnership. This is the case of the Smart Village in Egypt.

Institutional frameworks influencing ITES/IT products With the emerging evolution of ITES global, regional and national bodies have emerged or taken an interest in the phenomena as part of their mandate. The bodies focus on an area under their mandate for example trade, labour issues, industrial growth etc. This engagement has an implication which promoters of the ICT Park need to take into account and explore how to exploit this opportunity. The organisations are intergovernmental, industry associations and national in scope.

Intergovernmental organisations Intergovernmental agencies with interest in the sector include:

General Agreement on Trade in Services (GATS) With the increasing tradability of the services across borders, ITES became part of the GATS effort Mode 1 export of services and since then has been tracked as an export service by UNCTAD and is growing at a rapid pace. From this humble beginning, ITES is now mainstreamed and comprises many services being offered and enabled by IT and is of interest to GATS. The context has been addressed in an earlier part of this report.

WTO/Information Technology Agreement (ITA) The Information Technology Agreement (ITA) signed among parties in 1996 is a multilateral agreement within the WTO, which in recognition of the growing importance of ICTs in national economies aimed to expand world trade in information technology

20

Konza Technology City

products. ITA also desires to achieve maximum freedom of trade in information technology products and to encourage continued technological development of the information technology industry on the worldwide basis. The objective of the ITA was therefore to bring down tariffs on IT items in stages to zero level by a specified year. The concessions evolving out of the negotiations would be in addition to those already agreed upon under the GATT. Note that all comparator countries are ITA members as illustrated in Table 8. Table 8: ITA status of the comparator countries and trade in IT products ITA country

Date joined

GDP per capita (US$)

Total ITA trade ( Million $) - 2008

Share of exports %

CAGR %

0

-0.5

1998- 2008

Canada

1997

India

1997

410

3077

Malaysia

1997

4693

58416

2

3

Philippines

1997

1170

21460

0

11

Poland

1997

4064

4542

0

43

Panama

1998

3954

316

Jordan

1999

1720

169

Mauritius

1999

3571

144

China

2003

1270

250202

25

34

Egypt

2003

1197

625

Vietnam

2007

835

5375

World

11

Source; Anderson and Mohs (2010)

UNIDO UNIDO is a specialised agency of the United Nations with the mandate to promote industrialization throughout the developing world. The mission of UNIDO is to “help developing countries and countries and economies in transition in their fight against marginalization in today’s globalised world. UNIDO mobilizes knowledge, skills, information and technology to promote productive employment, a competitive economy and a sound environment.” Promoting technology-intensive SME’s in developing countries and countries in transition on the platform of Technology Parks has been a major developmental initiative of UNIDO. As part of the promotional initiatives of UNIDO, UNIDO has assisted many countries particularly in Africa to conceive and develop initiatives on ICT and technology Parks.  Support of such initiatives includes Kigali ICT Park in Rwanda. The Park, housed in a building complex, was intended to focus on software development,  showcase  technology and production, and be a multi-disciplinary centre of excellence  where research and development would be conducted.9

United Nations Economic Commission of Africa (UNECA) Economic Commission of Africa (ECA) Committee on Development of Science and Technology (CODIST) recognise the growing interest in ICT Parks and organised a workshop to review the   phenomena in Africa in 2009.  A sample of Parks was considered for the study and Smart Village Egypt was one of the sampled Parks.  A key finding is that technology Parks needs to be anchored on the National System of Innovation (NSI). Concretely, the report provides a general model business plan whose elements provide choice in the following areas: - Country environment - part of NSI,  and the need for a country to develop a vision and strategy for the sector  - location - should be near amenities and infrastructure - actors/promoters - best practice is a PPP with the government having a more significant role in the early stages - Vision, mission, strategic objectives - Governance structure and operational management. 9

(http://www.unido.org/index.php?id=o56357 )

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Industry associations In addition to intergovernmental agencies, industry associations  work towards developing standards for the industry and working frameworks including self-regulation. Some of the leading agencies are: • International Association of Science Parks - Develop and coordinate standards for Parks • International Association of Outsourcing Professionals – best practice in outsourcing • Standards bodies – Customer Operations Performance Centre standards for BPO and Telecommunications Industry Association (TIA 942) standards on Data centres

National At national level, stakeholders in the ITES industry have established organisations to bring together actors and share information as well as develop frameworks to strengthen the sector.  The bodies at national level are broadly governmental and nongovernmental.  The most widely known is NASSCOM in India. Kenyan stakeholders congregate around Kenya BPO and Contact Centre Society

Governmental These are government agencies to  promote ICT Parks and the services offered by the Parks. In the case of India, Software Technology Parks of India (STPI) acts as a one-stop shop for ICT Parks.

Non-governmental Non-governmental  agencies are established by  the stakeholders to lobby for an operating environment, set standards and generally improve the business climate under which they operate. NASSCOM for example represents IT/BPO/Products/ Engineering Industry with over 1300 members who include Indian companies, multinationals and captive units. Its activities include: • Policy advocacy – partnership with the Government • Industry development – research, events, forums, market development • Enabling environment – entrepreneurship, innovation, resource building, security initiatives, infrastructure • Global trade development – policy advocacy, market development, international partnership, WTO/bilateral engagements • Sustainability - CSR initiatives, gender inclusivity, driving inclusive growth, green IT initiatives

Generic Park features A study conducted by UNECA/CODIST on the emerging ICT and science Parks in Africa and framed against global experience proposes a generic model for the ICT Park10. The components of the model include: - Country environment – ICT and/or science should be part of the National System of Innovation (NSI) - Location of Parks should be near established cities to take advantage of existing infrastructure for housing and lifestyle amenities - Actors/promoters of the Park are clearly set out including their respective roles - Vision and mission should be clearly set out. All the successful Parks aligned their vision in line with the national vision and mission. The Park therefore complements government efforts - A high-level coordinative body at political level leads governance, and a typical coordinative body would be inter-ministerial. Such a body is able to rapidly develop or implement policy to aid success of the park - Strategic objectives that clearly define the objectives of the Park - Operational management delineating the maintenance from construction - Performance measurement indicators

10

22

ECA/CODIST

Konza Technology City

The case for Konza ICT Park; A SWOT analysis A detailed SWOT analysis provides a framework to isolate and understand the issues to address for Konza ICT Park. The experiences in the comparator countries provides a backdrop for the swot analysis .

Strengths Konza ICT Park provides a range of strengths that provide a framework and inspiration to develop the Konza ICT Park. These strengths provide a building block for the country to exploit and build a sustainable ICT Park. It is worth noting that similar features are to be found in all the comparators ICT Parks to a varying degree and have formed the foundation for developing a successful and sustainable ICT Park. The strategy is to leverage the strength concurrently at the Park level and national level for success of the initiative. This report points out the need to  match these strengths within  the government and among the Park promoters to the opportunities that the national regional and the global market provide.

Experience in the ITES in the last three years As illustrated in Figure 3,  Kenya’s first significant entry in the ITES space was in 2005 and accelerated with government support from 2007. Over 30 companies entered the BPO space providing  a range of services. While a number of them have since collapsed, the success or failure  gives Kenya lessons to build on. A study carried out in 200711 indicated that the greatest challenges for the emerging operators were finding clients which in the words of one BPO operator was a ‘nightmare’. It was the toughest part of the operation. According to those interviewed for the study, the following were critical challenges to getting additional business: - country image, - exposure to the potential clients, - name recognition, - contacts in the target market. According to BPO operators, it took approximately six months to get clients after commencement of operations. Some of the strategies used to get clients included: - cold calls, - internet search, - establishing  a presence in the target market, - working through brokers, - participating in trade shows, - advertisement, - hiring commission agents in target markets. Few of the operators in 2007 are operational and therefore provide a wealth of knowledge. This wealth of knowledge will help to shape future strategies for the ITES sector. Such lessons include strategy for marketing Kenya and polishing the country image; this report uses some of these lessons to develop recommendations.

Human resource issues Kenya provides easy access to a cheap labour pool. Kenyan universities produce an estimated 50, 000 graduates and approximately half are potential employees in ITES as illustrated in Fig. 5. According to the Export Promotion Zone Authority (EPZA), the total cost of the staff is competitive and comparable to other ITES destinations.

11

The bpo phenomena in Kenya: Emerging flagship to drive ICT development, A case study by Summit Strategies Ltd

Comparative & Competitive Advantage

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Figure 5: Labour pool Source: Waema T, KICTB, 2010 & KNBS, 2010

With a growing population, and expanding university facilities, the graduates being produced will increase in time.

Entrepreneurial people Kenyans are entrepreneurial and this is demonstrated  by the high level of interest expressed with the entry of the BPO phenomena in the country.  Tapping this entrepreneurship is an opportunity for the benefit of the Park. The young population provides candidates for long-term entrepreneurs - easy to adapt to culture/ ease of training.

Expanding market and demand Local demand for ITES exists and was amply demonstrated in our study. Firstly, some of the large companies already outsource ITES - Within the country  to third parties (Telkom Kenya Ltd to Horizon Contact Centres Ltd) - Outside the country  (Kenya Airways) - Locally to the captive sites - the case of the banks, Kenya Airways, Safaricom, Kenya Power & Lighting Company among others. The local demand has generated  close to 1000012 seats for BPO and other personnel in software development. This is the demand that needs to be exploited. Kenya is part of a regional effort to expand market within East African Community and COMESA. This expands the market scope.

Multilingual destination With the entry of the East African Common market, Rwanda and Burundi provide the needed competence in French language. Common market framework eases labour movement across the East African Community.

12

24

Provided by Kenya ICT Board

Konza Technology City

Incentive schemes Incentive schemes include packages from the Kenya Investment Authority (KIA) and Export Processing Zone Authority (EPZA) and Institutional support to help investments in ICT - e.g. Kenya ICT board. The details are discussed in Volume 2/3.

Competitively supplied supportive underlying infrastructure ICT Park will need supporting infrastructure which is critical to its success. This infrastructure and the condition under which it is supplied is critical for success.  Kenya liberalised the ICT sector in the late 90’s enabling many actors to enter the market  thus ushering competition. This competition has the effect of enhancing quality and affordability of the service. Thus ICT services are primarily provided by the private sector however, the government has intervened where the private sector is unwilling or unable to provide the necessary infrastructure. This was especially the case of the optic fibre infrastructure where the government pioneered the TEAMS and NOFBI. Some of  the key players in  ICT infrastructure are backed or are subsidiaries of international companies and thus able to underwrite high quality services in line with world-class standards. The strategic investors in the ICT space include Vodafone, Essar Telecom, France Telecom/Orange and recently Bharti Airtel and the MTN business. The presence of international companies in the local market provide a competitive framework to provide and guarantee world class service to those interested in large scale ICT investments. This competition ensures high quality and competitively priced service. Additionally, the strategic investors in the local ICT operators come with skills to service such markets which  will translate to faster turnaround for service requests. Finally, the capacity of the operators is such as to be able to provide all the necessary services required by the investors. In addition to the ICT infrastructure, the government restructured the power sector to delineate generation, transmission and distribution and progressively bring competition on board. Under this framework, power generation is progressively becoming competitive and the private sector can therefore set up such  installations where they  find demand. A similar framework to concessionaire roads infrastructure is in place. The implication is to usher competition as a driver for expansion and provision of competitively priced infrastructure services.

Public Private Partnership (PPP) framework for other infrastructure now in place In 2009, the government enacted a framework for PPP which provides a framework for government to participate with the private sector in large projects where the government feels is of strategic nature and the private sector will add value. Under this framework, the government has an opportunity to leverage private sector resources to develop infrastructure.

No legacy The site is a Greenfield and therefore has no legacy issues for land use and the consequential planning. This has been a challenge to planning of ICTs Parks in India where it is difficult to obtain large tracks of contiguous land for the ICT Park development and has been one of the major pre-occupation for the STPI to support such development. Konza overcomes such issues and the area can be branded in line with the theme of the enterprise - i.e. ITES and electronic manufacturing.

Good ICT Infrastructure Since 2009, the government has radically improved the ICT infrastructure.  This includes the deployment of the submarine fibre optic infrastructure for international connectivity. The three fibre cables have reduced the cost of bandwidth from a high of USD6000 to around USD400. Lower costs reduce the cost of bandwidth and therefore aid to make the services competitive on account of cost. In addition to cost, the fibre provided abundant bandwidth with least latency. These infrastructure issues were some of the significant obstacles that made the sector uncompetitive and unsustainable in the past forcing the government to intervene. Within the country, the government and the private sector have built a total of 10000 km of optic fibre to distribute the capacity to inland destinations and in particular to Konza where it will be served by at least three optic fibres along Nairobi and Mombasa route.

Competition on supporting sectors To ensure a long term competitive framework the government is working on the development of a competition regulatory framework now under deliberation as The Competition Bill 2009. The object of the Act once passed is to:

Comparative & Competitive Advantage

25

…enhance the welfare of the people of Kenya by promoting and protecting effective competition in markets and preventing unfair and misleading market conduct throughout Kenya, in order to:(a) Increase efficiency in the production, distribution and supply of goods and services; (b) Promote innovation; (c) Maximize the efficient allocation of resources; (d) Protect consumers; (e) Create an environment conducive for investment, both foreign and local; (f ) Capture national obligations in competition matters with respect to regional integration initiatives; (g) Bring national competition law, policy and practice in line with best international practices; and (h) Promote the competitiveness of national undertakings in world markets. The Competition Bill 2009(Draft) The Bill once passed will anchor competition across all the sectors that are critical to the sustainability of the ICT Parks.

Focused area to provide world class infrastructure - built -to -suit At the national level, it is practically impossible to provide high quality infrastructure across the country. However, by selecting a site and committing to the site, it is feasible to concentrate efforts to develop world class infrastructure in the site.  This focus will be enhanced by specific policies isolating the area as an ICT Park.

Framework for support of ICT Park exists Support framework already exists for local and foreign investors to the Park.  Multi-sectoral packages are administered by Kenya Investment Authority. It is anticipated that that these incentives will be enhanced through SEZ as it applies to the ICT sector. SEZ policy framework (draft) provide a framework for ICT Park as below: ICT and related services such as software development, business process outsourcing, networking, call centres will be licensed under the ICT Park enterprise scheme.  Qualified majority locally owned small enterprises involved in these services will operate under the incubator service category until graduation to full ICT Park enterprise status. ICT Park enterprises will normally be located in ICT Parks or ICT Towers. ICT Towers are stand-alone multilevel buildings equipped to host ICT service companies. ICT related hardware will be produced under a SEZ manufacturing licence. Source: Draft SEZ policy

Location

The site specifically and Kenya generally has location-based strengths  that can be leveraged. Firstly, being on the Nairobi Mombasa highway positions the site to convenient logistical access to the rest of the region. Konza is next to the regional railway line and in close proximity to an international airport which is a regional hub for North-South and East-West axis. Thus, the site is well positioned for logistics. This location provides a strategic location for electronic assembly and distribution to the region. The country itself is right on the equator and being 8 hours away from North America positions it to provide for a smooth handover and take over operations when offices close down in North America. The time zone is well positioned for near-shoring with Europe being on close time zone to Europe.

Vibrant financial system Kenya has the largest and most sophisticated financial system  in the region.  The financial system is highly competitive with varied instruments available to business and the ability to repatriate capital at will. This financial system is a source of capital for expansion. The stock exchange for example is now of age and able to provide capital to qualified investors. The high level of oversubscription of infrastructure bonds as well as IPOs testifies to the ability of the system to provide the necessary infrastructure to assemble financial support to business. 

Supportive policy framework Kenya has developed a  policy and regulatory framework that is conducive for the business. These include general business investment and specific to the ICT area as discussed below; Ongoing work to re-brand Kenya - Kenya branding has never been coordinated and therefore some of the unique features are yet to be well known within and globally. From 2008, the government established an institutional mechanism to coordinate

26

Konza Technology City

branding efforts of the country under the Brand Kenya Board. Within two years, the  Brand Kenya Board has moved fast to consolidate this effort and over the period the Board has developed a strategy to achieve this objective. The strategy involves: - Country audit and diagnostics - this is an intensive process to understand the country conditions and status, its problems, prevailing perceptions as well as its strengths and comparative advantages. It will seek to understand what Kenya excels in and ready to contribute to the world. - Develop the brand - this will now consolidate the brand through a concerted effort within the country and outside the country. - Communicate  the brand idea to users. The process to launch a new branding for Kenya is underway and is expected to start from late 2010. Consistent branding will enhance the standing of the country among nations particularly after the unfortunate political events of 2008. Electronic transactions framework - In 2009, Kenya enacted an electronic transactions framework under the Kenya Communications and Information (amendment) Act 2009. The Act provides an enabling framework  for e-commerce and most importantly, facilitates online transactions including mechanisms for confidentiality and security of such transactions. A key benefit is the recognition of digital signatures. With this framework, Kenya can potentially conduct online business. More needs to be done especially in the areas of data protection specifically but the Act provides a foundation. National long term planning - From short term to medium term planning, the country has set long-term direction and vision to transition to a middle income country. Vision 2030 developed through a consultative process is a vehicle to realise this objective. The government has established a mechanism to maintain the momentum towards the vision. The pillars to the Vision are: - Political pillar - to enhance the democratic political system that respects the rule of law and protects the right of the citizen. The new constitution promulgated in August 2010 is a fundamental component of this pillar under the Vision 2030 process - Social pillar  - seeks to build a just and cohesive society with social equity  in a secure environment - Economic pillar - to provide prosperity for all Kenyans. Vision 2030 provides a framework to provide a long-term direction and comfort for business planning. BPO is identified as driver in the economic pillar to help realise an economic growth rate of 10%. Konza ICT Park itself is part of Vision 2030. Political stability guaranteed by the new constitution - After 20 years of efforts to reform the national political and governance system, a new governance system was put in place through a new constitution in August 2010. This constitution entrenches fundamental systems to ensure national stability. The new system is designed to develop a politically stable country and most importantly for business, an independent and empowered judicial system to arbitrate on disagreements Supportive ICT policies - The national ICT policy guidelines provide a framework for government support to develop the ICT Park. Unequivocal government support - With the ICT Park firmly positioned in Vision 2030, the government has shown full commitment on the project by buying up land for the project.

Weaknesses The ICT Park as envisaged, its location and the country in general exhibit weaknesses which need to be addressed. This section highlights the weaknesses and in a later section how these weakness can be transformed and converted to strengths.

Distance from infrastructure source of Nairobi Recommendations from other studies and experiences from the comparator sites consistently indicate that an ICT Park should be close to the established cities to take advantage of the amenities provided by the city. This therefore reduces the problem of the Park promoters on heavy investment on amenities - high quality housing,  hospitals, shopping facilities, hospitalities infrastructure, schools, leisure etc. ICT Park and the BPO services specifically is a people business and an investor will not move without the people. Our interviews with the BPO operators indicated that they will only transfer operations if and only if there is suitable housing for staff. With housing follows all the requisite facilities for reasonable quality of life. The income of the staff will not allow them to commute from Nairobi. This can only be overcome by having suitable accommodation and amenities upfront. Konza ICT Park cannot avoid the attendant heavy investment to provide the amenities to start the ICT Park.

Comparative & Competitive Advantage

27

This however is not unusual. Our research noted Greenfield Parks as in the case of Malaysia Cyber Jaya Flagship Zone (CFZ) and in China. The success of these Greenfields rides on the back of government’s long-term commitment to  provide an alternative growth anchor. It requires huge investment by government as proof of concept and long-term commitment. Today, CFZ has achieved its milestones and is a cornerstone to repositioning Malaysia into the knowledge economy path.

National image - poor national indices Interviews with the major buyers point to the poor indices on Kenya for example: - Ease of doing business - Kenya has ranked poorly globally - Global Competitiveness Index - Corruption perception index - Kenya has ranked poorly - Political stability - Innovation - Quality of the universities and education - ITES location index With these poor showing, it becomes a barrier to market Kenya as a destination for business. With limited information, potential business opportunities are lost on account of these indices. A leading ITES company we interviewed indicated that the Kenyan infrastructure is excellent to bring ITES business but the poor indices are a barrier to convincing buyers to come to Kenya. Kenya is just one among many countries competing for international business and the poor indices push it out of contention. While the indices cannot be ruled out to be incorrect, our discussion among the ITES players indicated a need to interface and provide correct and up to date information to those formulating the indices.

No framework for enhanced incentives All the comparator sites have a framework to provide enhanced incentives to operators in the ICT Parks. At present, what is available is provided by the Kenya Investment Authority as indicated elsewhere or if located within the EPZA then the incentives are provided within the EPZA framework.  The EPZA framework is limited in scope and local market access. With the entry of the East African Common Market in July 2010, the EAC market becomes a local market and therefore the impact on market access limitation becomes even more critical. All the comparator countries have a Special Economic Zone policy under which the ICT Parks enjoy enhanced incentives. Kenya has drafted a SEZ policy and draft SEZ law. The policy developed through a coordinated effort driven by an inter-ministerial team provides a framework for enhanced local market access, and other incentives within the SEZ area. Two challenges that need to be addressed: - Firstly, the policy needs to be approved by the Cabinet for the policy to become effective. At present, without approval, this framework is not in effect. The policy developed and co-sponsored by an inter-ministerial committee had not been signed by all parties for presentation to the Cabinet. - Secondly, the policy recognises multiple SEZ to be promoted by government. One such SEZ is Dongo Kundu near Mombasa. The draft SEZ policy recognises that Dongo Kundu will  offer ICT Parks  as illustrated: ‘5.6.1 The Dongo Kundu project will act as a model to be replicated elsewhere by the Government. It will be an integrated city and consist of ICT Parks, Free Port, Industrial Park and Science and Technology Parks.  It will also have world class infrastructure and other facilities planned to incorporate backward and forward integration of industries with the local economy. The Dongo Kundu project will have a pool of small and medium enterprises (SMEs) to support the requirements of the bigger industries such as sub-contracting activities.’ Our research indicates that countries have multiple ICT Parks; this however is prevalent in developed countries. For Kenya, launching multiple ICT Parks by the government in competition with Konza will share the government effort and resources putting at risk the success of either of the two initiatives. Thus, it is necessary to focus attention on one before launching a competing ICT Park initiative at Dongo Kundu. This however does not in any way suggest that private sector should not launch similar initiatives in competition with Konza. Indeed private sector competition in comparator countries is a demonstration that the government has proved the concept and the private sector is bold enough to enter the market and provide even more capacity and variety.

28

Konza Technology City

For electronic assembly and manufacturing, it is noted that all comparator countries are members of ITA. ITA commits a country to open up certain ITA lines but at the same time, ITA provides the country similar access to those markets. For Kenya, it would facilitate access to inputs needed for electronic assembly in the Park and at the same time access to markets for the assembled product. Kenya should commit to ITA as an incentive for electronic assembly. While the SEZ policy is at the discretion of the Cabinet, the law that will give effect to the policy is under the ambit of parliament. Parliament has a heavy workload with the ongoing implementation of the new constitution and in the event Parliament may not have time to address the comprehensive SEZ law, it is necessary for the Ministry of Trade to explore and introduce some enabling aspects through miscellaneous amendments as the law waits to be discussed and enacted.

No cohesive framework for training Mismatch between academics and industry need was noted. In comparator countries, governments are working with universities to introduce and teach courses relevant to ITES on one hand and on the other hand ITES operators have developed in-house courses for new entrants.

Data protection framework missing The ICT Parks in comparator sites attract high value work that 1) has a large component of private data or 2) includes intellectual property.  Protection of these require the enactment of requisite laws. Kenya has yet to enact a data protection law. Without the law, firms in European Union countries would have a problem transferring BPO business in a country without such legislative framework for data protection. In our research, we were informed that the law has been drafted but not introduced to parliament. With the heavy calendar of parliament due to the constitutional changes, it is necessary to fast track the law. In parallel with a legislative process to enact data protection, the industry should explore self-regulation.

No recognition as a destination market AT Kearney publishes a location index for key destinations of ITES business. Kenya has yet to be recognised as a destination market. Work needs to be done to put Kenya on the map of such leading and influential index.

Potential local competition In addition to the potential competition between Dongo Kundu and Konza, the comprehensive and focused development of an ICT Park is likely to face competition from other large scale developments. A case in point is Tatu City ( www.tatucity.com ) whose master plan was launched in October 2010. Tatu City is a 3000 acre comprehensive development about 15 km to the north of Nairobi city offering work, live and play features. At completion in 2018, the developers expect that 62000 people will live in Tatu city. A techno hub is planned in very early phases and some of the expected occupants are major ICT actors as indicated by the promoters during the launch13. With Tatu City already in market focus, it can steal the sheen from Konza ICT Park and divert focus. Konza  though has certain advantages over such development which it should exploit - cheaper cost of land, large tracts of land and strategic location along the international highway and of course position as the premier ICT location.

Regional competition It is noteworthy that other countries in the region have ICT Park initiatives and will play in the same space as Konza and therefore competing head on. The Government of Rwanda is promoting such a Park with the support of UNIDO. Without differentiation, this will compete directly with Konza  ICT Park for regional and international business. Although other Parks are further away e.g. Smart City in Egypt and Cyber City in Mauritius as well as Coega in South Africa, it is critical that Kenya positions itself to address the global competition.

Local community not sensitised The local community around Konza ICT Park is not sensitized to undertake activities that complement the Park. This is a longterm process but if activities are synchronised to complement it will result in local level linkages. 13

At the launch, the promoters stated that IBM and Microsoft have been approached and were potential locators to the technohub.

Comparative & Competitive Advantage

29

High proliferation of decision points in government All the comparator countries have concentrated efforts to incentivise ICT Park development under one window providing for one point for clearances, approvals and incentives. Investors interviewed report that they find that they have to go to many offices for approval or to access information. This is a waste of resources and time. To be competitive, it is vital that all these support and incentive packages be under one agency i.e. one stop shop window. One agency needs to be empowered to administer the incentive programme. Additionally, to ensure an all round policy development and support and to provide linkages with other SEZ it is necessary to have an inter-ministerial organ to  provide overall guidance. A way out is to formalise the inter-ministerial team  that cosponsored the draft SEZ policy. Others that should be included in the inter-ministerial committee include higher education and labour. We recommend that a policy coordination organ for policy efficiency and implementation be constituted to include the following Ministers: - Trade - Finance - Information and communications - Industrialisation - Transport - Nairobi metropolitan - Lands - Higher education - Labour This will be a consultative organ to provide overall policy guidance on the ICT park initiative.

Opportunities The opportunities come in a number of ways - the glowing global market and the local demand. These present the opportunity for Kenya to realise its objectives for job creation in line with Vision 2030. Some of the key opportunities are addressed below.

Expanding local and regional market With the entry of the East African Common market, the ICT Park is in a position to tap into the Kenyan market as well as regional market of EAC. Konza can leverage the membership of Rwanda and Burundi as a multilingual ITES destination. Beyond EAC, Kenya is an influential member of COMESA and can leverage its position to exploit ITES.

Supportive policies for continued growth of ITES globally Global competition demands cost effective production of goods and services and outsourcing has been identified  as one option. This market continues to expand at a fast rate as illustrated in Fig 1. This trend continues to generate jobs and revenue in countries exploiting ITES effectively. With this growth and for a country like Kenya, the challenge is not the market but rather the capacity to identify a niche or an entry and effectively service this sector.

ITES advanced countries moving up the value chain and leaving space for entrants As ITES evolves, competition in the low level BPO space has eroded margins. Those countries that pioneered in the market with the competitive edge based on cheap labour have lost that competitiveness after 10 years with entry of other players with cheaper labour offers. Conversely, the increasing incomes from pioneer countries put them out of contention due to the higher labour cost. Fortunately, such countries are able to move up the value chain to tap more lucrative market segments. As they focus on the high end, it offers an opportunity for emerging countries to tap into the market segments shunned due to low margins. This is an opportunity for Kenya to subcontract with India.

Strong Diaspora The strong Diaspora in source countries provides a ready source of ITES jobs. What is required is a mechanism to motivate and tap into this resource.

30

Konza Technology City

Brand Kenya Board has programmes to tap this resource beginning 2011

Threats External threats are beyond the proposed Park management when established or the government. The following section highlights some of the threats and suggests mitigating strategies to manage the threats.

Competing Parks in the region As indicated earlier, Rwanda is promoting an ICT Park supported by UNIDO. The Park intends to play in the same space as Konza though to a much lesser scope. In addition, other member countries of the EAC or COMESA will almost certainly in future announce similar initiatives. Positioning and differentiation of Konza as discussed later is imperative.

Policies against outsourcing in source countries Outsourcing involves the transfer of jobs from one country to another. Jobs squeeze in USA in particular will invariably generate calls to curtail the outflow of outsourcing and consider measures to reduce outsourcing. This would have a direct impact of reduced outsourcing altogether with dire consequences on the millions of jobs created overseas. Pioneer countries have diversified up the value chain to reduce reliance of the low-end outsourcing that is amenable to political manipulation. It will be noted that all the comparator countries have policies to increase local market share of their business to cushion international shocks.

Technologies that take away some of the jobs Low-end BPO services  are rule-based and are low skilled. With the rules being very specific and standardised, some of the tasks are being taken over by technology. A case in point is Interactive Voice Response that takes over front facing tasks of customer care. The SWOT analysis provides a balanced view to approach development of Konza ICT Park. The analysis points out the strengths of the proposed Park and the country within a context of fast expanding opportunities in the ITES and IT products markets. There are however weaknesses as well. These weaknesses need to be matched to strengths. The matching strategy is proposed under each weakness. On the other hand, there are a number of threats to the ICT Park and indeed the desired market segment. Positioning and differentiation is key. Next section addresses positioning and differentiation.

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31

The Konza ICT Park advantage What advantages exist for the ICT Park and indeed for the country to exploit to achieve its goals? Comparator sites studied for this research indicate that all ICT Parks sought to exploit the comparative advantages of the country to build a  competitive advantage against the competition within the country and outside the country to succeed and be sustainable.  This section illustrates our finding benchmarked against the comparator countries.

Comparative advantage The comparative advantage for Kenya stems from having a readily available well-trained workforce that is price-competitive, good language skills including accent-neutrality for English speakers. This however is inadequate and the country has to explore areas to grow competitiveness.

Competitive advantage Scholars on the subject of competitive advantage and in particular a leading scholar Michael Porter14 postulate that a Park (or business firm) needs to build a competitive advantage in a competitive environment to maintain profitability and sustainability. The two approaches to build sustainable competitive advantages are either positional or resource based.  In building a positionbased advantage, the Park will seek to position itself either on cost or differentiate itself against competition. To achieve either of these, the firm needs to review its unique resources and exploit them to place it to an advantage.  All the comparator ICT Parks  have built competitive advantage, which positions them to compete locally, regionally and sometimes globally. What lessons for Konza ICT Park?

Positional advantages Outsourcing business and in particular BPO operates on labour arbitrage and therefore low cost at service delivery points is a significant advantage. Countries that want to attract that line of business have reviewed the cost structure to reduce cost of the product. The critical areas where cost advantage can be built include the following: - Land - land for building the Park is a significant cost and eventually has implications on the use of the land. Comparator countries have worked to reduce the cost of the land by a number of ways. Significantly, the government or a government agency is involved in acquiring land for the ICT Park. In India, the government or the government agency uses its legislative capacity to acquire contiguous land. The same case was noted in all the other comparator countries. With the land acquired, the government has in most cases given it out to developers at low or no cost. This is the first fundamental way to reduce cost of the overall Park operation. - Cheap space costs - following on cheap land costs, the next area of attention is to ensure cheaper construction costs to reduce rental of space use costs but retain elegance. Competitive price of space in India for example is cited as US$0.5 per square foot per month. The rental cost translates to long-term operational costs and is a major factor for consideration when deciding where to operate. In India, it was noted that the cost of the rental space in Noida and Gurgeon was a factor in choosing where to locate. - Low salary eventually translates to low operational costs. Successful BPO operations are to be found in the areas and regions with low salary or alternatively cost of living is low.  Measures to ensure low salaries noted in comparator countries include low tax on salaries for staff within the Park as in the case of Aqaba Economic Zone in Jordan and Panama Pacifico. In other jurisdictions, the cost of the specialised training is borne by the State to reduce cost for the investor as in the case of Egypt. In Panama the State set a cap on overtime payments. - Finally, another opportunity to reduce cost for the operator is through a range of incentives for the investors. These include fiscal and non-fiscal incentives to facilitate competitive operation. These tools provide an opportunity for governments to leverage and influence the cost structure to reduce cost of the service or product.  Comparator sites in India, Philippines and Vietnam are positioned to build a long term cost advantage. Kenya has taken the first step to acquire cheap land. The next step is to influence the construction cost structure to eventually realise a competitive price on long-term cost of use of space.

Differentiation advantage Our face-to-face interviews and research indicate that  the cost advantage cannot be sustained for long. Locations lose this cost  advantage over a period of 10 years due to the increasing wealth created by the industry in the location and entry of cheaper competition in the space. To avert this challenge, some of the comparator sites have differentiated themselves to sustain an advantage. This is the case of Malaysia to differentiate as a high-end service delivery point for research and development.  The 14 http://books.google.com/books?hl=en&lr=&id=H9ReAijCK8cC&oi=fnd&pg=PR15&dq=michael+porter+competitive+advantage& ots=p71AOKaU4F&sig=qmv8uRp6IQj-IE8m6VjvR-f8e-I#v=onepage&q&f=false

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Konza Technology City

differentiation exploits the resources that the country or the Park is able to exploit. Typical resources available to the ICT Park are discussed in the following section.

Exploiting the unique resources - distinctive competencies Typical unique resources available to comparator countries include: - National branding and therefore brand equity - Reputation for the firm or the country as a ITES destination - Location of the country and the ICT Park - Cultural links These are some of the resources that comparator countries have to exploit to create a competitive advantage. These are available to Kenya as well and the implications for Kenya are discussed below. Brand equity - Malaysia has invested heavily in projecting a national brand  - Truly Asia -  and sub themes around knowledge economy over the last decade. This brand has created a clear identity for the country and creates a framework to anchor the high end ITES business for the CFZ. Location - Location is another natural resource that comparator countries exploit. Comparator countries exploit their location as follows: - Egypt exploits its location to market itself to serve Africa, the Middle East and Mediterranean Europe. - Mauritius sells its position as an island and by implication a secure island. The security focus has enabled the country to attract restoration centre services  and data centres - Malaysia on the other hand exploits its position as the crossroads and confluence of some of the major markets and population centres. Thus its location vis a vis India, China and Indonesia is an advantage to exploit. Other countries of interest are Thailand and Brunei - Vietnam exploits it proximity to China and on the back of this has built a very successful electronic assembly  business - Panama Pacifico exploits its location as a cross road between North and South America and the Caribbean. Companies like Dell take advantage of this location for the assembly and distribution of their products to the region. Kenya is strategically positioned and from the lessons of the comparator countries, can exploit the following location-based advantages: - It is right on the equator and in the middle of Africa, this location positions Kenya to exploit as a business hub for sub-Saharan Africa - It is a logistics hub for Eastern and Central Africa - Air linkages to the north south and the east west axis This location can be exploited as a business and logistics hub for the region.

Cultural links Comparator sites exploit the cultural links to their advantage: - Philippines on the cultural links with the USA - Mauritius with the multicultural links to France, India, Britain, Africa mainland and the Dutch With competition certain, Kenya has to build a competitive advantage on position and differentiation. This could be built on the proposed site attributes highlighted below.

Attributes of Konza ICT Park The ICT Park and its location come with unique attributes. Some of the attributes are strengths while others are weaknesses. The quality of the attribute is addressed in detail including the implications in the SWOT analysis. The key attributes include the following:

Government support That government support for the ICT Park is amply demonstrated by raising the funding to buy the land is not in doubt. The project is anchored in the Vision 2030 and therefore the purchase of the land is in line with that commitment. Already the Vision 2030 is a non-partisan process and therefore will be a long-term national commitment. With the Vision 2030, the government has identified ITES as a flagship for development.

Comparative & Competitive Advantage

33

Space The Park is set in a spacious area for example and provision of all the necessary amenities can be built to suit. Other attributes include: - Range of complimenting activities to the ICT Park - On a development corridor designated by the government under the Athi River Development Corridor and therefore can leverage government effort to develop the corridor - Near wildlife sanctuaries - Undulating terrain - Hot weather - No legacy - Nairobi-Mombasa highway and alongside it are train and fibre optic lines - Proximity to international airport

Conclusions and recommendation Konza ICT Park provides an opportunity to develop a complementing national growth path and as noted in comparator countries transforming the country to a knowledge economy. To realise this goal, certain actions need to be addressed at an early stage: Policy and regulatory framework • Enhance efforts to re-brand the country with a positive image - work on Indices • Establish a high level inter-ministerial consultative body for efficient coordination of ICT Park initiative • Reduce decision points regarding ITES/IT investment • Commit to WTO/ ITA • Approve SEZ policy and enact SEZ law or at the very least reform the incentive schemes in the EPZA Act • Establish a single window agency to ease doing business in the ICT Park initiatives • Enact data protection law and strengthen intellectual property rights laws. Facilitation • Government to handhold for the first five years - commit to requisite infrastructure as proof of concept • Work on cost structure as a low cost destination in the near term • Enhance incentives as proposed in SEZ policy. Operational • Position Konza ICT Park as a product of Eastern Africa • Establish a proactive ICT Park management • Targeted high profile marketing - Sell Demand • Coordinate talent development • Allow mixed use in the park for sustainability • Promote an eco-system by building a Science & Technology Park, Incubation Centre and Centre of Excellence within the Park • Manage local competition among government-sponsored programmes – Dongo Kundu should not offer ICT Park services for now in competition with Konza • At an early stage consider relevance of ICT Park or facilities Industry level • Strengthen industry lobby platform to create standards and undertake self regulation

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Konza Technology City

ANNEX

Annex 1: Comparator Sites Annex 2: Research Resources Annex 3: Terms of Reference

Comparative & Competitive Advantage

35

ANNEX 1: Comparator Sites Smart Village: Egypt Key facts and figures Year established

2003

No. jobs created

28,000

Investment

US$2.6 billion

Typical locators on site

Alcatel-Lucent, Ericsson, Etisalat, HP, Huawei, Mobinil, Nokia Siemens Networks, Satyam, Telecom, Egypt, Vodafone, Wipro and Xceed

Services offered

Software engineering, University, Innovation Centre, Logistics and BFSI

Developer

Smart Village Ltd

Key incentives

Operates within a SEZ- Special reductions on land prices for investors in the ICT sector. Training programs for professionals in the ICT industry that investors intend to recruit. The government offers and pays for training in IT, communications and networks according to investors’ standards and specifications.

Tagline

Where smart businesses excel

Source: Smart Villages Ltd & Business Today Egypt

The Smart Village – Egypt was an initiative by the government to seize opportunities that ICT promised. This is a 300ha Park which is part of a constellation comprising of Cairo, Alexandria, and Damietta. The idea was muted and followed by extensive study and research in 1999 – 2001. The first phase was inaugurated by President Mubarak in September 2003. It benefits from Egypt’s geo-strategic location. The initiative is an example of a public private sector partnership with the private sector contributing 80% of the resources. The Village was planned for 20,000 people and 120 companies by 2008 and to increase to 100,000 people and 500 companies by 2012. This calls for among others a transport management system from greater Cairo to cater for the huge traffic. The tenancy of the facility is mixed. The business park hosts multinational and local companies sharing the ground with Governmental authorities and organizations, financial institutions, educational institutions and Research & Development centres. Among the multinationals are Vodafone. Also, a local operator Exceed employs 1900 people and offers contact centre services for Microsoft and others. Amenities include a 1500 square metre food complex, a full fledge Smart Village Club with tennis and squash courts, swimming pools, SPA and gymnasium, 400 meters athletics track, official size football field, and, multipurpose playgrounds totally dedicated to the fitness of Smart Village community members and their families. Other features include nursery, international school, and a five star hotel is under construction. Smart Village has dedicated 90 percent of its site to green areas. The entire facility is connected to a fibre optic link provided by the incumbent telecom operator, Telecom Egypt. Egypt is connected to the international capacity through 4 submarine cables; Aletar, the SEA-ME-WE-3 and SEA-ME-WE-4 submarine cable networks, Link Around the Globe (FLAG) Falcon and FLAG FEA.

36

Konza Technology City

Cyber City: Mauritius Key facts and figures Year established

2001

No. jobs created

30,000

Investment

US$100 million

Typical locators on site

HP, Ceridian, TNT, Infosys, HSBC, Orange & Hinduja

Services offered

Provide computing on demand, an internet data centre to back up data and servers for webhosting, e-commerce and financial transactions

Developer

Business Parks of Mauritius Ltd

Key incentives

Operates in a SEZ environment – incentives include tax holidays and double taxation avoidance treaties

Tagline

Situated in the Indian Ocean, at the crossroads of Africa and Asia

Source: Business Parks of Mauritius Ltd

Mauritius is considered a safe investment destination due to its long established tradition of socio-political stability, free market economy and good governance. The country is located at crossroads of Africa and Asia with special ties to India and China. Due to historical factors i.e. being colonised by the French and Britain15, the population can fluently speak English and French. This is a strategic advantage since they are able to position themselves as multilingual. The government has improved the Doing Business16 indicators ranked number 17 overall in 2010 but emerging number one in Africa. In addition the country has a large labour pool with low labour cost. Its stability and location makes it a preference for data centre based companies. Due to the declining sugar and textile sector which was the economic backbone of Mauritius, the government considered promoting Cyber City as alternative economic resource. The Cyber City establishment comprises a commercial zone, conference centre, a cyber village, hotel and a university. There are about 150 ICT companies and about 30 call centres providing services to offshore companies (www.e-cybercity.mu/). Construction is in progress and in the last five years, 15 buildings have been built which includes Ebene Tower earmarked as the Cyber Tower and Multimedia Centre. Currently, outsourcing now brings in more income to Mauritius than tourism or agriculture. “This is where our idea is to make Mauritius a cyber island to rush ahead as a services economy,” says Paul Berenger, deputy prime minister and finance minister. Regarding international connectivity, the country is a landing point for the SAFE submarine cable that provides links to Asia and South Africa where it connects to the SAT-3/WASC submarine cable that provides further links to parts of East Africa17.

15

https://www.cia.gov/library/publications/the-world-factbook/geos/mp.html Economies are ranked on their ease of doing business, from 1 – 183, with first place being the best. This is a system developed by the World Bank available at http://www.doingbusiness.org/Rankings https://www.cia.gov/library/publications/the-world-factbook/geos/mp.html 17

16

Comparative & Competitive Advantage

37

Panama Pacifico: Panama Key facts and figures Year established

2005

No. jobs created

3,500

Investment

US$20 million (US $ 700 million on completion)

Typical locators on site

Dell, Singapore Airlines, 3M and Samtec

Services offered

Logistics and light manufacturing

Developer

London and Regional Properties

Key incentives

Exemption on any commercial or industrial licenses or registration tax. Exemption from Stamp Tax, Exemption from any tax, levy, rate, encumbrance or import duties on any merchandise, products, equipment, services and other goods in general that are entered into Panama Pacifico. Simplified immigration benefits.

Tagline

At the centre of trade for the Americas and the world

Source: London and Properties Ltd Source: Panama Insider, 2010

Panama Pacifico is located at the Panama City which connects North and South America. Pacifico is ideal for logistical and operational hub for the Americas and the Caribbean countries. The population can speak both English and Spanish languages. The government desired to make the country competitive and promulgated Law 41 in 2004 which gives both fiscal and nonfiscal incentives for companies to locate at Panama. The International Business Park at Panama-Pacifico is a 26ha, high quality Business Park, master-planned for more than 100,000m2 of office and flex-distribution development. The International Business Park – IBP, is designed for headquarters offices, call centres, offices, distribution and light assembly companies. Currently, the park employs 3500 but it is projected to employ 10,000 by 201518.

18

38

Employment Statistics available at http://www.panamapacifico.com/media/docs/Statistic%20for%20Employment.pdf

Konza Technology City

Saigon Hi-Tech Park: Vietnam Key facts and figures Year established

2002

No. jobs created

47,000

Investment

US$ 300 million

Typical locators on site

Intel, Nidec, Sonion, Allied Technologies of Singapore, Jabil, Datalogic, FPT Corporation and EVN Telecom

Services offered

Electronics manufacturing industry

Developer

Saigon Hi-tech Park

Key incentives

Operates within a SEZ framework and are given incentives as; corporate income tax of 10% during the project’s life. Entitled to exemption of corporate income tax for four years from the date taxable income is made and a 50% reduction in the nine following years. Exemption from import duties is given to materials, which are imported to facilitate production of software programs upon condition that the materials have yet to be locally manufactured. The materials are also exempted from value-added tax. Software products are free from export duties. The one-price policy is applicable for both local and foreign investors. During the land lease term, investors can use land-use right certificates and assets related to land as collaterals to access bank loans at Vietnam’s credit organizations. 

Tagline

Low cost production destination

Source: The Province of Vungtau website, Intel Corp, American Chamber of Commerce in Vietnam & Ventureoutsource.com



Source: LookAtVietnam, 2009 Saigon Hi-tech Park (SHTP), with an area of 913 ha, is located 15-17km from Ho Chi Min City’s centre, Saigon Port and Tan Son Nhat International Airport. It is among the 43 industrial parks and export processing zones of the southern economic zone of the country. The park is located near HCM City National University. Tenants in the park include Intel, Japan’s Nidec, Denmark’s Sonion, Allied Technologies of Singapore, Jabil and Datalogic which employ 10,000 workers generating revenue to US$ 1.1 billion19 According to Intel, the company has a state-of-the-art assembly test facility, with an initial investment of US $ 1 billion20 in a 46451m2 facility and is projected to employ 4000 people. The product line is semiconductor manufacturing and also a host to the marketing department for the Original Equipment Manufacturers – OEM in Vietnam. In 2007, Foxconn, one of the world’s largest contract manufacturers, had applied for an investment license to invest US $5 19 20

The Province of Vungtau, http://sokhcn.baria-vungtau.gov.vn/dostbrvt/news.aspx?mnid=157&id=743 A Global Technology Revolution, available at: http://www.intel.com/jobs/vietnam/

Comparative & Competitive Advantage

39

billion21. It plans to manufacture electronics and computer products including digital cameras, personal computer printed circuit motherboards, and music players. The venture would employ about 30,000 people. Jabil Circuit headquartered in St. Petersburg, US which is another huge contract manufacturer, plans to invest US $100 million22 to boost its operations in Vietnam. Allied Technologies located in 2005, employing 250 in metal stamping, plastic moulding, and extrusion facilities for parts Jabil uses to produce HP printers. The department of planning of Ho Chi Min City which serves the park has laid the following infrastructure: Water supply system: is supplied through two water plants for redundancy. The park also has four stand-by water tanks with capacity of 3,500 cu m. Power: Power is supplied from the national grid and a power plant of SHTP. The supply is stable with the operational two substations with maximum capacity of 40 MVA. The park management also has plans to build a stand-by gas turbine generator to deal with blackouts. Communication, telecom and Internet facilities: SHTP has good communication and telecom facilities able to supply cost effective, efficient services.

21 22

40

http://www.businessweek.com/globalbiz/content/jul2007/gb2007076_953630.htm American Chamber of Commerce in Vietnam, http://www.amchamvietnam.com/?id=1624

Konza Technology City

International Tech Park: Bangalore Key facts and figures Year established

1998

No. jobs created

24,000

Investment

US$38.8 million

Typical locators on site

Infosys, Wipro, Siemens, HP, Birla 3M, GE Capital, Digital, Tata R&D and Motorola

Services offered

IT & ITES, bioinformatics, software development, electronics and other hi-tech industries

Developer

Ascendas

Key incentives

SEZ environment – incentives include exemption from payment of entry Tax and State Tax payable on purchase of raw materials, components, packing materials, consumable, capital goods, spares, material handling equipment, intermediates, semi finished goods and sub assemblies from a registered dealer. Refund of Entry Tax and State Tax payable on purchase of raw materials, components, packing materials, intermediates, and semi finished goods and sub assemblies from a registered dealer.

Tagline

Work-live-play business environment

Source: Ascendas, International Tech Park & Dittrich, C. (2007)

International Tech Park Bangalore– ITPB was opened in 199823 as a Greenfield; ITPB is India’s first themed work-live-play business environment. ITPB is virtually a self-contained city spread over a 69 acres estate. Out of this, 26 acres is notified as SEZ. ITPB is housing 145 companies employing 24,000 professionals in the fields of IT & ITES, bioinformatics, software development, telecommunications, electronic and other hi-tech industries (Ascendas, 2010). Dittrich, C. 2007 outlines the meteoric rise of Bangalore to a globally integrated ‘e-region’ was not a mere coincidence but resulted from a combination of favourable enabling conditions: The city’s reputation as one of Asia’s leading locations of education and research; today Bangalore has three universities, 14 engineering colleges, and a plethora of well-reputed research institutes devoted to aeronautics and space, science, health and so forth. There are also various industrial-training institutes, including the Indian Institute of Science, the Indian Institute of Management, and the Indian Institute of Information Technology; The large number of large-scale and knowledge-based public sector industries and the numerous small-scale workshops which service them; The availability of an apparently inexhaustibly large labour pool of highly skilled, English-speaking and relatively inexpensive young urban professionals; investor-friendly government policies; a more stable and liberal socio-political environment with lower real estate prices and cost of living than in Mumbai and Delhi; and the salubrious climate of the so-called Garden City. 23

http://www.itpbangalore.com/home.html

Comparative & Competitive Advantage

41

The UP-Ayala TechnoHub: Philippines Key facts and figures Year established

2008

No. jobs created

30,000

Investment

US$138 million

Typical locators on site

IBM, ABBYY Software House, Head-start Business Solutions Inc., JJDD Broadcast Service Inc., SPT, HSBC, Manulife, Convergys and Pointwest.

Services offered

Information Technology, Environment and Clean Energy, Agribusiness, and Biotechnology

Developer

Ayala Real Estate Development Company and University of Philippines

Key incentives

Operates in a SEZ environment – incentives include; tax holidays and duty free importation

Tagline

To be an integrated community of Science and Technology companies creating a dynamic learning laboratory conducive to industry-academe collaborations between Technohub locators and the university

Source: UP-Ayala Land TechnoHub and University of Philippines

The establishment of the UP-Ayala Land TechnoHub, a fully integrated information technology (IT) and IT-enabled services (ITES) community situated within the University of the Philippines (UP) campus, is considered by the government as a major step in making technology the foundation of the country’s economic development. Inaugurated in November 2008, then Philippine President, Gloria Arroyo, envisions it to become like Stanford University’s Silicon Valley, a technological centre where innovative and life-changing technological research and developments take place. Developed by the Ayala Real Estate Development Company, the techno hub is located within the campus of the University of the Philippines, the country’s premiere institution of higher education. Among the locators are HSBC, Manulife, Ayala Foundation Inc, IBM, Convergys and Pointwest. Its establishment is in line with the government’s aim of creating technology hubs in strategic points across the Philippines to attract more BPOs and international hardware and software firms into the country and, simultaneously, to train youth into becoming globally competitive programmers and engineers. The techno hub is expected to link the technology industry to the academia and contribute to the improvement of the country’s IT industry via collaboration on research and development, as well as create more employment opportunities for the masses. It covers an area of 20ha located in 37.5ha UP North Science and Technology Park within the University of the Philippines campus in Diliman, Quezon City.

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Konza Technology City

Multi Media Super Corridor – Cyberjaya Key facts and figures Year established

1997

No. jobs created

67,700

Investment

US $ 15 billion

Typical locators on site

Dell, HP, DHL, Satyam, Wipro, HSBC, Ericsson, Motorola, OCBC, BMW, IBM, Shell IT, Monster.com and Vivanova Systems

Services offered

Smartcard technology, smart schools, tele-health, e-government, e-business, & International shared services

Developer

Setia Haruman

Key incentives

Pioneer Status - 100% exemption from taxable statutory income. Incentives are granted for a period of 5 years for the first round. A 100% Investment Tax Allowance (ITA). Eligibility for R&D grants (for majority Malaysian ownership MSC Malaysia- Status companies). Freedom to source capital and borrow funds globally. Duty-free importation of multimedia equipment

Tagline

The best of all worlds

Source: Setia Haruman and Multimedia Super Corridor

Cyberjaya was developed to affirm Malaysia’s status as a country of Knowledge-Based Economy. MSC-Malaysia is a dedicated corridor, stretching from the PETRONAS Twin Towers in the north to the Kuala Lumpur International Airport in the south; and encompasses Cyberjaya (the Technology Core) and Putrajaya (the new administrative capital of Malaysia)24. The project was launched by Dr. Mahathir Mohammad, the fourth prime minister of Malaysia, in 1999. Situated in 2,832 ha piece of land, the facility boasts of an intelligent city with world-class IT infrastructure, low-density urban enterprise, as well as state-of-the-art commercial, residential, enterprise and institutional developments. Conducive living with convenient amenities and facilities, Cyberjaya is host to multi-national companies, knowledge workers, enterprising businesses, students and families. The country is connected as a landing point for several major international submarine cable networks that provide connectivity to Asia, Middle East, and Europe25. 24 25

http://www.cyberjaya-msc.com/cyberjaya-town.asp https://www.cia.gov/library/publications/the-world-factbook/geos/my.html

Comparative & Competitive Advantage

43

Dalian Software Park: China Key facts and figures Year established

1998

No. jobs created

50,000

Investment

US$62 million

Typical locators on site

NEUSOFT GROUP LTD and China Computing Software Technology Co., Netcom, Nokia, Hitachi, PSA from Singapore, Panasonic Communication Co., IBM, HP, Accenture, Sony, NTT, Oracle, AVAYA, NEC, Fidelity and BT

Services offered

Software development, product development/R&D, Business, BPO and IT services.

Developer

Yi Da group (Dalian Software Park)

Key incentives

Reduced income rate of 10% for key software enterprises identified by the state. No customs duty and import VAT for software companies importing capital equipment including technology.

Tagline

Green City within short distance from Japan, South Korea and the Far East regions of Russia

Source: Yida Group and Dalian Software Park

Dalian is strategically located within the Liaodong Peninsula in the centre of Northeast Asia economic zone a short distance from Japan, South Korea and the Far East regions of Russia. Dalian Software Park occupies a 300ha located in Xinghai Bay in the southwest of Dalian which is a High-tech Industrial Zone. It is an integrated software park that combines research, education and production. Due to its proximity to Korea and Japan, it has developed a deep talent pool, notably in computer technologies and Japanese and Korean language skills26. This makes it a preferred destination for Japanese companies. By the end of 200927, there’re over 500 enterprises in the Dalian Software Park, 41% of which are foreign-funded. Dalian Software Park realized an annual sales income of US $ 3 billion, with an export value of US $ 0.86 billion.

26 27

44

http://www.dlsp.com.cn/en/2009/0921/175.html http://www.dlsp.com.cn/en/2009/0921/176.html

Konza Technology City

Invest Park: Poland Key facts and figures Year established

1997

No jobs created

30,025

Investment

US$ 4.04 billion

Typical locators on site

Toyota Motor Corporation, Cersanit, Faurecia, NSK Steering Systems Europe, Whirlpool, General Electric, Metzeler, Henkel, Electrolux, Bridgestone

Services offered

Manufacturing and motor assembly, ICT and BPO

Developer

Invest Park

Key incentives

It is a SEZ. Entrepreneurs investing within the area of the WSEZ can obtain public aid in form of income tax exemptions and real estate tax exemptions.

Tagline

Convenient geographical location and the vicinity of the Czech Republic and Germany borders

Source: Polish Information and Foreign Investment Agency & WSEZ Invest Park

Source: PIFIA28, 2010

INVEST-PARK is strategically located in an area where the labour force supply is high and low cost compared to the neighbouring countries. Of importance is the nearness to the German border where they share some dialects. This makes it easier for German companies to outsource some of the jobs to Poland since the labour cost is comparatively low. It occupies an area of 1685.5 ha of land and currently employs 30,025 people. Some of the preferred locators at this site are BPO and IT companies. Among the tenants are IBM (IBM Global Services Delivery Centre Polska Sp) and General Electric29.

28 29

Polish Information and Investment Agency http://www.paiz.gov.pl/investment_support/sez/walbrzych

Comparative & Competitive Advantage

45

Aqaba Special Economic Zone: Jordan Key facts and figures Year established

2001

No. jobs created Investment

US$281 million

Typical locators on site Services offered

Multi-modal logistics, value-added industries and light manufacturing

Developer

London and Regional Properties

Key incentives

Operates within a SEZ. 5% income tax, except for banking, insurance and land transport services. Exemption from Social Service Tax. Exemption from Sales Tax on a number of goods and services. Full repatriation of profits and capital.

Tagline

Your business gateway to Jordan and the Levant1

Source: Aqaba Special Economic Zone

Aqaba Special Economic Zone – ASEZ1 is a duty-free commercial, industrial, and tourism hub located at the northernmost extremity of the Red Sea. The ASEZ covers 37,500 ha in Jordan’s strategically located southern area, centred in the Middle East region. It offers the services of the Aqaba Port, Jordan’s main seaport and historically, an important transhipment point for goods destined to Iraq. It offers global investment opportunities ranging from tourism to recreational services, from professional services to multi-modal logistics, from value-added industries to light manufacturing. The enabling projects include Aqaba International School, American University of Jordan, Hospitality College and Smart City2.

1 2

46

http://www.aqabazone.com/?q=node/233 http://www.adc.jo/pages.php?menu_id=19&local_type=0

Konza Technology City

University of Waterloo Research and Technology Park: Canada Facts and Figures Year established

2008

No. jobs created Investment

US$210 million

Typical locators on site

Google, Research In Motion, Open Text, Sybase & Agfa

Services offered

Quantum computing and nanotechnologies

Developer

University of Waterloo

Key incentives

Research and Development and incubation services

Tagline

Located at Canada’s Technology Triangle

Source: University of Waterloo Research and Technology Park

The Waterloo Research Park is designed to house researchers, create new technology jobs, and generate billions of dollars in economic impact. Waterloo is considered the technology triangle of Canada. The park is developed in collaboration between the university and the private sector. Under the arrangement, the university has leased its 49 hectares of land to private companies. The value proposition for the university is to enhance Research and Development and also channel its fresh graduates to the companies for internships. The university also desires to incubate innovations; a service provided by the locators. Tenants include Google, Research In Motion, Open Text, Sybase & Agfa. One company, Open Text, which is a software development company has an office of 10498.043 m² and currently employs 700 people.

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47

SongDo City – Korea

SongDo City is an example of a new city built from a Greenfield. It has the following features:

3

48

-

premier working environments,

-

luxury residences for 65,000 people,

-

SongDo International School,

-

100-acre central park,

-

cultural centre,

-

Jack Nicklaus championship Golf course,

-

5 luxury hotels, and a

-

Good public transport system.3

http://www.songdo.com/songdo-international-business-district/why-songdo/a-brand-new-city.aspx

Konza Technology City

Research Resources : ANNEX 2 Research resources Questionnaire interviews An in-depth interview was conducted with 42 respondents. This was due to the early realisation that Kenya is not presently known as an ITES destination. Questionnaire interviews to 142 respondents using internet from the following regions and distribution: Region

Sample

Kenya

42

Africa Region

12

Asia

46

Latin America

4

North America

25

Europe

13

Total

142

The target respondents were drawn from among: - - - - -

Top 100 outsourcing companies as published by International Association of Professional Outsourcers in 2010 Kenya Investment Authority BPO/ITES Working Group in the Prime Minister’s office database Kenya ICT Board Database Summit Strategies Ltd and associates databases

The target responses were 100 but selected sample size was to cater for an eventuality of a poor response rate.

In-depth Interviews This is an interim list and we have scheduled more interviews focusing on the market demand Accenture Development Partnership

Jessica Long

IT Strategy & Innovation lead

BPO /ITES Working Group in the office of the Prime Minister

Gilda Odera

Chair

BPO/ITES Working Group of the Prime Minister

Peres Were

Joint Secretary

Brand Kenya

Mary Kimonye

Chief Executive Officer

Directorate of E-government

Dr. Catherine Getao

ICT Secretary

Eastern Software Systems Pvt Ltd Noida India

Anil Bhakht

Managing Director/ Leader of NASSCOM Delegation to Kenya

Export Processing Zone Authority

Mr. Joseph Kosure

Ag CEO

Export Processing Zones Authority

Margaret Waithaka

Manager New Investments

FIAS /World Bank

Sumit Manchanda

Operations officer

African Growth Avasant

Comparative & Competitive Advantage

49

Global BPO Solutions

Joseph Ochola Mbogo

Google

Mr. Joseph Mucheru

Country Leader

Horizon Contact Centers Ltd

Sanjay Sikka

Chief Executive Officer

IBM – USA

In confidence

KPO Delivery Manager

IBM /Canada

In confidence

BPO services

IBM /EA

Tony Mwai

Country

IBM /India

In confidence

BPO services

Iridium Interactive Ltd - Hyderabad India

Sriram Bharatam

CEO Founder

Kenya Airways

Mr. Robert Wakaba

E-strategist

Kenya Contact Centre and BPO Society

Raychelle Injete

Chair

Kenya ICT Board

Victor Kyallo

Deputy CEO

Kenya ICT Board

Eunice Mueni Kariuki

Deputy CEO

Kenya ICT Board

Andrew Lewela Mwanyota

Project Manager BPO/ITES

Kenya Investment Authority

David Mugambi

Senior Investment Officer

Kenya Web

Mike Terik

MD

Ministry of Information and Communications

Dr. Bitange Ndemo

Permanent Secretary

National Association of Software & Service Companies ( NASSCOM)- Chennai India

K. Purushothaman

Regional Director TN and Kerala

National Council of Science and TechnologyMinistry of Higher Education Science and Technology

David Otuoma

Chief Science Secretary

Octaware

Aslam Khan

President

Ontrack Systems

Debasis Roy

VP – Operations

Payoda Technologies PVT Ltd Tamil Nadu India

Venkatakrishnan G

Vice President Operations

Sameer Africa

Michael Karanja

CEO

Kenya Bankers Association

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Konza Technology City

Selected Internet resources 1

Special Economic Zones, Global Experience and Best Practices, http://www.ifc.org/ifcext/fias.nsf/AttachmentsByTitle/ BangladeshRT2Topic1PPT.pdf/$FILE/BangladeshRT2Topic1PPT.pdf

2

Investment Climate in Practice: Investment Policy and Promotion, http://www.fias.net/ifcext/fias.nsf/AttachmentsByTitle/ InPractice_Investment+Promotion+Essentials/$FILE/InPractice_GIPB.pdf

3

Kenya Investment Authority, http://www.investmentkenya.com/

4

Export Processing Zones Authority, http://www.epzakenya.com/

5

National Association of Software & Service Companies, http://www.nasscom.in/

6

London and Properties, http://www.panamapacifico.com/Available_Real_Estate-International_Business_Park.aspx

7

International Tech Park – Bangalore, http://www.itpbangalore.com/home.html

8

Walbrzych Special Economic Zone ‘INVEST-PARK’ Ltd, http://www.invest-park.com/

9

Smart Villages Ltd, http://www.smart-villages.com/docs/front.aspx

10 Multi Media Development Corporation, http://www.mscmalaysia.my/ 11 Business Parks of Mauritius Ltd, http://www.e-cybercity.mu/ 12 Department of Planning and Investment – Ho Chi Minh City, http://www.dpi.hochiminhcity.gov.vn/invest/html/projectSAI-GON-HI-TECH-PARK.htm 13 http://en.chinasourcing.org.cn/content2.jsp?id=4824 14 Tirupur Exporters Association: Karnataka State Policy for Special Economic Zones, http://www.tea-india.org/Contents/ PolicyDocuments/Karnataka-State%20Policy%20for%20Special%20Economic%20Zone.pdf 15 Accenture, http://www.accenture.com/ 16 International Business Machines, http://www.ibm.com/us/en/ 17 Wipro Ltd, http://www.wipro.com/ 18 Infosys Technologies Limited, http://www.infosys.com/about/what-we-do/pages/index.aspx 19 HCL Technologies Limited, http://www.hcltech.com/ 20 Tata Consultancy Services, http://www.tcs.com/homepage/Pages/default.aspx 21 Gale International Gale International, http://www.galeintl.com/gale-international/key-projects/songdo-ibd.aspx 22 Songdo IBD, http://www.songdo.com/songdo-international-business-district/the-city/master-plan.aspx 23 International Tech Park – Bangalore, http://www.itpbangalore.com/home.html 24 University of Philippines, http://www.up.edu.ph/upforum2.php?i=109&pg=152&pgidx=&pgmax=1&issue=38 25 UP-Ayala Land Technohub, http://www.ayalaland.com.ph/up_technohub 26 Polish Information and Foreign Investment Agency, http://www.paiz.gov.pl/investment_support/sez/walbrzyc 27 Research and Technology Park, University of Waterloo, http://www.uwrtpark.uwaterloo.ca/about/information.html 28 Platt Gordon, Egypt is turning to information technology to create a knowledge-based economy http://community.nasdaq.com/News/2010-09/country-report-egypt.aspx?storyid=38277#ixzz184oIghbW

29 Cyberjaya opens for e-business (1999). http://news.bbc.co.uk/2/hi/asia-pacific/388795.stm

Comparative & Competitive Advantage

51

Some documents interrogated A. Didar Singh, 2005. Exporting Information and Communications Technology (ICT) Services – Still an Opportunity? International Trade Centre Aggarwal Aradhna, 2007. Impact of Special Economic Zones on Employment, Poverty and Human Development: Working Paper No. 194. Indian Council For Research on International Economic Relations AT Kearney, 2009. The Shifting Geography of OffShoring. The 2009 AT Kearney Global Services Location Index Colliers International, 2008. The Knowledge Report CrowMeghraj Trammell, 2006. Major IT-ITES Hubs in India: A Snapshot. India Research GOK, 2009. Kenya Country Report: A Presentation By Ministry of Information & Communications at Koafec ICT Workshop, Cape Town South Africa GOK, 2010. The Special Economic Zones Bill 2010. Unpublished InfoDev, 2008. International Good Practice for Establishment of Sustainable IT Parks Jeff W. Russell Software and Product Development Offshoring: Findings from ORN 2007/2008 Corporate Survey. A paper presented at ICT Parks and Outsourcing Business Dalian, China June 19th, 2008, Jones Lang LaSalle, 2009. Onshore, Nearshore, Offshore: Unsure? A Central & Eastern European Perspective Luzuriaga Jonathan & Waema Timothy, 2010. Business Plan Kenya Centre of Excellence. A study commissioned by Kenya ICT Board Moustafa El-Gabaly & Mehdi Majidi, 2003. ICT Penetration and Skills Gap Analysis. Partners for a Competitive Egypt – MDI Phase 2 funded by USAID Nasscom Strategic Review 2009 Prof. Waema Timothy M, 2009. Development of a Business Process Outsourcing Industry in Kenya: Critical Success Factors. IDRC Ottawa Canada Salim Akoojee et al, 2007. ICT Skills at the Intermediate level in South Africa Insights into Private Provision and Labour Market Demand. HSRC Press, South Africa UCTAD, 2004. World Investment Report: The Shift towards Services. United Nations New York UNIDO, 2005. Guidelines for an ICT Park in Iran: Advising and Monitoring the Planning of a Technology Park UNIDO, 2006. ICT Skills Gap Assessment: Private Sector and Academia. JOBS-IRIS Bangladesh WTO, 1998. Computer and Related Services. Council for Trade in Services.

52

Konza Technology City

Terms of Reference : ANNEX 3 Terms of reference MAIN TASKS Task 1: Assess the Proposed Technology Park’s Comparative and Competitive Advantages. Assess the comparative and competitive advantages of the proposed site of the technology park as a centre for investment in BPO and IT-enabled services. The objective of the analysis is to “benchmark” the site’s attributes against selected ICT parks in Africa, Latin America, Asia, and, where appropriate, Europe. The objective of the benchmarking is to clearly establish the comparative strengths and weaknesses of the proposed technology park as an investment destination. The analysis will identify the selection criteria for successful SEZs and other free zones and compare the proposed technology park to those criteria. The comparative advantage analysis shall quantify the advantages against potential competitors, mainly regional.

Comparative & Competitive Advantage

53

54

Konza Technology City

Market opportunity and magnitude of demand Vol 2 of 3 January 1st, 2011

Summit Strategies Ltd

ICT Research & Consultancy Strategic information for decision support in info-communication business

Executive Summary This is part of a three-volume report on Demand study, Site and Benchmarking of Konza ICT Park component (also referred to as “IT/ITES Park” or as the BPO Park”) of the Konza Technology City (KTC) project. It comprises a Comparative and Competitive Analysis (Volume 1), a demand Study (Volume 2), and a Comparative Analysis of SEZ Policy and Legal Regime (Volume 3). Volume 1 is underpinned by a benchmarking analysis of 11 similar sites internationally, out of which seven are selected in volume 3 due to its SEZ incentive regime characteristics. The study, commissioned by International Finance Corporation for the Ministry of Information and Communications of the Government of Kenya, was undertaken in September /October 2010. The data sources include intensive literature review, indepth face-to-face interviews and case studies of comparator countries and ICT Park sites. The analysis of these data provides the foundation of the findings of this report. The specific terms of reference for this report are annexed. The key message from the study is that the Konza ICT Park is a policy driven initiative as a tool for job creation, national transformation and launching the country to new economic frontiers. The first phase (2010-2015) requires heavy government commitment at political, legislative, marketing and financial levels. The Government could recoup this investment in later phases. With the strong government commitment as demonstrated in purchase of the 5000-acre land for the Park, the project could help generate 15000 ITES/ electronic manufacturing direct jobs (and 45000 indirect jobs) nationally in phase 1 by 2015. Konza ICT Park itself would host approximately 8000 direct jobs by 2015. Estimated revenues generated arising from Konza ICT Park activities would be US$244 million annually. In phase 2 the jobs created nationally would rise to 39000 direct jobs with half of the direct jobs in Konza ICT Park. Konza ICT Park jobs alone are expected to generate US$607 million annually. By 2032 the national market would generate 349 000 jobs (and approximately 1 million indirect jobs). Konza ICT Park is expected to host the bulk of the direct jobs while the rest are in other private sector driven initiatives. Total revenue generated at Konza ICT Park is projected at US$5.4 billion by 2032. This market will initially be driven by regional demand and therefore Kenya can exploit the first mover advantage by positioning Konza ICT Park as a regional product for the world. The revenue figures are conservative when compared with comparator countries and sites of Cyberjaya (Malaysia), Cyber City (Mauritius), Smart village (Egypt) among others and the projections inspired by early trends of mature markets of India and Philippines. A recurring success factor in these initiatives is: -

A very focused and visionary government commitment over the long-term is to give the private sector comfort through a proof of concept

-

Progressive inclusion of private sector to increasingly take over some of the risks through public private partnerships

-

Parks are increasingly generic in design and implementation, thus the differentiator is the value addition demonstrated through commitment, a superior operating environment, strategic access to other markets in the neighbourhood, market insights, access to talent, geopolitical stability and macroeconomic stability

-

A self sustaining ecosystem within the Park and its neighbourhood comprising incubation centres, science park, research and development, centre of excellence and universities.

This is a long-term project and we propose a sequenced/phased approach with clear milestones. The project should be driven by a high-level champion with the responsibility to handhold and transition the project through 2012 general elections and beyond.

56

Konza Technology City

Introduction This is part of a three-volume report on Demand Study, Site and Benchmarking of Konza ICT Park. The study, commissioned by International Finance Corporation for the Ministry of Information and Communications of the Government of Kenya, was undertaken in September /October 2010.

Data sources and Process The data sources include intensive literature review and case studies. The analysis of these data provides the foundation of the findings of this report specifically on potential demand and mechanics to exploit that demand as a foundation for Konza ICT Park. The specific terms of reference for this report are annexed. As set out in the Inception Report, the Study analysis is founded on a number of data sources providing both primary data as well as secondary data as described below. •

Literature review – The consultants conducted extensive desk and internet research based on structured document interrogation guides developed to address the various components of the TORs. In this regard, at an early stage, the Team developed an online space to share documents and online resources among the local and international members of the team. Some of the key resources address the evolution of  ITES (includes electronic manufacturing/assembly), the evolution of ICT Parks, the  market demand and the direction of the market, the  response by governments to nurture the industry  through options like Special Economic Zones(SEZ),  country experiences as well as case studies for the  outsourcing companies.   At the local level, the literature review focused on the evolution of the nascent ITES industry and the emerging demand and government responses through policy, strategic and institutional infrastructures. Case studies review – The consultants conducted detailed reviews of comparator countries4 with a focus on incentive frameworks like the Special Economic Zones in order to distil the  policy and legal regime and lessons for Kenya and in particular the draft SEZ policy and SEZ Bill. Other case studies were in- depth reviews of comparator ICT Parks and lessons for Konza ICT Park. The literature review helped shape the development of in-depth interview tools.

•

Questionnaire interviews – Purposively selected 142 respondents and sent a questionnaire online. The respondents represent regional distribution built from the list of those that have expressed interest in Kenya and thus captured by Office of Permanent Secretary, Ministry of Information and Communications (MOIC), Kenya ICT Board, BPO/ ITES Working Group of the Prime Minister’s Office and SSL own databases. Other sources include the International Association of Professional Outsourcers (IAPO) where we selected the top 100 outsourcers. The key focus of these interviews was to present empirical data on the image of Kenya as an outsourcing destination, the typical features of locators and especially the level of investment that a company can typically commit, the demand for space if any and staff growth projections. This information helped to get a market response and shape the modelling for demand. The response was extremely low from this process suggesting limited interest or awareness of Kenya as an ITES destination.

•

In-depth interviews - Selected key informants in the industry representing the leading actors in the ITES space (e.g. Accenture, IBM, Avasant), local companies that are already outsourcing (e.g. Kenya Airways), local ITES outsourcing companies e.g. Horizon Contact Centres, for in-depth interviews. Other key informants included Kenya government and specifically the Ministry of Information and Communications, Office of the President, Prime Minister’s office, Ministry of Higher Education and Ministry of Trade.  The team interviewed over 40 such stakeholders representing all parts of the ITES value chain. Given that Kenya is not yet known internationally as an outsourcing destination, indepth interviews were done to supplement the questionnaires in anticipation of a low response rate. The list of the respondents is annexed.

• 4 report.

India ITES investor conference - SSL participated in an event organised by ITES/BPO Working Group of the Prime Ministers and met over 20 ITES potential investors interested in the African and Kenyan ITES market.  They had very interesting These are carefully selected countries and ICT Parks for purposes of benchmarking and discussed in detail further in the

Market opportunity and magnitude of demand

57

insights on what works from their broad experiences. They had visited other markets in Africa and Asia and were therefore in a position to give a comparative perspective of the Kenyan ITES opportunity. This extremely rich source of primary and secondary data provides a firm foundation for analysis and the development of this Report.

Defining the space ITES and IT products The definition of IT enabled services (ITES) has changed over time to keep pace with its evolution as well as the perception of the promoters. Previously, services were provided at the point of production and consumption. However, the evolution of IT reduced communication costs and cheap labour contributed to the trend of companies outsourcing some of their non-core services to companies across town or across countries.

Defining ITES For the purpose of this report, we take the ITES to include and encompass the subsectors illustrated in Table 1. Table 1: Component of ITES

Horizontal processes

Business Process Outsourcing

Information Technology Outsourcing

Knowledge Process Outsourcing

Creative Services Outsourcing

Contact Centres

Software & Applications Development

Finance and Accounting Outsourcing

Animation

Back Office Operations

Embedded Systems

Legal Outsourcing

Game Development

Transcription

Data Centre, Systems & Network Administration

Research and Development

Content Development and Writing

Data Entry

IT Project Management and Consulting

Medical Outsourcing

Advertising and Marketing

Digitization

E-Commerce

Market Research and Analytics

Musical Arrangement and Scoring

Systems Integration

Education and Training

Film Production

IT Infrastructure Management

General Consulting HR Outsourcing

Vertical processes

Others

Leaders

•

Banking, Financial Services and Insurance (BFSI)

•

Telecommunications

•

Retail

•

Travel and Hospitality

•

Supply Management

Life sciences, Healthcare and Pharmaceuticals, Media and Publishing, Engineering and Automotive, Marketing, Government services

This study looks at IT enabled services as those provided within the ‘outsourcing’ sphere and described as the movement of internal business processes to an external company. Table 1 illustrates the general definition used in the report and the broad classification as horizontal and vertical services. Horizontal services are cross-cutting and are provided in all industry segments. Thus, contact centres are supplied to all industry segments. Vertical services on the other hand are specific to an industry and address a niche within the subsector.

58

Konza Technology City

In the rest of the report, ITES encompasses the activities as set out in Table 1 unless explicitly indicated otherwise.

The study also reviews IT products in manufacturing and assembly. For purposes of this study, the products discussed in the report generally form part of the Information Technology Agreement (ITA). ITA, signed among parties in 1996, is a multilateral agreement within the WTO, which in recognition of the growing importance of ICTs in national economies aimed to expand world trade in information technology products. ITA also desires to achieve maximum freedom of trade in information technology products and to encourage continued technological development of the information technology industry on the worldwide basis. The objective of the ITA was therefore to bring down tariffs on IT items in stages and eventual elimination by a specified year. The concessions evolving out of the negotiations would be in addition to those already agreed upon under the General Agreement on Trade and Tariffs (GATT). These IT products are illustrated in Table 2 Table 2: Representative ITA products

Attachment A1

Number of HS Codes

Sample products

112

Computers and computer peripherals: personal computers, laptops, work station, monitors, keyboards, hard  drives, CD- ROMS drives, smart cards, printers, scanners, and  other input/output units Telecommunications equipment: telephone sets, cordless phones, mobile handsets, pagers, answering machines, switches, routers, hubs, modems, fibre optic cables Semiconductors: microprocessors, integrated circuits, printed circuits,  diodes, resistors Software: magnetic tapes, unrecorded media Office equipment: certain photocopy machines, fax machines, cash registers, adding machines, calculators, automatic teller machines Scientific and measuring devices: spectrometers, chromatographs, flow meters, gauges, optical radiation  devices Other: loudspeakers, still digital cameras parts

Attachment A2

78

Semi-conductor manufacturing  equipment  (SME): etching and stripping  apparatus, vapour deposition devices, sawing and dicing machines for wafers, spinners, ion implanters, water transport, handling and storage machines, injection moulds, optical instruments, parts and accessories

Attachment B

13

Computers, electric amplifiers, flat panel displays, networks equipment, monitors, pagers, CD and DVD drives, plotters, printed circuit assemblies, removable storage devices, set-top boxes

Source: Anderson & Mohs (2010) adapted from WTO.

Countries taking advantage of the ITA framework manufacture or assemble the IT products Contract manufacturing is one of the ways countries exploit ITA. This is a form of outsourcing where a firm manufactures components or products for another firm. By consolidating manufacturing from many clients, a contract manufacturer is able to build economies of scale and therefore build competitiveness on cost–labour arbitrage. The contracting firm on the other hand is able to produce IT products without investing in factories.  Key inputs quoted by the contract manufacturer include processes, labour, tooling, and material costs5.   Countries with low labour costs, as long as they are skilled, have an opportunity to tap into this outsourcing business. At least three comparator sites namely China and Vietnam, and Bangalore provide contract manufacturing.  The leading companies include Hon Hai Precision Industries (Foxconn), and Jabil noted in the comparator sites. 5

http://en.wikipedia.org/wiki/Contract_manufacturer  

Market opportunity and magnitude of demand

59

The services the contract manufacturing offers are mainly printed circuit board, fabrication and assembly of complete units in consumer electronics among others. Most of the research and design for the comparators countries took place in Taiwan, Hong Kong and USA.  China, Taiwan, Japan and South Korea supplied the raw materials. To compete on price implies a low margin for the manufacturer and therefore it is a volume business therefore access to a huge labour pool is critical. All the manufacturing sites were under a SEZ framework. In addition to generating export revenue for the comparator country, the contract manufacturing created jobs. Vietnam for example reported that electronic manufacturing created and sustained 300,000 jobs by 2009.

On the other hand, assembly sites include Panama, Shenzhen and Aqaba. The client companies include Dell, IBM, HP and Apple. IT Assembly is downstream business and skill requirement is lower than contract manufacturing.

Comparator countries/sites ITES and electronic manufacturing as discussed is a fast growing sector and many countries have established or are establishing Parks to exploit this opportunity. The experiences from such countries provide lessons for Kenya to benchmark its effort in this regard.  In this study, SSL has scanned globally and working with the client identified a number of Park sites as comparator sites.  Table 3 illustrates the Parks sites identified and studied in detail to provide the necessary lessons for this study.

Table 3: Comparator sites for the study Park

Country

Location/Area

Distance from City

International High Technology Park

India

Bangalore

18Kms from Bangalore

Ayala Technohub

Philippines

Manila

Within Quezon City

University of Waterloo Research and Technology Park

Canada

City of Waterloo

Within the University

Invest Park

Poland

Walbrzych

Smart Village

Egypt

Cairo

28Kms from Cairo

Cyberjaya

Malaysia

Cyberjaya Flagship Zone

50Kms from Kuala Lumpur

Cyber City

Mauritius  

Cyber City

15Kms from Port Louis

Saigon Hi-Tech Park

Vietnam

Ho Chi Minh City (HCM)

17km from HCM City

Dalian Software Park

China

Dalian City

In the suburbs of Dalian City

Panama Pacifico

Panama

Panama City

In the suburbs of Panama City (15 min. drive)

Aqaba

Jordan

Aqaba

Electronic Manufacturing

Special Economic Zones

The selection of the ICT Parks was concluded after a global scan of such initiatives and the final list is intended to provide a wide range of experiences. The criteria for selection include the following: •

60

Konza Technology City

Evolution in the global market place - some Parks are relatively old having been conceived in mid 1990s and therefore provide needed information on typical Park evolution from conceptualisation to operationalisation.  Some other Parks included in case studies have recently been established and therefore provide an inspiration to understand to what extent they have taken on board the experiences of the older Parks

•

Geographical spread - the selection is spread across continents and different time zones and therefore whatever influence that could be associated with time zones is taken into account

•

National population size - to take into account the national dynamic,  the Team selected  countries with large populations as well as those with low populations. This addresses the national dynamic that could be influenced by the population and whether the population size influences the activity of the ICT Park

•

Language - while English predominates in the ITES sector, the team selected countries that reflect a wide range of national languages to understand how they were dealing with the language issue. Vietnam for example provides useful lessons in this regard

•

Level of national development - the comparator sites include developed as well as the developing countries, and finally,

•

Different political and social orientations – the selected sites help to understand how political and social orientation influences planning and execution of the ICT Parks under varying situations.

The diverse range of choice provides a rich framework to understand the dynamic of ICT Parks and is used to benchmark and provide insights on the way forward for Konza ICT Park. The details of each of the sites is described in detail in the annex of Volume 1/3.

Typical infrastructure and services Overall, ICT Parks are becoming generic and all claim to provide excellent infrastructure, incentives schemes and resplendent lifestyle. A research by Sabbagh et al 20096 summarises key attributes of modern day ICT Parks as illustrated in Fig. 1.

6

Sabbagh K, Shehadi R, Oknayan S(2009); Next generation ICT Parks: Bridging  the GCC technology gap; Booz & company

Market opportunity and magnitude of demand

61

Figure 1: Attributes of ICT Parks

Valued-Added Services

Business Services

Non-Business Services

Finance/Legal

Government One-Stop service

Travel Services

Market intelligence

Marketing (event planning/promot

Recruiting

Incubation Services

Banking, Medical, Library, Catering, etc

Infrastructure Services

Seed Fund

Primary/second ary education

Business consulting

University courses

IP Consulting

Vocational courses

ions)

Telecom/IT Services Voice/Data services Basic Infrastructure

Roads, Landscape Infrastructure

Education Services

Parking Utilities

Support Services

IT services

Facilities Management Business Infrastructure

Office Space

Hotels

Conference Facilities

R&D Labs

Warehouses

Incubation Centre

Infrastructure Security

Public Transportation

Non-Business Infrastructure

Residential Retail & Entertainment Education Institutions

Adapted from Sabbagh et el (2009)

Fig. 1 summarises the lessons learned from the comparators sites. However, for the purposes of our study, we included warehouse and incubation centres as part of the required infrastructure. All Parks have built high quality infrastructure, and progressively this infrastructure is generic and is rarely a differentiator. Atop the infrastructure are various services provided by the infrastructure. A differentiator however is the value added services that a Park provides its clients. Our research indicated that these services must derive and be linked with the national vision and competitiveness. Thus, backward and forward linkages to the rest of the country are a critical success factor.

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Konza Technology City

The Kenyan scene: ITES and electronic manufacturing Kenya took early steps on ITES and IT assembly but these steps and the status pale in significance with comparator sites. This experience however provides a very useful insight going forward. This section discusses lessons and how they could provide a pathway for Konza ICT Park.

1.1 Supporting institutional infrastructure In a move to foster the growth of ITES the following actions are noted: -

Firstly, the ITES (referred to as BPO) is embedded in Vision 2030 and Konza ICT Park is a flagship project. It is therefore a deliverable as part of a long-term national commitment.

-

Secondly, the government has established institutional infrastructure to support the growth of the ITES sector and the supporting industries.   Specific institutions in this regard include:

o Kenya ICT Board – has a mandate to sell Kenya as an ITES destination o BPO/ITES Working Group in the Prime Minister’s office with a mandate to coordinate government efforts on ITES o Brand Kenya Board to develop and sell a consistent positive image for Kenya

MOIC itself is setting the policy framework and the vision to propel the sector forward.

1.2 ITES space Kenya took the first steps to grow its ITES sector  in early  2000. The ‘innovators’  were up and running in 2006/7 following   heightened publicity by the government on ITES (by then referred to as BPO only) as an opportunity.  Consequently, the years 2006/2007 were peak periods for Kenya as many private sector entrepreneurs responded and entered the ITES market to exploit the opportunities. Some of the companies (Table 5) that set up included: Kencall, Precis Digital, Nairobinet, Skyweb, 3 Mice, ICTPark.com, and Oriak Digital. Unfortunately, most of these companies closed down due to lack of market, quality of service, inexperience, high bandwidth costs and low margins for the low-end services they were providing.

Table 4: Some actors in ITES space in 2007/8 Category

No. of Operators

BPO’s and Call Centres

29

Software/ Hardware Providers

4

Training Consultants

3

Individual Members (Others)

15

Total

51

Source: SSL compilations

Today, Kencall, Ken-tech Data, and Horizon Contact Centres Ltd are the three major players in ITES players providing a range of BPO services. As Kenya explores the opportunities for Konza ICT Park, the market has actors in various spaces in the ITES universe as illustrated in Table 6.

Market opportunity and magnitude of demand

63

Table 5: Kenyan ITES operator space BPO

ITO

KPO

CSO

Horizontal

Most developed with local captive markets dominating - services include contact centres and digitisation

Emerging with software development as key area of focus targeting local and foreign

Activity in this space not significant if any

Emerging with few companies starting animation

Verticals

BFSI - mostly banking captives Telecommunications – all major operators have either a captive or outsourced operation Government developing a shared service platform, digitisation

Source: SSL Team analysis

The volumes of services and revenue generated in Kenya (in global terms and in comparison with comparator sites) are very small and revenue was estimated at US$5 million in 20097. They nevertheless provide lessons and a starting point for the growth of the sector.

Business Process Outsourcing services Third party operators Kencall, Ken-tech Data, and Horizon Contact Centres Ltd are the three major players in BPO/ITES players not only providing the low-end BPO services, but also some high-end KPO services like market research and surveys as illustrated in Table 6.

Table 6: Typical services offered Organization

Services offered

No. of seats

Kencall

Customer care, Telesales, Technical support, Customer acquisition, Web chat services and BPO

400

Ken-Tech Data

Non-voice operations for local clients

300

Finance & Accounts Services (F&A) Customer & Technical Support Services Digitization; Market Research & Surveys (KPO); Data Transcription Horizon Contact Centres Ltd

Customer Contact Services, Collections, Training and Content Solutions, Finance and Accounting, Procurement, Human Resources and Payroll services, Learning & Training Outsourcing,

150/1200

Analytics and Data Management, IT Services, Reengineering, Quality Assurance, and Workforce Management Source: SSL field interviews

The total number of seats as provided in this Table is an estimate of operational seats. However, the facilities have the capacity to expand depending on the nature of work carried out. 7

64

McKinsey and Company, 2009

Konza Technology City

BPO services - Captive Contact centres This is the fastest growing segment of the call centre operations in Kenya. Today, a number of banks, telecommunication companies, and financial institutions have established their own captive contact centres run and managed in-house. Some of the companies that have set up captive contact centres are as listed in Table 8: Table 7: Captive centres and capacity Sector

Organization

No. of seats

Banking

Kenya Commercial Bank (KCB)

200

Equity Bank:

20

Barclays Bank:

600

Standard Chartered

20

CFC Stanbic

75

Zain /Bharti Airtel

200

Safaricom

800

Telkom /Orange

500

Yu (Essar)

60

KDN

10

Access Kenya

60

Logistics & Supply Management

DHL

17

Kenya Airways

12

Utilities

KPLC

45

Nairobi Water Company

30

Axis Outsourced Accounting (Bidco Oil Refineries Ltd)

48

Telecommunication

Manufacturing Source: Kenya ICT Board8

Banks lead in the development of captive contact centres. One such contact centre by a leading bank offers a wide range of services as illustrated in the box below:

The Kenya Commercial Bank Contact Centre: The Bank established the Contact Centre to support the Group’s core banking and mortgage units by driving profitable growth across the region, cost reduction, process improvement and customer service improvement. The services offered by the Contact Centre include: • Product information • Branch/ATM location information • Complaints handling • Basic account queries • Customer welcome calls • Promotions/campaigns The Bank designed the Contact Centre to support a 24-hour operation and is currently open for 8 hours per day from 8am – 5pm Monday to Friday.

8 Kenya ICT Board puts the total number of direct jobs in the sector to be less than 5000, however, indirect jobs account for 10,000 which includes the captives.

Market opportunity and magnitude of demand

65

Telecommunications as a vertical ITES service is a key driver bringing on board international forces to stimulate the market. International ITES operators have come through Bharti Airtel and Essar Telecoms (trading as Yu). Additionally, one operator Telkom Kenya Ltd, is outsourcing its service to a third party operator - Horizon Contact Centres.

Recent Kenya’s telecom services moves Telkom Kenya Ltd- (Orange) – outsourced to Horizontal Contact Centres Ltd Essar Telecom (Yu) - outsourced to its global subsidiary - Aegis Bharti Airtel (Zain) - signed a contract with IBM, Spanco and Tech Mahindra in which it outsourced its activities to the companies.  IBM will be in charge of the entire IT infrastructure of the company. Safaricom - Safaricom opened its Jambo contact centre in April 20099.  The centre has a seat capacity of 1000 staff.  Among some of the services offered are customer inquiries, data service, M-Pesa service, dealer service line and directory services

The impact of the telecom sector move is significant for the industry and introduces leading global ITES operators into the Kenyan market. With the entry and set-up costs covered by the telecommunications operators, we expect that the global ITES companies now in Kenya will explore other opportunities from the Kenya base thus changing the dynamics of the ITES sector in Kenya. This is an opportunity to drive marketing for Konza ICT Park and industry in general. 1.2.1 Information Technology Outsourcing (ITO) This segment is emerging and carving its space in the ITES industry.  A number of companies are offering services in design, applications and mobile offering software products for the different sectors for example insurance, manufacturing and social networks.  Table 9 illustrates some of the locally incorporated companies that offer software applications.

Table 8: Typical ITO actors Name

Company Brief

Verviant Consulting Services Ltd.

Has offices both in the US and Kenya.  Their target markets are North America, Australasia, Europe and Africa2

Virtual City

Is a software house that specialises in supply chain solutions, knowledge management solutions and interactive solutions.  The company recently won the Nokia global award for innovation3

Craft Silicon

Develops software applications for the banking industry that include Core banking solutions; Retail applications, Islamic banking, Point of sale solution, ATM Switch solution, Internet Banking Solution, SMS Banking solution, Mobile banking solution, Mobile shopping solution4

iSYS

A Danish software development company with regional offices located in Nairobi5

Open World

Software developers based on Open Source and IT project management6 ()

Source: SSL, respective companies’ websites

9

66

http://www.safaricom.co.ke/index.php?id=425

Konza Technology City

Knowledge Process Outsourcing No significant activity noted

Creative Services Outsourcing (CSO) CSO is not yet developed; however, companies such as Home Boyz Entertainment are already in the market offering services that are exported across Africa and the world. In a recent BBC report, a UK based company Tiger Aspects has already set up shop in Nairobi and has hired 200 local designers, animators and musicians to work on Disney’s Tinga Tinga tales (http://www. homeboyz.co.ke/story2.html). 1.3 IT assembly IT assembly generally has been unsuccessful. Examples of assembly include: -

Gilgil Telecommunications Industries  - a project of Telkom Kenya Limited (TKL) established in 1999 to assemble telecommunications equipment notably  telephone sets, cables and the switches. Eventually, the company started computer assembly branded zebra.  This has since been discontinued.

-

Mecer computers of South Africa started computer assembly in 2004. This again was shortly discontinued.

-

The government through the MOIC set out to promote the local assembly of computers and launched Madaraka computer initiative. Like the others, this project was not successful.

Table 10 illustrates the Kenyan efforts to exploit electronic manufacturing opportunity.

Table 9: Kenyan initiatives in electronic manufacturing space Source: SSL

Attachment A1

HS Code

Sample products ITA

Kenyan experience

112

Computers

Yes, meagre and unsuccessful Gilgil Telecom Industries - Zebra computers MOIC - Madaraka Mecer -mecer

Telecom equipment

Analogue systems - obsolete technology Gilgil Telecom Industries

Semi-conductors

None

Software

None

Office equipment

None

Scientific and measuring devices

None

Others

None

Attachment A2

78

Semi-conductor manufacturing equipment

None

Attachment B

13

Non specific IT - includes set-top boxes

None – Set-top boxes are of interest at University of Nairobi Fab Labs to capture the digital migration market by television broadcasting

Market opportunity and magnitude of demand

67

These assembly initiatives have not been successful yet; the market demand is expanding fuelled by the government’s desire to transform the country using ICTs to a knowledge society. Some challenges have to be addressed to make IT assembly worthwhile for local or international companies to consider IT assembly in Kenya. The challenges include tariff issues, branding, expanded access etc. As discussed in the third volume of this study, Kenya could largely address these challenges if it: -

Enacts the SEZ framework to facilitate  provision of enhanced incentives to potential investors and expanded market access to the local market which now includes  East African Community

-

Consider and indeed commit to ITA. This opens up access to raw material as well as international markets. It is worth noting that all the comparator sites are members of ITA.

ITA products as listed in Table 2 are broad. Kenya could start with computer and computer peripherals and build a base from there. Another area the government has indicated interest is set-top boxes to take advantage of broadcasting digital migration. This is ITA Attachment B HS 13. The switch-off date for analogue transmission is 2015 globally and this is too close for Konza ICT Park to take advantage. Experiences from comparator sites illustrate a need to focus. The Saigon Hi-tech Park in Vietnam for example focuses on attracting businesses that specialise in microelectronics, and other related information technology and telecommunications accessories.

Lessons in electronic assembly Initiatives to nurture an electronic assembly industry has brought out weaknesses in the operating environment and the market namely: -

Branding was an issue - the brands assembled and introduced in the market were unknown

-

The exclusive focus on the local market was inadequate to create sustainable business

-

The taxation regime favoured the completely assembled units. LCD or LED panels, capacitors, resistors, and printed circuits at the time attracted a 15 per cent duty, while monitors were subject to a 25 per cent tariff. The tariff structure meant that a local assembler would have to compete against a zero rated finished unit.

These challenges need to be addressed to nurture the industry.

68

Konza Technology City

1

2 Promising High-Value Activities Countries consider high-value in ITES and electronic manufacturing to comprise any of the following factors: -

High-margins/revenues

-

Employment creation

-

Knowledge creation & innovation

-

National transformation

Our analysis of comparator countries illustrates differing motivations as illustrated in Table 11.

Table 10: Orientation and continuing driver in ITES/IT space Country

High Value Activity

Motivation

India

ITO

Revenue/moving up the value chain

Philippines

ITO, KPO

Revenue Employment

Malaysia

KPO

Revenue/national repositioning

Canada

KPO (Quantum computing and Niño technologies)

Innovation

Mauritius

BPO

Revenue/ Employment

Egypt

BPO/ITO

Employment

Poland

Diverse

Vietnam

IT Manufacturing

China

Diverse

Employment

Source: Team analysis

In this context, comparator countries tended to focus on a range of activities that delivered on what they were looking for. While job creation and generation of exports revenue cuts across all the comparator countries, some countries have additional areas of interest.  These include national transformation of the country, be a leading innovator, and repositioning in new competitive space. Proceeding from this perspective, Kenya’s choice of high value needs to be seen within the long-term planning framework of Vision 2030. Kenya Vision 2030 aims to make Kenya “the globally competitive and prosperous country with a high quality of life by 2030”. The achievement of this Vision is intended to firmly ground Kenya’s position as the business hub for not only East Africa but also the African region. Three key pillars: Economic; Social; and Political Governance anchor the Vision 2030. Vision 2030 identified The ITES sector, which encompasses the BPO, as one of the six sectors to contribute 10 per cent economic growth rate per annum. To make Kenya one of the top off-shoring destinations in Africa, the Vision aims to: -

Attract at least five major leading information technology (IT) suppliers, and at least ten large multinational companies and global BPO players to the country; and

-

Strengthen at least five local players to become local champions through stand-alone operations or joint ventures.

The national Vision 2030 requires of ITES sector to: -

Create jobs - this is paramount and therefore the choice of activity should be one that creates jobs. Among the ITES, BPO provides the largest number of jobs albeit with increasingly lower margins.  While the investment is heavy in IT assembly, it could help create jobs to address the unemployment problem.

Market opportunity and magnitude of demand

69

-

Generate revenue - Vision 2030 envisaged a sector that would generate revenue through the services offered. This was intended to contribute to a national growth rate of 10%.

-

Position Kenya as a regional business hub - regional outsourcing and electronic manufacturing for the region provide the fit to realise the Vision 2030 goal.

Comparator countries demonstrate both ITES and IT assembly could achieve either or both of these.

2.1 ITES Investment Trends ITES is growing rapidly and the trend is expected to continue. While the growth projections by research organisations differ, all however agree that the ITES will continue to experience rapid growth. International Data Corporation (IDC), for example, estimated that worldwide offshore IT spend would rise from US$32 billion in 2010 to US$42 billion in 2013 while world wide BPO spend is expected to rise from US$119B to US$148B in the period as illustrated in Figure 1.

Figure 2: Global ITES growth (US$ Millions) Source: IDC

The growth projected to 2013 in all aspects on ITES by IDC and by NASSCOM10 by 2020 suggests a rapidly growing market for Kenya to exploit. 10

70

NASSCOM projects ITES growth to US$890B by 2020 from the current levels of US$200B in 2020 in BPO sector alone.

Konza Technology City

2.1.1 Factors shaping investor demand McKinsey & Company in a 2009 report on BPO in Kenya11 presented the following criteria as the most critical factors that international investors consider when identifying a location:

-

Skills/Talent Availability: Availability of basic/language skills; Availability of senior management; Availability of training; Cost of labour (including escalation)

-

Infrastructure development: Telecom bandwidth and reliability; Reliability of power sources; Availability of grade A office space; Costs of infrastructure (office, telecom, power)

-

Operating environment: Regulatory Environment (Ease of set-up/doing business; Fiscal incentives; Regulations/ compliance; Political & Business Risk; Stable government; History of domestic conflict; Legal enforcement; Business environment

-

Capital/Service providers: Business know-how; Size of current players; Availability of service providers as local IT, headhunters etc; Operational capacity; Financial strength.

For Konza ICT Park to be competitive and learning from the comparator sites, a number of key factors need to be addressed as described in this section.

National image as depicted by global indices The Ease of Doing Business Economic Ranking (2009)12 looks at eleven categories namely: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business. Table 12 presents Kenya’s position against comparator countries. Table 11: Kenya ranking against comparator countries Economy

Ease of Doing Business Rank

Starting a Business

Dealing with Construction Permits

Employing Workers

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Closing a Business

Canada

8

2

29

17

35

30

5

28

38

58

4

Mauritius

17

10

42

36

66

87

12

12

19

66

73

Malaysia

23

88

109

61

86

1

4

24

35

59

57

Poland

72

117

163

76

88

15

41

151

42

75

85

Panama

77

27

68

177

65

30

109

173

10

119

75

China

89

151

180

140

32

61

93

125

44

18

65

Vietnam

93

116

69

103

40

30

172

147

74

32

127

Kenya

95

124

34

78

125

4

93

164

147

126

79

Jordan

100

125

92

51

106

127

119

26

71

124

96

Egypt Arab Rep.

106

24

156

120

87

71

73

140

29

148

132

India

133

169

175

104

93

30

41

169

94

182

138

Philippines

144

162

111

115

102

127

132

135

68

118

153

Source: World Bank

11 12

McKinsey & Co (2009) Seizing the price; Driving BPO sector growth in Kenya, Kenya ICT Board Published by The World Bank Group

Market opportunity and magnitude of demand

71

Kenya ranked at number 95 globally is far behind Mauritius, Malaysia and Panama. Kenya is however ahead of Egypt , India and Philippines, all leaders in ITES. Kenya needs to work on certain areas to improve Ease of Doing Business Index. Such areas include – trading across borders sub-index that is critical to make Kenya a regional hub. Other indices portray a negative picture on Kenya. One such index – Corruption Perception index rates Kenya poorly and is a significant barrier.

Infrastructure development Three submarine optic fibres initiatives TEAMS, SEACOM and EASSy in Kenya provide international bandwidth and the necessary redundancy for international connectivity as well as the quantity. Through the National Optic Fibre Backbone Initiative (NOFBI), the Government of Kenya has rolled out optic fibre across the country with a 4,500km fibre. Other operators who have distributed the fibre countrywide include Kenya Data Network (KDN), Telkom Kenya Ltd, Kenya Power & Lighting Company, Jamii Telkom, Access Kenya and Wananchi Telkom.  In total, the country has slightly over 10,000 km of optic fibre built across the country. The energy sector is competitive with the expansion of the national power grid in progress including the generation of green energy (solar, wind) as a supplement.

Operating environment: incentives Kenya Investment Authority (KIA) or Export Processing Zones Authority (EPZA) administers incentives for offshore companies that are considering investing in the BPO/ITES industry in Kenya. Currently, a number of facilities housing BPO/ITES companies, for example Sameer Park, enjoy the following EPZA benefits: -

10 year Corporate Tax Holiday and 25% tax for 10 years thereafter

-

10 year Withholding Tax Holiday on payments to non-residents e.g. dividends

-

Duty and VAT Exemption on raw materials, machinery and other inputs

-

Stamp duty exemption

-

100% Investment Deduction on capital expenditure within 20 years

A SEZ policy and Bill is under development and is intended to enhance tariff and non-tariff incentives.

Location Location of a country and consequently time zones are features that investors look at when selecting location. Kenya as a country is located along the equator and thus enjoys excellent weather throughout the year. It is eight hours away from North America which positions for a smooth handover to take over operations when the offices close down in North America. The time zone is well positioned for near-shoring with Europe being on very close time zone to Europe. The Konza ICT Park is strategically located along the Nairobi-Mombasa highway and is a convenient transport location to the rest of the regions. A regional railway line passes next to the park and it is in close proximity to the Jomo Kenyatta International Airport (JKIA). 2.1.2 Impact of ITES Comparator sites and countries demonstrate the impact of ITES and manufacturing. These include job creation, revenue generation and national transformation among others. Table 12 illustrates job creation in the comparator countries and sites.

72

Konza Technology City

Table 12: ITES/IT products generated jobs Start year /period

% CAGR

2010

Philippines

04-10

45

920,764

India

99-06

23

2,286,000

Malaysia

02-07

36

 

Smart village Egypt

2003

42

28,000

Saigon Park Vietnam

2002

47,000

Cyber city Mauritius

2001

20,000

Pacifico Panama

2005

3,500

Intl tech park Bangalore India

1998

24,000

UP - Ayala Philippines

2008

30,000

Cyber jaya Malaysia

1997

67,700

Dalian Park China

1998

50,000

Invest Park Poland

1997

30,025

Source: Team analysis and park websites

2.1.3 High value ITES and IT products The high-value services that would have a positive impact on the Kenyan economy are progressively further up in the evolution chain. The study will assess Kenya’s capacity to operate at the high-end by not only identifying the current providers of these services, but also making projections. Table 13 is a summary of some of the high-value ITES services Kenya could focus on in the long term.

Market opportunity and magnitude of demand

73

Table 13: High-value ITES services

Horizontal

BPO

ITO

KPO

CSO

F& A; Accounts; Billing; Contract Management; Due Diligence; Logistics Support Services; Procurement Management; Strategy & Analysis; Supply Chain Management

Application Development, Hosting Management; Customer Relationship Management(CRM); Data Warehousing; Database Development, Management; Disaster Recovery; ERP; Hardware Support; Help Desk; Network & Systems Management; Graphics Design and Application; Networking; Security; Web Development

Market Research: Data Processing, Market Research Data Analysis, Web Survey Analysis, Marketing Questionnaire Design

Digital Animation, Game Development

Medical: Medical Alerts, Coding, Billing and Collections; Medical Insurance (A/R) Collections; Medical Forms Processing; Electronic Medical Records (EMR); Health Information Technology; Online Medical Services HR: HR Payroll  Management; Travel and Expenses Management; Compensation Consulting; Benefits Administration; Human Resources Management; Records and File Management

Legal; Legal Research; Contract Review/Drafting/ Management; Intellectual Property; Document Review/Electronic Discovery; Litigation Support; Immigration Services; Legal Transcribing Services Verticals

BFSI

( local )

Telecommunications Government

74

Konza Technology City

Financial Market Research: Applied Investment Research, Financial Analysis, Financial Accounting Life Sciences and Pharmaceutical Research: Database Creation, Text Mining, Web Mining, Numerical Data Mining, Data Analytics Web Based Market Research: Abstract Writing, Competitive Business Analysis, Syndicated Research, Trend, Competitor Analysis, Company Profiling, Desk/Web Research

2.1.4 IT products assembly  Light electronics assembly initially for computers  targeting  the local and regional markets. Table 14 illustrates international companies in comparator sites that have operations in Africa, and especially in Kenya. These should be the first to target due to their understanding of the African and the regional market.

Table 14: Sampled international high-tech companies with operations in Africa IT company

Country’s presence

Dell

Distribution done from South Africa. In Kenya, there is a Partner Account Manager. The products for the local market are overseen at Limerick – Ireland

Toshiba

No presence in Kenya. Manufacturing of the local products is done in Poland and Romania

Apple

No presence in Kenya - the Kenyan market is served by Micro Conseil International of France

HP

Have a regional office for East and Southern Africa region for its Personal Systems Group. Manufacturing of the local products is done from South Africa

Panasonic

No local office

Canon

No local centre. The Kenyan market is served from South Africa (Canon South Africa (Pty) Ltd)

Sony

No local centre. The local market is served from the Middle East

Source: Respective websites

The region has no assembly facility and Konza ICT Park with its location for logistics will be ideal to tap into Kenya, the EAC market as well as COMESA. 2.1.5 Investor characteristics/profile The leading outsourcing companies globally as defined by International Association of Professional Outsourcers (IAPO) are summarised in table annexed. The main outsourcing companies have already established offices in the country; however, their current business might not be in line with outsourcing. IBM has a regional office serving East and Central Africa region. The company recently signed a contract with Bharti Airtel in which it will be in charge of Airtel’s infrastructure. In the same contract are Spanco and Tech Mahindra. The two are Indian based companies specialising in call centre and BPO services respectively. Since the country has little experience and international exposure, the entry of these companies is likely to propel it to international standard and markets. Other companies such as Tata Consultancy services and Wipro have carried out due diligence with an intention to come into the market. Accenture is currently working with the government in the provision of shared services. Unisys and Infosys, even though do not have local operations, provide services to the local banking industry. Cooperative and Barclays are some of the local banks using products from Unisys. Equity Bank, I&M Bank, United Bank of Africa and Bank of Baroda use products and services from Infosys Technologies. Hardware companies such as HP, have regional offices in the country serving East and Central Africa region. Dell has established a commercial centre for the region, although the distribution is still done from South Africa. NCR has had its offices in the country for a number of years serving the financial sector. The company specialises in ATMs and systems design. Microsoft has its regional office supporting Burundi, Eritrea, Ethiopia, Kenya, Rwanda, Somalia, Tanzania, and Uganda. Google’s office in Nairobi serves the sub-Saharan region. In the services sector, CB Richard Ellis has offices in the country providing services in property management and consultancy. Another international firm, the Canadian based firm Colliers International, showed willingness to invest in Kenya. Figure 2 illustrates some of the companies that have offices in the country, some that provide services into the country and lastly, companies that are in the process of establishing local offices

Market opportunity and magnitude of demand

75

Figure 3: Companies and the Kenyan interest

2.2 Investor nationality and export destinations Global demand for BPO services is still dominated by the United States. Table 13 presents a forecast of total worldwide spending and shows Americas (including Canada and Latin America) market taking nearly two-thirds of global BPO services demand. Even in the face of the economic downturn, industry analysts were forecasting a compound annual growth rate (CAGR) of 10.6 percent for the global industry to 2012, with global BPO spending expected to exceed US$ 168 billion by the end of 2012.

Table 13: World wide BPO spend13 (US$ Millions) Region

2007

2008

2009

2010

2011

2012

% CAGR 2007-2012

Americas

65,412

71,151

76,239

84,138

93,786

106,358

10.2

EMEA

19,541

21,717

23,982

26,611

29,426

32,427

10.7

Asia/Pacific

16,987

18,952

21,373

23,921

26,717

29,714

11.8

Worldwide

101,940

111,820

121,594

134,670

149,930

168,499

10.6

Growth (%)

12.4

9.7

8.7

10.8

11.3

12.4

Source: IDC 2008

The focus market therefore continues to be Americas.

13

76

Annual expenditure incurred by the offshoring countries/regions

Konza Technology City

3 Emerging auxiliary & support services New generation ICT parks present a lifestyle - a lifestyle Konza ICT Park should aspire to appeal to potential locators. Sabbagh et al (2009) in a research paper on Gulf cooperation countries report that lifestyle includes housing, schools retail and entertainment complexes. Locators look for parks where real estate is competitively priced and is available for all levels of employees. As part of this requirement, the housing is either located within a walking distance or where this is not possible, a good public transport system is provided.  Cyberjaya offers rapid transport system, which is offered on a 24-hour basis, 7 days a week. All these help attract and retain the companies and create self-sustaining ecosystems. A similar case is noted for Smart Village Egypt where the promoters provide:

---a full fledge Smart Village Club includes tennis and squash courts, swimming pools, SPA and gymnasium, 400 meters athletics track, official size football field, and, multipurpose playgrounds totally dedicated to the fitness of Smart Village community members and their families; nursery, international school, 5 star hotel and transport management system from greater Cairo.

Typical amenities in comparator parks: •

Hospitals

•

Schools

•

Educational institutions

•

Day-care centres

•

Retail and recreational facilities

•

Amphitheatre

•

Lagoon

•

Hotels and hospitality facilities

•

Residential complexes

•

Gymnasiums and health clubs

•

Specially designed public spaces

•

Meeting and leisure areas

•

Social and cultural events

  Konza ICT Park needs to incorporate such features to attract locaters.

Market opportunity and magnitude of demand

77

4 Overall market potential This section discusses the  magnitude of the opportunity provided by the ITES and IT assembly. Both quantitative data and qualitative data presented developed through primary and secondary sources. At the outset and as discussed earlier, Kenya has taken nascent steps to enter this market albeit with low impact both at national level and even more so globally; however the lessons learnt provide a foundation  to go forward.  The discussion framework is against global development in the ITES and IT assembly market and more so with the comparator countries and sites. 

4.1 Methodology Secondary data was collected through extensive desk and internet research guided by document interrogation guides. Part of the literature reviewed is annexed to this report. The literature review helped to present the market evolution, trends, segmentation, drivers, business flows as well as the key actors. ITES is a fast growing market and has attracted immense interest and therefore literature (which is largely descriptive), market analysis and market forecasts are available. A major challenge is comparability of data. With changing definitions, the  market segmentation is just as diverse  with differences in  market segmentation and market shares. Not much academic literature was available to tie up variables and provide a scientific mechanism to explain the phenomena now and the projections for the future. Leading global consultancy and research firms have produced useful figures for planning and in leading ITES countries; the national lobby groups have gained mastery in data collection.

At the global level, ILO, UNCTAD, UNIDO collected data on the various aspects of ITES and IT assembly within their mandate. This study relies on this wealth of data.

Primary data on the other hand is critical to get a first-hand market response and by collating this data with the primary data help to localise and bring a Kenyan and regional perspective.  Two approaches to the methodology to collect primary data involved a set of tools; firstly a questionnaire sent on email to 142 potential respondents, interview guides, and intensive face-to-face interviews.  The questionnaire targeted top actors in ITES space and distributed globally. The response for email questionnaire was low despite repeated requests to the firms to respond. Table 16 is a summary of the regions selected and the number of respondents sampled from each.

Table 16: Questionnaire distribution Region

Number

1

Kenya

42

2

Africa

12

3

Asia

46

4

Latin America

4

5

North America

25

6

Europe

13

Total

142

In addition to the questionnaire, the Team conducted over 40 incisive face-to-face interviews and where not possible, telephone interviews. The purposively selected sample included the following categories:

78

Konza Technology City

-

buyers - companies  that outsource their services either as captives or third party  and includes local and foreign companies.

-

outsourcing companies - those  involved in outsourcing  and include international as well as locally based.

-

Outsourcing consultants - interviewed a major company that helps international companies develop

an outsource strategy and handholds them in the outsource process. At the time of the interview, the company was developing a strategy for Ghana to be an outsourcing destination. -

IT software companies - involved in software development. Most of these were Indian companies that visited Kenya as part of an Indian delegation to explore ITES business in Africa. Other companies interviewed include foreign companies that have established base in Kenya.

-

government agencies involved in creating the environment for business.

The full list is annexed. It is from this wealth of data that the following analysis is founded.

4.2 Market response survey This market response comes from a combination of the market survey questionnaires in addition to the 42 in-depth interviews. The response largely addressed Konza ICT Park and some of the features that are critical to make it successful are varied as illustrated by the respondents and boxed below:

Motivators to do business in Kenya • Talent pool - Resource pool availability, workforce size, skill, and cost, average manpower cost • Real estate availability and cost • Government support - Ease in legal setup, clarity on taxation • Market potential - Business opportunities • Strategic reach to other markets • Infrastructure - Infrastructure quality, connectivity, utility reliability • Support services - supply chain/transportation • Geopolitical stability - Political stability (Recent social and political instability create unacceptable risk!!) • Macro-economic factors (growth, currency, etc) Respondents - ITOs, National ITES lobby, real estate outsourcer Source: field survey

4.2.1 Sufficient and highly trained human resource pool ITES companies and specifically the BPO sub-sector indicated that the subsector is a people business. They require a constant supply of highly trained people. Access to such labour pool will be critical. Konza ICT Park management will need to work with academic institutions to create a linkage to supply labour. Interviews indicated that within a radius of 30 kilometres there is an existing university (Daystar University) and that there were others coming up. 4.2.2 Buildings types Residential BPO companies interviewed were clear that their subsector is a people business and need to be located at sites with the labour pool they are looking for. Thus for the BPO companies already based in Nairobi City they can only move if their labour pool is able to move.  The implication for Konza ICT Park is suitable housing for staff. Industry interviews indicated that 85% of the  BPO sector are agents with a relatively low income of USD300-350.  Housing at the site should be affordable for that level of staff either shared or single.  Cost of housing should be a major consideration. These houses should be adequate for the first teams that start operations in Konza ICT Park on day one.

Market opportunity and magnitude of demand

79

Whereas 85% of the BPO staff is of low pay, the rest are managers and thus housing for this level is different and high cost. Outside the BPO, a few KPO companies interviewed indicated that their staff are high end professionals and therefore a key consideration will be high quality housing and amenities. Business buildings These comprise workspaces for  ITES services and  IT assembly.  In comparator sites, the ITES buildings are generally low buildings up to four floors and a lot of the space between the buildings. The design should be inspirational and allow for a lot of greenery. 

IT assembly noted in the comparator sites cater for manufacturing and therefore need to be adjacent to large storage space and transport infrastructure. Space requirements, investments and jobs My clients’ projects tend to include: (1) Industrial projects for manufacturers and warehousers (100,000 - 250,000sq feet; 250-500 jobs; USD 10-40 million (2) Office projects for business services and IT companies (25,000 - 75,000 sq feet; 100-300 employees; USD 10 - 30 million Colliers International

4.2.3 Business relationships The responses were not conclusive but a preference on joint venture partnership particularly for ITO was prevalent. This would suggest a need to support the growth of local enterprises to form partnerships. 4.2.4 Access to property Data collected on space requirements illustrates some features: -

Local as well as international companies  did not wish to build their own premises. They instead indicated an intention to take long-term lease for property already developed.  In the case of international companies, a preference was a built-to-suit facility. This would suggest a  need  to engage a master developer to develop the site. This was the trend in comparator sites. Most of the comparator sites had a master developer responsible for the property development.

-

The space taken up depends on the size of the enterprise. One international respondent indicated that they would normally be looking for up to 23000 sq. metres and 7000 sq. m for industrial or office respectively. Other smaller ITO firms indicated space needs in the range of 100- 300 sq. metres.

Respondents indicated that Konza ICT Park management should have some of the buildings ready for occupation to move operations there. In order to compete as a low cost destination, competitive rates should be in the range of US$0.5 per square foot per month. This compares with rates in low cost destinations in comparator countries. 4.2.5 Business support services Locaters at the park need assistance in a range of services and a key differentiator of parks as noted in comparator sites is the ability of the park to  provide business support services. Konza ICT Park would need to package  support services to attract business.  Such services include a one stop shop to facilitate business setting up, introduction to potential business partners; facilitate business opportunities by the periodic marketing of the park and its members.  Presently, these services are being offered by a number of agencies i.e. Kenya ICT Board, Kenya Investment Authority and Export Processing Zone Authority.

80

Konza Technology City

4.2.6 Transportation and logistics support Potential locators have a range of transportation requirements for staff as well as logistics namely: -

Mass transit system between Nairobi and Konza ICT Park - heavy traffic was a very significant consideration and a dis-incentive to consider Konza ICT Park. It is imperative to build a mass transit system to Konza ICT Park to move staff between Nairobi and Konza ICT Park. All the comparator sites have built a rapid transport system to the adjacent city running on a 24/7 basis. Discussion with the Permanent Secretary MOIC indicated that the mass transport system is budgeted for implementation within the next two years.

-

Logistics facilitation - in addition to movement of staff, goods transportation was critical.   Firstly, for the massive construction to be undertaken and later to support logistics for movements of manufactured wares from IT assembly. Proximity to a railway station and being on a highway is an advantage  for national and regional logistics. The rail however is too old for modern day logistics. All comparator parks have or are near high speed rail and road systems for logistics to link it to national logistics network.

-

Park road network - navigable road systems in the park and adequate parking facilities.

4.2.7 Utilities The national infrastructure is wanting and one advantage that Konza ICT Park offers is that it is feasible to focus efforts to build infrastructure comparable to comparator countries.  Infrastructure for ICT parks (from our research) is no longer a differentiator; it only gives the Park a right to compete.  Good infrastructure was critical to encourage local BPO companies to consider moving to Konza ICT Park. Some of the concerns were: -

National commercial power is expensive, erratic and unstable and therefore creating a need for operators to invest in costly standby systems. Konza ICT Park needs to guarantee clean power. This is an attraction for local companies to move to Konza ICT Park. It is however a standard feature for comparator sites. An added feature would  be green power cited by some of the key players.

-

Water - critical for usual daily needs but also critical for the massive cooling systems for data centres that will eventually be established at Konza ICT Park. One interviewee noted that Konza ICT Park is warmer than Nairobi and therefore cooling systems are even more critical.

-

Telecommunications - this is the lifeline of the ICT park business. ITES operators indicated that telecommunications needs to be high capacity bandwidth, cheap,  low latency and stable. Three fibre optic lines run adjacent to the Park linking the park to three submarines cables and the rest of the country. 

4.2.8 Sustainable eco-system Respondents stressed the need to create an eco-system either within the park or in the neighbourhood. Key components include:  -

Universities within the neighbourhood for a continuous production of the highly trained labour to feed the Park locators of highly trained labour. All  the comparator sites  are within a neighbourhood of universities producing high quality labour pool to serve the needs of the Park.

-

Science Park - KPO, ITO and CSO specifically require higher levels of education and indeed research facilitation. A Research & Development facility within the Park is important to create synergy with the evolving knowledge services. Comparator park sites have Science parks incorporated in the Park or in the neighbourhood as in the case of Malaysia.

-

An Incubation centre within the park will help transform ideas from the Science Park to exploitation as business. It would also help emerging entrepreneurs  to sharpen their skills and to grow.

-

Finally, a Centre of Excellence within the park will help build standards of training for the Park labour pool.

This eco-system needs to create linkage to the rest of the country and the region. Such efforts to create an eco-system within Parks were noted in comparator park sites.

Market opportunity and magnitude of demand

81

4.2.9 Amiable working environment – a great lifestyle In order to attract high calibre staff, the Park environment should be amiable and inspirational.  Going by comparator parks, the following features are commonplace: -

large open spaces

-

greenery

-

low buildings

-

inspirational architecture

-

leisure facilities  including games and theatre

-

high end shopping malls

These features will be critical to move ITES operators and staff from Nairobi. 4.2.10 Support to migrate to Konza ICT Park Companies based in Nairobi will have to incur huge costs to migrate to Konza ICT Park. Respondents believe the government would need to provide an incentive programme to cover migration and set-up costs. 4.2.11 Incentives for investment Incentives to invest in Kenya and Konza ICT Park specificallyhave been discussed in Volume 1 and 3 in the context of SEZ framework.

4.3 Quantification of demand absorption forecasts 4.3.1 Context In defining the opportunity on the ITES and IT manufacturing space for Kenya and Konza ICT Park, the following assumptions guided the study:

82

-

That ITES and IT manufacturing globally will continue to grow. The volumes of employment, revenue generated and space taken will continue to be huge such that over the next 20 years, Kenyan market share will continue to be very small in global terms( below 2% )but will be huge in national and regional terms.

-

That the countries ahead of Kenya in this market segment had to undergo significant political, legal, funding and even image challenges  to be able to position them to tap into this opportunity. All comparator sites and countries demonstrate one common feature - that all the initiatives were revolutionary and not evolutionary.  The government of the day and indeed a champion defined a vision for an innovative park, determined the future contribution of the park and then sold the vision, marshalled political, legislative and funding resources consistently over a long time. This is how all the comparator parks developed.  In the early years of the park, the government as the promoter needed to proof the concept through sheer commitment.   Thereafter, private sector took interest and government was able to recoup initial cost through sale of land or rights at the park. The role of the government progressively diminished while that of the private sector increased. Government intervention going forward was to reorient  and re-position the industry in right of  current trends to new frontiers. Government demonstrated commitment to Konza ICT Park would be key to success.

-

That while government efforts will be around the Konza ICT Park, and intended to attract business to Konza ICT Park, not all locators will site in Konza ICT Park for various reasons. Some locaters will prefer Nairobi City or indeed other sites in the country. Reasons cited include proximity to customers, sources of specialised labour, logistics etc. Efforts focusing on Konza ICT Park will however continue to propel national growth of ITES. In comparator sites, the government effort while revolving around the comparator sites, catalysed growth nationally outside the park. The Park ,however, for the first decade will be the largest single concentration point of ITES activity nationally.

-

That Kenya has challenges of national image, policy, legal, etc which has been addressed in Volume 1 needs time

Konza Technology City

to address. In this regard, growth in the first few years will be slow and once these issues are addressed, the market realise growth comparable to early years of comparator countries.  This growth will be driven by local and regional demand substantially in the early years and later international markets.  Kenya will therefore create new markets locally and regionally. International markets will initially be through diversion of market from regions that lose competitiveness due to cost. Over time, Kenya will build capability to compete in knowledgebased services.  Typical growth rates noted in comparator markets range from CAGR 36% (Malaysia to 2007), 45% (Philippines to 2010), 23% (India between 1999-2010) and projected 42% (Smart village Egypt to 2014). This rapid growth has generated employment as illustrated in Table 14.

Market opportunity and magnitude of demand

83

84

Konza Technology City *

* *

2005 1998 2008 1997 1998 1997 2003

Pacifico Panama

Intl tech park Bangalore India

UP –Ayala Technohub Philippines

Cyber jaya Malaysia

Dalian Software Park China

Invest Park Poland

Innovation hub South Africa

Source: web and desk research

1999

*

2001

Cyber city Mauritius

Elgazala Tunisia

*

2002

Saigon Park Vietnam

2001

42

2003

Smart village Egypt

Technopark Casablanca Morocco

36

02-07

Malaysia

*

*

*

*

*

*

23

99-06

India

45

04-10

% CAGR

Philippines

Start year / period

Table 14: Employment generated by ITES /IT manufacturing

1,370

1,400

1,500

1,962,000

475,519

2008

12,000

2,196,000

668,126

2009

30,025

50,000

67,700

30,000

24,000

3,500

20,000

47,000

28,000

2,286,000

920,764

2010

2011

2012

2013

100,000

2014

9,500

2015

•

CAGR for the respective parks could not be calculated since there were no beginning figures. Those countries recording high level of growth have huge  marketing budgets. Egypt for example had a USD900m budget in 200814. Considering Kenya’s national resource base, we estimated a lower growth rate rising to CAGR 20% in the long term. -

Kenyan growth of the ITES will revolve around the telecommunications sector - telecommunication sector will be the key driver to catalyse the market followed by the BFSI. The strategy of Bharti Airtel and Essar has introduced global ITES players in the market namely IBM, Spanco, Tech Mahindra and Aegis.  With the set-up costs to the Kenyan market covered by the operators, the expansion to other local and regional opportunities will be relatively easy thus changing the market dynamics for growth. Telkom Kenya, another telecom operator, has engaged Horizon Contact Centres for BPO services. These fundamentals will catalyse growth over the short term. One advantage of this strategy is that it overcomes the national image problem cited as a barrier for new international business.

-

The unit of analysis is direct jobs created- whereas  there are more variables - revenue generated, investment, locators at the park, space taken up; direct jobs  variously linked as seats or full time equivalent (FTE) are a key consideration particularly in BPO which is the largest job generator. Data for direct jobs are much easier to maintain. This is the unit of analysis in this report and other variables are derived from the direct jobs. From our analysis, each direct job creates additional three to four indirect jobs15. We have used a conservative figure of three indirect jobs to every direct job created.

-

Each direct job in BPO generated approximately US$ 27000 – US$50000 and ITO generated upwards of US$14000. We use a conservative figure of US$35000 and US$14000 for BPO and ITO respectively.

-

Our research indicates that KPO and CSO is project-based and paid per deliverable not staff. Additionally, manufacturing data costs were unavailable. For the purpose of the study, we therefore used the ITO costing.

-

IT assembly and/or manufacturing do not create synergistic partnership with ITES - however a Park provides the necessary world class infrastructure, incubation facilitation, science park and academia that is shared by both. IT assembly can define its own market taking into account logistics and competition.

The foregoing key assumptions helped develop the quantitative data Sensitivity analysis Our in-depth review of comparator sites and other sites globally illustrates two models that are described in Volume 1 i.e. policy driven and the commercially driven. The government drives policy driven initiatives and at some point, the government incorporates the private sector. Commercially driven Parks are primarily private sector and have an overriding profit motive. The former is a tool for national development and transformation to new frontiers, which often creates the right conditions for the commercially driven models to thrive. India and Philippines have numerous commercially driven Parks, which ride on an environment created by the policy driven initiatives. Konza ICT Park as a policy driven initiative starts off with high-level government commitment demonstrated by the inclusion as part of Vision 2030 and the purchase of 5000 acres of land. This political commitment is critical in phase 1 up to 2015 to marshal all the necessary political, legislative and financial resources to nurture the project. At the heart of this commitment is a high-level champion to guide the project through the political transition of 2012 general elections. Accordingly, the indicators are qualitative parameters of political commitment or lack of it and quantitative indicators of cost sensitivity are secondary in this phase. If this government support is sustained in phase 1, private sector will take over most of the risk in phase 2 where quantitative indicators of cost management are critical. This contention does not in any way exclude private sector contribution in phase 1, it however proposes that the government would have to underwrite the risk. Comparator sites notably Cyberjaya, Cyber City and Smart Village illustrate the huge responsibility that governments have in phase I of the project. This sustained commitment paid off after the proof of concept period –( phase 1) and the government is able to recoup some of the cost downstream. Where government commitment was not demonstrated like in Irbid in Jordan, the project failed in spite of the funding that was committed to the project.

14 15

McKinsey & Co ( 2009) pp 63 Studies by NASSCOM in India suggests 3 -4 indirect jobs in ITES and SLACCOM in Sri Lanka realised 4 indirect jobs

Market opportunity and magnitude of demand

85

Our projections incorporate the best effort – government commitment to the project as the alternative is not wise to contemplate at this point. 4.3.2 Short term 2011-2015 – (phase 1 proof of concept, frontier bursting) Projected national jobs created, share for Konza ICT Park and revenue is illustrated in Table 15.

Table 15: Short term projections 2011

2012

2013

2014

2015

10,300

10,609

10,927

13,113

15,735

6,556

7,868

BPO

5,245

6,294

ITO

459

551

KPO

131

157

CSO

328

393

IT assembly

328

393

203,258,958

243,910,749

National Konza ICT Park total

Revenue/year US$

In the first phase, the market will grow slowly at first to reach 15000 direct jobs by 2015.  Thus the sector could support an additional 45000 indirect jobs.  The market growth will be propelled by BPO around telecommunications and BFSI.

Within this period some of the critical features to influence the market at the international and regional level include:  -

There is no significant competition at equal scale from EAC/COMESA region which provides a window of opportunity to position as a product for the region for ITES and IT assembly. Rwanda and Burundi will provide an opportunity to sell Konza ICT Park as a multilingual destination

-

Progressive  shift in cost for pioneer countries (India and Philippines) that will lose the cost advantage  and therefore Konza ICT Park can position as a low cost destination to tap into that market. Kenya has to compete with other low cost destinations globally coming up

-

ICT Park will progressively become generic with standard features and therefore Konza ICT Park will have to devise a distinctive feature to differentiate from other parks

-

Challenge to enter in source markets for local ITES operators to source jobs directly will still be a barrier and therefore international business in Kenya will be driven by multinationals

-

EAC common market will continue to evolve providing an enhanced opportunity.

At the industry level,

86

-

The industry platform - Kenya BPO and Contact Centre society will still be weak as to coordinate, organise and lobby for the sector. A strong lobby is important for rapid growth in ITES as noted in comparator countries. Such platforms provide policy, advocacy and often set industry standards

-

Moves by the telecom sector notably Bharti Airtel and Essar Telecom to bring in IBM, Spanco, Tech Mahindra and Aegis will continue to be key drivers to internationalise the market and set the standards for the industry. Such companies will also be a   reference point  for marketing Kenya as an ITES destination  and catalysing the local market

Konza Technology City

-

In 2010, approximately 90% of all the ITES activity is captive, increasing confidence of the BPO sector and more companies will release non-core activity to third party ITES operators. Field interviews indicated that captive centres still work within the corporate salary structure; by outsourcing, they would save up to 40% in costs.

-

Government will have to play a very important role. One such role is to demonstrate its commitment by for example shifting some of its offices to Konza ICT Park and secondly, be the early user of the Park for its services. In the IT assembly, government should use its buyer power to commit a major brand to assemble computers at the Park

-

Konza Development Corporation (KDC) for Konza Technology City (KTC) is proposed to be created to lead the efforts to synchronise (and seek public funding) to build out the on-site infrastructure for phase 1 (typically considered public) and initial BPO buildings and related residential and amenities, as well as incentivising the initial move and clustering at Konza of local BPO firms and GOK ITES activities. The KDC would have to also be responsible for ensuring that SEZ legislation or alternative incentive regime is approved that allows KTC to be a competitive and attractive location for locators and developers. All these activities may require significant implementation support from external private experts. Before setting up the KDC towards March/April 2011, the client (GOK) is expected to carry out an informal market sounding of key developers and locators to reconfirm the type of market interest in Konza and whether a master developer arrangement, with some level of private investment, might not also be possible concurrent with phase 1 or at least establish at what stage that would be possible.

At the park level, this is the phase for rapid and coordinated construction such that key facilities are available on site. As discussed earlier it includes physical infrastructure, housing, utilities and amenities. Concurrently are policy and regulatory framework as well as marketing Konza ICT Park as illustrated below:

Table 16: Indicate roadmap for phase 1

Qtr 1 2011

Policy

Regulatory

Operational

  Institutional infrastructure in place-

SEZ law enacted

Marketing

•

high level inter- ministerial

•

Konza ICT Park Development Corporation, 

•

Konza ICT Park management

National image search for master developer concluded Budgetary request for Phase 1 funding

SEZ policy enacted Qtr 2 2011

Budgetary allocation

Qtr 1 2012

Construction commences

Qtr 1 2014

Occupation by ITES operators

Government exposure in this phase is very heavy and the key outcome is proof of concept. Regarding the SEZ law slotted for Qtr 1, 2011, there is a risk that the law may not be passed for another year or two depending on draft being ready and slot available in the legislative cycle.

Market opportunity and magnitude of demand

87

4.3.3 Medium term 2015-2020 (phase 2- private sector leadership) With the success of the first phase,  Konza ICT Park and the ITES industry generally will be strong to be the pivot point for increased growth of the sector. Private sector will take an increasing role and the government can recoup some of the heavy cost incurred in the first phase. The projected national jobs created, share for Konza ICT Park and revenue is illustrated in Table 17.

Table 17: Medium term projections 2016

2017

2018

2019

2020

National total

18,882

22,659

27,191

32,629

39,154

Konza ICT Park

9,441

11,329

13,595

16,314

19,577

BPO

7,553

9,064

10,876

13,051

15,662

ITO

661

793

952

1,142

1,370

KPO

189

227

272

326

392

CSO

472

566

680

816

979

IT assembly

472

566

680

816

979

292,692,899

351,231,479

421,477,775

505,773,330

606,927,996

Revenue/year US$

4.3.4 Long term 2020 -2032(mature market) In the long-term phase, the market is mature and the continuing role of the government would be to re-orient the sector to new frontiers taking into account the market dynamics of the day. The projected national jobs created, share for Konza ICT Park and revenue is illustrated in Table 18.

88

Konza Technology City

Market opportunity and magnitude of demand

89

1,175 1,175

728,313,595

CSO

IT assembly

Revenue/year US$

46,766

4,092

1,169

2,923

2,923

1,812,277,286

ITO

KPO

CSO

IT assembly

Revenue/year US$

58,457

BPO

Konza ICT Park

116,914

3,507

3,507

1,403

4,910

56,119

70,149

140,297

2027

2,174,732,743

470

KPO

National total

1,644

ITO

2026

18,794

23,493

Konza ICT Park

BPO

46,985

2021

National total

Table 18: Long term projections

2,609,679,291

4,209

4,209

1,684

5,892

67,343

84,178

168,357

2028

873,976,314

1,410

1,410

564

1,973

22,553

28,191

56,382

2022

3,131,615,149

5,051

5,051

2,020

7,071

80,811

101,014

202,028

2029

1,048,771,577

1,691

1,691

677

2,368

27,064

33,829

67,659

2023

3,757,938,179

6,061

6,061

2,424

8,485

96,973

121,217

242,434

2030

7,273

7,273

2,909

10,182

116,368

145,460

290,920

2031

4,509,525,815

1,258,525,893

2,030

2,030

812

2,842

32,476

40,595

81,191

2024

5,411,430,978

8,728

8,728

3,491

12,219

139,642

174,552

349,104

2032

1,510,231,071

2,436

2,436

974

3,410

38,971

48,714

97,429

2025

90

Konza Technology City

ANNEX

Annex 1: Respondent List Annex 2: Companies and Kenyan interest Annex 3: Other International ITES buyer Companies Annex 4: Leading outsourcing companies Annex 5: Respondent list Annex 6: Terms of reference

Market opportunity and magnitude of demand

91

ANNEX 1: Respondent List

92

Company

Person interviewed

Position

1

Accenture Development Partnership

Jessica Long

IT Strategy & Innovation lead

2

African Growth Fund

Johnni Kjelsgaard

CEO and Founder

3

Agile labs

R. Perumal

CEO

4

Avasant

Dr. Pradeep Mukerji

President

5

BPO /ITES Working Group in the Office of the Prime Minister

Gilda Odera

Chair

6

BPO/ITES Working Group in the Office of the Prime Minister

Peres Were

Joint Secretary

7

Brand Kenya Board

Mary Kimonye

Chief Executive Officer

8

Digital Age Institute

D. Svarrer

9

Directorate of E-government

Dr Catherine Getao

ICT Secretary

10

Eastern Software Systems Pvt Ltd 

Anil Bhakht

Managing Director/ Leader of NASSCOM Delegation to Kenya

11

Export Processing Zone Authority

Mr. Joseph Kosure

Ag CEO

12

Export Processing Zones Authority

Margaret Waithaka

Manager New Investments

13

FIAS /World Bank

Sumit Manchanda

Operations officer

14

Global BPO Solutions

Joseph Ochola  Mbogo

15

Google Inc

Mr. Joseph Mucheru

Country Leader

16

Horizon Contact Centers ltd

Sanjay Sikka

Chief Executive Officer

17

IBM - USA

In confidence

KPO Delivery Manager

18

IBM /Canada

In confidence

BPO services

19

IBM /EA

Tony Mwai

Country

20

IBM /India

In confidence

BPO services

21

Immobia

Michael Juhl

COO

22

Iridium Interactive Ltd -  Hyderabad India

Sriram Bharatam

CEO Founder

23

Isys Ltd

Paul Mwachi

Country Manager

24

Kenya Airways

Mr. Robert Wakaba

E-strategist

25

Kenya Contact Centre and BPO Society

Raychelle Injete

Chair

26

Kenya ICT Board

Victor Kyallo

Deputy CEO

27

Kenya ICT Board

Eunice Mueni  Kariuki

Deputy CEO

28

Kenya ICT Board

Andrew Lewela Mwanyota

Project Manager  BPO/ITES

29

Kenya Investment Authority

David Mugambi

Senior  Investment Officer

30

Kenya Web

Mike Terik

MD

31

Ministry of Information and Communications

Dr. Bitange Ndemo

Permanent Secretary

32

K. Purushothaman

33

National Association of Software & Service Companies ( NASSCOM)- Chennai India National Council of Science and Technology - Ministry of Higher Education Science and Technology

David Otuoma

Regional Director TN and Kerala Chief Science Secretary

34

Octaware

Aslam Khan

President

35

Ontrack Systems

Debasis Roy

VP – Operations

36

Payoda Technologies PVT Ltd

Venkatakrishnan G

Vice President Operations

Konza Technology City

37

QAI ( Training)

38

Sameer Africa

Michael  Karanja

CEO

39

University of Nairobi Fab Labs

Dr. Kamau Gachigi

40

Verviant Inc.

Liko Agosta

CEO CEO

Annex 1 is a representation of the organisations and persons on the 42 supplementary in-depth interviews.

Market opportunity and magnitude of demand

93

ANNEX 2: Companies and Kenyan interest

94

IAPO Rank

Company

Nationality

Services

Kenyan presence

1

Accenture

USA

Software Development, Network Support, F+A, HR, Procurement, Insurance, General Banking

No presence but has carried out due diligence. Now helping Kenya government to establish a shared service centre

2

IBM

USA

Software Development, Storage, IT services

IBM Representative Office - IBM Central Africa, http://www.ibm.com/planetwide/ ke . The office is expected to expand to cater for Bharti Airtel African IT outsourcing operations

3

Sodexo

France

Healthcare, Education

No presence

4

Tata Consultancy Services

India

Software Development, R+D/ Engineering, F+A, Telecom, Transportation, Hospitality Operations

No presence yet. However, carried out due diligence

5

Wipro Technologies

India

IND Software Development, R+D/Engineering, Demand Management, Mortgage Processing, Transportation, Healthcare Operations, Banking

No presence yet. However have carried out due diligence

6

Convergys

USA

Call Centres

No presence

7

ISS

DK

Facilities Management, Call Centres and Mailroom Services

No presence in Kenya. It has operations in South Africa, providing services to Citi Bank

8

CB Richard Ellis

UK

Property Management, HR

Has a presence in the country, CB Richard Ellis Limited. The Rahimtulla Tower, Upper Hill Road, P.O Box 10730, 00100 Nairobi, Kenya. http://www.cbre.co.ke/. They serve the local market in property management

9

Infosys Technologies

India

Software Development, NW Support, Banking, Mortgage Processing

No presence in the countries. However, the company provides services locally to the banking sector for example, Equity, Baroda, United Bank of Africa and I&M. Their local representative is Simba Technologies

10

Capgemini

France

Software Development

No presence

11

Genpact

India

F&A, Customer Service, IT Services, Sales & Marketing Analytics, Supply Chain & Procurement

Has no presence in Kenya. In Africa, the company has operations in Morocco and South Africa where South African Breweries Ltd (SAB) gave it the responsibility to run their shared services

12

Colliers International

Canada/ USA

Property Management, HR

No presence in Kenya. However, the company has shown willingness to invest locally

13

CSC

USA

Software development, Insurance, Demand Management

No presence in Kenya. Africa operations are conducted from South Africa

Konza Technology City

14

NCR

USA

ATM, Software, POS, ecommerce solutions, check and document imaging, support and management services

Have a local presence offering Computer Systems Design Services and ATM services

15

Jones Lang LaSalle

USA

Facilities Management, HR, R&D, Healthcare, consulting

Has no presence in Kenya. African operations are conducted from Egypt

16

CGI Group

Canada

IT Services, Software Development, NW Support, Healthcare, Distribution, Insurance & Manufacturing

No presence in Kenya

17

SITEL

USA

Call Centres

Has no presence in Kenya. African operations are conducted from Morocco

18

Unisys

USA

IT Services, Software Development, NW Support, Law Enforcement and Public Safety

Has no local presence. However, some local banks such as Barclays Bank and Cooperative Bank of Kenya are using some of their products

19

EDS, an HP Company

USA

Software Development, Network Support, F+A, HR, Payroll, Demand Management, Procurement, Insurance, General Banking, Telecommunications, Transportation, Health Care Operations

HP has a regional representative office in Kenya

20

HCL Technologies

India

Business Process Outsourcing, Custom Application Services, Engineering and R&D Services, Enterprise Application Services, Enterprise Transformation Services, IT Infrastructure Management

No presence in the country. However plans to enter into the Kenyan market through the SAP Alliance Partnership

Source: www.iaop.org

Market opportunity and magnitude of demand

95

ANNEX 3: Other International ITES buyer Companies Company

Nationality

Kenya presence

Microsoft

USA

The Kenya office supports Burundi, Eritrea, Ethiopia, Kenya, Rwanda, Somalia, Tanzania, and Uganda. http://www.microsoft.com/worldwide/phone/contact. aspx?country=Kenya

Google

USA

Google Kenya Ltd.  7th Floor, Purshottam Place, Westlands Road, Nairobi. http://www. google.com/corporate/address.html The Nairobi office serves the Sub Saharan region

HP

USA

HP East Africa. Hewlett-Packard, Capitol Hill square, 3rd Floor, Chyulu Road, Upperhill, P.O Box 2969- 00100. Nairobi. Kenya. http://www8.hp.com/emea_africa/en/contact- hp/ office- locations.html

Oracle

USA

No presence. However, a number of local companies use Oracle products. Also a number of training institutions offer training on their products

GE

USA

Has an office in Kenya. The company has interests in the healthcare and energy sector

Siemens/ Nokia

Finland

Nokia Siemens Networks Kenya.  Nairobi Business Park – Unit A, Ngong Rd, Nairobi, P.O.Box 66379 – 00800.  http://www.nokiasiemensnetworks.com/about- us/directory-ofcontacts/info-middle-east-and-africa/kenya

Motorola

USA

Closed down it operations. The company has recently announced its intention to come back into the local market (http://www.capitalfm.co.ke/business/Kenyabusiness/ Motorola-plans-a-major-comeback-4906.html)

Alcatel-Lucent

France

No presence. It has a business relationship with Kenya Data Networks

Xceed

Egypt

No presence in Kenya

Intel

USA

No manufacturing presence. However, the company has a number of distributors in the country and has also supported government initiatives especially in education

Dell

Has no assembly centre in Kenya. However, has a commercial contact office for the region (http://www1.euro.dell.com/content/topics/topic.aspx/emea/contact/edb/ kenya?c=eu&l=en )

Aegis

India

Subsidiary of Essar Telecom and has offices in Kenya located at Essar House from where it services its customer outsourcing needs in Kenya. It is a 29,000 people company

Spanco

India

The company is part of the Bharti Airtel deal. It offers services in the areas of enquiry handling  complaints resolutions, billing queries/product or service related queries, welcome calls/ notifications and technical helpdesk

Tech Mahindra

India

The company is part of the Bharti Airtel deal. It offers services in IT, BPO, network security, ERP and mobility solutions

Source: Respective websites

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Konza Technology City

Leading Outsourcing Companies :ANNEX 4 Source: Company websites

Accenture: Accenture is a global management consulting, technology services and outsourcing company that was ranked the No. 1 Outsourcing Service Provider by International Association of Outsourcing Professionals (IAOP). The company collaborates with clients to help them become high-performance businesses and governments. Their main area of expertise is in: •

Application outsourcing,

•

Infrastructure outsourcing,

•

Business process outsourcing and

•

Bundled outsourcing.

With a staff capacity of more than 190,000 globally, Accenture global revenue was US$21.58 billion for fiscal year 2009. They are present in about 200 cities in 52 countries of Americas, Asia Pacific & EMEA. In Africa, Accenture is present in Angola, Botswana & South Africa. IBM IBM’s character has been formed over nearly 100 years of doing business in the field of information-handling. Nearly all of the company’s products were designed and developed to record, process, communicate, store and retrieve information - from its first scales, tabulators and clocks to today’s powerful computers and vast global networks. In 1991, IBM was a $64.8 billion company, of which less than $6 billion was derived from non-maintenance services. Ten years later, the business of information technology (IT) services alone generated more than 40% of IBM’s $86 billion in sales and had become the single largest source of revenue in IBM’s portfolio. The Fiscal Year 2009 financial report indicates a global net revenue of US$95.8 billion. Today, IBM provides the following outsourcing services: •

Applications outsourcing,

•

Business process outsourcing and

•

IT outsourcing and hosting.

The total number of employees at IBM stands at 399,409 in 32 countries in Asia Pacific, Europe, Middle East, Africa, Latin America and North America. In Africa, IBM has offices in South Africa.  Kenyan office to cater for the region was opened in 2009 which is now coordinating the Bharti Airtel  IT outsourcing . IBM is ranked No. 2 outsourcing service provider by IAOP. SODEXO Sodexo is a leading provider of integrated food and facilities management services in the U.S., Canada, and Mexico. They have received numerous global awards including being ranked No. 3 outsourcing service provider. Sodexo has over 6,000 clients in the US, Canada and Mexico and serves over 10 million customers every day. Outsourcing services offered by Sodexo are: •

HR,

•

Business process outsourcing and

•

Infrastructure outsourcing.

The global net revenue of Sodexo is US$19.8 billion for fiscal year 2009 with a total of 380,000 employees spread in 80 countries of Asia Pacific, EMEA, North America and Latin America. In Africa, Sodexo is in the following countries: Algeria, Angola, Benin, Cameron, Congo, Gabon, Guinea, South Africa, Tanzania, Morocco, Namibia, Niger and Nigeria.

Market opportunity and magnitude of demand

97

TATA CONSULTING SERVICES Established in 1968, Tata Consultancy Services has grown to its current position as the largest IT services firm in Asia on the basis of its outstanding service record, collaborative partnerships, innovation and corporate responsibility. Tata is the world’s first organization to achieve an enterprise-wide Maturity Level 5 on both CMMI® and P-CMM®, using SCAMPISM, the most rigorous assessment methodology. As on March 31, 2010, TCS had 142 offices in 42 countries as well as 105 delivery centers in 20 countries: 18 offices in USA and Canada, 12 offices in 7 countries in Latin America, 11 offices in UK and Ireland, 22 offices in 12 countries in Europe, 18 offices in 12 countries in Asia Pacific, 7 offices in Middle East and Africa, 54 offices in 13 locations in India. TCS continues to focus on serving large global clients and growing its business in the major markets. Tata global net revenue in fiscal year 2009 was US $6.3 Billion with 160,000 employees globally. Their global expertise is in: •

IT services,

•

Outsourcing and

•

Business solutions

WIPRO Wipro Technologies is amongst the largest global IT services, BPO and Product Engineering companies. In addition to the IT business, Wipro also has leadership position in niche market segments of consumer products and lighting solutions. The company has been listed since 1945 and started its technology business in 1980. Today, Wipro generates USD 6 billion (India GAAP figure 2009-10) of annual revenues. It offers integrated portfolio of services in the areas of: •

Consulting,

•

System Integration and

•

Outsourcing for key-industry verticals.

Global net revenue is US $ 5,038 million for fiscal year 2009 with 108,071 employees globally. Their global reach is in 72 development centres, Asia Pacific, EMEA and Americas. African presence is in Egypt.

CONVERGYS For 30 years, Convergys is a global leader in relationship management and provides solutions that manage client relationships, fosters improvement and adds value so as to enable organizations to improve their business performance. Headquartered in Cincinnati, Ohio, Convergys has approximately 65,000 employees in 68 customer contact centers and other facilities in the United States, Canada, Latin America, Europe, the Middle East, and Asia. In Africa, Convergys is only in Egypt. The global gross net revenue of Convergys is US$528 million.

GENPACT Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise G&A and industry-specific services. Putting process in the forefront—coupling deep process knowledge and insights with focused IT capabilities, targeted analytics and pragmatic reengineering—the Company delivers a comprehensive client solution. Services are seamlessly delivered from a global delivery network to meet a client’s business objectives, cultural and language needs, and cost reduction goals. CB Richard Ellis CB Richard Ellis is a global leader in real estate services. Their global presence is in Asia Pacific, America and EMEA, while services offered include: •

Facilities management,

•

HR and IT.

CB Richard Ellis has 132,852 employees with global revenue US$52.3Billion for fiscal year 2009.

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Konza Technology City

INFOSYS TECHNOLOGIES Infosys Technologies Ltd is a global leader in the “next generation” of IT and consulting with revenues of US$ 5.4 billion (Sep- 10). Their offerings include: •

Business and technology consulting,

•

Application services,

•

Systems integration,

•

Product engineering,

•

Custom software development,

•

Maintenance,

•

Re-engineering,

•

Independent testing and Validation services,

•

IT infrastructure services and

•

Business process outsourcing.

Infosys has a global footprint with 63 offices and development centres in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 122,468 employees as on September 30, 2010 with a global net revenue of US$D 216,930 million for fiscal year 2009. CAPGEMINI Capgemini is headquartered in Paris, France and operates in more than 30 countries. In North America, Europe, and the Asia Pacific region, they have over 95,000 people. Their global area of expertise is: •

Outsourcing services,

•

Consulting services,

•

Technology services,

•

Application life circle services, 

•

Business information management,

•

Infostructure transformation services & testing services.

Market opportunity and magnitude of demand

99

ANNEX 5: Respondent List First Name

Institution

Email

Robert Achieng

East Africa Community

[email protected]

Tivit

[email protected]

Copy Cat Ltd

[email protected]

Willis Osewe

[email protected] Grubb and Ellis Company

Francesca Kairu

Steve Muthee

Yulia Simonova

Shiwani Varma Vyas

[email protected] CMP Braxis Capgemini

[email protected]

Knoah Solutions

[email protected]

Emcor Group Inc.

[email protected]

Oriak Digital

[email protected]

NIIT Ltd

[email protected]

Daproim Africa Ltd

[email protected]

Headstrong Corporation

[email protected]

Luxoft

[email protected]

Rising Data Solutions Inc

[email protected]

First Source Solutions

[email protected]

Microland Limited

[email protected]

Aditya Birla Minacs

[email protected]

Mfanu Mfayela

[email protected] DataArt Solutions, Inc.

[email protected] [email protected]

HiSoft Technology International Limited

[email protected]

Lionbridge Technologies, Inc

[email protected]

Prasenjit Roy

Tech Mahindra Limited

[email protected]

Pramod Bhasin

Genpact

[email protected]

Pratima Sewpal

The National Promotion Agency, Mauritius

[email protected]

Automatic Data Processing, Inc.

[email protected]

Raffy De Larosa

CB Richard Ellis

[email protected]

Ruma Deb

London Chamber of Commerce

[email protected]

Richard Mwangi Robert C. D. Barclay

100

[email protected] Sutherland Global Services

[email protected]

Rod Jones

[email protected]

Rodrick Ncube

[email protected]

Rose Goes

Augustana College

[email protected]

Sandeep A.

Intelenet Global Services Pvt. Ltd

[email protected]

Sanjeev Bhatia

Wipro Limited

[email protected]

Suzanne Deveney

Donlen Corporation

[email protected]

Konza Technology City

Neusoft Corporation

[email protected]

TeleTech Holdings, Inc.

[email protected]

Sushma Rajgopalan

Larsen & Toubro Infotech Ltd

[email protected]

Sylvia Kimani

Verve K O

[email protected]

Tobias Ngeru

[email protected] CPA Global Limited

[email protected]

Vidia Mooneegan

Ceridian Corporation

[email protected]

Vijith Kannangara

Smart Media

[email protected]

Vimal Shah

Bidco Oil Company

[email protected]

Vinod Bang

Mahindra Satyam

[email protected]

Vahini Naidu

Dept Trade & Industry South Africa

[email protected]

Yogesh Tehlan

Inter Globle Technologies

[email protected]

Aaron Liu

Beyond Soft

[email protected]

Anupam Govil

Global Equations

[email protected]

Mr. Andreas Kitrilakis

Federation of Hellenic Information Technology & Communications Enterprises

[email protected]

Andre Varma

[email protected]

Anupam Prakash

Hewitt Associates LLC

[email protected]

Ashutosh Bhattacharya

HCL Technologies Limited

[email protected]

Drs. Bernd W.E. Taselaar

ICT Office

[email protected]

Bhaskar Ramani

Mahindra Satyam

[email protected]

Bipradas Basak

Bonsai Network India Pvt. Ltd

[email protected]

Brad Dugard

Cushman & Wakefield

[email protected]

Carol Gillam

[email protected]

Carole Wamarema

[email protected]

Chandrasekhar Sankaran

Tata Business Support Services

[email protected]

Charles Basajja

Serial and Matrix Ltd

[email protected]

C. Njuguna

Strathmore University

[email protected]

Cora Llamas

Bo Le Associates

[email protected]

Costas Johnson

Qualtrack Ltd

[email protected]

Cylina Sun

[email protected]

Cynthia Mugi

Call Centre Solutions

[email protected]

Cynthia Kahumbura

Continental BPO

[email protected]

Mr. Dan E. Khoo

Multimedia Development Corp

[email protected]

Diana Muthee

[email protected]

Mr. Ehab Osman

[email protected]

Elijah Migwi

[email protected]

Market opportunity and magnitude of demand

101

Esther Muchiri

Andest Bites Ltd

Mwangi Muthui

[email protected]

Fannis Anne

[email protected]

Fayaz Hudah

[email protected]

Francesca Kairu

[email protected]

Ms. Francien Schouman

[email protected]

George Ndira

Export Promotion Council

[email protected]

Gilda Odera

Skyweb Evans

[email protected]

Grace Ngungi

102

[email protected]

[email protected]

Gregg Wassmansdorf

Colliers International

[email protected]

Geofrey Ridden

G7 Systems

[email protected]

George D. Sorio

Cyber City Teleservices

[email protected]

Henry Obare

Kenya Airways

[email protected]

Herman Chinery-Hesse

Black Star Line

[email protected]

Hilary Wilfred Kirui

Telkom Kenya

[email protected]

Irene Mbobua

Kenya Commercial Bank

[email protected]

Mariam Ahmed

Quest Holdings

[email protected]

Jackie Nyarotho

Strategic Sourcing International

[email protected]

Jennifer Abelson

Abelson Group Inc

[email protected]

Jeremy Mackinlay

Patni Computers

[email protected]

Josiane Manishimwe

Rwanda Tel

[email protected]

Joanna Golebiewska

Hewlett Packard

[email protected]

John Gikima

Ernest and Young

[email protected]

Mr. John Higgins

Information Technology Telecommunications and Electronics Association

[email protected]

Junie del Mundo

Eon Inc

[email protected]

John Muraguri Waibochi

Virtual City

[email protected]

Mr. Junko Kawauchi

[email protected]

Leandro Sanchez

[email protected]

Mr. LEE Boon Kok

I Commerce Sdn Bhd

[email protected]

Lito Tayag

Accenture

[email protected]

Lucy Mwatibo

Ken Tech Data

[email protected]

Makoto Handa

NTT Communications

[email protected]

Mahesh Punia

QAI Global Services

[email protected]

Martin Gaerlan

Convergys

[email protected]

Melinda Sandlin

Benprise LLc

[email protected]

Frances G. Meris

Sodexo

[email protected]

Konza Technology City

Mfanu Mfayela

[email protected]

Marilyn Kamuru

[email protected]

Beni Lopez

Soft Tek

[email protected]

Mukund Srinath

iGate Corporation

[email protected]

Nicholas Nesbitt

Kencall

[email protected]

Mr. Ong Kian Yew

The National ICT Association of Malaysia

[email protected]

Oliver

[email protected]

Only C. Malabanan

[email protected]

Phil Bond

[email protected]

Percy Jokhi

First Source

[email protected]

Pradeep Mukherji

Avasant

[email protected]

Peres Were

Cascade Global

[email protected]

Edward Quintero

[email protected]

Mr. Sherin Shoukry

Comesa

[email protected]

D Swami Swaminathan

Infosys

[email protected]

Andrew Kimotho

[email protected]

Smith Cameron

NCR

[email protected]

Kishore Mirchandani

Outsource Partners International

[email protected]

Dr. Vasile Baltac

[email protected]

Paolo C. Abad

[email protected]

Charles N. Nduati

Jomo Kenyatta University of Agriculture and Technology

[email protected]

Jonathan Chege

Kenyatta University

[email protected]

Dr. Wilfred G. Gikaru

Egerton University

[email protected]

David Gideon Kariuki

Alliance High School

[email protected]

The Principal

Kianda School

[email protected]

Henry K.A. Mitei

Egerton University

[email protected]

R. Wanja Thairu

[email protected]

Prof. Timothy Waema

University of Naiorbi

[email protected]

Eunice Maranya

Capstan Ltd

[email protected]

Jonathan Luzuriaga

Tholons

[email protected]

Market opportunity and magnitude of demand

103

ANNEX 6: Terms of Reference Task 2: Define the Market Potential and Identify High Value, IT-related Activities that can be attracted to the proposed technology park: Based upon the results of the competitive benchmarking exercise, analysis of global and local investment trends and competitive forces, and detailed industry subsector analysis, the Consultants will define the overall market potential and identify promising activities to be attracted to the proposed technology park. Based on discussions with the GoK, it is expected that this analysis will focus primarily on technology and communications, and particularly on BPO and IT-enabled services, as well as auxiliary and support services required to support a technology-oriented zone. The main analytical components of this task include the following:

•

Recent regional, national and local investment patterns and trends

•

Assessment of the structure of the structure of selected industry segments

•

Factors shaping demand of local, foreign and regional investors

•

Impact of competing regional and international project and locations

•

Competitive trends analysis in complimentary activity areas (foreign investment trends, technology and production trends, competitive forces, export market trends, and domestic market demand/supply trends.)

•

Comparative site attributes of the proposed technology park and site requirements of potential industry segments. Given the distance of the site from population centers and existing infrastructure, this will also include descriptions of the elements of a self-contained community that will be required to catalyze and support investment in promising activities.

Through this analysis, the characteristics of high-potential activities should be defined, including immediate and nearterm industry and services segments for promotion, main investor markets, and likely investor nationality and investment characteristics.

Task 3: Define Possible Magnitude of Demand for the Proposed Technology Park: To facilitate the development of a marketbased SEZ focused on ICT activities, the Consultant will conduct a preliminary market survey of the different potential users of the project. The results of the survey, together with the analysis of demand absorption patterns of other SEZs, particularly those with an ICT focus, should be used to quantify the demand absorption for the proposed technology park and elaborate different scenarios with low, medium and high demand. The major work tasks to be undertaken include the following:

104

•

Identify Survey Audience: Identify the universe of prospective survey targets. Group these prospects according to nationality, size of enterprise, and industry subsector. At this point, it is expected that the consultants will concentrate on 100 firms in Africa, the United States, and selected Asian and European Union countries.

•

Market Interviews: Upon definition of the more promising market sectors/segments, conduct interviews with representative enterprises in such segments. The interviews will concentrate on a limited, however representative number of market segments/companies in selected regions, with special focus on Europe, Middle East and Asia. A special focus will be dedicated to companies that are established in SEZs.

•

Develop a Standardized Survey Instrument and Conduct Survey: Develop a simple questionnaire to evaluate potential demand along the following dimensions:

-

Industry sub-sector, export orientation and geographic origin of investment

-

Requirements for industrial and commercial infrastructure and facilities (e.g. types and sizes of production and storage buildings commercial facilities, housing)

-

Major utilities requirements (power, water/sewerage, telecommunications services

-

Requirements for business support services (financial, trade, educational and others)

-

Manpower requirements at different skill levels

-

Transport modes and requirements

Konza Technology City

-

Sensitivity to lease versus purchase options, rental rates and terms

-

Preference for joint venture, direct foreign investment, or subcontracting relationships

-

Average demand in terms of amount of land/buildings required under different scenarios regarding political and economic conditions

The survey instrument should provide first-hand data regarding the origin, composition, and character of demand for facilities at the proposed technology park site, with particular emphasis on ICT activities, taking into account the country’s political and economic conditions and prospects.

•

Prepare demand absorption forecasts: Drawing upon survey results, and analyzing the space demand absorption patterns of other SEZs focused on ICT activities, the consultants will prepare a demand forecast for the proposed technology park for 20 years. The consultants will review absorption rates, occupancy levels, and growth patterns of leading competitors in developing the estimates. Annual demand absorption levels should be developed under different development scenarios, e.g. optimistic, moderate and pessimistic as well as given different levels of GoK investment.

•

Determine implications of demand survey and market trends on proposed technology park configuration: Drawing on the survey results and findings of the market assessment, determine the major implications for project configuration and pace of development. This will include location of facilities, required infrastructure and physical facilities. The demand forecast will be an input to the development strategy for the technology park.

Market opportunity and magnitude of demand

105

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Konza Technology City

A comparative analysis of SEZ policy and legal regime Vol 3 of 3 January 1st, 2011

Summit Strategies Ltd

ICT Research & Consultancy Strategic information for decision support in info-communication business

Background and context This is part of a three-volume report on the ICT Park component (also referred to as “ITES Park” or as the “BPO Park”) of the Konza Technology City (KTC) project. It comprises a Comparative and Competitive Analysis (Volume 1), a Demand Study (Volume 2) and a Comparative Analysis of SEZ Policy and Legal Regime (Volume 3). Volume 1 is underpinned by a benchmarking analysis of 11 similar sites internationally, out of which seven are selected in Volume 3 due to their SEZ incentive regime characteristics. The study commissioned by International Finance Corporation for the Ministry of Information and Communications of the Government of Kenya was undertaken in September /October 2010. The data sources include intensive literature review and case studies. The analysis of these data provides the foundation of the findings of this report specifically on a comparative analysis on SEZ policy and regulatory regime and how it can be leveraged for Konza ICT Park. The specific terms of reference for this report are annexed.

Definition of special economic zones A Special Economic Zone pertains to a designated geographical area with liberal economic laws and with highly developed infrastructure which has the potential to be developed for conduct of various specialized activities deemed to be of economic importance, and where any goods introduced and services provided are generally regarded, in so far as import duties and taxes are concerned, as being outside the customs territory but are duly restricted by controlled access and wherein the benefits to licensed firms apply.

Government of Kenya special economic zone policy The Government of Kenya has strongly manifested its intentions in pursuing economic reforms to boost the nation’s growth and sustainability. Kenya Vision 2030, launched in 2008, is a clear indication of the Government of Kenya’s goal to transform the country into a globally competitive and industrialized country. Kenya Vision 2030 identifies several growth areas such as agriculture, tourism, wholesale and retail trade, financial services, manufacturing and the outsourcing industry as the main drivers for economic recovery. The first phase of Vision 2030 is further clarified through the First Medium Term Plan for the period 2008 – 2012. Very aggressive targets were identified such as an economic growth rate of 10% by 2012, creation of 3.5 million additional jobs and reduction in the prevalence of poverty from 46% to 28% as well as rising per capita income from US$ 650 in 2006 to US$ 992. The Plan specifically identifies the need to establish Special Economic Zones (SEZs) to cater for industrial activities and requirements for agro-industrial, manufacturing, Information and Communications Technology and Small and Medium Enterprise (SME). It is intended that the SEZs will address key factors that reduce Kenya’s competitiveness as an investment destination through infrastructure provision, simplification of business regulations, value chain integration and clustering, expanded market access for SEZ goods and services, and reduced taxation.

The specific objectives of SEZs as stated in the draft SEZ Policy are: • • • • • •

To attract both local and foreign investments To expand and diversify production of goods and services for domestic and export markets To promote value addition To promote local entrepreneurship through Small and Medium Enterprises (SMEs) To enhance technology development and innovation To promote rural and regional industrialization by exploiting comparative advantage of local resource

Kenya’s current situation A Special Economic Zone Program has yet to be launched in Kenya. There are, however, several schemes that would have traces of similar offerings. These programs are the Export Processing Zones, Manufacturing Under Bond (MUB), Tax Remission for Exports Office (TREO) Scheme which supported manufacturing for exports, and the Kenya Industrial Estates (KIE) for the promotion of SMEs.

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Konza Technology City

Global benchmarks for special economic zones In order to arrive at the best possible structure for Kenya’s Multimedia ICT Park, it is imperative to study and benchmark global leaders in ICT services and manufacturing. Seven (7) locations have been identified for benchmarking in terms of physical structure, incentive packages as well as marketing and promotional activities. These locations are:

ITES Special Economic Zones •

India – International High Tech Park, Bangalore

•

Canada – University of Waterloo Research and Technology Park

•

Philippines – Ayala Technohub, Manila

•

Poland – Invest Park

•

Egypt – Smart Village, Cairo

•

Mauritius – Cyber City

•

Malaysia – Cyberjaya Flagship Zone

Manufacturing Export Processing Zones •

China – Dalian Hi-Tech Zone

•

Vietnam – Saigon Hi-Tech Park

Special Economic Zones •

Panama Pacifico

A comparative analysis of SEZ policy and legal regime

109

Special manufacturing and IT enabled services zones The following section provides a detailed case study analysis of Special Economic Zone countries as a basis to benchmark Kenya.

Philippines: The UP-Ayala Land TechnoHub I.

Background: The Philippines The 7,107 island-archipelago of the Republic of the Philippines is located in South East Asia, between the South China Sea and the Philippine Sea, with neighbours Vietnam to its west, Taiwan to its north, and Indonesia to its south. The country is divided geographically from north to south into three major islands—Luzon, Visayas, and Mindanao—the first being the largest and home to the nation’s capital, Manila. With a population growth rate of 1.96%, there are approximately 97 million Filipinos at present, 65% of whom reside in urban areas.16 GDP per capita (PPP) is estimated at $3,30017 and the country ranks 105th of 182 countries in terms of the Human Development Index by the United Nations. The official languages of the country are Filipino and English, and with population literacy18 pegged at 92.6% and a labour pool of around 38 million, the Philippines is currently one of the most attractive destinations for BPO firms in the world. Outsourcing and offshoring has become a critical driver of the country’s economy. According to international consulting group, McKinsey & Company, the Philippines supplied $1.7 billion worth of offshore services to the world in 2003, and the industry has continuously been growing since then. In 2006, total revenues from outsourcing and offshoring were at $3.3 billion, with direct fulltime employment of approximately 235,000 Filipinos.19 In 2009, global revenue from IT and BPO totalled $7.2billion and the Philippine share of the market was pegged at 21%.20 The Business Process Association of the Philippines notes that key to the country’s success in the industry are its skilled English-speaking labour pool, its operational cost advantage (which is competitive even against India), world-class infrastructure and facilities, and the government’s special financial incentives for information technology (IT) and IT-enabled services (ITES) investors. Big players in the outsourcing and offshoring industry such as Accenture, Citibank, IBM, Figure 1. Map of the Philippines and HSBC have already made large investments in the country and are planning to expand operations further. Current business lines serviced include contact/call centers, legal and medical transcription, finance, logistics, accounting, animation and software development.

II.

Background: Quezon City With a population of approximately 2.7 million and a growth rate of 2.93%, Quezon City is the largest and most populous city in the Philippines.21 Referred to simply as “QC” by locals, this former capital of the Philippines is located in the northern island of Luzon. With 142 barangays22, the city makes up a big section of the National Capital Region, or Metro Manila, which is the political, economic, social, cultural, and educational center of the Philippines. Metro Manila has the highest literacy rate in the country at 94%, and Quezon City, being home to the best secondary and tertiary schools (such as premiere state institution, the University of the Philippines, and top-ranked private institution, Ateneo de Manila University), has a key role in maintaining this particular human development measure.

16 17 18 19 20 21 22

110

CIA World Fact Book CIA World Fact Book Literacy is defined as individuals aged 15 years and older who can read and write. Business Process Association of the Philippines (BPAP), 2007 Rivette, D., 2010 2007 Philippine Census A barangay is the smallest administrative unit of government in the country.

Konza Technology City

In 2009, Quezon City was noted as one of the top destinations for new businesses in the Philippines by several multinational firms in the country. With exceptional performance in developing smart infrastructure and improving other inputs necessary for a good business climate, such as peace and order and maintenance of a pool of skilled workers, Quezon City now has a competitive edge in the national and even regional arena for attracting ICT investments. A recent joint study by consultancy group, Tholons, and outsourcing media organization, Global Services, ranked Quezon City at 21 out of 50 cities considered “top global emerging outsourcing cities”.

Overview of UP-Ayala Land TechnoHub A. Background and Objective of the Park The establishment of the UP-Ayala Land TechnoHub, a fully integrated information technology (IT) and IT-enabled services Figure 2. Map of Metro Manila, showing the (ITES) community situated within the University of the Philippines location of Quezon City (UP) campus, is considered by the government as a major step in making technology the foundation of the country’s economic development. Inaugurated in November 2008, then Philippine President, Gloria Arroyo, envisioned it to become like Stanford University’s Silicon Valley, a technological centre where innovative and life-changing technological research and developments take place. Developed by the Ayala real estate development company, the techno hub is located within the campus of the University of the Philippines, the country’s premiere institution of higher education, and hosts business-process outsourcing (BPO) companies among other technology firms. Its establishment is in line with the government’s aim of creating technology hubs in strategic points across the Philippines to attract more BPOs and international hardware and software firms into the country and, simultaneously, to train youth into becoming globally competitive programmers and engineers. Outsourced and off-shored operations are currently two major drivers of the Philippine economy. The techno hub is expected to link the technology industry to the academe and contribute to the improvement of the country’s IT industry via collaboration on research and development, as well as create more employment opportunities for the masses. B. Area The 20-hectare techno hub is located in the 37.5-hectare UP North Science and Technology Park within the University of the Philippines campus in Diliman, Quezon City, and runs across the length of Commonwealth Ave. Nearby establishments and landmarks include the commercial center of Philcoa, the Quezon City Memorial Circle (a public park), and the Quezon City Hall among many other government line agencies. With many great colleges and universities nearby, including the University of the Philippines, the Ateneo de Manila University, and Miriam College, the techno hub is positioned very well to recruit talent for handling hi-tech responsibilities.

Figure 3. Location of the techno hub. Source: Ayala Land, Inc

C. Amenities and Features The park is composed of ten buildings strategically designed to accommodate the needs of high-technology firms. It also features a 3-hectare central park with a man-made lagoon at the heart of the park, retail areas (including a bookstore, several restaurants and coffee shops, and convenience stores), campus apartments and a hotel for local and visiting business people. The Tech Portal building at the forefront of the techno hub has spaces for conference rooms, meeting rooms, and exhibit areas, and it also houses start-up companies and “incubators”. In line with its aim to create technology learning laboratories and encourage innovation in the areas of research and development, the techno hub features business incubator facilities where enterprising individuals can work on projects and realize innovative ideas.

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D. Locators and Business Lines Serviced The UP-Ayala Land TechnoHub targets high-technology firms such as those in the fields of telecommunications, information technology (IT) as well as IT-enabled services and business process outsourcing (BPOs) services such as those related to advertising, financial and banking services, software and hardware development, and engineering services. The techno hub’s current locators include the following: 1.

2.

Call Centers / IT-Enabled Services / BPO •

Affinity Express

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BuyOnline.ph

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Convergys

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Webcast Technologies, Inc.

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Pointwest Technologies

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Manulife

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HSBC

Computer / Information Technology (Hardware and Software) •

IBM Business Solutions

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SeaChange

The techno hub presently houses some very interesting business incubates. Current incubators do work on the following technologies:

E.

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Linguistic and Artificial Intelligence Software

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Software Development and Applications

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e-Learning Systems

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Communications Equipment and Hardware/Digital TV Broadcast

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Business Outsourcing Services

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Systems Development for Online Trading

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Business Intelligence Research, Development, Implementation and Support

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Robotic Applications

Marketing and Promotions The UP-Ayala Land TechnoHub is the product of a partnership between the University of the Philippines, and the country’s leading real estate developer, the Ayala Land, Inc. Ayala Land is very much a respected and trusted name in the industry for its ability to provide real estate solutions to many local and foreign firms. Ayala Land, Inc. touts the techno hub as a revolutionary development between the industry and the academe, where the collaboration between the two sectors “produces an environment where innovative technological and entrepreneurial ideas can become commercially viable endeavours.” It also offers a unique and pioneering “campusstyle” environment, its hi-tech and “green” facilities, its assortment of the most popular dining places, coffee shops, and retail stores, and its accessibility. More information about the UP-Ayala Land TechnoHub, including detailed descriptions of the park’s features and leasing information, can be found in the developer’s website at www.ayalaland. com.ph

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UP-Ayala Land TechnoHub Incentives The UP-Ayala Land TechnoHub is registered as a special economic zone under the Philippine Economic Zone Authority (PEZA). The PEZA was established by the Philippine government to encourage and support the development of globally competitive economic zones and attract much needed foreign investments into the country by granting incentives to both economic zone developers and locator firms. As a PEZA-registered economic zone, enterprises within the techno hub can be granted several fiscal and non-fiscal incentives. These incentives are enumerated below.

F.

Fiscal Incentives •

Income Tax Holiday (ITH) or a 100% exemption from corporate income tax for up to 6 years and extendable to a maximum of 8 years.23

•

Upon expiry of the ITH, a 5% special tax on gross income and exemption from all national and local taxes.

•

Tax and duty-free importation of capital equipment, spare parts, raw materials and supplies.

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Exemption from wharfage dues, export tax, imposts or fees.

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Additional tax deduction of 50% of manpower training expenses.

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Value-Added Tax Zero Rating (0% VAT) of local purchases of goods and services, including land-based telecommunications, electrical power, water bills, and building leases.24

•

Exemption from payment of any and all local government imposts, fees, licenses or taxes.25

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Exemption from expanded withholding tax.

G. Non-Fiscal Incentives •

Simplified import-export procedures.

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Non-resident foreign nationals may be employed in supervisory, technical, or advisory positions.

•

Special non-immigrant VISA with multiple-entry privileges for non-resident foreign nationals including investors, officers, employees in supervisory, technical or advisory positions; their spouses and unmarried children less than 21 years of age.

III. Government Support While the PEZA provides direct incentives to attract ICT/ITES firms to locate in the UP-Ayala Land TechnoHub and other PEZA-registered zones, both the national government and local government of Quezon City support the development of ICT parks in many other endeavours. A. Establishment of the Commission on Information and Communications Technology “Towards an ICT-enabled Philippine Society.” The Philippine government sees the development of the Philippine ICT industry as a critical component of the country’s economic development in the coming years. Through the establishment of the Commission on Information and Communications Technology (CICT), the government takes on the specific task of “[developing] the country as a world-class ICT services provider, [providing] government services to stakeholders online, [providing] affordable Internet access to all segments of the population, [developing] an ICT enabled workforce, and [creating] an enabling legal and regulatory environment.” The Commission is tasked to oversee all matters related to the promotion and development of ICT systems, including policy-making, strategic planning, implementation, and regulation. Among the Commission’s programs are “One Million ICT Jobs”, a campaign to improve market conditions and the ICT business climate in the country to attract foreign investments and increase employment opportunities, and “Philippine 23 Four (4) years ITH for a non-pioneer project; six (6) years for a pioneer project; three (3) years for an expansion project. Extensions are granted if the project complies with specific criteria set by the PEZA. 24 Subject to compliance with Bureau of Internal Revenue and PEZA requirements. 25 There is no exemption from real estate tax while under the ITH. However, machineries installed and operated in the zone for manufacturing, processing or for industrial purposes are be subject to payment of real estate taxes for the first three (3) years of operation of such machineries. Production equipment not attached to the real estate are exempt from real property taxes.

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CyberServices Corridor” which is a national branding campaign to make the Philippines a top destination for outsourcing and offshoring and attract ICT/ICTES investments to strategic geographic locations from Northern Luzon to Southern Mindanao. B. Establishment of the Quezon City BPO-ITES Council The local government unit of Quezon City is aggressive in making the city conducive for the ICT industry, especially in attracting BPO firms. With the support of the CICT, the government established a city BPO-ITES council with the mandate of attending to the needs of prospective locators. In 2001, Quezon City became home to a pioneering “cyberpark” in Eastwood City. The city now has 28 registered ICT parks under the PEZA, with the UP-Ayala Land TechnoHub being the biggest. The over-arching objective is to keep on improving the city’s business climate not only by working on smart infrastructure projects and streamlining business set-up processes, but also by working actively on improving its labour pool and the city’s peace and order. The Quezon City BPO-ITES Council has representations from the academe, human capital development sector, telecommunications and technology application sector, property development organizations, and ICT/BPO firms, and government organizations. C. Other Support and Initiatives •

Scholarship for Filipino BPO and Call Centre Workers – a program by the national government to provide training scholarship opportunities for applicants who wish to work in call centres and BPO companies. The program hopes to increase and improve labour pool quantity and quality and meet the growing demand for competent call centre agents, medical transcriptionists, and other IT / ITES workers.

•

Data Privacy Bill – a bill already proposed in the Philippine Congress and currently waiting passage which aims to make outsourcing and offshoring activities in the country more secure.

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Medium-term Philippine Development Plan 2004-2010 – wherein the National Government specifically includes the “reduction of connectivity cost” and “development of ICT human resource” as concrete objectives in its agenda.

•

Real Estate Investment Trust Act – a new law enacted in 2009 which “[allows] the Philippines to participate in the globalization of the real estate investment markets thus contributing to the growth and development not only of the capital market but also the national economy through increased investment activities.”26

•

Service Science, Management and Engineering (SSME) Curriculum – a new curriculum born out of collaborations between outsourcing and offshoring players (IBM in particular) and major schools in the Philippines that aims to train and develop a critical mass of professionals for the industry.

IV. Projections and Milestones The Ayala TechnoHub has been completed and is now fully functioning. Ayala Land is building new techno hubs in other cities such as Cebu City, Bacolod City, Iloilo City, Baguio City and Cavite.

26

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POLAND: Invest Park Background: Poland Poland’s high income economy is one of the healthiest, and is one of the fastest growing within the EU. It stands as the country with the most successful transition from centrally planned to market based economy. With labour costs lower than Western Europe, Poland has emerged as an outsourcing favourite among Central European counterparts. It has good political relations with Western countries, particularly the US and UK. It has become a suitable nearshore partner for IT and software services and high-value BPO services. In the onset, Poland outsourcing is primarily a BPO/Shared Services industry with ITO restricted to smaller scale local players – with captives forming more than half of the industry. In the recent years, an increase in IT outsourcing from neighbour EU states, specifically interest from manufacturing, finance and banking, telecommunications, and energy sectors to outsource their IT services, has supported Poland’s bid as the most viable nearshore destination even as Czech Republic, Slovakia and Hungary are slowly gaining small shares of the market. Poland has become the destination for embedded software and systems, mobile applications, graphical user interface development, web development, business process automation, and other high-end programming. Western countries have seen the value in collaborating with Poland’s well-educated programming and development teams. The quality of the country’s talent pool has made it an interesting location for technology research and development investments. Another advantage of Poland is that English and German are the most common second language spoken by the population, lending to its affinity to client nations of the West. However, resources and operational cost is slowly increasing in the larger, more commercialized cities, especially in Krakow and Wroclaw. Overview: Invest Park, Walbryzch Special Economic Zone (WSEZ) The Walbrzych area is a designated Special Economic Zone in Poland. It was established by the Council of Ministers in 1997, and is being managed by Wałbrzyska Specjalna Strefa Ekonomiczna. Invest – Park forms part of the 40 subzones in the area. It is situated in a highly developed, South Western part with a convenient geographical location. The convenient proximity to borders of Czech Republic and Germany make it favourable for establishing bilateral connections and cooperation. The subzones are well connected by a healthy transport network of roads, railway systems, and highways, in addition to the accessible Copernicus International Airport at nearby Wroclaw. Among the main share holders of the zone are the Treasury of State, and Agency of Industry Development. The task of WSEZ is to run a promotion of investment, land development, and development of infrastructure and a fully qualified service for the investors. Invest Park was primarily established because the coal mines in the Wałbrzych area were closed down in the early 1990’s. There was huge unemployment of skilled industrial, mining, mechanical and electrical engineers. This part of Poland is ripe with its industrial relations in the region bordering Germany and the Czech Republic. The intention was to build a zone that would foster this advantage. The Walbrzych Special Economic Zone INVEST-PARK will continue to operate until 31 December 2020. Area Today, the park is 16.85 million square meters large – the original area designated for the economic zone back in 1997 was 256,000 square meters. The total number of employees working in the park distributed among the 158 locators is 30,000. The areas offered to investors are undeveloped green-field sites. The region where the WSEZ “INVEST-PARK” operates has remarkable economic potential, and a good supply of labour. A factor

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to consider from an investment standpoint is the relatively low cost of labour, in comparison with similarly developed areas in neighbouring countries and even with other regions in Poland. These, coupled with a nearby harbour, are some of the location dynamics expected by investors. Milestones and Government Support The total investment placed on the WSEZ is currently (2010) valued at USD 4.3 Billion. Most of which comes from the industrial and manufacturing sectors. The growth of investment coincides with the increase in total investment in land area, which was enabled by the amendment on the Act on Special Economic Zones, enacted in 2004.

An investor considering Poland as a target destination may benefit from multiple investment incentives, in particular: • Structural funds and national programmes intended for:

•

1.

Investment grants and creation of new jobs

2.

Grants for research and development activities

3.

Grants for other activities related to environmental protection, training, logistics, renewable energy sources

Income tax exemptions for business activity in special economic zones 1.

For large enterprises – from 30% to 50% of eligible costs

2.

For mid-sized enterprises27 – from 40% to 60% of eligible costs

3.

For small enterprises28 – from 50% to 70% of eligible costs

•

Real estate tax exemptions (in certain communes)

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Technology parks offering infrastructure for high-tech and R&D companies

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Preferential tax allowances to purchase new technologies

•

Preferential tax allowances for R&D centres

27 Mid-sized enterprises are those with less than 250 employees and an annual turnover less than EUR 50 million, or a total annual balance less than EUR 43 million. (Cit. KPMG Guide to SEZ in Poland, 2009) 28 Small enterprises are those with less than 50 employees and an annual turnover or total annual balance less than EUR 10 million. (Cit. KPMG Guide to SEZ in Poland, 2009)

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WSEZ INVEST-Park Incentives Entrepreneurs investing in the WSEZ “INVEST-PARK” enjoy the following incentives: •

•

Public assistance amounting from 40%-50% of incurred new investment cost (depending on where the locator is situated) or two year labour cost of new employed workers. (New employed workers are full time employees employed within a 1 year operating period) 1.

From 40% up to 60% in Lower Silesia Province and Wielkopolskie Province.

2.

From 50% up to 70% in Opolskie Province and Lubuskie Province, in case of medium-sized entrepreneur.

3.

From 40% up to 50% in Lower Silesia Province and Wielkopolskie Province.

4.

From 50% up to 60% in Opolskie Province and Lubuskie Province, of investment costs borne or twoyear labour costs of new employed employees.

Small to medium size investors get 10-20% economic assistance.

Furthermore, the entrepreneurs investing within the area of WSEZ can obtain public aid in the form of corporate income tax exemption based on new investment’s costs or creation of new workplaces. In case the entrepreneur benefits from public aid allocated for the new investment’s costs, he can obtain public aid of up to 50% of investment costs which qualifies for inclusion in the public aid in Opolskie Province and Lubuskie Province and up to 40% in Lower Silesia Province and Wielkopolskie Province. The costs qualified for the public aid include: 1.

Purchase price of the ownership title or perpetual trust right to the lands

2.

Purchase price or costs of manufacturing, within one’s capacity, of fixed assets, provided that they are classified, under separate regulations, as elements of taxpayer’s property;

3.

Costs of extension or modernization of the existing fixed assets;

4.

Purchase price of intangible assets connected with the transfer of technology through the acquisition of patent rights, licences, know-how or unpatented technical knowledge;

5.

Costs connected with lease of lands, buildings and structures, provided that the lease period shall be at least 5 years, and in the case of small and medium-sized enterprises – at least 3 years counting from the expected date of new investment termination;

6.

Purchase price of the assets other than lands, buildings and structures covered by the lease, if the lease has the form of financial leasing and covers the obligation to purchase assets upon the expiry of lease period.

V. Locators: About 158 companies have located in the area. These include: Toyota, Cadbury, Cersanit, Faurecia, NSK, General Electric, Metzeler, Henkel – Ceresit, Whirlpool, FagorMasterccok, Electrolux, Bridgestone, Colgate Palmolive, IBM and Marcegaglia Poland.

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Business Lines Served Most of the locators are running industrial work and manufacturing. Among their lines of business are automotive, engine design and parts, glass and metalwork, electronics and communication, medical electronics and other equipment, building construction and finishing materials, household appliances and other home equipment, ceramics, packaging, rubber and plastics, and pharmaceutical products and knowledge process outsourcing.

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Egypt: Smart Village Cairo I.

Background: Egypt

Egypt is the second wealthiest nation in the African continent29, located south of the Mediterranean Sea, west of the Red Sea, and in between North African countries, Libya and Sudan, and Middle Eastern countries, Israel, Jordan, and Saudi Arabia. With approximately, 78.8 million citizens, Egypt is also the third most populous country in the continent,30 following Nigeria and Ethiopia, respectively, and is ranked by the United Nations at 123rd of 182 countries in terms of the human development index. The nation’s capital is Cairo, located in the northeast, right on the northern part of the famous Nile River. Egypt has steadily been growing as a player in the global outsourcing and offshoring industry in recent years. One of the comparative advantages the country enjoys is its strategic geographic location, being right in the middle of Europe, Asia, and Africa. Coupled with having a strong economic base and ties in the region, Egypt is indeed advantageous for firms that do, or are looking into doing, Figure 4. Map of Egypt. Source: The CIA World Fact book business in the Middle Eastern and African markets. The country is also emerging as one of the destinations with the most advantageous human capital. Approximately 330,000 students graduate each year, of which over 90,000 major in commerce, science and engineering,31 ensuring an abundant labour pool of educated, skilled and multilingual workers. Egypt has a cost-effective human resource, with the average Egyptian programmer being hirable at $4-10 per hour depending on factors such as skills, languages, and experience.32 Even non-personnel costs (e.g., IT and Telecom costs, rent and maintenance costs), are at a level which are competitively at par with India and the Philippines. Lastly, the country boasts of having one of the most high-tech infrastructure facilities in the region, especially in telecommunications and internet connectivity. Major firms such as Microsoft, Hewlett-Packard, and Alcatel already have their operations in the country, proving Egypt to be a strategic destination for high-tech companies in the region.

II.

Background: Cairo

Abounding with ancient culture yet modern, Cairo is a preferred destination for both foreigners and locals from other parts of Egypt. Among the attractions are the Nile River, museums, and historical landmarks. Also, it has good clubs, restaurants and shopping centres. With approximately 17 million in population, Cairo is the 16th most populous city in the world.33 It is Egypt’s most metropolitan area; it has the best infrastructure and high-technology facilities, including telecommunications, internet connectivity, and transportation networks, making it the top destination for commerce and IT operations in the country. Furthermore, the city is home to the nation’s and the region’s best local and international universities, such as Cairo University, the American University in Cairo and German University in Cairo, all of which add approximately 133,000 graduates every year to the labour pool.34

Overview of the Smart Village Cairo a.

Background and Objective of the Zone Smart Village Cairo is one of the first of several high-technology parks that the Government plans to establish in various districts in the country.

29 30 31 32 33 34

In terms of GDP (PPP) in 2009. Source: The CIA World Factbook The CIA World Factbook Information Technology Industry Development Agency – Egypt The Ministry of Communications and Information Technology Information Technology Industry Development Agency – Egypt Information Technology Industry Development Agency – Egypt

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b.

Area The Smart Village is located in the western suburb areas of the Cairo metropolitan area. It has approximately 3.2 sq. kilometres of land area. Currently, it has already 50 operational buildings, with a total of 0.37 sq. kilometres in office space. Another 28 buildings are under construction which will add an additional 0.19 sq. kilometres of office space.

Figure 5. Layout of Smart Village Cairo. Source: www.Smart-Villages.com\

c.

Amenities and Features The Smart Village features the most advanced ICT infrastructure in Egypt. This includes high-speed networks for data, voice and video transmission; VPN connection and VoIP capabilities; video conferencing systems; and state-of-the-art power networks that meet international standards and which provide an uninterrupted power supply to the park’s locator companies. Aside from these, the park also provides very unique services for the convenience of its tenants, including: •

Engineering and consultancy services. The park’s management provides guidance for the selection and tendering of qualified contractors for locator companies that would prefer to build their own office buildings.

•

Facility management. Services such as building operation and maintenance, cleaning and janitorial, security and access control, are provided so locator companies can focus on tending to their core business operations.

•

Catering and events management for onsite organisations.

•

Business support services. Including the provision of transportation services, copy centres, and travel services.

Smart Village Cairo also features other essential amenities including, among others, a school and nursery, which are important for working parents; a Club, which features several sports facilities and a spa; restaurants and cafes; a health and emergency services center; a public library; and a hotel. d. Locators and Business Lines Serviced As of the beginning of 2010, there were approximately 120 firms present in the park with over 28,000 foreign and local professionals. The main business lines serviced are in information technology (IT) and IT products, telecommunications, business process outsourcing and contact centres, financial and banking services, and healthcare.

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Present locators include international and local firms such as,35

e.

•

Alcatel

•

Arab Bank

•

Egypt Stock Exchange

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Ericsson

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Hewlett Packard

•

HSBC

•

IBM

•

Microsoft

•

National Bank of Egypt

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Nokia

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Oracle

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Telecom Egypt

Figure 6. The HP and Microsoft Office Buildings in Smart Village Cairo. Source: www.Smart-Villages.com

Marketing and Promotions The developer behind the Smart Village Cairo is the Smart Villages Company. Founded in 2001, the company uses a “public private partnership” investment model, where 80% of ownership is by the private sector and 20% is by the Egyptian Ministry of Communications and Information Technology. The company aims to lead the establishment of technology and business clusters and parks across Egypt and other key cities in the region, which will feature high-tech facilities and amenities that can attract foreign and local businesses, and through which “creativity and innovation are enhanced.” Smart Villages Company ensures high-quality urban planning, incorporating stylish and innovative architecture with durability and functionality. Visit www.smart-villages.com and learn more by downloading the company’s electronic brochures. Prospective investors can also visit the company’s media centre on the website to view Smart Villages Company newsletters and press releases.

Smart Village Cairo Incentives The Egyptian government is determined to create a hospitable business environment in the country. It is currently offering various incentives and protection for prospective locator firms. In the newly established legal framework, the Egyptian government allows for: •

100% ownership of companies;

•

100% foreign representation on the board of directors;

•

Full rights to profit and dividend repatriation in any currency;

•

Protection against expropriation;

•

Protection against double taxation through international treaties;

•

Protection against compulsory pricing;

•

Transfer pricing assessment on the “arm’s length” principle. Provisions for several fiscal incentives including:

35

•

Special tax exemptions and reductions for ICT industries;

•

Reductions in land prices for investors; and

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Easing of export and import regulations.

For a more complete listing, visit http://www.smart-villages.com/docs/community.aspx

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III.

Government Support

The protections and fiscal incentives cited above are all part of certain legislations already passed in the Egyptian government that aim to make outsourcing and offshoring flourish in the country. These laws, aside from making provisions for fiscal incentives to potential investors, also provide other forms of support:

IV.

•

The Investment Law 8 of 1997 articulates the fiscal incentives granted to investors as well as mandates the establishment of the General Authority for Investment and Free Zones, which serves as the body of authority for managing special trade zones in the country.

•

The Intellectual Property Law 82 ensures that patents, trademarks, and copyrights are protected by law in Egypt, and ensures that outsourcing and offshoring activities in the country are secure.

•

The Electronic Signature Law 15 of 2004 makes electronic transactions more secure. It also allowed for the establishment of the IT Industry Development Organization, which is tasked to regulate electronic signatures and digital certificates required to conduct any electronic transactions in Egypt.

•

The Labour Law 12 of 2003 articulates the rights and privileges of firms and employees in the land, and ensures a stable economy via smooth company-employee working relationships in the country.

•

The Egyptian government also assigns a specific government official that facilitates interaction between company and government organizations to ensure efficient company operations.

•

The government also provides subsidies for training potential employees in IT, communications and networks, according to investor specifications. Furthermore, it has several educational programs (e.g., EduEgypt) that specifically aim to train the talent pool in preparation for BPO and ITO work. Projections and Milestones

Construction within Smart Village Cairo is ongoing and the Egyptian government anticipates having over 500 local and international firms present in the park with more than 100,000 employees by 2014. Smart Villages Company is already planning to establish similar parks in other Egyptian cities. These include the (1) Smart Village- Damietta Business and Logistics Park and (2) Smart Village - Alexandria Business Park, which are both located in the northern coastal part of Egypt bordering the Mediterranean Sea.

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China: The Dalian Hi-Tech Zone I.

Background: China

China is located in Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Bay, and South China Sea, and neighbouring the nations of North Korea, Mongolia, India, and Vietnam, among others. It is the most populous nation in the world with approximately 1.3 billion citizens36 and is categorized by the United Nations under “medium human development,” ranking

Figure 7. Map of the People’s Republic of China. Source: The CIA World Factbook.

92nd of 182 countries in terms of the human development index (HDI). The capital is Beijing, located northeast of the country. In the last 30 years, China has evolved from being largely a closed economy to one that is very internationalized and market-oriented. Since then, it has developed a rapidly growing private sector and has very quickly established itself as a major force in the global economy. At present China has already surpassed Japan as the 2nd biggest economy in the world. From 2002 to 2007, it recorded staggering double-digit GDP growth rates. Growth mellowed down in 2008 in the advent of the global economic crisis but remained impressive nonetheless at 9.3% considering that many countries across the world struggled to avoid economic recessions.37 Estimated GDP per capita (PPP) for the current year (2010) is pegged at USD 6,600.38 Today China is increasingly becoming one of the most conducive destinations for outsourcing and offshoring, competing with Asian neighbours, India and the Philippines. Recognizing its potential, the Chinese government has been determined in the past years to shift focus from its manufacturing and industrial sectors to a more service-oriented industry. Recent estimates already show the country housing more than 3,000 outsourcing providers, garnering a 3% share of the global BPO market next to India’s 51% and the Philippines’ 21%.39 Its biggest international clients in terms of revenue are the United States, the United Kingdom, Japan and Korea. Key to China’s success is its cost-effectiveness: it has a large pool of highlyskilled workers who are hireable at a very competitive labour cost. With this shift of focus to the services industry, many cities in China are emerging as outsourcing hubs. Background: Dalian City Dalian City is one of the said emerging outsourcing hubs for outsourcing and offshoring in China. A coastal city located on the southern tip of the northeastern province of Liaoning. It has a land area of about 2,415 sq kilometres, and a resident population of 6.1 million.40 As a shipping hub and an industrialized city, Dalian City posted a GDP per 36 37 38 39 40

The CIA World Factbook Tholons China Paper - Bautista, C.L., 2010 The CIA World Factbook Tholons China Paper - Bautista, C.L., 2010 Shiu On Land, ____.

Figure 8. Dalian City. Source: www.OregonLive.com

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capita of approximately US$ 10,669 in 2009, clearly proving to be one of China’s economic hot spots.41 The economic prowess of the city can be attributed to different factors. First, its proximity to two of China’s biggest business partners, Japan and Korea, is a huge advantage, whereby being only a few hours away by plane from Tokyo or Seoul, Japanese and Korean firms can apply a more hands-on involvement in their China operations. Furthermore, the proximity (as well as China’s history with the two countries) allows for a number of Dalian’s population to be fluent in both Japanese and Korean languages. This is critical not only for the two Asian countries but also for western companies who are doing business in the Japanese and Korean markets. Second, Dalian is home to around 22 colleges and universities and about 189 thousand students.42 These colleges and universities churn out thousands of students with IT degrees every year, and with the many schools for learning foreign languages around, graduates are increasingly becoming proficient not only in the Japanese and Korean languages, but also in English.

Overview of the Dalian High-Tech Zone (DHTZ) a.

Background and Objective of the Zone The special economic zone called Dalian High Tech-Zone (DHTZ), first sanctioned by the Chinese government in 1991 and now established in China’s northeastern port city of Dalian, is proving to be one of the best hubs for business processing outsourcing operations in Asia and in the world. In full recognition of the growing demand for outsourcing and offshoring, the 150 square kilometre zone is part of China’s strategy to develop “the Grand Dalian in the 21st century” and indeed one of the country’s impressive and aggressive attempts to modernize and compete with favoured global BPO destinations such as Bangalore, India. The zone is being developed in phases. The first phase involved the establishment of two parks within the zone, the Dalian Neusoft Park and Dalian Software Park, both of which have been operational for over a decade now and is already home to a number of local and foreign firms. The second phase, aimed to be completed in the next decade, will house the Dalian Ascendas IT Park and the Dalian Tiandi Software Hub. Dalian Neusoft Park At the heart of the DHTZ is the Dalian Neusoft Park, which is one of the four corporate campuses of China’s largest IT solutions and service provider, Neusoft. The park has Neusoft’s software research and development base, its institute of Information and Technology, and the International Cooperation Industrial Area. With about 0.3 sq. kilometers of floor space, the park is utilized by around 15,000 students, engineers and IT professionals. The park’s business model is unique. It does not offer any office space for external companies to set-up BPO or ITO operations but instead makes full use of Neusoft’s own employees to work on behalf of other firms.

Figure 9. Dalian Neusoft Park. Source: www.LiaoningGateway.com

In 2008, Neusoft expanded its operations by opening another park in Dalian which will be home to the firm’s three business solutions for telecom, electric power, and finance as well as its car electronics R&D centre and leadership development centre. With the creation of the second park, Neusoft intends to do bigger business in the European, American, Japanese and Korean markets. Dalian Software Park Whereas the Dalian Neusoft Park does not offer space for external firms, the Dalian Software Park is already 41 42

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Ibid. Dalian Foreign Trade and Economic Cooperation Bureau. (2007).

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Figure 10. The Dalian Software Park. Source: blog. ServiceOutsourcing2China.com

home to 450 companies, of which 43% are foreign-funded and most of which are doing business with Japan. The park is already home to Fortune 500 companies including the likes of Accenture, Cisco, Convergys, HP, HSBC, IBM and SAP. The park is privately owned by Dalian City leading real estate developer, Yi Da Group, and is managed through its subsidiary, DLSP Company. It has approximately 3 sq. kilometres of land space, and about 0.25 sq. kilometres of office space which is already staffed by about 45,000 local and foreign workers. Total revenues from the operations in this park have grown from about US$ 30,052,591 in 1998 to around US$ 3 billion in 2008. Due to the success of this software park, a second phase is underway which will involve the construction of the following two additional parks. Dalian Ascendas IT Park A joint venture between DLSP and Ascendas, one of Asia’s best providers of business space solutions, Dalian Ascendas IT Park was launched in 2006. In 2007, the first office building was already completed. Since then, more than 20 companies from the BPO, software development, and consulting industries have already located in the park, employing approximately 3,000 people. The project is expected to be a fully integrated business park by 2011. Aside from office space, the park will feature a commercial area with retail and recreational stores. Dalian Tiandi Software Hub To be a “complete living environment” is the overall vision for the Dalian Tiandi Software Hub. The park aims not only to attract foreign investments but also to entice and retain skilled talents by creating world-class, ultra modern and trendsetting, fully-integrated neighbourhood for working and living. The hub is being made possible through a partnership between Shui On subsidiaries and Yi Da group. Dalian Tiandi features 26.5 sq. kilometres of land area with approximately 3.54 sq. kilometres of office space. Aimed to become a conducive living environment, the hub will include eco-friendly residences, international schools, hotels, restaurants, cafes, and shopping stores, and a city light rail train. Launched in 2007, completion of this latest sub-park in the DHTZ is aimed at the year 2020. b.

Area Dalian City is the largest IT base in China with over US$ 2.1 billion in revenues generated from its software industry in 2006. Key to its success in the IT industry is the many IT and foreign language schools and universities available in the area that ensures a constant pool of highly skilled software developers, engineers, and other IT workers who are fluent in Japanese, Korean and increasingly, English. Located on a peninsula with a scenic view of the sea and bestowed by the United Nations Environment Program with the “Global 500” award for human habitation and excellent living environment, Dalian is considered not only as one of China’s top destinations for learning, working and living, but also as a favourite tourism spot. It features many tourist attractions, including several parks and gardens, beaches, museums, and theme parks.

c.

Amenities and Features Having the Dalian Zhoushuizi International Airport and the port of Dalian in its location, as well as a strategic network of highways and roads and other transportation infrastructure, the DHTZ is an accessible destination. Its being a coastal location especially makes the zone a logistically strategic spot in terms of doing business with neighbouring nations of Korea and Japan. Each sub-park in the zone comes with its own unique features, depending on what type of companies it aims to accommodate. Whereas Dalian Neusoft Park is quite focused on providing a business and educational environment, the other sub-parks aim to provide not only world-class business offices but also a “new life style” environment. Dalian Software Park, Dalian Ascendas IT Park, and the Dalian Tiandi Software Hub have amenities such as shopping centres, restaurants, convenience stores, coffee shops, banks, hotels, and fitness centres. Indeed, these parks are geared not just for attracting investments, but also for attracting—and keeping—skilled workers.

d. Locators and Business Lines Serviced DHTZ is currently home to over 3,000 companies, more than 30% of which are foreign-funded. The primary industry in the zone is on IT and ITES, but manufacturing industries, especially those related to semiconductor, biotechnology and advanced equipment are also present. IT and ITES services provided include those in software development, consulting, BPO, IT services, engineering design and technical support. The Dalian Tiandi Software Hub is geared to serve companies with considerable presence in Japan and to provide services in desktop publishing, financial service

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outsourcing, embedded software development, and digital information centres.43 DHTZ boasts of housing over 60 companies belonging to the Fortune Global 500 companies. Some of the companies in the zone include:

Accenture, Avaya, BearingPoint, BT, Canon, Carrefour, Cisco, Citigroup, Convergys, Dell, DHC, Ericsson, Fidelity, GE, Genpact, Goodyear, HP, HSBC, Hitachi, Hyundai, IBM, Intel, Konica, Minolta, LG Industry, Liebherr, Mabuchi, Matsushita, Microsoft, NetApp, Nokia, NTT, Oracle, Panasonic, Pfizer, Posco, SAP, Sanyo, Siemens, Sony, Toshiba, Total, Toyota, ThyssenKrupp, Wal-Mart. e.

Marketing and Promotions With China’s and Asia’s leading real estate developers behind the DHTZ, including Dalian City’s Yi Da Group and Ascendas, the DHTZ is increasingly recognized internationally as a preferred destination for firms that want world-class quality business facilities and amenities. Indeed, the DHTZ is now considered the most modern and internationalized IT hub in northeast China, if not in the whole country, and has garnered national awards including, “Model City for Internalization of the Software Industry” and “Outstanding Industry Park of China Sourcing.” With its well-designed living accommodations as well as its provision of first-class amenities, the DHTZ is also recognized as an ideal environment for living and has been cited by the United Nations as one of the most liveable cities in the world. In May 2010, the local government of Dalian City enlisted the help of consulting firm, J.D. Power and Associates, and Chinese educational and career enhancement services provider, Ambow Education, to assess Dalian City’s competitiveness and capabilities through the development of a new “Readiness Index”. The aim of this assessment is to help Dalian improve its competitiveness as an outsourcing and offshoring centre and in turn continue to improve its image to foreign companies in the coming years.

Dalian Hi-Tech Zone Incentives In order to encourage locator companies as well as workers to settle in the DHTZ, the Chinese government provides many preferential policies and fiscal incentives to prospective firms and employees. The highlights of the DHTZ incentives are described in the following. A. Firm Incentives Aside from enjoying world-class and ultra-modern facilities, firms establishing in the DHTZ are entitled to certain fiscal incentives:

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•

Firms recognized as high-tech enterprises in the DHTZ enjoy a 15% reduction in corporate income tax.

•

Qualified software firms establishing in the DHTZ are entitled to a full 2-year exemption from corporate income tax, and a 50% reduction in the subsequent 3 years. After these 5 years, qualifying software companies can receive additional reduction to their income tax to a rate of 10%. All software companies can deduct salary and training expenses from their taxable income.

•

Qualifying export-oriented enterprises in the DHTZ can enjoy a lowered rate of 10% corporate income tax rate after the 5-year favourable treatment described above if 70% or more of their total product value are exported in a particular year.

•

Technically advanced enterprises can enjoy 3 more years of favourable corporate tax income rate of 10% after the first 5 years of favourable treatment.

•

Integrated circuit companies enjoy certain incentives particular to their industry (e.g., favourable equipment depreciation policies) while also enjoying the same incentives software companies have as described above.

•

Both companies selling software products which are developed in-house, and integrated circuit companies, are eligible for certain VAT reimbursements under certain conditions.

•

Specific preferential tariff policies can exempt hi-tech firms from import duties and import product taxes. Importation of hi-tech equipment and instruments which are unavailable in China is exempt from duties.

•

Exported products by manufacturing companies in the DHTZ, considered unrestricted by the government, are exempt from export duties.

Clubb, G., 2009

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B. Individuals In the special economic zone of the DHTZ, individual employees of companies also receive incentives. These incentives are intended to attract and retain professionals to locate in the zone:

II.

•

Permanent residency can be granted to Chinese professionals with special skills along with their spouses and children.

•

40-100% of income tax can be refunded to software technicians, managers, overseas scholars and foreigners employed at software companies in the DHTZ who have a significant level of experience and labour value.

•

Under certain conditions, experienced and urgently-needed talent from other places who are coming to work in Dalian for the first time can receive a settling-in allowance.

Government Support

Aside from fiscal incentives, the Chinese government supports the DHTZ by providing non-fiscal incentives such as educational and training opportunities for potential employees to ensure a constant supply of skilled labour. Furthermore, the government has been determined in creating initiatives that aim to entice Chinese citizens who have migrated abroad to study or work to return to China and set up businesses or take positions in local companies. For example, proponents of the Dalian Tiandi Software Hub are planning to establish an IT Talent Foundation and Scholarship in partnership with the local government of Dalian City to encourage talent and skill creation in the zone. The local government is also providing assistance and subsidies amounting to USD 15,026 per year to local colleges and universities which are engaged in pre-job training of potential IT and ITES employees, the aim of which is to construct a software talent supply and training base. In addition to recruitment incentives, the Chinese government is increasingly providing varied forms of support to Chinese people who return home to set-up businesses. In this regard, the Ministry of Human Resources, with the Ministries of Education, Science and Technology, and Finance, has developed a formal policy, “Guidelines on Encouraging Overseas Chinese Students to Return to China” to help guide local governments as to how to go about supporting returning potential entrepreneurs. In October 2009, the local government of Dalian City launched the “Tens, Hundreds and Thousands” initiative, which is a program that aims to entice highly skilled scientific and technological individuals to return to China by providing them with varying amounts of seed capital and other fiscal incentives. III.

Projections and Milestones

As the industry for outsourcing and offshoring continues to grow, so does the scale of operations in the DHTZ continue to expand. Though already completed, the Dalian Neusoft Park and Dalian Software Park are both expanding with the addition of new facilities and new building to meet the growing demand for hi-tech business solutions. The completion of Dalian Ascendas IT Park and the Dalian Tiandi Software Hub is underway. Dalian Tiandi is playing a big part in China’s quest to develop Dalian as an ultra-modern industrial base that will compete in the global market for hi-tech services. Other planned expansions include the establishment of various sub-zones, including zones on software development, research and development, information service, education and training, public services, and communication technology. The DHTZ has already made strides in making itself known as a key ITO and BPO services centre in the world. Though at present Japanese locator companies still dominate the zone, Western companies looking for cost-effective outsourcing opportunities will find the DHTZ increasingly attractive as it continues to expand and improve its incentives for both firms and prospective workers.

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Vietnam: Saigon Hi-Tech Park I.

Background: Vietnam

Located in Southeast Asia, Vietnam borders China, Laos and Cambodia, as well as the Gulf of Thailand, South China Sea, and the Gulf of Tonkin. With approximately 89 million inhabitants, it is the 13th most populous country in the world, and 8th most populous in Asia. The median age of the population is 27 years, and about 28% of the Vietnamese reside in the country’s urban areas.44 Vietnam has done well in recovering from war and moving past a centrallyplanned economy to a more liberalized and internationally-integrated one over the last 30 years. Following the implementation of the Doi Moi (“renovation”) policies in 1986, the government has made strides in making structural reforms that are important for modernizing the country and establishing globally competitive industries. Vietnam recently joined the World Trade Organization (WTO) and is also a member of the ASEAN, formally taking its place in the global market. Foreign direct investments surged from USD 2.3 billion in 2006 to USD 9.3 billion in 2008. Investments went down in 2009 due to the economic crisis at USD 6.9 billion, but are expected to bounce back this current year to USD 7.6 billion.45 GDP per capita (PPP) is estimated at USD 2,900 (2009).46 In terms of the United Nation’s Human Development Index, Vietnam ranks 116th of 182 countries. The Information Technology (IT) industry in Vietnam is still very much in its nascent stage, although it has slowly been gaining recognition in the global IT landscape over the years. With a population literacy of 90.3%,47 the Figure 11. Map of Vietnam. Source: The CIA Vietnamese government highlights its young, skilled and educated work World Factbook. force. The country’s education system has a strong focus on natural sciences, creating a labour pool appropriate for common IT outsourcing services such as programming and development and also for manufacturing activities. Of importance is the government’s commitment to facilitating a more competitive cost of doing business in Vietnam. Salaries of IT professionals and property costs in the country are among the lowest in the world and are competitively comparable to China and India. In its latest Global Competitiveness Report, the World Economic Forum ranks Vietnam at 59th of 139 countries in terms of its global competitiveness index. Large Asian outsourcing and offshoring players China, India and the Philippines, rank 27th, 51st, and 85th respectively.48

Background: Ho Chi Minh City Ho Chi Minh City, formerly known as Saigon, is located in Southern Vietnam and has approximately 7.2 million inhabitants.49 The city is known for its unique mix of eastern and western cultures: while it is home to the finest Vietnamese cuisines, for example, it also hosts many international hotels and restaurants and other hip establishments. Many parts of the city still maintain the French architecture from its past, which gives it an old-world charm that many visitors appreciate. Ho Chi Minh City has had one of the fastest economic growth rates in Vietnam, averaging around 10.2% in the early 2000s, and posting an impressive GDP per capita of USD 1,800 in 2004.50 With about 2,837 total foreign direct investment projects as of 2008, and around USD 24.4 billion in registered capital51, the city is considered as one of the economic hotspots of what is referred to as the Southern Economic Zone of the country. Together with the country’s capital, Hanoi, Ho Chi Minh City is Vietnam’s leading destination for the IT industry. It currently has approximately 6,000 people working in the IT sector, and the schools and universities around the city are estimated to be adding 3,000 workers to the total city workforce annually.52 At present, international IT firms such as IBM, Intel Corporation, Telecom, Siemens, Fujitsu, and Hewlett Packard are operating in the city. Two main factors that contribute to the city’s success in attracting investments 44 45 46 47 48 49 50 51 52

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The CIA World Factbook Asian Development Bank The CIA World Factbook The CIA World Factbook Guardian News, 2010 Vietnam General Statistics Office HCMC Department of Planning and Investment Vietnam General Statistics Office HCMC Department of Planning and Investment

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are its human resources and rapidly developing infrastructure. The city has 94% literacy rate, with 30 universities and 27 vocational schools, as well as several English schools, spread out in the city. According to the Ho Chi Minh City Department of Planning and Investment, the city also has the best and most cost-effective telecommunications infrastructure in the country, as well as the most modern transportation systems.

Overview of the Saigon Hi-Tech Park a.

Background and Objective of the Park Launched in 2002, the Saigon Hi-Tech Park is envisioned to be a “Technopolis” – an economic hot-spot, and the technological and intellectual base of Ho Chi Minh City and ultimately, of Vietnam. As the first of its kind in the country, the park sets the country’s standard for technological innovation and knowledge capital development, with the ultimate goal of contributing to the industrialization and modernization of the Vietnamese economy. The Vietnamese government is determined to get a share of the global high-technology market. In creating the park, it establishes a financially and technologically-conducive environment for investments in high-technologies. It intends to attract major multinational companies, including those in manufacturing, research and development, contact and data centres, software development industries, and encourage the transfer of technological know-how to its own local companies. Through the park, Vietnam wants to foster collaborations between foreign and local firms, schools, and government agencies, which hopefully will build its high-technology sector, train its human resources, and inform its national high-technology policies. As of the current year, the park has attracted over USD 1.7 billion in capital and has generated revenues of over USD 1.1 billion since its establishment. The management expects investment capital flow of up to USD 150 million this 2010 alone.53

b.

Area The Saigon Hi-Tech Park has approximately 9.13 sq. kilometres of land space which is being developed in two phases. The first phase, comprising 3 sq. kilometres, has been fully operational since 2006 and is now 95% occupied. The second phase commenced development this 2010 and is targeted to be completed in 2013. Located in District 9 of Ho Chi Minh City, the park is 12 kilometres from the city’s downtown, and is also in proximity to the Saigon Port, the Tan Son Nhat International Airport, and to 43 other industrial parks and export processing zones in Vietnam’s Southern Economic Zone. Also located near the park is Ho Chi Minh City National University, which teaches over 15,000 students in science and technology, among many other local schools and universities.

Figure 12. Location of the Saigon Hi-Tech Park showing its proximity to downtown Ho Chi Minh City and to other industrial parks in Southern Vietnam. Source: http://www.shtp.hochiminhcity.gov.vn 53

Saigon Times, 2010

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c.

Amenities and Features Aside from basic features necessary for a high-technology park such as a world-class power supply, telecommunications and internet connectivity, water supply and treatment systems, and industrial gas infrastructure, the Saigon Hi-Tech Park also features facilities which will be key to achieving the park’s goal of becoming the premier science and technology park in the country. The following are the three functional bodies of the Saigon Hi-Tech Park: 1.

Saigon Hi-Tech Park Research and Development Laboratories The park features several research laboratories, including laboratories in nanotechnology, semi-conductors, precision mechanics and automation, biotechnology, information technology, and new energy. These laboratories were launched to lead scientific research and technological development within the park. Local and foreign firms and even enterprising scientists and other individuals can work with the park’s laboratories in research, testing, and production of newly developed high-technology products. The establishment of the laboratories also aims to attract research talents to Vietnam and Ho Chi Minh City.

2.

Saigon Hi-Tech Business Incubator The park business incubator aims to promote entrepreneurship by providing enterprising individuals an opportunity to test their technological ideas. The aim of the incubator initiative is threefold: (1) to encourage collaboration between the academe and the industry, (2) guide and help increase the survival rate of startup technology businesses, and (3) help create Vietnamese high-technology firms that can compete in the international market. The park business incubator targets the following hi-tech areas: micro-electronics, information communication technology, telecommunications, automation, nanotechnology, biotechnology, pharmaceuticals, among others.

3.

Saigon Hi-Tech Park Training Centre The training centre aims to ensure a constant pool of highly-qualified workers to meet the human resource needs of investors in the Saigon Hi-Tech Park as well as other industrial parks in the city. It aims to tighten the gap between the needs of firms and the capabilities of employees, making sure that prospective workers are equipped with necessary language proficiencies and technical skills. It also supports the companies in the park by providing human resource consultations and assistance in training and recruitment operations.

d. Locators and Business Lines Serviced The park focuses on attracting businesses that are specifically from the following industry sectors: micro-electronics; information technology and telecommunications; precision mechanics and engineering; automation; semiconductor chips; applied biotechnology in agriculture, pharmaceuticals and the environment; nanotechnology; and new and advanced materials. It is determined in hosting hi-tech manufacturing firms, service-providers (including contact centres, data centres, and software development), research and development, as well as innovative business incubates. Since its inception in 2002, the park has granted licenses to 38 projects, totalling USD 1.7 billion in capital from local and foreign investors.54 Present locators include the following global and regional giants: •

Intel Corporation, which has invested USD 1 billion in an assembly and testing plant in the park;

•

Nidec Corporation, a Japanese manufacturing firm for computer parts;

•

FPT, a Vietnamese software research and development firm;

•

Sonion A/S, a Danish manufacturing firm; and

•

Jabil Circuit, Inc., an electronics designing and manufacturing company.

The latest survey shows that there are 17 operational projects at the moment, with more than 10,000 workers.55 e.

Marketing and Promotions To attract global hi-tech companies into the park, the Saigon Hi-Tech Park Management Board, the authority and

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managing body behind the hi-tech park, implements a “5 Readinesses” campaign.56 The goal of the campaign is to ensure that five park features must be ready at all times for the convenience of the park’s tenants and of any prospective investor. This includes the “readiness of land and utilities” – ensuring that all basic amenities such as the property itself, the facilities, including power supply and internet connectivity are ready for use. The park also ensures that all pertinent information regarding investing, including licensing, admissions criteria, zoning regulations and constructions specifications, is readily available. In relation to this, to ensure that information reaches targeted parties, the park management collaborates with local and regional promotional agencies such as the American Chamber of Commerce, the European Chamber of Commerce, and the Korea Trade Investment Promotion Agency, as well as with overseas Vietnamese networks. Third, management ensures “readiness of incentives” wherein the park is authorized by the Vietnamese government to offer incentive packages that include tax and property incentives. The objective is to give prospective companies the lowest start-up and production costs available in Vietnam. Fourth, management ensures that they are ready to accommodate investors by operationalising a one-stop shop application and licensing procedure. The park is authorized to provide application guidance, review and issue business licenses and other permits to potential tenants. Lastly, management ensures a “readiness of workforce” wherein the park collaborates with several educational institutions to ensure that qualified, skilled personnel are available for its locators. II.

Saigon Hi-Tech Park Incentives

Consistent with the park’s “Readiness of Incentives”, the Saigon Hi-Tech Park boasts of preferential tax incentives and competitive property arrangements (e.g., renting and leasing) in the country. Qualifying companies are entitled to the following: •

0% corporate income tax for the first four years, beginning from the first profit making year, followed by 9 years at 5% and 14 years at 10%. Firms also given an extension of exemption and reduction if the company expands its investment.

•

VAT and import duty exemption for equipment and machinery, along with their spare parts, imported as fixed assets; construction materials that are imported for the construction of fixed assets which are not available locally; and other qualifying materials and supplies;

•

VAT of 0% and export duty exemption for high-tech products;

•

Personal income tax incentives for both local and foreign workers employed in companies in the park;

•

Competitive land, office, and factory rentals, and other utility fees with other industrial parks in the region; as well as,

•

Non-fiscal incentives, including: o Multiple entry visas for expatriates; o Specialized one-stop investment application service; and o On-site electronic customs clearance.

III.

Government Support

The Vietnamese government plays an essential role in attracting investors to locate operations within the Saigon Hi-Tech Park. It is conscious of creating a business environment where local and foreign companies can enjoy efficiency, protection, the lowest operational costs and the highest quality human resources. The World Bank ranks Vietnam 13th out of 24 countries in the East Asia and Pacific region, and 93rd for ease of doing business, out of 183 countries worldwide in 2010.57 In continued recognition of the potential economic growth Vietnam can achieve from partaking in the global hightechnology market, the development of its high-tech industry has been one of the main priorities in government agenda. Part of this development is focusing on (1) further upgrading Vietnam’s IT infrastructure, which is aimed to increase total revenue contribution of the IT sector to the country’s GDP and create thousands more of employment opportunities, and (2) increasing its support for educating and training IT human resources to meet the growing demand in the country’s ICT industry for skilled workers.

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IV.

Projections and Milestones

In the beginning of 2010, the park’s management began the development of the park’s second phase. The expansion will develop the remaining 6.13 sq. kilometres of the 9.13 sq. kilometres of land area allotted to the whole Saigon Hi-Tech Park. The second phase will add a high-tech manufacturing area, an R&D and training area, and a business incubator area, among others, and is estimated to cost about USD 300 million.58 An additional line of Ho Chi Minh’s metro system will also be built, connecting the park to the famous Ben Tanh Market and selected residential and commercial areas of the city. The park’s expansion is estimated to be finished by 2013, and the Vietnamese government is determined more than ever to attract multinational high-technology firms to locate operations in the park. According to the park’s development strategy,59 it will continue to focus on attracting investments from hi-tech corporations doing work on micro-electronics, semi-conductors and information technology. With the help of Vietnamese and Taiwanese investors, the park will also continue on developing and further improving infrastructure on telecommunications and internet connectivity, which will be key to attracting high-tech operations as contact centres, data centres, software and web applications development, and other business process outsourcing activities. Lastly, management will continue inviting top technology universities and training institutions to open branches within the park. Collaboration between academe and industry is seen as critical to ensuring a pool of qualified workers for the park’s increasingly diversified tenants.

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Canada: University of Waterloo Research and Technology Park I.

Background: Canada

Canada is part of the North American region with a population of about 33 million people. One of its unique features include its bilingual nature where 60% of the population speaks English while 25% speaks French. As a developed economy, Canada boasts of a GDP per capita of approximately US$48,00060 in 2008. It is also interesting to note that in 2006, both US and Canada had a US$10,000 difference in GDP per capita in favour of the US, however it is now at par with current US GDP per capita highly attributed to the US economic crisis which started in 2007. As one of the countries associated in the NAFTA agreement (North American Free Trade Act), Canada enjoys benefits of a free trade agreement with the number 1 global economy and client market – USA. In fact, 80% of Canada’s yearly exports is absorbed by the US – exports from Canada also contribute to one third of the country’s GDP which highlights the fact that Canada is dependent on the US economy.61 II.

Background: Waterloo, Ontario

With a population of about 12 million people, the state of Ontario is home to more than 33% of total population of the country. Located in Ontario is the city of Waterloo which is considered to be a benchmark in terms of rapid economic development through industrial and telecommunications investments. Waterloo is a city considered as a rural farming community in the early 70s to late 80s which grew as an investment hub for information technology over the last 2 decades –more particularly in the last 4 years.

Overview of the University of Waterloo Research and Technology Park a.

Background and Objective of the Zone

Launched in 2002, this high end Research Park is supported by a comprehensive partnership among various stakeholders such as the Government of Canada, Province of Ontario, the Region of Waterloo, the City of Waterloo, Communitech, and Canada’s Technology Triangle. The park provides a powerfully supportive base for radical, high impact research geared towards innovation. It taps its talent from the student community. Its tenancy is mixed and divided into several thematic compartments. The Accelerator Centre houses Canadian Innovation Centre, Communitech and Ontario Centres of Excellence; Tech Town houses Google; Research Advancement Centre houses engineering; and Innotech Building houses Research In Motion. The goal of the park is the following: •

Create a research environment that will foster the development and commercialization of intellectual capital

•

Attract and retain world-class research and business skills to the Region of Waterloo and the Province

•

Be a catalyst for business and academe to enhance their existing collaborative arrangements

•

Provide employment for high-technology students and graduates

•

Actively anticipate and respond to demand from the business community

•

Provide a long-term financial benefit to the public funding partners

•

Provide a significant economic boost and new jobs for Ontario and the Region of Waterloo

•

Provide alternative transportation options for the local transit corridor.

As of date, the park consists of 7 technology buildings with more developments coming in the pipeline. b.

Area

Situated in the campus of the University of Waterloo, the UW Research and Technology Park consists of about 1.2 million square feet or about 49 hectares of land.

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c.

Amenities and Features

The park consists of a series of design districts each designed to service various lines of business. The following are the districts planned to be completed in the area: •

Gateway Features: provides access to the technology park which is unique in design

•

The Grand Boulevard: considered as the “main movement artery” which will locate the buildings constructed for occupancy of tenants

•

The Great Circle: forms the centre of the technology park and is the primary focus of initial development.

•

The Parkside Drive Extension: Acts as the hook between all features of the IT park

d. Locators and Business Lines Serviced The park now consists of 7 buildings with more than 45 companies. The following companies are now located in the UW Research and Technology Parks: •

SyBase Building: iAnywhere solutions

•

Open Text Building: Open Text Corporation

•

The Accelerator Building: CBET, CGI, Skybound Software, Top Hat Monocle, etc.

•

TechTown: Google, Kids and Company, PRIME, etc.

•

Research Advancement Centre: Institute for Quantum Computing, Nanotechnology Engineering, Quantum Works, etc.

•

InnoTech Building: Research in Motion

III.

University of Waterloo Research and Technology Park Incentives

As part of the Canada Technology Triangle, the University of Waterloo Research and Technology Park comprises various tax incentives given by the government of Ontario and is specific to the Canada Technology Triangle cluster. The following are the incentives for the park: •

25-35% of refundable/ non-refundable tax incentives specifically for research and development companies.

IV. Projections and Milestones When fully completed, the research and technology park is projected to employ more than 6,000 people with US$5-10 billion in annual revenues. Construction of the park will be completed in 3 phases where current scenario is that they are finishing phase 2 of the project.

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India: International High Tech Park Bangalore I.

Background: India

India is located in South Asian region bordering Pakistan, Nepal and China in the north, Sri Lanka in the South and Arabian and Sea of Bengal in the east and west. With approximately 1.1 billion inhabitants, the country is next to China in terms of volume of population. It also boasts of a graduate pool of over 4 million annually. The country is considered one of the fastest growing economies in the world which is a testament to its FDI increase in 2008 of 46%, the largest increase from any nation. During the said period, global FDI flows decreased from USD 1.9 trillion in 2007 to USD 1.7 trillion in 2008 showing India’s capabilities as an investment economy, more particularly in the outsourcing industry. India has consistently ranked number 1 in Information Technology enabled-services and outsourcing for the last decade. India’s ITES and Outsourcing industry currently employs around 1.5 million people and generates revenue of more than USD 70 billion. One of the strengths of the Indian ITES and Outsourcing Industry is its ability to create locations that specifically cater to the unique requirements of the industry. II.

Background: Bangalore

Bangalore, the state capital of Karnataka, is located on the southern part of the Decan Plateau near the border of Tamil Nadu and Andhra Pradesh, two other south Indian States.

Overview of the International High Tech Park Bangalore (ITPB) I.

Background and Objective of the Zone

The International Tech Park, Bangalore (ITPB), was first conceptualized in 1992 by former prime ministers P.V. Narasimha Rao of India and Goh Chok Tong of Singapore. What was first an informal meeting became a consortium comprising Indian and Singaporean private enterprises that spearheaded the creation of the park. Established in 1998, the ITPB is one of India’s first high tech parks which integrates business space with retail, residential, commercial establishments and recreational facilities in a single location. The park’s main objective is to create an environment encouraging both work ethics as well as recreational activities for a balanced living of life. The park currently comprises 6 buildings namely: Discoverer, Inventor, Explorer, Navigator, Innovator and Creator. II.

Area

Comprising about 69 acres, the ITPB is the first high technology park of its kind in India which is designed to provide a complete “work-live-play” balance in its environment for IT and technology related businesses. III. Amenities and Features The following are the infrastructure and environmental features and amenities of the park: •

A dedicated power plant generating 12.5 MW. Another 5 diesel generators for emergency ensures a 3rd level of redundancy.

•

Six of India’s leading telecom service providers have a physical presence in the IT Park, and one has an Earth station.

•

WiFi connectivity

•

Building Management System ensures that air conditioning, lifts, water level, fire safety and lighting are centrally controlled.

•

24-hour security with state-of-the-art surveillance systems and personnel trained to handle fire emergencies.

•

Open, basement and multi-level car park, water storage and sewage treatment plant.

•

Recreation centres: business centre, park and health club, park mall

IV. Locators and Business Lines Serviced The park currently houses over 145 companies employing 24,000 people in the fields of information technology and IT-enabled services. Services include bioinformatics, software development, telecommunications, electronics and other hi-tech industries. The following companies are now established in the park: •

General Motors India Pvt. Ltd.

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•

Affiliated Computer Services India Pvt. Ltd.

•

ZapApp

•

First India Corporation

•

Paprikaas Interactive Services Pvt. Ltd.

•

Applied Materials India Pvt. Ltd

•

Infineon Technologies India Pvt. Ltd.

•

IBM Global Services Pvt Ltd.

•

Sabre Travel Technologies

•

Societe Generale Global Solutions Centre Pvt Ltd.

•

Avesthagen Ltd.

•

Tata Consultancy Services

•

LSI Research India Pvt Limited

International High Tech Park Bangalore Incentives Special incentives in India vary from one state to the next. In the case of ITPB where it is located in Bangalore – state of Karnataka, the following are the special incentives for SEZs in the area: •

Income tax o Physical export benefit o 100% IT Exemption for first 5 years and 50% for next 2 years

•

No cap in terms of foreign direct investments

•

Exemption from VAT (Service tax)

•

Exemption to sales made from Domestic Tariff Area to SEZ units from Income Tax Act.

•

SEZ units may import or procure from domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment and DG sets for implementation of their project in the Zone without any license or specific approval.

•

Duty free import / domestic procurement of goods for setting up of SEZ units.  

•

Goods imported / procured locally duty-free can be utilized over the approval period of 5 years.

•

Domestic sales by SEZ units will be exempt from Special Additional Duty - SAD.

•

Domestic sale of finished products, by-products on payment of applicable Custom duty.

•

Domestic sale rejects and waste and scrap on payment of applicable Custom duty on the transaction value.

III. Projections and Milestones The ITPB is currently fully functional. Ascendas, developers of the IT park is however open to development of its surrounding areas. To date, there is still available land located in the perimeter of the IT hub and is expected to be developed within the next 2 years.

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Cyber City: Mauritius I.

Background: Mauritius

Mauritius is recognised as a safe investment destination due to its long established tradition of socio-political stability, free market economy and good governance. The World Bank “doing business” survey 2009 has ranked Mauritius in the 1st position in African region and 17th out of 181 countries worldwide. Situated in the Indian Ocean, at the crossroad of Africa and Asia, Mauritius has built an excellent reputation for quality and competitiveness and has today one of the strongest economies in Africa (Business Parks of Mauritius).

The CIA fact book documents the history of Mauritius as an island that was known both to the Arabs and Malay sailors in 10th century. Mauritius was first explored by the Portuguese in the 16th century and subsequently settled by the Dutch - who named it in honour of Prince Maurits van NASSAU in the 17th century. The French assumed control in 1715, developing the island into an important naval base overseeing Indian Ocean trade, and Figure 13: Map of Mauritius establishing a plantation economy of sugar cane. The British captured the island in 1810, during the Napoleonic Wars. Mauritius remained a strategically important British naval base, and later an air station, playing an important role during World War II for anti-submarine and convoy operations, as well as the collection of signals intelligence. Independence from the UK was attained in 1968. A stable democracy with regular free elections and a positive human rights record, the country has attracted considerable foreign investment and has earned one of Africa’s highest per capita incomes. Recent poor weather, declining sugar prices, and declining textile and apparel production have slowed economic growth, leading to some protests over standards of living in the Creole community (CIA World Fact Book). This rich history has made the country position itself as a multilingual destination and is able to attract investment and businesses from the countries that have a footprint there. The country has ties with India, China, France and Britain from which it is able to attract business.

Overview of the Cyber City II.

Background and Objective of the Zone

Due to the poor performance in agriculture especially sugar, Mauritius has embarked on a new era to make Information and Communication Technology one of the pillars of its economy. Former sugar plantations are turned into technology centres. The Cyber City is built to provide computing on demand, an internet data centre to back up data and servers for web-hosting, e-commerce and financial transactions. A. Area Ebene Cyber City sits on 152 acres, which houses leading companies in BPO, Software Development, Back office operations and Call centres. B. Amenities and features

Figure 14: Ebene Cyber City

•

Higher bandwidth capacity of up to 100 MB is available at short notice

•

The incumbent operator has chosen to have the Network Operation Centre (NOC) in the Cyber Tower 1 for enhanced service reactivity to any problem at very short notice

•

The Cyber Tower 1 is an intelligent –hub concept building and is unique in the region.

•

A well established regulatory framework having passed the Electronic Transaction Act 2000, Cyber crime and Computer

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Misuse Act 2003 and Data Protection Act 2004 •

Stable electricity supply C. Locators and Business serviced62

From its inception in 2001, the Cyber City has attracted a number of multinational companies in the IT/ITES business. Some of the locators are: •

Accenture – Accenture is a global management consulting, technology services and outsourcing company.

•

Ceridian – a leading BPO company which employs 9500 worldwide. In their Mauritius office, the have 390 employees offering HR services.

•

TNT – is a document scanning and back office processing solutions provider. The company is located in Mauritius due to its bilingualism that the company requires for its editing services.

•

Infosys – has a total employee base of 49,000 worldwide. The company provides consulting and IT services to clients globally. It has located its disaster recovery centre in Mauritius

•

HSBC – is one of the largest banking and financial services organisations in the world. HSBC’s international network comprises around 9,500 offices in 86 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

•

Orange – The Company, a subsidiary of France Telecom and the leading mobile provider in France, has more than 110 million wireless subscribers and about 12 million broadband customers. It also offers digital television and computer telephony services.

•

Hinduja – provides a ‘one-stop-shop’ for customers’ needs in Information Technology - from Contact Centre services and Back Office Processing to customized IT solutions.

Cyber City Incentives 1.

Fiscal Incentives

•

Preferential market access to EU, US and Africa with a number of international, regional and bilateral conventions and agreements - Double Taxation Avoidance Treaties (DTAs), Investment Promotion and Protection Agreements.

•

Duty-free import of equipment

•

Accelerated depreciation allowances for ICT equipment in the form of investment allowance of 50% plus annual allowance of the total investment over 3 years (i.e. 33 1/3 annually).

•

50% relief on personal income tax for a specified number of foreign IT specialists per company.

•

Duty-free import of personal belongings of expatriates excluding vehicles.

•

Electricity tariffs at industrial rates instead of commercial rates. 2.

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Non-fiscal Incentives

•

Political, economic and social stability with a good quality of life.

•

Attractive package of incentives and high level facilitation services.

•

Cost-competitive skilled workforce, speaking both English and French. Based on the BPML websites available at, http://www.e-cybercity.mu/en/about_bpml_clientlist.html

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•

Reliable telecommunication infrastructure through the SAFE submarine optic fibre cable that links Mauritius on one-side to France and on the other side to India.

•

Pleasant living conditions in a stable democratic society – where businesspeople can combine work and leisure.

• •

Fast track processing of visa, work and residence permits for expatriates. State-of-the-art infrastructure and reliable support services like logistics facilities, banking and finance, business parks, industrial facilities and ICT-enabled office premises.

III. Projections and Milestones Cyber towers 1 and 2 are complete and available for lease. Offices are rented as full floor, half floor or in standard modular size varying from 167 sq. m. to 676 sq. m. Ebène CyberCity is divided into zones and further subdivided into plots of approximately 1 acre each. Provided with water & power supply, road network, drainage system and fibre optic cable facility on the boundary, these plots of land are available for lease on a long-term basis.

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Panama Pacifico: Panama I.

Background: Panama

According to the CIA fact book, Panama was first settled by the Spanish in the 16th century. Panama broke with Spain in 1821 and joined a union of Colombia, Ecuador, and Venezuela - named the Republic of Gran Colombia. When the latter dissolved in 1830, Panama remained part of Colombia. With US backing, Panama seceded from Colombia in 1903 and promptly signed a treaty with the US allowing for the construction of a canal and US sovereignty over a strip of land on either side of the structure (the Panama Canal Zone). The Panama Canal was built by the US Army Corps of Engineers between 1904 Figure 15: Panama and 1914. In 1977, an agreement was signed for the complete transfer of the Canal from the US to Panama by the end of the century. Certain portions of the Zone and increasing responsibility over the Canal were turned over in the subsequent decades (CIA Fact Book). The Canal has made Panama a strategic location for trade especially in logistics. Approximately 13,000 ships traverse the canal every year. For companies wishing to distribute their goods and services to the Americas and the Caribbean markets, Panama is the ideal location. The population is bilingual i.e. speak both Spanish and English. II.

Background of Panama Pacifico

According to IFC 2009, the Panama Pacifico project is transforming the former Howard U.S. Air Force base outside Panama City into a hub for international trade, logistics, services, commerce, and industry. As principal advisor to the government, IFC recommended that a private investor develop the 2,500 hectare site through the establishment of a special economic zone (SEZ) with a modern regulatory framework and administration conducive to business and direct foreign investment. The land received SEZ status in 2005 (IFC, 2009). London and Properties are the master developers of Pacifico in conjunction with the government.

Overview of International Business Park The International Business Park is a 26-hectare, high class business park, master-planned for more than 100,000 square meters of office and flex-distribution development. It is designed for headquarters offices, call centres, offices, distribution and light assembly companies. A. Area The property is built in a mixed-use; business, residential and recreational centre on 1,400 hectares.

B. Amenities and Features At completion, the facilities will include 1 million square meters of commercial space, 20,000 homes, 40,000 new jobs, retail centres and hotels, schools and places of worship, parks, recreational amenities and a championship golf course while of the land to remain in its natural state or to be devoted to new parks and open space (London & Properties Ltd). C. Locators and Business serviced Pacifico Business Park has positioned itself to serve local and international companies desiring to relocate or establish a new office in Latin America as part of their global operations. Businesses served include: • • •

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Corporate headquarters Back office operations Call centres

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• • • • • • • • • •

Multimodal and logistics services High-tech product and process manufacturing Maintenance, repair and overhauling of aircraft Transfer of services to the aviation industry Offshore services Film industry Data transmission, radio, TV, audio and video Stock transfer between on-site companies Transfer of goods and services to ships, aircrafts and their passengers Sales of merchandise not manufactured in Panama Pacifico, destined for exportation, when made by multinational companies or any of its affiliates, subsidiaries or companies of the same economic group

Among the locators are: • • • • • • • • • • • •

Dell – established operations in Panama Pacifico in 2003, to serve U.S., Canada and Latin America customers as part of its global customer contact centre network. Singapore Airlines 3M – is establishing a new distribution and manufacturing technologies centre at Panama Pacifico Caterpillar – plans to establish  a major operational presence close to its Latin America customers and network of independent dealers at Panama Pacifico. 3PL PanAmericana - offers international multimodal logistics services to clients around the world Howard Kids Academy North American Aircraft Services Panama Panama Aerospace Engineering The Panama Pacifico Special Economic Area Agency Radio Holland Group River Latinoamerica Industrial / Canarias Logistica The Universidad del Caribe - is a successful university in Venezuela, now establishing a campus in Panama

Panama Pacifico Incentives To accelerate the speed of development at Pacifico, Panama Pacifico Special Economic Agency was created by Law 41 of June 20 of 2004, which creates a special regime for the establishment and operation of Panama Pacifico Area and a new government entity, the Agency for Panama Pacific Special Economic Area (Panama Pacifico Special Economic Area, 2004). Law 41 drew up a number of incentives both fiscal and non-fiscal. Tax incentives 1.

Exemption from any tax, levy, rate, encumbrance or import duties on any merchandise, products, equipment, services and other goods in general that are entered into Panama Pacifico.

2.

Exemption from the Tax on the Transfer of Movable Property and the Rendering of Services (ITBMS).

3.

Exemption from any tax, duty, rate, levy or fee with regard to the movement or storage of fuel or other hydro carbons and their derivatives.

4.

Exemption on any commercial or industrial licenses or registration tax.

5.

Exemption from Stamp Tax.

6.

Exemption on real estate taxes on land and commercial/industrial improvements as well as from the Tax on the Transfer of Immovable Goods.

7.

Exemption from export/re-export tax of any type of merchandise, products, equipment, goods or services.

8.

Exemption from any tax, rate, duty, encumbrance, withholding or other fees of a similar nature applied to payments

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to foreign creditors, for the interest, commissions, royalties and other financial fees generated by the financing or refinancing granted to the companies of the Panama Pacifico and for the financial lease of equipment required for the development of the activities, business or operations carried out within Panama Pacifico. Labour Incentives

III.

•

Fixed rates for overtime (25%) and work on employees’ day off (50%)

•

Flexibility to assign employees’ day off

•

Companies may remain open on Sundays and holidays

•

Foreign worker: possibility of exceeding Labour Code’s percentage rule. Companies may apply for additional expat employees beyond 15% if work force does not exist locally

•

Higher Education Training Centre

•

Justified cause for termination for market losses and/or fluctuations

•

Ministry of Labour on site in the One-Stop Shop. Projections and Milestones

The Flex-Office buildings at the International Business Park, completed in November 2009, are already 100% leased with nine companies. The first two high class office buildings were inaugurated in April 2010, and are 85% leased, but there is still some space available. A third high class office building is scheduled to break ground in November 2010, and complete by the end of 2011 with 12,000 m2 of new space, including 300 m2 of retail for lease, and a new five-storey parking deck.

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Malaysia – Cyberjaya Flagship Zone I.

Background - Malaysia

CIA Fact book provides the history of Malaysia as having been a British colony in the late 18th and 19th centuries; they were occupied by Japan from 1942 to 1945. In 1948, the British-ruled territories on the Malay Peninsula formed the Federation of Malaya, which became independent in 1957. Malaysia was formed in 1963 when the former British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the northern coast of Borneo joined the Federation. The first several years of the country’s history were marred by a Communist insurgency, Indonesian confrontation with Malaysia, Philippine claims to Sabah, and Singapore’s secession from the Federation in 1965. During the 22year term of Prime Minister Mahathir bin Mohamad (1981-2003), Malaysia was successful in diversifying its economy from dependence on exports of raw materials to expansion in Figure 16: Map of Malaysia manufacturing, services, and tourism (CIA Fact book, 2010). II.

Background Multimedia Super Corridor

Multimedia Super Corridor – MSC Malaysia was conceptualized in 1996 and with the full support of the Malaysian government. MSC Malaysia has since grown into a thriving and dynamic global ICT hub. MSC Malaysia’s vision is to transform the nation into a knowledge-based society driven by the new economy. With this commitment, MSC Malaysia is determined to spearhead this transformation through ICT via industry and capacity building and socio economic development. To spearhead the development of MSC, there are a number of institutions playing different roles. Cyberview – was established in October 1996. Cyberview Sdn Bhd, a government-owned company and landowner of Cyberjaya, has been mandated to spearhead the development in Cyberjaya (see http://www.cyberview.com.my). The roles of Cyberview are to ensure Cyberjaya is developed in accordance with MSC guidelines: •

Provision of assistance/support in coordinating joint activities with organisations in Cyberjaya

•

Attend to all Cyberjaya land administration matters

•

Advise the government on MSC Malaysia/Cyberjaya

•

Build supporting amenities for the Cyberjaya community

•

Undertake rehabilitation/maintenance work in Cyberjaya

Multimedia Development Corporation – MdeC is incorporated under the Companies Act of Malaysia, and owned and funded by the Government. Their role is to advise the Malaysian Government on legislation and policies, develop MSC Malaysia-specific practises, and set breakthrough standards for multimedia operations.

Overview Cyberjaya Flagship Zone (CFZ) CFZ is a 2,894 hectares designated for commercial activities related to the MSC. The master developer is Setia Haruman (see http://www.cyberjaya-msc.com/aboutus1.asp) and is involved in planning and designing, providing of basic infrastructure, marketing and selling of land parcels and other real estate developments to investors and sub-developers to design their own premises subject to permitted planning guidelines. Cyberjaya is the nucleus of CFZ. Cyberjaya is an intelligent city supported by a high-capacity, digital telecommunications infrastructure. Fibre Optic infrastructure connectivity, broadband and Data centre. Cyberjaya Metro Fibre Network (CMFN) provides Gigabit point-to-point connectivity with redundancy network within Cyberjaya where most of the buildings are readily connected. Setia Haruman Tech offers dark fibre leasing and Metro-E services. City Broadband provides broadband-over-fibre optic (Ethernet technology) services to residential and corporations in Cyberjaya that offers up to 10Mbps/100Mbps fast, dedicated and symmetrical bandwidth63.

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More information can be obtained from http://www.cyberview.com.my/v2/transportation_shuttle.php

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A. Area The development in Cyberjaya is centred on the flagship zone of about 7,000 acres. This is split into four subzones — 11.6% for enterprise use, 4.5% for commercial development, 29.3% for residential use and 3.8% for mixed development. About 90% of Phase One (some 3.500 acres) of the flagship zone is laid with infrastructure. B. Amenities and Features Local transport is provided by the Cyberjaya Dedicated Transportation System which operates 7 days a week for 24 hours.Park and Ride services provides an alternative for those who wish to park their vehicles at designated car parks and use the buses to commute to most areas in Cyberjaya. Other amenities include: •

Good broadband access and lease of dark fibre

•

Schools and hospitals

•

Guaranteed service provision with a financial penalty for failure

•

World class hotels and restaurants.

C. Locators Major global IT companies have located in Cyberjaya through either equity stake by the Malay nationals or through direct investments. Some of the companies are: • Dell • HP • DHL • Satyam • Wipro • HSBC • Ericsson • Motorola • OCBC, BMW • IBM • Shell IT • Monster.com • Vivanova Systems Some of the academic institutions that have located in this area are: •

Limkokwing University College of Creative Technology (LUCCT)

•

Multimedia University (MMU)

•

Cyberjaya University College of Medical Sciences (CUCMS)

Cyberjaya incentives MSC status companies are both fiscal and non-fiscal. These are: Fiscal

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•

Pioneer Status - 100% exemption from taxable statutory income. This incentive is granted for a period of 5 years for the first round.

•

A 100% Investment Tax Allowance (ITA).

•

Eligibility for R&D grants (for majority Malaysian ownership MSC Malaysia- Status companies)

•

Freedom to source capital and borrow funds globally

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•

Duty-Free Importation of multimedia equipment (DFI)

Non-fiscal incentive •

No censorship of the internet

•

High-powered implementation agency to act as an effective one-stop super shop, the MDeC

•

Globally competitive telecommunication tariffs and service guarantees

•

High-quality planned urban development

•

Excellent R&D facilities, including the region’s first Multimedia University

•

Green environment protected by strict zoning. III.

Projections and Milestones

The city is also expected to see a population growth over the next 10 to 15 years, with residential developments expected to reach a population of 210,000; business developments providing for up to 120,000 employees and institutional establishments providing for 30,000 students. Some of the facilities that have been completed recently are: •

Mahindra Satyam Malaysia Global Centre – completed in July 2009

•

Basis Bay Data Centre – completed in March 2009

•

Impact building – completed in February 2009

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Incentives and investor relations comparisons Incentive schemes and packages vary from country to country. In the case of several comparator sites, this even changes within their respective country territories. A common element in all comparator sites is the aspect of fiscal incentives in the form of Income Tax Holidays and exemption from duties. Almost all comparator sites have policies on the employment of foreign workers and access to subsidies and grants. The common practice in providing tax holidays would be for a fixed period spanning from 2 years to 6 years as in the case of the Philippines. All comparator sites appear liberal in their investment procedures and have established a clear methodology in terms of doing business in their jurisdiction.

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Canada

25-25%

Undefined

Undefined

Undefined

Undefined

Undefined

Subject to immigration

Undefined

Undefined

Existing

Location Dependent

Country

Income Tax Holiday

Ownership

Capital Equipment and Materials Incorporation

Value Added Tax

Training Expenses

Local Government Fees

Working Permits

Import/ Export Rules

Grants/ Funds

Legal (IP Protection, labour, etc.)

Limitations

Table 1: IT- enabled services

Varying Investment rules

Existing

Available

Undefined

Undefined

Undefined

Undefined

Undefined

Undefined

Allowed

Not Clearly Defined

Egypt

Varying Investment rules

Existing

Not Present

Existing

Provided

Exempted

Not Present

Exempted

Exempted

Undefined

100% - 5 Years

India

Restricted to Defined SEZs

Not Fully Implemented

None

Simplified

Provided; Multiple Entry

Exempted

50% Deduction

0%

Free

Allowed

100% - 6 Years

Philippines

Location Dependent

Existing

40-50%

Undefined

Undefined

Undefined

Provided

Undefined

Specific to Activity

Undefined

30-70%

Poland

Existing

Undefined

Undefined

provided

Undefined

Undefined

Undefined

Undefined

Undefined

-5 years

Mauritius

Restricted to defined SEZ

Existing

available

Existing

Undefined

Undefined

Provided for Malaysian Majority owned

Undefined

Undefined

100% - 5years

Malaysia

Table 2: Manufacturing services Country

China

Vietnam

Income Tax Holiday

100% - 2 Years

100% - 4 Years

Ownership

Not Allowed

Undefined

Capital Equipment and Materials Incorporation

Not Allowed

Provided

Value Added Tax

Eligible

Undefined

Training Expenses

Provided

Provided

Local Government Fees

Undefined

Undefined

Working Permits

Provided

Provided

Import/ Export Rules

Except Under Specific Activities

Provided

Grants/ Funds

For Resettlement

Undefined

Legal (IP Protection, labour, etc.)

Not Fully Implemented

Not Fully implemented

Limitations

Varying Investment Rules

Undefined

Country

Panama

Jordan

Income Tax Holiday

100% -

Ownership

Allowed

Capital Equipment and Materials Incorporation

Allowed

Value Added Tax

Eligible

Table 3: Special Economic Zones

Training Expenses Local Government Fees Working Permits

Provided

Import/ Export Rules

Allowed

Grants/ Funds

For Resettlement

Legal (IP Protection, labour, etc.) Limitations

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Key implications and recommendations to Kenya In the realm of globalization, attracting investors to locate in a foreign land has now become a game of comparative analysis between various locations. While investors look at a line of comparisons between locations – such as talent pool availability, labour pool cost, leased line service providers and risk factors – one aspect stands out and holds as the common ground between these locations, rules and regulations. The business environment in any given location is defined by the set rules and regulations of the local government that gives the “added value” in establishing presence in the area. Developing these rules and regulations for IT-Enabled Services and manufacturing services gives Kenya direction in terms of what the country will focus on to begin its 2030 Vision. Investors focused on SEZ incentives look for at least 11 categories when studying specific rules and regulations in a given area as stated in the previous tables above. These categories define basic SEZ concepts and what are the areas scrutinized by the investors upon establishing presence in the country. Below is a table showing the benchmark of SEZs in terms of these categories and the recommendations.

Table 4: Recommendations for Kenya SEZ framework TYPE OF INCENTIVE

BENCHMARK

RECOMMENDED: KENYA

Income Tax Holiday

100% - 2 to 6 Years

100% - 4 Years (For first 50 companies) Reduce to 100% - 2 years moving forward

Foreign Ownership

Allowed

Kenya should allow 100% foreign ownership of business

Capital Equipment and Materials Incorporation

Allowed provided it is specific to services and not to be sold locally

It should be allowed for building equipment such as metal, cement, etc. For IT equipment, cost in Kenya is competitive, thus, materials for IT should not be exempted and bought locally

Value Added Tax

For company use, VAT is removed

Eligibility to exemption on VAT for company specific. Individuals will still have VAT

Training Expenses

Subsidized by Government

In the short-term goal, Kenya should have training incentives. Timeline similar to income tax holiday

Local Government Fees

Exempted

Exempted from any further tax from city government of Kenya where SEZ is located

Working Permits

Provided

Kenya to help companies establish working permits for expats as well as other foreign workers which the investor specifically requests

Import/ Export Rules

Specific to goods and services

Exemption of import/ export rules on specific goods and services not detrimental to local economy of Kenya

Grants/ Funds

None

For Resettlement

Legal (IP Protection, labour, etc.)

Strong IP protection which mitigates risk factors

Should be defined and show full implementation of the law

Limitations

Varying Investment Rules

Varying Investment Rules

Since the concept of SEZ in Kenya was established over the last 2 years, it is imperative at the starting point to attract investors to begin with. This will build momentum in which companies will now start to see the value of doing business in Kenya. Once companies see incentives given and with live testimonials, it will build the case for the new Kenya SEZ experience.

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ANNEX

Annex 1: References Annex 2: Terms of Reference

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General Statistics Office (2008, July 18). HCM City hits two-decade record in FDI. Retrieved October 30, 2010, from http://www. gso.gov.vn/default.aspx?tabid=503&ItemID=7251. Guardian News. (2010, September 9). Global Competitiveness Index: The World Economic Forum’s Data. Guardian.co.uk. Retrieved October 30, 2010, from http://www.guardian.co.uk/business/datablog/2010/sep/09/global-competitiveness-indexdata-wef HCMC Department of Planning and Investment. (___). Saigon Hi-Tech Park. Retrieved October 27, 2010, from http://www.dpi. hochiminhcity.gov.vn/invest/html/project-SAI-GON-HI-TECH-PARK.htm. HCMC Department of Planning and Investment. (___). HCM City Macroeconomics. Retrieved October 30, 2010, from http:// www.eng.hochiminhcity.gov.vn/eng/news/default_opennew.aspx?cat_id=591&news_id=496. Runckel and Associates. (2010). Update on Vietnam’s Information and Communication Technologies. Business in Asia. Retrieved October 30, 2010, from http://www.business-in-asia.com/ict/vietnam_ict.html. Saigon Times. (2010, October 14). Provina Opens Training Centre at Saigon Hi-Tech Park. Vietnam Business News. Retrieved October 28, 2010, from http://vietnambusiness.asia/provina-opens-training-centre-at-saigon-hi-tech-park/. The Philippine Star. (2010, October 30). Intel’s Biggest Chip Plant Opens in Vietnam. The Philippine Star. Retrieved October 30, 2010, from http://www.philstar.com/Article.aspx?articleId=625628&publicationSubCategoryId=200. Venture Outsource. (2007, July 4). Saigon Hi-Tech Park and Vietnam Infrastructure. Retrieved October 30, 2010, from http://www. ventureoutsource.com/contract-manufacturing/outsourcing-offshoring/vietnam-manufacturing/saigon-hi-tech-park-andvietnam-infrastructure?page=0,0. Vietnam Briefing. (2010, May 5). Saigon High-Tech Park Expands to Second Phase. Vietnam Briefing. Retrieved October 30, 2010, from http://www.vietnam-briefing.com/news/saigon-hightech-park-expands-phase.html/. Vietnamnet Bridge. (2010, January 5). SHTP Starts Work on Second Phase. Retrieved October 30, 2010, from http://english. vietnamnet.vn/tech/201005/SHTP-starts-work-on-second-phase-907410/. Vietnam Business Forum. (2007, June 6). Electronics Production to Reach US$6 Billion by 2010. Retrieved October 30, 2010, from http://vccinews.com/news_detail.asp?news_id=10036. http://www.call-center-africa.com/ Why should your company have MSC Malaysia Status? http://www.mscmalaysia.my/topic/12073025559425

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Terms of Reference :ANNEX 2 Task 4: Comparative Analysis of SEZ Policy and Legal Regime Conduct a benchmark of the policy and legal regime in Kenya against the regime utilized in successful SEZs in other countries. This analysis should define basic SEZ concepts; differentiate among alternate SEZ implementation approaches, focusing in particular on taxation, Customs issues, labour flexibility etc. The major taxation aspects to be analyzed include the pros and cons of alternative direct and indirect taxation concepts, systems, incentives and approaches.

The consultants will also conduct a comparative analysis of the Customs administration arrangements, control concepts and inspection procedures in SEZs and will benchmark those against the ones in practice in Kenya. The analysis will focus on dutyfree areas that have a common “land border” with a domestic customs territory, such as the Mexican-US border zones, the Subic Bay Freeport, the Chinese special economic zones, the Panama Pacifico SEZ, and will take into account the multilateral agreements concerning free zones, particularly the Kyoto Convention and the emerging framework under GATT/WTO. The analysis should focus on the merits of alternative Customs concepts, mechanisms and controls regarding the range of merchandise importable on a duty-free basis (especially consumables and vehicles); overall role of Customs in SEZ operations and Customs inspection and control procedures; technology in use in leading SEZ’s.

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Summit Strategies Ltd ICT Research & Consultancy

Summit Strategies ltd ICT Consultancy and Research Landmark Plaza - 13th flr, Argwings Kodhek Road P O Box 62454 -00200, Nairobi Kenya tel: +254 (20) 3673 925/2637177 cell+ 254(701)016555,722) 520090 [email protected] www.summitstrategies.co.ke