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HORN OF AFRICA REGIONAL ECONOMIC MEMORANDUM BACKGROUND PAPER 6 Overview of digital development in the Horn of Africa - Tim Kelly & Eric Dunand iv CONTENTS 3 Digital Development ................................................................................................................... 1 3.1.1 Regulatory environment ................................................... 2 3.1.2 National Digital Infrastructure ................................... 3 3.1.3 Regional Digital Infrastructure .................................. 5 3.1.4 e-commerce and digital markets ......................... 7 3.1.5 Digital Financial Services .................................................. 9 3.1.6 Cybersecurity .................................................................................... 10 v vi SECTION 3 | DIGITAL DEVELOPMENT SECTION 3 Digital Development This section follows the World Bank Group’s infrastructure, and to develop regulations, skills and approach to Jobs and Economic Transformation platforms that are compatible with neighboring (JET)1 which identifies economic transformation countries should enable them to develop a larger as key to creating more and better jobs. It builds and more efficient digital market that can facilitate on the Digital Economy for Africa (DE4A) approach economic transformation by enabling technological to developing a digital economy to create the leapfrogging, and the creation of new jobs in old and jobs of the future,2 which is aligned with the new sectors. New forms of market connectivity can African Union’s Digital Transformation Strategy, bring opportunities for new services and regional 2020-2030.3 Helping countries build new digital economic development in the HoA. Figure 1: Policies and Investments to Create Productive Jobs Vary by Stage of Economic Transformation Commodities to simple Simple to advanced Advanced agriculture manufacturing & services agriculture, manufacturing manufacturing & services to & services innovative activities • Basic ICT connectivity • Advanced ICT services: Infrastructure, competitive markets (liberalized ICT services environment) 4. Digital economy, • Enabled ecommerce • Enabled digital markets: new business models, services technology (digital id; eKYC etc.) and products, industry 4.0, market regulation 2,0 and and expand GovTech innovation • Innovation: basic standards, technology adoption, • Innovation: innovation agricultural productivity innovation policies ecosystem (R&D policy, industry-academia links) Source: WB – IMF – JET September 18, 2019. This section is prepared in the context of Covid-19, and now need to address the health Covid-19 pandemic that threatens decades of issue and the social and economic impacts. hard-won development gains and is likely to have triggered the deepest global recession since the Kenya was the first country to enter a Bank- World War II. The economic crisis is generating facilitated procurement contract for urgent massive unemployment, particularly affecting medical supplies and equipment to strengthen the poor and vulnerable, and highlights the medical services and reduce the spread of the importance of jobs and economic transformation. virus, as well as budget support to help close The HoA countries already faced the challenge the fiscal financing gap while supporting of a population growth at a rate around 3% pre- reforms that help advance the government’s 1 https://ida.worldbank.org/theme/jobs-and-economic-transformation. 2 https://www.worldbank.org/en/programs/all-africa-digital-transformation. 3 https://au.int/en/documents/20200518/digital-transformation-strategy-africa-2020-2030. 1 OVERVIEW OF DIGITAL DEVELOPMENT IN THE HORN OF AFRICA inclusive growth agenda. The HoA countries businesses and governments. In adopting best need to maintain a line of sight to their long-term practices policymakers / regulators can rely on a development vision, which can be best achieved strong and agile regulatory framework necessary in cooperation and there has been no better time to adapt to and facilitate the digital transformation than now to accelerate the digital transformation of all sectors of the economy. in and between HoA countries to mitigate the impact of Covid-19. The level of ICT regulatory development and readiness is heterogeneous in the HoA sub- 3.1.1 Regulatory environment region, ranging from the absence of a national regulatory authority in Eritrea to an advanced An optimal ICT regulatory framework is critical to modern authority in Kenya, created in the 1990s, supporting the development of digital economies with policies driven by economic and social in the HoA. The deployment and use of the latest policy goals. In contrast the national authorities digital technologies, providing reliable infrastructure created in 2018 in Somalia and 2019 in Ethiopia are and affordable services to citizens, associated with still in the early process of implementing policies. infrastructure sharing, networks interconnection, The government of Djibouti is establishing a quality of service indicators and effective use of multi-sectorial regulator, covering Telecom and scarce resources, in particular spectrum, allows Energy, that should be operational by the end of to unlock the full potential of digital services. 2021. The following table provides a summary They can be a key driver for inclusion and can of the development of ICT legal and regulatory have a significant positive impact on consumers, frameworks in each country. Table 1: Status and level of development of legal and regulatory frameworks in the HOA Regulatory Regulatory Regulatory Competition Overall Score Level of Regulatory Authority Mandate Regime Framework (max 100) Regulatory Group4 (max 20) (max 22) (max 30) (max 28) Environment Djibouti 0 2.5 2 0 4.5 Regulated G1 Monopolies Eritrea 8 11 4 2 25 Regulated G1 Monopolies Ethiopia 7 12 8 2 29 Regulated G1 Monopolies Kenya 18 21.5 21 27 87.5 Collaborative G5 Regulation Somalia 14 19 10 24 67 Basic to G2/G3 enabling environment Source: ITU ICT Regulatory Tracker 2018. 4 The ICT Tracker is based on self-reported information gathered yearly by ITU. It facilitates benchmarking and the identification of trends in ICT legal and regulatory frameworks G1: Regulated public monopolies– command and control approach G2: Basic reform – partial liberalization and privatization across the layers G3: Enabling investment, innovation and access – dual focus on stimulating competition in service and content delivery, and consumer protection G4: Integrated regulation – led by economic and social policy goals. The assessment for Djibouti does not take account of the latest developments in creating a mult-sector regulator, supported by technical assistance from the World Bank. 2 SECTION 3 | DIGITAL DEVELOPMENT There is an opportunity to upgrade national operators (state owned in Djibouti, Eritrea, Ethiopia authorities based on best regulatory practices, and in a dominant position in Somalia) who typically potentially learning from Kenya which benefits adopt delaying tactics because competition can be from the most advanced regulatory framework seen as a threat to their monopoly position. and liberalized market in the region, with the objective to establish a harmonized regulatory 3.1.2 National Digital Infrastructure framework amongst HoA countries. This would facilitate private sector cooperation and As a direct consequence of the heterogeneous partnership, including for cross national telecom regulatory environment in the HoA sub-region, and ICT projects. The 2019 reopening of the the development of national markets is poorly border between Eritrea and Ethiopia, and improved competitive, with issues on availability, affordability diplomatic relations between Somalia and Kenya and quality of national fixed and mobile broadband are improving the opportunities for cross-border services, with the exception of Kenya leading the investment. The main risk to a regulatory reform way, and Somalia to some extent, and unequal agenda is an opposition from the incumbent access to international connectivity. Table 2: Key Telecom Indicators for the HoA Fixed Broadband Mobile Number of Mobile Number of Fixed Mobile concentration Penetration % Penetration % Licensed Operators Licensed Operators index HHI* (GSMA) Djibouti 16.3 37.6 1 1 10,000 Eritrea 0 10.6 1 4 10,000 Ethiopia 1.3 46.9 1 1 10,000 Kenya 3.8 107.9 4 + 8 5,135 Somalia 0.6 50.8 8 8 1,886 Africa Average 8.3 84.7 n/a n/a 4,600 Notes: *The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. A market with an HHI of less than 1,500 is considered to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.. + Kenya has also licensed three Mobile Virtual Network Operators (MVNOs) which can resell spectrum to offer more specialized financial services, for instance for the retail and financial services sectors. Source: TeleGeography Globalcomms Database. GSMA. Djibouti Telecom (DT) is wholly state owned, Tadjourah and Balbala. Some nine submarine via a national sovereign wealth fund, and is the cables land in Djibouti forming a natural transit monopoly provider of mobile and fixed services route for communications in the region between in the country. DT’s services include 2G, 3G Europe and Asia. DT’s objective is to consolidate and 4G (in the capital) technologies and fixed its regional digital hub position via extending line voice, internet and data services (including terrestrial connections with neighboring countries. corporate data, ADSL and Fibre), DT offers xDSL access primarily in Djibouti City, Ali Sabieh, Dikhil, Eritrea Telecommunications Services 3 OVERVIEW OF DIGITAL DEVELOPMENT IN THE HORN OF AFRICA Corporation (EriTel) is majority-owned by the In Kenya, there are currently three main operators: government and is the monopoly provider of Safaricom, Airtel Kenya and Telkom Kenya, and mobile services limited to voice (3G still to be several minor ones, Mobile Virtual Network launched). Four ISPs were licensed in 2000: Operators (MVNOs) and niche market players. A Eritrea Telecommunication Services Corporation planned merger between Airtel and Telkom Kenya (Eritel), Tfanus Enterprises, Computer Technology was called off in August 2020. The Communications Service (CTS) and Ewan Technical Solutions Authority of Kenya (CA) is the sector regulator. (EWAN Net) – all with an initial international IP connectivity of 128kbps due to the absence in In comparison to the country’s booming mobile data the country of undersea cable system. Eritrea is market, the Kenyan fixed broadband sector is still at one of the only coastal countries in Africa that a very early stage of development; following the still lacks an undersea fiber connection to the shut down of the xDSL network of Telekom Kenya internet. Discussion are ongoing to extend Liquid in 2015 several ISPs launched fiber to the home and Telecom’s 75,000km pan-African fibre-optic DSL services, notably Zuku and Safaricom. backbone network to the country. Despite being one of the poorest countries in the State-run Ethio Telecom (formerly Ethiopia world, affected by recurrent security issues, the Telecom Corporation, ETC) was until recently absence of regulatory barriers to entry in Somalia the sole provider of mobile services in Ethiopia; enabled mobile operators to freely operate, with however the Government has announced plans regulation still catching up. Somalia was one of to award two new full service telecom licenses the last countries to be connected to the internet to open the market to competition. The first in 2000 and fixed broadband internet uptake is license was awarded, on May 22 2021, to the extremely low, partly because of the country’s Global Partnership for Ethiopia consortium, security situation (Al Shabaab has targeted users of which includes Vodafone, Vodacom, Safaricom, mobile data and mobile money), as well as a lack Sumitomo and CDC. A second planned license of stable energy sources and the virtual absence will be reauctioned. The government is working on of fixed line networks. The Hormuud Telesom a partial privatization of Ethio Telecom in parallel Golis (HTG) group, which comprises three sister to opening the market. For the fixed market, Ethio companies in different zones of the country, has Telecom faces some limited competition from the come to dominate the market, mainly due to its railway and electricity distribution companies, but dominance in mobile money services, where it this is limited to the trunk network, and both are refuses to interconnect with its main rivals, the state-owned. Dahabshiil Group, including Somtel, and Amtel. Table 3: Broadband Internet Quality of Service in HoA Country Fixed Broadband Fixed Broadband Mobile Broadband Mobile Broadband Download Speed Mbps Latency ms Download speed Mbps Latency ms Djibouti n/a n/a 9.65 41 Eritrea n/a n/a n/a n/a Ethiopia 18.14 40 9.84 42 Kenya 21.33 39 14.98 34 Somalia 10.58 68 15.32 76 Source: Ookla Speedtest Global Index - June 2020; GSMAintelligence.com; accessed August 2020. 4 SECTION 3 | DIGITAL DEVELOPMENT Box 1: Kenya National Optic Fiber Backbone (NOFBI) and linkages to HoA Neighbors The NOFBI is a project aimed at ensuring such as Djibouti Africa Region Express (DARE) connectivity in all the 47 counties of Kenya. and Pakistan and East Africa Connecting The implementation of this project aims to Europe (PEACE), are within the vicinity of HoA ease communication across counties as well and offer opportunities for comprehensive as improve government service delivery to regional digital connectivity. The poor the citizens such as application of national condition of the limited fiber optic cable identity cards, passports and registration of network in Northeastern Kenya is a major birth and death certificates. The project is hindrance to effective communication. The being implemented in 2 phases: NOFBI Phase NOFBI is intended to connect to the undersea 1 (4,300km) passes through 58 towns in 35 cable and deliver terrestrial broadband counties and NOFBI Phase 2 (2,100km), for Internet to Ethiopia, Somalia, South Sudan, which the Government of Kenya is requesting Uganda and Tanzania. As part of the HoA IDA financing under the Kenya Digital Gateway Development Project (P161305), Economy Acceleration Program (P170941) leveraging on the creation and upgrade of will further be connecting all the 47 county transport corridors, the civil works related headquarters. Operation of Maintenance of to laying territorial fiber optic cables will be NOFBI is undertaken by Telekom Kenya on integrated in the road works for protection behalf of the Government, and there are plans and better management of utilities within the to move towards a public private partnership road reserve. There is a component to support (PPP) structure. the development and implementation of a MoU between Kenya, Ethiopia and Somalia There are limited territorial fiber optic links on cross-border fiber optical cable traffic and between Kenya and Ethiopia and none with negotiations on regional back-up capacity of Somalia. High capacity submarine cables, submarine cables DARE and PEACE. Source: Adapted from ICT Authority Kenya and World Bank HoA Gateway Development Project (P161305) 3.1.3 Regional Digital Infrastructure and recovery of critical data. Open access “Tier 4” data centers should be able to offer 99.995% The importance of the digital infrastructure, uptime, and offer robust fault tolerance and full as an enabler for the development of a digital redundancy for every component. economy has been recognized by the 2016 World • Internet Exchange Points (IXPs) that permit the Development Report, with the 2021 update being peering of internet traffic between different prepared on this theme. However, the supply side operators, internet service providers (ISPs) and for data infrastructure in the HoA region, with the content service providers (CDNs); exception of Kenya, is relatively poorly served. There are four main elements that compose a • Data caches that store real-time copies of regional data infrastructure: popular content (eg Facebook, Wikipedia, Google etc.). Having data stored locally reduces • Modern, efficient data centers, for the storage the need to constantly draw upon expensive 5 OVERVIEW OF DIGITAL DEVELOPMENT IN THE HORN OF AFRICA inter-continental links. It also reduces latency fiber links between data centers, IXPs and and improves user experience. operators also form part of the broader • Backbone networks based on high speed regional data infrastructure. Table 4: The market for data in the Horn of Africa Tier III Data Tier IV Internet Competitive Direct access to Country International submarine cables Center or below Data Center Exchange Point Connectivity Djibouti 1 No Yes No Yes Eritrea 0 No No No No Ethiopia 2 No No No No Kenya 8 No Yes Yes Yes Somalia 2 No Yes Yes Yes Source: World Bank, adapted from TeleGeography and Packet Clearinghouse. Cloud computing is now becoming the norm fiber cables. In the case of Djibouti, however, the and the market has been dominated globally monopolistic nature of the market and high data by companies like Amazon (AWS) and Microsoft prices might be deterrents. The region is in need (Azure), both of which have set up regional data of open access “Tier 4” data centers which could centers in South Africa. The large social media be developed near coastal landing stations. companies, like Facebook and Google, or eCommerce companies like Alibaba, also tend to Currently, there are only three cities in the region self-provide their data networks around regional served by submarine cables. While there are plans hubs. They are also investing significantly in their to connect several port cities in Somalia to the own submarine cables. Alibaba has expressed DARE and G2A cables, these are not yet operational. interest in investing in Ethiopia through the Government ICT Park, located in Addis Ababa. • Djibouti is connected by nine submarine cables, and serves as the main gateway for One implication of this trend towards international traffic to Ethiopia and northern decentralization of data is that a regional approach Somalia via terrestrial cables to Addis Ababa is more likely to be successful than a purely national and Hargeisa; one. The need for resilience also argues in favor • Mogadishu (Somalia) is connected to one of back-up data centers offshore. Counteracting submarine cable, a branch from the EASSy that trend is the desire of some governments to (East Africa Submarine System cable), with impose data localization requirements (i.e. that a link to the DARE (Djibouti Africa Regional national data, especially personal or confidential Express) due to open in 2021. However, data, should be stored locally. while Mogadishu itself has a fiber metro ring, onward connectivity from Mogadishu to the Within the region, Djibouti and Kenya’s port city rest of the country and into Kenya is limited of Mombasa are perhaps best positioned to host to microwave connections; regional data centers, IXPs and data caches, • Mombasa (Kenya) is served by four submarine because of their privileged access to undersea cables, and is connected to Kenya’s relatively 6 SECTION 3 | DIGITAL DEVELOPMENT dense domestic backbone. Mombasa also • The PEACE cable (Pakistan East Africa acts as a gateway for traffic to South Sudan Connecting Europe), this is proposed and southern Somalia (albeit currently via to serve the three existing stations, plus microwave), and to Uganda, Malawi, Rwanda Bossasso and Kismayo, as well as other and elsewhere (via terrestrial fiber). locations in Egypt, Europe (Marseilles) and Asia (Pakistan). Its primary promoters are As shown in the Figure 2, there are large gaps the Chinese vendor, Huawei, and PCCW between these three coastal landing stations, (formerly Hong Kong Telecom). and many large cities are left unserved, notably • The 2Africa Cable, whose consortium Asmara (and the rest of Eritrea), Berbera (which members include Facebook, Vodafone, MTN would provide an alternative route to the sea for and China Mobile. This is a planned 37,000 Ethiopia and Somaliland), Bossasso (which could km cable skirting the coast of Africa which is serve Puntland) and Kismayo (which could serve planned to enter service in 2023. Jubbaland and South West). While these three projects have made some Figure 2: Digital Connectivity in the Horn of Africa progress in raising funding, and have carried out feasibility studies, they nevertheless lack a source of financing that is neutral, in the sense of not belonging to a direct player or a beneficiary, such as IFC provided for the EASSy cable, one of the first cables to be laid off the coast of East Africa. They also lack a commitment to serve the region as a whole, including Berbera and Asmara. It is has also, to some extent, been sub-optimal to have the planning for the two cables underway concurrently, due, for example, to partners swapping between the two. 3.1.4 e-commerce and digital markets Kenya is recognized as the Silicon Savannah and is the only country in the region that has Source: World Bank, based on data from NSRC and TeleGeography Inc. been consistently highlighted as an innovation achiever, with technology leading entrepreneurs There are a number of projects that have like M-PESA, Twiga Foods and Cellulant. Those been proposed by different players to meet entrepreneurial successes were possible due this connectivity need (see https://www. to a young population with a high risk-taking submarinecablemap.com/): appetite, the proximity to regional markets and the existence of a support infrastructure to help • The DARE1 cable (Djibouti Africa Regional the development including technology hubs, Express), that is proposed to serve the and substantial improvements in the digital three existing stations plus Bossasso, with a infrastructure and facilities. The country is among possible DARE2 extension to other locations. the e-commerce and digital service leaders on Its principal proponent in the consortium is the continent. Djibouti Telecom. 7 OVERVIEW OF DIGITAL DEVELOPMENT IN THE HORN OF AFRICA Table 5: Country scores on eCommerce and related legislation Country Cybercrime Data Country ountry EGDI EGDI OSI Online Law UNCTAD Protection Law value in the rank in the eGovernment eGovernment Service Index 2020 UNCTAD 2020 UNCTAD B2C UNCTAD B2C development development UN 2020 E-commerce E-commerce index value UN index rank UN Index - Index – 2020 2018 ^ UNCTAD UNCTAD+ Djibouti Yes No 27.7 125th 0.2728 179th 0.2235 Eritrea No No n.a. n.a 0.1292 192nd 0.0118 th th Ethiopia Yes No* 27.5 126 0.2740 178 0.3647 Kenya Yes Yes 49.0 88th 0.5326 116th 0.6765 st Somalia No No n.a. n.a. 0.1293 191 0.2941 Note*: In Ethiopia the constitution provides some principles for data protection. A new Proclamation on Data Protection is in draft form. + Ranking out of 152 economies in the UNCTAD B2C eCommerce Index, 2020. ^ Ranking out of 192 economies in the UN DESA eGovernment Survey 2020. Kenya is still facing constraints including limited targeted Inclusive and trusted systems are crucial tools support from government to entrepreneurship, rural for achieving sustainable development. Ensuring and urban divide in the entrepreneurship ecosystem, that everyone has access to identification limited access to capital and the low representation is also the explicit objective of Sustainable of women in the digital space. Addressing those Development Goal (SDG) Target 16.9—to constraints could further unlock economic growth. “provide legal identity for all, including birth Proactive public investments and progressive policies registration” by 2030. Furthermore, identification and regulations have boosted access to broadband, is also a key enabler or contributor to many resulting in better coverage, reduced prices and other areas of development, such as financial better quality of service. However due to low digital and economic inclusion, social protection, literacy in rural areas, limited relevant content and healthcare and education for all, gender equality, issues related to electricity and affordability barriers, child protection, agriculture, good governance, a digital divide remains. and safe and orderly migration. Table 6: ID coverage gaps across the HoA Pop. share without Pop. share without birth Pop. share without People without national ID registration (