Kenyan BPO fails to take up World Bank subsidy

Kenya's business process outsourcing sector has failed to take up a US$7 million bandwidth subsidy, raising questions about the efficacy of the project and whether the stimulus package is the main problem ailing the industry.

Then Kenya ICT Board has been forced to extend the deadline for applications until March, though the project started in July 2007. The board predicts that the extension will significantly increase the uptake of the subsidy by the BPO industry.

The project was initiated to cushion the industry against the high costs of connectivity, a factor that had made Kenya an unfavorable BPO destination compared to other countries such as India and Mauritius.

"This extension of bandwidth capacity support will help the industry reduce operating costs and thus increase global competitiveness in the short term," said Paul Kukubo, CEO Kenya ICT Board.

But the extension has raised serious questions about whether the subsidy is the best way to assist the budding industry and whether the process used by the board is right.

The cost of bandwidth, especially for bulk buyers, is expected to decline with the landing of the SEACOM and TEAMS fiber optic cables, from $2,500 to $600 per megabyte.

"It will take at least until end of 2010 for international bandwidth costs in Kenya to be comparable to other competing regions; the extension of the subsidy is timely, especially in light on increased confidence predicted for 2010," said Francis Hook, IDC East Africa regional manager.

Regarding the number of companies that have received the bandwidth subsidy so far, Kukubo declined to give any information and the Kenya BPO society did not have the details of recipients.

"There has been no regular public information about which organization has gotten the subsidy apart from the first time when the subsidy program began," said Gilda Odera, chairperson of the BPO society.

The board requires companies to sign an agreement for the subsidy as well as for audit and verification, which the industry says involves scrutiny of their invoices and list of clients. This process has made some players jittery and skeptical that their client data would be "stolen" or sold to rival BPOs. This may be part of the reason the industry did not rush for the subsidy.

"Industry players are generally not happy with the approach that was presented to them to qualify for the subsidy," added Odera. "All companies have confidential information and it is very sensitive."

But Bitange Ndemo, permanent secretary in the ministry of information and communication, has defended the subsidy process, adding that what the industry needs is a level of trust.

"In my view, data sent to the board must be handled with extreme care; the Kenya Revenue Authority has more details but I have never heard that the data was leaked for competition purposes," said Ndemo.

Ndemo said that the requirements are from the World Bank and are calculated to enhance transparency in the projects.

"This seems a fair enough approach in order to both justify the subsidy and ensure transparency - no more different than a bank requesting LPO's/Statements of Accounts from a business person before issuing a loan to finance a project," added IDC's Hook.

The qualification process was made stringent to block companies that may be formed solely to benefit from the subsidy with no real intention of investing in the BPO business.

"Most contracts are signed for long periods, usually between one to three years and clients are assured of services at a certain cost; stealing such clients may not be as easy as it seems," added Hook.

Hook feels that for any BPO with a valid business plan, transparent accounting practices and a valid client base, meeting the board requirements should not be an issue.

But for a country with no data protection laws, smaller and upcoming industry players feel vulnerable and the level of distrust has risen.

"It's a pity that the subsidy did not benefit the industry as it was supposed to. Many BPOs would have been successfully operating had they accessed the funds," said Odera.