Can Kenya become a global exporter of business services?
Kenya's potential to export business services is vast. Business services are generally provided on a private sector basis and require a high level of skills that are usually certified. Business services include accounting, architectural, engineering, legal services, business process outsourcing (BPO), information communication technology (ICT), information communication technology enabled services (ITeS), and more.
Kenya is in a unique position to export such services throughout East Africa and to the rest of the world. Kenya's recent "ICT revolution" epitomized by the success of Safaricom has expanded mobile phone and Internet access to millions of people, and Kenya's ICT services firms such as KenCall have had substantial success in the domestic as well as the international market. However, as described in the World Bank's 2010 Kenya Economic Update, exports represent Kenya's "weak engine". Increasing exports of services, especially high value added business services, therefore represents an important opportunity to drive economic growth in Kenya.
Despite a moderate growth in Kenya's services exports during the last decade and a stronger revealed comparative advantage in transport, travel and communication services, anecdotal and empirical evidence show that Kenya has an important potential in exporting business services. While most developing countries tend to export basic business services such as back office tasks or low value offshoring, Kenya has several world class firms that provide and export higher value offshoring services such as product development, R&D business ventures and transformational sourcing. Therefore, there are substantial gains for Kenya's economy from expanding the number of exporting firms and the number of firms that progress to the higher value offshoring and partnership segments.
This article describes the characteristics of the professional service exporters in Kenya based on an in-depth study of 52 exporters, including their export strategies. Second, it identifies the key challenges faced by current and potential exporters of professional services. Third, it proposes policy recommendations to address those challenges that will help establish Kenya as a desirable offshoring destination for international clients.
Kenyan service sxporters' characteristics
Kenyan service exporters come in all sizes, but the majority employs less than 100 workers. The majority of the surveyed Kenyan services exporters have less than 10 years of exporting experience. The sub-sectors with greatest export turnover are insurance, accounting, non-banking financial and BPO services.
Modes of delivery 
Almost all Kenyan service exporters deliver some of their exports through cross-border supply (mode 1 in GATS). Service exports delivered through the movement of natural persons (mode 4 in GATS) are also quite prevalent, occurring for 60 percent of the surveyed exporters in Kenya. Commercial presence (mode 3 in GATS) is used by 44 percent of the surveyed Kenyan services exporters to deliver their services abroad. The least used mode of supply by Kenyan service exporters is consumption abroad (mode 2 in GATS).
The regional markets of the East African Community (EAC) tend to dominate the export flows of Kenyan professional service firms. Multinational and private corporations are the main clients for more than half of Kenyan exporters. In general, BPO, ICT, financial advisory, and logistics services are the services that are typically exported outside Africa.
Exported services: In accounting, Kenyan firms export accounting services, tax services, consulting services, and auditing services. In architecture, Kenyan firms provide architectural consulting services such as master planning, urban planning, land use planning, site planning, but also interior planning, and project management. In BPO, Kenyan firms export an array of services ranging from inbound/outbound customer voice, email, or SMS support, inbound and outbound sales via phones, customer satisfaction surveys, and back-office support, to database management such as updating changes to information portals or live updates of stock markets, safe data storage and back-up facilities, transcription from voice to text or video sub-titling, to entertainment or professional service chat support. In ICT/ITES, Kenyan firms export design services such as animations of web-advertising, user interface systems, icon and banner advertisements, but also high-end corporate and technology solutions such as hardware and disaster recovery.
Customization: The services exported by Kenyan firms are subject to some degree of customization relative to the services sold domestically in order to suit client demands. Box 1 provides examples of exported business services by Kenyan firms and the necessary modifications to the domestic services to make them exportable.
The factor that constrains most service providers from exporting is a widespread lack of knowledge about exporting opportunities, markets, and processes, and a lack of awareness as to how to acquire such knowledge. Very often Kenyan service providers - especially smaller ones - lack international networks and find it very difficult to obtain market intelligence on foreign market. Another important constraint identified by the surveyed firms is the difficulty in penetrating foreign markets. Kenya has low international brand equity as a business service provider. Skills mismatches and skills shortages pose a significant challenge to many Kenyan exporters.
The Government of Kenya can, through its trade supporting institutions and in collaboration with business and professional associations and the private sector, develop a Services Export Strategy and play an important role in helping reduce the barriers that Kenyan service firms face in their export development efforts.  Most Kenyan service exporters feel that direct incentives to exports, such as tax incentives for example are unnecessary. Rather, what they consider to be crucial is that the government facilitates the access to foreign markets.
Address lack of knowledge about export opportunities
The Export Promotion Council (EPC) could collect and disseminate to Kenyan service firms market research information (e.g., country profiles, sector rules and regulations, tax issues, and general working conditions in foreign markets) and highlight available opportunities for services exports. The EPC can establish links with other international trade support institutions to create a greater pool of information on businesses opportunities available in other countries as well as profile companies that can deliver those services.
Business and professional associations should be more active in hosting international seminars to educate the industry and increase networking opportunities for local experts. The EPC could assist financially Kenyan service firms - especially small firms - in their incursion in international markets for example through participation in international fairs and expositions (perhaps through a co-shared effort). The EPC should also be able to assist individual Kenyan service exporters or potential exporters with marketing and branding efforts when participating in international expositions (e.g., ensure that Kenyan delegations have top of the line display stands).
Address regulatory and branding issues
The liberalization of advertizing in various professional services sectors would enable current and future exporters in Kenya to use an important channel for targeting foreign clients. Given the likelihood of strong informational asymmetries, allowing advertizing that is relevant, truthful and not misleading - as is currently done in accounting in South Africa, Malawi, and Zambia - would be the best combination to protect domestic and foreign clients.
The opening up of regional boundaries to allow free movement of EAC nationals without work permit requirements would be of great help to increase business opportunities within the region and boost service exports.
The establishment of mutual recognition agreements (MRAs) of professional qualifications and licensing requirements within the EAC in the areas of accounting, architecture, engineering, and legal services would likely benefit Kenyan service firms (as well as firms in neighboring countries) in their exports of services to the region. The creation of standards at the EAC level for the services delivered in the accounting, architecture, engineering, and even legal sectors could potentially benefit consumers in the EAC.
The Government of Kenya should lead the positioning and marketing of the country brand and key services globally showcasing professional services next to tourism, sports, horticulture, and other Kenyan products. Trade support institutions should conduct concerted marketing efforts with professional associations and government agencies such as the Kenya ICT board, the Kenya Tourism board, the Communication Commission of Kenya, to promote Kenyan services and build Kenya‘s reputation as an exporter of professional services.
The availability of scholarships or partial funding for BPO agents to be able to access formal training in courses not readily available in Kenyan universities and colleges would improve the skills and thus the marketability of Kenya‘s BPO sector. The provision of rebates or the development of incentives for firms to conduct training - especially specialized training such as a certified fraud examiners course in the accounting sector - would help increase the quality and degree of specialization of the services offered by Kenyan firms.
The factor that constrains most Kenyan service providers from exporting is a widespread lack of knowledge about exporting opportunities, markets, and processes and a lack of awareness about how to acquire such knowledge. What Kenyan service providers consider to be crucial is for the government to facilitate access to foreign markets. Such facilitation would lead to an increase in employment, upgrades in the technology used, and improvements in the quality of services delivered to meet high international standards. Possible policy actions for the government of Kenya are summarized in table 1.
Author : Nora Dihel is Senior Trade Economist in the Africa Region of the World Bank. This article is based on a paper entitled "Can Kenya Become a Global Exporter of Business Services" by Nora Dihel, Ana Margarida Fernandes, Richard Gicho, John Kashangaki and Nicholas Strychacz, Africa Trade Policy Note No 19, World Bank. The views expressed here reflect solely those of the author and not necessarily the views of the funders, the World Bank Group or its Executive Directors.
This work has been funded by the Multi-Donor Trust Fund for Trade and Development supported by the governments of Finland, Norway, Sweden and the United Kingdom.
EPC (Export Promotion Council) and World Bank. 2009. "Services Exports Study: Assessment of Kenya's Export Potential and Supply Capacities in Selected Professional Service Sectors." EPC, Nairobi.
Government of Kenya and EPC (Export Promotion Council). 2008. "Strategy for Export Promotion of Professional Services in Kenya." EPC, Nairobi.
Nora Dihel, Ana Margarida Fernandes, Richard Gicho, John Kashangaki and Nicholas Strychacz, Africa Trade Policy Note No 19, Washington, DC: World Bank.
Sudan, Randeep, Seth Ayers, Philippe Dongier, Arturo Muente-Kunigami, and Christine Zhen-Wei Qiang. 2010. The Global Opportunity in IT-Based Services: Assessing and Enhancing Country Competitiveness. Washington, DC: World Bank.
1 The four modes of supply of services in the GATS terminology are: Mode 1 - Cross-border Supply: services supplied from the territory of one country into the territory of another country; Mode 2 - Consumption Abroad: services supplied in the territory of one country to the consumers of another country; Mode 3 - Commercial Presence: services supplied through any type of business or professional establishment of one country in the territory of another (i.e., FDI); and Mode 4 - Temporary Presence of Natural Persons: services supplied by nationals of one country in the territory of another. Mode 4 includes both independent service suppliers, and employees of the services supplier of another country.
2 A complementary view on policy changes that can make Kenya a more attractive destination for offshore of IT and ITES sectors is provided by the examination of a location readiness index described in Sudan et al. (2010)