Understanding the service industry

From an economic standpoint, economic activity revolves around two broad categories, goods and services. Goods-producing industries refer to those that produce a tangible item that forms the basis of commerce. They include agriculture, mining, manufacturing, and construction, among others. Service industries, on the flip side, do not have any tangible product but comprise a wide variety of market and nonmarket activities, ranging from transport and retailing to hotels, restaurants, financial activities, business and personal services, education, health, and public administration, among others.  

For any economy, either developed or developing, the service industry sector is a fundamental cog in its functionality and growth. The service sector is a catalyst for productivity and economic growth and development as it provides pivotal intermediate inputs like business and professional services, commercial education and training, information technology (IT) and computer services, value-adds on innovation-related content or products, outsourcing channels of various service activities from other sectors and coordination of various production processes.

In the recent past, the services sector has emerged as a key economic driver in many countries. This has been evidenced by the increased foreign direct investment (FDI) in the sector, increased absorption into employment in the sector, doubling up of trade, as well as increment in the GDP of the countries with robust services industry. Fundamentally, and according to UNCTAD, the rationale behind the increased appreciation of the services industry is largely due to the reduced output from the manufacturing sector in developed economies alongside the reduced output from agriculture, more so in developing countries. Consequently, there has been a shift in the production terrain with the production resources being moved to the services sector in both developing and developed nations.

General landscape of the service industry in Kenya

For Kenya, agriculture, industry, and now the service industries are among the major contributors to the country’s economic growth and development (See Fig. 1). More importantly, the latter has witnessed exponential growth and expansion, thus becoming both a key component of the economy as well as a fundamental indicator of economic health. The service sector has become quite a crucial pillar of Kenya’s economy. It has both direct and indirect impacts on various sectors of the economy. The direct impacts include job opportunities, exports as well as the impact on the GDP. Indirectly, the effects come into play due to the linkages between the various service sub-sectors.

Kenya’s economy grew by 7.5% in 2021, being a steady step compared to the 0.3% contraction in 2020, because of the COVID-19 pandemic. According to the KNBS Economic Survey in 2022, all economic activities in the country posted a positive growth save for the agriculture, forestry, and fishing sectors, which had a 0.2% contraction owing to the unfavourable weather conditions alongside the locust invasion.  Fundamental to note, is that the economic growth in 2021 was largely driven by the service sector due to its impact on key sectors including finance & insurance activities (12.5%), wholesale & retail trade (7.9%), transportation and storage (7.2%), real estate (6.7%) and manufacturing (6.9%).

Technology and service industry in Kenya

Hailed as the Silicon Savannah, Kenya has a thriving tech scene with some of the leading and cutting-edge start-ups borne in the country. While generally Africa has inadequate IT infrastructure, Kenya is an edge higher and that makes it a hub for technological advancement in the Global South. The country boasts one of the fastest mobile internet speeds globally, thanks to the undersea fibre optic line, which greatly serves as a catalyst for growth in this era of the Internet of Things.  To further note, Kenya is now characterised as a truly connected landscape, with its $1 billion tech ecosystem offering an attractive space for entrepreneurs, investors, and technologists. Leading firms such as Meta, Microsoft, IBM, AWS, Intel among others, have since set a base in this cradle of innovation.

The sound and solid base in Silicon Savannah presents a solid platform for further growth for the already thriving service industry. The Savanna is literally at our service! How is this the case?

1. A thriving gig economy: Kenya boasts a thriving gig economy. Over the last decade, Kenya’s gig economy has grown in bounds and leaps. With the unemployment rate standing at 26.4%, young people are gradually embracing the gig economy with the opportunities therein more accessible, competitive, and consistent job opportunities. Essentially, the gig economy is increasingly providing alternative economic opportunities. Moreover, platforms are opening new markets, building trust between clients and gig workers, and providing workers with a broader range of job opportunities.
2. Appreciation of Machine Learning and Artificial Intelligence in Kenya. The global transformation through AI and Machine Learning has not left Kenya behind. Right from the regulatory spaces, there is an increased acceptance and embrace of AI and Machine Learning. Different sectors including the taxman are embracing AI and Machine Learning to optimise their functionality.

There are quite a number of opportunities for exploitation in Silicon Savannah, alongside the above. Kenya boasts one of the best education curricula in Africa. With that, there is a potential for the services industry, both local and international, to grow relying on the sound base in Silicon Savannah. The curriculum means a proper workforce of high intellectual capacity, proficient in international languages and greatly adept in technological advancements. Additionally, outsourced models can enjoy the accommodative tax regime with exemptions on VAT for exported services, the expansion of special economic zones and a shift from the digital services tax to the OECD (Organization for Economic Cooperation and Development) Principles.

Without a doubt, Silicon Savannah, vide the services industry, is ready to serve the tech space!