Kenya’s mobile handset market boomed in the first quarter of 2014 compared to the previous year, fuelled by an increasing “grey” market resulting from the reintroduction of value added tax (VAT) on handsets and other electronic devices, according to the International Data Corporation (IDC).
The mobile phone handset market in Kenya grew by 21.5 per cent year-on-year in Q1, the IDC revealed,
According to the IDC, the spike in the handset market is directly attributable to an increase in “grey market” activity – defined as those dealers who “source their handsets from unofficial/unauthorised channels, which makes their gadgets cheaper than the same products sourced through official partners”.
In turn, the research analysts said the rise in grey market dealers can be put down to the reintroduction of the 16 per cent VAT on mobile handsets and other electronic devices in Kenya in September last year. Mobile handsets had been excluded from VAT in 2009.
“Grey market dealers have been the main beneficiaries of the government’s decision to reintroduce VAT in late 2013, while official channel partners have been badly hit,” said James Mutua, a research analyst with IDC East Africa.
“An unfair playing field has emerged since these new taxes were implemented, and as a result gray market dealers now account for more than two-thirds of the mobile handset market’s volume.
“Moreover, these estimates are conservative; the numbers may be significantly higher as some official channel partners are claiming to have lost more than half of their normal monthly run rate business.”
According to the new IDC research, the smartphone market in particular saw incredible growth in Q1, with shipments rising 104.6 per cent year-on-year and smartphones now accounting for 29.8 per cent of the total mobile phone handset market, while growth in feature phone shipments lagged behind showing only 3.6 per cent growth in the first quarter.
Nokia, Tecno and Samsung devices continue to dominate the handset market in Kenya, comprising 75 per cent of the whole market.
While 2G and 2.5G phones also continue to dominate, the IDC said 3G and 4G handsets are gaining traction, achieving 67 per cent and 207.4 per cent growth respectively in Q1 as compared to last year’s corresponding figures.
“This is an indication that the Kenyan market’s user base is increasingly ready to join the rest of the world in shifting to LTE,” the IDC said, although noting the country’s 4G infrastructure is not progressing at the moment as market stakeholders have not yet identified the best 4G network deployment model to take.
“With prices declining and increasing numbers of Kenyans now accessing the Internet via mobile phones, IDC expects the smartphone segment to continue recording healthy growth over the coming quarters,” the research firm said.
“However, the government needs to be alert to the challenges that lie ahead in terms of the market’s composition, particularly when genuine tax-compliant businesses lose out to gray market dealers that may not fully adhere to the relevant taxation requirements.”
HumanIPO reported in April a study by the University of Nairobi concluded the reintroduction of VAT on mobile devices in Kenya has significantly slowed uptake of devices, and while the market had grown overall, the rate of its expansion is declining as a result of the new tax.
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