Is Kenya’s promise outweighed by regulatory risks?
Kenya’s iGaming market is one of the most promising in Africa, although regulatory uncertainty from seesawing tax rates, means it’s not for the faint-hearted.
By market size, Kenya has the third-largest gaming economy on the continent, with an estimated annual revenue of $40 million in 2021 and is growing rapidly.
The World Bank forecasts Kenya’s economy will grow 5.5 percent this year, down from 7.5 percent the prior year due to the impact of the conflict in Ukraine. Growth is expected to average 5.2 percent through 2023/24.
Kenya is the largest economy in East Africa and had enjoyed three decades of annual growth until the Covid crisis hit.
It’s easy to understand why Kenya might seem to be the perfect environment to grow your customer base, however, the region has been plagued in recent years with internal tax and regulatory issues, threatening to dampen any hopes of Kenya realising its true potential as a global iGaming hub.
Market Drivers
One of the biggest advantages Kenya has is technology. The country’s internet penetration rate was at 85.2 percent in 2021 and 57 percent of the population claim they’ve engaged in betting at least once.
Kenya’s 53.77 million population is very young, and recent estimates report that more than 50 percent of the population will be 25 or younger by the year 2050. Younger generations are very interested in engaging content, and online betting is one of the leading genres.
In 2021, there were close to 60 million mobile connections, 11 percent higher than 2020. The market boomed when the majority of the population gained access to mobile devices and today, 64 percent of the people who own smartphones in Kenya take part in online wagering.
Furthermore, 88 percent of Kenyan punters use their smartphones for wagering, making mobile the most popular channel for gaming in the country, according to a GeoPoll Survey.
There are nearly 30 sportsbooks licensed to operate in the country and their most popular gaming verticals are lottery and sports book, but new verticals such as slots, are gaining momentum. At present slot games only represent thirty percent of online operator revenue, but increasing numbers of young adults are becoming attracted to these games because of their low risk, simplicity and attractive graphics.
Tax headaches
Kenya’s fluctuating tax rates have long been a cause for controversy amongst key market stakeholders. In 2019, legislators made a decision to double the tax rate from 10 percent – 20 percent, which itself came after an existing dispute over a separate 20 percent tax on winnings. This resulted in a barrage of complaints from the industry and major operators such as Sportpesa and Betin pulling out altogether.
The ripple effect of this meant that the Kenyan Football League was left without a sponsor and was forced to appeal to their fans, requesting donations to help pay the footballers’ wages. Increased pressure from the league and other key stakeholders resulted in the Finance committee conceding that the increased tax rate had actually generated less revenue than in previous years because of the operators that had left the market.
This eventually led to the tax being scrapped entirely. A new tax rate of 7.5 percent was signed into law by President Uhuru Kenyatta in 2020 and key operators returned to the market.
However, just under two years later, earlier this year, the treasury published their finance report proposing the 20 percent tax be re-introduced. The only difference in the new bill was that the tax would apply to lotteries as well. That recommendation was thrown out by a key finance committee a month later following intervention from stakeholders, including Sportpesa.
What does this mean for the future?
Kenya clearly has a lot of positive aspects to it, including a great market appetite, robust online infrastructure and most importantly capacity for growth. When you consider the popularity of online wagering in Kenya and the tech capabilities available, entering into this market could be a great way to expand your customer base.
However, the volatile nature of tax rates and the regulatory environment in general presents a clear risk to an operator’s profitability. While the tax rate is currently at 7.5 percent, the opportunity for a higher margin is obvious, but with such a tumultuous regulatory history, it’s difficult to know whether the tax rate will stay that way.
Further evidence of the unpredictable nature of this region can be seen with the recent withdrawal of BetKing as official Kenyan Football League sponsors, causing Kenyan football clubs to start scrambling for cash again. Although the official reason for this contract termination hasn’t been stated, it still serves as yet another example of the volatile nature of the Kenyan market. Operators with a small appetite for risk may be put off by this dynamic, unpredictable iGaming environment.
SiGMA Africa : NAIROBI, KENYA. (16-19 JANUARY 2023)
Kenya boasts 30 sportsbooks licensed in the country alone, making it the third largest gaming market in Sub-Saharan Africa. SIGMA Group is bringing its 3 leading shows together for the mother of all conferences. SIGMA, alongside AGS and AIBC will bring the best in the business to a first-class meeting point in Nairobi. It’s incredible economic potential, growing and youthful population, ability to leapfrog technologically and recent economic reforms, the SiGMA Group wants to help galvanize this exciting era of prosperity by acting as a hub of networking for the brightest minds on the continent. Plan your trip with us.
