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‘Grey market dominates Kenya’s phone business’

Grey market sales dominate Kenya’s phone market.

Two-thirds of all mobile phones in Kenya are sold via grey market channels as consumers look to escape a reintroduced value added tax (VAT).

This is according to the International Data Corporation (IDC), which says Kenya's handset market recorded year-on-year volume growth of 21.5% in the first quarter of 2014.

But the majority of this growth is attributed to a “vibrant grey market that was boosted by the September 2013 re-introduction of VAT on handsets and other electronic devices.”

The re-introduced VAT, which was initially scrapped in June 2009, has resulted in handset prices in official channels rising 16%.

"An unfair playing field has emerged since these new taxes were implemented, and as a result grey market dealers now account for more than two-thirds of the mobile handset market's volume," says James Mutua, East Africa analyst for the IDC, in a statement.

"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,” says Mutua.

The IDC’s views on VAT’s impact on official channel handset sales in Kenya have previously been echoed by phone maker Nokia.

“Overall the market reflects that in Kenya, the grey market has grown from 20% (of the overall market) before the reintroduction of VAT, it sits at around 60% currently,” head of communications for Nokia South East Africa, Leo McKay, told ITWeb Africa earlier this year.

Regardless of reintroduced VAT on handsets, Kenya’s growing mobile market shipments represent the country’s continued demand for telecom services.

Last month, Kenya’s telecoms regulator released its second quarterly sector statistics report and revealed that the country’s mobile users reached 31.309 million, up from 31.301 million compared to the last quarter.

The IDC has also described what types and brands of handsets Kenyans are buying.

“IDC's latest figures show that smartphone shipments were up 104.6% year on year in Q1 2014, against a paltry rise of just 3.6% for feature phones over the same period,” says the IDC.

“The smartphone category increased its unit share of the overall handset market to 29.8% for the period under review as more consumers invested in the various new gadgets launched since the start of Q4 2013,” explains the IDC.

The IDC has further said that Nokia, Tecno, and Samsung make up around 75% of the Kenyan handset market's total volume.

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