Home Global-ICTGlobal-ICT 2006 Driving the economy in Africa with mobile telephony

Driving the economy in Africa with mobile telephony

by david.nunes
Gerhard May Issue: Global-ICT 2006
Article no.: 16
Topic: Driving the economy in Africa with mobile telephony
Author: Gerhard May
Title: CEO
Organisation: Celtel Kenya
PDF size: 300KB

About author

Gerhard May is the CEO of Celtel Kenya. Prior to this appointment, Mr May worked for Mobitel Sudan, a joint venture between Celtel International and Sudatel, for Celtel Tanzania as Managing Director, and as the Chief Commercial Officer in Cell C South Africa, and headed Globacom Ltd in Nigeria. He also served as the Managing Director and Voting Member of the Non-Executive Board of Telecomunicações Móveis de Moçambique, having previously served as its Commercial and Finance Director since its founding in 1997. Gerhard May began his career in his native Germany, after graduating from the University of Regensburg, Germany, with an MBA (Diploma-Kaufmann).

Article abstract

Africa’s future depends upon its ability to drive economic growth for the benefit of its businesses and citizens alike. Lack of infrastructure, including that for telecommunications, has severely hampered the continent’s development. Only recently have investors recognised the value of the vast markets at the bottom of the economic pyramid and funded mobile telephony. Mobile has thrived in Africa, now one of the world’s fastest-growing markets. Mobile communications have had a remarkable impact upon the growth of African GDP.

Full Article

In many ways, unfair perceptions have dogged Africa. The continent is all too often associated with such risks as unstable political environments, unpredictable economic performance and lack of financing and skilled staff. The political ambition to address both the perceptions and the reality is here today. The New Partnership for Africa’s Development, NEPAD, the G8 summit last year (2005), and subsequent European Union initiatives provide a platform to make substantial progress as some of the initiatives to connect Africa to the global economy. There is also increasing academic support for the business theory that global companies can thrive by developing markets for the poor at “the bottom of the pyramid”. In 1995, Nelson Mandela laid down an objective for Africa. He said that Africa needed “a vast expansion of its communication and information network”. When Mr Mandela spoke these words, Africa had huge unmet telecom needs. Indeed, at that time, less than one per cent of Africans had access to a fixed telephone line, and there were less than one million mobile phones for Africa’s more than 800 million people. Today, Africa is among the world’s fastest growing markets for mobile phones. Last year there were more new mobile customers in Africa than in North America and today there are some 100 million phones in use in Africa, and this is just the beginning. A mere 12 per cent of all Africans have access to phones compared to some countries in Europe where telephone penetration exceeds 100 per cent. The importance of mobile telecoms is vital to economic growth. As The Economist concludes in a March 2005 edition: “Plenty of evidence suggests that the mobile phone is the technology with the greatest impact on development… mobile phones raise long-term growth rates, and that their impact is twice as big in developing nations as developed ones.” According to Mobile Communications in South Africa, Tanzania and Africa: Community and Business Surveys (March 2005) “…mobiles have brought considerable benefits to communities and small businesses. People at all income levels are able to access mobile services, either through owning or sharing a phone; and gender, age and education do not seem to constitute barriers to access. While income certainly explains the level of usage, lack of income does not prevent mobile use. Even the absence of electricity does not present an insurmountable barrier, thanks to the sharing of mobiles and recharging batteries in the nearest town, or recharging locally by a generator or car battery.” The mobile phone companies played a vital role in this development by delivering reliable telecommunications services to their customers, many of whom had never had access to a phone in their lives before. In doing so, the mobile operators are changing people’s lives for the good. For example, young people who have moved from rural areas to the cities seeking jobs and economic prosperity can now call their families at home. Small- and medium- sized enterprises use the mobile phone to get the best possible price for their products or crop. These are examples of how the mobile phone truly impacts upon the lives of the population, and helps to make life better in previously unserved regions. Local mobile operators have invested billions of dollars to build their networks and their existing infrastructure and operations. They have also sought to acquire mobile operators in other countries in an effort to consolidate markets and build economies of scale. This is a major vote of confidence in sub-Saharan Africa. It shows that there are serious investors who recognise the opportunities that Africa offers. In Africa, mobile communications systems are playing the role fixed line networks are playing in developed countries. Mobile communication services provide basic access services as well as advanced data services and value-added services. Private sector initiatives have accelerated business dynamics while international standardisation has reduced handset and infrastructure costs. Simplified subscription procedures, also, have significantly boosted growth in the number of mobile phone customers. Research by The London School of Business (2001) has shown that in developed countries fixed line telecom networks were responsible for one third of the GDP growth between 1970 and 1990. This same phenomenon of GDP growth is now being witnessed in Africa due to mobile telephony, which has become the primary means of communication. Mobile information and communication technologies are powerful drivers of growth. In fact, according to studies conducted by the GSM Association, there is a strong correlation between countries that have high mobile penetration and high nominal GDP per capita, ie the growth in mobile penetration results in the growth of per capita GDP in the regions affected. Many businesses cannot function effectively anymore without mobile phones. The mobile phone has become an essential tool and not the luxury toy that it once was. Mobiles can improve economic growth, quality of life and social capital. Studies show that between 1996 and 2003, for each increase of ten phones per 100 people, a developing country would have had GDP growth of 0.6 percentage points higher than an otherwise identical country. Empirical studies in South Africa and Egypt showed that 62 per cent and 59 per cent, respectively, of small businesses had increased profits as a result of mobile phones. In many cases, mobile phones are their only means of communication. In this context, Kenya is an interesting case study. The Kenyan government has long recognised the vital role that telecommunications infrastructure plays in development and GDP growth yet it continues to apply an excise tax of ten per cent on mobile phone usage. By definition, an excise tax is a tax usually applied on goods or services the consumption of which leads to a certain degree to socially negative consequences. However, as we know, mobile telephony is a driver of economic growth the consumption, stimulates business and adds to which the well-being of the population. By removing the excise duty, the government will make communication more affordable to the average Kenyan. This, in turn, will facilitate the spread of mobile telephony in Kenya. Since this will inevitably drive GDP growth, there will be an increase overall in the tax revenues collected.

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