Zoo Station

Some of you know that I did my doctoral work on the impact mobile phones could have on productivity and economic development, especially as it smoothed out information asymmetries inherent in undeveloped and rural markets. So, I've been quite pleased to see story after story that corroborates my thesis about mobile phones. First came the Economist story on the real digital divide (which I have blogged about earlier), then came Vodafone CEO Arun Sarin's op-ed in the Financial Times.

Africa is now the fastest-growing region for mobile telecommunications in the world, having lagged behind the developed world for decades. The number of African mobile subscribers increased by over 1,000 per cent between 1998 and 2003 and, although this was from a low base, the continent is closing the gap with the rest of the world. This stunning progress has been achieved almost entirely through private investment. The mobile experience offers lessons on the broader challenges of infrastructure development. Typically, governments and donors focus on infrastructure such as roads and ports. But efficient communication often plays a more important and often overlooked part in economic development.

The business case for investing in telecommunications in Africa is compelling but it will only be fully realised when private investors are confident of the political, regulatory and business environments. African countries differ widely in the extent to which mobiles have been adopted. For example, there were 36 mobiles per 100 people in South Africa at the end of 2004, compared with an average for the whole of sub-Saharan Africa of fewer than three mobiles per 100. Governments' different approaches to the liberalisation of the markets, the introduction of private competition and their regulatory and institutional frameworks go a long way towards explaining this difference.

A thriving business sector, led by capable and highly motivated African entrepreneurs, will lie at the heart of spurring economic growth and reducing poverty. Vodafone has found, in the mobile telecommunications sector, that the emergence of private resellers has acted as an economic stimulus even in very poor rural communities. For instance, some entrepreneurial people with mobiles will, for a very small fee, receive and relay text messages for other people in their community or recharge handsets from their car batteries. On a large scale, companies such as Vodacom (Vodafone's South African partner), MTN (also from South Africa) and Orascom (from Egypt) are not only thriving in their own countries but also investing throughout the continent. They are developing innovative business models and creating in their own ranks talented African leaders.

Now, the current issue of the Economist revisits the issue in a piece titled Calling an end to poverty.

Kai Oistamo of Nokia, the world's largest handset-maker, notes that people in poor countries have to spend a far larger proportion of their income than those in the rich world to buy even the cheapest handset. “So looks and brand are highly important—it is much more of a status symbol in those societies,” he says. And it is wrong, points out Mr Prahalad, to assume that consumers in poor countries will not be interested in fancy features such as music-playback. Since they cannot afford multiple devices—an iPod, a PC, a PlayStation—they may want more from their mobiles. As handset-makers respond to this new market, prices will continue to fall. “We will give you the volumes so that you can continue to drive down prices,” promised Sunil Mittal, boss of Bharti, a big Indian operator.

Lower prices will make a second barrier ever more apparent: high taxes and duties imposed by many governments on handsets and services, often just as growth in the sector starts to take off. “It does seem strange for countries to say that telephone access is a public-policy goal, and then put special or punitive taxes on telecoms operators and users,” says Charles Kenny, an economist at the World Bank. “It's a case of sin taxes on a blessed product.”

PS: If anyone is interested in discussing this issue or any part of the research I did, just back-channel me via e-mail. You'll find the address on the bio page.