Mobile Phones Revitalize Economic Growth In Africa

The investment in mobile phone and its infrastructure and derived services provide significant benefits to the economy. It is important for developing countries to have such technology and benefit from it in order to further their economic growth. Investing in telecommunication technology is continued to be the best hope for developing countries to accelerate their development process (Klaus Schwab). Since the intensity of cell phone and telecommunication technology adoption in general is itself significantly dependent on the level of economic development and competitiveness of nations (Wong, 2002). This paper addresses these issues to help understand the dynamics of this casual connection of telecommunication technology services that accelerates economic growth, which in turn, creates the demand for more telecommunication services.

Information and communication technology, which is mainly found in developed countries, could become an engine for long-run economic growth in developing countries, as railways and electricity once were. Furthermore, telecommunications has a direct influence on productivity growth. It raises the efficiency of service providers and opens new markets by reducing distances. Telecommunications is a growing sector that creates new activity in itself, contributing to economic growth and employment creation. Mobile phones have rapidly overtaken fixed-line communications. Mobile phones are the only economic indicator in which there has been catch-up between Africa and the developed world. In nations where literacy rates are low and general infrastructure scarce, mobile phone take-up has far exceeded that for the Internet. In South Africa, people spend 10 to 15 percent of their income on mobile phones, compared to 5 percent in the developed world, which indicates that the poor find mobile services particularly valuable (Coyle, 2004). More than a quarter of businesses in Egypt say that they would not have been able to start up without mobile phones. Many say that cell phones increase profitability, despite calling costs.

Most infrastructure investments can favorably affect the economy in several ways. It can reduce the cost of production, increases revenues, and it can increase employment through both direct and indirect effects (Alleman et al, 2002). Similar to other infrastructure investments, investing in telecommunication will increase the demand for the goods and services used in their production and increase total national output. Telecommunication infrastructure is also a little different from other infrastructure, as a determinant of economic growth because of the existence of network externalities, a phenomenon that increases the value of a service with increase in the number of users. Because of this, the impact of telecom infrastructure on economic development is more pronounced as compared to other traditional infrastructure. (Kim et al 1997).

Common sense suggests that increases in purchasing power (contributed by increased telecom services) also increase demand for such services, i.e. purchasing power for telecommunication services, and in turn the growth of services. Note that developing countries with low penetration rates for main telephone lines, find the infrastructure for mobile phones to be relatively inexpensive and less time-consuming to install. Cell phone penetration in the developing countries started increasing rapidly during the second half of the 1990s due to changes in telecom regulation, and move to competitive market structures. Most of the developing countries jumped into second-generation mobile cellular systems, deploying them at a much greater rate compared to landline installations. Thus micro household decisions relating to mobile phone services continue to be dependent on economic factors, as with other phone services. Estimates of the supply equation for telecom investment when we take into account only cell phones, shows that market potential (waiting lines per 100 population) has a positive influence on its supply. This effect is the same as for all telephone lines and main telephone lines. Both measures of the price -- cell phone revenue per user and subscription prices -- continue to exert the expected positive impact on telecom investment.

There is no doubt regarding the fact that most of these developing economies have jumped forward in cellular telephony as a quick and inexpensive way of increasing telecom penetration. Most of these economies have significantly deregulated their telecom sector, and investment to increase telecom penetration (especially using the wireless services) does not seem to be the big issue any more. The big question that continues to haunt many of these economies is how improved telecom infrastructure can be used to accelerate their economic growth and alleviate poverty? This, it may be realized, is largely possible only by reducing the digital divide, and empowering residents of developing countries through information regarding prices, job opportunities, and markets. This is not a substitute for actual economic growth, and also may not offset negative economic effects caused by overarching exogenous shocks, but make it possible for economic growth to trickle down, once it occurs.

Telecommunications has been enhanced as a development tool because of its broad range. Better communications networks produce higher incomes, yet higher incomes also produce a higher demand for communications since communication is a luxury good. Telecommunications is a growing sector that creates new activity in itself, contributing to economic growth and employment creation, developing economies particularly. Telecommunications lowers transaction costs, both the fixed costs of acquiring information that is needed for competent decision-making, and the variable costs of participating in markets. The existence of a well functioning telecommunication sector is essential for other product and factor markets as well. The size of the latter markets expands as the increasing returns to communication generate cost-saving externalities (Leff, 1984). The investment in the telecommunication sector leads to improved organizational performance; it lowers communication costs, increases access to information and enhances the quality of the information obtained. This permits the transformation of uncertainty into risk, and gives ground to more informed and improved decision-making. It is true for both the private and the public sector, giving the latter the potential to increase the efficiency, transparency and accountability of governments.

Furthermore, by lowering the transaction costs, it may enhance the efficiency and promote the spread of factor and product markets in developing countries (Röller & Waverman, 1996). These countries only had an average penetration rate of 4 percent, suggesting that the rich developed countries benefit most from telecommunications investments and that developing countries need substantial investment before they earn profit. As mobile telecommunications drive economic growth across Africa, the average mobile phone user pays more than $40 per year in taxes on handsets and mobile services; obviously, in some countries $40 represents more than a month's wages. Lowering taxes would increase the number of mobile phone users, thereby bringing in more tax revenues over time, (GSMA). Part of the trouble with the taxes is over a third of all handsets sold in developing countries were through the black market, a loss of $2.7 billion in tax revenue. The low-cost handsets will help get mobile phones into the hands of around 1 billion people in developing countries.

Mobile phone penetration is a powerful engine for economic growth. Every time you have ten more phones per 100 people, could have an increase in GDP (gross domestic product) of 0.6 percent. According to Gartner's latest report, worldwide mobile phone sales totaled 816.6 million units in 2005, a 21% increase from 2004, as the leading six vendors increased their share of the market to the detriment of smaller vendors. BMI-TechKnowledge expects SA's mobile subscriber base to grow to about 31 million connections in 2009 from the current estimate of 25 million. West Africa's subscriber base should hit 31 million in 2009 from this year's 23 million. Nigeria will account for 13 million and 18 million of that market in the respective years. Since March 2004, Eritrea invested over $15 million for a mobile phone system, and continued to upgrade to meet the public demand of mobile phone service.

Ghirmai T Kefela

Ph.D. (Int. Bus.)