Africa's mobile success story

22 Sep 2006

The mobile phone has been a great success story in Africa. But is that about the mobile phone, or Africa‾

In Kenya, where five million of the 35-million population has a mobile phone, the Minister for Information and Communications, Mutahi Kagwe, has declared that IT will be the future driver of economic growth.

For a country based on an agrarian economy - 80% still live off the land - that is ambitious.

While Kenya does have a growing BPO industry, the IT sector also needs skills, a cheap and reliable power supply and a good investment environment in order to grow.

If Kagwe can spend his term in office securing those, then Kenya is on the way to enjoying the fruits of the IT industry.

The massive take-up of cellular in sub-Sarahan Africa has been an important economic and social breakthrough for the continent. It's worth exploring the reasons for it. The first thing that has to be said is it is hardly a surprise to those who have followed the mobile industry. Wherever cellular has gone, it has been hugely popular and financially successful.

In Africa, the first ingredient has been the woeful performance of the government PTT in rolling out fixed-line infrastructure, which created huge unmet demand for telephony.

Milch cow

Governments in developing countries tend to see the main telco as a milch cow. They love taxing the profits, and the telcos love leveraging monopoly rents in the form of high IDD charges.

Figures for 2004 show Mauritius and South Africa as the only nations in sub-Sahara Africa to have a fixed-line penetration of 10%. Virtually all of the others were below 1%.

The second reason is that cellular is self-financing. Banks are willing to lend for network buildouts and operators can repay these loans revenue earned from airtime fees. That happens because mobile is a by now a well-established industry with its own eco-system that enables services to be delivered at affordable prices.

Even more important is the cost of handsets. The bigger handset players enjoy massive economies of scale. Nokia has shipped more than 100 million units of its entry-level 1100 phone, almost all in developing markets; a record surely for any electronic device. Terminals now can be bought for less than $30.

The next element is competition. Once spectrum is allocated, the cellular business is naturally a competitive one, which keeps prices down and innovation up.

The final aspect is the role of the government. It is telling that in Somalia, with no government, was one of the first countries in Africa to have a competitive cellular market.

PwC, in a report for the GSM Association, calculates that another 25 million more users in sub-Saharan Africa would have a mobile phone but for poor regulation. That's another $900 million missing from the GDP of those economies.

Typical examples of rent-seeking measures include the interconnection fee paid to the incumbent, which is often hiked, and import fees imposed on base stations and handsets.

Whether any African nation becomes an IT power is largely up to itself.

But the best thing Mutahi Kagwe and his counterparts can do is remove all the taxes and penalties on telecoms and IT businesses. Then they will find ICT firms actually wanting to invest in their markets.

Robert Clark is Telecom Asia Editor at Large [email protected]

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