Published: July 01, 2008
A media report in May 2008 said it all: “Growth in Africa’s mobile sector has defied all predictions.” The declaration, by US-based Africa Focus Bulletin, captures a widely held sentiment regarding the growth and future prospects of telecommunications in Africa.
Growth in Africa's mobile section has defied all predictions.
The critical message underlying Africa’s great mobile telecoms story is the fact that never before has a communication technology influenced human societies so pertinently, so rapidly. In Africa and the Middle East mobile markets, dominated by the MTN Group, new research shows that mobile communications are driving GDP growth rates, with some of the highest impact experienced in the small-scale business sectors. Indeed, it is now accepted that the mobile sector’s economic impact in developing countries is double that of industrialised countries. Among the major economic contributions of the mobile sector is tax revenue, capital investment, job creation, and a battery of forward- and backward- linkages.
The rapid growth in African mobile telecoms was not altogether unexpected, given the failure of fixed-line telephony on the continent. For many decades, Africa’s dated and highly inefficient fixed-line failed to take off, registered a meagre 2.48 telephone lines per 100 inhabitants in the late 1990s, compared to 35.18 lines per 100 in North Africa, 39.43 lines in Europe and 9.55 in Asia. The main factors for this failure were low investments replete with inefficiencies, poor access to capital, and excessive state interference.
Against this background, Africa was a warm reception ground for cellular telephony. Between 2000 and 2005, the number of mobile phones subscribers grew sixfold from 30 million to 137.2 million subscribers, outnumbering fixed lines by a ratio of nearly five to one. Today, nine out of every 10 telephone subscribers in tropical Africa use mobile phones. There were over 264 million subscribers users in 2007, and the number is expected to grow 420 million by 2012.
In tandem, many African governments have divested themselves from the telecommunications regulatory and policy regimes, and created independent authorities to manage all aspects of the emerging sunrise industry. ITU estimates that telecom operations in three out of every five African countries are managed by separate regulatory entities, and that almost all African countries have licensed private mobile operators.
Expectedly, mobile communications as a major source of direct investment. For example, sub-Saharan Africa received over US$35 billion worth of capital investment in the mobile sector between 1994 and 2006. An additional US$50 billion is earmarked for capital spending in the sector by 2012. The MTN Group’s own capex budget exceeds US$6 billion in its 14-year history, with annual investment budgets exceeding 20% of revenue during much of this period.
The fixed-line networks have also attracted interest, especially because of their strong prospects for Internet connectivity and e-commerce solutions. Analysts estimate that capital expenditure on fixed telecommunications in Africa was about $195 million in 2006. The principal elements of the capex are numerous undersea optic fibre cables projects on the underserved eastern and western coasts of the continent. The $280 million East African Submarine Cable System (EASSy), provides a10,500 kilometre cable under the Indian Ocean from Durban, South Africa, to Port Sudan in Sudan and then to Europe. The cable will provide cheap broadband connectivity to 20 African countries, including landlocked countries such as Zambia, Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi and Rwanda. The project is financed by a consortium of companies including MTN, with additional funding from the Development Bank of France (DBF), the European Investment Bank (EIB), the World Bank’s International Finance Corporation and the Development Bank of Germany (KfW). [[[PAGE]]]
The South Atlantic 3/West Africa Submarine Cable (SAT-3/WASC) is a telecom cable system linking countries on the continent’s western seaboard to Portugal and Spain in the north and South Africa. In South Africa, this telecom system is further linked to cable networks to Asia, offering alternative options from the Middle East telecom links.
Satellite communications have also been booming on the continent. Increased satellite footprint has increased tropical Africa’s international Internet bandwidth fivefold from 500 Mb/s in 2002 to over 2.0 Gb/s in 2007. Analysts estimate that about 100 satellites have full or partial coverage of Africa.
With anticipated rapid growth in the African mobile market, there is urgent need for new thinking around better adoption of communication technologies in development as well as equitable distribution of imminent economies of scale in the sector. Africa’s total mobile penetration of one in every five people is only half of the global average of 42%, and therefore a lucrative investment destination. However, new investment must not be at the expense of the appropriateness of communication technologies to local contexts. As MTN’s own experience has shown, technological innovation must adapt to local factors for optimal efficacy. Investors traditionally associate such adaptation with risk, but this need not be the case if such organisations embrace long-term African visions.
The application of communication technologies to economic and social development is key to appreciating the changing face of Africa.
Equitable harnessing of economies of scale calls for dialogue between all stakeholders in the African mobile market. An issue needing urgent deliberation here is taxation, which generally remains high and punitive to low-income cellphone users. New studies show that while lower taxes boost mobile and penetration, most taxation policies appear not to distinguish between post-paid and pre-paid mobile platforms. Indeed, analyses of tax components in the total cost mobile ownership (TCMO) show that Africa’s pre-paid subscribers pay as much as 1.3% more than their post-paid counterparts. This is unfortunate given the reality that pre-paid services are highly effective in narrowing the digital divide. The key contributor to this anomaly is taxes on pre-paid handsets, which - at an average rate of 3.15% - are double those of Europe, Latin America and the Middle East.
Numerous studies point to the profound and positive impact of mobile telephony on virtually all aspects of African contemporary life. Social impact surveys report that as many as three in four people in African communities have more contact and better relationships with family and friends as a result of mobile phones. Up to two thirds of small business in Africa report increased revenue directly as a result of adopting mobile communications. Indeed, one 2004 study suggested that a 10% increase in mobile phones in a developing country between 1996 and 2003 would have had GDP growing 0.59% higher than a similar country. A more recent study of 57 developing countries reports that a one tenth growth in mobile users improved annual economic growth by 1.2%. [[[PAGE]]]
Anecdotal evidence is even more captivating. As grain traders in Niger told a social impact researcher, cellular phones have brought to life George Stigler’s half-century-old thesis of ‘economics of information’: “(Avec le téléphone portable), en un temps record, j’ai accès aux informations de toutes sortes sur les marchés proches et lointoins” “(Avec le téléphone portable), je cherche les prix avec une carte de 1.000 CFA au lieu de me déplacer, qui coûte 10.000 CFA.” “[With a cell phone], in record time, I have all sorts of information from markets near and far...” “[With a cell phone], I know the price for US$2, rather than travelling (to the market), which costs US$20.” This research showed that availability of grain market information by cell phones had reduced price dispersion across markets and intra-annual price variation by as much as 10%.
Clearly, the key to unlocking the huge untapped potential of mobile communications in Africa lies in achieving greater affordability across the continent’s general population. The broad benefits already identified in strategic use of mobile technology - airtime and handsets business, tele-medicine, mobile banking, mobile government services, early warning systems, market information and education - need to be urgently passed on to broader sections of African people.
One major factor underpinning the great success story of African telecommunications has been the liberalisation of telecom markets from punitive regulatory and policy controls. Countries such as Ghana, Senegal and South Africa that pioneered in telecom liberalisation and deregulation now enjoy highly competitive markets with advanced technologies being widely adopted. For example, ADSL has overtaken and replaced dial-up as the Internet connectivity method of choice in Senegal.
Other patterns of the communication revolution are more widespread. The continent’s newest projects - GSM and 3G networks - are growing rapidly in virtually all markets. In Nigeria, for example, the advent of 3G networks in Africa’s most populous country has provided a platform for exciting convergence initiatives in voice, data and video/television. Given the already large and well-developed mass-media, including a robust video-film industry producing over 1000 films full-feature video movies a year, Nigeria’s communications industry is a space worth watching for convergence, innovation and revenue generation.
The application of communication technologies to economic and social development is key to appreciating the changing face of Africa. The continent’s agricultural sectors, notorious for their rudimentary methodologies, have frogleaped generations to capture local and international market information via mobile technology. The more traditional cell phone functionality, such as SMS (short message service), have been extensively used in disseminating HIV/AIDS information, and in social activism and political campaigns. A pre-paid money transfer system pioneered in East Africa is now hailed as having the potential to revolutionise the continent’s banking system.
The pre-paid money transfer systems are unique in that they are employing cell phone encryption technology to provide fast, low-cost money transfers via simple text messages between African communities and their family members in diaspora areas. In some cases, the recipient households may be allowed to convert the remitted sums into a pre-paid debit card that can be used directly to make purchases. Within Africa, the pre-paid systems are transnational, as demonstrated by Celpay, a cell phone banking service provider operating in South Africa, Zambia and the DRC, and Safaricom’s M-Pesa, operated throughout East Africa. [[[PAGE]]]
African ingenuity takes this success story even further. Mobile operators say that a secondary air time vending market has emerged in many African countries, estimated at about $2 billion annually. Air minutes then become a form of currency, transactable from cell phone to cell phone by a simple text message.
Elsewhere, successful trials in 3G television and DVB-H (digital video broadcasting-handheld) have ended in South Africa, Nigeria, Egypt and Kenya, and are expected to result in commercial rollout. Concomitantly, numerous magazines are experimenting with e-zines, a new format that delivers entire magazines via cell phone. These technological developments are not only helping Africa frog-leap the North-South technology gap but more pertinently place the continent’s experiences and pioneering spirit on the cutting edge of global research into adoption of new technologies.
The above scenario underlines the tumultuous times besetting much of Africa. These new times epitomise what South African Deputy President Phumzile Mlambo-Ngcuka calls “the emerging reality of a continent on the move.” They are critical proxies of the current spate of economic growth, the continent’s highest in nearly four decades. If well harnessed, the telecommunications revolution could provide new strategies to fight Africa’s perennial cancers - poverty, disease and conflict. With clear gains already discernible in politics and education from use of telecommunications, Africa is reimaging and asserting itself on the global scene. And much evidence points to a new reality in which things can only get better.
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