The widening digital divide

An article in the current print issue of BBC Focus on Africa puts the cost of broadband access in Africa in stark perspective. At a wholesale level, broadband access in Kenya is about $5,000/megabit/second for a month. Between the UK and the US, the same amount of broadband is about 500 times cheaper, at about $10, due to the glut of cables laid between Europe and the US during the dot com boom.

Some work is underway to improve the situation, which requires more and bigger cables connecting countries across the continent. One project is called Eassy, which will roll out a big new cable off the eastern coast of the continent. However, the project is dogged by delays, mostly due to disagreements between partners (often monopoly telecom firms trying to dominate access).

Meanwhile, as competition drives down prices in Europe, the cost of access is rapidly becoming zero in some markets. Take mobile phones. A new start-up firm, called Blyk, plans to launch a new mobile phone service that will be free for “young people” in the UK (with other European markets to follow) and paid for by advertisers. How will the digital divide widen next?

 

Theft keeps Africa mobile

We’ve written before about the enormous growth of mobile phones in Africa. Two different stories this week highlight rather different explanations for this boom.

One, the introduction of a mobile phone-based money transfer service in Kenya has been met with an enthusiastic response. The M-Pesa service lets subscribers instantly send money to friends, family or others via text message. The money arrives as a virtual cash voucher, which can be spent or cashed in at a number of appointed agents. One early adopter of the system explains that he used to transfer money to his family via postal order previously, but this usually took a long time.

In emergencies, he would simply stuff cash into an envelope and give it to a truck driver heading in the right direction, who often simply pocketed it. Rather more reliable alternatives are clearly welcome for users like him. Unsurprisingly, other developing countries, including Afghanistan, plan to roll out similar systems soon.

Meanwhile, further south, soaring global commodity prices has resulted in a surge of copper cable thefts, disrupting land line phone services. Telkom, South Africa’s major telco, says its telephone cables have become a major target, causing the firm to spend about R100m (nearly US$14m) on security alone. Its executives say the issue is a problem in India and China too. It believes more than half the line fault reports it gets are due to copper cable theft.

Meanwhile, unsurprisingly, South African mobile phone operator MTN last week reported record growth, including a 73% increase in subscribers.

African ICT: moving in the wrong direction

Despite the obvious benefits to be had from ICT developments, sub-Saharan Africa unfortunately seems to be headed in the wrong direction (North African countries aside are mostly holding their own). This isn’t to say that progress is not happening at all, but rather that it’s happening slower than anywhere else. Confirmation of this trend emerges from a new World Economic Forum (WEF) report, which ranks most of the world’s economies according to their “networked readiness”, based on a ranking of infrastructure, regulation, business and private usage and so on. While other emerging markets, such as China and much of Eastern Europe, are developing rapidly, most sub-Saharan countries fell further down the list.

The highest sub-Saharan country is South Africa, which fell 10 places from last year to number 47 (the EIU’s own e-readiness ranking last showed South Africa in 35^th position globally, but also dropping from previous years). While the government there recognises the economic benefits of improved ICT, local Internet access costs remains eye-wateringly high. Outside of South Africa, less than 10 sub-Saharan countries manage to compete in the top 100 countries overall.

There are some exceptions. The WEF’s report highlights Ethiopia’s significant efforts to ensure that all of its 74m citizens live no more than a few kilometres from a broadband connection—by this year. And we’ve highlighted the astonishingly competitive telecommunications market in Somalia, of all places, but for the rest, a much greater effort clearly needs to be made.

Mobile phones in Africa

There’s much talk about how mobile phones are a big business in Africa. Growth in that sector, and its economic impact within the continent, has been startling. In fact, a new GSM World report covering East Africa suggests that in 2006, the mobile industry alone accounted for an astonishing 5% of GDP in Kenya, 3.5% in Rwanda, 4.6% in Tanzania, and 3.6% in Uganda. In just those four countries, the industry employs about half a million people.

And the future potential remains strong. Already, mobile phones account for some 93% of all telecommunication connections in the East African region. But while 70% of the area’s population lives within range of a signal, only 12% are actually connected as yet, primarily due to its relatively high costs.

There have been many stories about the beneficial effects of mobile phones in developing markets. Some articles claim that as many as 80% of people in Egypt and South Africa rely on mobile phones to run their businesses, while across the continent, businesses have set up trading platforms that are specifically created for mobile phones to facilitate commerce.

But, as the GSM World report highlights, taxation is a significant (and unlike typical infrastructure problems in Africa, relatively easy to remove) barrier to growth in the industry. East Africans are taxed between 25% and 30% on mobile phone services, while Africa as a whole pays an average tax rate of 17%. Calculations by Deloitte for the report reckon that if East African governments implemented a modest tax cut on their mobile services, it would have a strong boost on both tax revenues and GDP growth in the region. Dare we hope?