For all the talk about “making poverty history” through aid and debt relief at the G8 meeting in Scotland and among aging rock stars at Live8 concerts, perhaps the best tool for poverty alleviation on the continent is the mobile phone. Yes, that ubiquitous handheld device has done wonders for the poor around the world.
It all started in Bangladesh
Bangladesh is often used as the case study for the impact that mobile telephony can have on the economically disadvantaged. In the late 1990s Grameen Bank, a Dhaka-based for-profit enterprise long known in Bangladesh for making microloans to fund microenterprises by villagers, set up Grameen Telecommunications, a non-profit organization that provided low-cost phone services in rural areas. Using money borrowed from Grameen Bank, village entrepreneurs purchased mobile phones which they then used to sell phone services to customers — other villagers — by the call. The result: mobile phone entrepreneurs — 95 percent of whom were female — made a tidy profit while villagers reaped the benefits of instant communication. These benefits included communicating with distant family members, making it easier to find employment opportunities, having more options during emergency situations, enabling farmers to check prices in different markets before selling produce, and eventually allowing the quick and easy transfer of funds. The mobile phone microenterprise platform spread rapidly through the country and stimulated other economic activities among the rural poor, who have proven to be much more technology-savvy than many originally anticipated.
The success of Bangladesh’s microphone operators has not gone unnoticed. In Uganda, Grameen Foundation USA [web site] worked with mobile operator MTN to develop villagePhone, an initiative that enables poor rural individuals to become “Village Phone Operators” through partnerships with Ugandan microfinance institutions. MTN boasts on its web site that “these Village Phone businesses can be established in areas where electricity is unavailable and in areas where the MTN network can only be accessed with a booster antenna.” Grameen Foundation USA has since piloted another program in Rwanda in partnership with MTN Rwanda and is publishing a free manual to encourage microfinance institutions and telecoms to create joint ventures for establishing cell phone franchise businesses for microloan clients.
Cell phones not only offer opportunity through voice services but emerging technologies that bring Internet access to phones, bypassing the need for a computer for connecting to the World Wide Web. Since computers are rare in much of the region due to poor wire-line infrastructure — a recent study found 97 percent of people in Tanzania said they could access a mobile phone, while only 28 percent could access a landline — and unreliable electrical grids, a technology that offers Internet access without a costly PC promises to pay dividends for Africans. Research in India has found Internet connectivity can be key to improving the livelihood of rural poor by giving them access to information — everything from crop prices to the legal protocol to acquiring tenure to land. Internet access can simplify interaction with government institutions for mundane tasks like acquiring an identity card as well as potentially increasing transparency and reducing corruption in transactions with officials. Also, because calling plans are often pre-paid there is no need for a bank account or credit check.
Cell phones have become a prime example of a technology that helps many different user groups. There are several beneficiaries of mobile phones at the village level:
- Entrepreneurs who make money by selling phone services to villages on a per use basis.
- Sellers of prepaid phone cards including poor urban youths and small business owners.
- Users of phones who gain business and employment opportunities mentioned above.
The benefits mobile phones bring at a local level can be extended to a country as a whole. A 2005 study by the Centre for Economic Policy Research and backed by the UK mobile phone giant Vodafone found higher rates of economic growth in developing countries with high mobile phone penetration. According to the study, a developing country which has an average of 10 more mobile phones per 100 population between 1996 and 2003 would have enjoyed per capita GDP growth that was 0.59 percent higher than an otherwise identical country. The survey also found a number of other benefits from mobile phone ownership including:
- Mobiles save people living in rural communities the financial costs and time involved with travel. As a result, 85 percent of people in Tanzania and 79 percent in South Africa said they had greater contact and improved relationships with families and friends as a result of mobile phones
- 62 percent of small businesses in South Africa and 59 percent in Egypt said they had increased their profits as a result of mobile phones, in spite of increased call costs
- Over 85 percent of small businesses run by black individuals in South Africa rely solely on a mobile phone for telecommunications
The results of this study suggest that growth in the African telecom market will continue to pay off African economies.
Africa: the hottest growth market for cellular
Number of cell phone users in Africa
In 2001, Africa became the first region where the number of mobile subscribers exceeded those using fixed lines
Figures released in March 2005 from the London Business School reported that Africa has seen faster growth in mobile telephone subscriptions than any other region of the world over the last five years. At the end of 2004 Africa’s largest mobile phone firm, Vodacom, had 14.4 million users while MTN had 14 million subscribers. As Vodacom’s chief tells Reuters, “Telecoms are Africa’s big success story — perhaps the only one.”
The recent growth in the African telecom market hasn’t only benefited local economies — it has also generated significant amounts of revenue for mobile giants. Going after the African market is not a money-losing proposition for firms: according to the July 1, 2005 issue of The Economist, MTN, a South African mobile-phone operator with networks in Nigeria, Cameroon, Uganda, Rwanda and Swaziland had an operating margin of around 50% outside South Africa.
Wider growth still faces challenges — the cost of handsets
While Africa has experienced tremendous growth in the mobile services market and still has room for growth with only 50% of Sub-Saharan Africa covered by a mobile signal, future expansion faces some hurdles. The largest of these is the cost of handsets. Mobile operators in Africa generally do not subsidize handsets like their counterparts in Europe and the United States and few rural Africans can afford the prices of the latest mobile gadgets. The solution of the African mobile majors was to band together in 2004 and invite international handset-makers to bid for a contract to supply up to 6 million handsets for less than $40 each. Motorola won the contract and handset delivery began in April 2005.
Despite their low cost, the handsets are profitable for Motorola and the phones do not lack features. Motorola, following a page out of C.K. Prahalad’s book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, knew that a low level of income doesn’t make a consumer any less demanding about the functionality and value of their purchases, and accordingly has provided features appropriate for African consumers. For example, in a region where access to electricity is often in question, Motorola has built a low-cost handset has a standby time of two weeks.
The Economist also points out that lower costs of handsets address another barrier to widespread adoption of cell phone: the high tariffs imposed on products and services by many African governments. Since taxes and duties are based on the cost of the good or service, lower prices will mean less of a tax burden on consumers.
Anything that reduces the burden on the rural poor in developing countries should be considered a good thing. Rural poverty is probably not going away on its own anytime soon and stimulating sustainable economic growth through microenterprises and information technology is a better solution than direct aid. Too often direct aid has not only bred corruption and the misallocation of resources away from those who need it most, but has also fostered dependency and skewed the perceived value of goods and services. Private sector investment — through vehicles such as mobile phones — may do a better job eradicating poverty, building dignity and respect, encouraging entrepreneurship, and reducing dependency than handouts under traditional aid programs. That’s not to say that aid dollars have no role under such a development schema, but it is important to consider using donor funds for nontraditional programs such as microloans that will stimulate sound long-term economic growth. With this consideration, Africa may well again be a land of opportunity.
This article used information from The Economist, Reuters, Vodaphone, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, The Centre for Economic Policy Research, MTN Uganda Ltd, International Telecommunication Union (ITU), Grameen Bank, and mongabay.com.
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