Mobile Phones and Economic
  Development in Africa




            Jenny C. Aker
   Center for Global Development
        ...
Low Infrastructure Investment
Low Infrastructure Investment
• Africa has only 4%
  of global electricity
  capacity

• Sub-Saharan Africa
  has only 1%
...
GSM Coverage, 1999




Source: GSM Association
GSM Coverage, 2008




Source: GSM Association
“In 10 short years, what was once an object of luxury
     and privilege, the mobile phone, has become a
                b...
“A Wonderful Life. ”




“Together we can do
      more.”




   “Rule your World.”                   “Tudo bom.”
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
477 million people covered by mobile
                     70%                                               This represent...
Mobile Coverage, 1999




  Source: GSMA 2009
Mobile Coverage, 2004




  Source: GSMA 2009
Mobile Coverage, 2008




  Source: GSMA 2009
The Digital Divide

• Demand

• Supply

• Market structure


                     Source: GSM Association/ Europa Technolo...
Determinants of the Digital Divide
(Buys, Dasgupta, Thomas and Wheeler
2009)
• The probability of cell phone coverage is:
...
Determinants of the Digital Divide
                               Cell Phone Coverage in
Cell Phone Coverage in Niger     ...
Table 1. Estimates of GSM Coverage in Mozambique and Niger
                                   Mozambique                  ...
Determinants of the Digital Divide
      Niger           Mozambique
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
Cell Phones
in Africa
• Africa has .9 bn
  consumers
• 30 percent live on
  less than $US1 per
  day

  Poverty in Sub-Sah...
Mobile Phone “Adoption” on Less
    than US1$ per day
                                             450                    ...
Source:
          Wireless
          Intelligence
                                                                        ...
Who adopts and why?
• Limited or inaccurate data (subscriptions
  rather than adoption)
• Endogeneity
  o Unobserved facto...
Who adopts and why?
•   Higher income levels
•   Occupation (traders, firms)
•   Geographic location (urban centers)
•   E...
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
“God Sends Mobiles” (Schmitt 2002)
• "The cell phone is the single most
  transformative technology for
  development” (Je...
Cell Phones…A Wonderful World?
                                                            Cell Phone Services and
    (Po...
The Hypotheses
 Costly information can make it difficult for
 market agents to engage in optimal arbitrage

 Excess price ...
The Hypotheses
 Mobile phones offer a new technology to
 reduce search costs
   In Niger, mobile phones reduced search cos...
Empirical Research on the Impact
of Mobile Phones
• Fisheries in India (Abraham 2007, Jensen
  2007)
• Grain markets in Ni...
Empirical Research on the Impact
of Mobile Phones
• Fisheries in India (Abraham 2007, Jensen
  2007)
• Grain markets in Ni...
The Impact of Cell Phones on
 Development Outcomes
       Yit = α + βcellit + γZit + ai + θt + εit



                    ...
Mobile Phones and Fish Price
Dispersion (Jensen 2007)
Mobile Phones and Grain Price
Dispersion (Aker 2008)      4


                            3


                            ...
Trader-Level Outcomes (Aker
       2008)
                                  OLS Estimate   Poisson Estimate Probit Estimate...
Cell Phones and Welfare
• Welfare improves with market efficiency, but
  how welfare is distributed among consumers,
  pro...
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
Cell Phone-Based Services and
Development Projects
          Services                Development Projects
• Mobile banking...
Cell Phones and Literacy:
Project Alphabétisation de Base
par Cellulaire (ABC)
Project ABC Approach
• Use “simple” cell phones as a learning tool to
  allow participants to practice reading and
  writi...
Project ABC Evaluation
Approach
                                 Compare impact on literacy rates
• Compare cell-phone    ...
Reading Tests Before and After
                                                      This represents a
                   ...
Numeracy Tests Before and After
                        3
                                                   This represen...
Overview
• Cell phone coverage and the digital
  divide
• Buying a mobile phone on less than a
  dollar a day
• Cell phone...
A Way Forward
A device that was a yuppie toy not so long
   ago has now become a potent force for
    economic development...
Three Issues for Affordable Access
to Mobile Phones (“Fair Mobile”)

• Positive Externalities

• Market Structure and Gove...
Positive Externalities of
     Telecommunications

                                               S=Private
P             ...
Market Structure
        Monopoly                         Liberalized




 One service provider              Greater numbe...
Telecommunications Structure in
Africa, 1995-2009
100%
                                                 Monopoly      Part...
Liberalization and Pricing in Kenya
(GSMA 2006)
                •Partial liberalization in 2004


                •Interna...
Liberalization and Pricing in
Nigeria (GSMA 2006)
                   •Partial liberalization in 2001,
                    ...
Taxes and Regulatory Fees (GSMA
2006)
• 24 governments levy specific luxury taxes on
  mobile handsets
• 8 governments lev...
Summary
• Mobile phone coverage and adoption is
  occurring at a staggering rate in sub-Saharan
  Africa
• Their primary u...
Recommendations for
Development Actors and Donors
• Keep it simple
  o Handsets and products (services) need to be adapted...
Recommendations for Policy-
Makers

• Create enabling environment for investors by:
   o Continuing the liberalization pro...
Recommendations for the Private
Sector
• Continue partnerships with the public
  sector
• Develop appropriate products
• R...
Are there potential negative
impacts?
•   Disseminate hate speech
•   Misinformation
•   Election-rigging
•   Blocking ser...
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Mobile Phones and Economic Development in Africa

  1. 1. Mobile Phones and Economic Development in Africa Jenny C. Aker Center for Global Development August 25, 2009
  2. 2. Low Infrastructure Investment
  3. 3. Low Infrastructure Investment • Africa has only 4% of global electricity capacity • Sub-Saharan Africa has only 1% o 80% of that is used by South Africa and North Africa Source: GSM Association
  4. 4. GSM Coverage, 1999 Source: GSM Association
  5. 5. GSM Coverage, 2008 Source: GSM Association
  6. 6. “In 10 short years, what was once an object of luxury and privilege, the mobile phone, has become a basic necessity in Africa.” Paul Kagame, President of Rwanda, 2008 A device that was a yuppie toy not so long ago has now become a potent force for economic development in the world's poorest countries. The Economist, May 29, 2008 “[With a cell phone], in record time, I have all sorts of information from markets near and far…” Grain trader in Magaria, Niger
  7. 7. “A Wonderful Life. ” “Together we can do more.” “Rule your World.” “Tudo bom.”
  8. 8. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A way forward
  9. 9. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A way forward
  10. 10. 477 million people covered by mobile 70% This represents 477 million people Coverage (by area) 59.99% 60% Coverage (by population) This represents 11.2 million square kilometres 50% % Network Coverage 43.97% 42.20% 40% 30.95% 30% 20% 10.14% 10% 2.98% 0% 1999 2004 2008 Source: GSMA 2009
  11. 11. Mobile Coverage, 1999 Source: GSMA 2009
  12. 12. Mobile Coverage, 2004 Source: GSMA 2009
  13. 13. Mobile Coverage, 2008 Source: GSMA 2009
  14. 14. The Digital Divide • Demand • Supply • Market structure Source: GSM Association/ Europa Technologies. Population Density data source: Gridded Population of the World (GPW)/ Global Rural - Urban Mapping Project Alpha (GRUMP Alpha).
  15. 15. Determinants of the Digital Divide (Buys, Dasgupta, Thomas and Wheeler 2009) • The probability of cell phone coverage is: o Positively associated with potential demand – population and per capita income o Negatively associated with higher costs – namely, higher elevation, steeper slopes, longer distance from the main road and from major cities o Positively associated with a competitive cell phone industry (affecting costs, entrants and prices)
  16. 16. Determinants of the Digital Divide Cell Phone Coverage in Cell Phone Coverage in Niger Mozambique
  17. 17. Table 1. Estimates of GSM Coverage in Mozambique and Niger Mozambique Niger (1) (2) (1) (2) Log(elevation) -.017***(.005) -.045***(.014) -.011(.044) -.041(.129) Dummy slope .055(.052) .145(.136) .019(.035) .070(.107) Urban center .115***(.016) .293***(.041) .279***(.018) .754***(.051) Road quality .115***(.035) .316***(.103) .036**(.017) .121**(.055) Latitude -.004(.003) -.009(.007) -.012(.023) -.027(.025) Longitude .003(.004) .009(.010) .010***(.004) .031***(.011) Constant .158(.196) -.912(.521) .360(.272) -.339(.515) 2 R 0.024 0.0177 0.0852 0.0663 No obs 7020 7020 4032 4032 Notes: The slope dummy is equal to 1 if the location is steeply sloped, 0 otherwise. Urban center is equal to 1 if the location has a population greater than 35,000 people, 0 otherwise. Road quality is equal to 1 if the location has access to a paved road, 0 otherwise.
  18. 18. Determinants of the Digital Divide Niger Mozambique
  19. 19. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A way forward
  20. 20. Cell Phones in Africa • Africa has .9 bn consumers • 30 percent live on less than $US1 per day Poverty in Sub-Saharan Africa 150m < $2 per day 200m < $1 per day 300m
  21. 21. Mobile Phone “Adoption” on Less than US1$ per day 450 70% Total Number of Subscribers 400 % of population with cell phone coverage 376 60% 350 Number of Subscribers (Millions) 50% 300 279 % of Population 40% 250 200 200 30% 150 135 20% 100 82 52 10% 50 37 25 16 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Wireless Intelligence
  22. 22. Source: Wireless Intelligence 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Mauritius Gabon E. Guinea Cape Verde HDI=74 South Africa Botswana STP Namibia Congo Mauritania Swaziland Ghana Madagascar Kenya Sudan Country, 2008 Cameroon Djibouti Zimbabwe Tanzania Senegal Nigeria Lesotho Uganda Angola Togo Gambia Benin Malawi Zambia Eritrea Rwanda Cote d'Ivoire Guinea Mali Ethiopia Chad the UN’s Human Guinea-Bissau Burundi This represents 160th on Development Index (HDI) Burkina Faso Mobile Phone “Adoption” by Niger Mozambique Liberia DRC CAR Sierra Leone HDI=179
  23. 23. Who adopts and why? • Limited or inaccurate data (subscriptions rather than adoption) • Endogeneity o Unobserved factors explaining adoption (ie, “entrepreneurial spirit” or “risk-taker”) o Simultaneity: Higher incomes lead to mobile phone adoption, which leads to higher incomes • Multiple technological uses (agriculture, health, financial, social) • Pseudo-private good (common property) o Somewhat excludable and somewhat rival
  24. 24. Who adopts and why? • Higher income levels • Occupation (traders, firms) • Geographic location (urban centers) • Education (ambiguous) • Learning by doing and learning from others o Lower levels of adoption (or later adoption) due to free-riding • Main uses are voice and some SMS
  25. 25. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A way forward
  26. 26. “God Sends Mobiles” (Schmitt 2002) • "The cell phone is the single most transformative technology for development” (Jeffrey Sachs) • “A 10% increase in mobile penetration boosts annual GDP by 1.2%” (Deloitte 2007) • “Making lives better” Is it true?
  27. 27. Cell Phones…A Wonderful World? Cell Phone Services and (Positive) Externalities Development Projects S=Private P Marginal Cost Social Marginal Benefit D=Private Marginal Benefit Q* Q** Q Social Optimum
  28. 28. The Hypotheses Costly information can make it difficult for market agents to engage in optimal arbitrage Excess price dispersion for homogeneous goods is a common occurrence in developed and developing countries (Stigler, JPE 1961, Brown and Goolsbee, JPE 2002, Jensen, QJE 2007)
  29. 29. The Hypotheses Mobile phones offer a new technology to reduce search costs In Niger, mobile phones reduced search costs by 50% as compared with personal travel Consumers, producers and firms obtain more (and perhaps “better”) information Market actors change their behavior to take advantage of new arbitrage opportunities This leads to more efficient markets (Law of One Price) and improved (net) welfare
  30. 30. Empirical Research on the Impact of Mobile Phones • Fisheries in India (Abraham 2007, Jensen 2007) • Grain markets in Niger (Aker 2008) • Farmer participation in Uganda (Muto 2009) • Internet kiosks and soybean prices in India (Goyal 2009) • Labor markets in South Africa (Klonner and Nolen 2009)
  31. 31. Empirical Research on the Impact of Mobile Phones • Fisheries in India (Abraham 2007, Jensen 2007) • Grain markets in Niger (Aker 2008) • Farmer participation in Uganda (Muto 2009) • Internet kiosks and soybean prices in India (Goyal 2009) • Labor markets in South Africa (Klonner and Nolen 2009)
  32. 32. The Impact of Cell Phones on Development Outcomes Yit = α + βcellit + γZit + ai + θt + εit Omitted variables Price dispersion Reverse causality Price levels Agents’ behavior Welfare measures
  33. 33. Mobile Phones and Fish Price Dispersion (Jensen 2007)
  34. 34. Mobile Phones and Grain Price Dispersion (Aker 2008) 4 3 2 1 0 Monthly CFA/kg Difference -1 -2 -3 -4 -5 -6 -7 -8 -9 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 Months Pre and Post Cell Phone With Year Trend Lower Confidence Interval Upper Confidence Interval
  35. 35. Trader-Level Outcomes (Aker 2008) OLS Estimate Poisson Estimate Probit Estimate Nearest Neighbor Coeff Coeff Coeff Coeff (df/dx) Coeff Dependent variable: (s.e.) %∆ (s.e.) (adj s.e.) (s.e.) (s.e.) %∆ .91** .22** .22** .91** # of Markets Searched (.46) 26.26% (.11) (.05) (.47) 26.49% # of people consulted for 1.5*** .33*** .33** 1.7*** market information (.50) 39.95% (.11) (.08) (.71) 45.14% Use personal contacts to obtain .07*** .61*** .07* market information (.02) 7.99% (.09) (.04) 7.57% Change sales markets .08 .08* .09* (Yes=1, 0=No) (.06) 57.14% (.05) (.05) 64.29% 1.02** .22** .22*** 1.13* # of Sales Markets (.71) 25.37% (.09) (.02) (.70) 28.04% Search in .91 more markets Sell in one more market
  36. 36. Cell Phones and Welfare • Welfare improves with market efficiency, but how welfare is distributed among consumers, producers and traders is ambiguous • Increase in fisherman’s profits and a reduction in waste (Jensen 2007) • Traders’ profits increase (higher prices) and consumer prices decrease (Aker 2008) • Increase in monthly wholesale price of soybeans (Goyal 2008)
  37. 37. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A way forward
  38. 38. Cell Phone-Based Services and Development Projects Services Development Projects • Mobile banking (M-PESA, • Market information systems (Esoko Zap, G-Cash) Ghana, IMAC Niger) • Health information systems (Satellife Mozambique) • Early warning (Lake Victoria project, Ushahidi) • Governance (PVT hotlines, voter education Mozambique) • Village Phone (Bangladesh, Rwanda, Uganda) • Literacy (Niger, Senegal)
  39. 39. Cell Phones and Literacy: Project Alphabétisation de Base par Cellulaire (ABC)
  40. 40. Project ABC Approach • Use “simple” cell phones as a learning tool to allow participants to practice reading and writing in their local languages (Hausa, Zarma) via SMS • Reinforce the importance of functional literacy (and numeracy) by targeting producers’ groups with a common economic “function” • Facilitate participants’ access to market information via cell phones (Frontline SMS) 40
  41. 41. Project ABC Evaluation Approach Compare impact on literacy rates • Compare cell-phone and other outcomes in ABC and based literacy with non-ABC villages traditional literacy • Half of villages (70) were randomly selected to receive the interventions in 2009 • Half of the 2009 villages (35) receive Project ABC Villages Non-ABC Villages “cell-phone “ literacy
  42. 42. Reading Tests Before and After This represents a 100% improvement 2.06 2 Non-ABC ABC 1.71 1.5 This represents a 32% difference Reading Test Score 1.02 1.03 1.03 1 0.693 0.5 0 Before treatment, mean(s.d.) After treatment, mean(s.d.) After-before difference (DID) (s.e.)
  43. 43. Numeracy Tests Before and After 3 This represents a 137% improvement Non-ABC 2.53 2.5 ABC 2.17 2 This represents a 30% difference Numeracy Test Score 1.5 1.46 1.16 1.06 1.02 1 0.5 0 Before treatment After treatment After-before difference
  44. 44. Overview • Cell phone coverage and the digital divide • Buying a mobile phone on less than a dollar a day • Cell phones…”Making Life Better”? • Mobile phones and development • A Way Forward
  45. 45. A Way Forward A device that was a yuppie toy not so long ago has now become a potent force for economic development in the world's poorest countries. But more can be done to exploit it. Most governments say they are in favor of economic growth and broader access to communications. By cutting back on mobile-specific taxes and tariffs, they can help to promote both of those things. (The Economist, May29, 2008)
  46. 46. Three Issues for Affordable Access to Mobile Phones (“Fair Mobile”) • Positive Externalities • Market Structure and Government Policy • Taxes and Regulatory Fees
  47. 47. Positive Externalities of Telecommunications S=Private P Marginal Cost B A P* Social Marginal Benefit D=Private Marginal Benefit Q* Q** Q 47 Social Optimum
  48. 48. Market Structure Monopoly Liberalized One service provider Greater number of entrants Higher prices and lower volumes Lower prices Fewer range of products, low- Greater range of products and quality service services
  49. 49. Telecommunications Structure in Africa, 1995-2009 100% Monopoly Partially deregulated Fully liberalised 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  50. 50. Liberalization and Pricing in Kenya (GSMA 2006) •Partial liberalization in 2004 •International call prices decreased by 31% •Traffic increased by 40% by the end of 2005 •Four mobile operators as of 2009
  51. 51. Liberalization and Pricing in Nigeria (GSMA 2006) •Partial liberalization in 2001, full liberalization in 2006 •Price of international calls in 2005 is 10% of the price in 2002 •Average annual traffic in 5 years after partial liberalization is 65% higher than traffic in the five years prior • Five mobile operators as of 2009
  52. 52. Taxes and Regulatory Fees (GSMA 2006) • 24 governments levy specific luxury taxes on mobile handsets • 8 governments levy specific luxury taxes on mobile usage (air time) • 25+ governments levy specific luxury taxes on ICT equipment
  53. 53. Summary • Mobile phone coverage and adoption is occurring at a staggering rate in sub-Saharan Africa • Their primary use appears to be in facilitating access to and use of information (and services) • There is strong evidence that mobile phones are having a (positive) economic impact on markets and individuals, but evidence on the impact of cell phone-based development projects is currently limited
  54. 54. Recommendations for Development Actors and Donors • Keep it simple o Handsets and products (services) need to be adapted to populations with low literacy rates. • Encourage public-private partnerships • Measure the impact of cell-phone based interventions to verify that it’s better • Don’t forget about other infrastructure investments o Mobile phones can enhance delivery of and access to resources and information, but they cannot replace roads, power, credit..
  55. 55. Recommendations for Policy- Makers • Create enabling environment for investors by: o Continuing the liberalization process o Maintaining fair and transparent regulation o Reconsidering ICT-specific taxation
  56. 56. Recommendations for the Private Sector • Continue partnerships with the public sector • Develop appropriate products • Recognize potential social benefits of cell phone technology • Environmentally-friendly investment o Diesel generators and coltan (tantalum) o “Can you hear Congo Now? Cell Phones, Conflict Minerals and the Worst Sexual Violence in the World” (Pendergast 2009)
  57. 57. Are there potential negative impacts? • Disseminate hate speech • Misinformation • Election-rigging • Blocking services • Environmental impacts o Diesel generators, coltan in the Democratic Republic of Congo

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