NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, November 28, 2005

Access to mobile phones is rocketing, along with its impact on poverty, writes Matthew Bishop.

When you get a mobile phone it is almost like having a card to get out of poverty in a couple of years.? So says Muhammad Yunus, the founder of the micro-credit provider, Grameen Bank, and its hugely popular mobile phone offshoot in Bangladesh, Grameen Phone.

In rich countries, mobile phones can seem something of a mixed blessing ? particularly if you are stuck on a train next to a teenager with a Crazy Frog ring-tone. But in poor countries, mobile phones have no obvious downside and have already delivered remarkable bene?ts, in terms both of economic growth and personal empowerment. They may even enable poor countries to leapfrog over some of the traditional stages of the development process.

Some of the biggest bene?ts are going to the world?s very poorest people, who cannot even afford to buy their own phone handset. A lively rental market is ?ourishing across the developing world. For instance, Grameen Phone now boasts more than 100,000 ?phone ladies?, who buy a handset (often with the help of a loan from a micro-?nance institution such as Grameen Bank) and then rent out airtime. These women are forming an increasingly in?uential army of micro-entrepreneurs, a new focus of business activity in their villages. And they are providing potentially global connectivity to some of the world?s least connected people, whose ?rst step on the ladder towards phone ownership is to buy their own SIM card to plug into a rented phone. As proof of how greatly this connectivity is valued, in marketplaces around the developing world there has been a boom in sales of special wallets in which SIM cards can be carried safely.

The mobile phone has spread throughout much of the developing world more quickly and deeply than any previous technology-based product ? not least traditional ?xed-line phones. This has been helped by the fact that rolling out a mobile phone network is far cheaper than building a ?xed-line system. In Morocco in 1995, for example, after decades of investing in the telephone infrastructure, there were only four ?xed lines per 100 inhabitants. In 2003, there were still four ?xed line subscribers per 100 Moroccans, but there were also 24 mobile phone subscribers per 100 ? up from zero in 1995, according to a recent study by the London Business School for Vodafone, the British global mobile phone giant. In the same period, mobile phone penetration has risen from 0 to 36 per cent in Albania, 0 to 30 per cent in Paraguay, 0 to 21 per cent in China and 0 to 9 per cent in India.
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In the past few years, Africa, so often left behind by other economic advances, has seen the world?s most rapid growth in mobile phone penetration (albeit from a very low base). Subscriber growth in several sub-Saharan African countries exceeded 150 per cent last year; there are now eight subscribers per 100 people across the region, up from three in 2001. In Tanzania, it took just ?ve years from the ?rst mobile phone call for the number of mobile phone subscribers per 100 people to exceed the number of ?xed lines, compared with 15 years in a rich country such as Britain. The true extent of mobile phone use in developing countries is far greater than these ?gures suggest, thanks to all that phone sharing.

Already, these mobile phones seem to be generating big economic bene?ts, according to the London Business School study, which looked at 92 countries, rich and poor, between 1980 and 2003. Overall, says the study, in a typical developing country, a rise of 10 mobile phones per 100 people boosts the rate of growth of GDP by 0.6 percentage points a year. That may not seem much, but compounded over a few years it can add up to a big increase in living standards. Those developing countries that have higher levels of mobile phone penetration may become the success stories of the coming decade. For instance, notes the study, the Philippines had 27 mobile phones per 100 people in 2003, compared with Indonesia?s nine. If that gap remains, the Philippines could expect its GDP to grow by one percentage point a year faster than that of Indonesia.

An increase in mobile phone penetration typically has a bigger impact on GDP growth in a poor country than would a similar increase in a rich country. That is because in rich countries, mobile phones are supplementing an existing ?xed-line phone system that typically already touches most of the population, whereas in developing countries ?xed-line networks tend to have fairly low coverage, and so mobile phones are providing many people with the bene?ts of mass connectivity for the ?rst time. In 1995, 102 poor and middle-income countries analysed in the London Business school study had ?xed-line penetration of less than eight per 100 people ? the rate rich France achieved in 1970 ? with an average of only 2.5. By 2003, there were more mobile phone subscribers than ?xed lines per 100 people in at least 55 of those countries.

In rich countries, familiarity may have blinded people to the value of the phone connectivity they have so long enjoyed. But the anecdotal evidence from developing countries makes it obvious why the mobile phone has been such an economic boon. At its simplest, a mobile phone can allow a farmer or a ?sherman to ?nd out what that day?s prices are in various markets, so that he can take his goods to the market offering the best price. Already, there is evidence that the growth in mobile telephony is reducing the variations in prices between markets in poorer countries. Small businesses can more ef?ciently shop around for supplies. A handyman living in a village can advertise in the big town nearby for work, and travel only when he is informed by phone that there is a job available. In Nairobi, a text messaging service has been set up to alert the unemployed to job opportunities. Anything that minimizes wasted journeys is extremely valuable, more so in poorer countries with their often underdeveloped transport infrastructure (especially roads) than in rich ones.
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There are more sophisticated uses, too. Pay-as-you-go mobile phones are being used to slash the cost of money transfers between family members, including remittances from overseas (see ?Money Talks? on page 8). Text messages are already being used to pay bills, removing the need for poor people to hold large amounts of cash that could be at risk of theft. In Zambia, for example, some street-market vendors of Coca-Cola are able to pay for new orders of Coke by text message.

Pilot schemes are also under way to use mobile phones to deliver micro-credit loans to poor people in places that lack anything resembling a bank branch. Indeed, mobile telephony has the potential to make the traditional branch network of rich country ?nancial systems unnecessary ? one example of how the mobile telephone may enable countries to leapfrog over one traditional stage in the development process.

That said, for all the undoubted bene?ts of mobile phones, there are limits to how much leapfrogging even they make possible. Mobile phones are no ?silver bullet? against poverty. Good education and healthcare probably matter even more for development than phone connectivity. For instance, the London Business School study found that there is a large gap between the education levels of the Philippines and Indonesia. Were Indonesia to raise its educational standards to match the Philippines, the study found, that would raise its growth rate even more than would matching the mobile phone penetration rate of the Philippines.

Certainly, widespread illiteracy in many developing countries has been one of several factors limiting the impact of putting personal computers and internet access in poor areas, in an attempt to close the ?digital divide? between rich and poor. Yet mobile phones turn out to suffer few of the weaknesses of PCs, and have unexpectedly emerged as the likeliest means of reducing the digital divide. In 2000, the United Nations set a goal of 50 per cent of the world?s population having access to a phone by 2015 ? but perhaps uniquely among its goals, this has already been achieved, with nearly 80 per cent of people now living within range of a mobile network.
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Mobile phones tend to be easier to share, requiring much less time per use, being more portable (often, when a call comes in, a phone lady will carry the phone to where the recipient is), and requiring only an ability to speak, not to read or write. In rich countries, the volume of text messages now outweighs voice calls. In poorer countries, texting is dwarfed by mobile phone voice calls. However, as sending a text is cheaper than making a voice call, micro-entrepreneurs are setting themselves up as text writers and interpreters for illiterate clients.

There are other bene?ts, and potential bene?ts, that may not be fully captured by GDP statistics. There is the psychological bene?t of being able to talk to relatives living far away, for example. And there is enormous potential for mobile telephones to transform the ef?ciency of healthcare provision in poor countries. In Kenya and Tanzania, the African Medical and Research Foundation (AMREF) is using phones to allow patients in remote areas to be diagnosed by specialist doctors far away in AMREF?s headquarters. Another project has built a management structure based on mobile phones to enable doctors in AIDS clinics to monitor patients far away to ensure they are taking their drugs.

There seem certain to be even greater bene?ts from mobile phones in future, not least because handset manufacturers are working hard to make phones affordable to many more poor people. The boss of Investcom, which runs networks in Africa and the Middle East, reckons the number of users in these areas would double if the price of a handset fell from today?s typical $60 to $30. In April, Motorola started to deliver six million handsets for less than $40, under a contract that resulted from several mobile phone network operators in small developing countries pooling their buying power. Philips is working on a new range of chips that will take handset prices below $20. Helpfully, manufacturers are now designing handsets that are specially tailored for dif?cult developing market conditions, such as having a long battery life (up to two weeks) to minimize the need for recharging in countries where electricity supply is unreliable.

Alas, like most good ideas for alleviating poverty, the effectiveness of mobile telephony depends to a large part on good government. Strikingly, many poor countries impose extra taxes on mobile phone imports, calls and service subscriptions, thus, no doubt unwittingly, discouraging a powerful engine of economic growth. Moreover, as the Vodafone study makes clear, one of the main reasons why mobile phone penetration is
so much greater in some developing countries than in others is government policy. Those countries that have liberalized their telecoms markets, including issuing mobile phone licenses to private operators, including international ?rms, and have ended state telecoms monopolies, have seen relatively rapid mobile phone penetration. Those that did not liberalise have seen relatively low penetration.

In conclusion, then, it is time to update the favourite motto of development policymakers. Yes, it is better to teach a person to ?sh than to give him a ?sh. But give him a mobile phone, and you?re really talking.

Telephone numbers

*In Morocco in 1995 there were four ?xed-lines per 100 inhabitants and no mobiles. By 2003 ?xed-line subscriber numbers were unchanged but there were also 24 mobile phone subscribers per 100.
*In the same period, mobile phone penetration has risen from 0 to 36 per cent in Albania, 0 to 30 per cent in Paraguay, 0 to 21 per cent in China and 0 to 9 per cent in India.
*Subscriber growth in several sub-Saharan African countries exceeded 150 per cent last year.
*In Tanzania, it took just ?ve years for the number of mobile phone subscribers to exceed the number of ?xed lines, compared with 15 years in Britain.
*In 2000, the UN set a goal of 50 per cent of the world?s population having access to a phone by 2015. This has already been achieved ? nearly 80 per cent of people now live in range of a mobile network.