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Why mobile phones drive economic growth in the developing world

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The transformation of the mobile phone from yuppie plaything to a tool that drives economic growth in the developing world is arguably the biggest technology story of the first decade of the 21st century, according to Tom Standage, Digital Editor of The Economist magazine.

Speaking at the UK's Royal Academy of Engineering last month as part of the Vodafone lecture series, Tom echoed Jeffrey Sachs, Columbia University's Earth Institute development guru's statement that the humble mobile phone is "the single most transformative tool for development".

He said: "In 2008, three quarters of mobile phones were in developing countries, marking a massive shift from when they were merely playthings for yuppies."

While there are approximately six billion mobile devices used across the world, only a quarter are found in the developed world, which means that the mobile is predominantly a developing world story.

He pointed to Harvard economist Robert Jensen's research measuring the economic impact of mobile phones. By studying the historical price of fish in Kerala, Southern India, Jensen showed that, after the introduction of phone coverage, waste was reduced, consumer prices fell by 4% and fishermen's' profits rose by 8%.

Tom attributed the spread of the mobile phone into some of the world's poorest countries to standardisation, the effect of Moore's Law, (whereby the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years leading to rapid improvements in processing performance of electronic devices), the use of microfinance and pre-paid billing to make mobiles more affordable, and deregulation.

"Healthy competition and deregulation force prices down and mobile penetration grows; even the governments make money by selling licences to operators - it's a win-win," he said.

He pointed to two African countries as proof that bad regulation is more prohibitive to growth than chaos. Ethiopia is one of the last telecoms monopolies and in 2008 had just 3.5% mobile penetration, compared to Africa's average of 40%. Even war-torn Somalia without a government had 8% penetration at the time, proving that "warlords want their phones to work too!"

Mo Ibrahim, Founder of pan-African mobile group Celtel has proved that Africa is open for business. "It's not Western multinationals but local companies with local knowledge that are creating jobs and building mobile companies," said Tom.

He is particularly excited about mobile money. People in Kenya started using airtime as a quasi-currency to transfer funds and pay for goods. Kenya's M-PESA mobile money service now leads the world. Standage said that the mobile money transfer model works so well as it transforms every one of the 28,000 corner shops selling mobile credit into a banking outlet and makes economies more efficient.

Mobile money has yet to catch on in the Western world and Tom said: "you can pay for a cab in Nairobi with your phone but not in New York."

In fact, the West is learning some valuable mobile lessons from developing nations. Western operators used to spend a lot of money air-conditioning mobile base stations before discovering that they did not bother in considerably hotter India, as by the time the stations were damaged by heat, they were out of date anyway.

India also used tower sharing before the West. Indian operators fought over sites to place expensive towers until it became clear that it would be more efficient for companies to rent towers. European regulators had considered this idea but feared it would lead to price-fixing by operators. However, India disproved their theory and now Vodafone uses tower sharing in Europe.

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