Ideas & Debate

More vibrant telecoms could fire greater economic growth

morans

Morans taking a selfie on a mobile phone in Olndonyiro, Isiolo County. FILE PHOTO | NMG

Telecommunications offer a great promise for improved household economic wellbeing in sub-Saharan Africa, for the primary reason that in an increasingly weightless world economy, telecommunications are an important prerequisite for participation. A growing number of academic studies have attempted to identify expansion of telecommunications infrastructure as an essential tool for fostering productivity and economic growth, especially in the developing world.

In 2005, a group of three researchers, namely Waverman, Meschi and Fuss subjected the impact of telecoms rollout on economic growth in poorer nations to a thorough empirical scrutiny and found a noticeable growth dividend from the spread of mobile phones in low-income and middle-income countries.

Later on, three gentlemen, Sang Lee, John Levendis and Luis Gutierrez empirically investigated telecommunications and economic growth in sub-Saharan Africa and discovered that the contribution of cellular phones to economic growth in the region has been growing in importance.

Consequently, as a policy output, they recommended that more cellular phone infrastructure should be encouraged in the sub-Saharan region, as it is the more cost-effective and beneficial technology. Martin Wainaina (2012), in his study, Telecommunications Infrastructure and Economic Growth: A case for Sub-Saharan Africa, concluded that there exists a two-way positive relationship between mobile tele-density, which is a measure of cellular penetration expressed as the number of telephones per 100 population, and economic growth.

An improvement in mobile tele-density leads to an increase in the growth of the economy. Increased economic growth leads to growth in mobile telephone penetration. In Kenya, data from the bureau of statistics show that investment in the telecommunications sector (by network operators), as a share of economic output (gross domestic product-GDP), has largely been on a downward trend since 2013, which could be a reflection of maturity or sheer lack of competition in the sector.

As a result, the share of telecommunications contribution to GDP has stagnated since 2015. This is in contrast to sub-Saharan Africa as a whole, where network operators’ investments, as a share of output, has remained strong and stable over the past five years, largely driven by an increased competitive landscape. In fact, the Global System for Mobile Communications Association (GSMA), a trade body that represents the interests of mobile operators worldwide, in its 2018 report on sub-Saharan Africa, projects that operators will spend some $24 billion in capital expenditures (capex) between 2018 and 2020, a quantum, which in my assessments, holds some significant fiscal multiplier. To robustly participate in the multiplier, Kenya’s telecommunications sector could do with additional new investments, which entails enhancing the attractiveness of the sector from a policy standpoint.

Ghana, which has one of the most vibrant mobile market in the region, offers a perfect case study. First, investments in the country’s telecommunications sector have remained strong since liberalisation; secondly, as a result, the country’s tele-density has now surpassed Kenya to hit 130; and finally, contribution of telecommunications (and the larger ICT sector) to the country’s GDP has sustained an upward momentum.

Why is this important? In a developing country like Kenya, mobile phones substitute for fixed lines, implying that they have a stronger growth impact. Indeed, as the empirical analyses continue to demonstrate, telecommunication is a positive and significant determinant of economic growth in sub-Saharan Africa.

Its economy could still benefit more from an inch of additional vibrancy in the telecommunications sector. Consequently, Kenya should roll out policies that enhance the vibrancy of the sector, otherwise its broad contribution to the economy, by way of jobs, wages and taxes, could stagnate.