Mobile Phones in Africa

Stephen DeAngelis

October 9, 2007

Occasionally in my posts I have mentioned the fact that the African continent has embraced mobile phone technology at an amazing rate. A recent BusinessWeek Special Report discusses how mobile phones are “sparking economic hope and growth” in both emerging and non-emerging nations [“Upwardly Mobile in Africa,” by Jack Ewing, 24 September 2007 print edition]. The report begins in Kenya.

“Precious little would seem to connect the Kenyan village of Muruguru to the 21st century. The red dirt roads become impassable in the rainy season. Only a few homes have electricity, indoor plumbing, or even a floor other than earth packed by bare feet. The villagers survive on corn, potatoes, and bananas they raise in hand-tilled fields, and earn a little extra cash by cultivating coffee beans that they dry outdoors on burlap sacks. But a couple of years ago, a red and white tower appeared on a nearby hill. The structure is a cell-phone base station, and its arrival has changed life in Muruguru as much as any development in the past century. ‘I’m saving time, I’m saving money,’ says Grace Wachira, who runs a small business knitting cardigan sweaters in the village. Before the tower was built, she had to walk several hours to the nearest town or ride in a communal taxi to buy yarn or meet customers, and she never knew whether the person she wanted to see would be there. Now she uses her Motorola handset to arrange for delivery of yarn and to communicate with buyers. These days, just about every tradesman, shopkeeper, and farmer in town has a phone—or at least access to one.”

It’s not surprising that new technology helps improve existing relationships, what is more surprising is how quickly so-called “backward” societies adapt technologies to create new relationships. Word of mouth, for example, becomes a much more powerful concept when making connections becomes easier.

“‘Customers give my number to other customers. The business has grown,’ says Susan Wairimu, whose tailor shop sits in the row of one-story buildings that constitute the village center. And Willson Maragua’s transport business in Muruguru, which consists of him and a used pickup truck, could hardly function without mobile technology. Local farmers, members of the Kikuyu tribe prevalent in the area, summon him to haul their coffee beans to a growers’ cooperative in a nearby valley. Now Maragua, an ebullient man wearing a baseball cap that says ‘Bachelorette Party,’ lives in a home with a concrete floor and a solar panel on the roof to power a radio and a lightbulb—and recharge his family’s two handsets. With a mobile phone, he says over a lunch of corn, potatoes, and stewed goat, ‘You can manage your business.’ Only a few years ago, places like Muruguru didn’t even register in the plans of handset makers and service providers. What would a Kenyan farmer want with a mobile phone? Plenty, as it turns out.”

Pundits were amazed that people occupying the bottom of the economic pyramid would use (or could afford) mobile phone technology. I have noted before, however, that companies are rapidly learning that there are profits to be made at the bottom of the pyramid. It simply takes a little imagination and a different business model.

“To the astonishment of the industry, people living on a few dollars a day have proven avid phone users, and in many parts of the world cellular airtime has become a de facto currency. The reason is simple: A mobile phone can dramatically improve living standards by saving wasted trips, providing information about crop prices, summoning medical help, and even serving as a conduit to banking services. ‘The cell phone is the single most transformative technology for development,’ says Columbia University economist and emerging markets expert Jeffrey Sachs. Mobile phones are changing developing markets faster than anyone imagined. Today there are some 3 billion mobile subscriptions worldwide, and that will grow to 5 billion by 2015, when two-thirds of the people on earth will have phones, predicts Finnish handset maker Nokia Corp. Nowhere is the effect more dramatic than in Africa, where mobile technology often represents the first modern infrastructure of any kind. The 134 million citizens of Nigeria, Africa’s most populous country, had just 500,000 telephone lines in 2001 when the government began encouraging competition in telecommunications. Now Nigeria has more than 30 million cellular subscribers. Muruguru, meanwhile, had just a single pay phone before people started getting handsets a few years ago. ‘Communications used to be a barrier,’ says Paul Ndiritu, the former village head man. Since the advent of mobile phones, he says, ‘the burden has eased.’ Yet billions of people around the world have still never used a telephone. Most of these unconnected masses live in rural areas that are much poorer and more remote than Muruguru. Now cell-phone makers and service providers understand that they can make money by bringing cell-phone service within reach of people who live on $2 a day. Users buy new phones for as little as $20—and secondhand models for far less—as well as airtime in increments of just 75 cents in Kenya, enough for nearly 10 minutes of off-peak calling. That’s a far cry from the European or U.S. monthly subscription model, but it works for such outfits as Millicom International Cellular. The Luxembourg-based company invests almost exclusively in poor countries often rocked by violence, and in the second quarter of this year saw its profits climb 65%, to $263 million. Millicom doesn’t even wait for the gunfire to die down before moving into new markets, which include the Democratic Republic of Congo, Sri Lanka, and Colombia.”

When I discuss the Enterra Solutions® Development-in-a-Box™ approach, I stress that development efforts must often begin while bullets are sill flying. Economic progress can have a dampening effect on violence as people begin to see a brighter and more hopeful future. Even being able to talk to loved ones in danger can bring a community together quicker than when people remain isolated. But the greatest benefit of technologies like mobile phones is increased productivity. When people don’t have to waste time making needless trips to find supplies or customers, they can use the saved time to make more money, get more education, or get involved in other activities that improve their lives.

“A growing body of evidence suggests that access to communications boosts incomes and makes local economies far more efficient. Consider a group of poor fishermen in the Indian state of Kerala studied by Robert Jensen, an associate professor at Brown University. They increased their profits by an average of 8% after they began using mobile phones to find out which coastal marketplaces were offering the best prices for sardines. Yet consumer prices for fish dropped 4% because the fishermen no longer had to throw away the catch they couldn’t sell when they sailed into a port after all the buyers had left. ‘That’s what economic efficiencies are about—everyone is better off,’ says Jensen.”

The types of activities in which Enterra Solutions is getting involved in Kurdistan are those that improve economic efficiencies. They don’t involve mobile phones per se, but they do rely heavily on improving connectivity between businesses, suppliers, and customers.

 

One of the most interesting uses of mobile phones that has emerged is financial services. People at the bottom of the pyramid have had little need for banks or banking accounts, but with improved living conditions they now find themselves in a position to use some financial services even if they rarely involve depositing funds locally.

“With characteristic ingenuity and resourcefulness, villagers are proving that handsets aren’t just for talking. Mobile phones, for instance, are becoming a way to extend financial services to the billions of poor people who have never seen the inside of a bank. David Omuchilili, who works as a security guard at a church in the town of Ngong, outside Nairobi, uses his battered, 1990s-era Ericsson to send a portion of his modest wages to his wife and five children in a village 180 miles away. Omuchilili pays cash to an agent for M-Pesa, a service offered by carrier Safaricom Ltd. In this case, the agent is a cell-phone dealer on a Ngong street that is crowded with stray goats and donkey carts hauling cans of water. The agent then sends a code number via text message to Omuchilili’s wife, who uses the code to redeem cash from an M-Pesa agent close to her home. Although few Kenyans have any experience with e-commerce, the M-Pesa service—pesa is Swahili for ‘money’—has been a runaway success since Safaricom launched it in March. Some 6,000 people a day are signing up, and Vodafone Group PLC—which owns 40% of Safaricom—is thinking of extending the concept to India.”

M-Pesa wasn’t taking too much of a risk providing mobile phone financial services because the practice has taken off elsewhere and proved profitable. For example, “more than 5.5 million Filipinos now use their cell phones as virtual wallets, making the Philippines a leader among developing nations in providing financial transactions over mobile networks.” [“Filipinos use cell phones as wallets,” Oliver Teves, Associated Press, 30 September 207]. Filipinos make enormous international money transfers, not just in-state transfers.

“Tapping into the cash flow from overseas Filipinos — who sent home $12.7 billion last year — [Globe Telecom and Smart Communications] forged partnerships with foreign mobile providers and banks, as well as with local banks and merchants, to create a network that allows users to send and receive cash internationally.”

The BusinessWeek Special Report asserts that the impact of mobile phone technology on national economies has been significant. It is not just the efficiencies created by the technology, but the new businesses and jobs that come with it.

“Economists are still trying to calculate the macroeconomic effect of this communications explosion, but no one doubts that it’s big. Leonard Waverman, chairman of the economics faculty at London Business School, figures that a 10% increase in a developing country’s mobile-phone penetration adds 0.6 percentage points to the economic growth rate. Indeed, the advent of mobile communications in Africa coincides with a surge in growth. The continent’s economy will expand as much as 7% this year, a 25-year high, according to the International Monetary Fund. Many other factors are contributing, including high commodity prices, fewer armed conflicts, and better government in countries such as Kenya and Tanzania. But a fundamental principle of economics is that markets need information to function efficiently, and cell phones are providing information to people who never had it before. The telecommunications industry itself is enjoying a new level of entrepreneurship and job creation in the developing world. Nahashon M. Macharia, a Nairobi-based businessman, is opening new stores selling cell phones and airtime in step with the expansion of Safaricom’s network. ‘Whenever they put up a new mast, we try to provide coverage,’ Macharia says above the blare of reggae music during opening celebrations for a new outlet in Othaya, a town about 50 miles from Nairobi. There is even a whiff of startup frenzy as companies spring up to serve the mobile industry. Lagos (Nigeria)-based M-Tech Communications, founded in 2001, develops content—everything from ringtones to crop price information—for mobile-service providers in Kenya, Uganda, Ivory Coast, and elsewhere.”

The Report asserts that profits are being made even though the per minute charge for using cell phones is more expensive in emerging countries than in more developed nations.

“That’s because users in poor rural areas often must bear the higher cost of building out networks in areas without electricity or good highways. Safaricom, for instance, wrecks a vehicle a month on Kenyan roads. And theft of generators and fuel means some companies post armed guards at their cell towers. To keep calling costs to a bare minimum, villagers keep conversations extremely short and make heavy use of text messaging. Flashing—calling and hanging up after the first ring—is also popular. The flash can signify, ‘I’ve arrived,’ ‘call me,’ or any number of other prearranged meanings. Phone sharing is also common. Some users just buy a SIM card (which is plugged into the phone to grant access to the network) for less than a dollar and borrow a phone from someone else. Many users rarely make outgoing calls, maintaining just enough prepaid credit to keep their accounts active and receive calls. Meshack Onsinyo Getuba, a TV and radio repairman in the Nairobi suburb of Rongai, alternates between SIM cards from two rival carriers, choosing the one that’s cheapest at any given time. Mobile technology, he says, ‘has improved the lifestyle I am living,’ because he can call for delivery of spare parts rather than having to fetch them from a dealer himself.”

Just as exciting as the changes that mobile phones make in individual lives are the infrastructure changes that mobile phone technology is bringing about.

“As mobile networks proliferate, they’re pushing the development of other infrastructure. Some operators, frustrated with slow-moving power monopolies, build their own electrical lines to base stations. And mobile operators are the driving force behind new networks of fiber-optic cables. South Africa-based MTN, for instance, has installed its own fiber in Nigeria. That will likely lead to better broadband connections, which could enable English-speaking countries such as Nigeria and Kenya to become major outsourcing centers.”

Such infrastructure construction makes countries prime candidates for Development-in-a-Box implementation of standards and best practices, which can help make them trusted international partners. In an interesting twist, bottom of the pyramid consumers are not just getting developed world leftovers but are actually driving innovations going into phones being sold there.

“The mobile-phone industry is increasingly listening to people like these village operators, who are at the frontier of telecommunications expansion. Nokia’s latest phone for emerging markets, which retails for about $37 in Kenya, contains features such as a hookup for an external antenna, to better reach distant base stations, and software making it easier to track the length and cost of calls. ‘If we look at the next billion subscribers, the vast majority will come from emerging markets,’ says Kai Öistämö, Nokia’s general manager for mobile phones. In India, Nokia Siemens Networks, an equipment joint venture with Germany’s Siemens, is taking the village phone concept a step further. The company is testing its so-called Village Connection, which allows a local entrepreneur to set up a wireless phone network for a few thousand dollars. Villagers can talk within the local system at a reduced rate, connecting to the more costly national network only for long-distance calls.”

The Report concludes with a caveat. Although the upside of technology far outweighs its downside, there is a downside.

“Of course, the spread of technology to places that have had none is bound to bring unforeseen consequences. Mobile phones can also be used to organize a guerrilla army. … And a new class of resentful have-nots could emerge among the millions of extremely poor people who still can’t afford cell phones. … But that seems to be the minority view. ‘Mobile technology has brought many fruits, and no bad things,’ insists Isaac Mahenia, a schoolteacher and part-time farmer in Muruguru. Abraham Maragua, truck driver Willson Maragua’s 77-year-old father, agrees that life is finally getting better in the village, and that mobile phones are part of the change. ‘We feel it,’ says Maragua, who lives in a house with a dirt floor and old newspapers covering the interior walls. As a onetime political prisoner during Kenya’s civil strife in the 1950s, he knows what he’s talking about. Says Maragua: ‘We didn’t suffer for nothing.'”

Reports like the one found in BusinessWeek renew my enthusiasm for helping get businesses connected in a more efficient way. Lives can be changed for the better and innovative uses of technologies emerge when they are put in the hands of people who desperately need them, but have not previously had access to them.