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ITU TELECOM AFRICA 2008

GSMA

Gabriel Solomon

Africa, the fastest growing mobile phone market in the world

Gabriel Solomon, Senior Vice President, GSM Association

In the opening quarter of 2008, mobile phone users in Africa passed 280 million, overtaking the United States and Canada with their 277 million users. Africa added 70 million connections in 2007, representing growth of 38 per cent. This made it the fastest growing region in the world, ahead of the Middle East (33 per cent) and the Asia-Pacific region (29 per cent). In June 2008, we expect market growth to pass the 300 million mark for connections in Africa (see Figure 1).

Most of the fastest growing markets are located in northern and western Africa, which represent altogether 63 per cent of the total connections in the region (see Figure 2). However, the most highly competitive markets include Nigeria, Zambia, Tanzania, the Democratic Republic of the Congo, Kenya, Algeria, Tunisia, Ghana and South Africa.

Figure 1 — Africa’s total mobile phone connections versus market penetration

Source: Wireless Intelligence.

Two-thirds of Africa’s national markets for mobile telephony are in their early phase of development, with penetration rates below 30 per cent at the end of 2007. Those markets represent 28 per cent (or 75 million) of the total connections in the region over the same period. In contrast, most European markets have penetration rates close to, or higher than, 100 per cent. In percentage terms, Africa is the fastest growing market in the world, but also the second smallest in terms of connections after the Middle East.

Figure 2 — Africa’s fastest growing markets, 2007 yearly growth rate

Source: Wireless Intelligence.

Great challenges remain in sub-Saharan Africa

At the ITU’s Connect Africa Summit in Rwanda in October 2007, the GSMA announced that its members had committed USD 50 billion in investment for sub-Saharan Africa over the next five years. Operators’ main areas of focus are expected to be:

  • Improved GSM network coverage, as well as roll-out of W-CDMA and W-CDMA HSPA networks
  • Re-branding and new product offerings, including high-speed services, as well as customer loyalty and retention programmes
  • Better distribution — increase in points of sale, resellers
  • Price competition — voice and data services (roaming, on-net calls and data bundles).

The market is certainly doing its best to provide universal access and affordable mobile services to all. But inconsistent regulation and sector-specific taxation are putting a brake on market development.

Figure 3 — Handset tax levels

Source: Deloitte for the GSMA report “Global Mobile Tax Review 2006/7”.

Figure 4 — Air-time tax

Source: Deloitte for the GSMA report “Global Mobile Tax Review 2006/7”.

Figure 5 — Impact of mobile tax contributions in Uganda with 0 per cent excise duty

Source: Deloitte for the GSMA report “Tax and Mobile Growth en East Africa”.

Sector-specific taxation

Mobile phones are a vital tool that drives economic growth and increases social capital. In a typical sub-Saharan African country, a 10 per cent increase in mobile penetration will boost that country’s gross domestic product (GDP) by 1.2 per cent1. For example, in 2006 the mobile industry generated more than 5 per cent of Kenya’s GDP and employed more than 200 000 people.

“In 10 short years, what was once an object of luxury and privilege, the mobile phone, has become a basic necessity in Africa,” President Paul Kagame of Rwanda said recently. We call on other governments who agree that mobile phones are a necessity and not a luxury to review their sector-specific tax policies. Currently in sub-Saharan Africa:

  • 24 governments levy specific luxury taxes on mobile handsets
  • 8 governments levy specific luxury taxes on mobile usage (air time)
  • Over 25 governments levy specific luxury taxes on ICT equipment (see Figure 3  and Figure 4).

Luxury taxes levied on the mobile industry and its customers have a negative impact on coverage and penetration and constrain the wider potential that the industry can bring to sub-Saharan Africa. And vitally, sector-specific taxation lowers potential tax contributions. The GSMA commissioned Deloitte to analyse the impact of lowering and removing such luxury taxes2. The study found that by reducing and removing luxury taxes on mobile telephony, governments will collect more tax from the mobile industry as black markets diminish and legitimate markets grow. Uganda, for example, levies a 12 per cent luxury tax on air time. Deloitte’s analysis showed that if this tax was removed, the total tax taken from the mobile sector would continue to increase substantially each year (see Figure 5).

Best practice regulation

It should not be taken for granted that mobile operators in sub-Saharan Africa have committed USD 50 billion in further investment. The GSMA study “Regulation and the Digital Divide” analysed data from 28 African countries and concluded that erratic regulation increases the cost of capital substantially. This is a major proportion of the cost base of a capital-intensive industry, and can reduce planned investment by 25 per cent3.

The study, undertaken in 2005–2006, found that if consistent and fair regulatory practice had been in place, capital costs would have been lower and an additional USD 5 billion would have been invested in mobile capacity and infrastructure. Penetration would have risen by more than 30 per cent and the region’s GDP would have been boosted by over USD 1 billion per annum. Such incentives should drive better regulatory practice.


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For example, monopoly control of international gateways must end. It is choking African businesses as they seek to compete in a global marketplace. And it substantially raises the cost of doing business regionally too. When Kenya liberalized its international gateway, connectivity prices fell by 70 per cent immediately. In Nigeria, prices have fallen by 90 per cent since gateway liberalization.

There is an urgent need to bring down the cost of connectivity from Africa to the rest of the world through open-access fibre-optic cables. These cables are the umbilical cords that Africa can rely on to grow, stimulating the creation of new industries and employment, increasing the continent’s competitiveness, providing fast, reliable and affordable Internet connections for students and businesses, and encouraging foreign investment and export-led growth.

The business structure of the Sat 3 cable, for example, has kept bandwidth prices artificially high, leaving much of the cable’s capacity unused. The cable that connects East Africa to the rest of the world must have an open access structure for the region’s potential to be realized.

Taxation and regulation are the dual levers which governments can use to determine the growth rate of the mobile industry, and therefore of the greater economy. The mobile industry will connect Africa, bringing not only voice but also affordable data communications to the continent. It is incumbent on governments to speed up this development by ensuring the right market conditions are upheld.

 

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