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Why #DataMustFall

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ZimBoth the Independent Communications Authority of South Africa (Icasa) and the Competition Commission are concerned about South Africa’s high data costs. It is about time. Of the 48 African countries ranked by for the first quarter of 2017, South Africa was the 22nd most expensive in which to buy 1GB data. All of South Africa’s main competitors on the continent, including Egypt (1st), Ghana (4th), Nigeria (8th) and Kenya (15th) ranked higher. Our poorest neighbour – Mozambique – ranked second, with US$ 2.27 for 1GB in contrast to our US$7.49.

Consumers have known this for some time. Last year, radio personality Thabo “Tbo Touch” Molefe started a Twitter campaign – #DataMustFall – that went viral. He was subsequently invited to address the parliamentary Portfolio Committee on Telecommunications and Postal Services about the high cost of broadband in South Africa. Said Molefe at the time: “The power of data gives access to education, mentorship, skills training, financial assistance, job searching and recruit.”

Molefe is correct. There is now ample evidence globally to show that internet access at affordable prices is correlated to better job market opportunities. This is especially true in South Africa, where the employment rate is seven percentage points higher in areas connected to the internet than those with no connection. The problem is that economists have struggled to show that this relationship is causal: areas with internet connectivity usually have all the other amenities that are associated with better job market prospects. It then becomes an empirical question of how to separate the effect of internet connectivity from things like education, infrastructure and wealth that also affect job market prospects?

A new NBER Working Paper by Jonas Hjort of Columbia University and Jonas Poulson of Harvard University offers an answer. The two authors exploit the gradual arrival of 10 submarine Internet cables from Europe in cities on Africa’s coast in the late 2000s and early 2010s to identify whether the higher speeds and cheaper data costs created new jobs. First, they show that the arrival of the cables did, in fact, increase average internet speeds and the expansion of the network. They then compare the changes in employment patterns in cities and towns with a bigger versus a smaller increase in access to fast Internet. “In each of three different datasets that together cover 12 African countries with a combined population of roughly half a billion people, we find a significant relative increase—of 4.2 to 10 percent—in the employment rate in connected areas when fast Internet becomes available.” Just as Molefe said: faster and cheaper internet creates jobs!

As with any economic change, there are both winners and losers. Hjort and Poulson show that the faster, cheaper internet reduces employment in unskilled jobs, but “enables a bigger increase in employment in higher-skill occupations”. In other words, just as automation does in the developed world, faster internet in Africa results in a change in the type of skills required. One might expect the consequence to be deeper levels of inequality. Not true, says the authors, especially in South Africa. Faster, cheaper internet enables South African workers of low and intermediate educational attainment “to shift into higher-skill jobs to a greater extent than highly educated workers”. The net effect is that fast internet lowers employment inequality across the educational attainment range in South Africa.

So what types of jobs were created by the arrival of the submarine cables? The authors find that “new and new types” of jobs were created via the “extensive margin” (meaning: new users) and “intensive margin” (meaning: different use of the internet by existing users). Using detailed firm level data, they show that, in South Africa, new firms are established, notably in sectors that benefit from ICT. In Ethiopia, by contrast, existing firms improve their productivity. In other African countries like Ghana, Kenya and Nigeria, firms with access to the faster, cheaper internet export much more, perhaps, the authors suggest, because “website communication with clients become easier”.

Technology is not just a threat to job creation – it is also an opportunity. But as the #DataMustFall movement has shown, fast internet access remains a mirage for most South Africans. That is hopefully changing. Non-profits, like Project Isizwe, want to facilitate the roll-out of free WiFi in public spaces in low income communities, as it is already doing in Tshwane. Similar initiatives are following in South Africa’s other metros. Both Google and Facebook are designing new technologies that could revolutionise connectivity for in rural areas.

Consumers are rightfully angry about the high cost of data in South Africa. Yet it is local entrepreneurs and their employees that should be most upset. As Hjort and Paulson show, cheap data will create more firms and more, better-paying jobs. “Employment responses of the magnitude we document indicate that building fast Internet infrastructure may be among the currently feasible policy options with the greatest employment-creating potential in Africa.”

Fast and cheap internet is probably the simplest way to alleviate South Africa’s high unemployment conundrum. Policy-makers should take note.

*An edited version of this first appeared in Finweek magazine of 24 August 2017.


Written by Johan Fourie

August 30, 2017 at 10:56


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Mobinomics is the story of how Alan Knott-Craig acquired Mxit, the mobile network that allows users to communicate at low cost, and how this company is contributing to the mobile revolution that is sweeping Africa. Written as a personal account, the opening chapters mostly discuss the development of the Mxit network and how Knott-Craig became involved and finally acquired the company  in late 2011. The latter chapters offer short case studies of the different characters that make up this social network, from gamers and teachers, to chat room officers and entrepreneurs.

In many ways, Mobinomics, written by Knott-Craig and collaborator Gus Silber, is not only a book about Mxit but also a book that symbolizes the company that owns Mxit, World of Avatar: for good or bad, the book is an eclectic combination of autobiography, business strategy, fantasy, sociology and sales pitch.

The book reads easy. Knott-Craig certainly shares my passion for Stellenbosch (“To live in Stellenbosch is to take the long view” (p. 66)), and his insights (on topics like human resources management) and anecdotes about colleagues and collaborators are certainly interesting. But the book doesn’t quit live up to what I’d hoped for.

While most of the book is about Mxit, very little in the book is about “Africa’s mobile revolution” or the economics of mobiles, as the title implies. I had hoped Knott-Craig would explain why African countries are such lucrative markets (which African countries in particular?), how Mxit is infiltrating these markets (and who is the competition?), and what this will do to Africa’s economies and the living standards of its inhabitants (and possibly some evidence for this). Instead, the story is mostly a South African one, with only a few references to the economics of mobile technology, and then only the standard “leapfrogging” story.

Moreover, if it’s business strategy you’re interested in, you might like to know why is Mxit a better medium/network/technology than the others out there? What about the shift to smart phones and apps like What’s App? Facebook, for example, doesn’t get more than a handful of mentions in the book. Surely if Mxit is to survive (and profit) for the next five years, these are the questions the author needs to address.

And potential entrepreneurs might like to know how it’s possible to convince an investor to deposit more than a few million into a project that is still making a monthly loss of R4 million (p. 182).

Surprisingly, Knott-Craig also favours colourful language to concrete data. Here’s one example from page 166:

The map of Africa is glowing. Soft pulses of light, radiating from the subcontinent, spreading like ripples in a pond. Some are as faint as watermarks; others burn with a fiery intensity. From afar they look like clusters, hot zones of thermal activity. Zoom in to the streets of the cities, the townships, the suburbs, and the clusters explode and subdivide, spawning discrete cells, pulsing and fading, pulsing and fading.

Cool, but why not just show the map?

I am sure Mxit and, more broadly, mobile technology has the ability to revolutionize African communication, commerce and competitiveness. And while this is a worthwhile read for those interested in how Mxit came about and how it works, it is not a treatise on the use and usefulness of mobile technology in Africa. It also lacks in crucial details for any prospective entrepreneur in search of business blueprint. A more appropriate title would have been: y i bght mxit by aln nt crg.

Written by Johan Fourie

August 26, 2012 at 22:50