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You want cell phone entrepreneurs, we’ll give you cell phone entrepreneurs

Last week we posted some cool maps showing the spread of cell phones especially in Africa over the last decade. We called this “a triumph of bottom-up entrepreneurial success,” but you weren’t convinced. You thought it was foreign direct investment (FDI). Provide more evidence that entrepreneurs are part of this picture, you said. Aid Watch never declines a challenge:

1) OK, it’s true that 52 percent of the African Market is dominated by 6 multinationals: Orange (France), Vodafone/Vodacom (UK/South Africa), Zain (Kuwait), MTN (South Africa), Moov (UAE), and Tigo (Luxembourg).  But that other 48 percent is the battleground of dozens more, many of them home-grown.  (Also we heard a rumor that South Africa is located somewhere in Africa.) To give an example from The White Man’s Burden:

Entrepreneur Alieu Conteh started building a cellular network in the Democratic Republic of the Congo … when it was still in the midst of its civil war in the 1990s. He couldn’t get foreign manufacturers to ship cellular towers into the country with rebel soldiers around, so he got local men to weld scrap metal into a makeshift tower. Demand exploded for Conteh’s phones, and in 2001 he formed a joint venture with the South African firm Vodacom. One illiterate fisherwoman who lives in the Congo without electricity relies on her cell phone to sell her fish. She can’t put the fish in a freezer, so she keeps them alive on a line in the river until customers call to place an order.

Sudanese-born entrepreneur Mo Ibrahim is another example. His mobile telecom company, Celtel, had about 5 million subscribers in 13 African countries when it was sold in 2004 for $3.4 billion. 100 Celtel employees, most of them African, earned more than $1 million from the sale. Celtel is now part of Kuwaiti-owned Zain, which serves 40 million subscribers in 17 African countries.

2) Being a successful mobile operator often requires big infrastructure investments, so it’s no surprise many of the first telecom firms to enter the African mobile market have been large. Multinationals investing in Africa to provide millions of Africans with essential service is a GOOD thing. Yes, the market needs more  effective regulation, increased competition, and lower end-user costs, but those trends are now happening.

3) Multinationals spur smaller entrepreneurs. The Nigerian telecom sector has created some 450,000 indirect jobs since it was liberalized in 2000. And Uganda’s five mobile operators provide employment for more than 100,000 people, who work for the operators directly or indirectly, selling airtime or handsets. An Economist article noted:

In 2003 Ms [Mary] Wokhwale was one of the first 15 women in Uganda to become “village phone” operators. Thanks to a microfinance loan, she was able to buy a basic handset and a roof-mounted antenna to ensure a reliable signal. She went into business selling phone calls to other villagers, making a small profit on each call. This enabled her to pay back her loan and buy a second phone. The income from selling phone calls subsequently enabled her to set up a business selling beer, open a music and video shop and help members of her family pay their children’s school fees.

4) Finally, farmers and fishermen now check prices in markets across the country before selling their goods, while unbanked buyers can make payments with mobile banking technologies. Individual entrepreneurs are beneficiaries of mobile technology’s spread in a big way.

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8 Comments

  1. steve syn wrote:

    The Kuwaiti owners of Zain recently sold most of its African assets (less its Morocco and Sudan operations) to Bharti Airtel of India for about $9 billion.

    Here’s the full story from Kenya’s Daily Nation: http://www.nation.co.ke/business/news/Zain%20finally%20sold%20for%20Sh700bn/-/1006/885862/-/2lt7wp/-/index.html

    Posted April 7, 2010 at 2:32 am | Permalink
  2. Temitope wrote:

    Hey, there’s also Globacom in Nigeria – http://www.gloworld.com

    Posted April 7, 2010 at 7:16 am | Permalink
  3. Jeff wrote:

    This is a nice follow up post, but I think the cause and effect goes: Gov’t liberalizes policy, sell licenses, attracts foreign direct investment, an industry is created and small entrepreneurs play a critical role in diffusing the innovation, contributing to greater economies of scale, attracting more foreign investment, and thus we have a virtuous circle of economic growth. The role of the entrepreneurs is important, but none of this would have happened without good policies and foreign direct investment.

    Posted April 7, 2010 at 7:19 am | Permalink
  4. Matt Richmond wrote:

    “but none of this would have happened without good policies and foreign direct investment.”

    I think that good policy is important, but to say that foreign direct investment is absolutely necessary is a bit of a stretch. Yes, it probably happened more quickly, yes, there were probably fewer growing pains, but no, I don’t think that the local population is so devoid of knowledge or capital that it would have been otherwise impossible.

    Posted April 7, 2010 at 10:22 am | Permalink
  5. Asif Dowla wrote:

    The biggest impetus for the explosion of cell phone use in Bangladesh was the deregulation of the market. Before Telenor with help from Grameen and others entered the cell phone market in Bangladesh, a monopoly provider (a donor for the ruling party and later the foreign minster) used to control the market. Grameen Phone was indirectly helped by government regulation. When the company refused to pay bribe to the telecom minister, he made it impossible for Grameen Phone to connect to the landlines (owned by the government). This forced Grameen user’s family members and relatives to buy cell phone so that they can talk to each other. Nice examples of govt enforced network externality and the consequence use of economies of scale.

    Posted April 7, 2010 at 2:20 pm | Permalink
  6. Nick Gogerty wrote:

    The senegal rent seeking (corruption) is a bit of a fly in the ointment. http://www.businessinsider.com/business-in-africa-how-corrupt-senegalese-politicians-tried-to-shake-down-millicom-for-200-million-2010-2

    corruption sucks the life out of people.

    Posted April 8, 2010 at 9:29 am | Permalink
  7. Wow, the NY Times poaches AidWatch blog: http://www.nytimes.com/2010/04/10/us/10iht-currents.html?pagewanted=1&src=tptw

    Bill and Laura, they didn’t even cite you. Shame, shame NYTs

    Posted April 11, 2010 at 2:14 am | Permalink
  8. Robert Tulip wrote:

    The development impact of mobile telephony provides a major lesson regarding aid donor policies. The explosion of mobile communications is a major driver of free enterprise, economic growth and poverty reduction in poor countries. If aid donors had been genuinely focussed on reducing poverty, they would have engaged early on improving the regulatory environments for the communications sector, encouraging partner governments to adopt best practice to enable investment and private sector development. However, because donors are more obsessed with making themselves look good against the short term prejudices of charities, most of them have missed the mobile revolution. Charity has extremely high opportunity cost in terms of sustainable development foregone.

    Posted April 11, 2010 at 8:28 pm | Permalink

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