ASSESSING’THE’ECONOMIC’ IMPACT’OF ... · IMPACT’OF TELECOMMUNICATIONS’IN’...

Telecom Advisory Services, LLC

ASSESSING THE ECONOMIC IMPACT OF TELECOMMUNICATIONS IN FRANCOPHONE WEST AFRICA

West Africa Connect Dakar, April 17, 2014

2

AGENDA

!  Economic Impact of telecommunications

!  The economies of Francophone West Africa

!  The telecommunications industry in Francophone West Africa

!  Direct economic contribution of telecommunications

!  Indirect economic contribution

!  Conclusions and policy implications

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MOBILE TELECOMMUNICATIONS CONTRIBUTE TO MARKET EFFICIENCY AND CONSUMER WELFARE

Market Efficiency

Consumer Welfare

Effect Research Evidence

•  More informed and demand-driven fishery market

• Kerala (Jensen, 2007)

•  Reduction of input prices in grain market

• Niger (Aker, 2008)

•  Costs of crop marketing for banana farmers

• Uganda (Muto, 2008)


•  Improved access to banking services

• Kenya and Tanzania

•  More accessible health care • Ghana and Cape Verde (Kelly and Minges, 20120

•  Increased employment • South Africa (Klonner and Nolen, 2010)

•  Female labor participation • Malawi (Batziillis et al., 2010)

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THE ECONOMIC CONTRIBUTION OF MOBILE TELECOMMUNICATIONS INCREASES WITH ITS PENETRATION

CONTRIBUTION OF MOBILE TELECOMMUNICATIONS TO GDP GROWTH

Source: Gruber and Koutroumpis (2011)

Low Penetration Countries

Medium Penetration Countries

High Penetration Countries

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BROADBAND NETWORKS ALSO CONVEY IMPORTANT ECONOMIC EFFECTS

GDP Growth

Job Creation


•  Contribution to GDP Growth

• OECD (Koutroumpis, 2009); Latin America (Katz, 2010); Germany (Katz et al, 2010); Arab States (Katz, 2012); Colombia (Katz et al, 2011); Panama (Katz et al, 2012); Philippines (Katz et al., 2011)


•  Construction effects

• US (Katz et al, 2009); UK (Liebenau et al, 2009); Germany (Katz et al., 2010)

•  Spillover effects • US (Crandall et al, 2007); US (Gillett et al. (2006); US states (Katz, et al., 2011); Chile (Katz, 2010); Brazil (Katz, 2010; Colombia (Katz et al., 2011)

Poverty Reduction

Consumer surplus


• Higher consumer surplus

• US (Greenstein, 2009); Brazil, Mexico, and China (Greenstein et al., 2011)


• Increase average income

• Costa Rica (Katz, 2011); Ecuador (Katz et al, 2013)

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AS IN THE CASE OF MOBILE TELECOMMUNICATIONS, THE ECONOMIC CONTRIBUTION OF BROADBAND INCREASES WITH PENETRATION

OECD: CONTRIBUTION OF BROADBAND TO GDP GROWTH

Source: adapted from Koutroumpis (2009)

Low penetration •  Greece, Portugal,

Italy, New Zealand, Austria, Hungary, Spain, Ireland

•  Average contribution to GDP growth: 0.008

Medium penetration •  Germany, France, Japan, Belgium,

UK, Australia, US, Canada, Luxemburg

•  Average contribution to GDP growth: 0.014

High penetration

• Denmark, Norway, Netherlands, Sweden, Switzerland

• Average contribution to GDP growth: 0.023

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AGENDA







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THE ECONOMIES OF SENEGAL, COTE D’IVOIRE, MALI AND NIGER, CONSTRAINED BY COMMON FACTORS, HAVE NEVERTHELESS RESUMED GROWTH

Country GDP

(US$ B) Income Level

Senegal $ 14.05 Lower Middle

Mali $ 10.31 Low

Niger $ 6.77 Low

Cote d’Ivoire $ 24.68

Lower Middle

ECONOMIES OF FRANCOPHONE WEST AFRICA

• Strong domestic demand • Investments in resource and non-resource sectors

• High commodity prices • Investments in service sector

Source: World Bank Global Economic Prospects (April 2014)

• Agriculture-based industries • Unpredictable rainfall variations and droughts

• Affected by global economic downturn • National and regional political and economic crises

GDP GROWTH (2009-16)

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FOR EXAMPLE, THE SENEGALESE ECONOMY STARTED RECOVERING FROM THE GLOBAL RECESSION AND THE 2008 FOOD AND ENERGY CRISIS

• Recovery began in 2010 as a result of structural reforms and improved global economy

• GDP grew 4.2% in 2010, 2.6% in 2011, and 3.7% in 2012

• After a sharp rise in 2005-8, inflation dropped, although still spiking in 2011 due to high energy prices

SENEGAL: GDP PER CAPITA AND INFLATION (2001-12)

Source: World Bank

0"

10"

20"

30"

40"

50"

60"

2001" 2002" 2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011"

Imports"of"goods"and"services"(%"of"GDP)"

Exports"of"goods"and"services"(%"of"GDP)"

Foreign"direct"investment,"net"inflows"(%"of"GDP)"

Gross"fixed"capital"formaJon"(%"of"GDP)"

SENEGAL: IMPORTS, EXPORTS, CAPITAL AND FOREIGN INVESTMENT(2001-11)

• Exports have remained stable at 24% of GDP

• Foreign Direct investment recovered from 1.62% of GDP in 2009 to 1.98% in 2011

• The rate of investment measured by the Gross Fixed Capital Formation (GFCF) was positive: 27.97% of GDP in 2009, 28.93% in 2010, and 30.3% in 2011

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SIMILARLY, INCREASED POLITICAL, SOCIAL AND INSTITUTIONAL STABILITY IN COTE D’IVOIRE AFTER 2011 LED TO AN ECONOMIC IMPROVEMENT

COTE D’IVOIRE: IMPORTS, EXPORTS, CAPITAL AND FOREIGN INVESTMENT(2001-11)

•  Inflation fell back to 1.3% in 2012 after the spike in 2011

• Debt renegotiation resulted in a significant cut in public obligations

• Foreign Direct Investment at 1.43% of GDP is helping finance the deficit in external accounts

Source: World Bank

• Reduction of energy sector subsidies • Cocoa industry reforms • Restructuring the public sector • Gross fixed capital formation equated to

10% of GDP • Resumed investor confidence

COTE D’IVOIRE: GDP PER CAPITA AND INFLATION (2001-12)

0"

10"

20"

30"

40"

50"

60"

2001" 2002" 2003" 2004" 2005" 2006" 2007" 2008"




Gross"fixed"capital"formaIon"(%"of"GDP)"

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DESPITE ECONOMIC AND POLITICAL DIFFICULTIES COUPLED WITH DECLINES IN INVESTMENT, MALI HAS RESUMED GROWTH

MALI: IMPORTS, EXPORTS, CAPITAL AND FOREIGN INVESTMENT(2001-11)

• Sustained growth during the global recession

•  Improvements in fiscal freedom and reduction of government spending (down to 23% of GDP)

Source: World Bank

• Limited economic diversification from agriculture, livestock and fishing

• Private sector activity largely occurring outside of the formal sector

• Government demonstrated fiscal discipline in 2012, which led to obtaining a Rapid Credit Facility

MALI: GDP PER CAPITA AND INFLATION (2001-12)

!10$

0$

10$

20$

30$

40$

50$

60$

2001$ 2002$ 2003$ 2004$ 2005$ 2006$ 2007$ 2008$ 2009$ 2010$ 2011$

Imports$of$goods$and$services$(%$of$GDP)$

Exports$of$goods$and$services$(%$of$GDP)$

Foreign$direct$investment,$net$inflows$(%$of$GDP)$

Gross$fixed$capital$formaKon$(%$of$GDP)$

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NIGER’S RECOVERY IS DEPENDENT ON AN INCREASE IN OIL REVENUES AND OVERALL FOREIGN DIRECT INVESTMENT

NIGER: IMPORTS, EXPORTS, CAPITAL AND FOREIGN INVESTMENT(2001-11)

• Agriculture and service sectors represent 85% of the country’s GDP

• Gradually, miniung sector (uranium, oil) is assuming a larger economic share

• Country hit hard by the global recession although the trend is reversing

Source: World Bank

• Foreign Direct Investment increased significantly in past years

• Country current account deficit will improve as a result of increased oil production

• Public external debt will increase, however, driven by natural resource projects

NIGER: GDP PER CAPITA AND INFLATION (2001-12)

0"

10"

20"

30"

40"

50"

60"

2001" 2002" 2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011"




Gross"fixed"capital"formaJon"(%"of"GDP)"

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GIVEN FRANCOPHONE WEST AFRICA ECONOMIC CONDITIONS, TELECOMMUNICATIONS CAN PLAY AN IMPORTANT CONTRIBUTION

!  Increase the inter-linkages among national enterprises

!  Facilitate exports

!  Improve productivity of small farmers by enhancing their access to inputs while facilitating market reach

!  Serve as an underlying network that would foster financial inclusion of a population marginalized from banking services

!  Deliver training resources, thereby supplementing the pre-existing educational system

!  From a social standpoint, both wireless telephony and broadband should improve social inclusion of rural populations and enhance welfare of the urban poor

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AGENDA







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THE TELECOMMUNICATIONS SECTOR OF FRANCOPHONE WEST AFRICA GREW RAPIDLY OVER THE LAST FIVE YEARS, PRIMARILY DRIVEN BY THE ADOPTION OF MOBILE TELEPHONY

FRANCOPHONE WEST AFRICA: MOBILE TELEPHONY PENETRATION (2001-13)

Source: ITU; GSMA Intelligence

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IN PARALLEL, THE WIRELINE AND FIXED BROADBAND SECTORS REMAIN UNDERDEVELOPED IN ALL FOUR COUNTRIES

FRANCOPHONE WEST AFRICA: FIXED BROADBAND CONNECTIONS (2001-12)

FRANCOPHONE WEST AFRICA: WIRELINE ACCES LINES (2001-12)

Sources: Senegal and Niger (ITU); Cote d’Ivoire (Informa); Mali (AMRTP)

Source: Senegal, Niger and Mali (ITU); Cote d’Ivoire (Informa)

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HOWEVER, 3G SERVICES HAVE PLAYED A ROLE IN DRIVING AN EMERGINBG BROADBAND SECTOR

FRANCOPHONE WEST AFRICA: WIRELESS BROADBAND CONNECTIONS (2001-13)

Source: ITU; GSMA Intelligence

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THE GROWTH IN MOBILE TELEPHONY AND WIRELESS BROADBAND IS A RESULT OF INCREASING COMPETITION

FRANCOPHONE WEST AFRICA: WIRELESS HERFINDAHL HIRSHMAN INDEX (*) (2008-2013)

(*) The Herfindahl Hirschman Index is a measure of competitive intensity and is calculated as the sum of the square of market shares of operators Source: GSMA Intelligence; Country regulators

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AGENDA







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TOTAL REVENUES GENERATED BY THE TELECOMMUNICATIONS INDUSTRY IN ALL FOUR COUNTRIES AMOUNT TO US$ 4.1 BILLION (OR 7.3% OF THE AGGREGATE GDP)

Revenues GDP Percent of GDP Year

Senegal $1,503 $14,160 10.6% 2012

Cote d'Ivoire $1,674 $24,680 6.8% 2012

Mali $557 $10,656 5.2% 2011

Niger $373 $6,568 5.7% 2012

Total $4,107 $56,064 7.3%

FRANCOPHONE WEST AFRICA: TELECOMMUNICATIONS INDUSTRY REVENUES

(in US$ billions)

Sources: Senegal (Comptes Nationaux, Sonatel, Hot Telecom, World Bank); Cote d’Ivoire (ATCI; GSMA; IMF); Mali (AMRTP); Niger (GSMA; Pyramid Research)

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THE TELECOM SECTOR REPRESENTS AN INCREASING SHARE OF GDP, CONTRIBUTING MORE THAN OTHER INDUSTRIES, SUCH AS CONSTRUCTION AND FINANCIAL SERVICES

FRANCOPHONE WEST AFRICA: TELECOMMUNICATIONS AS A

PERCENTAGE OF GDP (2000-2012)

Sources: IMF; World Bank; Telecom Advisory Services analysis

SENEGAL: GDP BY INDUSTRY (1980-2012) (in CFA ‘000’000’000)

Source: Senegal National Accounts; Telecom Advisory Services analysis

Stage I: Parity

Stage II: Construction

Stage III: Telecom

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IN ADDITION, THE INDUSTRY ALSO CONTRIBUTES TO THE CREATION OF EMPLOYMENT: APPROXIMATELY 160,000 DIRECT AND INDIRECT JOBS

Direct jobs

Indirect Jobs

Direct and Indirect Jobs (*)

Country Workforce

Percent of Total

Workforce Year

Senegal 2,795 55,000 57,795 8,847,917 0.7 % 2011

Cote d'Ivoire 3,399 62,315 65,714 12,936,157 0.5 % 2012

Mali 1,133 20,772 21,905 7,666,337 0.3 % 2011

Niger 759 13,910 14,669 9,866,363 0.1 % 2012

Total 8,086 151,997 160,083 39,316,774 0.4 %

FRANCOPHONE WEST AFRICA: TELECOMMUNICATIONS INDUSTRY DIRECT AND

INDIRECT EMPLOYMENT

Sources: Senegal (Comptes Nationaux, Sonatel, Hot Telecom, World Bank); Cote d’Ivoire (ATCI; GSMA; IMF); Mali (AMRTP); Niger (GSMA; Pyramid Research); total workforce: World Bank (*) Estimated

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THE SENEGALESE TELECOMMUNICATIONS INDUSTRY IS ONE OF THE MOST ECONOMICALLY PROMINENT IN THE FRANCOPHONE ZONE: 10.8% OF THE GDP AND 1.11% OF EMPLOYMENT

Direct Economic

Contribution

Operators

Suppliers

Revenues

Taxes

Employment

• US$ 1.4 B (10.8% of GDP)

•  100 suppliers, software developers and IT service providers

• 3 carriers • 200 telecenters • 7 ISPs

• 55,000 jobs

DIRECT ECONOMIC CONTRIBUTION OF THE SENEGALESE TELECOMMUNICATIONS INDUSTRY (2010)

• 1.11% of total employment

• 10.6% of the service sector

• 12.6% of total fiscal revenues

Sources: Senegal National Accounts; Youth Employment Network (2010); Zavatta, R. (2008); IMF; World bank (2011); compiled by Telecom Advisory Services

Employment • 3,000 jobs

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AGENDA







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TO MEASURE THE INDIRECT ECONOMIC IMPACT OF WIRELESS TELEPHONY WE CONSTRUCTED A STRUCTURAL MODEL BASED ON FOUR EQUATIONS

!  Model structure: aggregate production function modeling the economy and, subsequently, three demand, supply and output functions. The last three functions model the wireless market operation and, controlling for the reverse effects, the actual impact of the infrastructures is estimated

!  In the production function, GDP is linked to the fixed stock of capital, labor and the mobile infrastructure, proxied by mobile penetration

!  The demand function links mobile penetration to the average consumption propensity of individuals, proxied by GDP per capita, the cost of a basic mobile service and the competition in the mobile market, measured by the HHI index

!  The supply function links the aggregate mobile revenue to mobile price levels proxied by ARPU (Average Revenue per User), the industry concentration index of the mobile market (HHI) and GDP per capita

!  The infrastructure equation links annual change in mobile penetration to mobile revenues, used as a proxy of the capital invested in a country during one year

Aggregate Production function:

(1)

Demand function:

(2)

Supply function:

Mob_Revit=c1MobARPUit+c2GDPCit+c3HHIit+ε3it (3) Output function:

(4)

GDPit = a1Kit + a2Lit + a3Mob_Penit + ε1it

Mob_Penit = b1MobPrit + b2GDPCit + b3HHIit + ε2it

ΔMob_Penit = d1Mob_ Revit + ε4 it

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THE INDIRECT IMPACT OF WIRELESS TELEPHONY IN SENEGAL IS SIGNIFICANT

Variables Mobile Model Growth (GDPit) Labour force (Lit) Fixed Capital Stock (Kit) Mob Penetration (Mob_Penit) Constant

0.366*** 0.785*** 0.061*

- Demand (Mob_Penit) GDPC (GDPCit) Mob. Price (MobPrit) Market Concentration (HHIit) Constant

5.365*** 0.6223 -0.0002

-39.324*** Supply (Mob_Revit) Mob Price (MobPrit) GDPC (GDPCit) Market Concentration (HHIit) Constant

1.594*** 5.750*** -.0005*** -36.806***

Output (ΔMob_Penit) Mob Revenue (Mob_Revit) Constant

0.539*** 9.545***

Year Effects Quarter Effects Operator Effects

YES YES YES

R2 Growth Demand Supply Output

(1) 0.99 0.62 0.90 0.23

For every 1% increase of Mobile

penetration, the annual average

contribution to the GDP is equal to

0.061%

Capital deepening has an unusually high impact

on economic growth

Incomes are crucial for adoption and

investments, indicating the importance of

affordability

Competition has a positive impact on

investments

INDIRECT ECONOMIC CONTRIBUTION OF SENEGALESE WIRELESS TELEPHONY (2012)

Source: Telecom Advisory Services analysis

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IN FACT, THE INDIRECT CONTRIBUTION IS INCREASING INDICATING A POTENTIAL RETURN TO SCALE: THE HIGHER MOBILE PENETRATION, THE HIGHER THE INDIRECT ECONOMIC IMPACT

Low

Medium High

Senegal (2010)

Senegal (2012)

INDIRECT ECONOMIC CONTRIBUTION OF SENEGALESE WIRELESS TELEPHONY (2010 vs. 2012)


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IN ADDITION, DUE TO THE INCREASING MOBILE BROADBAND PENETRATION, THE EVIDENCE INDICATES A POSITIVE INDIRECT ECONOMIC CONTRIBUTION

Variables Mobile Model Growth (GDPit) Fixed Capital Stock (lfcapital) Labor Force (lbaedu) Mob Broadband Penetration (lmbbusers) Constant

0.632*** 0.960*** 0.022***

-21.742*** Demand (Lmbbusers) GDPC (lgdpc) Mobile Broadband Price (lmocost) Competitive intensity (HHI_mb) Constant

-1.565

-6.332*** -2.719*** 36.994***

Supply (lrevenue) GDPC (lgdpc) Mobile Broadband Price (lmocost) Competitive Intensity (HHI_mb) Constant

-0.157

0.246*** -0.252*** 19.885***

Output (dmbob) Mobile Broadband Revenue (lrevenue) Constant

11.687

-218.389 Year Effects Quarter Effects

YES YES

R2 Growth Demand Supply Output

(1) 0.99 0.96 0.39 0.00

For every 1% increase of Mobile

Broadband penetration, the annual average

contribution to the GDP is equal to

0.022%

Capital deepening has an unusually high impact

on economic growth

Pricing and competition are crucial for adoption,

indicating the importance of affordability

Competition has a positive impact on

investments

INDIRECT ECONOMIC CONTRIBUTION OF SENEGALESE MOBILE BROADBAND (2012)


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TO SUM UP, RESEARCH IN SENEGAL INDICATES A SUSTAINED HIGH DIRECT ECONOMIC IMPACT AND SIGNIFICANT INDIRECT CONTRIBUTION OF WIRELESS TELEPHONY AND MOBILE BROADBAND

Development of Telecommunications

Industry

Adoption of wireless telephony

Adoption of fixed broadband

Adoption of mobile broadband

Direct Effects Indirect Effects

•  Revenues of service providers: $ 1,503 million (10.6 % of GDP)

•  Employment of service providers: 2,795

•  Employment of suppliers to telecommunications industry: 55,000

•  Taxes: 12.6% of total fiscal revenues

• Contribution to GDP: 0.061% of GDP growth for every 1% increase in penetration

• Annual contribution: $176 million

• Contribution to GDP: 0.022% of GDP growth for every 1% increase in penetration

• Annual contribution: $ 173 million

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AGENDA







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WHILE THE ECONOMIC IMPACT OF TELECOMMUNICATIONS IN SENEGAL HAS INCREASED IN THE PAST THREE YEARS, A NEW CONFIGURATION OF EFFECTS HAS EMERGED

Annual contribution to GDP 2010 2012

Direct effects of telecommunications US$ 1,400 US$ 1,503

Indirect effects of mobile telephony US$ 210 US$ 176

Indirect effects of broadband - US$ 173

Total US$ 1,610 US$ 1,852

•  Direct economic contribution has stabilized in the 10% range of GDP

•  This is due to price declines triggered by competitive dynamics

•  Telecommunications economic impact has increased 15% since 2010 driven by an acceleration of indirect effects

•  Increase in indirect effects is the result of mobile broadband

•  The decline in mobile telephony indirect effects signals a transition from voice to data spill-overs

SENEGAL: CUMULATIVE ECONOMIC EFFECTS OF TELECOMMUNICATIONS


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THE POLICY IMPLICATIONS OF THESE FINDINGS ARE MANIFOLD

!  It is critical that emerging markets first implement policies that encourage increased infrastructure investment in order to achieve critical mass in terms of network deployment and device adoption

!  Once achieved, policy focus needs to shift to the areas that maximize spill-overs, focusing on the promotion of intense usage and stimulating technology innovation

!  Along those lines, while direct contribution of the telecommunications sector is a relevant metric to monitor infrastructure deployment and adoption initially, over time policies should focus on maximizing indirect effects

!  Beyond these effects, the Senegalese case demonstrates as a case study, that mobile broadband is, as expected, the technology best suited to tackle the digital divide in the emerging world

!  While it is reasonable to assume that not all 3G users utilize the technology to access the Internet, once the devices are in the hands of non-adopters, digital literacy, combined with increasing affordability of data plans, will stimulate Internet access over time

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THE MAXIMIZATION OF ECONOMIC IMPACT CAN ONLY BE ACHIEVED BY IMPLEMENTING POLICIES THAT INTENSIFY THE USE OF DIGITAL TECHNOLOGIES

!  Accelerate programs oriented towards promoting digital literacy (both in the formal education system and continuing education programs focused on disadvantaged segments of the population)

!  Stimulate innovation by promoting development of start-ups in the field of ICT

!  Promote training for assimilation of broadband by Small and Medium Enterprises

!  Intensify educational programs to generate a much larger production of human capital in the fields of ICT

!  Reduce taxes on the acquisition of ICT products and services in order to reduce total cost of ownership

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FINALLY, NOT ALL TELECOMMUNICATIONS COMPETITION MODELS ARE EQUALLY POWERFUL IN STIMULATING INVESTMENT AND INNOVATION

!  There appears to be an optimal level of competitive intensity beyond which, the incentive to invest and deploy wireless broadband services diminishes

!  That optimal level for deployment of wireless broadband is driven by a certain amount of market concentration and a moderate level of competitive intensity

!  The international experience indicates that three industry players ensures adequate consumer benefits (pricing advantages and technology innovation) while guaranteeing sustainable levels of investment

!  On the other hand, the experience of international markets indicates unfettered competition resulting from players beyond three will lead to a reduction in investment (consequence of competitive risk) and frictional cost (driven from bankruptcies, exits, and acquisitions)

!  In Senegal, three wireless players has ensured sufficient competition, growing investment, and increasing economic benefits

!  It would be detrimental to maximizing the economic impact of telecommunications an increase in the number of operators

For further informa.on please contact: Raul Katz, [email protected], +1 (845) 868-‐1653 Telecom Advisory Services LLC 182 S.ssing Road Stanfordville, New York 12581 USA

TELECOM ADVISORY SERVICES, LLC

ASSESSING’THE’ECONOMIC’ IMPACT’OF ... · IMPACT’OF TELECOMMUNICATIONS’IN’...

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