The Ringing Revolution
Jul 22, 2008 
Categories: Bottom-up Development, Mobile Technologies
Tags: Featured Iqbal, Iqbal Quadir
Mobile Phones have a revolutionary effect on the developing markets. Published in the Credit Suisse 'In Focus' Magazine.
Matthew Rees
Editor
22.07.2008 Mobile Phones have a revolutionary effect on the developing markets. Iqbal Quadir founded a mobile phone company in Bangladesh and made a change for his country.
"Connectivity is productivity." So says Iqbal Quadir, and he speaks of what he knows. He is the founder of a mobile phone company that over the past decade has generated extraordinary levels of economic opportunity and entrepreneurship in Bangladesh. Quadir's success, and that of other telecom pioneers, injects a new dimension into the raging debate about how developing nations can achieve higher levels of economic growth. One camp emphasizes the value of financial aid, primarily from the governments of rich countries and from charitable organizations (think Jeff Sachs). The other camp places a greater premium on using trade to promote integration with the global economy (think Tom Friedman). While both sides of the "trade versus aid" debate have their merits, the role of mobile phones – and the broader issue of business as a tool of economic development – is becoming difficult to ignore.
Phone Numbers Provide a New Form of Identity
Most readers of Bulletin probably think of their mobile phone as a tremendous source of convenience, and cannot conceive of daily life without it. But in developing nations throughout the world, mobile phones have had an altogether more transformative impact – helping to unlock economic opportunity by dramatically reducing transaction costs and improving access to information. Mobile phones make "new businesses viable and create markets where there was none," writes Jan Chipchase, a design researcher at Nokia, on his Future Perfect blog. "For many (people) it's the first time they can provide a stable fixed point of reference to the outside world – a phone number, which in turn creates a new form of identity that in turn enables everything from rudimentary banking to commerce."
While Internet access is growing throughout the developing world, the mobile phone is much cheaper and easier to use, and thus it is what matters for the foreseeable future. By linking people together and enabling information flows in a manner that is without precedent in human history, mobile phones are a truly revolutionizing force. A few years ago, a professor at Harvard University, Robert Jensen, set out to document the economic impact of mobile phones by surveying the fishing industry in India's northern Kerala region. Prior to the use of mobile phones, the industry was plagued by a number of inefficiencies – not least an oversupply in some markets and an undersupply in others, which led to pricing disparities.
Mobile Phones Enable to React to the Markets
Mobile phones began to be introduced in 1997, and by 2001 they were being used by more than 60 percent of fishing boats, and by most wholesale and retail traders. It didn't take long for the inefficiencies to start to disappear: fisherman began using their phones, while still at sea, to check market prices and determine where certain fish stocks were needed. About one third of them began to travel outside their home markets to make sales; previously, no fishermen did such a thing. The net effect was to raise the profits of fishermen by 8 percent, while also reducing prices for consumers by 4 percent. And wasted fish, which accounted for 5 percent to 8 percent of the daily catch, was completely eliminated.
Writes Jensen: "The fisheries sector was transformed from a collection of essentially autarkic fishing markets to a state of nearly perfect spatial arbitrage." That's economist-speak describing an efficient market that benefits buyers and sellers alike. Apply this example to developing nation industries that have been traditionally hampered by information asymmetries and you quickly begin to see how the mobile phone can have a catalytic effect on economic growth. Indeed, one country has been a bigger beneficiary of the mobile phone revolution than any other: Bangladesh. Fifteen years ago, the country had one landline phone for every 500 people, and individuals routinely waited 5 to 10 years for a private phone line (in one celebrated case, a customer's request was fulfilled 27 years after having been submitted). Today in Bangladesh, there is one mobile phone for every eight people in the country.
Mobile Phone Service Provides New Freedom
The catalyst for this connectivity has been Quadir, a native of Bangladesh who relinquished a New York-based position at a venture capital firm to pursue his dream of expanding economic opportunity throughout the country of his birth. He launched a company, GrameenPhone, which began offering phone service on March 26, 1997. Choosing March 26 was deliberate – it marks the day in 1971 when Bengalis declared independence from Pakistan. In Quadir's vision, mobile phone service would provide a new birth of freedom to the people of Bangladesh. Since then, GrameenPhone has exceeded all expectations. In "You Can Hear Me Now," an indispensable account of the GrameenPhone story, author Nicholas Sullivan writes that the company "has been instrumental in putting Bangladesh on a new, sustainable, and upward trajectory of growth."
Consider the following achievements:
There were 16 million subscribers as of December 2007.
The company has invested more than 1.6 billion dollars in Bangladesh.
The extensive coverage makes mobile phones accessible to about 98 percent of people living in the country.
GrameenPhone adds 650 million dollars to the economy, pays about 300 million dollars in taxes and supports 250'000 jobs.
Phone Ladies – A Testament to Enterprising Spirit
"Phones have a triple impact," Quadir says. "They provide business opportunities, connect the village to the world and generate over time a culture of entrepreneurship, which is crucial for any economic development." The best expression of the culture of entrepreneurship is the more than 280'000 women – known as "phone ladies," mostly living in rural areas – who've been empowered by the existence of a mobile phone sector. They've been granted extended loans to purchase mobile phone handsets, and then make the phone available to their fellow villagers, who pay for the airtime. "Because phone ladies have become the top earners in their villages, and present a new role model for other women and young girls, they have given momentum to a wave of potential new earners in the economy," writes Sullivan, in "You Can Hear Me Now." Like many an entrepreneur before him, Quadir had to overcome considerable skepticism that his idea was worthwhile. To those who told him the poor should focus on other needs first, he responded that phones empower the poor and help them meet their needs. Similarly, to those who said phones would follow the arrival of wealth, he replied that wealth would flow from the arrival of phones.
Medical Diagnosis via Phone Can Save Lives
GrameenPhone is far from alone. Mobile phone providers in the developing world include CelTel, MTN and others. Interestingly, Africa mostly skipped the landline telephone infrastructure. By 2004, there were nearly three times as many mobile phone subscribers as there were fixed lines, and the gap has surely widened since then. Credit Suisse's Arthur Vayloyan says Africa's mobile market "is the fastest growing telecom market in the world, with over 200 million new subscribers in the last three years."
In countries across Africa and in other developing regions, mobile phones have helped to give rise to industries that would have once been unthinkable. Throughout the world, mobile phones are being linked to banks, enabling millions of individuals to gain access to financial services for the first time. This is facilitating commerce, since vendors can more easily accept payments. And mobile phones are vehicles for securely (and inexpensively) sending and receiving remittances from abroad, which in many countries account for more than 10 percent of GDP. Mobile phones are also helping to galvanize growth throughout the world. A London Business School study, published in 2005, found that for every 10 percent hike in the number of mobile phones in a country, that country's GDP grew by 0.6 percent. Based on United Nations estimates, of every 1 percent GDP increase leading to a 2 percent reduction in poverty, coupled with 10 countries having notched increases in subscriber connections of 70 percent or more last year, the "ringing revolution" is creating higher living standards for many millions of people.
Many of the benefits created by mobile phones can't be quantified in strictly economic terms. A study of mobile phone use in South Africa and Tanzania, underwritten by Vodafone, concluded that the most significant benefit from mobiles has been eliminating much of the need for travel. Thus individuals can obtain information about a wide range of basic goods and services without having to appear in person, which often means improved health and welfare. As the report points out, "Being able to get a medical diagnosis by phone can mean the difference between life and death, especially when the nearest doctor is 90 miles away."
And mobile phones are helping to bring greater accountability to political systems as well. It was widely reported that in Senegal's 2000 presidential election, journalists and local election observers used mobile phones to share vote counts with the country's radio stations, which then broadcast the numbers. This undermined the ability of the incumbent president to challenge the results, and he conceded to his opponent, Abdoulaye Wade, ending 40 years of Socialist Party rule.
Challenging the Energy Industry
Subscriptions to mobile phones now exceed 3 billion – the hard part will be getting the next 3 billion enrolled. GrameenPhone shows the potential, but real obstacles remain – not least access to electricity. Most mobile phones are dependent on electricity, of course, and in many developing countries the energy infrastructure is not keeping pace with the economic growth. According to the World Bank, 35 of the 47 countries in sub-Saharan Africa are subject to frequent power outages. This is cause for concern, but it's encouraging that Quadir has founded a company, Emergence BioEnergy, which is working on how to create distributed energy systems in developing countries. It's reasonable to expect that he will come up with a workable idea sooner or later; given his breakthrough with mobile phones, it will probably be sooner.
About the Author:
Matthew Rees is a regular columnist for Bulletin. The former speech writer for the US President currently freelances for a number of America's most respected publications.
URL: http://emagazine.credit-suisse.com/app/article/index.cfm?fuseaction=Open...
