Home > m4d > Are Mobile Phone Companies the New Treasuries of Africa?

Are Mobile Phone Companies the New Treasuries of Africa?

Is implementation of fiscal policy in developing countries being increasingly handled by mobile phone operators?

 

That’s what hit me from two presentations at the recent 1st m4d conference; in particular from Adam Denton’s keynote [2MB pdf] on behalf of the GSM Association.  (This was full of interesting evidence-based nuggets, some of which I’ve added at the bottom of this post.)

 

My thoughts on government finances arise from:-

 

– a) the general poor performance of developing country governments in implementation of fiscal (tax and spending) policy;

 

– b) Mick Moore’s argument (e.g. in the book, “Taxation and State-Building in Developing Countries”: you can find on Google books) that state-building in developing countries is significantly undermined because governments don’t rely very much – if at all – on their citizens for taxes; as a result, governments find it easy to ignore citizens when making policy.

 

Mobile telephony could be changing this, albeit in an unplanned and as yet largely unrecognised way.  How?  Because mobile phone operators are key, and rapidly growing, contributors of tax revenues to government.  They average 7% of tax receipts in Africa and, in some countries, are the single largest tax payer.

 

More importantly, and almost uniquely among tax sources (compared, say, to customs revenue or taxes on natural resource extraction), mobile phone companies derive their revenue from a large and increasing mass of the citizenry of a country (around 30% of the cost of mobile phone ownership goes to pay tax).  They are, therefore, indirectly providing the tax connection between citizens and governments in developing countries, the absence of which Mick Moore and others have long lamented.

 

Previously, if governments wanted to raise or lower the tax burden on their citizens, they had few if any levers.  Now they do.  Assuming a competitive mobile market, changes in the tax burden on phone companies will directly affect large swathes of a country’s population.  Raise taxes on mobile operators: you extract more money from millions of citizens.  Lower taxes for the reverse effect.

 

The fiscal flipside could also apply.  Katharine Vincent and Nick Freeland are working on a social protection project in Lesotho. Cash transfers to the poor are an increasingly-popular social protection tool to address poverty and wider vulnerabilities.  However, delivery mechanisms are difficult.  One possible solution?  Get government to outsource delivery of the cash/credit to mobile operators, who would effect the transfer via mobiles.  Mobile operators would thus be implementing government spending policy.

 

That may be some way in the future.  However, we do need to recognise the extent to which mobile phone companies are mediating – and could mediate – fiscal relations between governments and citizens.  This one more sign of “Development 2.0”: the way in which ICTs are reworking core development structures and processes.

 

Any other examples of phone operators as outsourced Treasuries would be welcome.

 

Other nuggets from Adam Denton:

 

– 10 years ago, Manhattan had more phone lines than all of Africa.  Today, Africa has more phone lines than the US and Canada combined.

 

– GSMA states that every US$1.00 invested in mobile telephony generates an average US$0.80 in tax revenues for developing countries.

 

– GSMA predicts that 80% of broadband delivery in Africa will occur via mobile; but that may require release of spectrum currently used by analogue TV.

 

– Population coverage in Africa of mobile networks grew from 10% in 1999 to 60% in 2007, and is predicted to grow to 90% by 2012.

 

– Mobile operators provide 34% of the revenues for universal service funds but receive only 5% of disbursements (fixed line operators get the rest).  In 2006, more than US$6bn in universal service funds was collected; only US$1.5bn was disbursed.

 

– (A personal conclusion): we know the menu for mobile and telecom and ICT policy quite well already; the interesting question today is not what should be in policy but how and why policy is made and implemented.

 

And, yes, I do realise that the GSM Association has a particular worldview.  If you wish to challenge their figures with alternative evidence, please feel free to comment.  If you’d like more of the same, then see: http://www.gsmworld.com/newsroom/index.htm

 

Categories: m4d Tags: , ,
  1. Richard Heeks
    22 January 2009 at 9:38 pm

    Raising taxes via mobiles is, of course, a regressive not progressive form of taxation. The poor spend a higher proportion of their income on telephony than the rich, and so their taxation rate is higher.

    We can put together figures from GSMA suggesting the taxation element of mobile expenditure in Africa averages around 30%, and the figures from rural Tanzania (see “Mobiles for Impoverishment” entry) that an average 20% of income is spent on mobiles, to see that the poorest pay around 6% of their income as tax.

    Slightly older figures (i.e. mainly pre mobile) from Chile, from Forestier et al suggest the richest quintile spent around 2.5% of income on telecommunications. If still true, their “mobile taxation” rate would be closer to 0.9%.

    See also discussion on the aborted flat-rate/regressive tax on mobiles in Sri Lanka: http://lirneasia.net/2007/09/the-case-against-punitive-taxation-of-mobile-users-in-sri-lanka/

  1. 18 January 2009 at 6:03 am
  2. 12 July 2010 at 3:32 pm

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