Economics focus To do with the price of fish May 10th 2007 >From The Economist print edition How do mobile phones promote economic growth? A new paper provides a vivid example. YOU are a fisherman off the coast of northern Kerala, a region in the south of India. Visiting your usual fishing ground, you bring in an unusually good catch of sardines. That means other fishermen in the area will probably have done well too, so there will be plenty of supply at the local beach market: prices will be low, and you may not even be able to sell your catch. Should you head for the usual market anyway, or should you go down the coast in the hope that fishermen in that area will not have done so well and your fish will fetch a better price? If you make the wrong choice you cannot visit another market because fuel is costly and each market is open for only a couple of hours before dawn—and it takes that long for your boat to putter from one to the next. Since fish are perishable, any that cannot be sold will have to be dumped into the sea. This, in a nutshell, was the situation facing Kerala’s fishermen until 1997. The result was far from ideal for both fishermen and their customers. In practice, fishermen chose to stick with their home markets all the time. This was wasteful because when a particular market is oversupplied, fish are thrown away, even though there may be buyers for them a little farther along the coast. On average, 5-8% of the total catch was wasted, says Robert Jensen, a development economist at Harvard University who has surveyed the price of sardines at 15 beach markets along Kerala’s coast. On January 14th 1997, for example, 11 fishermen at Badagara beach ended up throwing away their catches, yet on that day there were 27 buyers at markets within 15km (about nine miles) who would have bought their fish. There were also wide variations in the price of sardines along the coast. But starting in 1997 mobile phones were introduced in Kerala. Since coverage spread gradually, this provided an ideal way to gauge the effect of mobile phones on the fishermen’s behaviour, the price of fish, and the amount of waste. For many years, anecdotes have abounded about the ways in which mobile phones promote more efficient markets and encourage economic activity. One particularly popular tale is that of the fisherman who is able to call several nearby markets from his boat to establish where his catch will fetch the highest price. Mr Jensen’s paper* adds some numbers to the familiar stories and shows precisely how mobile phones support economic growth. As phone coverage spread between 1997 and 2000, fishermen started to buy phones and use them to call coastal markets while still at sea. (The area of coverage reaches 20-25km off the coast.) Instead of selling their fish at beach auctions, the fishermen would call around to find the best price. Dividing the coast into three regions, Mr Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35% as soon as coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study coverage was available in all three regions. Waste had been eliminated and the “law of one price”—the idea that in an efficient market identical goods should cost the same—had come into effect, in the form of a single rate for sardines along the coast. This more efficient market benefited everyone. Fishermen’s profits rose by 8% on average and consumer prices fell by 4% on average. Higher profits meant the phones typically paid for themselves within two months. And the benefits are enduring, rather than one-off. All of this, says Mr Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes. Mr Jensen’s work is valuable because studies of the economic effect of mobile phones tend to be macroeconomic. A well known example is the finding in 2005 by Leonard Waverman, of the London Business School, that an extra 10 mobile phones per 100 people in a typical developing country leads to an additional 0.59 percentage points of growth in GDP per person. (He recently repeated this earlier study using a more elaborate model and found that an extra 10 percentage points in mobile-phone penetration led to an extra 0.44 percentage points of growth, a difference he says is not statistically significant.) Calls and effect One criticism levelled at such studies, says Mr Waverman, is that it is difficult to tell if mobile phones are promoting growth, or growth is promoting the adoption of mobile phones, as people become able to afford them. It is easy to imagine ways in which mobile phones could stimulate economic activity—they make up for poor infrastructure by substituting for travel, allow price data to be distributed and enable traders to engage with wider markets, and so on. Mr Waverman uses a variety of statistical tests to try to tease apart cause and effect. But detailed analyses of micro-market data like Mr Jensen’s, he says, show how phones really do make people better off. Furthermore, says Mr Jensen, phones do this without the need for government intervention. Mobile-phone networks are built by private companies, not governments or charities, and are economically self-sustaining. Mobile operators build and run them because they make a profit doing so, and fishermen, carpenters and porters are willing to pay for the service because it increases their profits. The resulting welfare gains are indicated by the profitability of both the operators and their customers, he suggests. All governments have to do is issue licences to operators, establish a clear and transparent regulatory framework and then wait for the phones to work their economic magic. *“The Digital Provide: Information (technology), market performance and welfare in the South Indian fisheries sector”, by Robert Jensen. To be published in the Quarterly Journal of Economics, August 2007. Copyright © The Economist Newspaper Limited 2007. http://www.economist.com/printedition/displayStory.cfm?story_id=9149142&fsrc=RSS Posted on: Sunday, 28 January 2007, 00:00 CST Cell Phones Vital in Developing World By MALCOLM FOSTER HANOI, Vietnam - Nguyen Huu Truc’s trusty cell phone has revolutionized his small embroidery business - and his life. When he bought his first mobile phone in 1995, Vietnam had just one fixed-line phone for every 100 people, and cell phones were a pricey novelty. Communication was difficult, forcing Truc to make time-consuming trips to suppliers and buyers. But these days, Vietnam has 33 telephones per 100 people - and two-thirds of the phones are mobile. Now Truc can make calls on his cell phone from virtually anywhere in the country for about 10 cents a minute, saving him time and money and providing quicker access to information. “I cannot imagine what it would be like if I didn’t have my mobile phone for a day,” he says. “It’s no longer just something that only the rich can afford. Now, it’s a basic means of communication.” Truc’s experience provides a glimpse into how wireless communication is helping fuel Vietnam’s rapid growth - and transforming dozens of other developing nations from the ground up. Today, mobile phones are the primary form of telecommunication in most emerging economies, fulfilling much the same role as fixed-line phone networks did in facilitating growth in the United States and Europe after World War II. Some developing nations have even jumped out in front as mobile pioneers. In the Philippines, more than 4 million people use their cell phones as virtual wallets to buy things or transfer cash - services still rare in many wealthy countries, with few exceptions like Japan. As service charges and handset prices have plunged and coverage areas have expanded, cell phone subscriptions in the developing world have surged fivefold since 2000, to 1.4 billion at the end of 2005, according to the U.N. International Telecommunication Union. That’s nearly double the 800 million in advanced economies. Research shows that greater cell phone use can drive economic growth in emerging economies. Based on market research in China, India and the Philippines, consulting firm McKinsey & Co. found that raising wireless penetration by 10 percentage points can lead to an increase in gross domestic product of about 0.5 percent, or around $12 billion for an economy the size of China. “There’s enormous entrepreneurship and creativity worldwide, and through mobile phones you’re providing people with the tools - rather than aid - to earn a living,” says Leonard Waverman, a London Business School professor. In a separate study of 92 countries, Waverman had findings similar to McKinsey’s report. “It’s not a magic bullet, but it’s a vital tool,” says Waverman, whose research was partly funded by British mobile carrier Vodafone Group PLC. By bouncing signals off base stations, relay towers and satellites instead of over copper wires strung to villages and homes, cell phones can hurdle mountains. Mobile phones are not hampered by illiteracy - which is a barrier to computer use - giving millions new opportunities to exchange information, make money and conduct business. In India, fishermen call ahead to ports to see where they will get the best deal on their catch. Kenyan farmers check crop prices on a service offered by local provider Safaricom. In South Africa, cell phones serve as a virtual office for carpenters, painters and other laborers who post their numbers on handwritten signs advertising their skills. The Philippines has become a global leader in mobile commerce. Since 2000, Smart Communications Inc., the country’s largest carrier, has allowed subscribers in its Smart Money program to hold limited amounts of cash in electronic wallets linked to their mobile accounts. Using their cell phones, members can withdraw cash from their bank accounts, pay for goods and services and transfer money and airtime credit. The phone records all transactions. Overseas Filipinos are even using this service to send money home. While the system is designed with work with financial institutions, subscribers don’t need a bank account. “If your son or daughter is away at school and needs money, this is an easy way to send it to them,” says Ramon Isberto, a Smart spokesman. This kind of application holds promise for the millions in developing countries who have no bank accounts and for whom transferring money can be difficult or risky. Wizzit, a South African-based company targeting customers without bank accounts, has been offering cell phone-based financial services since 2005. Vodafone, which is investing heavily in Africa, is partnering with Kenyan affiliate Safaricom and the Commercial Bank of Africa to soon launch M-Pesa, a mobile financial service that allows users to send and receive cash and perform other transactions. “Financial institutions are realizing that the only way to reach new customers is through mobile networks,” says Nick Hughes, head of the mobile payment team at Vodafone. Expanding mobile networks also brings other economic benefits, experts say. It lures more foreign investment, gives families better access to health and educational information and provides governments with more revenue from licenses and taxes. Wireless technology has emerged at a fortuitous time for carriers expanding in developing countries because it is so much cheaper and easier to build than fixed-line networks. Rugged, sprawling Afghanistan, for example, now has 2 million cell phone subscribers and only 20,000 fixed-line phones. “They can leapfrog the technology,” says David Knapp, general director of Motorola Vietnam. In Vietnam, where the economy is growing 8 percent a year, the communist government has spent heavily to expand coverage to all 64 provinces. “The more people who have cell phones, the more the economy will grow, and vice versa,” says Bui Quoc Viet, a spokesman for the state-run Vietnam Post & Telecommunications Corp., the country’s largest telecom company. The government has also promoted competition: Vietnam now has six mobile carriers, two with foreign partners. The development has driven down service charges, a key factor in the tripling of cell phone subscribers over the past two years to 18 million. Mobile phones provide a good way for the younger generation to seek new business opportunities and cash in on Vietnam’s move toward a market economy, says Paul Ruppert, managing director of consultancy Global Point View LLC, who has extensive experience in Asia. “It’s all micro-activity - tailors, small repair shops, textile producers, grocery stores,” Ruppert says. “Even though they’re small, they’re allowed to get an idea of the market via the cell phone.” Text messaging, or SMS, is another application that’s particularly popular in Asian nations like Thailand, Vietnam and the Philippines. It’s considered a cheap, unobtrusive way to stay in touch with friends, connect to the Internet and conduct business. “It’s a good way to save costs, but more importantly I can use SMS services as evidence for my business transactions,” says Truc, the embroidery business owner. Carriers have adapted to the needs of poorer customers by selling prepaid airtime cards, often for as little as 35 cents per card. This eliminates the need for a contract, credit history check or even an address. Once you register for a phone number and buy an airtime card, you’re in business. Handset makers, meanwhile, are offering ultra-cheap phones. Motorola Inc., under the GSM Association’s emerging market handset program, has produced cell phones with a wholesale price of less than $30. Retail prices vary depending on taxes and local market conditions. But even those phones are still too expensive for many who live on one or two dollars a day. That’s given rise to communal phone use and a cottage industry made up of people who resell phone service for a living. Both are typified in Bangladesh’s “Palli Phone,” or village phone, program. A quarter million “phone ladies” buy mobile phones on credit from Grameen Bank, winner of the 2006 Nobel Peace Prize along with its founder Muhammad Yunus, providing wireless communication for the community and themselves with a livelihood. Hasina Banu, who lives in a remote village in northern Bangladesh, bought a phone from Grameen for about $110 and each week pays back about $2.50. She now earns about $25 a month from the phone and plans to use that money to open a small grocery store. But even in rural Bangladesh she says competition is heating up among other “Palli Phone” sellers. “Now I get less customers,” Banu says. “But I am happy that now I have some money with (which) I can expand my business.” ** Associated Press Writers Tran Van Minh in Hanoi, Vietnam, and Julhas Alam in Dhaka, Bangladesh, contributed to this report. Source: Associated Press/AP Online http://www.redorbit.com/news/technology/817099/cell_phones_vital_in_developing_world/index.html ____________________________________________________________________________________You snooze, you lose. Get messages ASAP with AutoCheck in the all-new Yahoo! Mail Beta. http://advision.webevents.yahoo.com/mailbeta/newmail_html.html
