A three-year research programme on relationships between politicians, businesses and competition has contributed to a major policy change in Zambia’s mobile phone sector: reducing the price of licences for access to the international gateway that allows international mobile calls. This has removed one of the barriers to Zambian businesses as they seek to compete in a global market and is expected to have significant knock-on benefits across the economy. New research by Deloitte shows that a 10% increase in mobile phone penetration leads to a 1.2% increase in GDP growth in developing countries.
This example also demonstrates the leverage that relatively small, research-based outputs can exert on private sector policy reforms. Reforms that unleash the power of the private sector to deliver services can generate enormous economic benefits. Given the vast economic power of private sector activity, and its impact on development, this is now a key area for ODI.
For three years, ODI’s Business and Development programme has examined how relationships between politicians and business people affect competition, and how competition, in turn, affects markets. With funding from the UK Department for International Development, the programme examined the sugar, cement and beer industries and mobile phone services in Bangladesh, Ghana, Kenya, Viet Nam and Zambia. It showed that the way markets were organised and managed had an important effect on their performance.
For example, the research revealed that the Zambian mobiles market was weaker than every other market examined, and far weaker than such markets in other African countries. By showing how the mobiles market was managed differently – and performed much better – in the other countries, the research highlighted the enormous economic benefits that reform could generate for Zambia.
One key policy difference was in the management of the international gateway.
In Zambia, until recently, the state owned mobile services provider – Zamtel – charged a very high price for licences to access the gateway: $18 million in 2008 – beyond the reach of most private mobile operators. This was the highest price in Eastern and Southern Africa, with international gateway fees pegged at $214,000 in Kenya, for example, and just $50,000 in Uganda.
This was, in effect, a state ‘monopoly’ over the international gateway. It drove up prices and distorted the whole mobiles market, increasing the costs of doing business in the country.
Not surprisingly, this high price was cited as a major barrier to entry into Zambia’s telecom sector, and compelled the country’s two mobile service providers, Zain and MTN, to increase the price of calls. In 2007, the cost of making a mobile call in Zambia was more than double the average for sub-Saharan Africa. While prices fell in 2008, they remained almost twice as high as, for example, prices in Ghana.
ODI researchers Karen Ellis and Rohit Singh shared the findings of the research at a workshop held in Lusaka in February 2010, which was reported in the Zambian media. When the research report was launched at a public meeting in London in July, Chilufya Sampa, Director for Mergers and Monopolies at the Zambian Competition Commission which assisted with the research, welcomed the report, saying: ‘Many times it becomes very difficult to actually show the benefits. Of course, a report like this makes it much easier to advocate to the government. With our persistence, we kept going to the government and highlighting the benefits of competition, showing them the statistics as such a report has done. And eventually we have gotten through to the government. And the fee for the international gateway has fallen ...’
In June 2010, The Zambian government reduced its international gateway license fee to $350,000 and awarded licences to Zain and MTN.
In the same month, Mulenga Chisanga, Acting Director of Economic Regulation and Licensing at the Zambia Information Communications Technology Authority (ZICTA) was quoted as saying:
‘… the results have already been seen. Not too long ago MTN reduced their fees for international voice calls to between 40 per cent and 80 per cent. Zain also announced a huge price reduction to the maximum of about 70 per cent. So already we’ve seen that the Zambian consumers have started benefiting ... I think it’s a huge benefit to the Zambian consumers and also to the business community.’
Reduced prices should also permit increased penetration of mobile services as more people are able to afford them, and this strengthens incentives for wider rollout. There is extensive evidence on the beneficial development impacts of increased access to mobile services, which improve the functioning of markets, reduce transactions costs, increase productivity, create jobs and improve access to financial services.
While it is always hard to quantify the precise impact of a piece of research on a policy decision, and there were clearly many other significant influences at play in this case, the feedback from the Zambian Competition Commission suggests that the ODI research did, alongside other evidence, play a role – particularly by showing so clearly that other countries were doing better. This kind of evidence can help to overcome vested interests who might be opposed to reform, by helping to build a strong constituency of supporters and helping to overcome the political economy barriers to growth reforms.