Why #DataMustFall

Finweek English Edition - - Opinion - By Jo­han Fourie ed­i­to­rial@fin­week.co.za Jo­han Fourie is as­so­ciate pro­fes­sor in eco­nom­ics at Stel­len­bosch Univer­sity.

Re­search has shown that em­ploy­ment rates in an area rise when the pop­u­la­tion can ac­cess the in­ter­net cheaply.

both the In­de­pen­dent Com­mu­ni­ca­tions Au­thor­ity of South Africa (Icasa) and the Com­pe­ti­tion Com­mis­sion are con­cerned about South Africa’s high data costs. And it is about time.

Of the 48 African coun­tries ranked by Re­searchICTAfrica.net for the first quar­ter of 2017, SA was the 22nd most ex­pen­sive in which to buy 1GB data. All of SA’s main com­peti­tors on the con­ti­nent, in­clud­ing Egypt (first), Ghana (fourth), Nige­ria (eighth) and Kenya (15th) ranked higher. Our poor­est neigh­bour – Mozam­bique – ranked sec­ond, with $2.27 for 1GB in con­trast to our cost of $7.49.

Con­sumers have known this for some time. Last year, ra­dio per­son­al­ity Thabo “Tbo Touch” Molefe started a Twit­ter cam­paign – #DataMustFall – that went vi­ral. He was sub­se­quently in­vited to ad­dress the par­lia­men­tary port­fo­lio com­mit­tee on telecom­mu­ni­ca­tions and postal ser­vices about the high cost of broad­band in SA. Said Molefe at the time: “The power of data gives ac­cess to ed­u­ca­tion, men­tor­ship, skills train­ing, fi­nan­cial as­sis­tance, job search­ing and re­cruiters.”

Molefe is cor­rect. There is now am­ple ev­i­dence glob­ally to show that in­ter­net ac­cess at af­ford­able prices is cor­re­lated to bet­ter job mar­ket op­por­tu­ni­ties. This is es­pe­cially true in SA, where the em­ploy­ment rate is seven per­cent­age points higher in ar­eas con­nected to the in­ter­net than those with no con­nec­tion. The prob­lem is that econ­o­mists have strug­gled to show that this re­la­tion­ship is causal: ar­eas with in­ter­net con­nec­tiv­ity usu­ally have all the other ameni­ties that are associ­ated with bet­ter job mar­ket prospects. It then be­comes an em­pir­i­cal ques­tion of how to sep­a­rate the ef­fect of in­ter­net con­nec­tiv­ity from things like ed­u­ca­tion, in­fra­struc­ture and wealth that also af­fect job mar­ket prospects.

A new NBER work­ing pa­per by Jonas Hjort of Columbia Univer­sity and Jonas Poulsen of Har­vard Univer­sity of­fers an an­swer. The two au­thors ex­ploit the grad­ual ar­rival of 10 sub­ma­rine in­ter­net ca­bles from Europe in cities on Africa’s coast in the late 2000s and early 2010s to iden­tify whether the higher speeds and cheaper data costs cre­ated new jobs.

First, they show that the ar­rival of the ca­bles did, in fact, in­crease av­er­age in­ter­net speeds and the ex­pan­sion of the network. They then com­pare the changes in em­ploy­ment pat­terns in cities and towns with a big­ger ver­sus a smaller in­crease in ac­cess to fast in­ter­net. “In each of three dif­fer­ent datasets that to­gether cover 12 African coun­tries with a com­bined pop­u­la­tion of roughly half a bil­lion peo­ple, we find a sig­nif­i­cant rel­a­tive in­crease – of 4.2% to 10% − in the em­ploy­ment rate in con­nected ar­eas when fast in­ter­net be­comes avail­able.”

Just as Molefe said: faster and cheaper in­ter­net cre­ates jobs!

As with any eco­nomic change, there are both win­ners and losers. Hjort and Poulsen show that the faster, cheaper in­ter­net re­duces em­ploy­ment in un­skilled jobs, but “en­ables a big­ger in­crease in em­ploy­ment in higher-skill oc­cu­pa­tions”. In other words, just as au­to­ma­tion does in the de­vel­oped world, faster in­ter­net in Africa re­sults in a change in the types of skills re­quired. One might ex­pect the con­se­quence to be deeper lev­els of in­equal­ity. Not true, say the au­thors, es­pe­cially in SA. Faster, cheaper in­ter­net en­ables South African work­ers of low and in­ter­me­di­ate ed­u­ca­tional at­tain­ment “to shift into higher-skill jobs to a greater ex­tent than highly ed­u­cated work­ers”. The net ef­fect is that fast in­ter­net low­ers em­ploy­ment in­equal­ity across the ed­u­ca­tional at­tain­ment range in SA.

So what types of jobs were cre­ated by the ar­rival of the sub­ma­rine ca­bles? The au­thors find that “new and new types” of jobs were cre­ated via the “ex­ten­sive mar­gin” (mean­ing: new users) and “in­ten­sive mar­gin” (mean­ing: dif­fer­ent use of the in­ter­net by ex­ist­ing users).

Us­ing de­tailed firm level data, they show that, in SA, new firms are es­tab­lished, no­tably in sec­tors that ben­e­fit from in­for­ma­tion and com­mu­ni­ca­tion tech­nol­ogy (ICT). In Ethiopia, ex­ist­ing firms im­prove their pro­duc­tiv­ity. In other African coun­tries like Ghana, Kenya and Nige­ria, firms with ac­cess to the faster, cheaper in­ter­net ex­port much more, per­haps, the au­thors sug­gest, be­cause “web­site com­mu­ni­ca­tion with clients be­come eas­ier”.

Tech­nol­ogy is not just a threat to job cre­ation – it is also an op­por­tu­nity. But as the #DataMustFall move­ment has shown, fast in­ter­net ac­cess re­mains a mi­rage for most South Africans. That is hope­fully chang­ing. Non­prof­its, like Project Isizwe, want to fa­cil­i­tate the roll-out of free WiFi in public spa­ces in low-in­come com­mu­ni­ties, as it is al­ready do­ing in Tsh­wane. Sim­i­lar ini­tia­tives are fol­low­ing in SA’s other met­ros. Both Google and Face­book are de­sign­ing new tech­nolo­gies that could rev­o­lu­tionise con­nec­tiv­ity in ru­ral ar­eas.

Con­sumers are right­fully an­gry about the high cost of data in the coun­try. Yet it is lo­cal en­trepreneurs and their em­ploy­ees who should be most up­set. As Hjort and Poulsen show, cheap data will cre­ate more firms and more, bet­ter-pay­ing jobs. “Em­ploy­ment re­sponses of the mag­ni­tude we doc­u­ment in­di­cate that build­ing fast in­ter­net in­fra­struc­ture may be among the cur­rently fea­si­ble pol­icy op­tions with the great­est em­ploy­mentcre­at­ing po­ten­tial in Africa.”

Fast and cheap in­ter­net is prob­a­bly the sim­plest way to al­le­vi­ate SA’s high un­em­ploy­ment co­nun­drum. Pol­i­cy­mak­ers should take note. ■

Jonas Hjort As­sis­tant pro­fes­sor of eco­nom­ics at Columbia Busi­ness School

Jonas Poulsen Eco­nom­ics lec­turer at Har­vard Univer­sity

Tbo Touch Ra­dio per­son­al­ity

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