Kenya’s abolition on handset taxes pays off, new GSMA report shows

By James Ratemo in Cape Town, South Africa

Kenya’s abolition of the 16 per cent general sales tax on mobile handsets in 2009 has resulted in handset purchases increasing by more than 200 per cent, a new GSMA report shows.

With mobile operators contributing a third more in taxes in 2011 than in 2009, mobile generated around 8 per cent of Kenya’s GDP. The report calls on African governments to allocate spectrum and lower taxes to enable mobile network expansion across Africa, generating major economic and social growth.

The GSMA report released on Wednesday at the ongoing Africom conference in Cape Town, South Africa says Africa is now the world’s second largest mobile market by connections after Asia, and the fastest growing mobile market in the world.

Dubbed Africa Mobile Observatory 2011 report, the survey reveals Africa achieved this milestone as mobile penetration reached 649 million connections in the fourth quarter of 2011 (having first exceeded 50 per cent mobile penetration in 2010).

By 2015, next-generation LTE networks are predicted to reach 500,000 connections in Kenya, 1.1 million connections in Nigeria and 2.5 million connections in South Africa. Kenya, says the report , is at the forefront of Mobile Money Transfers and m-banking, with 8.5 million users.

For example, Safaricom in partnership with The Equity Bank in Kenya provides customers with an M-KESHO account allowing them to save money, buy insurance and arrange micro-finance loans. “The mobile industry in Africa is booming and a catalyst for immense growth, but there is scope for far greater development,” said Peter Lyons, Director of Spectrum Policy, Africa and Middle East, GSMA.
“To take full advantage of its potential, African countries need to both allocate more spectrum for the provision of Mobile Broadband services, as well as introduce tax cuts for the industry. By doing so, they will increase consumption of mobile services, thereby boosting their economic and social development.”

“By working in partnership, mobile operators and African governments can continue the remarkable growth story of the African mobile industry. The benefits that mobile services have already brought to hundreds of millions of Africans can be extended to those who have yet to access communication technology. By so doing, the African continent can continue to bring not only communication services, but also banking, health and education to its people and drive an increase in the economic wealth and development of the region,” Lyons said. However, the Observatory reveals that huge untapped potential remains with 36 per cent of Africans within the 25 largest African mobile markets currently have no access to mobile services.
Projections indicate that reaching 100 per cent mobile penetration could add over $35 billion in aggregate GDP – an increase of 2 per cent – but only if governments and operators work together to bring mobile communication to the entire African population. The mobile ecosystem in Africa currently generates approximately US$56 billion or 3.5 per cent of total GDP, with mobile operators alone contributing US$49 billion. In recent studies by the World Bank and others, it was shown that there is a direct relationship between mobile penetration and GDP. That in developing countries, for every 10 per cent increase in mobile penetration there is a 0.81 per cent point increase in a country’s GDP. Over the past five years, the number of subscribers across Africa has grown by almost 20 per cent each year and will reach more than 735 million by the end of 2012. Ninety-six per cent of subscriptions are pre-paid with voice services currently dominating, although uptake of data services is increasing steadily. There are currently six live HSPA+ networks across Africa, with a seventh deployment planned in the near future. The mobile industry contributes US$15 billion in government revenues and is a significant contributor to employment in Africa. In 2010 alone, approximately 5.4 million people were employed directly and indirectly in the mobile ecosystem. African countries have currently allocated considerably less spectrum to mobile services than Europe, the Americas and Asia, which is inhibiting connectivity to large swathes of rural Africa. Sufficient spectrum should be provided for Mobile Broadband services through 3G HSPA and LTE technologies, to enable the mobile industry to ‘connect the unconnected’ and continue to act as a catalyst for growth. Furthermore, taxes imposed on the mobile industry in many African states should be reduced to drive an increase in mobile penetration, as well as, in many cases, ultimately increase the total tax intake for governments.


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