Message to governments seeking solutions to poverty: Get out of the way!

London: A new report – to be highlighted on Newsnight on 8 January 2007 – shows what happens when governments get out of the way and enable entrepreneurs to flourish. The Cell Phone Revolution in Kenya released today by International Policy Network, a London-based development charity, and Istituto Bruno Leoni, a Milan -based think tank, shows what happened when the Kenyan government allowed private companies to compete against the government-owned telecommunications company.

Until the late 1990s, the telecommunications industry in Kenya was dominated by the state-owned monopoly, which was deeply infected with laziness and corruption. A large proportion of employees would show up for work, leave their coat on their chair and then depart again for their “real” jobs. As a result, very few people had telephone connections and the lines were in a very poor condition. By 1993, fewer than 200,000 people – out of a population of over 30 million – had telephone connections: that’s fewer than 1 in 100.

In 1998, the Kenyan government created the Communications Commission of Kenya (CCK), which supported the growth of private companies in providing telecommunications services. Private mobile companies quickly developed their networks -- from 15,000 subscribers in 1999 to 3.4 million in 2004. Today, at least 1 in 3 adult Kenyans have a mobile phone.

The introduction of mobile phones in Kenya had a truly profound effect. People who previously had no access to a landline – and could not wait for the government-owned monopoly to install one, a process that often would take years and involve large bribes – suddenly were able to buy a mobile phone.

Perhaps the most dramatic effect was on entrepreneurs, who were suddenly much better able to do business. The authors of the study, Kenyan analysts June Arunga and Billy Kohara, interviewed the owners of small businesses, who were able to start and grow their businesses because their mobiles allowed them to communicate instantly with both customers and suppliers. One of the interviewees, the owner of a small minibus company, Mr Mica Mbugua, 72, said, “This cell phone has certainly been a factor in my business growth. Things go faster nowadays – communication is efficient and quick.” The result was nothing short of a revolution.

The authors show that the rapid expansion in access to mobile telephony occurred because CCK did not interfere with private companies or the mobile phone market. However, the authors warn that recent Kenyan government actions that interfered with the independence of CCK may damage the growing mobile phone market – already foreign businesses have become wary of investing more money and resources in the Kenyan mobile market.

The study also has broader implications, as co-author June Arunga notes:
“Too often, we are told that African governments need more ‘aid’. Our report demonstrates that this is utterly misguided because it is our governments which are preventing economic development through heavy-handed regulation. We show that private markets can and will develop when the government steps out of the way and allows its citizens to the ability to engage in entrepreneurial activity,” she said.

The Cell Phone Revolution in Kenya by June Arunga and Billy Kohara, Published 8 January 2007 by International Policy Network and Istituto Bruno Leoni, a think tank based in Milan, Italy.