July 9, 2005Economy

It’s the mobile phone, stupid

Ringing in economic growth

This is an archived blog post from The Acorn.

The Economist’s leader answers Arundhati Roy’s polemic against mobile phones.

Imagine a magical device that could boost entrepreneurship and economic activity, provide an alternative to bad roads and unreliable postal services, widen farmers’ access to markets, and allow swift and secure transfers of money. Now stop imagining: the device in question is the mobile phone.

But rather than treating mobile phones as an important tool for development, many governments see them instead as an opportunity to impose hefty taxes and milk a fast-growing industry for all it is worth. In both Turkey and Bangladesh, for example, anyone buying a new mobile phone must pay a $15 connection tax. Many countries slap large import duties on handsets and impose special taxes on subscribers and operators. In many cases, these taxes double the cost of acquiring a mobile phone. As handset prices fall, such taxes will become an ever more prominent obstacle to wider adoption.

Governments should reduce these taxes at once. Indeed, by doing so, they can both speed adoption and increase revenues. High import tariffs discourage legal imports of phones and encourage people to buy them on the black market instead. Reducing such tariffs would boost revenues as legal imports increased. Lower taxes on phone calls would encourage adoption and increase the tax base. It can be done: both Mauritius and India have recently reduced their taxes and tariffs.

Mobile phones have created more entrepreneurs in Africa in the past five years than anything else, says the boss of one pan-African operator. Promoting their spread requires no aid payments or charity handouts: handset-makers, acting in their own interest, are ready to produce low-cost phones for what they now regard as a promising new market. Mobile operators across the developing world would love to sign up millions of new customers. But if developing countries are to realise the full social and economic benefits of mobile phones, governments must ensure that their policies help, rather than hinder, the wider adoption of this miraculous technology. [The Economist]

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