Three years ago, a hospital in Nigeria’s southern state of Ogun asked a local startup company called Paga for help rethinking its approach to revenue collection. In the past, patients made cash payments to the hospital’s administrative staff, a process complicated by Nigeria’s high inflation and endemic corruption. Paga’s solution — switching the hospital to mobile payments — eliminated the need for cash and allowed transactions to be recorded immediately, locking in the price. The new system quickly proved remarkably effective, as the hospital’s revenue rose six-fold in just two months.
The result owed much to a long-awaited technological change underway across Africa: the arrival of fast Internet via undersea fiber-optic cables. Paga, launched in 2009 and now employing over 200, along with a field network of 10,500 agents and more than twice as many access points as Nigeria’s formal banks, was just one of many African startups to seize on this emergent opportunity. Many of its employees were first hired for entry-level roles — having emerged from school with skills poorly applicable to high-tech industries. As Paga has grown, it has trained scores of employees on the job, preparing them for new jobs in more senior roles.
In this approach, too, Paga is hardly alone, say two economists from Columbia and Harvard universities in a recent working paper. They have documented the economic gains from the spread of broadband technology and found that in Africa, the most significant portion of those benefits has gone to the less educated.
This finding adds an important nuance to the debate over the impact of new technology on economic development, explains one of the authors, Jonas Hjort, an assistant professor at Columbia Business School. And it comes at a time when many in the developed world have begun to fret about technology’s role in job loss and wage stagnation. “We have clear evidence of the positive impact of high-speed Internet on job outcomes in Africa,” he says. “And it’s the people with lower levels of education who receive the greatest benefit.”
To date, economists have often described high-tech innovation as one of the key factors contributing to growing inequality in rich and developing countries alike — listing it right alongside globalization and free trade as a culprit. Their reasoning has focused on advanced economies, where the evidence suggests technological change has rendered jobs obsolete through automation and outsourcing faster than they can be replaced.
But when Hjort and his coauthor, Harvard economist Jonas Poulsen, studied what happened after fiber-optic Internet arrived in Africa, they discovered that it affected the local workforce in unexpected ways. Rather than widening the employment gap between high-skilled and low-skilled workers, new Internet infrastructure has, on average, actually driven down inequality across the fourteen African states they examined. What’s more, it helped unskilled workers climb the economic ladder and raised the productivity of firms, even allowing some to reach export markets.
The study’s specific results are twofold. First, Hjort and Poulsen confirmed that faster Internet fueled job creation on the continent. While the boost provided by broadband Internet to countries’ GDP growth — as much as 1.4 percentage points for every 10-percent increase in broadband penetration — has been previously documented, the study provides the first causal evidence of job creation through the expansion of broadband Internet in the developing world. Those jobs, further, were primarily in higher-skill occupations, which boosted incomes.
Second, and more crucial, most of the newly created positions in the study’s sample went to less educated workers, even if they required on-the-job training to perform their new duties, likely as a result of Africa’s unique labor market.
African businesses waited longer for fast Internet than firms almost anywhere else in the world. In 2000, Africa as a whole had less international Internet bandwidth than the tiny country of Luxembourg. International web traffic traveled primarily by satellite, so slowly and expensively that things like online banking and video calls were virtually impossible. It wasn’t until 2001 that the first of the submarine cables that form the backbone of the Internet reached African shores, in Senegal. Even then access remained limited to a small geographic range.
Starting in 2009, however, the web of undersea cables began to grow more rapidly — linking Africa to Europe, snaking along the bottom of the Suez Canal, branching off toward the Middle East and Asia, and eventually encircling the continent in a giant fiber-optic ring more than 20,000 miles long. The cables come ashore in a chain of coastal cities, from Dakar to Cape Town to Mombasa, where throngs of entrepreneurial telecom companies established new ground networks, piping faster Internet connections further inland.
The result has been an ongoing digital boom. Between 2009 and 2015, Internet bandwidth grew twenty-fold, according to the Internet Society, a research organization. GSMA, a global trade group, reports that the expanding mobile broadband network alone supported an estimated 3.8 million jobs across the continent in 2015. And as African businesses gained easier access to information, at faster speeds and significantly lower costs, they picked up momentum. According to one recent survey, 80 percent of small and medium-sized businesses in Ghana, Kenya, Senegal, and Nigeria expect fast Internet to spur their growth, and 70 percent expect to hire new workers as a result.
In their study, Hjort and Poulsen probed the mechanisms through which these changes have taken hold. They matched data on Internet speeds in cities across the continent with a wide range of other variables, including firm productivity, income levels, and employment status, especially for people with different levels of education. The data allowed them to compare the experience of highly educated workers to that of those with primary-school education or less. It was this latter group, the authors found, who were the greatest beneficiaries of the boom.
The employment rate for workers in areas covered by new inland networks rose by between 1.9 and 4 percent after the arrival of submarine cables, a rise driven to a significant degree by people who never finished secondary school.
This has been due in part to a livelier business climate, Hjort and Poulsen explain. With the arrival of broadband Internet, Ethiopian manufacturers expanded production. Firms in Ghana, Nigeria, and five other countries in the sample reached more customers overseas and grew their international sales. And South Africa saw increased growth in startups in technology, retail, and agriculture, as well as expanding employment in those sectors.
The nature of Africa’s job markets likely assisted broadband Internet in driving down inequality on the continent, the authors speculate. For expanding firms in countries like Kenya and Liberia, the domestic labor pool makes it harder to find qualified people than to “upgrade” the skills of current employees, Hjort explains. Faster Internet might then improve incentives across the board to better educate the workforce. That finding “tells us something important about the impact of the Internet on people with lower education,” Hjort says — not just whether they’re able to secure employment (which by itself is a factor of first-order importance in Africa), but also whether they are afforded a more secure foothold on the economic ladder.
In this sense, South Africa provided the exception that proved the rule. The workers who benefited most from fast Internet there were those who had completed secondary school — the middle rather than the bottom of the skills distribution. But South Africa was also the richest country in the study’s sample and the one with the best educated labor force. It makes sense then, Hjort says, that in terms of fast Internet’s effects on inequality, South Africa fell “halfway between the rich countries and the rest of the continent.”
For all its recent progress, Africa’s iGDP — a measure of how much the Internet contributes to the economy — still stands at just one percent, far lower than other developing economies. But a recent McKinsey analysis suggests that it could reach 5 percent in the next decade, putting it on par with Sweden and Taiwan. If mobile broadband achieves scale and reach, this measure could climb as high as 10 percent. Firms in sectors like financial services, retail, and agriculture could see productivity gains of between $148 and $318 billion by 2025, which would certainly translate into further job creation.
The peculiarities of Africa’s labor force — both the youngest and least trained in the world — mean that the forces at play today, driving growth and declining inequality, could persist for years to come.
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About the researcher
Professor Hjort teaches Managerial Economics and a Global Immersion course on East Africa. His research focuses on firms, organizations and workers in developing countries...Read more.