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​Quenching the Thirst for Innovation: Are subsidies just a drop in the sea?

Mariana Dahan's picture
As the world is rapidly moving towards recasting development financing to meet the pressing needs of the post-2015 development agenda, the question of subsidies’ efficiency comes to light (again).
 
Source: www.ingimage.com

Should subsidies still be supported by countries, with donor funding, to help maintaining and streamlining service delivery in critical sectors, such as agriculture, energy and telecommunications? Debates have been ongoing for more than a decade.
 
But a recently published research work points out that well-targeted subsidies in the early stages of mobile technologies diffusion can play a determinant role in their massive adoption, helping to overcome initial confidence barriers, leveraging economies of scale, and, in the longer-term, triggering macroeconomic positive feedback mechanisms.

Evidence shows that information and communications technologies (ICT)  especially mobile telecommunications services  can lead to sustained economic growth and human development. Mobile telecommunications, without any doubt, have triggered many positive changes and impact in the developing world. They are by far the leading area of growth in the ICT sector. Because of this central role, mobile technologies are increasingly used as a transformational tool to foster economic growth, accelerate knowledge transfer, develop local capacities, raise productivity, and alleviate poverty in a variety of sectors.

Supporting the ICT sector in Somalia

Rachel Firestone's picture
 
Photo: Cilmi Waare/Radio Mogadishu

Somalia’s ICT sector – particularly mobile communications – is already one of the brightest spots in its economy. It could soon reach a tipping point where market competition, equitable distribution and demand-driven efficiency can grow exponentially and transform operating environments for both government and individual citizens.
 
Despite, or perhaps because of, the lack of a public sector presence in a 20-year civil war, private, unlicensed mobile companies, using satellite for international communications, have emerged to meet the high demand for communications, especially with the large Somali diaspora. In terms of mobile penetration rates, Somalia is a leader in the region, with higher rates and lower prices than neighboring Djibouti and Ethiopia, which both enjoy higher levels of stability but retain state-owned monopolies.
 
However, the current lack of a legal framework for both the ICT and financial sectors is a source of risk potentially cramping the Somali economy. Critical areas – including remittances, mobile banking and mobile-money services and mobile services – are influenced and, in some cases, controlled by large companies. The market structure is still evolving, with de facto consolidation around larger companies, resulting from mergers and alliances. Although consolidation can bring some consumer benefits and help in achieving economies of scale, the future licensing framework will need to take into account competition policy considerations and enforce interconnection.
 
An important opportunity for the passing of regulation for the ICT sector, in the form of Somalia’s Communications Act, is now at hand.