Investors should look at mobile penetration not only as an infrastructural asset but also as a predictor of political stability.
The importance of the rapid growth of the mobile telecommunications sector in emerging markets is a widely appreciated phenomenon in foreign investment and development circles. Communication through mobile devices makes it easier to transfer knowledge and to bring goods to market. Exciting new advances like mobile banking may allow for technological leapfrogging in parts of the world where challenges in traditional infrastructure have held back growth. Short-term business benefits have been well documented, but long-term societal and political impacts are also beginning to take shape.
In 2009, a UN white paper on Telecommunications and Industrial Development came to the interesting conclusion, “it is telecommunications infrastructure that causes manufacturing growth and not the other way around.” Since that study, mobile-cellular subscriptions in the developing world are nearly on track to double from 49.1 subscriptions per 100 inhabitants in 2009 to 89.4 in 2013. Aside from direct mobile industry growth, what is the impact of this unprecedented infrastructural development on political risk faced by investors?
To understand the mechanisms behind this phenomenon, take the example of Nigeria, where an otherwise robust economy was threatened by political instability. An open-source software platform called FrontlineSMS launched in Nigeria in 2007 to crowd source election-monitoring. Since then it has grown into a subscription-based alert system that keeps locals informed of security risks where there had previously been an information vacuum. It is also an aggregator tool for businesses and government officials to collect data on emerging threats and instability. Mobile penetration in Nigeria is expected to reach 82% by 2015.
Mobile devices that begin as a business communication tool can be leveraged to provide stabilizing externalities in volatile emerging markets. When evaluating the political risks of market entry, telecommunications network development should be high on the list of factors to consider. The industry will continue to grow enormously, especially as the price of devices like smartphones and tablets continue to fall to affordable levels.
The next potential proving ground for this theory will be in Myanmar, where a population of 60 million people has a mobile penetration rate of less than 10%. The government of Myanmar has set an extremely ambitious goal of reaching 80% mobile penetration by 2015. Even if that benchmark is not reached, the country’s mobile telecoms industry is still poised for unprecedented growth. Some have cautioned against investing in the country because of potential instability; however, the high priority placed on mobile penetration growth acknowledges one of the most important predictive factors in political stabilization.