Global internet inclusion could lift 500 million people out of poverty

16 December 2016 Consultancy.uk

Global internet inclusion could lift 500 million out of poverty and increase global economic activity by $6.7 trillion, according to a report. Connecting the 4.1 billion people currently outside the digital economy will be no easy feat however, as prohibitive costs and barriers from a range of factors would need to be overcome.

The internet provides, among others, a means for people to easily access services, find information and educational resources and stay in contact with work and their social networks – although misinformation is a growing problem. The rapid expansion of the internet within Western economies has brought about wide ranging transformations of services, as well as boosting economic activity across the board. According to an analysis by BCG conducted last year, the internet economy of the G-20 is now worth $4.2 trillion.

In a new report from Strategy&, commissioned by social giant Facebook, titled ‘Connecting the World: Ten mechanisms for global inclusion’, the management consulting firm considers the value added improved internet penetration would have on economies globally and wealth.  

Universal internet access adds to GDP

Global internet penetration

At the start of 2016, around 3.2 billion people, or 44% of the world’s population, had access to the internet. On the other side of the table however, stand up to 4.1 billion people around the world – 56% of the world’s population – who are not online. The economic potential lost represents, according to Strategy&’s report, a value of $6.7 trillion by 2020.

For China and India this would mean combined incremental GDP growth by 2020 of over $2 trillion. Across the board, global internet inclusion could bring 7% of the world’s population above absolute poverty levels – in effect providing 500 million of the world’s poorest people new opportunities to grow and engage with the world.

Affordability main barrier to internet uptake

Internet affordability

The expansion of global internet access has slowed in recent years. In a bid to understand the reasons why expansion has slowed down, among others, the consultancy firm considered the basic requirements to be considered ‘online’, which is defined as access to 500 megabytes of data per month. The reasons for the low data allowance is that it represents a reasonable standard for access to the most fundamental types of content, services, education and news, and that it is a starting point to open up demand for more data as the markets develop.

As it stands the online population in developing economies remains relatively low. In 2014, it stood at 17% in South Asia and 19% in Sub-Saharan Africa, while the Middle East & North Africa too had relatively low levels of penetration, at around 38%.

The authors explored the kinds of barriers people in developing countries face with respect to accessing 500 megabytes per month. The top barrier, according to the analysis, is the cost. The consulting firm calculates that only 43% of the world would be able to afford the internet at current prices with 500 MB per month of data consumption. This level of data usage would make the internet affordable to only 17% of South Asia’s population and 11% of Sub-Saharan Africa’s population. 

 South Africa shows that lower prices get people online

The firm’s analysis of factors affecting uptake in 120 countries, highlights that price is one of the most significant drivers for internet usage. In South Africa for instance, a large reduction in price in 2009 led to an increase of users from 10% to almost 50% within three years. The key drivers were a price war among competitors, the introduction of the much more cost effective 3G network and the launch of a fibre optic cable service.

Supporting access

The cost reductions required to reach the level at which 80% of the population is able to afford the internet are significant in many countries. In Ethiopia for instance, a 98% reduction would be required, while in Nigeria, a reduction of 97% would be required. Many African developing countries would need to see reductions in costs in the order of more than 80%. Even in more developed countries, such as China, Brazil, Vietnam, Thailand, and Mexico, considerable cost reductions are required to reach a level at which the vast majority of its people is able to browse the internet relatively freely.

Mechanisms for reducing costs

To reach the level where the majority of people have affordable access to the internet, a combination of instruments that encourage operators to create cost effective services, as well as the kinds of local infrastructure required to service billions of people, are required. The report considers three key mechanisms to improve connectivity globally:

  1. Modernise networks: many developing countries currently rely heavily on 2G networks. These networks work relatively well for voice, however, they are notoriously poor providers of internet connectivity, operating at around 50 kb/s. Many of the newer internet carry technologies, 3G for instance, operates within frequency bands currently used by 2G operators – creating a barrier for upgrading to the more cost effective networks. Upgrading from 2G to 3G or 4G/LTE and leveraging existing spectrum bands dedicated to 2G (especially 900 Mhz) has the potential to reduce costs by 60%.

  2. Decentralise content distribution: reduces the cost of the last mile through decentralised content distribution networks that distribute pre-provisioned content offline through a series of high-speed networks (e.g., Wi-Fi) that provide end-users with coverage and capacity.

  3. Build more national and international internet: The third mechanism for reducing costs, cited by the advisory firm, is to provide developing countries with more efficient and more nationally based IxPs and access to international internet infrastructure. These provide the backbone of the internet and enable data to be exchanged nationally and regionally. Without such infrastructure, a typical data packet in Africa has to travel eight to 10 times further before it is received by a content server than a similar data packet in the US. More IxPs and content delivery networks will provide end-users with a better, more affordable experience that could bring the internet to another 170 million people.

“Internet access is a fundamental challenge of our time. The internet’s truly revolutionary potential will only be unleashed when the remaining 56% of the world’s population is also connected,” says Rawia Abdel Samad, a Beirut-based Director of Strategy& in the Middle East.

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