Boost global internet access to foster economic growth

26 October 2015 Consultancy.uk

Internet access is enjoyed by 2.7 billion people, bringing with it considerable economic benefits. These benefits are however, skewed towards the more developed countries and growth rates for internet access world-wide are slowing, research by McKinsey and Company shows. According to the firm, focus should be put on reducing infrastructure costs, lowering the costs of inputs and enabling network sharing to open up internet access to more users.

The Internet, in the decades since its inception, has grown astronomically in any number of terms, with the number of people connected to the Internet now at around 2.7 billion. In 2010, the GDP contributed by the Internet and its wider ecosystem is estimated to have accounted for $1,672 billion of the global economy or an average of 2.9% of total GDP. The distribution of both Internet users and GDP benefit is however skewed towards wealthier regions, finds a report from McKinsey & Company titled ‘Creating the Next Wave of Economic Growth with Inclusive Internet’. 

The economic value generated annually from the Internet in developed countries is estimated at $1,488 per capita, while in developing countries this is just $119. The disparity in benefits is aggravated by the fact that the majority of the 4.2 billion people that are not connected are living in developing countries. In addition, fixed-line Broadband uptake remains something mostly enjoyed by wealthier countries.

Fixed-line broadband uptake

The benefits of wide spread internet proliferation are expected to be considerable. A 2009 World Bank study finds that for every 10% increase in the number of high-speed internet connections there is an additional 1.3% points in economic growth. The study further shows that the internet has the potential to transform agriculture, retail, healthcare, and other sectors in Africa through contributing $300 billion to GDP by 2025 compared to the $18 billion today.

Growing to be online
There has been considerable growth in the uptake of internet connections in recent years, with an estimate that between 500 million and 900 million more individuals will gain access to the internet by 2017. McKinsey finds five key factors related to the increase in growth, which include the increase in mobile network coverage opening up more mobile internet connections. Further, internet services costs tend to fall over time, while incomes are increasing, creating conditions in which internet access becomes more affordable. Urbanisation also plays a role as it allows more people to gain access to internet services due to infrastructure for services often being concentrated in cities. The rise of the middle class is another key factor driving up internet penetration, with their disposable income invested in internet services – the developing world’s middle class grew from 5% in 2005 to 25% in 2009. The fifth factor is the utility of the internet, which has also been on the rise; the increasing economic as well as entertainment potential offered through various channels makes its use ever more valuable for users.

Physical and practical barriers
However, while the number of users is set to increase in terms of hundreds of millions, the total number of non-connected people still stands at 4.2 billion and the rate of uptake has slowed in recent years. Between 2005 and 2008, the three-year compound annual growth rate was 15.1%, which between 2010 and 2013 dropped to 10.4%. At the same time there has been a widening gap in mobile internet uptake, with developed countries continuing to grow faster than developing countries.

The widening digital gap: Mobile broadband penetration

In a study of 20 countries* selected for the size of their offline population (at an average 74%), McKinsey explores the barriers holding back greater internet services uptake. The consulting firm finds that the central reasons holding back wider uptake are primary related to infrastructure, education and income. In terms of infrastructure, 64% of the offline population lives in a rural setting, which even in developed countries is seen as a limiting factor for uptake. Low income accounts for 50% of the lack of connectivity, with 1.6 billion people in the 20 countries unable to afford a connection. Retail research shows that mobile broadband uptake increases rapidly when the cost reaches around 3-5% of income – however, the average cost in the 20 countries for mobile broadband stood at 9%, and reached as much as 40% for the poorest segment. Literacy was also noted as an issue, with large proportions of the unconnected segment either illiterate or ICT illiterate, which created a barrier to uptake.

While the barriers remain, they are not insurmountable according to McKinsey. By focusing on reducing the infrastructure costs, lowering the costs of inputs and enabling network sharing, access to internet services may be opened up to more users at a lower cost. Further, the researchers cite the creation of shared access points such as libraries, as well as developing basic ICT skills and incentivising the creation of local content, as ways to foster further internet uptake by unconnected and often marginalised people.

* Bangladesh, Brazil, China, the Democratic Republic of Congo, Egypt, Ethiopia, India, Indonesia, the Islamic Republic of Iran, Mexico, Myanmar, Nigeria, Pakistan, the Philippines, the Russian Federation, Tanzania, Thailand, Turkey, the United States, and Vietnam.

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