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Business News of Tuesday, 23 June 2020

Source: Goldstreet Business

Affordability of smartphones crucial in coronavirus fight

The COVID-19 pandemic has reinforced how important connectivity is in the modern world.

As it has become more challenging to communicate directly, the use of ICT has become even more critical for the dissemination of information by government, experts, and the media.

Key to digital communication is the phone – especially the smartphone.

The smartphone allows people to stay in touch with their friends and families, receive important information, and educate themselves during these tough times.

Smartphones may become even more crucial when the outbreak is brought under control. However, the cost of handsets is a significant barrier to mobile Internet adoption and use – and this is not the fault of the COVID-19 pandemic.

Low-cost devices are often out of the reach of those in poverty, which is a problem considering that these devices can be key enablers for escaping poverty.

Research in countries like Tanzania and India found that the extremely poor – those who earn less than $2 per day – would have to spend 16% of their annual income just to purchase an average-priced smartphone.

For people who are struggling to eat on a daily basis, using this percentage of their income is not a rational option. However, device manufacturers cannot offer phones at a significantly more affordable rate because they have costs of their own to manage.

For this reason, it is necessary to develop business models which ensure that those in poverty can own smartphones. Given the nature of the COVID-19 crisis, there is no better time to develop such business models and get more South Africans connected.

Smartphones are not a luxury

One of the reasons smartphones are so expensive in South Africa, and Africa as a whole, is that they incur high taxes. In fact, import taxes and duties can reach as high as 50% of the total device cost in some African countries. This is partially due to high costs for device transportation – particularly to emerging markets.

Additionally, storage, warehousing, and inventory management all provide significant additional costs. A simple way to reduce these tax costs could be by ceasing to class smartphones as luxury items.

Smartphones have become more than a luxury – they are now crucial sources of information and connectivity and not having one is a significant barrier to economic prosperity.

If luxury tariffs were no longer due on smartphones, it would make it possible to slash smartphone prices considerably – making them more accessible to more African citizens.

This would be particularly beneficial to the development and distribution of locally-manufactured smartphones – offering significant opportunities for economic growth.

Another strategy could be to abolish the taxation and duties placed upon smartphones below a certain value. This would result in citizens being able to purchase these cheap smartphones, while still boosting government revenue through airtime and data bundles, as well as income from other mobile income streams.

Strategies for smartphone proliferation

While reducing the taxation on smartphones is an obvious way to make smartphones more affordable, other strategies can also reduce the cost of smartphones for low-income citizens. One such strategy includes government getting involved in parts of the value chain – including marketing, distribution, and retail.

This would reduce the costs directly incurred by smartphone makers by reducing the number of players within the supply chain.

Another strategy would be government assisting through subsidies or donations to NGOs and other entities – meaning government would be subsidising the cost of devices for those who need them most.

These and other strategies should be discussed by government, and strategies should be undertaken to facilitate the increase in citizens who have smartphones, and by extension, access to the digital economy.

Some examples of how governments can assist through subsidies or other means include:

Argentina – Provided asset financing to 8 million citizens to switch from 2G feature phones to 4G smartphones.

Columbia – Allocated $90 million over three years to a policy which included subsidies for low-income citizens for data and smartphones.

Malaysia – Launched a national program to encourage youth to purchase 3G-enabled smartphones with a rebate on certain phones – reducing the cost by 40%.

Pakistan government – used funds to give smartphones to 30,000 low-income women.

Smartphone uptake is important

ICT expert Charley Lewis told MyBroadband that the drive for smartphone uptake in South Africa is important for consumers as those who do not have these devices are deprived of access to much of the Internet and its benefits – such as highly useful apps.

“If pricing of entry-level smartphones can be kept low, and priced into pay-as-you-go plans, and with data prices poised to fall, I see no reason that there should not be an upsurge in smartphone demand,” said Lewis.

“The benefits to universal access and service, and to the increased data revenues, are surely to the benefit of users and operators alike.”

The COVID-19 pandemic provides an opportunity to develop and implement long-term solutions to the digital divide in South Africa.

In this regard, the first priority of government should be to ensure that all South Africans are able to access digital platforms through devices like smartphones so that they can stay informed on that which is important.

Making smartphones more accessible to a larger number of South Africans is key to this, as it could help to alleviate poverty and improve the lives of these citizens.