How South Africa is failing at the Internet

Kevin Lings, chief economist at financial services company, Stanlib, says that by failing to grasp the importance of providing Internet access and faster broadband speeds, South Africa is missing-out on a major growth opportunity.

The economist notes that global Internet access has grown by almost 600% since the year 2000 to an estimated 2.5 billion users, and is expanding by roughly 200 million new users a year.

In North America and Japan, an estimated 80% of the population has direct access to the Internet – in contrast, only 16% of the population in Africa has direct access to the Internet.

Most of these users are concentrated in Nigeria, Egypt, Morocco and Kenya, together accounting for almost 64% of all internet users in Africa and have a combined Internet penetration of 32.5%, Stanlib says.

“Sadly, South Africa’s Internet penetration is a mere 17.5% of the population, and has less Internet users than Kenya, despite having a larger population,” Lings said in a research note.

Stanlib points out that the speed of access to the Internet has also grown dramatically over the past decade. The global average peak Internet connection speed was recorded at 16.6 Mbps in Q4 2012, up 35% over the past year.

In the US, the average peak connection speed was recorded at 31.5 Mbps in the final quarter of 2012, up 25% over the past year.

“South Africa’s average peak connection speed achieved a very modest and disappointing 7.1 Mbps in Q4 2012. While South Africa’s average peak connection speed has increased by an impressive 36% over the past year, the country is ranked as having only the 25th fastest Internet in Africa, and is ranked a paltry 120th in the world,” Lings said.

Top 15 Internet Speeds 4Q12
Top 15 Internet Speeds 4Q12

During Q4 2012, South Africa’s average internet speed was only 2.1 Mbps. “In practice, the average internet user can still make a cup of coffee before the YouTube video loads. If you then factor in the cost of having access to this low speed, South Africa’s internet access is incredibly expensive by global standards; especially when measured as the cost per Mbps,” Lings said.

Internet, because research says so!

Stanlib highlights several research reports which have concluded that access to the internet plays a positive and significant role in stimulating economic activity.

A 2009, a report by the University of Munich into the relationship between access to broadband Internet and economic growth reached two important conclusions.

Firstly, it found that after introducing Broadband Internet, countries achieved 2.7% to 3.9% higher GDP per person. Secondly, every 10% increase in Broadband Internet penetration brings a 0.9% to 1.5% increase in the growth of GDP per person.

Moreover, in 2011, a McKinsey Global Institute researched the Internet’s impact on growth, jobs and prosperity focusing on 13 countries that account for more than 70% of global GDP.

McKinsey concluded that the Internet has contributed 10% of the countries growth over the past 15 years, and 21% of their growth in the past five years. Consequently, the Internet now represents 3.4% of GDP.

Around 53% of this is in the form of consumer spending, while private investment in Internet-related technologies and foreign trade accounts for 31%, with the public sector accounting for the remaining 16%.

“This means that in these countries the Internet has a greater share of GDP than agriculture, utilities, communication, education and mining,” Stanlib said.

Brics

Within the Brics, the financial institution stresses that the role of the Internet is much smaller than in the developed world, especially Brazil (1.5% of GDP), Russia (0.8% of GDP) and South Africa (0.3% of GDP).

Within China (2.6% of GDP) and India (3.2% of GDP), however, foreign trade comprises between a third and half of the Internet’s contribution to GDP.

“It is clear from the prevailing global research that South Africa is missing-out on a major growth opportunity. This is highlighted by the country’s low level of Internet penetration as well as the slow speed of connection,” Lings said.

More on the internet and GDP

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How South Africa is failing at the Internet