Why US - China ICT tariff deal is important for Africa

Monday November 17 2014

By BITANGE NDEMO
More by this Author

On Wednesday, November 12, 2014, several newspapers carried headlines from China that announced the United States and China had agreed to the removal of tariffs on trade in Information Communications Technologies (ICTs).

This agreement underscores the growing importance of ICTs globally.

Yet Africa, with its inefficiencies, seems to be oblivious to these developments. The continent not only remains studiously silent on taxation of ICTs but continues to stunt her own growth prospects.

Forbes’s John Brinkley says the US/China agreement comes under the WTO’s Information Technology Agreement (ITA), which took effect in 1997.

It’s kind of a big deal in that the ITA is stringent in what it allows it has to be all or nothing.

That is, tariffs have to be eliminated not reduced, eliminated on all products included in the ITA Declaration, and the list of products includes just about every electronic device ever invented.

There are 63 ITA participants, of which only Egypt is from the African continent. In spite of the fact that African Union has been vocal on matters ICTs, there are no discussions on how more African countries can accede to WTO and ITA.

The problem with African governments is the fact that most ministries work in silos. In most cases, WTO matters would fall under the Ministry of Trade, which in most cases rarely consults subject matters with relevant ministries to understand the importance of some decisions.

In this matter the ICT ministry would be of great necessity in enhancing the discussions. This is mostly the case when knowledge within the government is kept secret from those who need it most.

MOBILE IN RURAL AREAS

In my last blog post, I dwelt mostly on why it is counterproductive to impose taxes on the ICTs.

In this article, I will take advantage of the tariff removal by advanced countries to highlight the impact of ICTs on various sectors, especially the agricultural sector, which is a major contributor of GDP and employs more than 75 per cent of the workforce in most African countries.

This perhaps would persuade policymakers to re-evaluate their decision on taxation of ICTs. I will also attempt to highlight the ICT value chain that is a critical tool for dealing with not just our inefficiencies but also to ensure sustainable development into the future.

Several studies prove the strong relationship between use of technology and economic performance. Countries that heed such research findings make policies that are favourable to greater diffusion of technology.

For example, a systematic review conducted by Rohan Samarajiva, Christoph Stork, and Nilusha Kapugama in Asia sought to isolate the economic impact of mobile phones in rural areas by looking at the most robust quantitative studies available.

The systematic review assessed the impacts of the following: increased coverage or availability of mobile signals, use of mobile phones or Subscriber Interface Modules (SIMs), and use of mobile-based services and/or applications.

PULL OVER PUSH

From the study, they came up with three key findings including:

1. Mobile coverage in rural areas makes markets more efficient by matching demand and supply better, leading to both consumer and producer welfare gains, by reducing price dispersion and subsequently leading to reduced waste of perishable agricultural produce and fish.

2. Mobile coverage in rural areas contributes to economic development. Mobile coverage leads to increased likelihood of being employed, increases disposable income and thereby expenditure.

3. Push services had a lesser impact than pull. Impacts were seen more in the instances where the users actively used the mobile phone to “pull” and obtain the information as opposed to when providers “pushed” the information to the users.

Ad hoc reviews in Kenya, for example, show that agricultural applications such as M-Farm have indeed helped remove exploitative middlemen through linking farmers directly to markets. Furthermore, there is a significant improvement in reduced waste of perishable produce.

Perhaps to broaden the need for ICTs as the key to understanding Africa’s problems, I should borrow data from Gro Intelligence, a leading African data analytics firm, to highlight the plight of Nigeria’s agricultural production, processing and consumption:

Nigeria is a country obsessed with tomatoes. Tomatoes are in everything—from stews to rice to soups—and tens of thousands of Nigerians dedicate their lives to cultivating the beloved crop. In terms of total tomato production, Nigeria is Africa’s second-greatest producer, coming second only to Egypt. Nigeria is also Africa’s top tomato paste importer, and in fact one of the top importers of tomato paste in the world.

There are several factors that help explain this paradox: Nigerian tomato yields are extremely low, farmers there grow sub-optimal tomato varieties, and perhaps most importantly, post-harvest losses are staggeringly high. Policymakers, increasingly aware of this problem, are now hoping to find and encourage solutions, while investors, increasingly aware of this opportunity, are trying to tap into Nigeria’s lucrative tomato paste market—one that is currently dominated by exporters from the US, Italy and China.

There is no pride in importing tomatoes into a continent that has more than 60 per cent of arable land globally.

This is where the ICTs come in. The knowledge of a tomato market in Nigeria should be in the mobile handsets of other African countries. Kenyan farmers, for example, should see this as an opportunity and seek to satisfy the market.

SIMPLE VISUALISATIONS

Furthermore, data analytics combined with affordable mobile handsets will form a powerful tool that can resolve such an embarrassing situation in Africa. But by the time the farmer gets the information on the mobile handsets, there is an information value chain that is facilitated by the ICTs.

First will be information gathering to build data big enough that a predictive model can be developed.

Second will be data analytics using powerful computers and software to create simple visualisations that ordinary people can comprehend.

Thirdly is the dissemination of the simplified information to not just the policymakers but the people on the streets from whom an entrepreneur can emerge to exploit the opportunity.

To facilitate exploitation of all these levels of the information value chain, we simply must deal with the taxation of the ICTs.

It is not just Nigeria that suffers from post-harvest losses. The story is the same across Africa, where post-harvest losses exceed what we consume, yet Africa remains food-insecure.

SIGNIFICANTLY RAISE REVENUES

The tragedy is that even as we know the solutions, especially where the ICTs can help, we undermine the same through punitive taxes.

ICTs can deal with the problems of seed quality, identification of the right varieties to grow, understanding the right soil conditions before planting, knowing the right fertilizer, and so on.

We could do the same in several other sectors, including health, education and urban services like the current revenue collection by Nairobi County. We can simply create unprecedented efficiencies that would significantly raise government revenues beyond what is being collected today.

If we can’t accede to the World Trade Organization, the least we can do is to remove taxes from all ICTs in Africa so that more people can afford either a smartphone or a laptop.

As Stephen Covey said, “Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.”

Bitange Ndemo is a senior lecturer at the University of Nairobi's School of Business, Lower Kabete campus. He is a former permanent secretary in the Ministry of Information and Communication. Twitter: @bantigito.