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Why access to the internet matters for economic growth

Global internet access has grown by more than 1 000% over the past 20 years to an estimated 4.39 billion users during 2019.

Global internet access has grown by more than 1 000% over the past 20 years to an estimated 4.39 billion users during 2019. In some regions of the world, internet penetration is obviously extremely high. This is especially evident in North America and Japan where an estimated 95% of the population has direct access to the internet. Europe is not that far behind, with an internet penetration ratio of just over 85%; with some member states well over 90%.


In contrast, only around 35% to 40% of the population in Africa has direct access to the internet. Most of these users are concentrated in six countries, namely Nigeria, Egypt, Kenya, South Africa, Morocco and Tanzania. Together, these six countries account for almost 60% of all internet users in Africa. Remarkably, Kenya has an internet penetration rate of around 85%, versus just over 50% in both South Africa and Nigeria.


In a relatively short period, the internet has had a profound impact on households, businesses, government and the way in which the global economy functions. It has changed the way we shop, work, source inputs, and interact with one another.


The speed of access to the internet has also grown dramatically over the past decade; and continues to improve. Singapore currently ranks as the country with the world’s fastest internet, with a measured broadband speed of 191.93Mbps, while Turkmenistan is ranked last at an average broadband internet speed of just 1.78Mbps.


In the latest speed test (July 2019), 91 countries failed to achieve average speeds above 25Mbps (including South Africa). In fact in July 2019, South Africa was ranked as having the 93rd fastest internet speed in the world.

In recent years, a number of research reports have investigated the effect of the internet on economic growth. In general, these reports have concluded that access to the internet plays a positive and significant role in stimulating economic activity. Three pieces of research are, perhaps, worth highlighting. The first was undertaken by the Department of Economics at Myongji University, South Korea. The second was compiled by the IFO Institute for Economic Research at the University of Munich using data from 25 OECD countries. Lastly, the McKinsey Global Institute researched the internet’s impact on growth, jobs and prosperity focusing on 13 countries that account for more than 70 percent of global GDP.


The University of Munich research report into the relationship between access to broadband internet and economic growth reached two very important conclusions. Firstly, 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.


The McKinsey report, which was completed a number of years ago, is equally impressive in its conclusion, highlighting that the internet has been a major driver of economic growth in many major economies. Remarkably, in the 13 countries selected by McKinsey, the internet contributed 10 percent of their growth over a period of 15 years. At the time, the internet represented 3.4% of GDP. Around 53% of this was in the form of consumer spending, while private investment in internet-related technologies and foreign trade accounted for an impressive 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.


At a more micro level, McKinsey surveyed more than 4 800 small-medium-enterprises and other entrepreneurial activities, and found that those companies utilising the Web grew more than twice as fast as those with a minimal Web presence. This applies across all sectors of the economy, including manufacturing. Furthermore, internet-friendly companies created more than twice the number of jobs as companies that don’t make use of the internet. While some jobs have been lost by the growth of the internet, many more have been created including jobs directly linked to the development of the internet, such as software engineers and on-line marketers, but also more traditional jobs such as logistics to deliver online purchases.


An accepted principle of economic growth is that advancements in technology, which facilitate the development and adoption of new ideas, tend to boost economies. This principle is evident following the introduction of various types of public infrastructure, including telephones. However, while the telephone infrastructure has more of a co-ordination function that improves productivity, the development of high-speed internet accelerates the distribution of ideas and information, encouraging the development of new products, business processes, entrepreneurship and job matching. Simply stated, the development of high-speed internet boosts the innovative capacity of a country, which is good for growth and development.


It is clear from the prevailing global research that South Africa is still missing-out on a major growth opportunity. This is highlighted by the country’s still relatively low level of internet penetration as well as the slow speed of connection. However, to be fair, access to the internet in South Africa is growing extremely rapidly and is expected to match the developed market average within a couple of years.


Building a more extensive and affordable Broadband capability in South Africa would provide many small businesses with a more effective way of competing with larger and more established businesses. It could also create many job opportunities for the youth as well as provide numerous emerging entrepreneurs with a platform to launch their business initiative.

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