African leaders are often asked to look to countries like Singapore and Taiwan for examples of the transformative impact that clean, effective government can have in turning around a nation’s economy. But they might do better to look closer to home.
Those models are certainly valid: The “Asian Tigers” lifted millions of people out of poverty by relying on an efficient public sector based on rigid meritocracy and little tolerance for corruption. But, oddly enough, it was the reverse of these very conditions in Kenya — the realities of corruption, nepotism and sheer inefficiency of the state telecommunications monopoly — that helped inspire a banking and finance revolution that is spreading from sub-Saharan Africa to India, Afghanistan and beyond.
There are few more stunning success stories in the developing world than the explosion in the use of mobile phone money transfers. The service has brought millions of people into the formal financial system, hobbled crime by substituting cash for pin-secured virtual accounts, and created tens of thousands of jobs. It is important to bear in mind that these achievements were spurred in no small way by the inefficiency of what came before. Africans took to mobile phones with such great enthusiasm because the alternatives were so dire. In Kenya, the land lines maintained by the state monopoly were more regularly out of use than in service. Telephone booths were legendary for gobbling shillings to no purpose.
The Kenya Posts & Telecommunications Corporation was a model of the ills of political patronage. A 2005 audit of one of its successors, Telkom Kenya, found the company had hundreds of idle employees whose major qualification was their political connections. Eighty percent of the recurrent expenditures went to labor costs, including the salaries of over 2,000 messengers and porters with job descriptions that — in a company with far more drivers than vehicles — were vague at best. Overall, the corporation had one employee for every 28 customers; the industry’s international standard is 1 for every 400. Its revenue per employee was $14 against an international average of $120.
The Kenyan mobile giant Safaricom was spun off this sprawling morass of inefficiency. Because it was largely given the room to operate using rational management practices, it grew to become the biggest company in East Africa by revenue and Kenya’s largest taxpayer. In partnership with Vodafone, it went on to form M-Pesa (Pesa is a Swahili word for money), which allows subscribers to use a pin-secured virtual bank account on their mobile phones. Each account can hold a maximum of just over $1,000 at any time. This transforms the phone into a mobile wallet. Using a text message, one can send money to a friend, buy goods in a supermarket, settle utility bills or pay for a cab without using cash.
Launched in 2007, there are now 18 million active subscribers to the service. In 2012 M-Pesa processed transactions amounting to 31 percent of the country’s G.D.P. of about $37 billion.
Similar money transfer platforms have been adopted in many other countries where many people don’t have formal bank accounts. The leading mobile money firm in India counts 75 million subscribers on its network, and other such services have taken off from Qatar to Tanzania to Afghanistan.
It would be superficial to argue that the mobile phone industry’s success in sub-Saharan Africa proves the merits of privatization in every instance. There also have been failures, including a botched privatization of railroad services in East Africa. The question of less-versus-more government involvement leads to a cul-de-sac of ideological debate. The past 50 years have shown that both approaches can work.
Freed from Soviet domination, for example, the Czech Republic and Estonia followed the free market path with notable success. On the other hand, Singapore and Taiwan opted for significant state involvement. Much depends upon the circumstances, but what matters most is the quality of leadership. The impact of efficient management on the lives of ordinary people and on job growth is undeniable. There were approximately 65,000 M-Pesa agents in Kenya at the end of 2013 — each employing one or two cashiers.
Can this success be replicated in other sectors, like Kenya’s inefficient power, transportation and health services? Evidently so. A recent report by the International Budget Partnership, a Washington-based nonprofit organization that campaigns for transparency in how governments manage public funds, pointed out that while the Kenyan national health insurance fund spent 45 percent of its budget on administration expenses in 2010, the administration costs for its Estonian equivalent were less than 1 percent.
Kenya’s government leaders would do well to ask which industrial sectors can be run like Safaricom. This is not a call for blanket privatization. We Africans should drop the ideological debates over whether we need less or more government and heed the pragmatic advice of the great Ghanaian Pan-Africanist Kwame Nkrumah: “We face neither East nor West; We face forward.”