Economic Impactsof Submarine Fiber Optic Cables and Broadband
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Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in South Africa Working Paper 0214363.202.5 November 2020 Prepared by Alan C. O’Connor Benjamin Anderson Charley Lewis Alice Olive Brower Sara E. Lawrence Sponsored by RTI International 3040 E. Cornwallis Road EconomicResearch Impacts Triangle of Submarine Park, NC, Fiber USA Optic Cables and Broadband Connectivity in South Africa | Page 1 Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in South Africa HOW DO SUBSEA CABLES GENERATE ECONOMIC IMPACT? Subsea cables are the global backbone of the Internet, connecting people, businesses, and economies around the world. They connect us to the cloud, deliver streaming video, and increase efficiency and productivity for business. Subsea cables’ importance is all the more apparent during the Covid19 pandemic when many of us have switched to working from home, remote learning, and online gaming and entertainment. We studied the economic impacts from subsea cables that arrived in South Africa in 2009 to understand how they changed the economy. The results show that the economic impact overall was large, and there were more jobs in fiber-connected areas. However, the economic gains were not broad-based, in part because many South Africans cannot afford service. Subsea Consumers Economic Impacts cables arrive Internet speed increases • Jobs • GDP Existing consumers enjoy better speeds, increasing 6.1% their consumption of $ increase in GDP per Price per data digital content, products, † unit decreases and services. capita by 2014 New firms and Before major subsea After 659.7 startups emerge to cable arrivals 647.8 $ 632.1 serve consumers 618.4 598.7 581.1 and businesses 590.1 571.9 621.7 Some consumers decide 611.6 604.9 to subscribe to services 599.6 589.7 581.1 for the first time 590.1 571.9 Business 2007 2008 2009 2010 2011 2012 2013 2014 GDP (Billions of 2011 USD PPP) GDP (PPP adjusted) in the absence of connectivity improvements from new subsea cables GDP impact catalyzed by improved connectivity from subsea cables Increased internet speed, quality and reliability 2.2% makes doing business Growth in 2.2% increase in likelihood of easier productivity, one being employed in fiber- efficiency, and connected areas* revenue for firms $ Easier transition to remote work $ Increased Despite these notable impacts, more than Network is data traffic More businesses use the 40% of South Africans remain unconnected— cloud and e-commerce especially people in rural areas, townships, and built out competition for the first time informal settlements—largely because they cannot afford service. † Subsea cables landing in 2009 catalyzed a 6.1% increase in GDP by 2014. This chart presents values at purchasing power parity (PPP), which accounts for changes in living standards over time. Doing so presents the most accurate picture of the impact that the connectivity improvement from subsea cables makes on people’s lives. At PPP, in 2014 GDP was $659.7 billion instead of $621.8 billion. For reference, in nominal terms (without any adjustments to measure living standards across time and countries), South Africa’s GDP was $351 billion in 2014. * Hjort, J, Poulsen, J. 2019. The Arrival of Fast Internet and Employment in Africa. American Economic Review, 109(3): 1032-1079. Download the full report at rti.org/subsea-cables-africa Alan C. O’Connor, Senior Director, Center for Applied Economics & Strategy | [email protected], +1.919.541.8841 Recommended Citation: O’Connor, Alan C., B. Anderson, C. Lewis, A. O. Brower, and S. E. Lawrence. 2020, November. Economic Impacts of Submarine Fiber Optic Cables Economicand Broadband Impacts Connectivity of Submarine in South Africa. Fiber Working Optic Paper Cables 0214363.202.5. and Broadband Research Connectivity Triangle Park, NC, in USA: South RTI International.Africa © RTI International, | Page 2020 2 Table of Contents SECTION PAGE 1. OVERVIEW 3 2. BACKGROUND 4 3. ANALYSIS APPROACH 6 3.1 Econometric Analyses 6 3.1.1 Difference-in-Differences (DID) 6 3.1.2 Synthetic Control (SC) 7 3.1.3 Simultaneous Equations Model (SEM) 8 3.2 Thematic Analysis of Interviews with Key Stakeholders 9 4. ECONOMIC IMPACTS OF SUBSEA CABLE LANDINGS 10 4.1 Impacts to Date 10 4.2 Forward-Looking Implications of Econometric Analyses 12 5. STAKEHOLDER PERSPECTIVES ON CONNECTIVITY 13 5.1 Market Structure, Competition, and Trends 13 5.2 Network Expansion 15 5.3 Uptake Proposition: Price, Affordability, Quality of Service, and Content 17 5.4 Public Policy Priorities 18 5.5 Economic Development 19 5.6 Social Empowerment and Inclusion 19 6. CONCLUDING REMARKS 21 REFERENCES 22 Recommended Citation: O’Connor, Alan C., B. Anderson, C. Lewis, A. O. Brower, and S. E. Lawrence. 2020, November. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in South Africa. Working Paper 0214363.202.5. Research Triangle Park, NC, USA: RTI International. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in South Africa | Page 3 1. Overview This study explores the economic impact of the international conditions, and other important factors (Table 1). The produc- data connectivity delivered by submarine fiber optic cables tivity benefits are substantial. Like Hjort and Poulsen, we (“subsea cables”) on South Africa. Subsea cables are the found employment impacts in close proximity to the fiber global backbone of the internet, connecting people, busi- infrastructure, but we did not find any at the national level. It nesses, and economies around the world (Figure 1).1,2 appears as if job gains are geographically concentrated. The importance of connectivity to economic growth is We also looked back over the 16-year period from 2002 well-established—and further underscored by our collective through 2017. We found that each 10% increase in South experience during the COVID-19 pandemic—but robust Africa’s broadband penetration lead to a 0.27% increase in studies have not been conducted for many countries.3,4 GDP per capita. Subsea cables play a role here because they This study is one in a series our team prepared about how increase data traffic and competition, bring down prices, improvements in international data connectivity have further broadband uptake, and spur utilization. generated economic growth for several countries in Africa.5 South Africa has certainly benefited from cables’ increases in We focus on recent cable landings in South Africa, such as data connectivity, but it is not clear how broad-based those SEACOM and EASSy. gains are. Over 40% of the population does not or cannot get In 2019, two academics, Jonas Hjort and Jonas Poulsen, online. Affordability appears to be a challenge. studied the impact of subsea cables on employment in South This study combines rigorous economic analysis with Africa.6 They quantified that someone is 2.2% more likely to perspectives from South African telecommunications be employed because of subsea cables if they lived within experts. We marry quantitative results with insight into the 500 meters of the fiber network. trends and developments that characterize how South Africa Our team found that subsea cables’ connectivity led to a 6.1% has leveraged subsea cable landings to economic benefit, increase in GDP per capita between 2009 and 2014, even why those benefits may not be more broadly distributed, and after accounting for population characteristics, economic steps the country is taking to move forward. Table 1. Key Takeaways: The Economic Impact of Subsea Cables on South Africa INDICATOR TIME PERIOD OUTCOME Employment growtha 2007—2014 2.2% increase in likelihood of one being employed in fiber-connected areas Firm growtha 2007—2014 23% increase in net firm entry per quarter Economic growthb 2009—2014 6.1% increase in GDP per capita Long-term economic growthb • International bandwidth 1995—2017 0.15% increase in GDP per capita for every 10% increase in international bandwidth consumption per user consumption per user • Broadband penetration 2002—2017 0.27% increase in GDP per capita for every 10% increase in broadband penetration a Hjort, J, Poulsen, J. 2019. The Arrival of Fast Internet and Employment in Africa. American Economic Review, 109(3): 1032-1079. b Authors’ estimates. 1 Clark, K. 2019. Submarine Telecoms Industry Report, 7th Edition. Submarine Telecoms Forum. 2 Brake, D. 2019. Submarine Cables: Critical Infrastructure for Global Communications. Information and Technology Foundation. 3 Minges, M. 2015. Exploring the Relationship between Broadband and Economic Growth. WDR 2016 Background Paper; World Bank, Washington, DC. 4 Khalil, M., Dongier, P., & Zhen-Wei Qiang, C. 2009. Information and Communications for Development: Extending Reach and Increasing Impact. World Bank. 5 Other countries included in this series are the Democratic Republic of Congo, Kenya, Mozambique, Nigeria, and Tanzania. 6 Hjort, J, Poulsen, J. 2019. The Arrival of Fast Internet and Employment in Africa. American Economic Review, 109(3): 1032-1079. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in South Africa | Page 4 Figure 1. Role of Subsea Cables in Internet Connectivity ROLE OF SUBSEA CABLES IN CONNECTIVITY Infrastructure investments and policy decisions affect the extent to which countries are able to benefit from Once international bandwidth lands connectivity. from the sea, data moves through terrestrial networks and points of Subsea cables are part of a presence to reach a firm or household. Mobile network complex internet delivery system. Fixed line to the firm or household Points of presence Landing station International bandwidth via submarine cable Terrestrial Fiber 2. Background South Africa is the continent’s third largest economy, behind is just half of the OECD average of 6% (OECD, 2017). Nigeria and Egypt. While the economy has grown between Large numbers of South Africans are afflicted by poverty. In 1% and 2% per year since 2017, this has been outstripped by 2015, 19% of the population was below the international population growth, with income per person having fallen poverty line (Stats SA, 2019).