1 Goodiel MOSHI The University of DodomaPOLITICAL STABILITY, REGULATORY ENVIRONMENT AND MNO’S INVESTMENT IN THE AFRICAN MOBILE TELECOM SECTOR CPRsouth 2016 Zanzibar Goodiel MOSHI The University of Dodoma

2 Summary of the study This study analyses the effect of political stability and regulation in the African telecommunications industry. The results show that while regulation ( as a proxy for liberalization) is important for attracting investment in the sector, the effect of political stability has drastically diminished. The study shows that, there is a threshold below which, political instability act as a bottleneck for mobile investments, and above it the political instability risks are less harmful. Liberalization, and more specifically quality of regulatory authorities is important to attract the highly needed investment in mobile telecommunication infrastructure.

3 Outline Introduction Methodology Results Discussion and ConclusionBackground Institutional constraints to investment Purpose of the study Hypothesis Why Africa Methodology Econometric model specification Data and descriptive statistics Model estimation Results Discussion and Conclusion

4 Introduction Investment in telecommunications industry is essential for social economic development. It offers opportunities for innovation and commerce, as well as greater access to education, healthy services, as well as government services. Due to rapid technological advancements in the industry, the need for investment in mobile telecommunications infrastructure is in rather short cycles, continuous and increasing. Government no longer sole investors in telecom infrastructure; rather, facilitators in providing policies that foster sector development, a large part being conducive environment to encourage investment in the sector.

5 1.2 Institutional constraints to investment-IPolitical stability, has long being debated an important determinant for investments especially FDI in a country. Noting large part of telecommunication investment in African countries is sourced beyond borders(see Alesina &Perotti, 1993; Aisen & Veiga, 2011) Political stability concentrate on quality of democratic processes; more specifically, focus on three issues in adherence to rule of law: exercise of power by those who govern, selection process of candidates of political positions and regime transition Usually, political stability represent a wider economy constraint to investment in a country. According to Henisz and Zelner (2001), political instability affects investment in the telecommunications infrastructure

6 1.3 Institutional constraints to investment-IIOn the sector level, many developing countries have liberalized their telecommunications sector to attract infrastructure investments. This is mainly done through establishing independent regulator, open the market to private investors and encourage competition. Regulation in the telecommunications industry to encourages telecom investment (London School of economics, 2006; Gutierrez and Berge, 2000; Cadman, 2007; and Paleologos & Polemis, 2013)

7 Supply side results- Multinational MNOsOperator Origin Market share % (2015) No. of countries operating in in Africa MTN South Africa 25 16 Vodafone/Vodacom U.K/South Africa 21 8 Airtel India Glomobile Nigeria 10 4 France Telecom France 7 15 Millicom Luxemburg Portugal Telecom Portugal 2 Others The number of multinational MNOs increased, and their position strengthened By 2010, 7 operators controlled more than 80% of the market

8 Purpose of the Study Assess the effect of sector reform and political stability in attracting telecommunication investments in African countries

9 Hypothesis H1: Political stability affects investment in the mobile telecommunications infrastructure H2: Regulation in the telecommunications industry encourages mobile telecommunications investment

10 Why Africa ? -1(Still lagging behind)

11 Why Africa ? 2 (variation)

12 Why Africa? – 3 (Mobile Investment vs. mobile services penetration)

13 Framework for determining investments in the mobile telecommunications infrastructureInstitutions Regulations Political Stability Market structure Competition (price) Market size: Population Income Education Investing cost: Country size Urbanization

14 Framework (expected signs in the analysis)Institutions Regulations (+) Political Stability (+) Market structure Competition (price) (+) Market size: Population (+) Income (+) Education (+) Investing cost: Country size (-) Urbanization (+)

15 Econometric Model SpecificationMobile Telecom Invest. Stock = f(Market size, Investment cost, Institutional environment, Market Structure) Institutional environment: Political risk, Presence and experience of the regulator Market size: Population, Income, Education Investing cost: Urbanization, Country area size Market Structure: Competition (price) MISit* = γ1 + γ2POPit + γ3INCOMEit + γ4AREA_SIZEit + γ5URBANRATEit + γ6COMPit + γ7LIBit + γ8POLCONit + εit *MIS – Mobile Investment Stock

16 Data Data were mainly collected from World Bank databases; particularly, World Development Indicators and Private Public Investment. The data cover 42 African countries for the period through 2011 Variables with monetary values such as GDPpc and MIS (Mobile Investment Stock) have been adjusted to 2000 constant prices.

17 Model estimation Due to time-invariant or slowly varying variables, fixed effect (FE) specification was dropped for random effect (RE) model or Ordinary Least square test. To choose between random effect model and OLS, Breusch Pagan Lagrange Multiplier test confirmed Random Effect model to produce efficient score. Further, neighboring countries income per capita is used as an instrumental variable to solve for endogeneity problem.

18 Descriptive StatisticsVariables Mean Std. Dev Min Max Mobile telecom Investment Stock (2000 constant, USD) 1.24 Population 1.91e+07 2.55e+07 81202 1.64e+08 Urbanization rate 38.40 16.31 8.47 86.15 Country size 460 Income 94.75 Lib 7.33 4.92 20 Political Stability 0.23 0.19 0.66 Competition 2.47 1.33 7

19 Empirical Results Model 1 Model 2 Model 3 Model 4Model 1 Model 2 Model 3 Model 4 Political Stability (POLCON) -0.111 (-1.22) -0.120 (-1.27) -0.091 (-0.94) - Liberalization (LIB) 0.042* (8.24) 0.043* (5.07) (5.00) Competition (COMP) 0.080* (5.68) 0.067* (4.51) 0.061* (3.99) 0.066* (4.44) Income (INCOME) 1.124* (9.75) Income_neighbors IV (INCOMEIV) 1.031* (3.81) 2.181* (14.34) 1.041* (3.85) Population (POP) 1.378* (11.27) 1.210* (7.26) 1.331* (7.99) 1.196* (7.18) %Urban population (URBANRATE) 0.002 (0.62) 0.024* (5.50) 0.027* (6.15) 0.023* (5.43) Country size (AREA) -0.372* (-4.35) -0.409* (-3.37) -0.384* (-3.13) -0.401* (-3.29) R-square 0.77 0.55 0.56 NT 462

20 Discussion of the resultsRegulation has positive and significant influence on mobile telecommunications investment. Generally, political stability measured has no statistical significant influence on mobile telecom investments. This is similar to Holden and Pagel (2012). However, when considering the dichotomy of countries with sustained wars (fragile state), and those without, extreme political instability affects mobile telecommunications investments

21 Implication and conclusionThis study developed a framework for the macro determinants for telecommunications investments. Expansion to the last frontier effect. The results failed to find a statistically significant relationship between political stability and telecom investments in the mobile sector. The study shows that, there is a threshold below which, political instability act as a bottleneck for mobile investments, and above it the political instability risks are less harmful. Liberalization, and more specifically quality of regulatory authorities is important to attract the highly needed investment in mobile telecommunication infrastructure. Countries such as Ethiopia will be better-off if they can liberalize their market and create effective regulations.

22 Thank you Questions?

23 Fragility Unlike our hypothesis, there is no statistical evidence of the effect of quality of democratic processes (political stability).

24 Fragility among African statesCore fragile (1) Moderated fragile (2) Non-fragile (3) Burundi, Central Africa, DR Congo, Cote d’Ivore, Sierra Leone, Togo Chad, Congo, Guinea, Sudan, Zimbabwe Algeria, Angola, Benin, Botswana, Burkina Faso, Cameroon, Cape Verde, Egypt, Eritrea, Gabon, Gambia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Senegal, Seychelles, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia

25 Empirical Results with government fragilityModel 1 Model 2 Model 3 Model 4 Model 5(Fragility) Political Stability (POLCON) -0.111 (-1.22) -0.120 (-1.27) -0.091 (-0.94) - 0.384* (4.36) Liberalization (LIB) 0.042* (8.24) 0.043* (5.07) (5.00) (5.15) Competition (COMP) 0.080* (5.68) 0.067* (4.51) 0.061* (3.99) 0.066* (4.44) 0.07* (4.72) Income (INCOME) 1.124* (9.75) Income_neighbors IV (INCOMEIV) 1.031* (3.81) 2.181* (14.34) 1.041* (3.85) 1.074* (4.05) Population (POP) 1.378* (11.27) 1.210* (7.26) 1.331* (7.99) 1.196* (7.18) 1.154* (7.71) %Urban population (URBANRATE) 0.002 (0.62) 0.024* (5.50) 0.027* (6.15) 0.023* (5.43) 0.021* (5.31) Country size (AREA) -0.372* (-4.35) -0.409* (-3.37) -0.384* (-3.13) -0.401* (-3.29) -0.366* (-3.35) R-square 0.77 0.55 0.56 0.66 NT 462