Internet Interruptions Cost Millions in GDP Loss, Decreased Efficiency

Ethiopia ranks among the nations that are known for thwarting Internet usage as a mechanism for controlling communication. These interruptions not only quell the ability for denizens to access information, they also cost millions in lost revenue. According to the Brookings Institution, 30 days of Internet interruptions between July 1, 2015 and June 30, 2016 cost the country USD8.5 million in gross domestic product. EBR’s Tamirat Astatkie spoke with members of the local business community, government workers and consulted research to learn more about the multifarious effects of hampered Internet usage in the country.

Last month, the Brookings Institution, a renowned think tank based in Washington, D.C., released a report that reveals the economic impact of Internet disruptions in 19 countries, which collectively led to a loss of more than USD2.4 billion between July 1, 2015 and June 30, 2016.
Ethiopia, where there is a rising trend of Internet disruption by the government, is among the countries that have witnessed significant economic and social damage by disruptions of network services. As a result, Ethiopia lost USD8.5 million over the period because of disruptions lasting for a total of 30 days.
Similar disruptions took place in other countries, amounting to sizable monetary losses. India leads the group of countries, amassing a loss of USD968 million, while Saudi Arabia and Morocco came second and third, losing USD465 million and USD320 million, respectively. Other top countries that lost money due to government-initiated Internet disruption include Iraq, Algeria, Turkey and Syria.
Though significant, figures in the report reflect the loss only in terms of gross domestic product (GDP). This means other key costs associated with Internet disruption are not factored into the estimate, which include losses associated with tax revenues; the effect on worker productivity; obstacles in business expansion connected with these shutdowns; or the loss of investor, consumer, and business confidence.
According to the report, Internet disruption is a growing trend – increasing from one incident in 1994 to 111 in 2010. The practice is even common in democracies, which often use it as a tactic to suppress political dissent: “government officials give many reasons for ordering these disruptions: safeguarding government authority, reducing public dissidence, fighting terrorism, maintaining national security, or protecting local businesses, among others. Governments are using real or perceived threats to stability, political power, or local economic interests to justify disruptions. Indeed, disruptions have become increasingly common as a response to domestic circumstances.”
The report warns that these shutdowns are “likely to accelerate in the future and further weaken global economic development.” This is especially concerning for developing countries, which comprise the nations most likely to thwart Internet access.
Economic development and information and communications technology are inextricably linked in today’s globalised, tech-centric economy – and economists believe that the importance of Interact access cannot be overstated.
According to the McKinsey Global Institute, a research division of the revered consultancy group, Internet infrastructure is central to developing nations in their pursuit of economic growth: “…the Internet exerts a strong influence on economic growth rates. Our research shows that the Internet accounts for, on average, 3.4Pct of GDP across the large economies that make up 70Pct of global GDP. If Internet consumption and expenditures were a sector, its weight in GDP would be bigger than the energy or agriculture industry. The Internet’s total contribution to global GDP is bigger than the GDP of Spain or Canada, and it is growing faster than the GDP of Brazil.”
Despite these development benefits, Ethiopia’s on-going Internet disruption has created problems for local business owners. Desta Alemayehu, 30, who runs a family business, has been adversely affected by continued Internet disruption. He is among the frequent customers who visit the Bole Sub-City Small Taxpayers Branch of the Ethiopian Revenues and Customs Authority (ERCA) monthly to declare and pay taxes of his family’s businesses.
“The system put in place at the ERCA is important to enhance the efficiency of service delivery to customers,” he told EBR. “However, the mere availability of system alone cannot guarantee the desired goal.”
At the Authority, customers like Desta often complain about the availability of Internet network, which is among the infrastructure the Authority uses to complete its tasks. In his experience, Desta says that Internet interruptions exacerbate the wait at the ERCA, as the lack of a network often leads to delays in bureaucratic procedures, like accessing databases or performing administrative tasks.
Hirut Mebrate, Manager of the Addis Ababa Number 2 Medium Taxpayers Branch office located around National Stadium, admits that customers usually come towards the end of the month, which creates a large influx of work, putting the system under pressure. “The Internet being shut down worsens the situation,” she says.
The lack of reliable Internet, Hirut argues, hampers the ability of workers to complete their tasks in an efficient manner regardless of how hard they work. “Based on The Customers’ Charter, we often measure our staff performance to enhance the delivery of services. However, our efforts in discharging our responsibilities in a proper manner are usually hampered by a recurrent slow down of the system due to internal as well as external factors,” she argues.
In a situation where the system slows down or disruptions cannot be resolved in a timely manner, according to Hirut, workers have to perform tasks manually, which is characterised by time-consuming and labour-intensive procedures. Consequently, a delay in the service delivery is a typical feature, which results in customer dissatisfaction, worker apathy and a loss of tax revenue.
According to a study from the University of Salford in the United Kingdom, information technology is crucial for bureaucratic efficiency because it “typically results in a flatter organisational pyramid and with fewer levels of management required…it allows the potential for staff at clerical/operator level to carry out a wider range of functions and to check their own work.”
Given the threat of decreased accuracy due to insufficient Internet access, the loss of tax revenue remains a growing concern because of the continued inefficiency of the tax collection system, as well as the use of forged documents, contraband transactions and the existence of an informal market.
For instance, a report published by the International Monetary Fund in 2010 reveals the extent of the amount of dodged taxes, which stood at 5Pct of the GDP in 2009/10. The year-on-year growth of taxes that were forgone was shocking considering the fact that in 2008/09, it stood at 4.5Pct of GDP. This means that within a year Ethiopia lost close to ETB2 billion in taxes.
Similarly, the intermittent blockage and frequent slowdown of Internet services have adversely affected the hospitality industry. For example, tour operators and service providers, who put together vacation destination packages that usually include all-inclusive travel, hotel, dining and recreation arrangements, rely on the availability of a powerful Internet connection for services they provide, due to the proliferation of online travel websites and access to booking databases.
Fikru Zebib, Deputy Manager of Yod Abyssina Travel and Tour, which is a sister company of the renowned cultural restaurant of the same name, says the slowdown of the Internet hugely affects the competitive tour business, one that requires frequent, reliable Internet access.
“The availability of robust Internet connectivity is a prerequisite for tour operators to perform their duties. Telephones can never replace the role of Internet service by any means,” he told EBR. “Every time we face connection disruptions, we lose customers.”
The Internet enables tour operators to directly connect with potential tourist. Internet infrastructure also helps these enterprises streamline integral business operations, like advertising, booking and customer service. Although tour operators use non-personal media, including newspapers, magazines, television, radio and outdoor advertising, most prefer to use interactive marketing, which involves communication through e-mail, social media and online advertising.
Moreover, Fikru considers the incompetence of ethio telecom a contributing factor for the shutting down, which results in poor service delivery.
“[Ethio telecom] not only shut down our Internet service but also the telephone lines without prior notice, stating we had an unsettled bill, which was incorrect. You have to go through bureaucratic red tape to get a response to your problem,” Fikru says. “We appealed and provided documents to prove payment for the specific period, but it took 15 days to bring the service back to normal.”
One expatriate travel specialist, who EBR spoke to on the condition of anonymity, works at a tour operation company that has been in the business for nearly 20 years, says his business has been adversely affected by the recent shut down of the mobile network. “This is despite Ethiopia’s Internet service, which is too poor, expensive and incomparable with neighbouring countries such as Kenya.”
He further explains that Ethiopia has enormous tourism potential, though it needs diversification. Due to the long-standing absence of swift Internet infrastructure, which has recently been exasperated along with the state of emergency announcement, has resulted in a loss of two-thirds of its market scheduled for October and November 2016.
“October and November are peak months for the tourism sector; our company’s earnings during this time is usually more than double what we make in the rest of the months of the year combined,” expresses his frustration in the business.
In addition to this, he underscores that due to the sensitivity of the sector it is difficult to regain a good reputation once its lost. “To reverse the current situation of the country and attract tourists is unlikely,” says the travel specialist. “Once I finish the contract with my company, which will last for a couple of months, I will relocate myself to another country.”
According to the aforementioned McKinsey study, these adverse effects are especially problematic for small businesses, which the government has been working to develop in recent years: “Our global Small and Medium Enterprises (SME) survey found that 75Pct of the economic impact of the Internet accrued to traditional companies that would not define themselves as pure Internet players. These businesses have benefited from the higher productivity the Internet enables.”
These SME’s benefited from the inherit infrastructure the Internet brings about, including improved communications and streamlining bureaucratic processes. “The Internet has enabled fundamental business transformations that span the entire value chain in virtually all sectors and types of companies – not just online ones. These shifts include wholesale changes not only in how products are bought and sold but also in how products and services are designed, produced and distributed.”
Similar to the ERCA and the tour operating businesses, the shut and slow down of Internet service in the country, according to clients, affects the banking sector, which relies mainly on Internet infrastructure for optimum functioning.
A client of the Commercial Bank of Ethiopia (CBE), who spoke to EBR on the condition of anonymity, says that he usually faces difficulties withdrawing money from the ATM. “Even today, I was unable to withdraw money from the ATM installed at the Korea Hospital branch,” he said. “One of the employees of the Bank told me to go to the nearest ATM or branch to access my money because there is no Internet connection there.”
When EBR visited the headquarters of the Akaki Kality District on Wednesday, October 12, 2016, winners of condominium houses where lined up to process their cases after settling advance payments through the CBE’s branches. Although all of them paid, they were told to come back another time because there was an Internet problem.
According to an official at a private bank, who spoke to EBR on the condition of anonymity, the primary Internet link for most of branch offices of their bank is either DSL or fiber options. The 3G service is used as a back-up. Hence, due to the termination of 3G data service, whenever the primary link is down, the service of the bank will automatically be interrupted, as there is no alternative system that enables it to continue providing services without interruption.
For instance, since October 26, 2016 to up to at least November 3, 2016, the African Avenue branch of that particular bank was not operational due to the same problem. What’s more, on November 2, 2016, three of the bank’s branches were not operational. Thus, the official says the disruption of Internet connectivity has worsened because of the absence of a 3G alternative back-up service, which in turn adversely affects their operation. The official affirms that this will eventually have an impact on the overall performance of the bank.
Ephrem Mekuria, Communications Manager of the CBE, disagrees: “There is no Internet problem at all that hampers banking operations.”
However, he underscores that it does not mean there are not separate incidents that may hamper banking operations, like a system slow down, which affects the operation of branch offices and ATMs. “The CBE’s widespread presence throughout the country allows customers in another branch nearby as an alternative,” Ephrem argues.
Following the decree of the state of emergency, mobile data has been out of service. Among the recently introduced service packages by commercial banks is mobile banking. This allows customers to conduct a range of financial transactions remotely using a mobile device and software, usually called an application, provided by the financial institution for this purpose.
Both the bank official and Ephrem agree that had there not been an alternate option for mobile banking, the service currently would have been impractical.
However, Unstructured Supplementary Service Data (USSD) is a communication technology that is used to send a text between a mobile phone and an application programme in the network. “The absence of mobile data definitely narrows the options, but it can’t cripple mobile banking as a whole for customers who prefer to use USSD for its customer-friendly and cheap price,” the anonymous bank official told EBR. EBR

5th Year • November 16 2016 – December 15 2016 • No. 45


Leave a Reply

Your email address will not be published. Required fields are marked *

Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.

2Q69+2MM, Jomo Kenyatta St, Addis Ababa

Tsehay Messay Building

Contact Us

+251 961 41 41 41