The Impact of Cell Phones and Government Regulations on Entrepreneurship in Africa

Benjamin Christensen and Adriel Johnson

AbstractThe rapid spread of mobile phones across Africa has significant economic implications. Many scholars mention that cell phones increase efficiency in developing economies. Several scholars claim that cell phones help entrepreneurs overcome restrictive government regulations. But what is more important to the development of entrepreneurship in Africa: mobile phone use or more favorable government regulations? Furthermore, how effective is cell phone technology at allowing entrepreneurs to circumvent government regulation? We conduct a qualitative analysis based on interviews of experts and natives of different countries in Africa such as Mozambique, Ghana, and Nigeria. We argue that mobile phones empower entrepreneurs to succeed despite poor government regulatory environments, and we find four major ways in which they do so: access to mobile money, access to better pricing information, expanded customer networks, and new platforms for innovation. We further argue that because of these pathways, in the short run mobile phone use is a greater facilitator to starting a business than the government regulatory environment. In the long run, however, improved government regulations with less corruption will be key to promoting entrepreneurial activity in Africa.

Introduction

Mobile phone use across the African continent is exploding. Whereas in 2002 only about

one tenth of Africans owned a mobile phone, today two-thirds or more in most African countries

have their own cell phones (Pew Research Center 2015). Seventeen years ago, “fewer than 10

percent of Africans lived in areas with mobile phone coverage. In 2012, that number was more

than 60 percent” (Olopade 2014, 92). The effects of this widespread and rapid penetration have

been significant in terms of health services, election monitoring, and economic opportunities,

among many other things (Aker and Mbiti 2010). Paul Kagame, the president of Rwanda, said,

“In 10 short years what was once an object of luxury and privilege, the mobile phone, has

become a basic necessity in Africa.”

Africa is also a hotbed for entrepreneurship. Economic hardship and poor governance in

many countries in Africa have, in a way, set the groundwork for frugal innovation, as Africans

find creative ways to get ahead in life despite the challenges. Olopade refers to this creativity as

“kanju,” a Yoruba term for “to make haste” or “to make do” (20-21), and provides many

examples to illustrate the swelling wave of African entrepreneurs. In this rising swell of

entrepreneurs, mobile phones have played a decisive part by improving efficiency and opening

doors for business opportunities.  

Onerous government regulatory environments and poor governance also affect businesses

in Africa. Many African states rank low on the Forbes list of The Worst Countries For Business

2015. For example, Chad was ranked at 144th: reflecting poor scores in the area of taxes,

freedom, technological readiness, and red tape (Badenhausen 2015). Several of our interviewees

attested that corruption in many African governments is pervasive. As a result of corruption,

entrepreneurs that want to register their business with the government often face inconsistent

standards and bribes.

In order for African countries to grow their economies and encourage entrepreneurship,

political leaders must smartly allocate funds towards solutions that will produce the best results.

As countries engage in triage on this matter, leaders will naturally question whether it is wiser to

improve government regulation of businesses or whether the implementation of policies that

encourage cell phone use will be more effective.

Research Questions and Arguments

What is more important to the development of entrepreneurship in Africa: mobile phone

use or more favorable government regulations?

How do mobile phones allow entrepreneurs to circumvent government regulations and

corruption?

In order to answer these questions, we conduct interviews with a variety of Africans and

professors who study African politics and economics. We evaluate case studies of successful

African entrepreneurs and search for patterns in their stories. We also use quantitative data on

entrepreneurship, cell phone use, and the business regulatory environment in countries across

Africa. We compare countries that vary across levels of cell phone use and ease of doing

business to evaluate the correlations between each of these independent variables and the level of

entrepreneurship.

We find that there are four important ways in which mobile phones affect

entrepreneurship: mobile money, expanded and improved customer bases, easier access to

pricing information, and new platforms for innovation.

These pathways explain the three main arguments of this paper:

1. Mobile phone use is a greater facilitator to starting a business than government

regulatory environments in the short run.

2. Mobile technology helps entrepreneurs succeed despite government regulations.

Small enterprises benefit more than medium sized ones due to the limitations in

government capacity.

3. Countries with higher levels of cell phone use will have higher levels of

entrepreneurship.

Literature Review

In recent years scholars have noted the effect that cell phones have on entrepreneurship

and the economy in general. For examples, some scholars have concluded that cell phones

greatly lower the costs of communication, make information access much easier, and facilitate

access to funds (Aker and Mbiti 2010). In particular, the effects that mobile technology have on

rural areas have been particularly dramatic. For example, mobile technology greatly reduces

communication costs and, as a result, allows individuals to obtain information regarding prices

and market conditions more quickly (Aker and Mbiti 2010). This results in a more efficient

inventory stock in stores, and overall greater match of supply to demand. Abraham (2007) found

that cell phones helped fishermen in India work more efficiently by improving their access to

pricing information and helping them coordinate supply and demand, reduce uncertainty,

decrease price dispersion, and even improve their quality of life.   

Not only have mobile phones greatly reduced communication costs but they have evolved

into service delivery platforms that have created new jobs and provided income-generating

opportunities in both rural and urban areas. In Uganda, for instance, mobile phone coverage is

associated with a 10 percent increase in a banana farmer's probability of market participation.

Furthermore, this same data suggests that mobile coverage helps improve the market efficiency

for perishable crops much more than for storable ones. As a result of this improvement in

efficiency, farmers experience reduced marketing costs and increased profits by offering more

geographically consistent prices (Aker and Mbiti 2010).

Along with reducing costs, mobile phones have created entirely new markets that

services and companies can exploit. A prime example is the concept of mobile banking, which

increases cheap access to finances. Fifty-eight percent of mobile users in the Sub-Saharan

African region have shown an interest in mobile banking (Ericsson 2014). This technology has

led to increased business opportunities in the form of new business models, apps, and mobile

services. One such service is M-Pesa, a Kenyan mobile payment service that gives people

without bank accounts easy access to cheap money transfers. Since its launch in 2007, the

company has served more than five million customers; more subscribers, in fact, than the number

of Kenyans with bank accounts (Etzo and Collender 2010).

The restrictions imposed by government regulations and corrupt officials affect all

entrepreneurs, both small and medium. It may initially seem unimportant to consider the impact

of small entrepreneurs, especially unregistered ones; however, previous studies show that even

small firms collectively have a significant impact on national wealth and economic growth

(Dickson 1997).

The literature shows that cell phones are an economic benefit. It also chronicles that poor

government regulatory environments negatively affect economic growth (Djankov 2006). Poor

business environments in Africa make doing business more costly. “Poor business environments

generate entry barriers that provide larger firms with anticompetitive rents. Firms that might push

for reform are therefore faced with a choice between a hostile business environment that they

have learned to negotiate and an unknown situation with potentially large increases in entry and

competition” (Eifert 2006, 222).

Some examples of these restrictive regulations include the time and procedures necessary

to legally start a business. The average amount of time it takes to start a business in Sub Saharan

Africa is about 27 days, as opposed to 8.3 days for high income OECD countries. The average

number of necessary procedures in the region is 7.8, while in the high income countries that

number is 4.8. Some of these procedures can include registration with various government

entities, application for tax ID numbers, inspections, various licensing requirements, notifying

the government of the start of operations, and publication of the company’s inception in a

newspaper or legal journal (World Bank 2016).

High costs and barriers to forming a business lead to a very large informal economy.

Grimm, van der Hoeven, and Lay find three main barriers to market entry in West Africa: cost

and delays to obtain permits, lack of information (many people are unaware of the necessary

procedures), and poor provision of public services. As a result, entrepreneurs generally view the

costs of establishing a formal business as far higher than the benefits (2011, 7).

The story of government regulation in Africa is not all bad news, however. Sen and Te

Velde find that good state-business relationships significantly contribute to economic growth in

Africa. These state-business relationships are defined by transparency (the degree to which

information exchange between the public and private sector is reliable and accurate), reciprocity

(the ability of the state to achieve better private performance with subsidies), and credibility (the

extent to which businesses can believe the government). Sen and Te Velde also find that these

relationships have been steadily improving in Africa since the 1970s (2009).

Our paper seeks to link these two factors by exploring how mobile technology helps

individuals get ahead in spite of the obstacles of government regulations. We assess side by side

the impact that mobile technology and government regulations have on entrepreneurship and

attempt to determine which is more significant. Our results yield preliminary conclusions about

policy options and how governments can better foster entrepreneurial activity in their given

economies.

Theory: Causal Logic and Alternative Explanations

The effects that cell phones and government regulations exert on developing economies

are well documented. But what do these effects mean for entrepreneurs specifically?

Our argument is that cell phones have a greater effect on African entrepreneurship than

government regulations. By decreasing communication costs and providing a new platform for

innovation, as well as introducing a new sector into the economy (mobile subscriptions and

related products), cell phones make it easier to start a new business. We theorize that government

regulations will be burdensome, but that cell phones will help people sidestep those burdens due

to poor government capacity.

We theorize that there are three main ways in which cell phones boost entrepreneurship.

We call these categories incremental, transformational, and production. Incremental benefits

refer to the impact that mobile phones have on improving the efficiency of what people and

businesses already do. Transformational refers to new developments, such as new mobile apps

and services like M-Pesa. Finally, production refers to the selling of mobile phones and

subscriptions themselves (Etzo and Collender 2010).

Due to the widespread informal economy and low levels of government capacity, cell

phones will empower prospective entrepreneurs more than existing regulations will dissuade

them. African governments in particular are generally poorly equipped to enforce every written

regulation (The World Bank’s Worldwide Governance Indicators typically report Sub Saharan

African countries in the 0-50th percentiles in terms of government effectiveness [Worldwide

Governance Indicators 2015]). Entrepreneurs will therefore take advantage of mobile technology

to solve their individual problems, and the government will do little to stop them.

The informal economy in Africa is very extensive. “The informal sector contributes about

55 per cent of Sub-Saharan Africa’s GDP and 80 per cent of the labour force” (African

Development Bank Group, 2013). It is also closely tied to low levels of government capacity,

because cash-based businesses can be hard to track, and many African governments do not have

the institutional strength to enforce their own regulations. “The prevalence of informal activities

is closely related to an environment characterized by weaknesses in three institutional areas,

namely taxation, regulation and private property rights” (ibid.).

Complicated and confusing government regulations discourage entrepreneurs from

formalizing their businesses, and low government capacity means that they do not need to. Cell

phones will invigorate the informal sector by increasing efficiency (in terms of pricing

information and coordination) and stimulating innovation (by inventing new ways to use mobile

phones). Because mobile phones make conducting business and earning a profit much easier,

they will encourage more people to start informal businesses.

We recognize that favorable government regulations can also stimulate entrepreneurship,

and we predict that this will occur alongside cell phone use in an additive way. Both of these

independent variables will help entrepreneurs, and together, they will boost entrepreneurship

even more. This is because cell phones can empower people regardless of the regulatory

environment. And people without cell phones will still be more likely to start businesses if the

regulations are less cumbersome and more easily understood.

One alternative explanation could be wealth. Wealth could be affecting cell phone use

because a mobile subscription costs money. Therefore, if a cell phone-owning person is more

likely to be an entrepreneur, it could be because that person is wealthier than others to begin

with. This would mean he has more access to capital and is less afraid to engage in financial risk.

Although the use of cell phones across Africa has become widespread (roughly 66% of Africans

own a cell phone, according to data from the Pew Research Center), the rural, more

impoverished population is still less likely to own a cell phone. About “129 million people living

in rural areas across Africa are still not covered by a mobile cell signal” (Winsor 2015). The

growth of subscriber rates in Africa is predicted to slow down from 14% over the past five years

to about 7% over the next five years, but this is mostly due to saturation (ibid.). Despite the

underrepresentation of the most poor rural areas from cell phone ownership, the high level of

saturation suggests that wealth is not a main driver of the phenomenon anymore.

Education might also be affecting cell phone use, entrepreneurship, or both. People who

are more educated might be drawn to the benefits of cell phones. More likely, educated people

might be drawn to entrepreneurship, seeing as they have developed skills and knowledge sets

that could make them more adept at starting and running a business. However, we note that

entrepreneurs in the informal African economy typically lack education. Still, this could be an

important factor.

The percentage of the population between the ages of 15 and 64 could also be important.

If this population is very high in a given country, that country might have higher levels of

entrepreneurship simply because there are more people that could be starting their own business.

Also, it seems likely that younger people would be more drawn to cell phones.

Operationalizations

We define the term “cell phone use” as the number of mobile phone subscriptions per

100 people. We use data from the World Bank to measure this.

We use the term “entrepreneur” to mean anyone who incurs financial risk in order to start

a business. To quantitatively measure this, we use data from the Global Entrepreneurship

Monitor’s 2012 Sub Saharan Africa Regional Report that measures the Total Early-Stage

Entrepreneurial Activity in each country.

By “government regulations,” we refer to all the legal requirements for starting and

operating a business, including permits, procedures, fees, duties, etc. We measure these by using

the World Bank Doing Business rankings.

Methods

Our research consisted of two parts: a qualitative analysis involving in-depth personal

interviews, case studies, and statements; and a quantitative analysis to evaluate trends across the

continent.

We conducted seven in-depth interviews with people from various African countries as

well as professors who specialize in African politics, economics, and geography. The interview

questions are as follows:

1. Have you met any entrepreneurs in Africa? If so, what do they do? What were some

major factors that facilitated the start-up process? What role does mobile phone

technology play in their business?

a) How did mobile phone technology impact the startup process?

b) What role does government regulation play in the startup process?

2. In your perspective, what are the major factors that facilitate entrepreneurship in Africa?

a. What are the major factors that impede entrepreneurship in Africa?

3. What is your perspective on the role of mobile phone technology in entrepreneurship

trends in Africa generally?

4. What is your perspective on the effect of regulatory environments on entrepreneurship

trends in Africa?

5. How have the facilitating factors and barriers to entrepreneurship changed in the past

fifteen years?

6. How do you think mobile phone technology could be better utilized to encourage

entrepreneurship in Africa?

7. What do you think governments can do to better promote entrepreneurship?

8. Is there anything else you would like to say about the role of mobile phone technology in

entrepreneurship in Africa, or in the developing world in general?

We also conducted quantitative analysis on the relationship between cell phone usage,

government regulatory environment, and total entrepreneurial activity.

We gathered data on each of these indicators from the World Bank Database, the World

Bank Doing Business database, and the Global Entrepreneurship Monitor, respectively. We

analyzed this data for 18 African countries; every country for which data was available on all

three variables.

To evaluate the individual impact of both cell phone use and government regulatory

environment on entrepreneurship, we collected lagged data for each of these independent

variables. We lagged the data by two years to allow time for entrepreneurial activity to develop.

We included each variable in a regression analysis, because we theorize that they are additive.

Included in the analysis are the control variables of GDP per capita, adult literacy rate, and the

population ages 15-64.

The GEM index only includes measures of entrepreneurial activity for 18 African

countries. This severely limits our analysis. To compensate, we consulted with a professional

statistician in the Kimball Tower of Brigham Young University, who used statistical tools to

predict the values of the missing variables based on patterns in the data. This imperfect

imputation filled in the missing data but did not entirely compensate for such a small sample

size.

Findings

From our interviews, as well as books and case studies we consulted, we found that the

spread of mobile phones across the African continent has been immensely beneficial to

entrepreneurship, in spite of onerous business regulations. Indeed, cell phones are proving to be

more helpful to startups than government regulations are hurtful. They provide access to mobile

money, facilitate greater knowledge about prices, help expand customer networks, and provide

new platforms for innovation. All of these tools make life much easier for prospective

entrepreneurs despite regulations like trade barriers, fees, and permit requirements. We provide

an explanation of each of these pathways, as well as the role of government.

Mobile Money

Cell phones provide a powerful tool to access financial services such as banking and

finance. Jacob Acqua, a Ghanaian, and Edward Mugbua, a Kenyan, both emphasized that one

cannot start a business without capital. And access to capital is much easier with a cell phone,

especially since almost 90% of Africans do not have bank accounts. The power of mobile money

in entrepreneurship “cannot be overstated,” according to Professor Daniel Nielson. Mobile

money “enables people to have financial services that they wouldn’t be able to have without the

mobile phone… You can transfer money to someone else, exchange with businesses, [and] you

could use it as as savings account.” Professor Nielson, an African geography professor, also

emphasized the power of mobile financial services.

The financial access that mobile phones provide enables Africans to build a safety net for

themselves by accumulating assets. Dayo Olopade, a Nigerian journalist, writes of the

importance of mobile money: “[It] offers security, convenience, and empowerment--not to

mention a long-sought ability for individuals in poor countries to build assets” (101). Olga

Stoddard, a professor of economic development, said, “Access to funding has been a huge tool

because it provides people with access to a safety net.” Without access to finance, she said,

people have nothing to fall back on if their entrepreneurial efforts fail. The rise of mobile finance

and microfinance empowers people to take on a risk to start a business. Cell phones make access

to finance much easier.

Pricing Information

“The key here is not the cell phone itself, but the information,” said Stoddard. A cell

phone provides instant access to information that would otherwise incur significantly higher

costs in terms of both time and money. Specifically, mobile phones help entrepreneurs by

increasing their access to pricing information. Olopade illustrates this point well:

In Niger... traveling to a market to figure out the price for a cash crop may gobble

between two and four productive working hours. A brief call between a producer and

vendor provides the answer in a fraction of the time, and at half the cost. Phones change

market behavior--Nigerian grain traders with mobiles have more connections and a wider

sales radius, which increases the price they can get for their goods (98).

Daniel Nielson conducted a study in Tanzania in which women with small businesses

were randomly selected to receive cell phones or cash. The ones who received the phones

reported double the weekly income of those who received cash. Nielson mentioned that one of

the major reasons for this was access to pricing information.

Mozambique resident Louis Belchior emphasized the importance of pricing among

fishermen. Since fish is a popular commodity in the market, a group of fishers go fishing each

day to provide the supply. Mobile technology allows them to better communicate with each other

about pricing issues. On some days fishermen catch more fish than on others. On the days when

no one catches many fish, Louis said, the fishermen coordinate with each other to set a higher

price to compensate for scarcity. Such coordination is only be possible because of mobile

technology.

Edward Mugbua, former native of Ghana, expressed a different view on the effect of

mobile technology on pricing. In the rural area where many natives live, individuals have to walk

upwards of 20 to 50 miles just to arrive at a marketplace. For example, an individual may go to

the nearest town to buy a certain selection of canned goods. Without mobile technology,

individuals would walk the 20 miles and arrive to realize that the goods had been out of stock.

Another benefit, then, of mobile phones is that they allow consumers to be more productive and

organized. This in turn results in more sales for the small vendors and an overall economic boost.

Customer Networks

Cell phones make building a customer base much easier by allowing instant and cheap

communication. Potential entrepreneurs can use this as a tool to evaluate the market, establish

widespread contacts, and maintain good relations with customers.

Darryl Dzapasi, the son of two Zimbabwean entrepreneurs, emphasized the role of the

mobile phone in expanding customer networks and maintaining customer relations. He

explained, “They can make a customer calling list to inform them of new stuff, and send them

pictures of things they have done before.” His father runs an electronics repair shop and uses

mobile phones to build relationships with customers and tell them when their appliances are

ready.

Jacob Acqua is another child of an African entrepreneur. He explained that his father, a

Ghanaian, relies on cell phones to build his customer network. He does not sell his product in

stores. Instead, he calls potential clients and offers them free samples.

Louis Belchoir explained that mobile phone technology allows small businesses to

expand their business operations. For instance, in Mozambique a popular marketplace item is

called Capulana, which is a type of fabric used for apparel. Louis explained that mobile

technology not only helped entrepreneurs selling Capulana reach a larger audience in

Mozambique, but also allowed them to expand to other countries. Many orders for Capulana

come from neighboring countries such as Malawi.

Platforms for Innovation

Cell phones open new windows of opportunity for African entrepreneurs. People take

advantage of these opportunities by creating innovative apps, tools, and businesses in a wide

variety of fields using the cell phone as a platform. Here are a few examples:

Nana Opoku Agyeman-Prempeh in Ghana started a business using cell phones to help

churches manage their congregations. Members can pay tithes, access sermons, and find

upcoming church events using the app. So far, “he has signed 395 churches...and registered

30,000 church members to his platform” (Dolan 2016).

Kelvin Macharia Kuria of Kenya founded Sunrise Tracking, a company that tracks stolen

cars and allows people to disable a car’s engine with a text. The company made “$80,000 in

revenues in 2015” (Dolan 2016).

Bright Simons of Ghana built a company (mPedigree) that allows people to use text

messaging to verify if their malaria pill is real or fake (Olopade 116-117).

The Role of Government

Every source we consulted mentioned the detrimental effect of government regulations.

Governments in Africa tend to hinder entrepreneurship through high tariffs, high costs of

registering a business,

Dzapasi says that licensing constraints and high costs for importing and exporting

materials place a large burden on entrepreneurs.While African governments certainly hurt

startups, the powerful tools of mobile phones are enabling many entrepreneurs in the informal

sector--where small businesses ignore regulations altogether. Ironically, the weakness of

government institutions in Africa might be benefiting entrepreneurship in this way. Professor

Nielson stated, “African governments have little capacity to shut down mobile money and small

businesses...and I think it’s a source of economic growth for them.” Nielson mentioned that

people in India don’t have bank accounts either; but there, the regulatory system is strong enough

that it has shut down mobile money.

Grimm, van der Hoeven, and Lay corroborate the explanation of low government

capacity. They conducted survey research on the informal economy across West Africa and

explain that “non-registration is...an issue of weak law enforcement and not the result of a fear

for corruption once registered. Moreover the surveys suggest that public authorities do not force

informal production units to comply with the law. It is rather the case that no one really knows

who should register and pay taxes, thus creating a grey zone prone to informal arrangements and

negotiation, including corruption” (2011, 8).

Given these government regulations what can government leaders do to effect change?

For one, reduce corruption. All of our interviewees referenced the negative effect of corruption

on entrepreneurship. While the effect of corruption on economic growth has been heatedly

debated, studies show that corruption has a generally negative effect on the economic growth

rate of an economy. For instance, in a well-cited study, a 1% increase in the corruption level was

found to reduce the growth rate by 0.72% (Mo, 2001). The same study also found that corruption

reduces the level of human capital and the share of private investment.  

When an economy has a reputation for a difficult place to do business, often it is because

of unpredictable regulation and weak property rights such as in many African countries. When,

for example, property rights become hard to defend against powerful people, small businesses go

out of business and stay out of business (Johnson 2013). For instance, a shallow glance at the

Global Report for Entrepreneurship will reveal a seemingly positive statistic: Sub-Saharan Africa

reports the highest intentions or aspiring entrepreneurs of any geographic region at 53 percent

(Global Report 2012). A closer look will show that despite a high level of entrepreneurial

activity South Africa’s established business ownership rate sits at a measly 2%. This shows that

while there are many entrepreneurs, entrepreneurship as a profession is unstable and

unsustainable in many cases. This suggests that government can significantly benefit economies

and even entrepreneurs by offering more stable economic environments with reduced corruption

and better government regulation. In fact the Global Report of Entrepreneurship says that “As

per capita income increases, larger established firms play an increasingly important role in the

economy (Global Report 2012). Furthermore, the report says. “This provides an option for stable

employment for a growing number of people, serving as a viable alternative to starting a

business.” Such implications should not be considered lightly.

One further area for study about the role of government involves the use of subsidies for

cell phones. Should governments subsidize their growth? Would that be beneficial to

entrepreneurship? Future research is merited.

Quantitative Analysis Results

Due to missing data, our quantitative analysis is severely limited. Even with imputed

variables, we found no significant results about the relationship between cell phone use, business

regulations, and entrepreneurship. We included measurements for each of our alternative

explanations: wealth (GDP per capita), education (adult literacy rate), and percentage of the

population aged 15-64.

Below are the results:

Main dependent variable: GEM Total Entrepreneurial Activity

I. II. III. IV.

Cell phone use -.187

(.128)

-.307

(.170)

-.294

(.221)

-.049

(.257)

Ease of doing business .554

(.399)

.607

(.480)

.536

(.555)

.452

(.587)

GDP per capita .002

(.003)

.001

(.004)

Adult literacy rate .104

(.425)

-.032

(.747)

Percentage of Population ages 15-64 -1.773

(1.423)

N=54

*** = p <.001, **= p<.01, ***= p<.05

It could be that none of these variables are significant predictors of entrepreneurial activity.

However, we recommend more extensive data collection before arriving at that conclusion.

Alternative Explanations

Our qualitative sources indicate that corruption does not benefit entrepreneurs but retards

their progress. However, an alternative view exists that corruption actually greases the wheels of

entrepreneurship (Dreher and Gassebner 2007). Many entrepreneurs in Africa face stiff obstacles

when trying to register with the government. Often businesses will be set back by procedures

required to start a business, time needed to undergo these procedures, and the capital

requirements needed to start a business. One alternative hypothesis is that corruption can act like

a greasing agent, and allow individuals to circumvent requirements and significantly reduce the

amount of time dealing with bureaucracies. Indeed, statistical data and studies show that

corruption can be beneficial and is even correlated with entrepreneurial activity (Dreher and

Gassebner 2007). However, according to our qualitative results, this does not seem to be the

case. The majority of our interviewees who are natives of countries in Africa expressed the view

that corruption seriously dampens entrepreneurial activity. In the words of Edward Mubua, when

governments accept bribes and conduct their operations in a corrupt fashion it is like being in a

“game without rules”. While corruption may help entrepreneurs in the short term, the long term

effect is inconclusive with our current data.

Furthermore, an underlying assumption of our argument is that entrepreneurship is

fundamentally good for the economy. However, we recognize that in certain circumstances an

increasing rate of entrepreneurship may not in fact be good for the economy. In fact, reputable

sources indicate that high rates of entrepreneurship is definitely not correlated with higher rates

of GDP per capita (Global Report 2012). For example, in many regions of Africa

entrepreneurship is seen as a fallback option when an individual fails to get employed by a larger

firm (Johnson 2013). Furthermore, the 2012 Global Report for the Global Entrepreneurship

Monitor concludes that economies with low GDP per capita are correlated with higher Total

Entrepreneurial Activity (Global Entrepreneurship Report 2012). What’s more, in economies

with low GDP per capita and high TEA rates, entrepreneurs tend to consist more of necessity-

motivated entrepreneurs as opposed to opportunity-driven entrepreneurs. This data suggests that

entrepreneurial activity, especially when necessity-driven, may not in fact be the best solution to

grow an economy.

Consider, for example, Zambia, which has the highest entrepreneurship rate in the 2012

Global Report. What is disturbing, is that Zambia’s level of established business owners is less

than 10% of its entrepreneurship rate. Zambia also ranks 106th in the world for economic

freedom and 16th in Sub-Saharan Africa (Heritage 2016).  This raises several question such as

why many entrepreneurs start businesses but few make it past the early stages (Global Report

2012). If indeed need-based entrepreneurial activity is unsustainable then our claim that mobile

phones improve entrepreneurship is rendered irrelevant. And if irrelevant, instead of policies that

encourage entrepreneurship, countries should implement policies that improve their business

environment that will result in a more robust economy. When economies become more robust

there will be a greater availability of resources and opportunities, leading to a possible boost in

opportunity-motivated entrepreneurship. This may require us to re-analyze the implications of

our research. In other words, what should governments do: improve regulations or encourage

mobile usage?   

Undeniably, mobile phone technology is beneficial not only for entrepreneurship but

more importantly for economic growth. For instance, mobile use has a positive effect that is

twice as large in developing countries compared to developed countries (Meschi 2005).

According to the same study, from 1996 to 2003, if a developing country had an average of 10

more mobile phones per 100 population it would have enjoyed per capita growth that was 0.59

percent higher than other countries. Another study by Deloitte found that mobile phones can

have a measurable impact on economic growth even in saturated markets like the United States.

For example, the study concluded that for every 10% shift in American markets from 2G to 3G

between 2008 and 2011, per capita GDP increased by 0.4% (Hendrix 2012). Despite these strong

claims about the positive impact of mobile phones, it remains unclear whether improving

government regulations would be more beneficial than encouraging mobile usage.  This specific

issue deserves further study.

Limitations

We have noted the limitations on our quantitative analysis, but our qualitative data is also

limited. We conducted seven interviews: three with professors and four with Africans. Those we

interviewed do not represent Africa as a whole, as they all currently attend Brigham Young

University. The books and other sources we consulted add more depth and authority to our

conclusions, but they still are not exhaustive.  

Conclusion

Based on the evidence we gathered from Africans and experts and the theory we

developed, we argue that mobile phone use is a greater facilitator to starting a business than

government regulatory environments. This is so because mobile technology empowers

entrepreneurs by allowing them to circumvent government regulations in four main ways: access

to mobile money, pricing information, building customer networks, and providing platforms for

innovation. Limitations in government capacity allow this.

We fail to produce good evidence for our third argument, that countries with higher

levels of cell phone use will have higher levels of entrepreneurship. This is mainly due to a lack

of available quantitative data. We conclude that the spread of cellphones is a boost to

entrepreneurship. Policies that seek to ease access to cell phones and mobile money will help

encourage economic development by stimulating innovation.

One further question for future study would be the differences between so-called

“smartphones” and “dumbphones”. “Dumbphones” are far more widespread in Africa. Does the

increased ability of a smartphone improve economic prospects more than a simple

“dumbphone”? This is a relevant question for future research.

Our qualitative evidence clearly shows that mobile technology significantly helps

entrepreneurs. However, the strength of our paper is considerably weakened when we consider

the importance of entrepreneurship in Africa. Does it even matter whether mobile phones or

government regulations improve entrepreneurship? Admittedly, our research question rested on

the underlying assumption that entrepreneurship helps economic growth. After careful research

this assumption turned out to be partially false. What we found is that high levels of

entrepreneurial activity correlate with lower levels of GDP per capita. More specifically, high

levels of necessity-driven entrepreneurial activity are a negative indicator for an economy. This

is particularly unsettling for our argument considering that while mobile technology may indeed

boost entrepreneurship it may not result in a substantial gain for the overall economy. Indeed, in

the last stages of our research we found that opportunity-driven entrepreneurial activity, the

entrepreneurial activity that is more important, is higher in economies with more sophisticated

ecosystems for business (Global Entrepreneurial Report 2012). This is significant because it

directly influences our ultimate conclusion.

Without doubt, we stand by our conclusion that mobile technology benefits

entrepreneurial activity. However, if we consider the two types of entrepreneurs, necessity-

motivated or opportunity-driven, it is undeniable that improving government regulations will

result in a greater increase in opportunity-driven entrepreneurial activity and more importantly

result in higher GDP per capita. Although we provide insight into whether government

regulations or mobile phones are more important for entrepreneurship, a more relevant question

may be whether mobile phones or improved government regulations have a greater impact on

economic growth as a whole.  

Bibliography

Abraham, Reuben. 2007. Mobile Phones and Economic Development: Evidence From the Fishing Industry in India. Information Technologies and International Development, 4, no.1 (Fall): 5-17.

Acqua, Jacob. Personal Interview. Conducted November 2016.

African Development Bank Group. 2013. Recognizing Africa’s Informal Sector. March 27. http://www.afdb.org/en/blogs/afdb-championing-inclusive-growth-across-africa/post/recognizing-africas-informal-sector-11645/

Aker, Jenny C. 2010. “Information from Markets Near and Far: Mobile Phones and Agricultural Markets in Niger.” American Economic Journal: Applied Economics, vol. 2, no. 3 (July): 46- 59. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/25760219.pdf

Aker, Jenny C., and Mbiti, Isaac M. 2010. “Mobile phones and economic development in Africa.” The Journal of Economic Perspectives, Vol. 24, No. 3 (Summer): 207-232. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/20799163.pdf

Badenhausen, Kurt, “African Nations Dominate The Worst Countries for Business 2015” Forbes, December 16th, 2015.

Belchior, Luis. Personal Interview. Conducted November 2016.

The Borgen Project. 2015. The growth of mobile money in Africa. 25 Sep. http://borgenproject.org/mobile-money-in-africa/

Catalano, Frank, “Landline death watch? Wired phones now in only half of U.S. households” GeekWire, February 24th.

Dreher, Axel, and Martin Gassebner. "Greasing the wheels of entrepreneurship? Impact of regulations and corruption on firm entry." (2007).

Dickson, K., A. M. Coles, and H. Lawton Smith. "Staying the course: Small firm strategies for long term R&D collaboration." Business and Enterprise Development Journal 4.1 (1997): 13-21.

Djankov, Simeon; McLiesh, Caralee; and Rita Maria Ramalho. 2006. “Regulation and Growth.” Economics Letters 92, 395-401.

Dzapasi, Darryl. Personal Interview. Conducted October 2016.

Dolan, Kerry A. “Africa’s Most Promising Entrepreneurs: Forbes Africa’s 30 under 30 for 2016.” Forbes.com, June 6. http://www.forbes.com/sites/kerryadolan/2016/06/06/africas-most-promising-entrepreneurs-forbes-africas-30-under-30-for-2016/#127ee0233acf

Eifert, Benn; Gelb, Alan; and Vijaya Ramachandran. 2006. “Business Environment and Comparative Advantage in Africa: Evidence from the Investment Climate Data.” Annual World Bank Conference on Development Economics 2006: Growth and Integration.195-233.

Ericsson. 2014. Sub-saharan Africa: Ericsson mobility report appendix. June. http://www.ericsson.com/res/docs/2014/emr-june2014-regional-appendices-ssa.pdf

Etzo, Sebastiana, and Collender, Guy. 2010. “Briefing: the mobile phone 'revolution’ in Africa: rhetoric or reality?” African Affairs, vol. 109, no. 437 (October): 659-668. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/40928368.pdf

Grimm, Michael, van der Hoeven, Rolph, and Jann Lay. 2011. Unlocking potential: Tackling economic, institutional and social constraints of informal entrepreneurship in Sub-Saharan Africa: Main findings and policy conclusions. The World Bank, November.

Hendrix. 2012. “New Study: Cell Phones Encourage Economic Growth” U.S. Chamber of Commerce, (December) https://www.uschamberfoundation.org/blog/post/new-study-cell-phones-encourage-economic-growth/34285

Index of Economic Freedom. Heritage. 2016 http://www.heritage.org/index/country/zambia

Jensen, Robert. 2007. “The digital provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector.” The Quarterly Journal of Economics, vol.122, no.. 3 (Aug): 879-924. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/25098864.pdf

Johnson, Simon. 2013. “The Government and the Entrepreneurs” The New York Times, (Aug) http://economix.blogs.nytimes.com/2013/08/22/the-government-and-the-entrepreneurs/?_r=0

Mbiti and Weil. 2011. “Mobile banking: The impact of M-Pesa in Kenya” nber.org

Mo, Pak Hung. 2001. Corruption and Economic Growth. Journal of Comparative Economics, no. 29, Issue 1, (March): 66-79.

Mugbua, Edward. Personal Interview. Conducted November 2016.

Naude, Wim. 2010. “Entrepreneurship, Developing Countries, and Development Economics: New Approaches and Insights.” Small Business Economics, vol. 34, no. 1 (Jan): 1-12. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/40540452.pdf

Nielson, Daniel. Personal Interview. Conducted November 2, 2016.

Olopade, Dayo. 2014. The Bright Continent: Breaking Rules and Making Change in Modern Africa. Mariner Books, New York.

Pew Research Center. 2015. “Cell phones in Africa: communication lifeline.” 15 April. http://www.pewglobal.org/2015/04/15/cell-phones-in-africa-communication-lifeline/

Sen, Kunal, and Te Velde, Dirk Willem. 2009. State Business Relations and Economic Growth in Sub-Saharan Africa. Journal of Development Studies, 45, no. 8 (September): 1267-1283.

Shem, Alfred Ouma; Misati, Roseline; and Njoroge, Lucas. 2012. “Factors driving usage of financial services from different financial access strands in Kenya.”  Savings and Development, vol. 36, no. 1: 71-89. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/savideve.36.1.71.pdf

Stoddard, Olga. Personal Interview. Conducted November 9, 2016.

Suri, Tavneet; Jack, William; and Stoker, Thomas M. 2012. “Documenting the birth of a financial economy.” Proceedings of the National Academy of Sciences of the United States of America, vol. 109, no. 26 (26 June): 10257-10262. http://www.jstor.org.erl.lib.byu.edu/stable/pdf/41602848.pdf

Waverman, Leonard, Meloria Meschi, and Melvyn Fuss. "The impact of telecoms on economic growth in developing countries." The Vodafone policy paper series 2.03 (2005): 10-24.

The World Bank. 2016. Doing Business Data. http://www.doingbusiness.org/data/

Worldwide Governance Indicators. The World Bank. 2015. http://info.worldbank.org/governance/wgi/index.aspx#reports