In Africa, local manufacturing of smartphones can be a viable option with fiscal support from governments (report)
July 26th 2023
While nearly 700 million Africans are not yet connected to the Internet, easing the tax burden on local assembly plants could help them produce affordable smartphones. But other alternatives exist to increase the adoption of broadband-enabled devices.
Making affordable smartphones in Africa remains an expensive process as venture capitalists do not understand the entire value chain, but removing tax burdens on local producers could be an option viable to reduce the cost of these devices, according to a report published on July 24 by Ecofin Pro, the Ecofin agency’s platform dedicated to professionals in several sectors.
Entitled ” Manufacturing smartphones in Africa, a winning strategy or a false good idea?” “, the report underlines that the access of Africans to mobile devices adapted to broadband is essential to reap the dividends of the digital economy which could represent 5.2% of the gross domestic product (GDP) of the continent on the horizon. 2025, i.e. just over 180 billion dollars, before reaching 712 billion dollars by 2050.
But this access is not easy for the majority of the African population given their purchasing power and the selling prices of smartphones. While the World Bank estimates that 85% of Africans live on less than $5.50 a day, the International Telecommunications Union (ITU) points out that smartphones in poor and developing countries, especially in Africa, are still very Dear. In some markets, you have to pay almost 60% of your monthly income to own one.
Despite attempts by major manufacturers such as Apple, Samsung, Huawei and even Transsion to offer low-cost smartphones, these devices are still inaccessible to many Africans. This also explains why nearly 700 million Africans are not yet connected to the Internet while the mobile coverage rate is around 90%.
Given this large number of people who still need to be equipped, several investors have smelled the right move and have again embarked on the local production of mobile devices adapted to broadband after some failures recorded between 2012 and 2016.
High production costs
These investors aim to produce smartphones adapted to the financial capacities of local populations, and therefore less expensive than those offered by the big brands which still contribute to the digital exclusion of several hundred million Africans. It is not yet a question of local manufacture of smartphones, but of local assembly. Manufacturing implies the production on the continent of all the physical components essential to making a smartphone, which requires significant resources, including research and development laboratories, parts production lines, etc.
Among these African initiatives, the report drawn up by our colleague Muriel Edjo cites that of the Angolan company LiraLink Tecnologia, which has joined forces with the Chinese company ZTE to set up a smartphone factory in Angola. The assembly plant, which should be operational in 2024, will focus on the production of 4G and 5G devices.
Last May, the Kenyan telecom operator Safaricom already revealed its ambition to invest in a smartphone assembly plant in association with its competitor Jamii Telecommunications and the Chinese company Shenzhen TeleOne Technology.
Investors’ renewed interest in local production arose in 2019, thanks to the rapid adoption of new mobile technologies (4G, 4G+) and the increase in mobile data consumption that it generated. It strengthened in 2020 with the explosion in consumption induced by the coronavirus pandemic.
However, opinions remain divided on the effectiveness of local production of smartphones to improve digital inclusion.
Kenya shows the way forward
Reducing the tax burden on local producers can, however, be a key measure to achieve a locally manufactured and affordable device. Kenya has already embarked on this path under the leadership of President William Ruto, who has made universal access to a quality smartphone under $50 a mission to promote digital inclusion in his country.
“ The cheapest smartphone costs between 10,000 Kenyan shillings (Ksh) ($72) and 15,000 Ksh ($108). We can reduce the taxes to 3000 Ksh ($22), which will give the final price of the locally assembled smartphone between 6500 Ksh ($47) and 7000 Ksh ($51),” the Kenyan leader had said in November 2022.
Safaricom Venture has indicated in this context that value added tax (VAT) on imports, excise duty on mobile phones assembled or manufactured locally and VAT on the output of the device should be abolished to match the presidential view.
The removal of these taxes already seems to have been taken into account since Mr. Ruto declared on June 30, during the launch of the government’s digital services platform, that “we are on the right track with our telephone operators to ensure that by August 2023, we will have affordable smartphones ”.
Alternatives
Besides easing tax burdens for local producers, the report says there are several other alternatives to get smartphones into the hands of more Africans. These include the reduction of taxes imposed on imported smartphones, as Chad, Algeria and Senegal are already doing, the adoption by operators of credit purchase programs for devices, and the subsidization by governments of the acquisition of smartphones by less privileged population groups, through the universal telecommunications service fund.
Source: Agence Ecofin Back