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Who Will Hurt More?

March 7, 2011 - 0 Comments

It is a common belief that a prolonged, nation-wide outage of communications networks would hit developed countries harder than developing countries. A study made by Scott Dynes et al. in 2006 has estimated losses for three segments of US economy if communications networks go down (see “Costs to the U.S. Economy of Information Infrastructure Failures: Estimates from Field Studies and Economic Data”, 2006 for details). The study highlighted three important areas of potential impact: electric, automobile, and oil refining. In a case of an outage affecting the first two segments, the study looked at losses if the Internet goes down. The study found that oil refining is not as dependent on the Internet, so the losses were estimated if their SCADA systems would become unavailable. Total losses for these three segments of US economy are estimated to be in a range of US $500 million for a 10-day outage.

Everyone knows that developed countries rely on computers and communication networks to a high degree. Much of their infrastructure is controlled by computers. Many of the manufacturers adopted just-in-time logistics, where needed material and goods are delivered shortly before they are needed. And it is not only them; in 2007 Lord Cameron of Dillington, head of the Countryside Agency, said that Britain is only nine meals away from anarchy. This means that shop chains have food in stores for only three days, and if the stock is not replenished in that time, the shops would run out of food. All this intricate choreography is possible thanks to computers, which are monitoring various parts of our economy and keeping things running smoothly.

On the other end of the scale are developing countries. Their economies are not automated to such a degree. Their shops do not rely on computerized stock tracking and automatic purchasing. And finally, there are fewer people who possess computers at home and use them on a regular basis for everyday activities, such as placing orders or entertainment.

However, the picture we have painted is not complete. Developing countries are dependent on communications networks, but not necessarily in the same way that developed countries are. For instance, Kenya, like many developing countries, embraced mobile phones and is now in the forefront of a mobile money development.

The most popular mobile money payment system is M-PESA. It is used for virtually everything. With M-PESA, it is possible to pay for your shopping, school tuition fees, utilities, or to transfer money to someone else. M-KESHO is a complementary service that offers an equivalent of a savings account.

M-PESA, owned by mobile provider, Safaricom, was launched in 2007 and is now adopted by more than half of Kenya’s adult population (around 13.4 million customers). According to Scaling Mobile Money the number of transactions processed, this provider is huge, and so is their worth. In one month M-PESA processes US $415 million, which is equal to 17% of Kenya’s 2009 GDP on an annualized basis. And all of that underpinned by mobile networks.

What would happen if mobile networks across Kenya went down for 10 days? A good portion of everyday life would stop. People would be unable to pay and transfer money. Shopkeepers would be unable to pay for delivered goods or order new stock. Overall, approximately US $100 million worth of transactions would not be realised. That is almost an equivalent of 5% of Kenya’s GDP in 2009.

As we have seen, a similar 10-day Internet outage (for the electric and automobile industry segments) and SCADA outage (for the oil refining segment) in the US would cause losses around US $500 million. But while the absolute amount of loss is higher than Kenya would suffer, the US $500 million represents only an equivalent of only 0.0035% US GDP, which is a much smaller percentage than Kenya would have to bear.

Now, in such a scenario, who will hurt more?

(With contributions from Mwende Njiraini, Kenya)

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