The Internet Economy

The evolution of the Internet as an all-encompassing phenomenon illustrates that the traditional factors of production, capital and skilled labor, are no longer the main determinants of the power of an economy. Now, economic potential is increasingly linked to the ability to influence and control information. As with other historic innovations, the advent of the Internet and its multiplier effect on business, government, and personal life has reverberated economically and socially around the globe.

In the past two decades, the Internet has transformed industries and become a powerful driver of economic growth. In some countries, it contributes as much as 7% or 8% of GDP. If measured as a separate industry, the Internet economy –which encompasses consumer consumption (both online purchases and Internet access), private and public investment, and net exports –already is outpacing some formidable sectors.

Internet –Adding Value More Than Some Key Sectors
In the United States of America, the internet accounts for about 4.7% of the GDP. India and China are rapidly strengthening their position in the global Internet ecosystem with growth rate of more than 20%. The Internet's contribution to India's GDP is primarily driven by export instead of local consumption. Across the G-20 (a group of finance ministers and central bank governors from 20 major economies), internet already amounted to 4.1% of GDP surpassing the economies of Italy and Brazil.

It is estimated that by 2016, there will be about 3 billion Internet users globally –almost half the world’s population; the majority of which will be using mobile devices to access the web. In the United Kingdom, for instance, 23% of retail activities are conducted via the Internet. The growth of the Internet sector also affects the labor markets. Small and medium size enterprises that utilise the web aggressively tend to generate more jobs.

Countries where online retail plays an influence include Germany (11.7%) and Australia (8.9%). The US (7.1%) is predicted to fall below the developed market average (8.5%). Projections for developing markets include 4.5% for India, 4.3% for Brazil, 3.4% for China, and 3.2% for Russia.

The scale and pace of change is still accelerating, and the nature of the Internet –who uses it, how, and for what –is changing rapidly. The G-20 countries already have 800 million Internet users. Social networks reach about 80% of users in developed and developing economies alike. It is predicted that the internet economy may account for 5.3% of GDP in the G-20 countries and 4.9% on average of developing markets’ GDP.

The Internet, a Modernisation Factor
The Internet has resulted in significant value shifts between sectors in the economy. All industries have benefited from the Web. Perhaps surprisingly, the vast majority of the economic value created by the Internet is derived from industries not directly linked to information and communications technology (ICT). About 75% of the economic impact of the Internet is happening at companies in more traditional industries that have witnessed significant productivity increases. SMEs in particular obtain a strong boost from using the Internet.

The Internet Economy in Africa
In recent years, Africa’s mobile and internet markets have seen significant growth, particularly in markets where public private partnerships, healthy competition and open access to information flourish. However, Africa’s Internet potential is large and untapped. The continent makes up about 15% of the world’s population, but only 7% of the world’s Internet users. Internet penetration in Africa tends to be low relative to regions of similar income levels. In this context, policy makers must continue to act as enablers of market conditions, catalysts for equitable service delivery, protectors of consumer rights and privacy as well as champions for the social, economic and job creation impacts that can be achieved.

Nigeria Not Backward After All
The Internet economy in Nigeria has grown tremendously in the last ten years. Currently, about 48 million Nigerians could now do about everything on the internet. Significant consolidation has occurred in Nigeria’s Internet and broadband sector, from over 400 Internet Service Providers (ISPs) three years ago to around 120 in early 2012. In absolute numbers, Nigeria offers most internet users in Africa, its penetration rate at 28% still trail the levels seen in Morocco, Egypt, Tunisia and some other African counties.

Nigeria’s Internet sector has been hindered by the country’s underdeveloped and unreliable fixed-line infrastructure, but this is changing as competition intensifies and new technologies are able to deliver wireless broadband access. More than 400 ISPs have been licensed as well as a number of data carriers, Internet exchange and gateway operators. Voice over Internet Protocol (VoIP) is already carrying the bulk of Nigeria’s international voice traffic.

Understanding how much the Internet contributes to national economies and how this value is created lays a solid foundation for leveraging the Internet as the engine of growth. Initiatives can be championed by government policy makers, business executives, or by a partnership between the two groups. However, in every instance the goal should be to strengthen the domestic Internet ecosystem –consumption and supply –and delivering as much value to the economy as possible. Public decision makers should act as catalysts to unleash the Internet’s growth potential. Public spending can be used as a catalyst to boost both usage and ecosystem. Public expenditures are a proven vehicle for getting more people and businesses online. Countries that have the highest public investments on the Internet tend to gain the greatest contributions of the internet to their GDP.