ICTs and economic performance: implications for developing and transition economies

1. ICTs and economic performance: implications for developing and transition economies Rouben Indjikian, Senior Economist ICT and E-Business Branch, UNCTAD Para 166 Course, Geneva, 23 April 2007

2. Outline • Importance of ICT for economic development • ICT Diffusion • ICT Impact: • Macro-level • Firm-level impact • Industry-level • Role of government Para 166 Course, Geneva, 23 April 2007

3. ICT for economic development ICTs increase productivity through: • Better communication and networking at lower costs • Digitalisation of production and distribution • New trade opportunities through e-commerce • Access to knowledge • Increased competition The world economy... ... an ICT based economy Para 166 Course, Geneva, 23 April 2007

4. E-government Increased efficiency, better communication & networking, dimishing red tape, improving transparency, better prices • Financial services Productivity gains from dramatically decreased transaction costs of e-payments, transparency, pricing and disintermediation Para 166 Course, Geneva, 23 April 2007

5. ICT diffusion Internet users doubled in 5 years Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

6. Developing and transition countries catching up in number of Internet users ... 43% 28% Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

7. ... but different penetration rates Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

8. Developing and transition countries overtaking in number of mobile phone subscribers... 2001 2005 54% 40% Para 166 Course, Geneva, 23 April 2007

9. ... and increasing penetration rates of mobile phone subscribers 2001 2005 Para 166 Course, Geneva, 23 April 2007

10. Digital divide: Internet users worldwide Para 166 Course, Geneva, 23 April 2007 Source: UNCTAD (2006) based on ITU data

11. Limited broadband penetration Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

12. ICT diffusion: Countries have not invested to the same extent in ICTs OECD ICT investment as % of non-residential investment Para 166 Course, Geneva, 23 April 2007

13. Why the differences? • Lack of strategies on public and business levels and other instiutional barriers • Cost considerations and access to finance • Risk perceptions and nature of business • Entry barriers and level of competition • Lack of skilled labour Para 166 Course, Geneva, 23 April 2007

14. ICT Impact on economic growth • Multifactor productivity and impact of ICTs on: labour, capital and technical progress • Increase in productivity in ICTs producing sector. • Increase in productivity and overall efficiency in ICT using industries due to lower transaction costs, automation of production processes and network effects Para 166 Course, Geneva, 23 April 2007

15. Macroeconomic impact Positive correlation between GDP & Infodensity Infodensity≃ ICT productive function of an economy (ICT–enhancing capital & labour) Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

16. ICT Impact on economic growth 1% increase in Infodensity resulted on average in 0.3% increase in per capita GDP Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

17. ICT Impact on economic growth Impact unequal among countries at different stages of development – critical threshold Source: UNCTAD (2006) Para 166 Course, Geneva, 23 April 2007

18. ICT Impact on economic growth The impact of investment in ICT: 0.3-0.9 GDP growth (1995-2002) Para 166 Course, Geneva, 23 April 2007

19. Impact of ICT at the firm level • Positive impact of ICTs on firm productivity due to making ICTs an integral part of production production process and supply chains, better communication lines and coordination, improved skills, innovation, organizational change, experimentation • ICTs help efficient firms gain market share • Powerful impact of ICTs in services sector, but also in manufacturing and primary sector • Impact on labour: skill biased technological change Para 166 Course, Geneva, 23 April 2007

20. E-business development Extranet E-commerce Customer Relationship Management Integration with suppliers’ system Invoicing and payment Intranet Level of e-business intensity HRM, finance Some logistics Data sharing Web presence PCs E-mail Web Product service & support E-mailing with customers & suppliers Web info search Time, business size, investment Source: UNCTAD E-Commerce and Development Report 2004 Para 166 Course, Geneva, 23 April 2007

21. From upgrading factors of production to better performance ICT Investment Training Organisational Changes Efficiency Gains Higher Productivity Higher Growth More Wealth Next Circle of Investment in ICTs, Knowledge and Better Organization Para 166 Course, Geneva, 23 April 2007

22. Sector level impact: e-finance • Massive decrease in transction cost due to migration of finacial services to electonric communications and particularly Internet • Emergence of click and mortar banks and brokerages • Security in e-finance and e-payments • Financial flows to developing countries: e-remittances • E-finance for SMEs • Microfinance Para 166 Course, Geneva, 23 April 2007

23. E-credit information • ICTs and information assymetry • moving out from informal economy • online credit risk databases • online scoring and rating of enterprises • lower transaction costs to assess SMEs credit risks Para 166 Course, Geneva, 23 April 2007

24. e-trade finance • ICTs and credit risks, payments and short term trade finance in international trade • bank based e-trade finance platforms • specialized e-trade finance platforms • e-trade finance in developing countries Para 166 Course, Geneva, 23 April 2007

25. e-credit insurance • major credit risk databases of credit insurers • moving databases online • insuring from paymnet default risk online • participation of developing countries in e-credit insurance networks Para 166 Course, Geneva, 23 April 2007

26. Sector-level impact: Oil Oil: a capital intensive & labour saving industry increasingly becoming an info-intensive one • Vertically integrated oil companies –ideal structure for ICTs • ICTs in upstream • ICS in midstream • ICTs in downstream Para 166 Course, Geneva, 23 April 2007

27. ICTs and Oil Markets • Traditional spot and futures oil markets • Migration to online trading platforms • Other use of ICTs in international oil trade Para 166 Course, Geneva, 23 April 2007

28. ICTs as drivers in commodities sector • ICTs play crucial role in streamlining the commodity supply chain • They link more tightly supply with demand and help to avoid losses in upstream, middlestream and downstream operations • Turning capital intensive and labour saving sectors of extractive industries into more info intensive ones Para 166 Course, Geneva, 23 April 2007

29. Role of governments • Foster a competitive and supportive environment for the increase in invstment in ICTs …and hence encourage the development of ICT infrastructure • Open markets and encourage competition for supply of ICT goods & services ...through trade, financial and fiscal policies • Build confidence in use of ICTs ... by developing a supportive legal framework, • Harness the potential of innovation and technology diffusion … by promoting the development of R&D, venture capital and ICT skills of population at large • Make national programmes more efficient … by establishing a comprehensive ICT strategy Para 166 Course, Geneva, 23 April 2007

30. Conclusions • ICTs–a powerful driver of productivity growth and accelerated development • Opportunities of new technologies such as mobile • Decreased connection, hardware and software costs • Focus policies on narrowing digital divide • Link between ICT & overall economic policies – need coherent strategy • Measure impact of ICT Para 166 Course, Geneva, 23 April 2007

31. Thank you!Questions or Comments? rouben.indjikian@unctad.org Para 166 Course, Geneva, 23 April 2007