Nearly every major financial institution, organization, company and gov­ernment agency that deals with the ICT development sector is almost constantly in some stage of self-evaluation, reorientation and exploration of new and improved modes of operation. Greater cross-sectoral and cross-institutional coordination of financing programmes and ICT development initiatives is needed to improve effectiveness and make better use of resources. The onus for coordinating inputs rests primarily with national governments (coordinating at the national, regional, and international levels). Governments should identify priorities and ensure multi-sectoral participation in ICT programmes through strategic planning. Donors and other financial institutions should, for their part, be prepared to work within these national frameworks on a complementary basis, while making renewed efforts to coordinate planning, implementation and evaluation on an international and regional basis as well.

Key issues: Traditional funding sources

Some developing countries are now able to mobilize more domestic resources for development, attract private investment and experiment with innovative finance mechanisms, this is not the case for all. Progress in these areas can be attributed to mostly (large) middle-income economies, while many LDCs and some SIDS and fragile states have fewer financing ‘options’ and remain heavily reliant on traditional donor aid. In addition, some resource-dependent lower-middle income countries that had made significant headway in diversifying sources of external finance during the commodity price upswing in the 2000s have seen their fortunes reverse recently as commodity prices have slumped since mid-2014. For these countries, concessional finance is becoming important again as many face widening fiscal deficits and risks to debt sustainability. Most donors meanwhile are far from achieving the longstanding United Nations target of allocating at least 0.7 per cent of GNI to official development assistance (ODA) (donors achieved just 0.3 per cent on average in 2016), and the share of total aid allocated to LDCs, and SIDS has in fact declined in real terms over recent years. Financing gaps in many countries remain high.

Developing countries as a whole have increasingly turned to private sources of finance to fund sustainable development. FDI in particular is viewed as a tool to fund economic development and modernization, employment and technology transfer. It is the largest source of international private finance for developing countries. Many developing countries have liberalized policies related to FDI over the last fifteen years and pursued other measures (e.g. tax incentives) to attract investment.

Potential interventions:

A) Diversity and innovation in financing approaches

The ways in which resources are both mobilized and spent have become increasingly ‘innovative’ and diversified. This has been supported in turn by innovations in technology that have led to the financialization of ‘real’ markets, increased interdependence/integration of financial markets, the introduction of new crypto-currencies, and facilitated access to financial markets by previously excluded people (e.g. via mobile and smartphone technology). Collaborations between public and private actors to deliver sustainable development outcomes have also become commonplace.

  • Bonds: Digital bonds, Sovereign bonds, social impact bonds, Development impact bonds, etc.
  • Funds: vertical funds (e.g. GAVI, securities and structured funds), microfinance investment funds
  • Loans and guarantees, including from multilateral and bilateral development banks, other official flows (OOFs), counter-cyclical loans, contingent credit facilities, development policy loan deferred drawdown options
  • Grants: ODA, philanthropic and private funds
  • Co-financing between IDBs and private investors

B) Effective use of the USAF

A USAF is the fund collected by governments to reach universal service. When not entirely financed by the government (as in Chile), USAFs can be financed through a contribution mechanism from licensed telecommunication operators, typically in the form of a percentage of gross revenues, or a fixed recurrent fee. In some countries, the USAF fee is not a separate fee but rather a portion of an overall regulatory or licensing fee. In such cases, the portion of the fee to be directed to the USAF may be fixed. According to an ITU report surveying 69 USAFs, almost 50 per cent have a low level or no level of activity.[155] Given that the largest part, if not all, of the funds come from sector-specific taxation, many operators see contributions to USAFs as potential investments not being pursued. Some examples of best practices for management and disbursement of USAFs:

  • Autonomous/independent structure
  • Consultation with stakeholders to ensure operational efficiency
  • Flexible regulatory frameworks to permit USAF adjustments

Spotlight

FITEL, Peru: Fondo de Inversion de Telecomunicaciones (FITEL), a USAF established in Peru in 1993, has implemented lowest-subsidy auctions for the deployment of telecoms infrastructure in rural areas.

  • FITEL collects 1 per cent of gross revenues from all telecoms and cable TV operators for its fund, which is managed by a technical secretary and six professionals appointed by the Telecoms Ministry.
  • The 2016 FITEL fund has initiated 21 regional projects (worth USD1.8 billion in financing) for connectivity in rural areas and is expected to provide broadband access to 6,000 localities. [156]

Key issue: Cybersecurity risks to investment

In this year’s WEF Risk Report, cyberthreats are considered be one of the top five risks facing organizations and governments over the next two to five years; in addition, cyberthreats are among the top ten risks that have worsened since the start of the pandemic.[157] Developing countries will have limited resources to enhance cyber defences against critical infrastructure breaches or cyber regulations to protect data and privacy. The WEF Risk Report recognizes that “there is a risk that concerns over cybersecurity could further hamper attempts to promote rapid and inclusive digitalization”.[158]

Potential interventions:

  1. Cybersecurity regulation: Financial and technical support in implementation of National Cybersecurity Strategy (NCS).
  2. Data protection laws: Although already covered in Focus area 3 – VALUE CREATION: Building digital ecosystems, it is important from an investor perspective that the data protection laws are enacted and stringently implemented.
  3. Digital security risk management: Collaborative approach between government and private sector and individual users.

Key issue: Governance influencing investment

Regardless of the type of market, governments must have a coherent vision, political will, and strong leadership when developing their broadband strategies and digital agendas. Thus, government intervention should be based on clear policy objectives and an open mindset toward developing a cooperative and trustworthy relationship with the private sector. Having specific and attainable targets for their national broadband strategies, an independent agency, open access, and diversified public and private funds are some of the guidelines at the general level.

Potential interventions:

  • An independent regulator with the capacity to impose asymmetric measures to create a level playing field between the incumbent and competitors
  • Liberalization of the market to allow competition
  • Tools to improve transparency and accountability:
    • Use technology to promote transparency and to make initiatives more effective
    • Make use of open-data policies and platforms to allow stakeholders, including fund contributors, to track progress
    • Use open data to coordinate projects and collaborate across funders and beneficiaries
  • Access to information and data: The public sector, at national, regional and local levels should generate and provide market research or other studies or data, including GIS maps, surveys and other geographic information, that it has compiled as a matter of course (e.g. location of schools, hospitals, police stations, levels of connectivity, households, etc.) to assist providers in making strategic deployment decisions.
  • Improvement of cross-sector collaboration and cooperation among regulators to accelerate the deployment of ICT-driven and digital interventions

Commit to a pledge on our Pledging Platform here. See guidelines on how to make your pledge in Pledging for Universal Meaningful Connectivity and examples of potential P2C pledges here

Footnotes

[155] Broadband Commission for Sustainable Development. (2019). The State of Broadband: Broadband as a Foundation for Sustainable Development.
[156] ITU. (2013). Universal Service Fund and Digital Inclusion for All.
[157] WEF. (2022). Global Risks Report 2022.
[158] WEF. (2022). Global Risks Report 2022.