A review of trends and an analysis of gaps and promising practices*

Findings

Financing ICT infrastructure and access

Stimulated by the technological dynamism and profitability in the industry and opening up of markets, since the early 1990s, the international private sector has quickly become the dominant player in infrastructure investment, and has catalyzed rapid growth of the sector in developing countries.

The opening of markets and privatization of national telecommunication operators has led to an influx of tens of billions of US dollars into the information and communication technology (ICT) sector across many developing country markets. This has allowed access to fixed and mobile telephones, computers, the Internet, and other ICTs for over a billion people in the space of fifteen years. Initially, the vast majority of this investment came from companies and institutional investors in the industrialized “North”, pursuing expanded business and profit opportunities. The peak of “North-South” international investment in the ICT sector was around 1999–2000. Then came the “crash” of the global telecommunication industry and the bursting of the “dotcom” bubble, resulting in much lower levels of new ICT investments in the developing world. But the “crash” and “ burst­ing” aside, many major investments (for example, major operator privatizations and mobile phone licences) were already completed by 2000, and market capitalizations of key international technology companies and investment portfolios were drastically lower. Recent trends suggest that foreign direct investment (FDI) is again increasing. And there remain numerous opportunities for foreign investors in developing-country ICT infrastructure markets.

While private sector investment and financing in the ICT sector remains high as evidenced by the continuing and rapid rollout in infrastructure, particularly in mobile telephony, there has been a shift in the nature of that investment towards domes­tic, regional and South-South financing and investment.

New investments by some of the major developing countries, such as Brazil, China, India, Malaysia and South Africa, and regional players combined with increasing reinvestment of existing operators, has continued to spur growth throughout the ICT sector, at rates that greatly exceed those in the developed world. Domestic companies, often financed by rapidly growing local financial and capital markets have been important in facili­tating the growth of this sector in many countries.

New ICT investments in developing countries are also being stimulated by a variety of domestic financial mechanisms and multi-stakeholder partnerships….

Promising trends to build the domestic ICT sector in developing countries is also found to be dependent upon partnerships and cooperation between public, private, civil society organizations, community and financial stakeholders. These partnerships and investments have helped to mitigate risks, demonstrate market potential, enhance capacity and stimulate demand for ICT. The support and development of local financial and capital markets, including capacity in new areas such as venture capital are also helping to spur entrepreneurship and innovation.

National universal service/access fund and other mechanisms to lower costs of delivery to under-served markets and promote community access can play an important role in helping to address ICT ac­cess gaps, but require substantial institutional and implementation capacity to succeed.

More than sixty countries have begun to establish universal access funding mechanisms as a core com­ponent of their ICT development policies, to bring together financial resources in support of extending access beyond the market frontier. Successful models of universal service/access fund introduced in Latin America and elsewhere have indicated that, when properly implemented in a competitive environment, these mechanisms can play a critical role in leveraging market forces to expand access to public telephone service, multi-purpose community telecentres and other ICT facilities.

Experience to date is mixed as this trend is very new in much of the developing world, and most countries are just beginning to address policy, regulatory, governance, institutional and capacity issues required for suc­cessful management of these funds. There are also possibilities for scaling up these funds through innovative financial mechanisms and schemes. Periodic assessment and evaluation of these mechanisms, together with other universal access development programmes, can help define their future role in the sector within many countries.

Regional cooperation, multi-stakeholder partnerships, and seed financing appear to be critical elements for addressing critical infrastructure gaps and can in turn help promote further development of national backbones and last mile solutions in countries where gaps persist.

In countries with relatively low population density and low per capita incomes (for example, some of Africa’s under-served subregions and Small Island States), financing constraints have become severe with neither the private nor the public sector being in a position to act alone. In these instances, regional infrastructures can also help serve national infrastructure in less developed regions, rural and under-served areas, and lever­age resources cost effectively. In some cases, additional partners can be brought into the process as well. Regional organizations and institutions can help facilitate cooperation and coordination and international financial institutions and donors can then play a vital role in seeding and facilitating the financing for such regional infrastructure projects. There is likely then to be increased market interest once the coordinated policy framework is in place.

 

Conclusions

On “fully exploiting” existing mechanisms

In the context of infrastructure development and enhanced access to ICT, national governments and other stake­holders have many tools and opportunities available to them to enhance the attractiveness of their ICT markets for investors and financiers. These include:

• Continued promotion of a level-playing field for ICT investments and regulatory policies that entice open access and fair competition for enhanced service provision, and new entrepreneurial investment in under-served areas.
• Refinement and efficient implementation of targeted public finance mechanisms such as loan guarantees, universal access funds and partnership investments.
• Continued support and promotion of domestic, regional and South-South investment and increased sub-regional and regional cooperation to address current infrastructure and last mile gaps.
• Enabling tax, tariff, import and business regulation policies designed to reduce risks and financial burdens for, and provide incentives to, ICT investors and financiers.

On the “adequacy” of existing mechanisms

As the Task Force findings indicate, there are a number of areas in which current approaches to ICTD financing, by both the public and private sectors, have not devoted sufficient attention to date, and which represent fundamental challenges to the financial and development communities. These include:

• ICT capacity-building programmes, materials, tools, educational funding and specialized training initiatives, especially for regulators and other public sector employees and organizations.
• Communications access and connectivity for voice, mobile, and data services in remote rural areas, isolated islands and other locations presenting unique technological and market challenges.
• Regional backbone infrastructure to link networks across borders in economically disadvantaged regions requiring coordinated legal, regulatory and financial frameworks and seed financing.
• Broadband capacity to facilitate the delivery of services, catalyze investment and provide Internet access at afford­able prices to both existing and new users.
• ICT applications and content aimed at facilitating the integration of ICT into the implementation of development programmes particularly in health, education and poverty reduction. There is also a need to focus on applications and processes that can ensure development of content relevant to the needs of the developing world, including material in indigenous languages, information accessible to non-literate audiences, user-friendly and affordable software platforms and interactive applications, and diverse, locally produced multimedia content.

The reasons that existing mechanisms and traditional approaches may not be adequately oriented to address these emerging needs are several:

• Private sector investors and businesses are often reluctant to commit capital to projects with high risk/low return profiles.
• Donors have taken initiatives in many of these areas, but do not have sufficient resources to cover the broad scope of needs across the developing world.
• Governments have very limited resources and multiple commitments, as well as inexperience with many of the key areas of need.

On “improvements and innovations” to existing financing mechanisms

As documented in the Task Force report, 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. It is difficult to pinpoint specific changes that should be made to a single mechanism or group of mechanisms urgently, which those institutions themselves are not already considering to one degree or another.

One thing is clear. The Task Force discussions have provided a unique forum for many of these stakeholders to ex­change and propose ideas, both individually and collectively, for new initiatives and approaches that might be worthy of further consideration by the larger body of international ICTD players. While none of these options should be taken as officially evaluated or “endorsed” by the full Task Force, there has been at least significant discussion and open-minded consideration of a healthy range of prospects for enhancing the global ICTD financing dynamic. Some of these prospects are discussed on the next page.

Coordination

Greater cross-sectoral and cross-institutional coordination of financing programmes and ICT development initiatives would improve effectiveness and make better use of resources. It was generally agreed that the onus for coordinating inputs rests primarily with national governments (coordinating at the national, regional, and international levels). And so 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.

Multi-stakeholder partnerships

The emerging trend of multi-stakeholder initiatives to support ICT development and financing needs should continue and expand, to enhance overall programme coordination and ensure that diverse views and experiences are brought together to address sector challenges. Some specific options for new multi-stakeholder approaches on an international or regional level could include:

• Establishment of a “virtual” financing facility to leverage multiple sources in support of identified investment objectives in key locations (notably broadband, rural and regional projects and capacity building).
• Creation of a mechanism for coordinating research and analysis into enabling policy environments, to identify best practices and priority needs for shared action by financial actors.
• Development of a “rapid response” policy and regulatory support mechanism to intervene in support of short-term ICT sector policy initiatives.
• Coordinated programmes by governments and major financial players to mitigate investment risks and trans­action costs for operators entering less attractive rural and low-income market segments. Also to be considered are new paradigms for network and service development involving a separation of an “open-access” backbone and diverse service provision.
• Collective initiatives to engage regional, inter-governmental organizations together with diverse financial insti­tutions and investors to create incentives for building regional infrastructure capacity.
• Creation of jointly financed international and regional programmes for public sector capacity building and e-government applications development, offering low-cost tools and training options to government ICT policy and implementation officials.
• Public-public and public-private approaches to support the upfront investment, capacity development and mainstreaming costs to facilitate the effective integration of ICT in health, education and other development sectors to permit the more cost-effective and broader delivery of public services.
• Continued exploration by donors and multilateral development banks of new modalities — including the consideration of re-engaging in infrastructure investments — through which they can provide financial support to well-designed public sector ICT projects and programmes, particularly when they have the potential to leverage additional private resources.

New emphasis on domestic finance

Governments, bilateral donors, multilateral banks, as well as private sector contributors, can all help accelerate the growth of domestic financial mechanisms by providing more direct and creative support to local microfinance instruments, ICT small business incubators, public credit instruments, franchises, reverse auction mechanisms, community networking initiatives, and other innovations. Such approaches require a combination of outside seed funding assistance, technical expertise and best practice advice, risk mitigation, and commitments to support local entrepreneurs and investors, particularly in the start-up stages of new projects. The finance and development com­munities must recognize that failures are inevitable in these newly emerging markets, but that the lessons of these experiments, together with selected, well-documented successes, can yield long-term benefits and self-reinforcing growth throughout the developing world.

Encouragement of increased voluntary, consumer-based contributions

Many consumers in the wealthy countries of the world (including immigrant expatriates) would be receptive to the introduction of new voluntary mechanisms for donating small contributions towards ICT-based devel­opment. New vehicles should be explored to facilitate such contributions on a simple, technology-driven basis, while ensuring that any funds collected are devoted directly to pertinent development needs, including support for creative applications and low-price access to services for the poor and access/service cooperatives owned by communities themselves.