ICT Financing: Moving beyond cheque-book diplomacy

When delegations from all over the world adopted the outcome documents of the World Summit on the Information Society (WSIS) Phase 1 in Geneva in December 2003, two major issues were left unresolved: Internet governance, and the financial mechanisms that could be used to bridge the digital divide.

With the debate on how to administer the Internet continuing to dominate the headlines, observers might be forgiven for thinking the issue of financing had faded into obscurity. Understandably, perhaps; the bean-counting that inevitably accompanies any financial development debate can sometime make for a dry subject matter. That said, the nub of the issue is one of the utmost importance to the WSIS process, reflecting profound changes in the global approach to international development mechanisms.

A silent revolution

While financing mechanisms usually conjure up images of aid donated by governments and international institutions, the last ten years have seen ICT development strategies the world over increasingly focused on the private sector. Even more importantly, whereas just a few short years ago the vast majority of these private sector players were based in industrialized countries, nowadays the focus is shifting firmly to the developing world. Brazil, China, India, Malaysia and South Africa have all appeared as significant new players on the ICT scene.

Companies from these markets are increasingly reliant on rapidly growing local capital markets. While data on this silent revolution is abundant, one of the best recent overviews can be found in the report drafted by the Task Force on Financing Mechanisms (TFFM), published in February 2005.

Trusting the private sector

The report – comprising some 120 pages of analysis of existing financial mechanisms and future trends – was originally commissioned by the Geneva summit. Subsequently, UN Secretary-General Kofi Annan established the TFFM. As a general trend, Task Force experts concluded, direct investment from governments and international institutions like the World Bank has been in decline since 2000, while the private sector has emerged as the major player in ICT proliferation.

The deregulation and privatization of national telecommunication operators in some 76 developing countries has led to an influx of about USD 70 billion. In the space of the past fifteen years, over a billion people gained access to fixed and mobile telephones, computers, the Internet and other ICTs. Because of this shift, the report’s authors added, creating enabling policy environments that would ensure open entry, fair competition and market-oriented regulation were of utmost importance. Such confidence-building measures would attract new companies and, subsequently, more investment in ICTs.

 
Igniting growth

It goes without saying, however, that the private sector can only reach its full potential as an engine of growth once a certain level of development has been reached. That’s why, despite the best efforts of development agencies, key segments of ICT facilities in developing countries are likely to remain unattractive to purely private sector investment for the foreseeable future.

Public-private partnerships - that is, joint ventures between governments and companies - will thus be critical for addressing basic infrastructure gaps. Cooperation on this level also has the advantage of mitigating risks for each of the stakeholders. It is hoped that the spill-over effects of these hybrid development strategies will serve to ignite demand and attract investment from purely private businesses. To cite just one concrete example, many countries have begun to strengthen universal access funding mechanisms - that is, state run initiatives to assure ICT access for all members of society.

Through such mechanisms, areas that don’t yet possess the economic potential to attract the private sector on their own merits are propelled into the business cycle. Models in Latin America have shown that, once implemented, such access schemes can help unleash market forces which then perpetuate the initial activity. Where population density and per capita income are too meagre to support national development schemes, regional action has to be taken to boost the potential for economies of scale.

Questions for Tunis

It’s clear that ICT development in marginalized areas will need action from governments. But what should they focus on?

It’s common knowledge that, up until now, ICT development efforts have been centred on hardware and infrastructure, rather than on software, capacity building and training. A mismatch most countries now agree to tackle. But when it comes to choosing the sort of software industry that should be nurtured, global consensus quickly breaks down.

While the United States and other industrialized countries tend to defend proprietary software development, Brazil and many developing countries would prefer to see financial resources spent on free, “open source” software. Another debate rages around the question of whether new funding mechanisms are really needed, or whether more efficient administration of existing resources would do the trick.

Once again, the two sides are easy to distinguish: developing countries are tending to press for more funds, while players in the industrialized world are calling for greater efficiency and transparency in the management of current funding mechanisms.

In the event that the current disunity on these fronts should be overcome, a third problem remains: who should be in charge of deciding how any future money is spent? In order to wield more power over future decisions, potential receivers of funding are calling for international financial mechanisms. Donor countries, however, are reluctant to lose their influence on how their money is spent.

Digital Solidarity Fund

While all this could imply lengthy discussions leading to paltry outcomes, the first phase of WSIS has already proven its capacity to produced tangible results.

The Digital Solidarity Fund (DSF), a spin-off from the Summit, has been operational for the last two years, supporting universal access projects around the world. When Senegal’s president Abdoulaye Wade came up with the notion of digital solidarity, and of a global fund that would support this ideal, during WSIS Phase 1, much of the world simply wasn’t ready for such a utopian approach.

Intriguingly, though, once the word hit the street, President Wade’s vision took on a life of its own. Frustrated over their national governments’ slow progress on the issue, the mayors of Geneva and Lyon, alongside the government of Senegal, went ahead and launched the DSF in December 2003 as an independent foundation under Swiss law.

As of October 2005, it had received more than five million Euros from cities such as Paris, from regions such as the Basque country, from “first world” governments such as France, and, foremost, from other African countries like Kenya or Ghana.

Another concept initiated by the Fund - the so called Geneva Principle - could help improve these figures even further. This principle involves a 1% levy on public ICT procurement contracts, paid by the winning supplier directly from its profit margins.

If the world’s one hundred largest cities would only adopt this mechanism, a new process of public-private funding could take on momentum of its own, and help rapidly bridge the digital divide.