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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Outline Importance of ICT for economic development ICT Diffusion ICT Impact: –Macro-level –Firm-level impact –Industry-level Role of government

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICT diffusion Internet users doubled in 5 years Source: UNCTAD (2006)

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Source: UNCTAD (2006)... 28% 43% Developing and transition countries catching up in number of Internet users

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April but different penetration rates Source: UNCTAD (2006)

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Developing and transition countries overtaking in number of mobile phone subscribers... 40% 54%

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April and increasing penetration rates of mobile phone subscribers

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Digital divide: Internet users worldwide Source: UNCTAD (2006) based on ITU data

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Source: UNCTAD (2006) Limited broadband penetration

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICT diffusion: Countries have not invested to the same extent in ICTs OECD ICT investment as % of non-residential investment

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Macroeconomic impact Positive correlation between GDP & Infodensity Infodensity ≃ ICT productive function of an economy (ICT–enhancing capital & labour) Source: UNCTAD (2006)

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICT Impact on economic growth 1% increase in Infodensity resulted on average in 0.3% increase in per capita GDP Source: UNCTAD (2006)

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICT Impact on economic growth Impact unequal among countries at different stages of development – critical threshold Source: UNCTAD (2006)

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICT Impact on economic growth The impact of investment in ICT: GDP growth ( )

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April From upgrading factors of production to better performance ICT Investment Training Organisational Changes Efficiency GainsHigher Productivity Higher Growth More Wealth Next Circle of Investment in ICTs, Knowledge and Better Organization

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April ICTs and Oil Markets Traditional spot and futures oil markets Migration to online trading platforms Other use of ICTs in international oil trade

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April 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

ICT&E-Business Branch, UNCTADPara 166 Course, Geneva, 23 April Thank you! Questions or Comments?