Information and Communications for Development 2006: Global Trends and Policies.

• Author: Ismail, Sherille
• Position: Book review

1. FOREIGN PRIVATE INVESTMENT AND ITS IMPACT II. PRINCIPLES AND PRACTICAL SOLUTIONS A. Let the Markets Work B. Remove Obstacles to Letting the Markets Work C. Extending Access Beyond the Market D. Public Sector Support E. Competing for Subsidies III. ICT AS AN "ENABLER" OF DEVELOPMENT IV. ANALYSIS V. CONCLUSION The twin forces of privatization and liberalization have been sweeping across the globe in the past two decades, crumbling the foundations of incumbent telephone operators while introducing a new era of digital connectivity for millions of consumers in developing countries. (1) Privatization (i.e., the transfer from government to private ownership) (2) started with the sale of shares in British Telecommunications in 1984 and Nippon Telephone and Telegraph in 1985 (3) and spread to over 80 developing countries by 2003. (4) Liberalization (i.e., the transition from monopoly to competition) (5) has had an equally dramatic impact. For instance, about half of the markets for fixed local and international telephone services in developing countries are open to competition and 130 countries have at least three competing providers of mobile services. (6) As a result of privatization and liberalization, foreign investors poured $194 billion into telecommunications infrastructure projects in 122 developing countries between 1990 and 2003. (7) This hugely significant transformation is the backdrop to INFORMATION AND COMMUNICATIONS FOR DEVELOPMENT 2006: GLOBAL TRENDS AND POLICIES, issued by the Word Bank. (8)

   The book raises the following policy questions:

   First, how have consumers in developing countries benefited from these new policies and the resulting investments? Are consumers getting more choice, lower prices, and better services for their telecommunications expenditures?

   Second, what lessons can policymakers draw from the experience of the past two decades? Is there a blueprint for telecommunications reforms that meets the needs of developing countries in the post-privatization era?

   Third, in what manner do investments in information and communications technologies (ICT) play a vital role in promoting economic growth and reducing poverty? (9) What is the best means of measuring and evaluating the impact of these investments?

   To answer these questions, I first summarize the main themes of the book and then offer a brief analysis. The summary will focus on three issues: foreign private investment, a blueprint for reform, and the impact on development.

1. FOREIGN PRIVATE INVESTMENT AND ITS IMPACT

   With the opening of markets due to privatization and liberalization, foreign private investment flowed into developing countries. These investments account for a significant portion of total investment in the telecommunications sector in developing countries, namely 30 percent, from 1990 to 2003. (10) Several trends are worth noting:

   Total volume: The annual level of investment averaged $5.2 billion from 1990 to 1995, rose sharply to $23 billion from 1996 to 2000, and then dropped to $16.5 billion from 2001 to 2003. (11) Notably, even after the end of the boom in 2001, investment levels remained significantly higher than before 1996. The explanation: massive growth in the mobile sector. (12)

   By region and country: Eighty percent of private capital inflows during this period went to Latin American and Eastern European countries, specifically to investor favorites like Brazil, Argentina, Hungary, Venezuela, Peru, Poland, Chile, and the Czech Republic. (13) Indonesia and Turkey rounded out the top ten recipients. (14) Low income countries got only six percent of the total foreign private investment. (15) Interestingly, the bulk of the investors in Asia were home-grown, not foreign. (16)

   Types of investments: There were two waves of investments. The first wave occurred in the early 1990s, when countries divested their telecommunications operators by selling controlling stakes to foreign investors. (17) Developing countries reaped $57 billion from the sale of government assets, i.e., privatization. (18) The second wave, investments in the mobile sector, resulted from the revolution in mobile technology. Investments in this sector rose from an average of seven percent of foreign private investment from 1990 to 1993, to 30 percent from 1994 to 1999, to 51 percent from 2000 to 2003. (19)

   Investor profile: The ten largest foreign investors in developing countries from 1990 to 2003 were incumbent telecommunications carriers from the U.S. and Europe: Telefonica, Telecom Italia, France Telecom, Deutsche Telecom, Verizon, Portugal Telecom, MCI, BellSouth, SBC, and Telia Sonera. These corporations made investments totaling $110 billion, or 57 percent of the total. (20) After the collapse of the telecommunications bubble, some of these investors began to exit the market, (21) giving investors from developing countries the opportunity to acquire assets more cheaply. Developing country investors, however, keep their investments within their geographic region. (22) Finally, financial investors, who take limited stakes in a company, are providing alternative sources of capital in developing countries. For instance, a private equity firm, Advent International, acquired a 65 percent stake in Bulgaria's fixed-line carrier and agreed to invest $450 million in telecommunications infrastructure. (23)

   All these investments, coupled with the governmental actions necessary to make them possible, (24) produced tremendous growth in telephone use. In the 1990s, the number of subscribers in developing countries quintupled from 27 to 129 per 1000 people. (25) From 2000 to 2005, subscribership leaped again, to almost 400 per 1000 people. (26) Two additional statistics signify the massive growth in telecommunications services in developing countries between 1990 and 2005: total telephones per 1000 people rose from 27 to 393, and total telephones (as a share of the world total) rose from 22 percent to 61 percent. (27)

   Regional variations in telephone use are worth noting. (28) Subscribership per 1000 people in 2004 was 730 in Europe and Central Asia, 507 in Latin America and the Caribbean, 450 in East Asia and the Pacific, 206 in the Middle East and North Africa, 103 in sub-Saharan Africa,

   and 87 in South Asia. (29)

   Similar variations are present for internet use. Subscribership per 1000 people in 2004 was 117 in Europe and Central Asia, 104 in Latin America and the Caribbean, 76 in East Asia and the Pacific, 47 in the Middle East and North Africa, 15 in sub-Saharan Africa, and 21 in South Asia. (30)

   Much of the growth in telecommunications has been in the mobile sector. For example, in Nigeria, the number of mobile subscribers soared from 370,000 in 2001 to 16.8 million in 2005. (31) In the Philippines, the number of mobile subscribers rose six-fold from 2001 to 2005, to 40 million. (32) As noted elsewhere, the significance of mobile-sector growth is that it "quickly reached unserved population groups [e.g., rural consumers]." (33)

   Even smaller countries showed large gains from increased foreign investment. For instance, in the five countries that make up the Organization of Eastern Caribbean States (Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent), foreign investment rose from $40 million in 2001 to $90 million in 2004, spurring a boom in mobile...