Innovation lies at the heart of addressing the interlinked challenges of global development… Every development success has drawn in large measure from absorbing knowledge, technology and ideas and adapting them to local conditions. In other words, by innovating.
Ban Ki-moon, Secretary-General, Geneva, 1 July 2013
In the past few decades, information and communication technology (ICT) has transformed the world. Its potential for reducing poverty and fostering growth in developing countries has increased rapidly. Mobile telephones provide market links for farmers and entrepreneurs.
The Internet delivers vital knowledge to schools and hospitals. Computers improve public and private services, and increase productivity and participation. By connecting people and places, ICT has played a vital role in national, regional, and global development, and holds enormous promise for the future.
In recent years the world’s policy makers have recognized that ICT provides key inputs for economic development, contributes to global integration, and enhances public sector effectiveness, efficiency, and transparency. There is also growing consensus that countries seeking to strengthen their investment climates (for foreign as well as domestic investors) should make it a priority to improve ICT access and quality.
Moreover, country conditions that bolster ICT investment—including sound economic policies, strong property rights, liberalized markets, limited restrictions on entry and ownership, and predictable regulation— contribute to a healthy overall business environment and so to growth throughout the economy. Firms that use ICT grow faster, invest more, and are more productive and profitable than those that do not.
ICT is an essential part of national infrastructure and private sector potential. It can create business opportunities, especially for companies located far from urban centers, and improve links among firms, suppliers, and clients. When used well, ICT can also make management and operations more efficient.
The Internet can be especially valuable for firms in developing countries because it provides opportunities to connect to markets and participate in trade, domestic and foreign. A recent survey of 56 developed and developing countries found a significant link between Internet access and trade growth—with the greatest benefits accruing to developing countries with the weakest trade links.
ICT is also crucial to sustainable poverty reduction, because it makes a country’s economy more efficient and globally competitive, improves health and education services, and creates new sources of income and employment for poor people. In addition, ICT enhances social inclusion and promotes more effective, accountable, democratic government, especially when combined with effective freedom of information and expression.
Liberalization and competition—and the resulting increase in private investment—have driven the development of telecommunications infrastructure and ICT in general.
Capital is crucial to the development and expansion of robust telecommunications networks. Because developing countries often lack the capital—as well as the technology and managerial know-how—needed to develop such networks, many have turned to private investors, domestic and foreign.
By opening their telecommunications markets through well-designed reforms, governments can create competitive markets that grow faster, lower costs, facilitate innovation, and respond better to user needs. As a result, the traditional monopoly model of telecommunications services—based on extensive state control and protected national markets— has eroded, in concert with rapid technological advances in the sector and fundamental changes in economic policy in developing countries.
Over the past two decades telecommunications markets have undergone unprecedented liberalization in every region—though the pace and scale of reform have varied, and markets for fixed local and international telephone services remain closed or barely open in about half of developing countries. Effective competition between multiple providers helps expand access and results in cheaper, more modern services.
A business-friendly overall environment is an important ingredient for attracting and retaining FDI in telecommunications. Factors that favor FDI for any sector are sound macroeconomic policies, low political risk, ease of market entry, the protection of property and investor rights, and— more generally—reliable contract enforcement. Good infrastructure, a skilled work force, and favorable tax policies are additional factors.