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THE IMPACT OF ICT

Abstracts from
“ICT Sector Development: Economic and Societal Implications”
Published by Booz Allen Hamilton, February 2005

Analysis by Réhab El-Bakry

A recently published report by international management consulting firm Booz Allen Hamilton assesses the development of information and communication technology (ICT) in the Middle East and its impact on the economic growth of the region by analyzing the performance of the ICT sectors in seven countries: Bahrain, Egypt, Jordan, Lebanon, Saudi Arabia, Syria and United Arab Emirates. The report assessed the sectors based on three main criteria – the conduciveness of the environment to ICT growth, the readiness of stakeholders to develop the sector and the extent of ICT usage in the market. Its authors begin by noting the benefits of ICT to developing economies.

[The] ICT sector benefits other businesses by allowing them to increase their overall productivity and improve the quality of products and services they offer, through innovation, all while reducing the cost for the end consumer... ICT contributes to the creation of totally new industries and enables existing businesses to expand in new markets, as a result of which massive employment opportunities are created at the individual and the community level. In addition, ICT facilitates better information diffusion at a cheaper cost to individuals and businesses and contributes to the proliferation of technological knowledge, which, in its turn, makes the employment force better positioned to take advantage of economic growth opportunities.

ICT is viewed as one way for developing countries to drive economic growth and to attract more foreign direct investment. However, the percentage of GDP allocated to developing the sector, which stands at around 6 percent of GDP in Latin America and at only 4 percent of GDP in much of the Middle East, still falls below the 8 percent of GDP allocated to the sector by North America and Europe. With such limited investment, the sector’s growth has been relatively moderate with minimum spill-over effect into other industries.

There exists a generally high awareness level of ICT and of its benefits equally among individuals and businesses, yet access methods’ prices such as telecom service prices, PC prices, Internet dial-up rates, although becoming more affordable, are still somewhat expensive. This adversity is compounded by the fact that the GDP per capita levels are relatively lower across the Middle Eastern countries versus developed economies.

The report ranked the seven Arab countries included in the study on three main platforms – conduciveness of the environment, readiness of the market and ICT usage, with four being the highest ranking and one being the lowest. None of the countries surveyed scored a four in any of the categories. UAE had the highest ranking with threes in all categories, while Syria had the lowest with ones in all categories. The other four countries received a mix of twos and threes, depending on the category. The weakness of the ranking has been mostly due to the inability of governments in the region to drop the prices of ICT services and to create an environment where such services can thrive fast enough.

In principle, regional governments should focus on creating the right environment for individuals and businesses coupled with the necessary supporting infrastructure. In addition, governments could influence the overall readiness of society to accept and endorse ICT development.

The report also provided a list of recommendations that could facilitate and expedite the growth of the ICT sector in the Arab world. The majority of these recommendations focus on increasing the support of governments for the sector as well as outlining several steps that governments can take in order to create an environment that is more supportive of ICT. The steps are:

1. Develop comprehensive ICT strategic plans, ensure a continuous endorsement of the strategies and closely monitor progress.
2. Develop a comprehensive liberalization agenda for the telecom sector, in countries where markets have not yet been deregulated.
3. Create a universal service obligation on broadband and DSL to induce mass-market deployment of the technology and thus improve service quality, speed and consequently the development of relevant applications.
4. Institute necessary foreign investment laws as well as enforce software piracy and copyright infringement laws.
5. Support the creation of economic zones and technology parks with the aim of attracting foreign and regional capital as well as building local expertise in ICT.

Of the countries surveyed, only the United Arab Emirates and Bahrain have an environment considered relatively supportive of ICT development although they still lag behind that of other countries in the developed world. Much of this can be attributed to the slow pace of deregulation, which has largely been limited to Internet service and data operation. Mobile telephony has moved only as far as duopolies in many countries, while the government maintains monopolies on fixed-line services.

The report tabled a number of readiness-related initiatives that governments in the region can implement in order to facilitate the growth of ICT and use as a basis for the development of other sectors.

1. Design a PC subsidy and credit facility program, jointly sponsored by private sector companies and banks to ensure the affordability of PCs... to the end user and thus guarantee the increase of PC penetration.
2. Subsidize content developers and aggregators to allow them to produce local content that is relevant to Arabic-speaking individuals.
3. Introduce a comprehensive set of e-government (G2C) projects to promote Internet usage among individuals and extend the offering to G2B in order to [give incentives for] business to interact with the government through a virtual medium.
4. Undertake a comprehensive revision of public universities’ curricula to reflect a new ICT focus.

Since many countries in the region don’t boast a high disposable income, access to private computers has been one of the main obstacles to increasing the use and dependence on ICT. Developing a program to allow the public to acquire computers could increase the penetration rate and make the ICT sector more enticing for private sector investment. At the same time, it could increase the public’s dependence on these services making their incorporation in other sectors more realistic. A successful implementation of this idea in the Egyptian market was with the creation of the PC for Every Home Program, which allows users to buy locally assembled computers at a reasonable monthly instalment. Their fixed-line telephone service is used as collateral for payments.

Once access to computers is increased, it becomes equally important to provide the region’s users with content they can read and which is pertinent to their lives. Since Arabic content on the Internet is meagre at best, it’s up to governments and companies in the Middle East region to develop Arabic content in order to increase the comfort level of Internet users.

Thus far, one of the limiting factors in PC and Internet proliferation has been the language barrier. This initiative, therefor, deemed a crucial step in the advancement of ICT as it would encourage individuals to endorse, more rapidly, the use of technology.

The introduction of e-government services using Arabic language content can be seen as both an incentive for increased Internet usage as well as a by-product of improved ICT services. The idea is to allow the public to minimize their direct dealings with the government and use the Internet as a safe and effective alternative. The availability of more services via the Internet will increase Internet use, which will in turn lead more people to depend on e-government services. Several countries in the region have implemented such services, the most successful of which has been UAE, followed by Bahrain and Egypt.

While governments in the region have taken several steps to create and develop their ICT sectors, they will need to work closer with the private sector in order to boost them to the international level. The report argued that the key will be in investing more heavily in the sector in order for it to realize its full potential.

Arab countries should target an ICT [spending] level of 7.5 percent of GDP, which translates to over $30 billion for the selected countries; Bahrain, Egypt, Jordan, Lebanon, Saudi Arabia, Syria and UAE... The Economic & Social Commission for Western Asia (ECSWA) stated that the total investments required to bring the Arab world’s (all countries) ICT penetration rates up to the world average is around $40 billion.

Abstracts reprinted with permission of Booz Allen Hamilton.

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