IGADD

Despite the enthusiasm with today’s high-paced growth of cell phones and PCs in Asia’s emerging markets, many investors placing bets on future growth are nervous. Though they are gratified with today’s feel good mood, they are not sure the growth is sustainable. So hesitation prevails. It is hard for them to shake their tendency to put money into conventional projects. Yet with the right inducement from governments (and each other), they may see the wisdom in betting on innovative strategic alliances of the sort that could help close the Digital Divide.

The concern that Asia’s technology growth is fragile is based on two notions: One is that Asian markets are necessarily limited to big cities and that market growth into the smaller cities, towns and villages are necessarily limited by creaky infrastructure, low incomes, and weak demand. The other problem is that high-tech inspired growth is leading to such a huge gap between rich and poor that the mood is bound to be exploited by populist politicians who may unravel market liberalizations upon which today’s growth is based.

To quell both of these concerns, it is useful to formulate a scenario in which ICTs lead to greater growth and reduced inequities within the society. To do so, it is not enough to simply point to positive uses of cell phones in villages or computers in schools. One has to take a look at ICT investment flows, consider their social impacts and then generate circumstances in which social benefits may be enhanced on a widespread basis. There are six different financial flows that hold the greatest promise in closing the Digital Divide, as follows:

1. Government
2. Agribusiness
3. Consumer market development
4. Business Process Outsourcing
5. Small and Medium Business (SMB) Development
6. Poverty Alleviation

Each of these revenue streams, by itself, holds promise for using ICTs to contribute to the reduction of poverty. But the convergence of all of them into an ecosystem suggests a more accurate and comprehensive idea of how the penetration of ICTs into a society can yield a pay off for the poor. It is a matter of changing the environment or context of poverty. So far, no one emerging-market country fully illustrates this convergence. It will be expressed via a menu of inter-related products and services, most of them not yet invented, in which governmental, commercial, academic and NGO interests are all tightly inter-woven. This fabric could be called an “enterprise ecosystem”, offering solutions to the problems faced by the poor.

Government

The largest revenue stream to close the Digital Divide is e-government. The term refers to the marriage of new technology and government, encompassing back-office and front-office (service delivery) of government as well as specialized fields such as education and health, which are government-driven. The private sector is highly involved in this activity, since the expertise needed by governments to achieve successful digitalization is housed in the private sector. e-Government is the major way which technological innovation and managerial expertise of the private sector is being transferred to governments. In the United States alone at the federal level, such transactions are worth $700 billion, and a much greater amount at state and local levels. In developing countries, government represents the major customer for ICT industries, growing by 20% per year, according to Gartner Dataquest.

In Asia, the government sector has a deeper reach into society than in the West, so the digitalization of government has huge implications that affects schools, health care, environmental stewardship and the biggest issue of all: security. It concerns not only the normal operations of government, like collecting taxes and awarding permits, but also addressing the ways services are delivered, how services are integrated, and it allows new bottoms-up as well as top-down interactions between government and citizens. Clearly, e-government threatens some entrenched political forces, but it strengthens others. The extent and speed of a government’s digitalization is an important political issue because digitalization is expensive. It forces governments to weigh the costs and benefits of digitalization against alternative public investments, like building dams or providing direct subsidy to the poor.

Most e-governmental projects begin in those bureaus where incentives exist for digitalizing operations. High on the list is revamping tax collection methods so that the government can get more revenue (or spent less money gathering it). Another favorite is enhancing security by introducing citizen ID cards. In some cases, entire governments work with the private sector to create portals through which government services can be integrated. Within the United States there has been great speculation about the degree to which e-government can create incentives for a fundamental shift in governance, which may or may not allow public policy guidance from elected leaders. Significantly, it allows government to move into the partnership model in which government functions and functions of business and civil society are more closely inter-related. The argument on behalf of e-government that carries the most weight is that it allows government to function more productively and efficiently and one only has to look to Singapore as a case in point. But e-government can also do things that help the poor. The many isolated examples of how e-government can help the poor can be categorized as follows:

• Enhance scale, effectiveness and integration of governmental services for the poor.
• Increase effectiveness of local government in areas where poverty is concentrated.
• Increase intergovernmental transfers from central governments to local governments where the poor predominate.
• Reduce costs of government in ways that benefit the poor.
• Increase the ability of government to correctly identify the poor and develop new services to meet their needs.
• Increase assets, access to capital, and revenue by the poor.
• Develop self-help mechanisms by and for the poor.
• Increase transparency and decrease corruption in ways that benefit the poor.
• Increase advocacy or other modes of citizen feedback by the poor.

Agribusiness

Agribusiness is the largest industry in emerging markets and the major source of the export revenue in most developing countries. In most Asian countries where poverty predominates, most of the poor are subsistence farmers or employed in small farms. While they are largely isolated from the dominant agribusiness industry in each country, they are not totally isolated. A significant share of the revenue of farmers goes to intermediaries who provide access to markets, seeds, fertilizer. Agricultural cooperatives are themselves important intermediaries as are agricultural banks, most of them government-owned, which provide financing for agricultural projects. In the early 80s, a large Indian diversified agribusiness called ICT attracted Harvard Business School professor David Upton to his model of e-Choupal. Rather than follow a pattern of exploiting the poor, ITC’s e-Choupal program sets up internet kiosks that allows small scale farmers to organize themselves into cooperatives capable of negotiating a higher price for the products they sell and a lower price for the products they buy.

Is the ITC an isolated example, with little broader meaning for the agribusiness field? Or can it lead to a new inter-relationship between the dominant agribusiness multinationals and small farmers? Does it offer a clue to way in which ICTS, once fully integrated into the countryside, can produce a bottoms-up effect in the agricultural industry, giving the small farmer a larger role n the agricultural value chain?

Consumer Market-Development

Most developing countries have large masses of consumers with little disposable income. Therefore marketers like Proctor & Gambol are questioning business models adopted from the advanced markets. Nowadays, they favor of a new approach in which they make a small margin per transaction by selling to many consumers. Yet the size of markets have been contained to only a small portion of the total populations. This is not only because of the low income of the poor but also because of their isolation. Extending ICTs into he countryside, such cell phones and internet kiosks helps to solve the isolation problem, creating a distribution system. Can these distribution open pent up demand among the poor for products and services heretofore denied them?

There are three types of consumer marketing that have particular relevance to closing the digital divide: retail marketing of devices and software to consumers, retail marketing of basic consumer durables whose prices may drop as a result of ICT diffusion, retail banking which can offer credit and secured financial transactions to the poor as a result of ICT diffusion.

Business Process Outsourcing (BPO)

Back in the mid-90s, when Bill Gates III predicted the future of the digital economy in his book The Road Ahead, he argued that the Digital Divide will close itself as businesses use ICT to relocate jobs to the countries with the lowest cost workers capable of doing the job. Renouned venture capitalist Vinod Khosla later remarked that by the year 2010, remote services would be the most dynamic, profitable fast-growing ICT field. Today, India has emerged as the Business Process Outsourcing (BPO) capital of the world. The government expects $50 billion in foreign revenues from outsourcing a year by 2008. One benefit of BPO is precious foreign revenue that could be channeled by government programs to accelerate ICT diffusion and support the beneficial social impact at the same time. But an even more powerful factor is that outsourcing produces skills that can be leveraged to help close Digital Divide in the regions that surround the call centers and other sites where BPO activity is conducted. Those who answer phones in call centers, process insurance forms or any other of a myriad of out-sourced services could develop skills could later be trained to transfer those skills into domestic small businesses which could provide a source of revenue for lower skilled workers.

Small and Medium Size Business Development

In the late 1990s in the United States, ICT-inspired full growth economy generated millions of jobs based on an explosion in tiny businesses with one-five employees, whose fundamental asset was a PC loaded with word processing and spreadsheets. Most of these SMEs were not poor, but they contributed to nearly full employment economy for the first time, forcing employers to pay costs of training just to find and keep good workers. Obviously, developing countries with large numbers of illiterate populations cannot duplicate the American experience. Yet it is worth asking whether, in the Second Digital Revolution, emerging markets can elicit their own explosion in small business development and whether it can yield a pay off to the poor.

Poverty Alleviation

The alleviation of poverty, a dimension of the field of “development” is big business, worth about $ trillion globally when you add together, the amounts spent by international donors (divided between bilateral and multilateral) who provide “official development assistance” to help low-income countries, along with international philanthropy earmarked for NGOs serving the poor, and funding from developing-country governments themselves. This final category is by far the largest amount, representing billions per year in Asia, according to the World Bank. As ICTs become increasingly integrated into all these approaches to poverty alleviation, how can the poor benefit?

Among all these sources of funding for poverty alleviation, a big topic has been the extent to which the tradition modes of helping the poor can be enhanced through ICTs. In the late 90s, many activists scoffed at the idea the ICTs should be given priority, when the poor lacked clean water, blackboards for the schools and electricity needed to power computers. Nowadays, the notion that all these fields of poverty-reduction require ICT applications is much more widespread. A dozen of the bilateral aid agencies have plans for “mainsteaming” ICTs into their ODA operations and many countries have set up ICT ministries to encourage the integration of ICTs into education programs and other efforts serving the poor. The World Bank, for its part, has a special unit set up to integrate ICTs into all aspects of its assistance to low-income countries, compassing not just the lending activity of the bank itself but also its equity investments made through the International Finance Corp. NGOs for their part have ICT advocacy efforts to integrate ICTs into each field of antipoverty activity. For example, in the field of microcredit a broad network of nonprofit intermediaries has arisen to use ICTs to enhance the scale and productivity of microlending.