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What steps could be taken by countries to encourage greater investment in ICTs?

To create information based society, investment in ICT infrastructure, content, applications and capacity building is necessary. Governments can promote public and private investment by adopting options listed in this essay.

Public Investment

Domestic

In the post liberalisation era, direct public investment is often not desirable unless there is sufficient evidence that market players will not enter a particular market (geographic or service). For example remote rural areas with little population may not make business sense for a telco to extend its access to. But with Government’s financial support for capital and/or operational expenditure, serving that particular market can be made attractive.

For such situations, Governments may levy additional tax on telcos (as in India, Pakistan, Morocco, Malaysia etc under Universal Service Obligation) (Intel 2010). Pakistan imposes a further tax for supporting ICT research and development, and capacity building activities in the country. Additionally, Governments may also decide to divert the revenues generated from Spectrum Auctions to the promotion of ICTs instead of using them as budgetary income.

Some countries, (e.g. Australia, India and Malaysia) are investing in Government owned, open access, nationwide, fibre optic networks. The revenues from these networks will initially payback capital expenditure, and will then provide a continuous revenue stream for further investment is ICTs.

 

Foreign

Developing countries may be able to seek direct public investment of other countries as bilateral or multilateral Official Development Assistance (ODA). UN, World Bank, regional banks, Japan and South Korea are among notable donors for telecom infrastructure and services development. Many NGOs and international organisations are also active in this regard. The US has contributed substantially to human capacity building in ICTs. USTTI has provided tuition free training to “8,554 ICT officials and entrepreneurs from 170 developing countries” (USTTI 2012).

 

Private Investment

Foreign Direct Investment (FDI) and Domestic Investment:

Liberalisation of telecom sectors around the world in the 1990s opened up many national ICT sectors for foreign investment. With continuous invention of new generations of telecom services, the Governments can attract further foreign investment if they can create transparent and conducive environment by adopting investor friendly policies, such as:

  • Tax Incentives[1]: Governments may offer reduced corporate taxation, guaranteed tax rates for longer period of times (tax stability), and tax holidays for certain initial years of investment to attract foreign investment (Biggs 2007).
  • Lowering ownership and profit repatriation barriers: Some countries allow FDI only under joint ventures and some allow only a limited fraction of the profits to be repatriated to the parent companies abroad. If these barriers are removed or significantly lowered, they may help bring more foreign investment.

Domestic Financing: Extending tax incentives to domestic investors can be helpful in convincing local investors to invest in ICT sectors.

Sectoral Reforms: While most countries liberalised telecom sectors during 1990s, there is still room for further improvement. For example in the converged environment of today, if the broadcasting, content and telecommunications regulators are merged, it will provide policy clarity to investors, while lowering the cost of sector regulation for the Governments. By doing so, Governments may be able to speedily free up analogue TV spectrum, and provide it for mobile/internet to induce further investment (the so-called Digital Dividend). By encouraging local internet exchange points and infrastructure sharing, costs can be reduced to free up further resources for investment. Adopting Green ICT technologies may qualify for financing under UN’s Carbon Credits Scheme.

Whole of the Government approach: Encouraging competitive environment by establishing transparent legal and regulatory framework requires many state organs to work together effectively. If Governments succeed in creating enormous demand, the business sector will reply with further investment. Demand will increase if Government itself becomes anchor tenant of ICTs, shifting as much of its services to ICT platforms as possible. Service innovation through pubic private partnerships and local content creation can boost demand.

Conclusion

In order to attract investment in ICTs, Governments can levy additional taxes, provide tax incentives to potential investors, look for development assistance from donors, streamline policy and regulatory environment, create demand for ICTs and partner with the private sector in offering innovative services through ICTs.

 

References:

Intel Corporation, White Paper on “The Benefits of Applying Universal Service Funds to Support ICT/Broadband Programs” 2010, http://www.intel.com/content/dam/www/public/us/en/documents/white-p...  Accessed 25 May 2012

 

US Telecom Training Institute (USTTI) 2012 http://www.ustti.org/about/report.php Paragraph 1, Accessed 26 May 2012

 

Biggs Philipa, “Tax Incentives to Attract FDI”, Meeting of Experts on “FDI, Technology and Competitiveness”, March 2007,United Nations Conference on Trade and Development, http://archive.unctad.org/sections/dite_dir/docs/dite_dir_03-07_Big..., Accessed 25 May 2012



[1] For a complete list of tax incentives and countries practicing them, refer to pages 5-7 of Biggs (2007).

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Comment by Muhammad Rasheed Khan on June 29, 2012 at 4:43pm

Dear Mayengo Tom Kizito thank you for your excellent feedback. I fully agree that telecom investment will be greatly facilitated if the barriers of electricity and transport could be removed.

Comment by Mayengo Tom Kizito on June 29, 2012 at 2:20pm

Thank you Khan for such a good piece.

When mentioning of the government's roles in encouraging ICT development and investment in countries, I felt you either didn't tackle properly or totally talk about the point of governments creating an infrastructural environment that encourages investment in ICT. 

As we might notice, most of the ICT investment suffer a great deal of costs mostly power, transport and at times language. In developing countries where the main power grid covers only 13% of the country, it is still a nightmare for some investors to reach all parts of the country even when the demand for the services is available. Still to this, countries like Uganda where the road network only covers the central business districts of the country, it is very costly for investors to move upcountry and even maintain services in these areas.

Therefore for a government that is planning to attract investment in ICT, an investment that shouldn't remain in the central district of the country but to serve the entire population, I believe the investment environment in terms of costs of production should be streamlined.

Thomas

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