January 2006

Aiding development, accelerating innovation through ICT

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In many countries of Latin America and the Caribbean where the public sector plays a decisive   role in their economy leading to improved productivity and increased competitiveness, the development of e-Government is a must. Considering this all the more important aspect, the Inter-American Development Bank (IDB) has expanded its role to provide support to the region’s countries in disseminating ICT by incorporating ICT programs and components into projects in various priority sectors for development.

Information and knowledge are fundamental resources for economic and social development.  Information and communication technologies (ICT) foster the development process by  creating new opportunities in the creation, transformation, and distribution of information  and knowledge, reducing transaction costs, and contributing to the possible acceleration of  innovation processes. The ICT revolution has given rise to the so-called information and knowledge society, where technology develops as a result of economic, social, institutional,  and cultural contexts, skills, and incentives. In Latin America and the Caribbean, the  information and knowledge society is less developed than in other regions of the world— especially in comparison with the countries in the Organisation for Economic Cooperation and  Development (OECD)—and there are huge differences between the countries in the region  as well as within each country.

The development of e-Government is particularly important in many countries of Latin America and the Caribbean where the public sector plays a decisive role in the country’s economy thus leading to an improved productivity and an increased competitiveness.

ICT in economic and social
development

For economic and social development, Information and knowledge are a prerequisite. As such,  Information and communication technologies (ICT) aid the development process thereby  creating new opportunities in the generation, transformation and distribution of information  and knowledge, lowering transaction costs and accelerating the process of innovation. So to  speak, the ICT revolution has created the Information and Knowledge Society, where  technology develops in function of economic, social, institutional and cultural contexts,  capabilities and incentives. However, when compared to the OECD nations the Information  and Knowledge Society is less developed in Latin America and the Caribbean than in other regions of the world thus presenting extensively differing patterns of development within the Region, and within each country.

There exists a positive relationship between ICT investment and the increase in productivity  and competitiveness according to several research studies that have come up with the  following conclusions: (a) the relationship between ICT and growth is obvious in developed economies that have already reached a threshold in its distribution and use; (b) there is a  time gap from the start of investment and the resulting increases in productivity and growth  due to the process of assimilation and adaptation of ICT; and (c) education, human capital andthe economic environment are keys to exploiting the potential offered by ICT. More importantly, the conclusions of research studies point to one essential aspect: access to information can transform production processes, increase the learning ability of the  population, and improve the living conditions of the poor.

Dissemination and usage of ICT
in Latin American and the Caribbean

The latest indicators confirm that countries in Latin American and the Caribbean have   experienced significant progress in the penetration of ICT in recent years, much more so than in other regions of the world, starting from low or very low levels. For example, the  penetration of the Internet in the region increased 211% between 2000 and 2005, and the penetration of home computers increased 170% between 1999 and 2003. However, despite this progress the levels of ICT penetration in the region and its absorption capacity continue to fall far short of those in industrialised countries. Only 10.3% of the people in the region have Internet access (compared to 67.8% in the United States), and 6.6% of the population has a home computer (compared to 65.98% in the United States).

“The penetration of the Internet in the Latin America and Caribbean region increased 211%   between 2000 and 2005, and the penetration of home computers increased 170% between 1999 and 2003. However, despite this progress the levels of ICT penetration in the region and its absorption capacity continue to fall far short of those in industrialised countries.”

Unfortunately though, in Latin America and the Caribbean the spread and appropriate usage   of ICT has been affected owing to various factors – (a) the limited institutional ability to articulate and promote public policies for the distribution and use of ICT; (b) the limited network coverage and the high costs of access to ICT; and (c) the lack of digital education enabling interaction with ICT and the scarcity of content that is of interest to the local population. Nonetheless, there are several successful experiences as well in ICT for   development in the Region. Generally, the factors characterising these experiences are political support, an integrated and longterm vision, institutional and technical capability, the participation of the private sector, a favourable environment (infrastructure, regulatory framework), and projected levels of investment.

The IDB strategy: disseminating
ICT for development

Covering 2006-2010, the Inter-American Development Bank (IDB) has developed a strategy with a primary focus to increase the effectiveness of the Bank in advancing ICT for the economic and social development of the countries in the Region. Keeping in view the  challenges faced by the countries of the Region in spreading ICT for development, the strategy  incorporates the integral dimension of ICT in various sectors, with priorities in the following areas: (i) Creation of a favourable environment for the distribution and use of ICT, (ii) Modernisation of the State, (iii) Competitiveness, (iv) Social Development, (v) Regional  Integration, and (vi) Environment and Natural Disasters. With these priorities, the strategy incorporates the comprehensive dimension of ICT in the various sectors as a means of  contributing to development in the countries of the region. Creation of a favourable  environment for the distribution and use of ICT: Contributing to development through ICT requires an environment that facilitates its spread and use in institutional, business, and social contexts. The strategy would support the development of initiatives that contribute to complete the process of liberalization of the telecommunications market, increase the use of ICT, combine regulatory measures with public-private initiatives to extend connectivity andadapt tariffs, and create assurance and confidence in the public, social and commercial use of ICT through the formulation and application of norms, edicts and/or laws, among others.

ICT in support of Modernization of the State: ICT is a key tool in modernising and transforming the State in order to achieve a modern, professional, and transparent public administration in such a way as to improve the efficiency and transparency of the management of expenditures, promote the participation of society in the formulation of public policies, improve and extend the coverage of public services, especially to the excluded sectors, increase fiscal responsibility, and decrease fraud.

ICT in support of competitiveness: Innovation, technology transfer, and the use of ICT are   essential skills for making companies more productive and more competitive, and therefore are decisive factors in strengthening the economy. This strategy seeks to promote initiatives     to promote and support innovation, transfer, and implementation of ICT for purposes of production, competitiveness, and sustainable economic growth, while according priority to SMEs, micro-firms, and rural producers, as well as to sectors showing a high potential for economic development and job creation such as the ICT sector, which is helped by its inherent technological advantages in competing in a global market.

ICT in support of social development: Social development is a fundamental part of the Bank’s commitment to reduce poverty, promote social equity, and improve well-being in the region.  As part of its Social Development Strategy (GN- 2241-1), and in line with the Millennium Development Objectives, the Bank intends to help countries accelerate social progress through actions in the health care, education, and housing sectors. The dissemination and appropriate use of ICT can improve the efficiency and effectiveness of efforts promoted by the Bank to accelerate social development and expand its impact.

ICT in support of regional integration: Regional integration is a tool to achieve a strong  position vis-à-vis the forces of globalisation through the creation of regional public goods  (RPGs) designed to promote sustainable economic growth and reduce poverty while providing  the economies with a better position to face the forces of globalisation. ICT can contribute to the regional integration process, specifically in the promotion of regional infrastructure, the consolidation of regional markets, and institutional strengthening.

ICT in support of the environment and in responding to natural disasters: Environmental protection and natural resource management are increasingly important in achieving sustainable development and helping to improve the overall quality of life. The strategy seeksto incorporate ICT into the determination of priorities related to the environment and the protection of natural resources, and in the prevention, mitigation, and management of natural disasters.

Mobilisation of resources for
ICT for development

The IDB strategy in ICT for development aims at building up the capability of the Bank to  effectively mobilise financial resources to the borrowing member countries of the Region, through solid loan and technical assistance programs, which leverage the utilization of ICT as means to enhance the sustainable social and economic development of the Latin American and Caribbean Region.

First, the strategy aims at assisting the countries through quick response financial facilities  including technical cooperation funds (CT/Funds) and regional technical cooperation  resources (RTC/FSO) to support base studies, preinvestment activities, project preparation activities and demonstrative ICT for development projects. Second, the strategy represents a  driver to strengthen and more fully utilise the Bank’s lending framework through both, its  Fund for Special Operations (FSO) and Ordinary Capital (OC) fund. In particular, with respect to facilitating the access of the Region to flexible lending instruments to more effectively tap  the potential of these rapidly emerging and changing technologies as part of the development  projects of the Governments of the Region, while at the same time setting the stage and  incentives for further and complementary private sector investment in connectivity and ICT  for development in general.

“The IDB strategy in ICT for development aims at building up the capability of the Bank to effectively mobilise financial resources to the borrowing member countries of the Region, through solid loan and technical assistance programs…”

The Bank has made available to its borrowing member countries a new financing framework aimed at facilitating the design and execution of primary investments, and to accelerate,  among others, their access to ICT and other technologies within their social and economic  development processes. This is in response to the Bank’s experiences regarding such a  framework that is consistent with the sustained growth in the demand for the incorporation of  ICT  in its various development programmes.

These include, among others, innovation loans, multi-phased loans, sectoral facilities, project  preparation and execution facilities, and emergency loans. On one hand, these instruments present expedited credit evaluation and approval processes and, on the other hand, allow for  the gradual incorporation of new technologies in the investment programmes in the Region. Moreover, as means to coordinate the national efforts and leveraging the technical resources from various donors and multilateral agencies, the Bank recently approved the “Sectorwide Approach” (SWAp), which is aimed at pooling resources from different organizations into sectoral lending/inter-institutional financing structures.

Moreover, with the objective of identifying, offering and facilitating access to new technology solutions, and setting the stage for solid loan operations of a wider scale, the Bank has been continuously offering an increasing array of technical cooperation resources through a number of financial facilities which include, among others:

(a) the Italian Trust Fund for Information and Communication Technology for Development,  a US$7.5mn facility which finances a series of individual technical cooperation activities for the design and implementation of e- Government applications aimed at improving the efficiency and transparency of the public administration and expanding the reach and impact  of public social and other services. The Fund provides non-reimbursable resources to undertake a series of diagnostic studies and activities which allow to further identifying the  situation, real needs and demand for ICT systems and infrastructure and e-Government solutions, with special emphasis in their application to, among others, public sector  administration and the social sectors in the countries of the Region. It also finances a series of  investment activities including project preparation and the execution of small, innovative  and demonstrative pilot projects in e government;

(b.) the “ICT Innovation Program for E-Business and SME Development” (ICT4BUS), a US$15  million facility financed with resources from the Multilateral Investment Fund (MIF), and whose objective is to contribute to the improvement of the competitiveness of small and  medium sized enterprises (SMEs) in the Latin America and Caribbean Region by expanding  their access to new ICT solutions and services. The Program comprises the provision of non-reimbursable funding to non-forprofit business/umbrella organisations for the  implementation of pilot projects, and the dissemination of new knowledge and lessons learned.  Projects mainly test innovative ICT services and solutions for SMEs, in the areas of value  chain integration, workplace productivity and efficiency, and market penetration; and

(c.) the recently established “Knowledge Partnership Korea Fund for Technology and  Innovation”, a US$25 million facility which, among others, seeks to set the stage for the  implementation of technical cooperation operations aimed at the promotion and development  of institutional capacity, innovation and new productive technologies with highimpact in  social development, poverty reduction and institutional strengthening process, through the  deployment of ICT solutions in the countries of the Region. In particular, the new “Korea-IDB”  partnership has made new resources available for knowledge and technological innovation  towards the development process of the Region.

“The Bank is increasingly incorporating ICT components into programs and   projects, while placing increased importance on the framework of each operation.”

Also, the Bank is currently working on the identification and establishment of a number of  individual bilateral agreements with it donor countries to expand the stated “Trust Fund for Information and Communication Technology for Development” into a “multi-donor financing  facility” with reach to all borrowing member countries of the Region, and aimed at increasing the number, scope and impact of technical cooperation operations in the following strategic  areas of intervention: “ICT for governance and modernization of the state”, “ICT for social  development and poverty reduction”, “ICT for business development and economic growth”.

As such, the Bank’s ICT for development strategy seeks to create the necessary conditions to  facilitate the mobilisation of private sector resources in ICT for development in direct collaboration with the Bank, and with public and civil society sectors in the countries of the  Region. This with the aim of stimulating and encouraging an expanded private sector role in  ICT for development, and in direct contribution to the Bank’s efforts of, among others, promoting social development, competitiveness, modernisation of the state and regional  integration. In particular, with the premise that an expanded private sector role should balance market processes with increased corporate social responsibility and strengthened  partnerships in Bank-led processes, as part of a “blended strategy”. In this context, the Bank is  currently working on the identification and design of the institutional, legal and technical  mechanisms for the establishment of a “multi-donor financing facility with private sector  participation”, which will allow for the effective participation of leading ICT companies in  technical cooperation projects led by the Bank in the Region, and which require modern  technical concepts and models, leading and innovative technologies, and, overall, technical  and financial leverage.

The Bank would also soon initiate the design of a financial programme to support community  development through ICT, with an implementation scheme similar to the ICT4BUS Program,  and aimed at community leaders, entrepreneurs and local-base organisations that seek  support in the deployment of ICT for social development purposes and, in particular, in  alphabetisation, education and training, health, culture, gender and equitable sustainable  local development, among others.

Finally, it may also be noted that the platform of the World Summit for the Information  Society (WSIS) represents a unique opportunity for the Bank to continue consolidating its  interinstitutional partnerships while, at the same time, strengthening its role and commitment to its borrowing member countries of the Region to work in the design and  implementation of the most effective financial instruments to attend their rapidly changing  and growing demand for ICT solutions and applications, under a sustainable and dedicated  development financing framework. Precisely, the Bank will lead during 2006 a number of  regional activities and events in ICT financing and consistent with the resulting Declaration of WSIS-Tunis 2006.

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