Neither computers nor the Internet, by themselves, can make a country or a company radically more productive. It is when its potential to allow more efficient business processes to operate that ICT makes a real difference. The value of ICT for development lies not so much in the share of the global economy that this sector may come to represent (undoubtedly a sizeable one), but in the changes that ICT will introduce in the functioning of enterprises across the economies that assimilate them. This is something that governments and enterprises in developing countries should keep in mind when considering investment strategies to equip themselves to participate in electronic commerce (e-commerce).

It will be as the efficiency gains derived from changes in business processes seep into the productive tissue of developing countries that ICT and the Internet will contribute most to global economic growth and improved living standards. Indeed, it is because the Internet revolution is relevant not just to the high-tech, information-intensive sectors but also to the whole organisation of economic life that its positive effects are spilling over more quickly into most sectors of the economy and that developing countries stand a better chance of sharing in its benefits earlier than in previous technological revolutions.

Creative Destruction: The New Economic Development Paradigm

The ICT revolution should not be different from previous technological upheavals that have had profound consequences for the economy. The steam engine, railways, the internal combustion engine and the industrial application of electricity spelt the end of entire sectors of activity, generated new industries and services, and most importantly allowed enterprises to work differently and more efficiently.

Technological revolutions have always affected different sectors in different ways. Railways helped create the first nationwide markets in Europe and the United States (but they did not have a dramatic effect on financial services). The industrial application of electricity radically changed manufacturing (but had little direct impact on farming or retailing). Information technologies and the Internet will have more widespread effects because they can be applied in most aspects of production, distribution and consumption.

This will, of course, have implications for the speed at which changes will be felt in the economies of developing countries, which will be directly proportional to the weight in their economies of the sectors in which the impact of the Internet and ICT will be deeper and faster. Information-intensive activities are being – or soon will be – radically transformed by the combination of powerful, cheap computing and connectivity. This includes financial services, education, the cultural industry, professional services and government services. In other, less information-intensive sectors of the economy, changes will be incremental and mostly due to reductions in transaction costs: manufacturing and retailing are examples of industries where deep, although slower, changes can be expected. It is therefore important that developing countries prioritise areas where results can be expected earlier, so as to minimise the financial effort and encourage people to embrace change.

The experience of the United States, where investment in ICTs has been most intense, shows that between 1995 – 2000 output per hour in the non-farming sector grew at an annual rate of 2.5%, significantly higher than the rate of the previous two decades and closer to the growth rates of the “golden age” of 1959-1973. The UNCTAD secretariat agrees with those that think that much of the acceleration of productivity growth in the United States is structural and attributable to changes induced by ICT and the Internet, through improvements in all aspects of corporate organisation, production, finance, marketing and logistics.

Two Scenarios: Developing Countries Catch Up or Fall Behind

ICT will continue to support rapid productivity growth. But there will be no productivity growth for many developing countries if they fail to catch up technologically with the industrialised world. UNCTAD has conducted a quantitative analysis based on two contending scenarios: that developing countries fall behind developed regions technologically, and that they catch up. The analysis is centred on cost savings and assumes that e-commerce can reduce costs of services, particularly in retail and wholesale trade, transport, and financial and business services.

The report examines the impact that e-commerce will have on developing regions through a computable general equilibrium (‘CGE’) model. Given that this is a hypothetical model simulated by an increase in productivity of 1% brought by e-commerce, it finds that in an open global economy increases in productivity in one region will impact on other regions through their terms of trade (exports and imports) leading to a possible deterioration in the welfare of those other regions.

From Selling Sheep to Transcribing Tapes: Productive Sectors

‘Very big sheep’, promises the website http://www.EthioGift.com – ‘a 35Kg (Guaranty) Sheep for Your Family’s Feast ($97)’ – featuring a photo (with zoom view) of an attractive brown and white ovine. Ethiogift, ‘your online gift delivery service for Ethiopia’, is a model of its kind – an e-commerce venture based in a developing country doing a booming business with clients in the industrialised world. It and enterprising upstart firms like it are capitalising on the e-commerce explosion to create business opportunities that at the same time contribute to national development.

The report looks at the impact of e-commerce in different economic sectors. Several key sectors are identified where e-commerce can quickly realise benefit in developing countries: tourism, online commodity trading (even sheep) and teleservicing and outsourcing. However, to a large extent, the report notes that many business opportunities presented by e-commerce remain just that, owing to the limited capacity in developing countries for online secure payments and the lack of adequate trade-supporting services, such as insurance, transport and business information. Chapter 9, ‘E-Commerce in the Least Developed Countries’ presents the findings of a survey conducted by UNCTAD of 16 enterprises already engaged in e-commerce in 10 Least Developed Countries (LDCs): Bangladesh, Cambodia, Ethiopia, Madagascar, Mozambique, Myanmar, Nepal, Tanzania, Togo, and Uganda. This adds more experience, and details case studies (such as that of Ethiogift) of the practical impediments that need to be overcome in e-commerce.

Resources:

• UNCTAD http://www.unctad.org


• The ‘E-Commerce and Development Report 2001’ may be obtained:
  
  • Online at http://www.unctad.org/ecommerce/docs/edr01_en.htm
  
  
  • Offline at the list price of US$40, and at a special price of US$15 in developing countries and economies in transition, from http://www.un.org/publications United Nations Publications, Sales Section, Palais des Nations, CH-1211 Geneva 10, Switzerland. Tel: +41 22 907 2606/2613. Fax: +41 22 917 0027. Email: unpubli@unog.ch (Sales No. E.01.II.D.30, ISBN 92-1-112541-3).


• ‘E-Commerce and Development Report 2001’ contents:
  
  1. Trends.
  
  
  2. Measuring electronic commerce.
  
  
  3. Electronic commerce and developing countries: a computable general equilibrium analysis.
  
  
  4. Electronic commerce and tourism.
  
  
  5. Business-to-business electronic marketplaces: their nature, impact and prospects in developing countries.
  
  
  6. Towards digital government.
  
  
  7. Overview of selected legal and regulatory issues in electronic commerce.
  
  
  8. Managing payment and credit risks online.
  
  
  9. E-logistics: delivering the goods in e-commerce.
  
  
  10. Electronic commerce in the least developed countries.
  
  
  11. China’s ICT strategy and e-commerce.