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A paper from the Economist Intelligence Unit sponsored by Cisco Systems

Path to growth:The power of technology in emerging markets

© The Economist Intelligence Unit 2007 �

Path to growth: The power of technology in emerging markets

Path to growth: ICT in the emerging world is an Economist Intelligence Unit white paper, sponsored by Cisco Systems. The Economist Intelligence Unit’s editorial team executed the survey, conducted the interviews and wrote the report. The findings and views expressed do not necessarily reflect the views of the sponsor. Adam Lincoln was the author of the report, and Winter Wright was the editor. Richard Zoehrer was responsible for layout and design.

Our research was conducted in the summer of 2007.Our thanks are due to all interviewees for their time and insights.

December 2007

Preface

� © The Economist Intelligence Unit 2007


Introduction: Hope vs Hype

an a computer-animated cartoon called Ben & Izzy make the world a

better place? Randa Ayoubi, founder of Jordan-based Rubicon, certainly thinks so. Her company, which pioneered the application of multimedia in Jordan’s education curriculum, has produced a tale of two boys, American and Jordanian, whose sometimes fractious relationship serves as a metaphor for promoting tolerance and peace in the Middle East and beyond. The cartoon, created by an American producer and Iraqi and Jordanian animators, has already launched in New York, with Jordan’s Queen Rania in attendance; global distribution is planned for 2008. “Our mission is to produce education that is fun, and entertainment that means something,” says Ms Ayoubi.

She’s quite serious. Information and communication technologies (ICT) might not always top the agenda when there are so many other issues to worry about. But Ms Ayoubi is one of a growing number of advocates who view connectivity as a catalyst for economic growth and social advancement. ICT can reduce costs, improve transparency and provide new ways to reach under-served consumers. By positioning themselves to take advantage of these benefits, emerging countries are paving the way for rapid growth. The farmers of South Africa’s Limpopo province, who use mobile phones to access lucrative new markets for their produce, are proof that the quest to bridge the digital divide is already bearing fruit. Traditionally hampered by their distance from big cities like Johannesburg and Pretoria, they can now use cell phones to communicate directly with buyers from the restaurants and lodges in Kruger National Park 20km away. The Manobi Development Fund, a non-governmental organisation, reports that after a few months of using their cell phones in this way, some farmers saw their monthly incomes rise sharply. Such success stories are surprisingly rare given the number of initiatives under way to get Internet access to the developing world. From targets set by the United Nations, which has called for every village to be connected to the Internet by 2015, to commercial initiatives such as the MIT-backed “One Laptop Per Child”, which is set to ship US$175 computers to schools, efforts are being made to extend technology’s reach to poor and developing countries. Yet 4bn people, or about 60% of the world’s population, still lack access to basic Internet connections, according to Internet World Stats, a monitoring organisation.

C

Countries that take advantage of new technologies will exploit opportunities to leapfrog ahead, both technologically and economically



Despite the challenges, change is afoot. Antoine van Agtmael coined the term “emerging markets” while working for the International Finance Corporation in the 1980s. He now runs a fund management company with US$24bn invested in those markets. In 30 years, he believes, the combined GNP of today’s emerging markets will overtake that of the developed economies; in 50 years, emerging markets will be twice the size of today’s economic leaders. Assuming that ICTs are deployed to full effect, the citizens of these countries won’t just be richer; they will be healthier and better educated, too. Indeed, a shift is already under way. From the delivery of public services to the way small businesses find new customers, high-bandwidth networks are helping to remove barriers that have previously constrained developing countries . And whereas past computing models focused mainly on solving big, expensive organisational issues, the focus now is on collaboration. This leads observers to conclude that

there is a tremendous opportunity in the emerging world to move straight to Web 2.0. The logic is that these markets could make the jump more quickly because there are no existing legacy systems. The world’s emerging economies can benefit from a gathering wave of Internet use, powered by broadband. For many countries, the difference between being competitive and falling behind could depend on how well they catch and ride this wave. “The information-rich countries continue to pull away from the information-poor countries,” writes Manuel Castells, a professor of communication at the University of Southern California and a commentator on technology and society. Castells believes countries that take advantage of technologies such as wireless and broadband communications will exploit opportunities to leapfrog ahead, both technologically and economically. For those that fail to do so, catching up will become that much harder.

n a continent where fewer than 4% of the population have bank accounts,

it’s easy to understand the success of M-Pesa, a money transfer service offered by Kenya’s Safaricom. Subscribers use their cell phones to transfer money over long distances, and to pay for products and services without having a bank account, credit card or PC. M-Pesa also provides customer service amenities characteristic of a more developed environment: transaction tracking and reporting, for example, and anti–money-laundering measures.

Although the technology is advanced, M-Pesa’s appeal lies in its simplicity. Setting up a bank account can be a long, expensive process in Kenya, but with M-Pesa, users register quickly to open an account that lets them upload (deposit) and download (withdraw) cash. The mobile phone number serves as the account identification number. To make a deposit, customers go to the same outlet where they buy credits for pre-paid phone cards. They can then send funds to any other phone number, on any network. The receiver gets a text

Shifting sands, clean slate

O



message that can be “cashed in” at a re-seller agent. Safaricom already has more than 450 M-Pesa agents across Kenya, compared with just 350 for Western Union, so uptake has been swift. Launched in March 2007, the scheme had 150,000 customers by June, with 2,500 new users signing up daily. In the first three months, the value of transfers amounted to nearly US$6m. If the average transaction size of US$45 seems high, it’s because M-Pesa is being used not just for small personal purchases, but also for commercial transactions such as paying wages to workers. Safaricom, part owned by the UK’s Vodafone, expects 1m people to be using the service by the end of 2007. With more than 6m mobile phone subscribers on its books, Safaricom still has plenty of room for growth—especially with international remittances in the works.

Expanding options

s the Kenyan government prepares to float one-quarter of its 60% stake in Safaricom, a move that is expected

to yield US$750m, M-Pesa is shaping up as an important asset. Indeed, such projects illustrate why ICT adoption in emerging markets is viewed by some as technology’s biggest trend.

According to Gartner, a US consultancy, worldwide mobile connections will increase by 1.5bn by 2010, with emerging markets accounting for 87% of the gain. “Emerging markets may be under-penetrated by communications services, but the hunger for improved connections is strong,” says Jouni Forsman, Gartner’s research director. “Compared to disposable income, phone users in developing regions are spending five times more on communications on a per-user basis than their counterparts in developed countries.” Forrester Research, another consultancy, reckons the number of personal computers worldwide will rise from 755m in 2007 to 2.25bn by 2015—from one computer for every ten people worldwide to one for every three. The computers might not always look like today’s PCs, but they will perform the same tasks, and more. Indeed, as advanced technology is rolled out to some of the world’s poorest and most remote locations, these markets will hold growing interest for technology providers. Although the OECD countries still account for about 85% of global ICT expenditure, tech vendors now see emerging markets as offering the greatest prospects for new demand growth. At the same time, the influence of emerging markets is on the rise. As technology providers seek ways to serve these new markets profitably, they must re-think the way they do business. “Reaching these users in a cost-effective manner with technology that is relevant to their lives requires a fundamental shift in the way computer hardware and software is designed, assembled, financed and distributed,” says Forrester analyst Simon Yates. The options available to emerging countries are expanding quickly, a radical departure from the past. Historically, ICT vendors have mostly focused on large organisations with big budgets and substantial technology needs, typically multinational firms, large state-owned enterprises, or government

“Compared to disposable income, phone users in developing regions are spending five times more on communications on a per-user basis than their counterparts in developed countries.”

Jouni Forsman, research director, Gartner

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© The Economist Intelligence Unit 2007 7


agencies. Some have entered emerging markets with ”ruggedised” versions of their technologies. Motorola, for instance, designed a US$30 phone for users in rural India. In April 2007 Microsoft launched a suite of applications for students that includes versions of Windows and Office plus special software for e-mail and mathematics. It will cost governments just US$3 per user when bought for students—a small fraction of the normal price. While such ideas are certainly worthy, there is a growing sense that emerging markets now have a greatly expanded range of opportunities. Technology trends are converging to bring down the total cost of ownership even for advanced systems, making

possible new business models to suit the needs of emerging markets. The unifying force in all this, most believe, is the Internet protocol (IP) network.

Unifying force

n the past, when IT experts spoke of ”architectures”, they referred to the underlying hardware and operating systems

on which applications were run. Thanks to the Internet, however, the network has gradually become the cornerstone or platform of the architecture. When the network is the platform,

Access to healthcare is a critical

problem in war-torn Afghanistan, particularly

specialist diagnosis and treatment. Pressure

on the country’s hospitals is growing more

acute. Last year, the French Medical Institute

for Children (FMIC) in Kabul served 1,280

inpatients and 23,000 outpatients in its clinics.

By mid-2007, the organisation had already

seen 987 inpatients and 13,365 outpatients—

growth of 85% and 39%, respectively.

Patients who make it to FMIC, of course,

are the lucky ones. Often, sick Afghanis have

little choice but to travel overseas to get

quality care, a luxury few of them can afford.

One possible solution is telemedicine. The

concept has been around for years, chiefly

in rich countries. Developments in wireless

broadband technology have made it increas-

ingly viable even in countries like Afghanistan,

where poverty and war put

limits on communications

infrastructure and restrict

access to medical diagnosis,

treatment and training.

In a project led by

Roshan, the country’s big-

gest telecommunications company, FMIC

has partnered with Aga Khan University

Hospital (AKUH) in Karachi, Pakistan. FMIC

will provide teleradiology—the electronic

transmission of radiological patient im-

ages. There will be an average of 60 to 80

transmissions and 10 to 15 teleconferences

between hospitals per month, with the

numbers increasing over time.

This project is the first of its kind in

Afghanistan, and its impact has been im-

mediate, says FMIC’s general director Kate

Rowlands. “It is already

allowing us to expand

the resources at our

disposal and draw

on the expertise of

AKUH for specialist

consultation, second

opinions and treatment input, resulting in

speedier diagnosis and treatment and better

outcomes for patients,” she says.

In the future, other services, such as

the evaluation of tissue samples and even

surgery, will be possible using the system.

Later phases will link major Afghan regional

hospitals to FMIC, which is being developed

as an Afghan centre of medical excellence.

Eventually, connections might be made with

hospitals and universities in Europe and

North America. n

The Telemedicine Treatment

I



options expand and collaboration becomes common. As of mid-2007, the world’s online population was about 1.2bn people or 17.8% of the total population, according to the International Telecommunications Union. About one-quarter of that group—or 300m people—have access to a broadband connection, says UK-based Point Topic, an Internet consultancy. Of course, access varies: In South Africa, household broadband penetration was just 1.8% in March 2007, whereas in hi-tech South Korea it was 90%. And across emerging markets, broadband users tend to pay a higher proportion of their income for high-speed links.

Even so, there are signs that broadband is set to grow exponentially. One example: Eastern Europe, where double-digit growth in broadband is common but overall penetration remains low. In the first quarter of 2007, the number of connections rose by 10.4% in Hungary, nearly 15% in Ukraine and 25% in Croatia. And never mind copper or even fibre-optic cable. Given the recent rise in copper commodity prices and the logistical demands of laying wires, wireless is fast becoming the lingua franca of communications in the emerging world. US-based Infonetics Research believes worldwide WiFi phone revenue will post strong double-digit growth every year through 2010, when it will top US$145bn, as WiFi is incorporated into a growing range of media-playing ”smartphones”. Meanwhile, the global WiMAX equipment market (including fixed and mobile) will

experience a five-year compound annual growth rate of 70% between 2006 and 2010, helping to spawn wireless corporate networks that can run multimedia applications such as ”unified communications” and ”telepresence”. “Unified communications is the buzz du jour in our industry, but there are a lot of different ideas out there for what it actually is,” says Matthias Machowinski, directing analyst at Infonetics, a consulting firm specialising in data networking and telecommunications. At least there is broad consensus about the key components: unified messaging, which enables the convergence of all message types—voice, data, text and even videoconferencing—into one network. There is also a directory that shows contact availability by communication mode. According to Infonetics, worldwide sales of unified communications applications rose 21% between 2005 and 2006, to US$363m. Although still relatively small, the segment is expected to grow in the high double digits over the next few years.

The virtues of virtualisation

he focus on high-speed networks has implications for the entire gamut of ICT applications. Start with the data centre,

the network’s hub. Data centres house servers that run applications and provide storage, so provisions must be made for business continuity and disaster recovery. Also, security becomes paramount when so much crucial shared business and personal data run over IP-based networks. Technical safeguards such as firewalls and anti-virus software are needed, as are operational policies and management. Infonetics Research forecasts worldwide network security revenue will hit US$5.3bn in 2010. But while data centres are doing more, they aren’t necessarily getting bigger. The buzzwords are

T

“Unified communications is the buzz du jour in our industry, but there are a lot of different ideas out there for what it actually is.”

Matthias Machowinksi, directing analyst, Infonetics



”consolidation”, ”automation” and ”virtualisation”. Taken together, they amount to doing more with less. The technological advances that lie behind the catch-phrases also mean companies can take an ”on-demand” approach to their data centres, scaling their infrastructure to respond to changing market conditions and business requirements. One such advance is ”server virtualisation”, in which ICT managers take a series of tasks performed on many small servers and consolidate them onto a single server that can perform all of the jobs simultaneously. This ability to handle more work has been made possible by the development of multi-core processors. The result, in technical jargon, is

an improved ”utilisation” rate. The benefits of this approach include reduced capital costs and follow-on savings in rent, power consumption and even staff. Proponents say that with more than 70% of ICT budgets dedicated to maintaining and upgrading

The technological advances that lie behind the catch-phrases mean companies can scale their infrastructure to respond to changing market conditions.

Just 10% of Cameroon’s roads are

paved. However, all of its secondary school

children will soon have access to foundation

ICT courses, and each of its universities will

boast a networking academy where students

will be taught networking and other skills to

prepare them for jobs or further education

in engineering, computer science and related

fields. Underscoring the push to bridge the

digital divide in this West African nation of

18m people is a US$25m rollout of broad-

band infrastructure funded by a consortium

of government, non-governmental organisa-

tions and private interests. Cameroon’s prime

minister is supporting the project.

In the attempt to use ICT to transform

developing countries, the technology is

often the easy bit. Cameroon’s state-run

telco will oversee the broadband network

rollout, while government ministries and

international organisations ensure that at

least 70 networking academies are set up

over the next three years. Co-operation

will be the key to success: experts say it is

the critical factor in promoting sustainable

ICT. Cameroon’s effort is being led by the

country’s national Agency of Information

and Communication Technologies. That the

agency exists at all is cause for hope.

Cameroon’s focus on education is smart.

Demand for skilled ICT personnel is ex-

pected to outstrip supply in many transition

economies during the next few years, and

the shortage is expected to be particularly

acute in places that leapfrog to technologies

such as IP telephony and wireless network-

ing. By 2009, demand could exceed supply

by 24% in South Africa, and by more than

40% in countries such as Pakistan, Jordan

and Kuwait, according to IDC, a consultancy.

“The business environment has evolved

in recent years where supply chains

compete against supply chains,” observes

IDC senior analyst Phillip van Heerden.

“Not having sufficient networking skills

available for this integration influences the

competitiveness not only of organisations,

but the country as a whole.” n

Connected in Cameroon

10 © The Economist Intelligence Unit 2007


existing systems, optimising data centre resources helps release funds for new, revenue-generating ICT projects. Here’s a real-life example. The Argentina office of Petrobas Energia, an oil and gas exploration and production company based in Brazil, needed to update its ageing server infrastructure. It was faced with the prospect of accommodating 60 new machines in its data centre. Instead, it purchased four ”server virtualisation” licences from VMware, at the time a subsidiary of storage giant EMC and now a listed company with a market capitalisation of

about US$19bn. One server would be used for quality assurance and three for production. In other words, the number of servers needed to run applications was reduced from 60 to just three, a consolidation ratio of 20:1. Savings have been realised on many levels, says Martin Mendez, a software and technical architect at Petrobas Energia. “We save money on space, infrastructure costs and switches, plus we recovered our initial investment in 12 months,” he says. Previously, it would take 30 to 40 days to deploy a new server, but with virtualisation, it takes only one or two days. “If there is a request for a new server or a new application, we can set it up right away, instead of having to order and set up a new physical server,” Mr Mendez explains. The administrative burden of managing a large number of servers has also been reduced, and the IT team can perform hardware upgrades or maintenance without any downtime because the ”virtual” applications can be moved to other physical servers.

First-class citizens Server virtualisation is proving so popular that analyst firm IDC has cut its forecast for x86 server sales between 2006 and 2010 by 10%, indicating a drop in spending of US$2.4bn. IDC projects that in 2010, 1.7m servers will be shipped to run virtual machines—14% of the total shipments, up from 4.5% in 2005. Some consider this to be a conservative estimate given Microsoft’s plans to add virtualisation capabilities to Windows in 2008. More intriguing, perhaps, is the recent purchase by Florida-based ”thin-client” proponent Citrix Systems of XenSource, a California outfit that develops virtualisation software. Citrix paid US$500m for XenSource, a company with revenues of well under $10m at the time the deal was signed in August 2007. A parallel trend is occurring in application delivery that promises to make sophisticated software more

“We save money on space, infrastructure costs and switches, plus we recovered our initial investment in 12 months.”

Martin Mendez, technical architect, Petrobas Energia



accessible to computer users in emerging markets. Among the players is Red Hat, a US software/middleware company that has conjured commercial viability out of the open-source Linux code. Red Hat has adapted its Fedora Linux product to simplify the functioning of complex desktop software suites on low-cost machines. The company also has announced a Global Desktop product, targeted at local government and small business customers. It shares 95% of its code with the machines developed under the One Laptop Per Child project and will be bundled with applications such as the Internet browser Firefox and OpenOffice. Red Hat says it is moving towards a model where traditional enterprise applications integrate with so-called online services, in which data is pulled onto the client using service oriented architecture (SOA). Brian Stevens, Red Hat’s chief technology officer, believes online services will soon be “first-class citizens with traditional applications”. He isn’t alone in this conviction. “The development of specific solutions for low-income consumers represents, to me at least, a significant shift in the centre of gravity of the overall markets,” says William Kramer of the World Resources Institute in Washington, DC. “Admittedly, the customers for this software are at the top of the BOP (base of the pyramid) market, if not above, but still, it’s a great sign.”

If you build it, will they come?Managed online services will be highly relevant to emerging countries if users in those markets are offered applications that help them get their jobs done better or faster. Such applications could be online bill-paying or tax-filing services, or information services providing access to the latest market rates. For these services to be adopted more widely, the construction of broadband networks will undoubtedly be helpful. Yet broadband alone will not be enough to foster the large-scale emergence

of managed online services. Also key will be a critical mass of application developers and systems integrators to design, implement and operate systems that can provide software applications for users. Developers will need to create applications aimed at market segments such as education and citizen services, and work with system integrators

to offer those applications as hosted services. Customers would not need to own or maintain the systems, as is common under current software licensing regimes. Instead, they would log into a website and remit a transaction fee to download an application, paying only for what they use. In this way, emerging markets would move towards a model of ‘software as a service’ by finding providers that can run applications as managed services or hosted application bundles. Ideally systems will be designed in a way that can be replicated in different countries and easily adapted to different industries.

“The development of specific solutions for low-income consumers represents a significant shift in the centre of gravity of the overall markets.”

William Kramer, World Resources Institute

12 © The Economist Intelligence Unit 2007


Multimedia with meaning

omplacency is something Rubicon’s Randa Ayoubi could never be accused of. In little more than a decade her company has

grown from a three-person developer of CD-based educational materials to help compensate for teacher shortages in Jordanian villages, to an international business with revenues of US$5m, 180 employees and growing influence in education delivery across the Middle East and North Africa. To help finance its educational push, Rubicon has diversified into corporate multimedia presentations and e-training, building a client list that includes Standard Chartered Bank in Dubai, Royal Jordanian Airlines, Marriott Hotels and Al-Hikma Pharmaceuticals, Jordan’s largest drug company.

Things have changed a great deal since Rubicon was founded with US$60,000 in start-up capital from the Jordan Technology Group. Most importantly, Ms Ayoubi says, attitudes have changed among leaders in government, education and finance. “Today there is more awareness of the importance of enterprise-building, as well as more successful models that give investors confidence,” she says. “Being an entrepreneurial company back in 1994 was almost unheard of—and e-education and multimedia were even stranger.” The company’s first product was an eMath product, which started as a pilot project in 103 schools in Jordan and was subsequently rolled out across the whole kingdom. Over time, Rubicon’s offerings have come to rely heavily on interactivity and computer graphics techniques such as 3D modelling, animation and simulation, all of which need to be downloaded over

For the first time in history, more people

live in cities than in rural areas. By 2030, an

estimated 5bn of the world’s 8.1bn people

will be city-dwellers. If Mike Davis, author of

Planet of Slums, is right, about 2bn of them

will lack access to basic services such as

clean water and working toilets.

Even today, of course, not all slums are

the same. Some residents of Rio de Janeiro’s

famous favelas have balconies and ocean

views. They also have access to Internet

services such as online job searches. Indeed,

if slums are growing, it is because people

believe their economic prospects are better

in urban areas, however bad the living condi-

tions might seem. To a large

degree they are right: concen-

trated purchasing power makes

cities the engines of most

economies, even in countries

where rural populations still predominate.

Proponents of ICT believe technology

can avert the risk of slum formation and help

cities establish a brand identity that attracts

investment and encourages development. In

South Africa, the Metropolitan Municipality of

Ekurhuleni is set to follow in the footsteps of

2008 Olympics host Beijing by using a global

sporting event as a catalyst for major ICT

development. The Chinese government has

decreed that every household

in the capital should have high-

speed Internet access in time

for the games. Likewise, Ekurhu-

leni is determined to provide

a first-class communications infrastructure

for the FIFA Soccer World Cup, which South

Africa is scheduled to host in 2010.

But the investment in technologies such

as virtual private networks and IP phones

is not really about instant match results

and multimedia sports feeds. Far more

important is the long-term ICT legacy after

the event is over: broadband connectivity

for 350 remote facilities and departments,

Giving cities a sporting chance

C

© The Economist Intelligence Unit 2007 1�


corporate intranets and the Internet. For that reason, proliferation of regional broadband infrastructure is an issue close to Ms Ayoubi’s heart. She concedes that the high cost and patchy quality of broadband services have at times been barriers to growth, but adds that much has changed in Jordan over the past decade to encourage the spread of ICT. Importantly, the government became involved in setting targets for domestic ICT revenues and exports, ICT-related jobs and ICT-related foreign direct investment (FDI). Although the initial goals proved to be overly ambitious, and all but the FDI target were revised downwards in 2004, the government’s e-strategy is broadly viewed as a positive force. “There’s a long way to go still, but there’s never despair,” says Ms Ayoubi. “There’s been a lot of progress already.” Important, too, have been close ties with several multinational ICT vendors, which have helped

Rubicon ride the technology curve and build the technical skill-sets of local staff. Equally, building relationships with education ministries has resulted in a valuable store of in-house knowledge. “Our experience allows us now to prepare ahead of time, and anticipate many functions and tasks that would possibly come about,” Ms Ayoubi explains.

“Today there is more awareness of the importance of enterprise-building as well as more successful models that give investors confidence.”

Randa Ayoubi, founder, Rubicon

including medical centres, schools, fire sta-

tions, libraries and workshops. The aim is to

increase the productivity of the municipali-

ties’ employees and enhance the quality of

life for the people they serve.

As such initiatives show, it is possible

quickly to transform the technology land-

scape. Having devised its national communica-

tions and ICT plan only in 2005, relative late

starter Saudi Arabia is catching up fast, thanks

in part to Saudi Telecom’s Clever Cities

scheme to boost broadband access in urban

centres. Among its goals: to provide universal

online government services by 2010.

The results are already apparent. To

make life easier for the millions of Muslim

pilgrims who travel to the country’s holy

cities each year, the Ministry of Hajj,

working with US computing giant Hewlett-

Packard and other suppliers, has connected

government offices with tour operators

and embassies. Visa processing times have

been cut from six weeks to one day.

Given their density, cities are also well

placed to piggy-back broadband delivery

onto other services. In a paper entitled

“Technology and the Life Cycles of Cities”

published in The Journal of Economic Growth,

economist Paul Krugman describes the

process:

During times of major technological

change, leading cities are often overtaken by

upstart metropolitan areas. Such upheav-

als may be explained if the advantage of

established urban centers rests on localised

learning by doing. When a new technology is

introduced, for which this accumulated experi-

ence is irrelevant, older centers prefer to stay

with a technology in which they are more ef-

ficient. New centers, however, turn to the new

technology and are competitive despite the

raw state of that technology because of their

lower land rents and wages. Over time, as the

new technology matures, the established cities

are overtaken. n

1� © The Economist Intelligence Unit 2007


Currently, Algeria is rolling out eMath in its schools nationwide, and there are pilot projects in Oman and Morocco. At home in Jordan, eScience is in its pilot phase, with prospects for export in the future. And, having inked a deal with Hollywood studio MGM to create a Pink Panther cartoon series for children, Rubicon’s headcount looks good: the number of employees is set to grow to around 400 in the next 28 months.

In search of sustainability

hen fast-growing Chilean fruit producer Agricom needed to

enhance its telecommunications infrastructure, its ICT team made a daring choice. Instead of upgrading the regular telephone system linking its Santiago headquarters with plants and warehouses around the country, the firm invested in IP telephony. “We thought, why buy the existing technology… let’s buy the incoming one,” recalls Francisco Martinez, the company’s systems manager.

Such was Agricom’s entry into the world of unified communications. First, a local systems integrator called Coasin installed 30 IP telephones. That figure has since risen to more than 70 units, used both by

remote sites that previously used portable phones, and by Agricom’s US office, where staff had felt isolated from headquarters. In effect, Mr Martinez says, the system has brought the company closer to its export markets: “It’s been wonderful to connect to people in charge of receiving our shipments and dealing with local customers in the US.” But the appeal of unified communications goes beyond low-cost calls. “The system even improves creativeness, because it allows the implementation of new applications through time,” says Mr Martinez. So far these applications have included a tariff meter that logs the cost of personal and work-related calls by the company’s 200 employees, and an XML application for controlling shipments and boxes, incorporated into the telephones. To reduce the amount of time Agricom executives spent travelling, the company developed a videoconferencing application. It also plans to open a direct link with customers over a virtual private network (a private network that uses a public network, usually the Internet, to connect remote sites or users).

W

“We thought, why buy the existing technology...let’s buy the incoming one.”

Francisco Martinez, systems manager, Agricom

© The Economist Intelligence Unit 2007 1�


Leadership’s the thing

gricom benefited from Chilean government policies that paved the way for new technologies. Yet VoIP (Voice over

Internet Protocol), with its potential to decimate the revenues of regular phone service providers, perplexes and indeed scares many countries. Panama, for instance, taxes users, while the United Arab Emirates has outlawed VoIP. Relatively few countries have assigned frequencies for fixed wireless services, despite the obvious potential to make ICT services affordable and accessible to more people. And only a few countries, such as Kenya, have co-ordinated banking and telecoms regulations to pave the way for mobile phone banking initiatives such as M-Pesa. Studies have shown that governments can improve productivity sevenfold by taking their processes online; consequently many governments already have some kind of e-strategy in place. Some countries truly take e-government to heart. Witness Estonia, which has practically re-engineered its entire civil service around new ICT capabilities and was the first state to allow Internet voting in a national election in March 2007. For every Estonia, there are many other countries that struggle to find a way forward. Only about half of the world’s low- and middle-income countries have opened their telecommunications markets to competition, for instance. The World Bank reports that where barriers to competition remain, not only is penetration slower, but average prices for ICT services are twice as high. By contrast, Chile is taking steps to promote both competition and infrastructure development, ensuring citizens have a choice of providers and pay moderate access charges. This has helped lift the number of broadband subscribers above the 1m mark

in a country of 17m people. Moreover, government initiatives send a clear signal to Chilean companies about the efficiencies of online purchasing, while enhancing transparency in the public sphere. A case in point is ChileCompra, a centralised online procurement and contract system. Last year, the state conducted more than US$3.5b in purchases and had 230,000 registered suppliers. In 2006, 88% of all government contracts went to small and micro-enterprises. With the digital security in place to authenticate online transactions, business-to-consumer uptake is rising, too.

Small (but global) is beautiful

ndeed, creating an environment where businesses can thrive online is arguably the wisest thing a government can do: an

entrepreneur-friendly environment is a condition for exploiting the new opportunities offered by network connectivity. SMEs in particular stand to benefit. Although there is no universal definition of an SME, they contribute substantially to the economies where they are located. The International Finance Corporation has identified a positive relationship between a country’s level of income and the number of SMEs per 1,000 people. The UN, meanwhile, reports that in developing countries, more than 90% of all firms outside the agricultural sector are SMEs and micro-enterprises, responsible for generating a significant portion of GDP.

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Nevertheless, small firms in many countries still struggle to have their voices heard by the very people who should be supporting them. Yuri Misnikov, an ICT adviser to the United Nations Development Programme, remembers attending a conference in the Balkans with some local software application developers. None of them was working with their own government, yet one had done much of the work on digital signatures in neighbouring Slovenia. “They didn’t feel that their own government wanted them,” Mr Misnikov recalls. “My impression is that sometimes governments don’t know the capacities of local companies. At the same time, local companies can be distrustful of their governments. They need a mechanism for dialogue.” Companies often lack supportive government programmes and open capital markets. In such circumstances, it inevitably falls to outsiders to prime the pump. Foreign direct investment in emerging economies worldwide is set to reach US$534.6b in 2007, according projections by the Economist Intelligence Unit and Columbia University in the US. Some of these take the form of technology infrastructure projects and venture schemes designed to give local players an advantage: Intel, for instance, has set up a fund worth US$50m to

foster young technology companies in the Middle East. Foreign aid remains an important factor as well: Kenya’s M-Pesa mobile banking scheme, an example of increasingly popular public-private partnerships, probably owes its existence to GBP 900,000 in seed funds from the UK’s Department for International Development (DFID). Some barriers restricting the development of indigenous ICT firms are difficult to eradicate. Global software piracy, for example, remains high at 35%, not only siphoning off revenues from rich multinational firms but also deterring local ICT specialists from setting up shop. But it could be the technology itself that makes all the difference to fledgling contenders on the global ICT stage. As ICT costs fall, smaller software companies (catering, in turn, to smaller customers) are likely to spring up across the emerging markets. As this occurs, some countries will acquire whole new business sectors. Romania, long recognised for the quality of its education system and programming talent, is now home to a burgeoning outsourcing sector as companies invest in IP-based technologies for contact centres. One such firm, Valoris, has a staff of 22, but scales that number according to the changing needs of its clients in the financial services, health, pharma and automotive sectors. This means Valoris handles functions such as telemarketing, customer care and payment reminders, not only reducing clients’ capital expenses but also saving them time better spent on strategic plays.

“My impression is that sometimes governments don’t know the capacities of local companies. At the same time, local companies can be distrustful of their governments. They need a mechanism for dialogue.”

Yuri Misnikov, ICT adviser, UN Development Programme



Strength in numbers

sk Stanislava Bártová to name the most significant outcome of IZIP, the

Czech Republic’s web-based health record system, and she hardly knows where to start. The annual net benefit of the scheme will reach ¤60m [US$88m] by 2008, while the productivity gains, measured as the decrease in the cost involved each time healthcare providers use a patient’s record, amount to 74%. Doctors can make better diagnoses now that they enjoy greatly improved access to detailed medi-cal histories, including patients’ latest test results, x-rays and medication. Finally settling on IZIP’s top outcome, Ms Bártová chooses “empowering citizens”. “They have become,” she says, “the gatekeepers of information about their own health.” IZIP, developed by a Prague-based company of the same name, makes a patient’s medical file accessible from any computer connected to the Internet. Only the patient holds the key to his or her file. Launched in 2003, it contains nearly 7.3m records on more than a million patients and is used by nearly 9,000 healthcare providers. The system is partially financed by the General Health Insurance Company of the Czech Republic, which insures about two-thirds of the country’s citi-zens. It has come a long way since the days when soft-ware incompatibility meant early adopters had to cut and paste data among applications, and it continues to evolve. Modules such as ePrescriptions are in the works and digital signatures were recently introduced, giving legal validity to messages sent by doctors. There have been challenges, certainly, especially pertaining to user training and ethical issues over data access. When the project started, it wasn’t

common for doctors to use computers, let alone ADSL lines. Even now, because of age, location or poor broadband coverage, 40% of all doctors in the Czech Republic remain unconnected to the system. Attitudes are changing, but they are changing slowly. “Even now it can be a challenge to persuade every-body that the patient is an active player, is paying insurance which comes out of their salary, and as such has certain rights,” Ms Bártová says. Patience is vital when trying to achieve change in a complex national setting. For IZIP, that has meant highlighting the benefits to the major stakeholders through frequent, comprehensive reviews. Indeed, with the Czech Republic’s Ministry of Health keeping a keen eye on progress, a disciplined approach to measuring outcomes is critical. By demonstrating an economic benefit to society while making a notice-able difference to individuals, IZIP has hit its mark. Of the benefits identified for 2008, IZIP believes 10% will be passed onto citizens. Healthcare provid-ers will enjoy 37% of the gains, while the Czech insurance company will be the big winner, reaping 53% of the rewards thanks to fewer duplicate tests and unnecessary treatments.

A Doctors can make better diagnoses now that they enjoy greatly improved access to detailed medical histories, including patients’ latest test results, x-rays, and medication.



Conclusion

CT undoubtedly have the potential to promote economic growth and deliver

innovative applications in government, commerce, education and other areas. So far this progress is reflected most clearly in the business arena. In his book The Emerging Markets Century, Antoine van Agtmael notes that in 1988, just 20 companies in the emerging markets had sales over US$1bn. By 2005, no fewer than 270 firms had sales over US$1bn, and 38 had sales over US$10bn. Such companies are able to thrive because their governments have built regulatory frameworks that encourage ICT usage. And where the big companies lead, small and medium-sized businesses—the true engines of many emerging economies—will undoubt-edly follow. Countries that become information-rich, taking advantage of networks and convergence on the Internet Protocol platform, stand poised to create economic and social opportunities that were unim-aginable only a generation ago. The potential offered by ICT will allow countries that exploit it intelligently to move ahead with great speed, perhaps leapfrog-ging over their developed-country counterparts in record time.

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