Bridging the Digital Divide : Innovation Systems for ICT in Brazil, China, India, Thailand, and Southern Africa 9781282030923, 9781905068807

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Bridging the Digital Divide Innovation Systems for ICT in Brazil, China, India, Thailand, and Southern Africa

Published by Adonis & Abbey Publishers Ltd P.O. Box 43418 London SE11 4XZ http://www.adonis-abbey.com

First Edition, January 2006

Copyright © Angathevar Baskaran and Mammo Muchie

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN 1-905068-15-8

The moral right of the authors has been asserted

All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted at any time or by any means without the prior permission of the publisher Cover Design MegaGraphics, Mrs. Ananthy Baskaran and Ifeanyi Adibe Printed and bound in Great Britain by Lightning Source UK Ltd.

Bridging the Digital Divide Innovation Systems for ICT in Brazil, China, India, Thailand, and Southern Africa

Edited By: Angathevar Baskaran and Mammo Muchie

We dedicate this book to:

Adey-Dessalu Muchie Mikael-Tadesse Muchie & All the Children in the Developing World

ACKNOWLEDGEMENTS

We wish to thank Mrs. Ananthy Baskaran, London, UK, for her help with the cover design and preparation of this book; Mrs. Latha Narayanan, and Mr. R. Chakrapani, Chennai, India, for their assistance in editing this book. We also would like to thank Prof. Bengt-Åke Lundvall, Aalborg University, Denmark, for his constructive criticisms and suggestions, and all the contributors to this book. Finally, we thank our publisher Adonis & Abbey, London, who have been very patient with us when we missed deadline after deadline to submit the manuscript and for publishing this book in a tight schedule (before the Third Globelics Conference-2005, South Africa)

Angathevar Baskaran

Mammo Muchie

v

Table of Contents

Acknowledgements...................................................................................... v

List of Figures ............................................................................................viii

List of Tables ................................................................................................ ix

List of Acronyms ......................................................................................... xi

Preface ......................................................................................................... xix

Chapter 1: Introduction Mammo Muchie and Angathevar Baskaran .................................................. 23

Chapter 2: Innovation Systems for ICT: The case of Brazil José E Cassiolato, Vicente Guimarães and Helena Lastres............................. 51

Chapter 3: Innovation Systems for ICT: The case of China Yi Zhu ............................................................................................................ 84

Chapter 4: Innovation Systems for ICT: The case of India Angathevar Baskaran and Mammo Muchie ................................................ 118

Chapter 5: Innovation Systems for ICT: The case of Thailand Patarapong Intarakumnerd and Kasititorn Pooparadai............................... 153

vi

Chapter 6:

Innovation Systems for ICT: The case of South Africa Angathevar Baskaran, Mammo Muchie, and Rasigan Maharajh ............... 181

Chapter 7:

Innovation Systems for ICT: The case of Southern Africa Erika Kraemer-Mbula and Mammo Muchie................................................ 215

Chapter 8:

General Conclusions: Innovation Systems for ICT - Implications for the Less Developing Economies Mammo Muchie and Angathevar Baskaran ................................................ 237

Notes on the Contributors ...................................................................... 243

Index ........................................................................................................... 248

vii

List of Figures 1.1

Change in the Perception of ICT ................................................................. 31

1.2

Linkages between Systems of Innovation and Industrialeconomic and Socio-economic objectives................................................... 38

1.3

Agents Involved in an ICT Innovation System ......................................... 40

2.1

Dynamics of Lopsided National Innovation System in Brazil ................ 54

2.2

Brazilian IT Industry – Net Sales (1981-2000) ............................................ 67

2.3

Brazilian IT Industry – Investment as Percentage of Sales (1986-1999)...................................................................................................... 68

2.4

Brazilian Hardware Industry – Imports and Exports over Sales (1981-2000)...................................................................................................... 69

2.5

Brazil--Exports and Imports of IT Hardware and Software (1981-2002)...................................................................................................... 70

3.1

Sources of Problems in China’s National Innovation System (pre-1985)........................................................................................................ 86

3.2

Hierarchical National Innovation System in China (post-1985) and the Potential of ICT in the NIS ............................................................. 87

3.3

Linkages between various Actors in the Innovation System for ICT in China................................................................................................... 89

3.4

Usage of Communication Facilities (millions)......................................... 103

3.5

Types of Internet Accessing Methods....................................................... 106

4.1

Three Major features of Indian National Innovation System ................ 120

4.2

ICT Innovation System in India................................................................. 123

5.1

National Innovation System in Thailand (Past 50 years) ....................... 155

5.2

National ICT Development in Thailand -- Institutional Establishment............................................................................................... 156

5.3

Evolution of ICT Policy in Thailand ......................................................... 163

6.1

Potential Role of ICT in the Lopsided or Uneven National Innovation System in South Africa ........................................................... 183

6.2

ICT Innovation System in South Africa.................................................... 186

7.1

Regional Distribution of Expenditure on ICT (2003) .............................. 217

viii

List of Tables 2.1

Ten Largest Hardware and Software Firms in Brazil (2000-2001) .......... 67

2.2

Brazil – Selected ICT Indicators................................................................... 72

2.3

Internet Hosts – Brazil and Selected Countries (1998-2005) .................... 73

2.4

Use of E-Commerce Technologies in Brazil – 2002 (in %)........................ 74

3.1

Summary of Major Golden Projects ............................................................ 91

3.2

Development of China’s Telecommunications Capacity (19992003) ................................................................................................................ 96

3.3

Level of Telecommunication Services (1999-2003).................................... 97

3.4

Growth of China’s IT Industry .................................................................... 98

3.5

Sales and Growth of Computer and Related Products (Unit: 10,000) ............................................................................................................. 99

3.6

Major Computer Products -- Exports and Growth (2003)...................... 100

3.7

Growth of Software Industry in China (unit: RMB billion) ................... 101

3.8

China’s Software Export between 1999 and 2003 (unit: RMB billion)........................................................................................................... 101

3.9

Penetration of Durable Consumer Goods in Urban and Rural Households (units per 100 households) ................................................... 102

3.10

PC Ownership by Income Level (Units: Per 100 households)............... 104

3.11

Internet Users in Different Regions (2004) ............................................... 105

3.12

ICT Infrastructure of Chinese University and Colleges (2002).............. 111

3.13

Implementation of Five Year Computer Education Plan....................... 112

4.1

Global Ranking of Leading Indian Software Companies (2004) ........... 126

4.2

Indian IT Industry Production and Exports (2002-2003)........................ 127

4.3

IT & Electronics Production 1998-99 to 2003-04 (Rupees in billion) ..... 127

4.4

IT & Electronics Exports 1998-99 to 2003-04 (Rupees in billion) ........... 128

4.5

Growth of IT Professionals/ Employment (1991-2003) ........................... 129

4.6

Employment in Different Sectors of IT Industry (2003) ......................... 129

4.7

Projected Targets for Employment and Exports in Indian IT Industry (2008) ............................................................................................ 130

ix

4.8

Growth of BPO -- Revenue and Employment in Different Services (2001 to 2003) ................................................................................ 131

4.9

Growth of BPO Sector in India (1999 to 2003) ......................................... 131

4.10

Initiatives for ICT Human Resource Development in India.................. 135

4.11

Access to Different Sources of Information and Communications in Rural India (in percentage).................................................................... 142

4.12

India – Selected ICT Indicators.................................................................. 144

5.1

Key Issues in ICT Development ................................................................ 164

5.2

Structure of Exports and Imports in Thai Electronics Industry ............ 166

5.3

ICT Diffusion in Thailand - Selected Indicators ...................................... 171

6.1

Relative Size of ICT Industry in South Africa.......................................... 188

6.2

South Africa -- Key Telecommunications Indicators .............................. 193

6.3

South Africa--Government ICT Initiatives and Progress Made ............ 196

6.4

Inventory of ICT Initiatives/ Projects in South Africa ............................ 198

6.5

Initiatives towards E-education in South Africa (1998-2003) ................ 201

6.6

Computers in Schools across Different Provinces -- 2002 (in %)........... 202

6.7

South Africa – Selected ICT Indicators ..................................................... 210

7.1

Evolution of Some ICT Indicators for Southern Africa (19902002/03) ......................................................................................................... 217

7.2

Collaborative Projects and Countries Involved....................................... 225

x

Acronyms Chapter 1: Introduction

ICT

Information and Communication Technologies

BRICS

Brazil, Russia, India, China and South Africa

GLOBELICS

Global Network for the Economics of Learning, Innovation, and Competence Building Systems

UK

United Kingdom

MDG

Millennium Development Goals

UNDP

United Nations Development Programme

ITU

International Telecommunications Union

UN

United Nations

NII

National Information Infrastructure

GII

Global Information Infrastructure

WTO

World Trade Organization

NEPAD

New Economic Partnership for African Development

SADC

Southern African Development Community

S&T

Science & Technology

Chapter 2: Innovation Systems for ICT: The Case of Brazil

BNDES

The National Development Bank

CPqD

An R&D Institution in Brazil

FDI

Foreign Direct Investment

GDP

Gross Domestic Product

GNP

Gross National Product

ICT

Information and Communication Technologies xi

IGP-DI

An index used for a yearly readjustment in telecom tariffs

IT

Information Technology

MNCs

Multi-national Companies

PC

Personal Computer (micro-computer)

R&D

Research & Development

SME

Small and Medium size Enterprises

US

United States of America

Chapter 3: Innovation Systems for ICT: The Case of China

CCRTVU

China Central Radio and Television University

CEBSat

China Education Broadband

CERNET

China Education and Research Network

CNNIC

China Internet Information Centre

GII

Global Information Infrastructure

HTPs

Hi-Tech Parks

LAN

Local Area Networks

MEI

Ministry of Electronic Industry

MII

Ministry of Information Industry

MOE:

Ministry of Education

MOPT

Ministry of Post and Telecommunications

MRFT

Ministry of Radio, Film and Televisions

NBS

National Bureau of Statistics

SCDRC

State Council Development Research Centre

SEZs

Special Economic Zones

UK

United Kingdom

UNDP

United Nations Development Programme xii

Network

with

Satellite

and

WTO

World Trade Organization

Chapter 4: Innovation Systems for ICT: The Case of India

AICTE

All India Council for Technical Education

BITS

Birla Institute of Technology and Science

BPO

Business Process Outsourcing

C-DAC

Centre for Development of Advanced Computing

CMM

Capability Maturity Model

DISK

Diary Information System Kiosk

GIS

Geographic Information System

HR

Human Resources

HRD

Human Resource Development

ICT

Information and Communication Technology

IGNOU

Indira Gandhi National Open University

IITs

Indian Institute of Technology

IT

Information Technology

ITES

IT Enabled Services

MIT

Ministry of Information Technology

NASSCOM

National Association of Software Service Companies

NDDB

National Dairy Development Board

NIC

National Informatics Centre

NIS

National Innovation System

NRSA

National Remote Sensing Agency

PCO

Public Call Offices

PDA

Personal Digital Assistants

STPI

Software Technology Parks in India xiii

TCS

Tata Consultancy Services

UCG

University Grants Commission

UK

United Kingdom

US

United States of America

Chapter 5:

Innovation Systems for ICT: The Case of Thailand

ATCM

Association of Thai Computer Manufacturing

CAT

Communications Authority of Thailand

CMM

Capability Maturity Model

ETC

Electronic Transaction Commission

EU

European Union

FTI

Federation of Thai Industry

GPTs

General Purpose Technologies

ICT

Information Communication Technology

IT

Information Technology

KBS/E

Knowledge-Based Society and Economy

MDGs

Millennium Development Goals

MICT

Ministry of Technology

NBC

National Broadcasting Commission

NECTEC

National Electronics and Computer Technology Center

NESDB

National Economic and Social Development Board

NIS

National Innovation System

NITC

National Information Technology Committee

NSTDA

National Agency

NTC

National Telecommunications Commission

Information

Science

xiv

and

and

Communications

Technology

Development

OTOP

One-Tambon-One-Product

SIPA

Software Industry Promotion Agency

SMEs

Small and Medium Enterprises

SPT

Software Park Thailand

TCC

Thai Chamber of Commerce

TRF

Thailand Research Fund

TV

Television

USA

United States of America

Chapter 6: Innovation Systems for ICT: The Case of South Africa

AISI

Africa Information Society Initiative

BEE

Black Economic Empowerment

CAGR

Compound Annual Growth Rate

CITI

Cape Information Technology Initiative

CSIR

Council for Scientific and Industrial Research

DoC

Department of Communications

ECA

Economic Council for Africa

EU

European Union

GDP

Gross Domestic Product

GSM

Global Systems for Mobile Communications

HLT

Human Language Technologies

Icasa

Independent Communications Authority of South Africa

ICT

Information and Communication Technology

ISAD

Information Society and Development

MPCCs

Multi-Purpose Community Centres

xv

NEPAD

New Partnership for African Development

NICI

National Information and Communication Infrastructure

PIAC

Presidential International Advisory Council

PITs

Public Information Terminals

PNC

Presidential National Commission

PPP

Public Private Partnership

R&D

Research and Development

S&T

Science and Technology

SAEEC

South African Electrotechnical Export Council

SAITIS

South Africa IT strategy project

SDI

Spatial Development Initiative

SMMEs

Small, Medium and Micro Enterprises

UN

United Nations

US

United States of America

Chapter 7: Innovation Systems for ICT: The Case of Southern Africa

ADB

African Development Bank

AFRITEL

An ITU project to create a fully interconnected panAfrican telecom network, to avoid routing Africanbound calls through offshore third party networks.

AISI

Africa Information Society Initiative

ARICEA

Association of Regulators of Information Communications in Eastern and Southern Africa

ATAC

African Technical Advisory Committee

ATM

Asynchronous Transfer Mode

ATU

African Telecommunications Union

xvi

and

AU

African Union

CCCL

COMTEL Communications Company Limited

CEMAC

Communauté Économique et Monétaire de lʹAfrique Centrale

COMESA

Common Market for Eastern and Southern Africa

DBSA

Development Bank of South Africa

DFID

Department for Government)

EASSy

East Africa Submarine System

ECA

Economic Commission for Africa

ECOWAS

Economic Community for West African States

HSIC

Heads of State and Government Implementation Committee

ICT

Information and Communication Technology

ITU

International Telecommunication Union

MDGs

Millennium Development Goals

NEPAD

New Economic Partnership for African Development

NICI

National Information and Communication Infrastructure

NTO

National Telecommunications Operators

PADIS

Pan African Development System

PICTA

Partnership for Information and Communication Technologies for Africa

SADC

Southern African Development Community

SATA

Southern Africa Telecommunications Administrations

SATCC

Southern Africa Transport and Communications Commission

SRII

SADC Region Information Infrastructure

International

xvii

Development

(UK

TRASA

Telecommunications Southern Africa

Regulators’

Association

Chapter 8: General Conclusions: Innovation Systems for ICT Implications for the Less Developing Economies ICT

Information and Communication Technology

BRICS

Brazil, Russia, India, China and South Africa

xviii

for

PREFACE

There is little disagreement on the importance of technology for economic development and in the current era information and communication technology (ICT) is certainly the most pervasive and powerful of technologies that shape the world. Policy makers all over the world have realised the importance of ICT for economic development. But the connection from technology to economic development is all but simple. This is especially the case for information technology. Production processes and the use of the technology have become increasingly separated at the global scale. While the use of the technology is distributed unevenly between regions and countries, this is even more the case for its production. The ‘digital divide’ is often presented as a question of user access to information technology. The idea is that some have got the competence to use as well as the access to ICT while others do not and that this reinforces existing differences and creates new forms of inequality. As I read the contributions to this book the authors have extended this definition to include global inequalities that emanate from different roles in the global division of labour when it comes to produce and benefit from producing ICT. To produce the information technology products including hardware and software is a direct source of export income, economic wealth and employment. Since markets for such products grow very rapidly and since they are often characterised by steep learning curves there are both static and dynamic effects to be reaped from a specialisation in such products. But the different steps in the value chain may be very different in this respect. As pointed out in the chapter on Thailand some types of national specialisation may create rigidities resulting in narrow learning while others may serve as the platform for sustained economic growth. To get the specialisation right is the first major challenge for ICT policy. It is also an issue if production is integrated in the domestic innovation system or dominated by multinational firms with weak xix

roots in the national or regional innovation system. The second seems to be the case in Brazil. An intermediate situation may be where production is dominated by multinational firms but where these draw more intensely upon host country competences. This might be more the case in China. Both in China and India the access to highly trained personnel has increasingly attracted R&D activities belonging to multinational firms. To find the right balance between attracting multinational firms and foreign direct investment (FDI) on the one side and to safeguard and further develop the capacity to engage in homespun innovation on the other hand is the second major challenge for ICT policy. To get the specialisation right and to build up the capacity of homespun innovation requires a combination of investment in competence building and a sophisticated international strategy. Investment in human resources and high quality education is a necessary prerequisite for success. But it needs to be combined with a sophisticated strategy that combines openness to trade, FDI, people and new ideas with government regulation based upon a deep understanding of the dynamics of technology, institutions and trade. But even with such a demanding strategy in place economic growth may not be socially sustainable. While the production of ICT has been growing very quickly in some of the countries covered in this book – notably China and India – the dominating locus for the global production of high value-added software and services is still the northern and western hemisphere. Some of the most rapidly growing sectors in the five countries are characterised by labour intensive and low skilled labour. This contrasts with the pattern of use of ICT, including telecommunication and the internet. This is in some regions almost at the level of developed countries and deviates less among the countries studied than their patterns of specialisation in production and trade. There is also a commonality in the very uneven diffusion and use across regions and income groups in the countries studied. In all the countries covered here, governments have made attempts to tackle the digital divide as it is normally understood. Public programmes aiming at alleviating poverty through giving easier access to ICT have been initiated. Some of these programmes have been nation-wide, some regional and some local experiments. After reading the contributions you sit back with a feeling that more could be done xx

and that programmes could be made much more efficient if they succeeded in combining nationwide initiatives with local mobilisation around a common agenda. But the key to success may be to include the fight against the digital divide with a wider package of political and institutional reforms. The idea that it is possible to eradicate digital divide in countries where income divides, education divides and cultural and status divides are enormous may be somewhat naive. While mainly driven by good intentions the digital divide-perspective has also been promoted by interest groups in the computer industry that regard the poor parts of the world as a potential market that could compensate for saturation in high-income markets. In South Africa, Brazil, India, Thailand and China the wider package might for instance include land reform and local cooperation among farmers around building education opportunities for themselves and their children. Within such a package a wider access to information technology could contribute to radical change in living conditions for the farmers and in the longer run it might bring the national systems of innovation on to a trajectory of economic development that is socially sustainable. This book is important because it gives insight into the role of ICT and ICT policy in the most important emerging economies in the world. It demonstrates that the experience differs when it comes to the success to become a producer of ICT and here the different BRICScountries can learn from each others’ success and failures. Just giving the multinational companies unlimited freedom does not seem to be the right kind of action while investment in human resources is necessary for success. It also shows that there have been some successful attempts to bridge the so-called ‘digital divide’. But at the same time it demonstrates in a very concrete way that a narrow focus on technology policy cannot alone bridge the ‘digital divide’. Only when integrated in a wider social and political strategy can technology policy exploit fully the potential for well-being that ICT offers.

Bengt-Åke Lundvall Professor of Economics, Aalborg University, Aalborg, Denmark; Visiting Professor, Tsinghua University, Beijing, China. xxi

Bridging the Digital Divide

xxii

CHAPTER 1: INTRODUCTION

The Problem of Integrating ICT within National Systems of Innovation: Concepts, Taxonomies and Strategies Mammo Muchie and Angathevar Baskaran

Technology is not an object to be aimed at, but a tool to be used for the benefit of the common man. -- Vikram A. Sarabhai, Founder of India’s Space Programme (Abdul Kalam, 1992: 67)

The origin of the project

T

he idea to write a book on a group of economies that share broadly similar constraints, challenges, and pressures from the world economy with respect to creating, acquiring, absorbing and implementing the information and communication technologies (ICT)1 came to us when we were trying to create an innovation research group in Middlesex University, London, UK. We developed a proposal for innovation research that brought together initial survey of emerging economies such as Brazil, Russia, India, China and South Africa and a few developed countries such as Denmark and the UK. We tried to develop a funding proposal that helped us to write on the shared characteristics of the economics of

1 Throughout this book (except few places) we use ‘ICT’ to mean information and communications technologies instead of ‘ICTs’ for convenience.

23

Mammo Muchie and Angathevar Baskaran

technology in these countries. It is indeed the effort we undertook then that truly made us think about the pertinent issues we need to identify and work through in relation to the group of countries that eventually acquired the unflattering acronym of BRICS, where each letter stands for Brazil, Russia, India, China and South Africa. As we were working to develop a research area constituting the core BRICS group of economies, we found out that the Global Network for the Economics of Learning, Innovation, and Competence Building Systems (GLOBELICS) was also keen to develop a similar research programme. We entered into an interesting e-mail debate on how research on the BRICS might be developed with the leading scholars that have been working over decades on innovation system theory in particular and the evolutionary economics and sociology of technical change in general. Eventually, at the Second Globelics Conference-2004 (Beijing), we proposed to prepare an edited book of readings related to the problem of identifying the peculiarities of the systems of innovation on ICT by focusing specifically on government policies, institutions, programmes and impacts in this specific group of economies in order to draw lessons for the less developing economies. GLOBELICS facilitated identifying the scholars working in this area from BRICS and soon the idea of this book took a concrete shape. We all agreed to complete this work to assist the organisation of the Third Globelics Conference-2005, to be held in Tshawane, South Africa. As one can easily see, of the countries from the original BRICS group, Russia is missing. Unfortunately, we could not include Russia due to constraints imposed by our publisher’s schedule. Nevertheless, we still believe that it is critically important that the states that emerged from the former Soviet Union are not excluded in the type of studies. All these economies have copied the free market economy model in the same way they previously imposed the central planning model and they are still undergoing the painful transition into what has been described as emerging markets. In particular Russia adopted the free market model with a high velocity policy of shock therapy that left it still reeling with exhausting shocks. Indeed, it would have been very interesting to carry out research and report on the trajectories, evolutions, complexities, difficulties and distortions of the Russian national innovation system in general and the development of

24

Introduction

innovation system for ICT in particular. We leave this task to the community of innovation system scholars for future research. Apart from BRICS economies, at first, we have selected to add Thailand as we thought that it would be interesting to compare the large emerging BRICS economies and a smaller second tier East Asian tiger economy. Next, as our aim was to draw lessons from these economies that may be applicable for less developing economies, we decided to include a group of countries from a particular region that can help us to highlight the gap between BRICS and these countries in terms of institutional infrastructure to support national system of innovation and technological capabilities. Thus, countries of Southern African region, (excluding South Africa that is a large emerging economy included as one of the country cases in BRICS), were chosen as an exemplar for drawing the implications of innovation systems for ICT for developing economies. The major insight that we are looking for is how much ICT form an integral part of the national system of innovation of the selected economies. This will require that a given country’s, say, India’s or Chinaʹs innovation system is clearly delineated at the level of policy, programmes and impact, and how this country-specific particular innovation system works to facilitate or hinder ICT development, and conversely, how ICT also influences and shapes the country’s innovation system. That is, the study will draw principally comparative insight by focusing on each country’s approach separately to analyse how far the national system of innovation framework is effective in managing ICT revolution – in a specific location and social economic, institutional and territorial environment. For this, it will investigate and analyse ICT policies aimed at building social and technological capabilities to achieve development goals and also policies to avoid negative impacts of the ICT revolution on the society. We will look at the national efforts to deal with the so-called ‘digital divide’, and to empower all sections of a given population in a specified and well-defined state by creating the engaged society, the participating citizen with access to ICT. Essentially, the study will require detailed country specific information such as government ICT policies, ICT education, skills creation, the role of key government departments and research institutions involved, mechanisms for inter-institutional linkages, the role and involvement

25

Mammo Muchie and Angathevar Baskaran

of firms, and also information related to the linkage of national ICT to global ICT trends. The contribution we have made here together in this work is that it is for the first time that such work dealing with ‘innovation system for ICT revolution’, and ‘ICT for innovation system building’ based on the empirical account of a group of economies that are intuitively recognised to share similar social-economic attributes have been put together. We recognise this work is exploratory and a beginning to encourage further work to be done. We have selected to describe mainly the variables of government policies, institutions and impacts to draw the emerging pictures of these economies in relation to their innovation system for ICT development; and conversely we focus also on ICT’s role in influencing the innovation systems of these economies in Brazil, China, India, Thailand, South Africa and Southern Africa.

Significance of ICT Revolution The post cold-war era dawned an on-going process of globalisation where the global economy has been anchored increasingly on knowledge and becoming the “learning economy” (Lundvall, 1992). Knowledge and learning are now widely regarded as the key to sustained development and growth of economies as well as societies. As information and communication technologies (ICT) has become one of the main driving forces of globalisation, it has been increasingly perceived as a major factor determining the comparative advantage of nations and the competitiveness of their economies because of its potential to bring about socio-economic transformation. Like the first machine-driven industrial revolution, the ICT revolution has generated fundamental changes in the socio-economic life of people and nations across the world. Indeed, the pace of globalisation processes of socioeconomic activities, witnessed since the early 1990s, has been largely propelled by technological change in ICT. Unlike other technologies, the ICT is unique mainly in two aspects. First, it affects almost every country on the face of the earth and almost every aspect of life – economic, social, and cultural. And therefore the dynamics of technological change in ICT is more global than national or regional. Second, unlike other technologies, ICT as an enabler has significant potential to build both social and technological capabilities 26

Introduction

in developing countries. In recent years, it has already led to significant socio-economic transformation in both developed and developing countries. It is truly a global phenomenon particularly in terms of its potential applications (socio-economic), reach (market), attraction and utility to ordinary people across the world, associated rate of technological change, and opportunities for states – whether small or big, and industrialised or developing. On the other hand, the emergence of international governance system (intellectual property rights protecting information service providers, electronic commerce that needs greater network security from unwanted intrusion) that shapes the global expansion of ICT markets has created new challenges for national governments, particularly in the developing world. The rapid technological change in ICT, particularly since mid1990s, has enabled the flow of information at a rate and scale that was never witnessed before. This flow of information not only created great opportunity for firms to conduct trade and business on a global scale, but it also created new opportunities and challenges for states to engage in promoting good/democratic governance and social wellbeing. It broke certain traditional distinctions and barriers between nations such as developed and developing world. Unlike the past technological changes, which mainly benefited developed countries; increasing spread of ICT has opened up new opportunities for developing countries to enable the achievement of social and economic benefits. In reality, its potential applications for sustained development and good governance in terms of providing good and efficient public services, and improving quality of people’s life have been widely recognised. Policy makers at national and international levels believe that ICT provide a unique opportunity for particularly developing countries to address problems in the field of education, health, rural development, poverty alleviation and employment. It is also perceived to be a major facilitator for information transparency, good governance, empowerment, participatory management and grass-root democracy. As empowerment requires complete transparency in functioning of government as well as corporations, ICT has an important role to make this possible through extensive use of electronic governance. Already ICT has made a significant impact in many areas such as manufacturing, productivity gains, public administration, transport, health, education, agriculture, and environment in a large number of 27

Mammo Muchie and Angathevar Baskaran

countries. At the same time, many countries appear conscious that benefits of ICT could remain confined to some sections of society and creating a new division in society, the so called ‘digital divide’. The argument is that if countries failed to foster and manage the ICT revolution properly, it is likely to result in new forms of socioeconomic disparity and exclusion by virtue of age, class, gender, religion, ethnicity, language, or illiteracy in both industrialised and developing world. Already, there are indications that the diffusion of ICT in the developing countries is very uneven and it is having some undesirable impacts. While ICT revolution has empowered some groups of people in the developing countries particularly, others are being left out or disempowered (Mansell and Wehn, 1998). This awareness of vast opportunities and challenges posed by the technological change driven by ICT has made many countries both in the industrialised and developing world to formulate strategies not only for building competencies to manage rapid technological changes in ICT but also to ensure its wider diffusion to benefit all in the society. A number of countries have already formulated national strategies to manage and benefit from ICT revolution. For example, Bermuda’s ‘Information Island of the 21st century’; Singapore’s ‘Intelligent Island’; UK’s ʹIT for Allʹ, ʹPublic Libraries ICT Networkʹ, and ‘Closing the Digital Divide: Information and Communication Technology in Deprived Areas’; India’s ‘Information Technology for Masses’; Denmark’s ‘dk21’, ‘IT Universities’, and ‘Focus on E-commerce’; and South Africa’s ‘Electronic Government: The Digital Future’; clearly show that governments both in the industrialised and developing countries believe that ICT would help them to build social and technological capabilities to serve their development goals. The World Bank claims that countries can enter the knowledge economy when they have the capacity to create social, economic and institutional arrangements that provide incentives for using efficiently knowledge (old, new and hybrids), the promotion of entrepreneurship, the creation of skilled educated and creative human labour, dynamic ICT infrastructure and a working and sustainable national system of innovation (World Bank, 2003).

28

Introduction

Change in Perception of ICT: From Economic Growth to Broader Social-economic Development ICT is the collective term given to the new generation (second and third) information technology spawned by the merger of computers and telecommunications. ICT may be Web-enabled, networked, or stand-alone; it may make available an information or knowledge system; or it may generate an information or knowledge product or service (Flor, 2001: 3).

Until the early 1990s computer and telecommunications (mobile) technologies were viewed narrowly as new opportunities for industrial and export growth. With the onset of Internet Age from the mid 1990s, driven by the new generation information technology that combined computers and telecommunications, increasingly ICT is being perceived by the national governments and international organisations as a vehicle for not only economic growth (in terms of exports and employment), but also for achieving wider socio-economic development which would benefit all in the society. For example, the G7/G8 Summit held in Okinawa in 2000 described ICT as “one of the most potent forces in shaping the Twenty-first Century…fast becoming a vital engine of growth for the world economy” (Ibid). It is argued that “ICT may be applied to almost every problem in probably all sectors… the highest social application of ICT is poverty alleviation, since it is the most pressing problem confronting the society” (Ibid). The Millennium Declaration, adopted by 189 members of the United Nations in 2000, set 8 Millennium Development Goals (MDG) to achieve improvement in people’s lives by 2015, including poverty reduction, education, gender, health and the environment. To achieve this it set out 18 targets, of which Target 18 calls on the member nations to “make available the benefits of new technologies, specifically information and communications” to the people (ITU, 2004:71). “The Millennium Declaration acknowledges that ICTs are an important tool to achieve its overall goals; ICTs can help alleviate poverty, improve the delivery of education and health care, make government services more accessible, and much more” (Ibid). The United Nations Development Programme (UNDP) also believes that ICT could help developing countries to leapfrog into the developed world. Other international organisations such as the World Bank, the International Telecommunications Union (ITU) are involved in plans to promote the spread of ICT by developing an affordable and 29

Mammo Muchie and Angathevar Baskaran

accessible information infrastructure. Various UN agencies have been promoting the application of ICT by providing assistance to a National Information Infrastructure (NII) and to facilitate access to a Global Information Infrastructure (GII) (Bajwa, 2003:50). Figure 1 illustrates how ICT that was initially perceived as new technology to achieve industrial growth has eventually been viewed as the vehicle for all round socio-economic development by some academics, policy makers, national governments and regional and international organisations. While the governments and international organisations believe that ICT could lead to socio-economic development, they are also concerned over the potential of ICT towards widening the gap between the information-rich and the information-poor, known as the ‘digital divide’. It is argued that ‘digital divide’ could have serious consequences, if governments fail to take appropriate policy measures. Most nations in the developing and developed world are treating this issue seriously and have formulated national ICT policies and initiatives. One of the central issues examined in this book is whether the perception of ICT as a tool for all round socio-economic development is being reflected by the ground level developments/ realities or it is just a misplaced and over hyped ‘faith’ in a technology that is never going to deliver what it promises. While it is important to recognise the potential of ICT to contribute towards socio-economic development, we would like to challenge the view that ICT is the cure for all kinds of ills in the world through empirical investigation. The case studies covered in this book attempt to do this. The type of national innovation system in a given country provides the context to implement the ICT policies and programmes in both the developed and developing countries. Government policy framework, system of interactions of various actors, institutions and incentives are critical for broadening the application and diffusion of ICT to increase not only industrial economic growth but also to address some social-economic problems such as imbalances in healthcare, education, rural poverty, regional disparity, and so on. Different countries may have differing innovation systems that respond to and deal with different challenges and environments. Hence, it is important to find out how the national innovation systems of different countries influence differently the ICT revolution that is a global phenomenon with a number of associated 30

Introduction

elements outside the national governance framework. Conversely, it is also important to understand how ICT influences the shaping of systems of innovation in given economies. It is this interconnection and distinction that we wish to grasp in the case analyses from Brazil, China, India, Thailand, South Africa and Southern Africa.

Figure 1.1: Change in the Perception of ICT -- From a Technology for Industrial Growth to Tool for Achieving Overall Socio-economic Development

Before early 1990s (Narrow Perception) ICT was viewed as a new technology that will help achieve Industrial Economic Growth. It was just industry focused

After mid 1990s (Broader Perception)

Change in Perception of ICT

ICT has been increasingly viewed as a tool to achieve Overall Socio-economic Development (Concept of ICT for All)

Domestic ICT Market:

Earlier Perception of ICT's Impact has Braodened to Include:

Production Employment E-commerce

Industry Related Economic Growth Plus Poverty Alleviation:

Export ICT Market:

E-education

Export Promotion Export Earning

E-governance Telemedicine

Attracting Foreign Direct Investment (FDI)

HR Development in Rural Areas

Attracting Business Processing Outsourcing (BPO)

Internet Access for All

Source: Authors

Introducing the Concept of the System of Innovation The system of innovation is a concept utilised to describe the relationship between internal processes in firms and external processes in the wider environment in the context of knowledge creation, diffusion, and transfer, for example, ICT firms within the context of the global market/economy. There are many types of interactions that take place both within firms and outside firms. Among the various elements the concept of innovation system identifies is related to variation of the elements that constitute parts of a system. A system of innovation is a concept to distinguish the most significant interactions from less significant ones in relation to actors, activities, and institutions in the process of knowledge creation, diffusion and transfer. 31

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As a heuristic concept ‘system of innovation’ helps to focus on knowledge and learning activities among various actors and institutions that provide competitive advantage in the long-term. The main characteristic of this concept is its flexibility in terms of its application to various geographic regions as well as various organisations. In other words, the type of activity could change (simple or complex, small or big). The actors could change (small firm or large firm); institutions could vary (local or global, public or private). The space could vary (local or national, or regional or global). The sector/industry could vary. The concept of innovation relates knowledge creation, diffusion and transfer to the actors, activities, institutions, spaces and their interactions. The interactions in the process of acquisition, diffusion and transfer of knowledge can form different degrees and levels of systemic properties and functions around the creation of innovation as the core. The concept of innovation system captures the specific interaction of ‘innovationknowledge’ as the independent variable and spatial, sectoral and institutional arrangements as the dependent variable in the context of the activities and actions to bring about transformation and development. As a critique, the concept of ‘system of innovation’ can be used to challenge ideas about wealth accumulation based exclusively on static comparative advantage without products, markets, organisations, processes, innovation and learning imparting development features to a given national economy. Many developing countries depend on one or two main commodities for export, and they are advised to specialise in these commodities to earn the foreign exchange that may be ploughed back into the economy. Development is conceptualised as a consequence of the incremental growth that this export-orientated strategy based on the comparative advantage of agricultural and mineral produces might yield. The system of innovation perspective questions the significance of the development features, development dynamics and development effects of such an export-promoting specialisation development strategy. It points direction and policy to the significance of the co-evolution of technologies, learning and institutions and incentives by bringing about systemic and significant interactions of the social, economic and political domains in order to imbed development features and development effects by diversifying the product and process base of a national economy. 32

Introduction

As a metaphor ‘system of innovation’ orientates actors to integrate knowledge, innovation and learning to solve problems based on their own resources with self-reliance rather than resorting to dependency. Innovation system suggests that ideas, the domestic actors, institutions and incentives must interact in order to create new opportunities in production, distribution, markets and circulation. This can inculcate a mental attitude of ‘can do it yourself’, rather than waiting for external impulses to create dynamic activities in the economy. A key attribute of the innovation system concept is the focus it provides in framing problems and the value it signifies to the domain of reality that mainstream economics neglects or underemphasises. The innovation system concept makes central, institutions, histories, territories, technologies, organisations and nations that are often neglected and treated as a residual in mainstream neo-classical economics. The concept has evolved by putting innovation and learning at the heart of the economics of development. The issues of relevance in systems of innovation do not often lend themselves to a reduction in order to fit single disciplinary boundaries. The innovation system is interdisciplinary. Friedrich List (1856) and his concept ’national production system’ may be seen as the historical origin of the national system of innovation (Freeman 1995). Perhaps he is the first to use the system of national economy of production. The innovation system concept has evolved over the years since List’s time and its application has been evolving to different sets of problems and areas. Some analysts who work with systems of innovation draw affinities to it with the French Regulation School, and theories of evolutionary and institutional economics in the tradition of Schumpeter (1934) and Veblen (1919). Innovation system has varied definitions. Of the influential definition, we mention the following: Innovation system has been defined as “the network of institutions in the public and private sectors whose activities and interactions initiate, import, and diffuse technologies” (Freeman, 1987:1). There has been an accent and emphasis on “organisations that support R & D and promote the creation and diffusion of knowledge as the main sources of innovation” (Nelson and Rosenberg, 1993: 5). Some stress: “All important economic, social, political, organisational, institutional and other factors that influence the development, diffusion and use of innovations” (Edquist, 1997:14). 33

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According to Bengt-Åke Lundvall, the modern version of the concept appeared first in an unpublished contribution to OECD by Freeman (1982) and some years later Lundvall (1985) used the concept in formulating the importance for innovation of the concept of producer-user interaction and feedback for learning. Freeman used the innovation system concept in 1987 when he analysed Japanese economic performance (Freeman, 1987). Subsequently, Lundvall (1992) and Richard Nelson (1993) edited two books on the system of innovation that has become standard references on the subject. Recently attempts have been made to apply the concept for economies in the developing world in general including Africa in particular (Muchie et al, 2003).

Significance of Innovation System for Development As stated in the above section, innovation system has its origins from Friedrich List’s concept of the system of national economy of production as opposed to the cosmopolitan theory of economics by Adam Smith. List regarded the productive power of the mind – what he referred to as mental capital- paramount relative to the productive power of matter and nature, and what he described as the mere accumulation of wealth per se. For List accumulation of wealth unrelated to mental capital is purchased with severe deficiency of developmental features, effects and dynamics in a country’s given national economy. Development is driven by the intellectual achievements, discoveries, inventions, transformations and progress that a nation has accumulated in its history. Institutionally the deployment of government policy to bring about an effective education, training, science and engineering system; linking these systems of training to accelerate the national productive forces and protecting them from the cosmopolitan notions of free trade constituted List’s categories or elements of a national system of innovation. The key for List was to bring about productive interaction of the mental capital with the capital of nature and matter to create manufactures on the foundation of an ever-spiralling scientific and technological advancement to augment wealth. This would not be the case for example for a country that relies on comparative advantage and exports the minerals and agricultural commodities it is endowed with to accumulate wealth. List would not recognise the 34

Introduction

developmental features and dynamics in such economic activity unless it contributes to the build up of mental capital. The BRICS group of countries as the case studies we have chosen are second tier semi-industrialising economies, and we find that they all have a more or less lopsided connection between mental capital and their wealth creation strategies. Whilst these economies do not just export what they already have a comparative advantage in and/or rely on donor assistance to build their economies; neither have they also joined the status as a group of industrialised economies. Their innovation system is often bifurcated, lopsided and dualistic with features that reflect industrial economy structures and a larger domain that mirrors developing country economic structures. Howsoever one defines a system of innovation, the relevant issue remains to be the significance of explaining how the co-evolution of technologies, institutions (as sets of habits, routines, established practices, rules of the game and so on), and organisations that relate to the structure of production systems, takes place. Such co-evolutions are often at variance with the kind of development economic thinking of the late 1950s and 1960s. The latter mainstream thinking decontextualised technology by seeing it merely as embodied in machinery/equipment and embodied in training and skill. Mainstream thought saw technology for development to be transferable from those that keep it under control detained by using intellectual property regimes to those that are technology or knowledge poor. This approach violates List’s key factor - building the capital of the mind, in order to build in development features and dynamics and sustain also development effects of a given national economy. Catching up was conceptualised as borrowing and learning from the transfer of technologies, and not as organising a system of national productive economy spearheaded by the capital of the mind. Mainstream thought saw catching up as possible and desirable with latecomers being able to imitate, or use; not create or innovate/produce the products and processes from the developed economies. The innovation system framework suggests that theoretically development is not only a process of production, but also it is a process of innovation. In addition developing economies are not mere users of technology, but also their development should be conceptualised on the domain of active generators or producers of technology. Developing economies are not therefore passive recipients of technology from the 35

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industrialised economies. The assumption that development can be engineered or steered by technologies that can be transferred from those who control knowledge through intellectual property is a seriously inadequate proposition. There is also the problem that technology transfer cannot be assumed to take place easily. Often the proprietors of technology control knowledge, they do no readily spread it. This provides an additional reason for organising a national system of innovation. Thus there is no alternative that those who wish to use technology must be prepared also to learn to produce it. A necessary condition for development from an innovation system perspective is that those who wish to embark on a sustainable developmental trajectory cannot afford to shy away from trying to develop by being producers of technology, and not stay merely as diffusers, users, absorbers and implementers of technologies produced elsewhere. The group of economies called the BRICS are both producers and absorbers, creators and diffusers, though they may be more diffusers and absorbers than creators and producers of technology at present time. One important reason for the taxonomy of the BRICS group is this relative achievement by these economies to strive to produce new technology industries such as, for example an ICT industrial sector. Of course both producers and users of technology undertake different types of innovation. The broad classification of economies as those who are the technology producers as the innovators, those that are absorbers of created technologies elsewhere as the diffusers, and others like in our case studies the Southern African countries with the exception of South Africa as the excluded from being either innovators or diffusers fails to recognise that there is much innovation in being able to absorb technologies as well. When it comes to the technology specific sector of ICT, it seems to be spreading across the globe cutting across all divisions or barriers. For example, mobile cellular networks are said to have brought 80 per cent of the world’s population within reach of a telephone (ITU Database: see Website A). The system of innovation perspective emphasises the identification in any given economic setting the interactions of the significant socialeconomic variables, and the dynamic co-evolution of institutions and technologies that result in imparting key development features and dynamics to a given national economy. We shall see in the case studies we have put together in this monograph how policies on ICT in 36

Introduction

different countries contribute to imparting developmental features, effects and dynamics to these economies or the opposite as the case may be. The main puzzle we wish to address here is how we can integrate ICT as innovation-knowledge within specific national innovation systems, and also examine conversely how the national system of innovation diffuses ICT knowledge-innovations.

Linking ICT with National Innovation Systems The main puzzle we wish to address is how we can integrate ICT as innovation-knowledge within specific national innovation systems, and also examine conversely how the significant interactions spanned by the national system of innovation diffuse the ICT knowledgeinnovation in given national economies. The main objective is thus to undertake a double conceptualisation: the development of the concept of innovation systems stimulated and spear headed by ICT and conversely how the existing innovation systems facilitate the creation, absorption and diffusion of ICT. This is one of the major issues examined in the selected case studies. Since early 1980s the notion of ‘technological capability’ has been given importance in the development literature. Building technological capability requires deliberate effort and is neither automatic, effortless nor without cost (Bell and Pavitt, 1993:201; Nelson, 1990:77; Dosi et al., 1988:463). The experience of developed economies shows that technological accumulation depends not only on the technological innovations of firms, but also on institutional innovations, which are influenced by social, economic and political factors (Freeman, 1992:170). This explains “why the national system of innovation has worked better in certain environments than in others” (Katz, 1994:251). That is, the rate and shape of technological accumulation varies across countries as they are influenced by the nature of innovation system in their particular country (Nelson and Rosenberg, 1993:4). Also, it is argued that the development of technological capability is relative and area specific, that is, it can be more or less advanced in different sectors or technologies (Enos, 1991:167). Therefore, the effort to build competence and technology accumulation in the ICT sector in different countries is likely to be influenced by their respective national innovation systems. That is, the supporting institutions such as school 37

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and higher education system, resource allocation and financial system, overall S&T infrastructure, and the macro-economic environment fostered by a national innovation system provides the basis to foster a technology specific system such as ICT. In other words, the ‘whole’ (NIS) influences the ‘parts’ (technology or sector specific systems) and the ‘parts’ will similarly have an influence on the characteristics of the ‘whole’. Figure 1.2: Linkages Between Systems of Innovation and Industrial-economic/ Socio-economic Objectives Industrial-economic Objectives - Building Indigenous Capabilities - Export Growth - Employment Growth - GDP Growth, etc.

High degree of success in meeting the objectives

Both systems are individually strong and have strong synthesis/ working in tandem

Socio-economic Objectives - Reducing Inequalities - Reducing Exclusion / Division / Imbalances - Preserving Identity/ Autonomy

National System of Innovation

Technology Specific Innovation System

Interaction of various actors, engaged in a particular way, to create: 1. Learning 2. Knowledge 3. Capabilities

Such as ICT Biotechnology Automobile technology or a particular technology One or both systems are weak and working in disharmony/ different rates or levels

Industrial-economic Objectives

Socio-economic Objectives

Low degree of success in meeting the objectives Source: Authors

A specific technology, left to itself or on its own is neither good nor bad. What is important is how a technology is designed, developed, employed, and whether it can lead to wider social benefits. For example, ICT is believed to have the potential to transform socioeconomic conditions of the people. But on its own ICT is not going to bring about socio-economic transformation. It requires appropriate institutional, social, political, and cultural environment to accomplish this. This environment is created by the national innovation system. In turn, national innovation system is shaped by interaction of the physical, human, financial and natural capitals; the interaction of institutions, incentives and knowledge-innovations; and the 38

Introduction

interactions of economic, social, cultural and political dimensions of development. National innovation system, we would argue, is not just a tool to achieve the narrow goal of industrial/economic competitiveness, but it is about achieving a broader development and wider social benefits. It is quite possible for a country to develop a strong and highly efficient technology specific innovation system, even if it has failed to create an equally efficient national innovation system. In such circumstance, the experience of technology specific system could benefit the national innovation system. The Indian space technology specific innovation system is an example for this. The strong linkages between R&D institutions, universities, the firms and the central coordinating role played by the Indian Space Research Organisation (ISRO) in the Indian space programme have created an efficient innovation system that led to a high level of technology accumulation (Baskaran, 2001 and 2001). This experience has had some impact on various actors involved in the national innovation system in India. In the case of ICT, as it is distinct as a technology enabler with pervasive influence on different industrial and social sectors, it has a very significant potential to influence the characteristics of the national innovation system. For example, other technology specific innovation systems such as biotechnology are unlikely to have similar impact on different industrial and social sectors. Therefore, we argue that particularly the ICT specific innovation system is likely to draw from and as well as benefit the national innovation system. The linkage between the national system of innovation, the ICT specific innovation system, and (narrow) industrial-economic and (broader) social-economic development objectives is conceptualised in the Figure 1.2. It attempts to capture the complex relationship between these two systems through simple illustration. The figure presents a number of possible scenarios. On the extreme positive side, the best will be where the general national system of innovation and the ICT specific innovation system are strong and show a high degree system synergy, synthesis and work in tandem. This results in greater success in meeting both industrial related economic growth and broader socialeconomic objectives. In such environment, ICT can play a very positive role. On the extreme negative side, the synthesis between the broader national system of innovation and the ICT specific innovation system is weak and they work in disharmony, moving at different rates and 39

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levels, failing to connect, and achieve system synergy and dynamics. In this case, both national innovation system and ICT will not enable the fulfilment of either narrow or wider social-economic objectives. Instead of positive contribution, ICT can play a negative role. Between these two extremes, it is possible there are varying degrees of system synergy and synthesis between national system of innovation and the ICT specific innovation system. If this is relatively high, then some industrial and social objectives may be fulfilled but not all. If this is low, only few objectives can be realised.

Figure 1.3: Agents Involved in an ICT Innovation System

Government National ICT Policies / Initiatives Resource Allocation Implementation and Review

Narrow Focus: Economic-Industrial Growth

Industry:

R&D Performing Institutions:

ICT Firms and Industry Associations

Public R&D Organisations Universities

Incentive Structures: - Market Forces - Technological Opportunities - Appropriability - Export Incentives and Opportunities

ICT Users/ Domestic ICT Market:

- Appropriate Local Applications - Local Contents - Creating Awareness of ICT - Cheap & Easy Access to ICT - Developing ICT Infrastructure - Creating Common/ sharing ICT Facilities

ICT Human Resources: - ICT General Literacy - ICT Higher Education - ICT Short Training

Supporting Institutions: Financial Institutions Schooling System S&T Infrastructure

Broader Focus: Socio-economic Development Bridging the 'Digital Gap'

Industry: ICT Firms and Industry Associations

Government Agencies: Provincial/ Local Level

Non-Government Agencies

International and Regional Organisations:

Private Sector Non-Profit Sector

ICT Initiatives/ Projects

Source: Authors

Various elements involved in creating an efficient or lopsided innovation system for ICT is illustrated by the Figure 1.3. In the area of economic industrial growth through ICT (the narrow objective) the major elements that play instrumental role are the industry, the R&D performing institutions, the incentive structures, availability of ICT human resources and the supporting institutions. They interact with each other and determine the rate and shape of capability building in 40

Introduction

ICT. In the area of socio-economic development and bridging the ‘digital divide’ (broader objective), the elements that play major role are the local and provincial government agencies, non-governmental agencies, R&D organisations, industry, ICT human resources, easy and cheap access to ICT, local involvement and awareness, and development of ICT infrastructure at the local level (rural areas). When the inter linkages are stronger between various elements, then it leads to an efficient ICT innovation system. When the linkages between them are weaker or when some actors are absent (or not strong), then it is likely to lead to an uneven or lopsided ICT innovation system. We have put together six case studies, that is, five country studies covering Brazil, China, India, Thailand, and South Africa and one covering a group of countries in a region – Southern Africa. In the first five cases, the presence of national innovation system is clearly evident, while it is very weak or absent in the case of Southern Africa. Hence, the country studies try to identify conceptually first the distinctive features of respective national system of innovation and outline the way in which the relevant actors are linked. A stronger link results in a more robust and efficient system of innovation; conversely, a weaker link leads to often inefficient and lopsided innovation systems. Invariably all the case countries have lopsided national innovation systems. Following a brief discussion of national innovation systems, the country case studies present and analyse ICT policy framework, industrial growth, initiatives and projects aimed at bridging the ‘digital divide’ and their impact with respect to overall socio-economic objectives. It appears that the effort to foster ICT specific innovation system in these countries has not reduced the lopsided or uneven feature of the national innovation systems. However, there have been quantifiable achievements in both industrial-economic growth and broader socialeconomic goals in nearly all the case countries. In the case of Southern Africa, because of and to overcome their weak or absent national innovation systems, the countries appear to have turned towards a regional approach to foster ICT knowledge-innovation.

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Brief Outline of the Chapters Chapter 2, by José E Cassiolato, Vicente Guimarães and Helena Lastres, discusses the case of ICT innovation System in Brazil. It starts by briefly outlining the changing national innovation system in Brazil. It illustrates how the institutional relations in and major characteristics of the national innovation system in Brazil have changed since the economic liberalization began in the early 1990s, while it continues to be lopsided and uneven. Then it traces the evolution of the Brazilian ICT policies and their impacts in terms of local technological capabilities, industrial development, and socio-economic development. The chapter analyses various developments in the industrial sector and the socio-economic sector separately. First, with respect to industrial growth, it argues that as a result of liberalization, “the sophisticated telecom innovation system that was developed in Brazil over many years at the expense of considerable resources was totally disarticulated”. In the IT area, it points out that while the government policies were “reasonably successful with respect to their objectives of increasing local capabilities and reducing the dependence on foreign technology” before liberalization, most Brazilian hardware makers “either disappeared” or “were bought out by foreign firms” after liberalization, and indigenous R&D investment and capacity have declined. However, in the software sector Brazil has seen significant achievements. In the area of socio-economic objectives, although Brazil has made significant progress in terms of increasing access to ICT such as internet, fixed and mobile telephones, and computer literacy, it still faces serious challenges in achieving all objectives. It concludes that the attempt to spread ICT diffusion to the society as a whole “appears to have made little headway” and the majority of Brazilians are “still very much excluded from the information economy and society.” In Chapter 3, first, Yi Zhu outlines the problems associated with the national innovation system of China before 1985, when the modernization was initiated and the emergence of higher efficiency and lower efficiency tiers of national innovation system after 1985, to set the context to analyse innovation system for ICT in China. Then, it discusses the national ICT strategies, institutional framework and policymaking, ICT industry, and the impact of ICT on socio-economic development. She highlights the instrumental role played by the Chinese state in pursuing the goal of ICT for broader socio-economic 42

Introduction

development. In the area of ICT industry, while identifying significant growth in all sectors, she points to the uneven growth and mismatch between the hardware and software sectors. With regard to telecom sector, she found that the “liberalisation brought only limited competition,” and she argued that “to increase the amount and quality of service, more liberalisation and competition is needed.” She points to the fact that as the Chinese economy is growing more rapidly, it has put strains and stresses on ICT infrastructure. In the area of ICT for broader socio-economic development, she has identified significant growth in terms of access to PCs, internet, fixed line and mobile phones, and IT education. She also identifies the gap between rural and urban areas and the Western and Eastern regions. She argues that “despite rapid economic growth in China, there has always been an ‘East-West divide’ in levels of development and the standard of living. This divide is also mirrored in the degree of ICT diffusion in the country, presenting a picture of ‘digital divide’.” Chapter 4, by Angathevar Baskaran and Mammo Muchie, presents the case of innovation system for ICT in India. It briefly outlines the broader national innovation system in India that has moved from an inward looking to outward looking phase with both phases marked by a duality between civil and dual use areas. It raises the question whether the innovation system for ICT in India has contributed to attenuate the lopsided phenomenon that persists in its national innovation system. In search of an answer, it analyses the national ICT policy framework, institutional arrangements, nature of growth in the ICT industry, various initiatives and programmes aimed at wider diffusion of ICT to achieve broader socio-economic objectives, and their impact. In the area of ICT industry, it is found that India has created a strong ICT industrial base and a high level of capability to compete globally in IT software and IT enabled services, but failed to develop such capability in the hardware sector. In the area of ICT for broader socio-economic development, it identifies significant developments such as access to internet, computer, fixed and mobile phones and IT education. However, it also highlights that, despite numerous initiatives and programmes at different administrative levels, India has not so far succeeded in effectively utilising ICT for socio-economic changes, that is, in terms of E-education, E-health, E-government, and so on. The answer to the above question is in the negative as the expected ambition to make India as ‘knowledge super power’ resides 43

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mainly in the development of the ICT industry and not in the broader diffusion of ICT to achieve social-economic goals. Even when there are centres of excellence, the underlying condition of underdevelopment persists. Finally, Baskaran and Muchie conclude by arguing that “ICT is not a magic wand to make the age old problems of India -- poverty, inequality, and under development -- to disappear overnight. While India should not fail to exploit ICT to combat these problems, it should not lose sight of its limitations.” In Chapter 5, Patarapong Intarakumnerd and Kasititorn Pooparadai discuss the case of innovation system for ICT in Thailand. First, they identify the major problems of the national innovation system in the past fifty years that made it inefficient and lopsided and highlight the fact the system is in a state of transition since 2001 when a major shift in government policies and practices began. Then, they examine the government’s effort to build capabilities in the ICT sector by analysing Thailand’s national ICT policies, institutional framework, initiatives to foster the ICT industry, programmes to achieve wider ICT diffusion and their over all impact on the economy and the society. They note government policy has been active in providing incentives for firms to change from their risk-averse state to more risk-taking actors. Intarakumnerd and Pooparadai suggest that ICT industry is “locked up in the lower end of the value chain” and “software industry and ICT services are still lagging behind other countries of the region.” They feel that ICT policies have been well formulated, but implementation is still slow and ICT access to wider society is low mainly to low income and slow spread of computer literacy. Finally, they are not certain as to “the exact nature of spillover effects of ICT on Thailand’s national innovation system.” Chapter 6, by Angathevar Baskaran, Mammo Muchie and Rasigan Maharajh, presents the case of innovation system for ICT in South Africa. First, it outlines the broader South African national system of innovation that is coloured by the persistence of a racially divided first and second economy. Then it attempts to find whether innovation system for ICT reflects this dichotomy of the national innovation system. For this, it analyses the national ICT policies, institutional arrangements, the ICT industry, various initiatives and programmes aimed at achieving broader socio-economic objectives, and their impact on the economy and the society. In the area of ICT industry, it found significant growth, particularly in the software sector. However, it 44

Introduction

suggests that “the industry lacks the necessary competitiveness to operate at a higher level of value chain and technological complexity.” In the areas of socio-economic development and ICT diffusion, the authors suggest that collaborative approach to designing and implementing ICT projects by the government, private sector, and nongovernment agencies have been working successfully. However, they also observed that “large sections of people and the country, particularly rural areas, have no access to ICT and they are not even aware of the benefits of ICT.” Finally, they conclude that like the lopsided and uneven nature of South Africa’s national innovation system, its ICT innovation system has proved to be more successful in the first economy and not so in the second economy. While the innovation system for ICT has potential to bridge the two divides, viz., the first and second economy and the ‘digital divide’, meeting broader social and economic objectives in South Africa through ICT still remain wide off mark. In Chapter 7, Erika Kraemer-Mbula and Mammo Muchie present the case of innovation system for ICT in Southern Africa. They cover all the countries in Southern African region -- Mauritius, Namibia, Botswana, Zimbabwe, Zambia, Mozambique and Tanzania (excluding South Africa). In contrast to other case studies, Kraemer-Mbula and Muchie observe that the existence of an adequate institutional system and the ability to design and implement an effective ICT strategy are the main problems faced by these countries. They argue that they pose a major “challenge in most African countries because they have not yet been able to develop their national innovation system to the point of ‘critical mass’.” To overcome this problem, they observe, these countries have turned towards regional effort to build their basic infrastructure and capabilities. Kraemer-Mbula and Muchie attempt to examine the importance of horizontal cooperation and harmonisation among countries as a means to facilitate the diffusion and strengthening of ICT in Southern Africa. They point out that regional economic communities have been the foundation for horizontal cooperation to emerge and for regional collaborative ICT projects. However, these projects are competing “for the same markets at several points along their routes within Africa and also for the international connection of Africa internationally” due to lack of coordination among themselves. Furthermore, despite regional initiatives for ICT development in 45

Mammo Muchie and Angathevar Baskaran

Southern Africa, there are great variations across countries. Therefore, they argue that the role of New Economic Partnership for African Development (NEPAD) and its e-Africa Commission in overseeing the priorities, overlaps and gaps of ICT infrastructure projects becomes crucial.

Concluding Remark The key issues we collectively probed in this work are the degree to which broader national innovation system frameworks relate to technology specific ICT systems. This interrelationship has been discussed at three levels: (i) conceptual; (ii) narrowly on industrialeconomic dynamics; and (iii) broadly on social-economic development. Conceptually, we tried to map the national innovation system framework of the five economies (Brazil, China, India, Thailand and South Africa) in the case studies and found out that they share broad features of having innovation systems that have an industrialtechnology production dynamics along with a larger and disarticulated sector that is characterised by low efficiency and non-dynamic characteristics. Whilst this broad shared lopsided and uneven characteristics describe nearly all the case economies, there is clear distinction in the kind of key patterns of evolution and history that enter into shaping the particular type of bifurcation of the given national innovation system case in question. In Brazil the macroeconomic liberalization of the 1990s has been recognised to shape the system of innovation and aggravate even further the uneven and lopsidedness of the Brazilian economy and society. In China the key factor is the macroeconomic reform from the mid 1980s that brought openness to the hitherto closed national system of innovation. The features of the reformed economy has in turn resulted in broadly what some analysts have described as a two tier national innovation system, that is, higher efficiency level national system of innovation and lower efficiency level national system of innovation. This sharp distinction aggravates social and regional inequalities in China. In India the movement from inward to outward orientation of the system of innovation with a strong science and technology (S&T) infrastructure and high level technology accumulation in some civil and dual-use areas (in both phases), and the acceleration of outward orientation especially after liberalization of the Indian economy in the 46

Introduction

1990s provides the framework for the integration of ICT specific innovation system, industrial-economic growth and social-economic development. In Thailand the system of innovation has been characterised by weak, fragmented and even stagnant features with slow technological learning for nearly half a century and it is now undergoing system transition principally owing to active government policies and management after the economic crises in 1997. Whilst government policies and the impetus from the Asian financial crises have stimulated the national system of innovation, the transition is not smooth and actors and their path dependency have not been fully overcome. The South African national system of innovation is sharply stratified by racial and first and second economy bifurcations. The first economy in South Africa is industrial on a par with any advanced economy. The second economy is underdeveloped. This has huge implications for technological learning, creating capacity for development in the second economy, linking the first and second economy with government policy, building the training and educational system, creating institutional linkages on the economic, financial, knowledge levels. The Southern African countries are characterised largely by weakly formed institutional arrangements for building national systems of innovation. The making and designing of innovation systems at the Southern African regional level may be the most likely route to combine resources and organise capacity and innovative learning. The link of all these differing national system of innovations to ICT is shown clearly by the different impacts of the broader system framework in different phases to the likely trajectory of the ICT contribution to the growth of the sector as an industry, its contribution to economic growth and broader social-development goals. We have seen in Brazil after liberalization the ICT sector changed from its largely indigenous base to a more multinational and outward orientated phase. This has serious implication for building the domestic base of the sector and meeting social goals and access to ICT services. What is interesting is that similar observation and trends are discernible in all the other four major cases suggesting that nearly all economies have responded to globalisation by opening to foreign direct investment and acquisition of technology that has implications in forging coherent systems of innovations that can overcome the lopsided development. 47

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In conclusion: all contributions accept that innovation systems for ICT development are very important. They also accept that government policies are critical in stimulating, monitoring and evaluating progress in the ICT industry and its role in both economic growth and meeting the broader social objectives. Though the countries have different levels to their challenges, the nature of the challenges is similar except for the relatively much weaker economies in Africa. The importance of creating a dynamic ICT sector and integrating this sector to the wider system of innovation can create significant developmental economies, efficiencies and dynamics. It is thus pivotal that ICT is recognised as a key technology system that can strengthen a country’s national system of innovation. Its importance in enabling to contribute to economic growth and solve social issues is also clear. But like any thing useful, it must be utilised with goals set by clear social policy imperatives, if its value is to be helpful rather than negative. Unless development of ICT is also shaped within a socially and politically framed national system of innovation, it is likely to create more diseconomies than economies. ICT would not be as productive as one would hope for, if there is no value addition in knowledge and learning that accrues from the linkages between ICT and the economy. Where the value added from the ICT would come would be when it is integrated with the national innovation system to achieve what List called mental capital building as a means of wealth accumulation. Unfortunately, it appears that in many poor countries ICT will be used mainly to accelerate the primary export economy and not to transform it, as many of the poorer economies do not even have rudimentary national system of innovation. Thus, less developing economies face twin challenge of creating a national innovation system to foster the institutional pillars of national innovation system and developing and integrating an ICT system with the former. The synergy between these can provide the basis for a developmental dynamics in the poorer developing economies. However, it is evident from the case studies that while we cannot ignore the potential of ICT to generate wider socio-economic benefits, we should not fail to recognize the limitations of ICT in solving social problems, as they will not be solved by technology alone.

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Bibliography

Abdul Kalam A. P. J (1992): “The aim of a lifetime,” in Joshi P. K. (ed), Vikaram Sarabhai: The man and the vision (Ahmedabad, India, Mapin Publishing). Bajwa G. S. (2003): “ICT policy in India in the era of liberalization: its impact and consequences,” in GBER, 3(2): 49-61. Baskaran A. (2000): “Duality in national innovation system: the case of India,” in Science and Public Policy, 27(5) 367-374. Baskaran A. (2001): “Competence building in complex systems in the developing countries: the case of satellite building in India,” in Technovation, 21 (2): 109-121. Bell M. and Pavitt K. (1993): “Technological accumulation and industrial growth: contrasts between developed and developing countries,” Industrial and Corporate Change, 2(2):157-210. Dosi G. Freeman C. Nelson R. and Soete L. (ed.) (1988): Technical change and economic theory (London, Pinter Publishers). Edquist C. (ed.) (1997): Systems of Innovation: Technologies, Institutions and Organisations (London, Pinter). Enos J.L. (1991): The creation of technological capability in developing countries (London, Pinter publishers). Flor A. G. (2001): “ICT and Poverty: The Indisputable Link” (Paper presented to Third Asia Development Forum on “Regional Economic Cooperation in Asia and the Pacific,” Organized by Asian Development Bank, 11-14 June, Bangkok). Freeman C. (1982): “Technological infrastructure and international competitiveness” (Draft paper submitted to the OECD Ad hoc-group on Science, Technology and Competitiveness, August, mimeo). Freeman C. (1987): Technology Policy and Economic Performance: Lessons from Japan (London, Pinter). Freeman C. (1992): “From scientific and technical institutions in the national system of innovation” in Lundvall B. (ed), National systems of innovation: towards a theory of innovation and interactive learning (London, Pinter Publishers). Freeman C. (1995): “The National Innovation Systems in historical perspective,” in Cambridge Journal of Economics, 19 (1). International Telecommunications Union Telecommunications Report 2003 (Geneva, ITU).

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Katz J.M. (1994): “Technology, economics, and late industrialisation,” in Salomon J. (ed), The uncertain quest: science, technology and development (Tokyo, UN University Press). List F. (1856): National System of Political Economy (Philadelphia, Lippincott). Lundvall B. A, Johnson B., Andersen E.S. and Dalum B. (2002): “National Systems of Production, Innovation and Competence Building,” in Research Policy, 31(2):213-31. Lundvall B. A. (1988): “Innovations as in Interactive Process: From UserProducer Interaction to the National System of Innovation,” in Dosi G., Technical Change and Economic Theory (London, Printer). Lundvall B. A. (ed.) (1992): National Systems of Innovation: towards a theory of innovation and interactive learning (London: Pinter). Mansel R. and Wehn U. (ed.) (1998): Knowledge Societies: Information technology for sustainable development (Oxford, Oxford University Press). Muchie M., Gammeltoft P. and Lundvall B. A. (2003): Putting Africa First: The Making of African Innovation Systems (Aaalborg, Aaalborg University Press). Nelson R R. (1990): “On technological capabilities and their acquisition,” in Evenson R.E. Ranis G. (ed). Science and Technology: lessons for development policy (London, Intermediate Technology Publications). Nelson R. (1993): National Innovation Systems a Comparative Analysis (New York and Oxford, Oxford University Press). Nelson R. and Winter S. (1982): An Evolutionary Theory of Economic Change. Cambridge: Belknap Press, 1982. Nelson R. R. Rosenberg N. (1993): “Technical innovation and national systems,” in Nelson R. R. (ed), National innovation systems (New York, Oxford University Press). Nelson R.R. (1987): Understanding Technical Change as an Evolutionary Process. (Amsterdam, North Holland). Schumpeter J. (1943): Capitalism, Socialism and Democracy (New York, Harper). Veblen T. (1919): The Place of Science in Modern Civilization and Other Essays (New York, Huebsch). Website A: ITU World Telecommunications Indicator Database (see: www.itu.int/publications/folderdetails.aspx?lang=e&folder=D-IND-WTID2004&menu=categories)

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CHAPTER 2

Innovation System for ICT: The Case of Brazil José E Cassiolato, Vicente Guimarães and Helena Lastres

Introduction

F

or a long while it has been recognized that radical technological change based on microelectronics technology has far-reaching significance for developing countries. In fact, information and communication technologies (ICT) have become a powerful agent of economic development by the products and industries they directly generate and through the socio-economic transformation they permit and provoke. It has been constantly argued that, nowadays, economic development is increasingly associated to an efficient diffusion of ICT throughout the economic system. However, this diffusion involves complex interactions between political, economic, and social forces. It is not a coincidence that when the diffusion of ICT accelerated in the developed world, we are witnessing a dramatic increase in the gap between rich and poor countries. We live now in a more divided world, a world with Triadic-nations and Multinational Corporations, constituting ‘a partially-integrated whole’ and with a greater majority who are excluded. In other works we argued that the efficient diffusion of ICT is only possible when local capabilities to produce ICT goods are developed (Cassiolato, 1997; Cassiolato, Lastres and Maciel, 2003). This is so, first, by the important interactive dimension of learning processes. Second, since not only is the ICT industry itself characterized by intensive technological networking for the development of its products, but its diffusion throughout the economy to new sectors of application depends on the developments of own networks in every sector. The 51

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incorporation of ICT elements into products, processes, and organisational systems calls for direct user involvement in technology development and design. The implications are that to be an effective user of ICT (and other new technologies) a country needs to acquire skills and capabilities that go beyond those received through import of sophisticated machinery and products. It is in this dynamic setting that developing countries should pursue strategies to benefit from the new technologies such as ICT. Beside India, Brazil was the only developing country to design and implement a comprehensive strategy to cope with the challenges of the ICT revolution. The main objective of this chapter is precisely to discuss the evolution of the Brazilian ICT policies and their impacts in terms of local technological capabilities, industrial development, and socio-economic development. In this sense, this chapter also aims to contribute to an examination of problems the less developed countries are facing with ICT.

National Innovation System in Brazil and ICT Like India, since 1960s, Brazil was determined to develop strong indigenous technological capabilities in whatever areas possible. The government allocated significant resources towards building the science and technology (S&T) infrastructure, and strong indigenous R&D capabilities and highly skilled human resources. However, attracting foreign capital was perceived as a quick and easier way to channel modern technology into the economy. Multi-national companies (MNCs) were allowed to operate in important industrial sectors through their subsidiaries, like the car industry. There were, however, some remarkable exceptions, particularly in sectors where state control was considered necessary for strategic reasons: infrastructure, air space, oil, and energy. Also a successful modernization of agriculture occurred after a state-controlled R&D firm (EMBRAPA) was created. As a result, by the end of 1980s, Brazil was able to develop strong indigenous technological capabilities in particular sectors such as space, computer, telecommunications and agro-industry. In some sectors it protected the local firms from foreign competition to make production rooted in the local innovation system. But for most of the economy, reliance on a strategy based on massive (and disorganized) import of technology and capital meant that local 52

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R&D expenditures were very low and firms remained relatively backward and inefficient. Although MNCs were allowed to operate through their subsidiaries, their role was limited in the local economy. As a result, by the end of 1980s, Brazil was able to develop strong indigenous technological capabilities in particular sectors such as space, computer, and telecommunications. However, many sectors remained relatively backward and inefficient. In other words, Brazil has developed a lopsided innovation system with uneven technology accumulation in different sectors. By the early 1990s, due to a number of economic problems, Brazil decided to liberalize its economy to open it up further to foreign direct investments (FDI) - inflows of foreign capital in the 1990s were approximately 13 times of what was observed during the 1970 - and international trade. Public sector was de-regulated and privatized. The state has significantly reduced funding of public R&D institutions and development of skilled human resources. As a result, the nature of national innovation system has changed substantially. With some remarkable exceptions, like the agro-industrial innovation systems (because of EMBRAPA), the aircraft system (EMBRAER), the oil and gas system (Petrobrás), the indigenous technological capabilities acquired through decades of hard work are being eroded. The new FDI was most market-seeking and directed to acquisition of existing firms rather than green field investment. MNC’s subsidiaries acquired important R&D-intensive local firms (in biotech, computers, telecom and auto parts, for example) and downgraded their technology efforts. In short, the national innovation system (which continues to be lopsided) is going through a major change in its characteristics. This is illustrated by Figure 2.1. In this context, the interesting question is, whether innovation system for ICT in Brazil follows this trend in the national system of innovation or defies it. Also, what is the role of innovation system for ICT in Brazil in achieving wider socio-economic development? These are the questions we try to address in this chapter.

National ICT Policies and Initiatives The national ICT policies in Brazil can be viewed in two aspects – (i) policies targeting the development of ICT industry; and (ii) policies and initiatives for achieving wider ICT applications and diffusion in 53

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the country to address the ‘digital divide’. Since 1980s, Brazilʹs national ICT policies had undergone some major changes, because of major political shifts in the government. Brazil began formulating ICT policies for development in the 1980s, particularly when it began to promote the development of indigenous computer industry. Brazil established a protective market environment for its domestic IT companies from foreign competition. This policy initially focused on mini-computers and was later expanded to include micro-computers (PCs). As a result, by the end of the decade, Brazil established a strong domestic IT industry. Figure 2.1: Dynamics of Lopsided National Innovation System in Brazil

Pre-1990 Period Import Substitution Industrialisation (ISI) Main Focus on Upgrading S&T Infrastructure, Building Indigenous Technological Capabilities in Key Strategic Sectors. Massive Import of Technology and Capital in most Manufacturing Sectors

Post-1990 Period Lopsided/ Uneven National System of Innovation

Main Characteristics

Main Focus on Building Economic Growth, Achieving Competitiveness through Liberalization of Economy and by Attracting FDI

Main Characteristics 1. Market mechanisms play a major role in determining the nature of technology accumulation and economic development 2. Liberalization of capital flows, trade, opening Brazil further to foreign investments and international trade 3. Macroeconomic policies aimed at price stabilisation and structural reforms 4. De-regulation and privatization of state-owned enterprises 5. Indigenous firms are crowded out by the dominance of MNC's subsidiaries 6. Funding for public R&D organisations/ HR development significantly reduced

1. State played a major role in fostering R&D institutions and Firms (Public sector) to develop indigenous technological capabilities. 2. Large state funding of R&D institutions and creation of S&T infrastructure 3. Strong effort by the state to develop highly skilled human resources 4. Local firms played a key role in most strategic sectors 5. MNC's subsidiaries played major role in most manufacturing sectors

Outcome

Outcome

1.Strong indigenous R&D base was created 2. High level of technological capabilities were acquired in particular sectors such as space, computer, and telecommunications 3. Several innovation systems based on local developments were set up. But in most manufacturing sectors local innovation capabilities were limited by the presence of MNC's subsidiaries.

1.Indigenous capabilities accumulated during ISI (pre-1990) period are being eroded 2. Domestic R&D Institutions' capacity to respond to the increasing complexity of S&T knowledge reduced significantly 3. Production dominated by MNC's subsidiaries, which is not rooted in NIS of Brazil

Source: Authors

However, in the 1980s, Brazil experienced high inflation and economic stagnation and by the early 1990s, with the change in the political environment, the government decided to liberalize the 54

Innovation System for ICT: The Case of Brazil

economy. In the mid 1990s, Brazil opened up the ICT sector to private and foreign investment. The liberalization of the ICT industry appears to have made both positive and negative impacts on the economic development of the country. The liberalization process of ICT industry and its impacts are discussed in depth in the following sections. In the area of ICT applications and diffusion, the government initiated measures to increase IT literacy in the country and has been encouraging wider usage of ICT. It has invested significantly in developing E-government. Brazil has formulated a number of policies and initiatives to achieve widespread diffusion of ICT in the economy and the society. These include the ‘PC Connected’ that aims to provide poor people access to computer, the ‘Programme for Information Society’ that aims to achieve wider diffusion of ICT across the society, and the ‘Hunger Zero’ programme to install 1000 telecentres in highly impoverished municipalities to provide poor people access to ICT. The government has been trying to foster a strategic collaboration between public and private sector organisations to successfully implement the Programme for Information Society and other ICT application oriented initiatives. The government has been encouraging public-private partnerships to help in identifying innovative solutions to overcome barriers to universal access, such as the high-cost of personal computers and lack of financing options for low-income citizens. However, private sector participation in the ICT programmes does not appear to be at the level expected by the government.

ICT Industry: Policies and Impacts The national polices and developments related the ICT industry are divided into two parts, that is, those related to the telecommunications industry and the IT industry respectively. First, an overview of the growth of the telecommunications sector and the changes it had gone through over the years are discussed. Then, the impacts of policy changes on IT industry will be analysed in depth.

Telecommunications Industry The telecommunications industry in Brazil went through some major changes in the past few decades. In 1962, Brazilʹs Telecom Code 55

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granted national government a monopoly in both the operation and the regulation of telecom activities. The federal government acquired the largest foreign telephone provider, Companhia Telefonica Brasileina to control telecom operators in 1968. In 1972, the government created Telebrás as a state-owned monopoly for telecommunications. It incorporated all private operating companies and assumed all the coordination and planning functions. This included setting up, under Telebrás’ control, of a new structure of more than 20 regional operating companies, a long distance and international operating company (Embratel) and an R&D institution (CPqD). There were also four municipal, regional or private companies, which were independent, but subjected to the co-ordination and planning of Telebrás. There were three basic objectives of the new monopoly structure: (i) to guarantee the internal supply of equipment and materials, needed for services to be expanded, that would be gradually ʹnationalizedʹ (i.e., put under local control); (ii) to stimulate the development of a components and equipment industry under the control of Brazilian capital; and (iii) to establish mechanisms for technology absorption and development in the area. The main policy issues were: introduction in Brazil of a network of digital switching systems and the setting up of a public R&D institution (CPqD) with a basic aim to develop this and other technologies and to diffuse them to the private industrial sector. Private firms would be responsible for industrial R&D and equipment production and procurement by Telebrás would guarantee the market. As a result, a modern telecom infrastructure which provided services to over 95 per cent of the people was set up. Policies also forced the increase in locally added value. At the end of the 1980s, 90 per cent of value-added was produced locally. In some cases, this was achieved by technologies developed locally by CPqD and firms. Among these technologies the most successful were the Trópico digital switching systems, the public telephone using inductive cards, optical fibres and network management systems, all treated by Telebrás as “preferential products.” In the mid 1990s, Trópico systems had 29 per cent of the Brazilian market for switching systems. After Trópico switches were introduced in the market prices and competition changed. Before 1989, when the Trópico RA switches were tested, the three multi-national companies’ (MNCs) subsidiaries had a “de facto” market control and defined prices irrespective of costs considerations given their monopolistic 56

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position. In a highly protected domestic market, they “successfully pushed up prices on locally produced equipment to new heights” (Hobday, 1984). The introduction of the Trópico digital switching systems broke their monopoly in this market and forced them to compete on price. Consequently, a sharp decrease of prices of medium/large switching systems was observed. Prices of installed terminals which averaged US$ 800 in 1987 fell to approximately US$ 200 in 1993 (Cassiolato et al, 2002). As a result of policies, by the end of the 1980s, a local innovation system in telecom was set up in Campinas. CPqD represented the corner stone of the system. Local universities played an important part. All big MNCs subsidiaries had facilities in the area. More than 40 locally-owned firms were established there in less than a decade. However, at the beginning of the 1990s, the telecom sector of Brazil was facing investments problems. In a very turbulent macroeconomic environment, public tariffs were used as an instrument to control inflation, one of the chronic problems of the Brazilian economy since the 1970s. The growing government debt prevented Telebrás from using public resources to finance its investment plans. International lending agencies also prohibited loans for public-owned enterprises as a way to force privatization. As a consequence, Telebrás lost the capacity to invest in both expansion and modernization and the telecom system rapidly was left behind the communication needs of the country and missed the international technology evolution of the sector. When the government decided to liberalize the economy in the 1990s, telecommunications industry was the first to see changes. The 1995 Plan for Expanding and Recovering the Telecommunications and Postal systems (PASTE) was the beginning of foreign business in Brazil. In 1997 The General Telecom Law was approved and laid the groundwork for privatization, setting up an independent regulatory body, and promising greater competition. In 2000 foreign investors have been allowed to invest in the financial and capital markets. As a result, a number of foreign telecom companies entered into Brazil. For example, there is a large cluster of foreign telecom companies in Rio de Janeiro that include companies such as National Grid, Sprint, France Telecom, Nippon, Telefonica, MCI, WorldCom, Bell South, Canadian Telecom, Qualcomm, South Korea Telecom, Williams International, and Portugal Telecom. As a result of 57

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liberalization, the sophisticated telecom innovation system that was developed in Brazil over many years at the expense of considerable resources was totally disarticulated during the 1990s (Cassiolato et al, 2002). The period of Internet Boom in the late 1990s witnessed significant Foreign Direct Investment (FDI). During this period, the demand for local telecommunications grew rapidly and both domestic and foreign companies invested to create more capacity. In 2001, about 1.36 per cent of Brazil’s gross national product (GNP) was invested into telecommunications infrastructure. This large investment helped to increase the telecommunications infrastructure that is necessary for all other ICT applications. Although foreign investment in telecommunications declined since 2001, they still represented 20 per cent of total FDI in Brazil. The main results of the privatization and liberalization processes in the telecommunications sector in Brazil are the increase in the number of fixed and mobile installed lines. Unfortunately, these increases were not followed by a decrease in the service tariffs. In local fixed telephony what happened is a steep tariff increase after privatization. This is due to an article in the concessions contracts which allows for a yearly readjustment in tariffs using an index (IGP-DI), which is heavily influenced by changes in the exchange rate. The negative impacts are related to the disorganisation of the innovation system and the denationalisation of the telecom equipment industry, with negative effects on the trade balance (Cassiolato and Szapiro, 2003). Although the telecommunications infrastructure started growing rapidly since 1990s, access to this infrastructure is uneven or lopsided. For example, major business centres such as Sao Paulo and Rio de Janeiro have a very high concentration of telecom network, which is comparable to that of developed countries, while much of the countryside has little or no infrastructure. Therefore, the government has been trying to address this problem through financial incentives and initiatives such as the ‘Universal Access Plan’, which aims to provide infrastructure to remote and low-income areas. Evolution of IT industry (1970s and 1980s) If there is an industry where no country has become an important international player without a significant level of government support it is the Information Technology (IT) industry (Evans, 1992). In the 58

Innovation System for ICT: The Case of Brazil

developing world Brazil and India pioneered in the late 1970s the design and implementation of government policies aiming at supporting local firms to develop, produce and commercialize IT products and services. The development of technological capabilities was the cornerstone of the policies for information industries in Brazil during the 1980s. They were reasonably successful with respective to their objectives of increasing local capabilities and reducing the dependence on foreign technology. Although normally associated with a strong protectionist stance the policy regime was not so autarchic. The main policy tool was the creation of a reserved market for mini and microcomputers and their peripherals. For these segments, production was reserved to Brazilian private capital. The policy relied essentially on two simple policy mechanisms: quantitative imports restrictions and exclusion of foreign firms in these sub-sectors. Procurement was only used in telecommunications where foreign firms established in Brazil dominated the market. Foreign firms were not excluded from the Brazilian market. They were limited to some specific segments. In fact, IT policies implemented since the mid 1970s have, paradoxically, helped the leading foreign-owned firms in Brazil. If these policies, gave the conditions to nurture a local privately-controlled sector, they also provided a protective environment for those foreign-owned firms already set up. By restricting imports of all final goods in the sector, policies gave these firms key competitive advantages. In the mid-1970s there were 11 foreign firms in the Brazilian hardware market. However, 20 per cent of local demand was met by internal production, all of which by IBM and Burroughs. The four largest foreign-owned firms (all North-American) were responsible for 90 per cent of the total commercialization of computers. IBM was the leader, with 65 per cent of the market and Burroughs, came a distant second with 17 per cent. In the early 1980s, when the National Informatics Policy was already in place, there were 20 foreign-owned subsidiaries in the Brazilian IT market; however, only four performed any manufacturing activity. This policy gave local firms the space to grow and develop capabilities, and by the end of the 1980s, Brazil had a set of diversified IT companies with significant presence in the local market. By 1986 the number of nationally-owned firms producing computers and 59

José E Cassiolato, Vicente Guimarães and Helena Lastres

peripherals grew to 310 from 4 in 1977 (Piragibe, 1985). Employment in these firms grew from 4000 in the late 1970s to more than 50,000 in 1988 (with one third of jobs going for people with university degree). The output of local computer hardware producers grew from less than US$ 200m in 1979 to more than US$ 4b in 1990, and some local firms produced impressive results in terms of research and development (R&D)(Evans, 1992). Foreign-owned firms also changed their strategies after the implementation of the IT policy. In Brazil, in the early days of state intervention, foreign capital was uninterested in collaborating with Brazilian capital. By the end of the 1980s both foreign firms already with production facilities in Brazil and those wishing to enter the market were more amenable to negotiate with Brazilian firms and the government over collaboration. A survey of technological co-operation ventures between Brazilian IT firms and foreign suppliers, made in the late 1980s, listed 44 agreements involving 36 Brazilian and 34 foreign firms. It is worth pointing out that, as their attitudes changed, foreign firms have contributed towards fostering specialized suppliers. For example, the two bigger multinational subsidiaries making mainframes in Brazil - IBM and UNISYS - had employed (in the late 1980s) around 400 different local suppliers of parts and components (Cassiolato et al, 1992:284). These firms have also relied on national firms to produce items such as monitors, disks, tapes and small computers for their systems The Brazilian experience and policies in the IT Industries in the 1980s presented several achievements (Cassiolato et al, 1992): (i) By the end of the 1980s, Brazil had built up a significant platform in IT, particularly in small computers, peripherals, various types of automation equipment for banks and industry and telecommunications due to the market reserved for national producers. Precisely because the policy was restrictive in the 1980s, the 1990s offered genuine policy choices with respect to degree of openness towards imports and collaboration with foreign firms. (ii) The build-up entailed short-run costs but these were outweighed by substantial external economies that arose from the learning efforts of national producers and users. (iii) Relying on internally developed products was particularly efficient where strong user-producer relations were established as in banking automation. 60

Innovation System for ICT: The Case of Brazil

(iv) A comparable build up was not achieved in software. This is mainly because it never received effective protection. Hence, internal user-producer loops, essential for application software, rarely developed. However some important gains were obtained, as evidenced by the exports figures precisely because the hardwareproducing sector was protected. An important shortcoming was the inadequate and insufficient technological learning by local IT firms. The strategy of evolving from technology licensing to in-house development was anchored in learning processes to be sustained by continuous R&D expenditures. These, however, have been limited by the size of the market and, most importantly, by the size of local firms. The adoption of more aggressive technological strategies was restricted by the absence of conglomerates in the Brazilian economy which could provide the financial means for a long run strategy. With a few exceptions particularly Itautec which is part of the Itaú bank group - Brazilian IT firms were relatively small and independent. Under crisis conditions the government gave very little support for the IT industry apart from protection. Financial means to foster longrun investment was almost always missing. The government expenditure on general science and technology faltered during the period even though several attempts were made by the newly-created Ministry of Science and Technology after 1986 to sustain it. Another important deficiency was that most firms neglected improving process technology during the 1980s. Automation was very limited and the adoption of more modern techniques of management was very low (Baptista et al, 1990: 131-151). Obviously these shortcomings were the direct result of inadequacies of the policy implemented. In fact, the IT policy never emphasized on efficiency in order for firms to be able to compete at the international level. Policies should have emphasized both production and use of IT products and an adequate policy for diffusion should have been designed. Furthermore, policies lacked flexibility, particularly during the second half of the 1980s when political pressure was mounting. Liberalization and Deregulation of IT Industry since 1990s The shift of the policy regime came with the inauguration of a new government in 1990. Under severe crisis it started proposing a new 61

José E Cassiolato, Vicente Guimarães and Helena Lastres

pattern of development capable of sustaining a new growth path that was to be based on new relations. That is, a progressive and rapid liberalization of the economy with the aim of increasing the competitiveness of the Brazilian industry. The policy combined mechanisms for trade liberalization, attraction of foreign capital (particularly through deregulation of financial markets, revision of legislation for profit remittance and payments for technology, changing the national development bank’s (BNDES) restrictions in order to allow long term loans to foreign firms and substituting the old Industrial Property Code) and privatization. The policy of liberalization and its lack of any sectoral discrimination imposed a deep revision on IT policies. The policy changes promoted by the new government meant, in practice, that instead of giving priority to indigenous production and the development of technological capabilities of national firms, the core of the policy was to be the fulfilment of local demand with up-dated products and services (as far as international patterns of price, quality and technological sophistication are concerned). The shift was driven in part by the fear of being left out of global markets, but mostly by the neo-liberal ideology that was sweeping developing countries around the world. Brazil’s post-liberalization IT policies were defined in 1991 by Law 8248/91. The essence of the legislation was to balance the liberalization with some supportive mechanisms for firms. It specifically aimed at providing assistance for local equipment manufacturing and R&D activities in the IT sector. Instead of emphasizing local technological development, the new legislation offered fiscal benefits if companies would commit themselves to a minimum level of local production. This minimum level was basically assembling activities: in PCs, for example, most firms assemble the motherboard in Brazil as a minimum standard of value added in order to qualify for fiscal benefits. There were no barriers to imports or foreign investment. This meant that locally-owned firms received the same treatment as the subsidiaries of multinational corporations. However, computer makers that simply imported products for sale had to forego the benefits provided under the law. The policy consisted of fiscal benefits comprising a waiver on the industrialized goods tax (which was responsible for 15 per cent in the final cost of production), a reduction of 50 per cent on income tax for R&D expenditures and a cut of 1 per cent of the income tax payable by 62

Innovation System for ICT: The Case of Brazil

companies investing in IT firms (available until 1997). Government procurement policy should, in theory, favour the acquisition of IT goods developed and produced in Brazil, as long as they had similar prices to imported equipment. By 1997, 248 firms had benefited from these measures. In order to get these benefits firms should invest at least 5 per cent of their sales from IT products (excluding software and professional services) on R&D activities, of which 2 per cent should be through joint projects with universities, research institutes, or in governmentsanctioned IT programmes. The definition of ’R&D activities’ has been too broad (including training for example) and the government never implemented a monitoring programme to assess the effectiveness of these measures. The government initiated two other important programmes in the IT sector that are worth mentioning. First, a programme to provide infrastructure, the National Research Network (RNP in Portuguese), probably the most successful government-sponsored technology programme in IT since it has been a major driving force behind internet diffusion in Brazil. Managed by a committee of academics and representatives of the IT-users, the programme allocated US$ 20m in 1997 to local IT service providers, schools, and infrastructure, such as high-speed backbones, and linking universities and business centres. The other programme was Softex, introduced in 1993, to promote the software industry and the ambitious target for Brazilian software firms of capturing 1 per cent of the world software market (US$ 2b) and 50 per cent share of the national market in the year 2000. The program included the establishment of regional centres and incubators to foster cooperation among small software firms, the setting up of marketing offices abroad to support exports and incentives for training IT specialists. Impacts of Liberalization on IT Industry The first significant impact of the new policy regime was that most Brazilian hardware makers who had been producing minicomputers and peripherals either disappeared after liberalization, moved into other markets such as services and distribution or were bought out by foreign firms. In the components market, Brazil has lost much of its production capacity as companies such as Itautec have abandoned the 63

José E Cassiolato, Vicente Guimarães and Helena Lastres

components business and scaled down R&D in face of international competition. Hence, a dramatic increase in the participation of foreign capital in the Brazilian IT industry was observed. Although recession has increased under liberalization, several movements of entry of foreign firms have been observed in the IT sector since the early 1990s. Different mechanisms have been used: acquisition of local firms, setting up of sales offices and the establishment of different types of partnerships with local capital. These movements, besides changing the very structure of the industry in Brazil, showed the importance of Brazil in the global expansion strategies of leading international firms. The size of the internal market, the positive expectations about its growth potential and Brazil’s place in the Mercosul (trade bloc) - all add up to the openness of the economy in explaining the interest of these international firms. In the computer and peripherals market, a significant expansion of activities of leading international firms was observed. In fact, the increase in the participation of foreign firms has been through the expansion of activities of firms already set up in Brazil and/or through transforming associations that were previously limited to ‘technology transfer’ into de facto joint ventures. As for the new partnerships they have been restricted to agreements for ʹtechnology transferʹ and distribution/commercialization. In short, the process of ‘new entry’ in informatics has been much more based in the expansion of activities of foreign firms which were already active in Brazil than through the participation of ‘newcomers’ into the competitive process. The nature and characteristics of these agreements will be discussed below. Independently of the way it was pursued, partnerships represented, for local firms, the only way to cope with the changing environment brought by liberalization. They also permitted local firms to quickly introduce the range of products available internationally. From the point of view of foreign firms the adoption of this type of strategy also represented the easiest, most efficient and less risky way to operate in the Brazilian market in a period marked by crisis and uncertainty of the industry at international level. Partnerships allowed entry without the need for a substantial amount of capital. They made possible for foreign firms to overcome important barriers to entry such as the existence of a network of commercialization channels, maintenance and technical assistance in 64

Innovation System for ICT: The Case of Brazil

all Brazilian territory. It should be noted that local firms developed these networks during the previous period and they were one of the most important externalities generated. Finally, this type of strategy gave foreign firms an important flexibility, which proved to be important in the future. In fact after some time all these partnerships resulted in total acquisition of local firms by foreign players. In a related way, there was one important repercussion of policy changes in firms’ strategies regarding technological development: a significant contraction of R&D activities by local firms. The inversion of priorities in policies led also to a deep re-examination in technological strategies by local firms. Total R&D expenditures by local firms of the IT sector fell from US$ 183.8m (or 4.2 per cent of sales) in 1989 to US$ 60.7m (1.4 per cent of sales) in 1992. However it was not only a significant decrease in total R&D expenditures by firms what was perceptible. In parallel, there has been a significant change in the nature of innovation activities performed within. They downgraded those activities with higher innovative intensity such as R&D for new products and increased activities of lower technology intensity, such as training. New kinds of partnership between local and foreign firms such as commercialization agreements, technology licensing and joint-ventures emerged as a result of policy changes. Although technology agreements were used during the previous period, they were increasingly seen as an instrument for technological learning, to be used temporarily and to be associated with intra-firm technological activities. Under the new policy regime these agreements have led local firms to dismantle their R&D activities, transforming them, de facto, into commercialization agents of foreign firms. The fiscal incentives conveyed by the new policy regime were extremely biased towards large firms: only 30 firms received 83 per cent of total incentives; 10 firms got 60 per cent of all incentives given throughout the 1990s. As pointed out by Porto and Pochmann (2000) they tend to benefit most those firms that dominated the market (MNCs’ subsidiaries) as they were proportional to overall sales. Then, the first important consequence of policy changes is that they accelerated the denationalization of the industry. More than that, in fact the Brazilian neo-liberal regime innovated in a way perhaps not imagined by the Washington Consensus: large foreign-owned

65

José E Cassiolato, Vicente Guimarães and Helena Lastres

multinational corporations were given local incentives to acquire locally-owned firms. The liberalizing changes in the policy regime were meant to bring an increase in the efficiency of the IT industry and its overall performance. However, only the software and computer services industries experienced some growth. For these industries net sales increased more than three-fold from 1990 to 2000, as shown in Figure 2.2. The hardware industry which received massive fiscal incentives never recovered the dynamism of the 1980s. Before liberalization the net sales increased from US$ 1b in 1981 to more than US$ 7b in 1989. After liberalization sales collapsed to less than US$ 5b a year during the 1991-1995 and a slight recovery ever since was not sufficient to bring sales to levels above those achieved in the late 1980s. The new fiscal incentives introduced in 1991 had also a limited role to stop the trend in technology downgrading of the industry. The new technology agreements signed up after liberalization were radically different from those of the 1970s and 1980s. In that case, licensing agreements were used to complement internal R&D efforts. Under liberalization they have been used as a substitute for internal R&D. In other words instead of supporting the accumulation of technological capabilities, they have been used as instruments of immediate access to foreign goods and well-known trade-marks. The incentives were not sufficient to change the picture since, as already mentioned, several R&D teams were dismantled. Also, the very concept of R&D activities used by the law is extremely broad including activities such as training that could hardly be considered as such. IT goods manufactured in Brazil are, with rare exception, designed abroad, imported into Brazil as complete kits prepared to be assembled. This reduces extremely the supply chain while, at the same time makes not viable the setting up of a components sector in Brazil. Most subsidiaries of MNCs even subcontract the assemblage and still receive the fiscal benefits directed to stimulate local production (Gutierrez and Alexandre, 2003). It is obvious that the use of terciarized assemblage made easier for a subsidiary to set up in Brazil since besides getting fiscal incentives (obtained from a production they were not doing!), they would have risks near zero as terciarization transferred it to other firms.

66

Innovation System for ICT: The Case of Brazil

Figure 2.2: Brazilian IT Industry – Net Sales (1981-2000) 17.8

Hardware 13.7

TI IT

11.1

10.3

'

7.1 5.3

3.5 1.0 1.0

81

1.5

1.8

7.2

3.4

1.5

82

83

1.8 0.9

84

85

1.2

86

7.9

6.9

4.1

6.3

4.5

3.1 1.3

87

1.8 88

4.5

89

3.0

2.7

90

91

3.4

92

6.8

4.9 4.9

4.0

2.6 1.5

7.1

9.4

8.4

5.9

5.3

2.3

10.3

9.8

9.0

4.6

15.1

15.0

Software +Services Serviços

17.3

9.0

7.5 7.5

8.4 7.0 6.1

5.2

3.9

93

94

95

96

97

98

99

00

Source: Own elaboration from MCT-Sepin (1988), SCT-Sepin (1991), and www.mct.gov.br/sepin

With such extreme benefits foreign firms rapidly dominated the Brazilian market. Of the 10 largest hardware and software firms in the Brazilian market in the early 2000s, only one, Itautec, was the domestic firm. The rest were foreign owned. In software area the situation was slightly better, as there were three local firms (SERPRO, CPM, and Politec) that played a significant role in the market (see Table 2.1).

Table 2.1: Ten Largest Hardware and Software Firms in Brazil (2000-2001) Hardware IBM Brasil Xerox Intel Compaq HP Brasil Unisys Philco-Itautec Samsung LG Eletronics Procomp

Sales in 2000(US$ b)

Ownership

Software

2.025 1.057

Foreign Foreign

903

Foreign

887 638 600 575 351 313 273

Foreign Foreign Foreign Local Foreign Foreign Foreign

Microsoft SERPRO Computer Associates EDS CPM Accenture Oracle Brazil SAP Brazil Politec Consist

Source: Compiled by the Authors

67

Sales in Ownership 2001(US$ b) 362 272

Foreign Local

260

Foreign

240 204 194 182 124 104 77

Foreign Local Foreign Foreign Foreign Local Foreign

José E Cassiolato, Vicente Guimarães and Helena Lastres

As foreign firms received huge incentives just to assemble imported kits, rates of investment fell significantly, contrary to what the liberalization policy-makers predicted. Figure 2.3 shows investment by IT firms in Brazil as a percentage of sales between 1986 and 1999. It could be easily observed that during protection this ratio grew substantially from 14 to 24 per cent between 1986 and 1989 and then collapsed after liberalization. Another indirect effect of liberalization was the increase in the foreign trade deficit. Figure 3 indicates the evolution of hardware imports which grew from around US$ 300m in the 1980s to US$ 1.5b in the mid 1990s. The rate of imports to total sales of hardware which was only 5 per cent of in 1989 reached 30 per cent in 2000 (see Figure 2.4) Figure 2.3: Brazilian IT Industry - Investment as Percentage of Sales (1986-1999)

20%

21%

24%

14% 12%

9% 8%

10%

9% 6%

86 87 88 89 90 91 92 Source: MCT-Sepin (see: www.mct.gov.br/sepin)

93

7%

7%

7%

94

95

96

97

9%

98

99

An important part of the liberalization strategy was to attract MNCs that would use Brazil as an export platform. However, these firms were only interested in the internal market and hardware exports did not materialize. Exports never amounted more than 5 per cent of sales of the Brazilian hardware industry. On the contrary, Figures 2.4 and 2.5 clearly show that the imports increased since liberalization. As a result trade deficits in hardware exploded to about US$ 1.3b in the 68

Innovation System for ICT: The Case of Brazil

late 1990s. In the software industry even though ambitious target to export US$ 2b by the year 2000 was not fulfilled, exports grew considerably from US$ 1m in 1990 to US$ 72m in 2000 and to US$ 400m in 2004. However, such growth was not sufficient to surpass a bigger surge in imports (basically of package software) that helped to increase the trade deficit in software to about US$ 1b in 2000 and 2001 (Guimarães, 2005). The impact on the balance of payments was even bigger if one should add the remittance abroad of payments for patents, licences and royalties of IT goods and software developed in the home countries of MNCs. The structure of IT imports changed significantly as a result of the attempt to stimulate internal production through fiscal incentives. The amount of imports of some finished goods such as computers, monitors and printers decreased significantly (from respectively US$ 201, 114, and 147m in 1996 to US$ 127, 18, and 57m in 2002. On the other hand, assembling these products in Brazil generated a considerable increase in the import of parts and components from US$ 446m in 1996 to US$ 703m in 2001, a period of poor overall performance of the Brazilian economy. Figure 2.4: Brazilian Hardware Industry -- Imports and Exports over Sales (1981-2000) 35% 30% 25%

1990 End of Reserve Market Policy

% Exportações Exports % Importações Imports

20% 15% 10% 5% 0%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Source: MCT/Sepin (www.mct.gov.br/sepin) and Guttierrez & Alexandre (2003)

In short, the policy instruments designed to increase internal production of IT goods proved to be totally inadequate. After almost 15 69

José E Cassiolato, Vicente Guimarães and Helena Lastres

years they did not help production to go beyond assemblage. The dependence on MNCs for exports meant in fact that, in the absence of a more competent policy regime, integration of local production into the global market proved not to be in the strategy of these firms. The better image of the foreign-dominated Brazilian IT industry is of a “maquila”1 for the internal market. In fact, the Brazilian government increased significantly fiscal incentives, (from 0.006 per cent in 1987 to 0.066 per cent of the gross domestic product (GDP) in 1997) just to see production to be confined to assemblage of imported kits.

Figure 2.5: Brazil – Exports and Imports of IT Hardware and Software (1981-2002)

(US$ million)

2000 1800 1600 1400

Exports

1200

Imports

1000 800 600 400 200 0

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

Source: Own elaboration from MCT-Sepin andwww.mct.gov.br/sepin

The idea of fostering R&D expenditures also showed poor results. Brazilian innovation surveys showed that the R&D expenditures over sales of hardware producing firms (both locally and foreign owned) were very low for the years 2000 (1.5 percent) and 2003 (2.4 percent) when compared to international standards (i.e. above 10 per cent of sales) and even the Brazilian situation before the policy regime changed in the early 1990s (approximately 4 per cent of sales in 1989). The incentives to have local R&D by these firms also proved to be a naive attempt. In fact, it is very difficult to measure the amount of 70

Innovation System for ICT: The Case of Brazil

resources effectively devoted to R&D. According to Garcia and Roselino (2004) in order to by-pass the legislation some foreign-owned firms created fake research institutions and pressured the government to accept, as R&D expenditures, activities such as training software development and adaptation of technologies to the local environment. Recently, the Ministry of Science and Technology, the government agency responsible for approving applications of firms willing to receive the fiscal benefits, asked the attorney general to open legal proceedings against more than 50 subsidiaries of MNCs in the IT sector that apparently made use of the incentives and did not apply the resources in R&D and other technology activities. Contrary to the hardware case, software firms (the locally owned ones), are getting much better results in terms of production and exports. Softex 2000 programme was ambitious: it had the target of exporting US$ 2 billion worth of software in the year 2000 and estimated that 50,000 new skilled jobs could be created. It included the setting up of regional centres to stimulate cooperation among small software firms, the installation of marketing offices overseas (USA, Germany, Argentina, China) to support export efforts of Brazilian firms, and providing incentives for training IT professionals within firms. The Softex 2000 results and prospects are controversial. Initially, relying on a strategy anchored on exports were at least naive in the face of an international market with high barriers to entry in the form of explicit and implicit protection policies by different countries and high costs of R&D and marketing. On the other hand, by focusing on training and supporting mechanisms to start ups firms (such as incubators programmes) the programme contributed to improve the quality of software development directed towards local needs (by firms and other organisations). Different government-sponsored programmes in IT improved the infrastructure and promoted cooperative projects, involving firms and university centres. In 1996 US$ 3m were invested in laboratories and provided incentives for graduate programmes in computer sciences.

ICT and Socio-Economic Development Like many other countries, the national ICT policy in Brazil initially focused on the development of a strong ICT industry, and later (in the 1990s) it broadened this focus to include ICT applications and 71

José E Cassiolato, Vicente Guimarães and Helena Lastres

diffusion in the country to achieve certain socio-economic objectives such as wider access to computers, internet, increasing IT literacy and e-commerce, and developing e-governance. Although Brazil appears to have made significant progress in these areas, it still faces serious challenges in achieving these objectives. Table 2.2: Brazil – Selected ICT Indicators Key ICT Indicators

L. America & Caribbean

Brazil 1995

2001

2001

Infrastructure & Access: Telephone mainlines (per 1000 people)

85

Mobile Phones (per 1000 people) Cost of local call ($ per 3 minutes) Radios (per 1000 people) Television sets (per 1000 people)

8 0.04 398 250

218 (423.8 in 2002 and 486.5 in 2003)* 167 0.04 433 349

163 160 0.09 410 274

Computers and Internet: Personal computers (per 1000 people) Installed in education (1000s) Internet users (per 1000 people) Global ICT Ranking: Digital Access Index (On a scale of 0-1, where 1= Highest Access)

62.9 (74.8 in 2002) 879.6 82.2 (in 2002)

--

--

0.05 (Upper)

--

18,882.0 2.7 121.2

50,031.0 8.3 286.9

----

17.3 189.7 20.8 (in 1999)

59.3

25,666.9

ICT Expenditures: Total ICT ($ millions) ICT as % of GDP ICT per capita ($)

ICT Business and Government Environment (Ratings from 1 to 7, 7 is the highest): Broadband Internet availability Competition in ISPs Government online services availability Laws relating to ICT use Government prioritization of ICT

---

4.1 5.0

4.0 4.0

--

5.6

3.3

---

3.8 4.5

3.3 3.4

Source: Data Development Group, World Bank, ICT at a Glance: Brazil, 10 March 2003. (See: www.worldbank.org); World Development Indicators Database, April 2005; ITU (2003), ITU Digital Access Index: World’s First Global Ranking (See:www.itu.int/newsarchives/press_release/2003/). * Mainlines + Mobile phones (per 1000 people)

72

Innovation System for ICT: The Case of Brazil

ICT diffusion since the 1990s One of the key arguments of the liberalizing ICT policy regime in the 1990s was that emphasis on local production was hampering the diffusion of ICT products in Brazil. In previous works (Cassiolato, 1992) we showed that, according to figures from the US Department of Commerce, Brazil was in fact, the second fastest growing microcomputer market (after China) during the second half of the 1980s, precisely the period of the “market reserve” policy. In fact, from 1984 to 1987 the Brazilian market of microcomputers grew by an average of 74 per cent per year (from US$ 189m to US$ 992m) and was the sixth largest in size. Table 2.3: Internet Hosts -- Brazil and Selected Countries (1998 - 2005) Country

Ranking 2005

Jan/2005

Ranking 2002

Jan/2002

Ranking 1998

Jan/1998

USA*

1

210.817.656

1

106.182.291

1º

20.623.995

Japan (.jpg)

2

19.543.040

2

7.118.333

2º

1.168.956

Italy (.it)

3

9.343.663

7

2.282.457

12

243.250

Netherlands (.nl)

4

6.443.558

8

1.983.102

8

381.172

Germany (.de)

5

6.127.262

4

2.681.325

3

994.926

France (.fr)

6

4.999.770

10

1.670.694

9

333.306

Australia (.au)

7

4.820.646

6

2.288.584

6

665.403

United Kingdom (.uk) Brazil (.br)

8

4.449.190

5

2.462.915

4

987.733

9

3.934.577

11

1.644.575

19

117.200

Mexico (.mx)

17

1.868.583

15

918.288

30

41.659

Russian (.ru)

22

1.135.833

25

393.595

22

94.137

Argentina (.ar)

23

1.050.639

22

465.359

> 30

Israel (.il)

24

1.004.141

29

223.012

26

n/a 64.233

South Africa (.za)

> 30

n/a

28

238.462

17

122.025

Korea (.kr)

> 30

n/a

23

439.859

18

121.932

Source: Comitê Gestor da Internet no Brasil (see: www.cg.org.br/indicadores)

Table 2.2 also shows that other indicators such as internet users, telephone lines and mobile phones per 1000 population also registered significant increase over the years. In the area of internet, as shown by Tables 2.2 and 2.3, Brazil witnessed dramatic improvement between 1998 and 2005. It was in the 19th position in terms of internet hosts (117 73

José E Cassiolato, Vicente Guimarães and Helena Lastres

200) in 1998, which went up to the 10th in 2002 (with 1,999,321 hosts) and to 9th in 2005 (with almost 4m hosts). The number of people with access to the internet also increased substantially from around 170 thousand in 1996 to more than 13m in 2002. Like in many other countries, ICT application and diffusion first started mainly in the business world. Particularly, it started with the financial sector and then it spread to other sectors. Between 1998 and 2002, the use of ICT applications in different sectors of the Brazilian industry has grown significantly. This is illustrated by Table 2.4. However, in relative terms, the general situation is not so good since only 8 per cent of the population have access to the internet, with Brazil being in the 46th position in the world table (see: Website A).

Table 2.4: Use of E-Commerce Technologies in Brazil -- 2002 (in % ) Type of ICT Application E-mail Website Intranet Extranet: Accessible by Suppliers/ Business Partners e Customers e EDI: Over Private Networks Only e Internet Based Only e Both

e

EFT Call Centre

Establishment Size a

Sector b

Total

Large

Mfg.

Distri.

Finance

Brazil c

Global d

100.0 70.4 36.8 32.9

99.9 80.8 71.7 44.6

100.0 77.7 45.2 41.4

100.0 67.1 34.0 29.2

99.9 84.5 50.1 46.4

100.0 70.7 37.7 33.2

98.5 74.1 63.6 32.7

10.1

33.7

22.3

4.8

35.6

10.7

20.9

15.5

28.6

21.8

12.5

35.1

15.9

17.8

35.7

71.9

38.9

35.8

35.1

36.7

44.3

7.0

25.8

4.2

9.2

2.7

7.5

19.4

6.9

10.4

11.6

4.6

15.6

7.0

8.4

21.8

35.7

23.1

22.0

16.8

22.2

15.9

52.0 45.6

66.5 62.5

45.5 46.8

54.8 46.3

51.8 35.1

52.4 46.1

43.4 32.3

SME

Source: GRITO, Global E-Commerce Survey, 2002 (see: ʺE-Commerce Readiness and Diffusion: The Case of Brazil,ʺ Federal University of Rio de Janeiro. http://www.crito.uci.edu/publications/pdf/gec/brazil.pdf). Notes for Table 4: a SME (small and medium sized enterprises) are those with 25-250 employees, large are those with more than 250 employees; b Manufacturing include all establishments, distribution includes wholesale and retail, and finance includes banking and insurance; c Responses were weighted based on total number of establishments by employee size within the sector. Survey sample size by sector are 68 establishments in manufacturing, 68 in wholesale and retail distribution, and 64 in banking & insurance; by size are 98 establishments classified as SME and 102 as large; d Consists of weighted

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Innovation System for ICT: The Case of Brazil survey responses in 10 countries: US, Mexico, Brazil, Germany, France, Denmark, Singapore, China and Japan. ‘Global’ sample size by sector are 743 in manufacturing, 701 in wholesale/retail distribution, and 695 in banking & insurance; by size are 1,088 establishments classified as SME and 1,053 as large; and e Percentage based on total sample. Mfg. – Manufacturing; and Distri. - Distribution

ICT Education and Skills Brazil has a strong education system that over the years produced a significant pool of skilled workers, scientists, engineers, and technologists. For example, due to the high level of education of its IT professionals, Brazil has been considered one of the better destinations for US companies to outsource software development (Horowitz, 2003). However, there are still a number of weaknesses in the education system which the government has been trying to address. One of them is the low level of IT literacy. Also, there is a shortage of IT skilled workers. Due to low levels of general literacy and the prohibitive cost of computers, IT literacy and skills are below target levels. Therefore, the government is giving priority to IT training and skills development. Particularly, the government has been making effort to enhance the IT literacy level of women, as their role and participation in science and engineering fields in general are relatively low compared to men.

E-government Since 2000, Brazil has made significant progress towards Egovernment. Now, each ministry has its own website. It offers information about what they do and some budget information. There are links that provides contact information for all local government officials such as addresses and telephone numbers. These websites have introduced simple and faster public services. For example, one can request an identity card or passport, declare income taxes online, and download application forms. Pensioners can fill out forms online and they can also set up a bank account to associate with their account. These websites offers access to listing of all local services. For example, one can go to the government website and find a cellular or land line telephone provider in a local area that offers service. Also, to bring people closer to those in power, the government websites enable people to send a message to the federal government. That is, people can send a message on anything to the government. However, the 75

José E Cassiolato, Vicente Guimarães and Helena Lastres

effectiveness and the impacts of these government websites on people’s life are yet to be studied fully. Brazil spends about US$ 34m per year for licenses to administer government ICT infrastructure. Due to this high cost, the government, like in many other developing countries, has been encouraging its ministries to use Linux and other free software systems (Alerigi, 2003). Combating the ‘Digital Divide’ The term ‘digital divide’ refers to a common problem among many developing and emerging nations where large segments of the population do not have access to ICT such as internet, telephones, and computers. Brazil is no exception to this problem. There are large sections of the country that do not have access to ICT. Much of this is in the northern and central parts of the country near the Amazon and mountain ranges. The real problem of the Brazilian economy and society was that diffusion of ICT was affected and hampered mostly by the very uneven income distribution of the country. The Brazilian population is over 80 per cent urban, and there is a very distinct economic divide with the top 5 per cent of the population controlling well over 50 per cent of the economy (Spence, 2001). For example, in 1996, the wealthier families had a consumption pattern close to developed countries, while poorer families had a negligible use of micro computers. That is, 47.6 micro per 100 families for those who earned more than 30 minimum wages per month, and less than one per 100 families for those who earned up to 6 minimum wages per month (MPO/IBGE, 1996) A series of government programmes have been envisaged to cope with this situation. In 1994 the government has elected three IT programmes as its priority. Besides the already mentioned Softex 2000 programme there was the National Research Network (Rede Nacional de Pesquisa – RNP), which was conceived as the main infrastructure that dedicated to the setting up of a new speedier backbone. RNP became the reference in the use of Internet technology, becoming a wider services provider. Until 1994 it concentrated only in the academic field. Since then it has been given mandate covering the whole society and has been the key institution for the consolidation of commercial Internet in Brazil.

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In 2003, the Federal Government introduced a new project called ‘PC Connected’ that aims at universalizing the use of micros via selling low cost micros (Popular PCs) to low income people. The ‘Popular PC’ is a basic personal computer that comes with all of the necessary hardware minus storage capacity (hard drives and floppy drive). The idea of ‘PC Connected’ is to foster the production of a micro with free operational systems and basic software and it is predicted that final price should be around US$ 560. The production is to be subsidized by fiscal incentives. People could buy their own computers using a payment plan of about $15/month for 24 months. The ministry of communications is to negotiate with telephone operators agreements to make less expensive the internet access (up to US$ 3.00 per month for 15 hours of access). This is a programme that is still on the “pipeline” and, although it presents the obvious merit of targeting the poorest sections of the Brazilian society, there is scepticism about its success. First, as in the past, there is no guarantee that sufficient funding will be available. Second, planned final price of the PC is still high, given the income patterns in Brazil – 30 per cent of the population receiving a monthly income below US$ 60 (see: Website B). According to an estimate of SOFTEX, if the monthly payment is around US$ 20, the potential market would be around eight million. If it is around US$ 30, the market would fall to less than two million (see: Website C). In both hypotheses it seems clear that policies are too ambitious in their aim at universalizing the access to the new ICT, given the scale of the problem and the difficulties associated with finding sufficient financial resources. In 1999, the government launched the Programme for the Information Society which put forward an ambitious set of actions to be implemented in partnership with private capital to create socioeconomic, cultural, political and technological conditions aiming at wider diffusion of ICT in Brazil. The programme aimed to expand internet infrastructure, facilitate the interconnection of all public libraries, and create thousands of community access centres throughout the country. The idea was that the availability of ICT, in conjunction with relevant ICT training programmes and the availability of new low-cost computers will inevitably promote more ICT users in the country. It also aimed to promote computer literacy

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with free learning material, courses, community centres (to be developed from an initial 1000 to 5500). The programme was a major attempt to spread ICT in the society as a whole. Although there were some very interesting ideas in the project (such as giving fiscal incentives for the production of microcomputers costing up to US$ 1,000, and the development of popular micros with prices around US$ 200) this programme never really took off and was eventually abandoned by the new government. In the environment of tight government budget constraints, public financial resources for the programme was rather small and the expectation of private funding proved to be naive. To recapitulate, the diffusion of ICT has provided the technical means for the connection in real time of geographically dispersed organisations and individuals. However, inequalities in the capacity of developing, producing, profiting and using the new technologies, systems and contents are contributing to generate new and more complex disparities between individuals, firms and organisations, regions, countries and blocks. This is no different in the case of Brazil. The level of ICT diffusion in Brazil with respect to other countries is, most of the times, measured in terms of indicators of the so-called ‘digital divide’. Although important these indicators are not the most relevant ones to a better understanding of the new knowledge and information economy and society, as they could not capture a qualitative utilization of these novel technologies (Lastres et al, 2004). Elsewhere we highlighted some difficulties and crucial challenges associated to the construct of appropriate indicators (Lastres and Cassiolato, 2005), in opposition to the traditional prevalence of proxies that concentrates in the infrastructure and equipment. The main problem is that traditional indicators generally do not contemplate the processes of creation, acquisition and diffusion of knowledge and competences. While traditional indicators emphasize economic and technical aspects, they fail to consider the effects of ICT use in the generation of income and employment, quality of life, citizenship, etc. They also do not deal with the important question of how benefits derived from ICT are distributed throughout the society as a whole and how different societal groups gain access to processes of learning.

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Conclusions Even critics agree that, throughout the 1980s, Brazil had constituted a significant national R&D and production bases as well as a diversified and integrated ICT industry. As an exception to the general rule of Brazilian industrialization, the Brazilian ICT sector has invested significantly in the accumulation of technological capabilities and important backward and forward linkages were developed. In policy terms, the main achievement was that, by the end of the 1980s, a platform had been built from which strategies for different sub-sectors could be pursued for the 1990s. Eventually, when a new government started pursuing the neo-liberal framework of ʹless stateʹ in the 1990s, the ICT industry was liberalized. However, strict adherence to the neoliberal agenda had disrupting effects on the Brazilian economy as a whole and in the ICT industry in particular. R&D expenditures by local ICT firms have been significantly reduced, R&D teams were dismantled and technology strategy of firms shifted completely. The nature and characteristics of partnerships and alliances between nationally-owned firms and MNCs in Brazilin ICT industry were totally different from the trend now observed in countries that successfully designed strategies for the ICT industry. In these countries foreign firms have a complementary role and are subjected to local policies if they want to have access to local market and assets. These policies sometimes bargain access to the market to the achievement of certain level of performance (positive trade balance, level of addedvalue, etc). In Brazil after the liberalization in the 1990s the foreign firms were given a free ride without any bargaining. In the absence of such bargaining policy, foreign firms simply dominated the market and finished with local competition. The hope was to get better prices and diminish the grey market (which accounted for approximately 50 per cent of the market in the late 1980s). Neither of these two basic aims was achieved (Gutierrez and Alexandre, 2003). Only in the software sector, some important gains were observed. Here clearly the policy regime which emphasized human capital formation, infrastructure building and support to new ventures appear to have helped significantly. In short, diverging pictures emerge from software and hardware sectors in Brazil. Clearly policy modifications were necessary after protection but it is questionable whether they were made in such a way 79

José E Cassiolato, Vicente Guimarães and Helena Lastres

that they built on what was achieved already. In fact, it is our contention that it did not occur. On the contrary, some of the gains from previous learning were thrown away. Most seriously, Brazil lost much of the accumulated bargaining power vis-a-vis foreign firms. This provides the answer to the question raised at the beginning, that is, whether innovation system for ICT in Brazil has followed the trend in the national system of innovation that saw the role of production dominated by the MNC’s subsidiaries grew over that of indigenous firms. Clearly, the ICT sector has shown similar developments. As for the diffusion of ICT policies of the 1990s and early 2000s towards achieving wider socio-economic development, it can be said that major improvements have been seen in infrastructure building. However, the attempt to bring the information society for the society as a whole appears to have made little headway and it so far failed to achieve important targets and positive results. The mass of the Brazilian population is still very much excluded from the information economy and society. However, one has to acknowledge that several local specific projects - that were not analysed in this chapter - were set into motion, and it will be some time before they start yielding results. A final point should be raised in the sense that one cannot disregard the intense pressures both internal and external and geopolitical concerns in any serious analysis of this kind. In this sense the Brazilian experience is typical of the difficulties faced by a developing country in a period of intense change like the one we are facing today. It is a period where capabilities in ICT are important components of national competitiveness and sovereignty, where they are vital for any country to bypass both the ‘digital divide’ and the ‘learning divide’. That is, the separation of the world not in terms of those who have computers and those who have not, but in terms of those who have the ability and capacity to deal with these new technologies and those who do not have them. To achieve this, a more intelligent role for the State should be pursued.

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Notes Maquila stands for “Maquiladora” which refers to a labour intensive manufacturing plant that assembles imported materials and components in the Mexican borderlands to produce goods for export, to the US. They became notorious as grueling minimum wage sweatshops that exploit workers in general and young women in particular (see: Sklair, 1989). 1

Bibliography Alerigi A. (2003): “Brazilʹs Government Leans Towards Linux” in Computer World, 24 November. (see: www.computerworld.com/softwaretopics/os/linux/story/0,10801,87507,00. html?nas=AM-87507). Baptista M. A. C. Caulliraux H. Possas M. and Tauile J. R. (1990): “A Industria de Informática no Brasil” (Paper prepared for the research project Desenvolvimento Tecnológico da Indústria e a Constituição de um Sistema Nacional de Inovação no Brasil, Instituto de Economia, Universidade Estadual de Campinas, Campinas, Brazil). Bastos M. I. (1992): “State policies and private interest; the struggle over information technology policy in Brazil” in Schmitz H. and Cassiolato J. (ed.), Hi-Tech for Industrial Development (London, Routledge). Cassiolato J. (1992): “The User-Producer Connection in Hi-Tech: a Case-Study of Banking Automation in Brazil,” in Schmitz H. and Cassiolato J. (ed.), Hi-Tech for Industrial Development (London: Routledge). Cassiolato J. (1987): “Information and communications technologies in developing countries: the main features and problems surrounding their scientific and technological capabilities,” in Bhagavan M. R. (ed.), Development Aid Approaches to New Generic Technologies in Developing Countries (London, MacMillan). Cassiolato J. Lastres H. Maciel M. L. (ed.) (2003): Systems of Innovation and Development: Evidence from Brazil (Cheltenham, Edward Elgar). Cassiolato J. Szapiro M. and Lastres H. (2002): “Local System of Innovation Under Strain: The Impacts of Structural Change in the Telecommunications Cluster of Campinas, Brazil,” in International Journal of Technology Management, 25(3/4):1-26. Cassiolato J. and Szapiro M. (2003): “Privatising telecommunications in Brazil: impacts on the innovation system” in Technology Policy Briefs, 2, (2): 3-5, INTECH, United Nations University, Maastricht.

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Evans P. (1992): “Greenhouses and strategic nationalism: a comparative analysis of Brazil’s informatics policy,” in Evans P. Frischtak C. and Tigre P. (ed.), High Technology and Third World Industrialization: Brazilian Computer Policy in Comparative Perspective (Berkeley, University of California). Garcia R. and Roselino J (2004): “Uma avaliação da lei de informática e de seus resultados como instrumento indutor de desenvolvimento tecnológico e industrial” in Gestão & Produção, 11(2): 77-185, mai.-ago. (see: www.scielo.br/pdf/gp/v11n2/a04v11n2.pdf) Guimarães V. (2005): “A indústria de software de Petrópolis: Um estudo de caso de Arranjo Produtivo e Inovativo Local” (MSc. Dissertation, UFRJ, Brazil). Gutierrez R. and Alexandre P. (2003): “Complexo Eletrônico Brasileiro e Competitividade” (BNDES Setorial, Rio de Janeiro, Brazil). Hobday, M. (1984): “The Brazilian Telecommunications Industry: Accumulation of Microelectronics Technology in the Manufacturing and Service Sectors,” IEI/UFRJ, TD. 47, Rio de Janeiro. Horowitz Alan. (2003): “Brazil: It’s a sleeping giant with a tradition of highquality software” in Computer World, 15 September (see: www.computerworld.com/managementtopics/outsourcing/story/0,10801,84869 ,00.html). Lastres H. and Cassiolato J. (2005): “Innovation Systems and Local Productive Arrangements: new strategies to promote the generation, acquisition and diffusion of knowledge” in Innovation: Management, Policy and Practice, 7(2-3): 172-187. Lastres H. Legey L. and Albagli S. (2003): “Indicadores da Economia e Sociedade da Informação, Conhecimento e Aprendizado,” in Viotti E. and Macedo E. (ed.), Indicadores de Ciência, Tecnologia e Inovação no Brasil (Campinas, Editora da Unicamp). MCT-SEPIN (Various Years): (Brazilian Ministry of S&T/IT Policy Secretariat, see: www.mct.gov.br/sepin). MPO/IBGE (1996): Pesquisa de orcamentos familiares (Rio de Janeiro, MPO/IBGE) Piragibe C.(1985): Indústria da Informática: Desenvolvimento Brasileiro e Mundial (Rio de Janeiro, Editoria Campus). Porto J. and Pochman M. (2000): “A informática e as telecomunicações no Brasil” (Paper produced for the ILO in the framework of the 2001 World Employment Report; Economics Institute, University of Campinas, Campinas, Brazil). Schmitz H. and Cassiolato J. (ed.) (1992): Hi-Tech for Industrial Development

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(London, Routledge). Sklair, L. (1989): Assembling for development: the maquila industry in Mexico and the United States (Boston, Unwin Hyman). Spence J. (2001): “Access in Brazil,” in Trends in Latin American Networking, May (see:http://lanic.utexas.edu/project/tilan/reports/rtf359/brazil1.html). Tigre P. (1987): Indústria de Computadores: Perspectivas até os anos 90 (Rio de Janeiro, Editora Campus). Veloso F. Botelho A. Tschang T. and Amsdem A. (2003): “Slicing the knowledge-based economy in Brazil, China and Índia: a tale of 3 software industries” (Softex, Campinas, Brazil). Website A: www.e-commerce.org.br Website B: www.ipeadata.gov.br Website C: www.softex.com.br

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CHAPTER 3

Innovation System for ICT: The Case of China Yi Zhu

Introduction

I

CT has been viewed increasingly as a critical infrastructure for long term socio-economic development and competitiveness because of its dynamism (Sein and Harindranath, 2004). The ICT could help in development of economy by enhancing the working of markets and reduce transaction and coordination costs, improving productivity and quality, and modernizing industries. The ICT could be used also to target particular issues such as health care and public information system. However, ICT development does not always lead to positive contributions to economic and social development. It can “bring about ‘creative destruction’” as well (Avgerou, 1998). As already recognised, the ‘digital divide’ could worsen the existing social and economic disparities in developing countries and widen the gap between developed and developing countries. Moreover, ICT may have ‘displacement effect on employment’ given its potential for improvement of efficiency. Therefore, China represents an interesting case for studying the role of ICT in socio-economic development as rapid progress has taken place in this field at a time when China is striving to achieve the multiple objectives of ‘development’, ‘modernization’ and ‘transition’. China is regarded as a “success” example of using ICT for capability building and achieving certain developmental objectives (Harwit, 2004). Therefore, China’s experience may be of use to the other developing countries to adapt ICT in their own way. 84

Innovation System for ICT: The Case of China

This chapter examines various aspects of ICT and its effect on Chinese society with special reference to the potential role of ICT in the national innovation system, the ICT strategies, institutional framework and policy making, ICT industry, and the impact of ICT on socioeconomic development. Finally, it concludes with suggestions for future ICT development in China and also drawing lessons for other developing countries.

Potential Role of ICT in National Innovation System China’s national innovation system (NIS) was originally modelled on the Soviet Union’s system in the 1950s. In line with its socialist ideology, the system had distinct features such as high central control, heavy military orientation, public ownership and inward-looking (Riskin, 1991; Gu, 1995). The primary objective of the system was to establish and develop domestic technological capability that would help China to achieve its economic and political objectives. Despite some successes in space and nuclear areas, the system suffered from some major drawbacks due to the lower efficiency, weak linkages between the industry and R&D institutions, and slow transfer of research outcomes to the industry (Gabriele, 2002; Gu, 1995). Figure 3.1 illustrates sources of major problems that shaped the characteristics of the national innovation system during this (pre-1985) period. In the 1980s, reform of national innovation system started, and science and technology has been re-prioritised as a productive force which could greatly contribute to China’s modernization. Although the system is still in transition, significant changes have taken place and a new NIS system is gradually taking shape in China. Three major players in the NIS -- government, research institutes and enterprises -have been working more closely. Government has been playing an even more important role in guiding research direction and resources through five year plans, policies, programme initiatives and incentives. Research institutes at various levels and localities are paying more attention towards finding applications for their research and closer linkages with the industry. The biggest change, however, is the emergence of enterprises as major innovative actors who are keen to innovate in order to strengthen their competitiveness in an increasingly dynamic operational environment (Davies, 2001). These changes so far have produced promising outcomes, which are evident from increasing 85

Yi Zhu

China’s research outputs in the form of patent registration (Liu and White, 2001; Gao and Tisdell, 2004). Figure 3.1: Sources of Problems in China’s National Innovation System (pre-1985) Government High Degree of Central Control and Heavy Military Orientation

Public R&D Organisations Weak Linkages with the Industry / Slow Commercialisation of R&D

Universities/ Other Educational Institutions Functioning in Isolation / No Linkages with Other Institutions

Policy Objectives Meeting Maximum Possible Domestic Demands / Building Indigenous Technological Capability

Inward Looking/ Inefficient / Uneven National Innovation System

Industry Totally Public Owned / Weak Linkages with R&D and Academic Institutions

Firms Low efficiency/ Little or No effort to Innovate/ Slow Technological Learning

Source: Author

However, China’s effort to modernize and liberalize its economy to achieve industrial competitiveness and export-led growth appears to have resulted in a hierarchical national innovation system where one can see a division into higher efficiency and lower efficiency levels. The higher efficiency level innovation system is more outward looking, export oriented, receives and absorbs technological learning from outside sources, and has successfully accumulated a high level of technological capabilities in selected civil industrial sectors, nuclear, space and defence. On the other hand, the low efficiency level innovation system is mainly inward looking, domestic market oriented, involves lower technological complexity activities in a number of manufacturing and agricultural sectors, different forms of financial and social organisations, and local technology suppliers. This is illustrated by Figure 3.2. In the context of hierarchical national innovation system, the interesting question is, whether ICT can be a link and bridge the gap between the high and low level innovation systems in China to 86

Innovation System for ICT: The Case of China

achieve knowledge based economy and wider socio-economic development. China’s ICT sector is an integral part of China’s NIS, and probably the most important part, due to its potential to transform China into a knowledge-based economy. The government has strengthened its leadership in this sector by restructuring ministries, and initiated programmes to improve China’s ICT infrastructures and promote ICT applications and diffusion in the country. Extra resources have been allocated to the sector. More importantly, the development of ICT is “application driven” (Gu, 1997). The promotion and application of ICT have been closely related to government’s other objectives for development and transition, such as poverty reduction, education improvement and transformation of government functions.

Figure 3.2: Hierarchical National Innovation System in China (post-1985) and the Potential of ICT in the NIS Hierarchical/ Uneven National System of Innovation - Shaped by China's efforts to integrate its economy with the Global Market - Selective liberalization policies to attract foreign investment and technology

Higher Efficiency NSI

Lower Efficiency NSI

1. Largely focused on external market 2. Absorbs technological learning from outside economies 3. Industrial based 4. Export growth oriented 5. Technology recipient as well as supplier 6. Technology received from both external and internal suppliers 7. Operates at a higher level of technological complexity 8. High level of technology accumulation in defence and space areas 9. Emergence of complex financial and corporate governance systems 10. Increasing role of private sector financing and decreasing role of state subsidies (in civil areas)

1. Largely domestic market oriented 2. Lower level of technological complexity and applications in some of manufacturing and agricultural sectors 3. Lower level of technological learning and accumulation 4. Different form of social organisation: Individual private enterprises/ cooperatives, communes, and small businesses 5. Technology received from local suppliers such as public R&D institutions, local universities and agricultural colleges 6. Increasingly more enterprises (both public and private) invest on R&D 7. Though role of government in total R&D investment is declining, dependence on state resource allocation is still high

Potential Role of Innovation System for ICT Bridging not only 'Digital Divide' but also Bridging the Higher and Lower (Hierarchical) Efficiency levels of NIS and transform China into a knowledge based economy

Source: Author

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Institutional Framework and Policy Making The economic reform which started in 1979 brought a new perspective on the nature and role of technology in economic development. In 1985, reform of national innovation system started, which involved redeploying accumulated technological capabilities and restructuring institutional arrangement (Gu, 1995). China learned from its own experience that technological development cannot be divorced from the country’s development. Given the role of ICT as a ‘knowledge enabler’, it decided to take advantage of rapid development in ICT to modernize the country. As Jiang Zemin, then President, put it: “of the four modernization (refers to industry, agriculture, national defence, and science and technology), none can go alone without the modernization of information” (Ministry of Information Industry, 2000). China decided to adopt a strategy of “informatization” to modernize its economy. The institutional framework for ICT development in China is multi-layered, complex and changing. Figure 3.3 attempts to capture this. On the apex is the State Council responsible for making policy decisions concerning the overall direction of ICT. Under the State Council, there is a complex and often overlapping hierarchy of players including commissions, ministries, special offices and ad hoc task forces (Fan, 2001). The Ministry of Post and Telecommunication (MOPT) and Ministry of Electronic Industry (MEI) are the two important ministries relating to the development of ICT. Before 1988, MOPT was the regulator and operator of national telecom industry and the China Telecom, under the MOPT, was monopolising the telecom service sector. However, after reforms, MEI, regulator of Chinese electronic industry has been the principal challenger to the MOPT in this respect. In 1998, the Ministry of Post and Telecommunication (MOPT), Ministry of Electronic Industry (MEI) and a part of Ministry of Radio, Film and Televisions (MRFT) were merged to form the Ministry of Information Industry (MII) to reinforce ICT development in the country. The MII is responsible for planning and making policies, formulating regulations for information and communication industries, and developing and managing public backbone networks, radio broadcast, television, and dedicated networks.

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Figure 3.3: Linkages Between Various Actors in the Innovation System for ICT in China Central Government State Council

MOE: Ministry of Education MOST: Ministry of Science and Technology MII: Ministry of Information Industry Other Ministries

Research institutions, Universities, and ICT enterprises

CAE: Chinese Academy of Engineering CAS: Chinese Academy of Science CASS: Chinese Academy of Social Science COSTIND: Commission for Science, Technology, and Industry of National Defence

Research institutions and Professional societies

Provincial/ Local Government ICTEnterprises / Industry (Public and Private Sectors) Hi-Tech Parks Financial Institutions

Research institutions, and Universities

Source: Author

Before creation of the MII many ministries were involved in ICT development and implementations. But their relative political and economic interests created difficulties in reaching agreement on key issues. This reduced the effectiveness of decision making (Tan, 1995). Reducing the number of ministries and combining major responsibilities in one ministry (MII), simplified the administrative structure and reduced the potential conflict of interests between different ministries. Moreover, it also gave the new ministry a more integrated perspective towards developing an innovation system for ICT. However, even after creating MII the problems remained, as it had to work with other ministries to achieve intended objectives. Therefore, for effective coordination a State Informatization Leading Commission was set up. While China’s seemingly unified and hierarchical structure of governance should have provided a comprehensive and integrated policy framework, actually “fragmentation of authority seems to be more of a core feature of the system than integration” (Fan, 2001:105). Further, inter-ministerial 89

Yi Zhu

conflict of interest creates more tension and it is often difficult to reach agreement on certain issues (Tan, 1995; Fan, 2001; Zhang, 2002). To coordinate inter-ministerial relationship and direct the efforts is, therefore, a challenge for Chinese government.

The ICT Strategies To develop an economy based on technology requires capability, infrastructure and resources (Lalkaka, 2002:167). China’s ICT strategies are aimed at exactly these aspects of capability building, infrastructure modernization and resources generation, especially to overcome the deficiencies in these areas.

Government Policies and Initiatives That the Chinese government has given highest priority towards developing strategies for ICT diffusion in the country is reflected in its national ‘informatization’ strategy. China believes that, as a “knowledge enabler” (Sein and Harindranath, 2004: 19), ICT would be of great help in transforming the Chinese society from a traditional model to a new economy based on knowledge. The central government has been making strong effort towards ICT development through number of policies and programmes. The programmes appear to be relatively successful as local governments at various levels have responded with support and enthusiasm, although for various reasons. While in the most developed Eastern coastal regions, local governments hope to sustain their leadership through ICT, in the underdeveloped Western regions, the local governments believe that ICT could help diminish their geographic disadvantages (Tan, 1995). Whatever might be the reasons, the local governments’ support appears to have played a crucial role in implementing the ICT policies and programmes. China adopted a “top-down” approach towards development and application of ICT. The central government provides guidance, initiates projects/programmes and specifies targets, and the provincial and ministry level governments develop detailed implementation plan and specific strategies in light of their respective locality and industry.

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Innovation System for ICT: The Case of China

Inspired by US National Information Infrastructure (NII) initiative and Global Information Infrastructure (GII) initiative by G7 Conference in 1995, China launched the national information superhighway initiative to build nationwide communication networks. This superhighway consists of two parts: One involving a public network under the MOPT and the other a private network run by ministries and country’s large users of the facility. The Ministry of Post and Telecommunication’s public networks, which include 22 main opticalfibre systems and 19 large satellite Earth stations links all the major industrial cities and heavily populated areas and is connected to international fibre networks, that is, through Shanghai to Japan, Shenzhen to Honking and Urumqi to central Europe. The private networks are short-to medium-range microwave systems (Tan, 1995). Table 3.1: Summary of Major Golden Projects Project Name

Project Objectives

Golden Bridge

Nationwide economic information backbone network Electronic monetary and modern payment system Foreign trade information sources network Electronic taxation system Education and scientific research computer network Industrial production and circulation information network Comprehensive agricultural management and service information system Health care network system National security network system National insurance network system Tourism industry information network Electronic auditing network system

Golden Card Golden Customs Golden Tax Golden Intellectual Golden Enterprise Golden Agriculture Golden Health Golden Shield Golden Insurance Golden Tourism Golden Audit

Source: Compiled by the author

Another important ICT initiative towards infrastructure development and application was ‘Golden Projects’, announced in 1993. The main aim was developing three nationwide information networks, namely ‘Golden Bridge’, ‘Golden Card’ and ‘Golden Customs’, to connect China’s existing private networks for efficient, specialised and nationwide application (Fan, 2001). ‘Golden Bridge’ 91

Yi Zhu

project is the core of these projects, and it involves construction of a national public information backbone network linking major dedicated networks of government organisation, and connecting 30 information centres and 12,000 state-run large enterprises across over 400 municipal cities (Fan, 2001: 47). Development of this backbone national network was expected to enable the other ‘Golden Projects’ to make use of ICT in various areas. Table 3.1 summarises the major ‘Golden Projects’ and their primary objectives. The government believed that success of these projects would modernize China’s information infrastructure and achieve the primary objective of ‘informatization’. The Golden Projects were implemented in phased manner in order to experiment as well to assess their progress. The ‘Golden Card Project’, for example, is aimed to set a standard for China’s inter-bank online transactions and payment systems, with which ATM machines around the country will be interconnected so that electronic payment can be implemented across the nation. It is a ten year project with an investment of US$ 4.7b, to be implemented in stages. From 1994 to 1996, the People’s Bank of China issued 30m electronic bank cards in 10 provinces and cities. During 1997-1999, another 60m cards were issued. During 2000-2003, additional 300m people in 400 cities were issued electronic bank cards, and use of bank cards for payment and settlement became very popular. The project modernized the banking services, improved efficiency, and also facilitated other ICT applications such as e-commerce (Fan, 2001:48-49). Government adopted a fiscal policy to provide incentives to develop ICT sectors, particularly to facilitate investment in the R&D and to help telecom industry to defer loan payment, and to keep some foreign earning, in order to enable it to upgrade technology and infrastructure. Deregulation of the ICT industry Deregulation of the ICT industry is not only a worldwide trend, but also a hotly debated and controversial issue in many developing countries (Steinberg, 2003). A protected ICT industry can not meet the increasing demands, and companies have no incentives for improvement or innovation. Deregulation, on the other hand, may bring competition from foreign companies which the weak domestic industry may not be able to compete. Fear of losing national 92

Innovation System for ICT: The Case of China

sovereignty and security is another major reason for developing countries not opening ICT industry to foreign competition. Before 1998, MOPT was the regulator and business operator in the telecommunication sector. The China Telecom under the MOPT enjoyed monopoly in telecom services supply. But in the early 1980s government was facing pressure to open the industry to attract outside investment and to improve market and service efficiency. The government finally decided to deregulate the telecom industry. For security concerns, it decided to limit the competition, especially the foreign investors, and to regulate the industry through license and approval (Harwit, 2004; Fan, 2001). In 1993, nine areas of information and communication services were opened to state-owned and collective owned enterprises, but not to privately owned firms. In 2000, China decided to allow domestic private enterprises into telecom service market before it entered the WTO (Fan, 2001:13). China Telecom was, subsequently, split into four separate companies: China Telecom, China Mobile, China International Broadcast and Satellite Communication and China Unicom. Later, China Netcom and China Jitong were established to create more competition. A centrally-controlled competition came into being in the telecom industry. Despite these structural changes, the lion’s share of telecom market remained monopolistic with China Telecom, owned by the MOPT. Other players were confined mainly to wireless mobile, radio paging, data and internet services.

Fostering ICT Capability: Hi-Tech Parks (HTPs) China is using special economic zones (SEZs) successfully in its economic transition. The Chinese government decided to apply the same formula towards ICT development also. Perhaps, the Silicon Valley in the US has inspired China to adopt the strategy of Hi-Tech Parks (HTPs), in the hope that HTPs could stimulate and foster innovation capability in the same way as the SEZs did in its economic transformation. By the year 2002, China had set up 53 HTPs in 28 out of its 31 provinces. These are mostly located in areas where universities and research institutions are concentrated to enable the firms in the parks to take advantage of available skills and research facilities in these areas. The HTPs enjoy preferential policies, such as loans and taxation, which 93

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varies depending on local policies. For example, in 1999, Beijing lowered the value-added tax on Zhongguangchun software companies from 17 to 6 per cent. One of the earliest as well as the best known zone Zhongguangchun in northern west Beijing has nearly 5,000 private high-tech businesses. It was started in early 1990s near some of the top universities, such as Qinghua, Beida and Renmin. Its premier location attracts many technology spin offs from university and research institutes, entrepreneurs, foreign investors, Chinese overseas scholar returnees. In some parks, there are sub-parks designated to specific technological areas. For example, the Shangdi Information Industry Base in Zhongguangchun was founded in 1991 as a comprehensive high-tech industrial park focusing on electronic information services. It is the home of 264 high-tech enterprises including China’s best known IT companies like Lenovo, Founder and Huawei. It has produced an average income of more than US$ 2.4b a year over the past nine years which translates into an output value of US$ 36.1m per hectare (Meng and Li, 2001: 17). Due to this success, it is planned to expand the park to accommodate 150 additional companies.

‘Digital Divide’ -- Increasing ICT Accessibility ‘Digital divide’ refers to the difference between the ‘haves’ and the ‘have nots’ in terms of accessibility to ICT. This difference could further widen the gaps caused by other disadvantages, polarising the rich and the poor. There is clear evidence that such a divide exists in China, and the gap seems to persist over the years (Harwit, 2004). According to CNNIC (2005a), the gap in internet access is ten times between the most connected Beijing (27.6 per cent) and the least connected Guizhou (2.5 per cent) (see Table 3.11). Almost 60 per cent of internet users (netizens) live in the Eastern coastal regions. As internet use is closely related to income and economic development levels, the existence of such a divide is not surprising, given the disparity of economic development level between these two regions. An effective solution to the ‘digital divide’ in China would be to increase ICT accessibility in the Western regions. To reduce the ‘digital divide’ and to help the Western regions to break the cycle of low technology and low development level, government launched the 94

Innovation System for ICT: The Case of China

‘Develop Great Western Regions’ initiative in early 2000s with the broad objectives of alleviating poverty, exploring rich local resources and developing regional economies. One of the objectives of this initiative is ‘one village, one telephone’, that is, connecting all administrative villages by telephone. As low household income restricts the rapid ownership of telephone and computer, multi-pronged approaches have been adopted to overcome this difficulty, such as increasing public facilities and commercial cyber cafes. Development of telecentres proved to be very effective that significantly improved accessibility of low income households (Colle and Liu, 2002). By the end of 2003, 89 per cent of China’s administrative villages have at least one telephone (NSB, 2004). In 2002, the share of internet subscriptions for 13 Western provinces was less than 1 per cent of the national total, which increased to nearly 20 per cent in 2004 (CNNIC, 2005a).

ICT Industry The growth of ICT industry gained momentum since late 1980s with the government giving it a strategic importance. ICT industry in China consists of two sectors -- telecommunication industry that mainly produces equipment and devices for all types of communication purposes, and information industry that produces computer hardware, software and services.

Telecommunication industry The telecommunication industry has been considered as a strategic industry, as it is considered important to create necessary conditions for development of other industries. Despite according a higher priority, the government investment was low between 1950s and 1970s. As a result, telephone penetration remained very low. For example, in 1980, telephone penetration, measured by the telephone ownership per 100 persons, stood at about 0.4 per cent (Harwit, 2004:1010).

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Table 3.2: Development of China’s Telecommunications Capacity (1999-2003) 1999

2000

2001

2002

2003

Number of Long-distance Calls (100 million times)

178.25

210.75

219.98

192.79

196.03

Number of Subscribers of Paging Service at Year-end (10,000 subscribers)

4674.5

4884.3

3606.4

1872.1

1057.6

Number of mobile telephone subscribers at year-end (10,000 subscribers)

4329.6

8453.3

14522.2 20600.5 26995.3

Local Telephone Subscribers at Year-end (10,000 subscribers)

10871.6

14482.9 18036.8 21422.2 26274.7

Length of Long-distance Optical Cable Lines (10,000 km)

23.97

Capacity of automatic toll switching systems (10,000 lines)

503.2

28.66

39.91

48.77

563.5498 703.58 773.0133

59.43 869.4

Capacity of C.O. switches (10,000 lines)

15346.13 17825.64 25566.3 28656.8 35083.0

Capacity of PBXs （10,000 lines）

1672.23

Capacity of Mobile Telephone Exchanges (10,000 subscribers)

8135.99 13985.55 21926.3 27400.3 33698.4

Number of Fixed Telephones (10,000 units)

13237.8 17153.25 20812.5 22371.7 27160.0

Number of Mobile Telephones (10,000 units)

4329.6

1587.55 1514.53

8453.3

1370.5

1294.1

14522.2 20600.5 26995.3

Source: National Bureau of Statistics (2004), China Statistical Yearbook.

Rapid economic development and increasing foreign direct investment since 1979 put pressure on the government to upgrade and modernize the telecommunication industry (Tan, 1995). Since mid 1980s heavy investment has been made and advanced technologies were imported to upgrade and modernize China’s telecom network. In 1998, 6 per cent of nation’s investment was in the telecom industry (Fan, 2001: 6). Government investment in telecom sector increased from US$ 715m in 1988 to US$ 23.5b in 1999 (Kshetri and Cheung, 2002). This was eight times that of India (Euromonitor, 2001). By 2003, China owned the biggest telecom network in the world with 594 96

Innovation System for ICT: The Case of China

million kilometres of optical cable line. Installation of new phone lines grew by more than 20 million in peak years, which is equivalent to the total capacity of Australia’s national network (Fan, 2001:4). Table 3.2 provides a broad picture of the growth of telecommunication infrastructure and capacity between 1999 and 2003. Table 3.3: Level of Telecommunication Services (1999-2003) 1999

2000

2001

2002

2003

Number of county (city) covered by GSM

--

--

--

2025

2813

Number of county (city) covered by CDMA

--

--

--

2012

2142

Number of country (territory) roamed through mobile telephone (unit)

--

--

90

116

155

Popularization rate of telephone (including mobile telephone) (set/100 persons)

13

20.1

25.9

33.6

42.16

Popularization rate of mobile telephone (sets/100 persons)

3.5

6.77

11.2

16.1

21.02

Public telephone per 1000 person (sets)

2.36

2.78

2.71

7.67

12.08

82.9

85.3

87.9

89.94

Administrative villages with telephone (%)

Source: National Bureau of Statistics (2004): China Statistics Yearbook, Table 16-45, p.663.

By June 2003, China had 238m fixed line subscribers and 234m mobile phone subscribers, making it the largest telephone subscriber base in the world. Over 89 per cent of all administrative villages had access to telephone. Internet subscription reached to 94 million at the end of 2004 (CNNIC, 2005a). Table 3.3 provides a snapshot of China’s telecommunication services growth from 1999 to 2003. Telecommunication service development fuelled the growth of telecommunication manufacture industry. In 2002, there were 43 manufacturers, of which 37 were mobile phone manufactures with a total annual production capacity of 150m units. The mobile phone production was nearly zero in 1998, but it grew rapidly. In 2002 alone, 97

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China produced 110m units of mobile phones and exported 3.97m units. The share of domestic producers in mobile phone market was 30 per cent in 2002 (MII, 2004). By 2003, the telecommunication industry employed 812, 511 staff. IT Industry IT industry has always been an important industry in China, but for different reasons. In 1950s, China started developing its computer industry and regarded it as strategic. Investment was largely military oriented, and both R&D and manufacture were primarily for national defence. In late 1980s, MEI was charged to vitalise the computer industry. By 1998, there were about 18,000 firms involved in the computer business. In 2003, the total sales of computer industry amounted to RMB 579.6b (1 US$ = 8.2 RMB), and total export reached US$ 663.4b, representing 85.5 per cent growth rate compared to 2002. Table 3.4: Growth of China’s IT Industry Category Hardware Software Information Services Total

2001 Sales Growth Rate (US$ Billions) (%)

2002 Sales Growth Rate (US$ Billions) (%)

22.0 3.5

13.5 23.9

26.05 4.32

18.5 25.3

4.8

25.5

6.10

25.4

30.3

16.4

36.48

20.4

Source: CCID (2003), Annual Report on China’s IT Industry Development, 2002-2003 (see: www.ccid.com.tw).

Over 82 per cent of export was through original equipment manufacture (OEM), and wholly foreign- owned enterprises led the exporters’ table. The US was the largest importer of China’s computer products (27.7 per cent). In 2003, the total output and sales of computer and related products accounted for 33.6 per cent of the entire electronic information industry, making IT the largest sector in the industry (State Council Development Research Centre, 2004). Table 3.4 provides an overview of the capacity of IT industry. It clearly shows that all sectors in IT industry experienced rapid growth in 2001-2002. Table 3.5 provides a breakdown of sales and growth of major hardware products from 2001 to 2003. 98

Innovation System for ICT: The Case of China

Table 3.5: Sales and Growth of Computer and Related Products (Unit: 10,000) Products

2001

2002

2003

2003 - Growth Rate (%)

PC Laptop computer PC server PC screen Printer ADSL Modem

868.7

990.7

1141.1

15.2

63.3

88.5

126.0

42.4

20.1 960.1 350.9 51.0 196.0

23.5 1131.3 433.0 160.0 269.0

27.7 1304.9 520.7 700.0 356.0

17.9 15.3 20.2 337.5 32.2

Source: State Council Development Research Centre (2004), Almanac of China’s Economy.

Since its accession to the WTO, China has become one of the leading computer producers in the world. The Pearl River Delta area in Southern China is fast becoming the largest base for production of computer and components. Dongguang city alone produces 15-40 per cent of world output of motherboard, keyboard, scanner, and magnet head. While the Yangtze River Delta area in Eastern China is becoming the hub linking foreign market and Chinese market, Suzhou is becoming one of the largest computer hardware production bases in the world, home to some of the world’s largest computer component producers. R&D and operation bases of some of the well known computer companies such as Lenovo and IBM are based in the Bohai Bay area in North East China (State Council Development Research Centre, 2004). Within the IT industry, the hardware sector achieved greater success than software sector. From 1950s to early 1990s, hardware sector received state support. When imported computers penetrated Chinese market, the domestic firms started to manufacture computers by absorbing imported technology. Subsequently, the domestic firms such as Lenovo, Founder and Great Wall became powerful players, competing directly with multinational companies such as IBM and HP. Relying on their advantages in price, service and understanding of consumers needs, they steadily increased their market shares since mid 1990s. In 2005, Lenovo acquired IBM’s PC business, signifying the start of internationalisation of Chinese IT companies. It is likely that more 99

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Chinese IT companies may follow suit and play a major role in the world market. Table 3.6: Major Computer Products -- Exports and Growth (2003) Products PC Laptop Computer Printer Scanner Hard Driver Soft Driver

Quantity (10,000 units)

Amount (US$ billion)

Growth (%)

377.9

22.04

51

1329.6

113.14

413.72

3951.2 1383.2 4603.4 7519.7

43.17 4.42 20.55 3.81

65.53 1.78 21.84 4.37

Source: State Council Development Research Centre (2004), Almanac of China’s Economy.

China’s software industry was started from scratch, but grew rapidly. Unlike the hardware industry, software industry faces less competition from international firms because they operate in different markets. While foreign products, especially Microsoft’s products, still dominate China’s software market, domestic software firms started playing an active role in application software such as virus protection, financial management, Chinese software process, education, and egovernment. By the year 2003, China had 8,700 software companies, mainly concentrated in the developed Eastern coastal regions. They produced more than 18,900 registered software products. The total sales of software products reached RMB 805b in 2003, representing an annual growth rate of 42.9 per cent. Table 3.6 shows the growth of software industry from 1996 to 2003. In 2000, the government announced ‘Policies of Encouraging the Development of Software Industry and Integrated Circuits Industry’ to develop a competitive software industry. Some top universities were selected to run software courses at post-graduate level and to train software developers. Likewise, more software development zones were set up to attract software firms by offering them various incentives. As a result, the software industry grew rapidly in terms of output and export (see Table 3.7 and Table 3.8).

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Table 3.7: Growth of Software Industry in China (unit: RMB billion) Software product Software service Total Annual growth (%)

1996

1997

1998

1999

2000

2001

2002

2003

92 113 205 46.8

112 148 260 31.0

138 187 325 26.4

182 238.5 419.5 27.0

238 322 560 35.0

330 406 736 31.4

507.4 468.6 977 32.7

805 630 1435 47.0

Source: State Council Development Research Centre (2004): Almanac of China’s Economy.

Table 3.8: China’s Software Export between 1999 and 2003 (unit: RMB billion) Year

Software industry total

Software export

Software export in total output (%)

Growth rate (%)

1999 2000 2001 2002 2003

441.5 593 796 1100 1600

21 33 60 124 165

4.8 5.6 7.5 11.2 10.3

57 80 100 33.3

Source: State Council Development Research Centre (2004): Almanac of China’s Economy.

The rapid growth of IT industry increased the demand for IT talents, which pushed up the wages in the last few years. The average wage in ICT industry is consistently higher than the national average and other such popular professions as doctors and accountants, becoming the highest paid industry (NSB, 2004). In 1995, average wage in the ICT industry was RMB 8,689 and the national average was RMB 5,500. In 2002, this increased to RMB 38,810 while national average increased to only RMB 12,422. The trend suggests that the gap is widening. The emergence of ICT industry as a key industry in China is significant in terms of job creation and export growth. In 2002, China’s electronic information industry employed 3.52m people. In the last five years, the industry created more than 300,000 jobs (MII, 2004). The IT sector accounted for about 32 per cent of China’s total foreign trade, and its export accounts for one third of the nation’s total export (Xinhua News Agency, 21 June 2004). In 2001, IT products formed about 90 per cent of China’s hi-tech product export (MII, 2004). 101

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Impacts of ICT on China This section highlights the diffusion of ICT in China and analyses China’s efforts and strategies in applying ICT to achieve broad social, economic and political objectives.

Table 3.9: Penetration of Durable Consumer Goods in Urban and Rural Households (Units per 100 households) Part I 1997

1998

1999

Urban

Urban

Urban

PC

2.6

3.8

5.9

9.7

Mobile phone

1.7

3.3

7.1

100.5

105.4

111.6

Type of Product

Colour TV

2000 Urban

2001

Rural

Urban

Rural

19.5

4.3

34.0

8.1

116.6

48.7

120.5

54.4

13.3

Video recorder

21.3

21.7

21.7

20.1

3.3

19.9

3.3

HiFi system

15.3

17.5

19.7

22.2

7.8

23.8

8.7

Refrigerator

73.0

76.1

77.7

80.1

12.3

81.9

13.6

Part II Type of Product

2002 Urban

2003 Rural

Urban

Rural

PC

20.6

1.1

27.8

Mobile phone

62.9

13.7

90.1

23.7

Colour TV

126.4

60.5

130.5

67.8

Video recorder

18.4

3.3

17.9

3.5

HiFi system

25.2

9.7

26.9

10.5

Refrigerator

87.4

14.8

88.7

15.9

Source: National Bureau of Statistics: China Statistical Yearbook 1998-2004, (Beijing, China Statistics Press).

ICT Diffusion An increasing demand for ICT infrastructure and products has caused the rapid development of ICT industry. Economic reform improved people’s living standard and that in turn increased demand for durable and electronic goods. Table 3.9 illustrates this. It suggests 102

Innovation System for ICT: The Case of China

that ownership of these goods by both urban and rural families increased between 1997 and 2003. However, there is a gap between urban and rural areas in almost all product ranges, which mirrors the economic gap between these areas. Figure 3.4 shows the telecommunication services growth process between 1990 and 2004. It shows that number of fixed telephone, mobile telephone, internet and paging services increased over the years, and the demand is growing except for paging service which started to decline after 2000. Also, in 2004, for the first time, mobile phone subscribers outstripped fixed line subscribers. Figure 3.4: Usage of Communication Facilities (millions) Mobile telephone subscribers

Local telephone subscribers

Internet subscribers

Subscribers to pageing services

350 300 250 200 150 100 50 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: National Bureau of Statistics, China Statistical Yearbook 1996-2004 (Beijing, China Statistics Press).

Similar to telephone ownership, PC ownership increased as well. Table 3.10 shows a clear relationship between PC ownership and income levels. While all income categories have witnessed an increase in PC ownership, the groups above lower middle income households have seen the largest increase in PC ownership.

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Table 3.10: PC Ownership by Income Level (Units: Per 100 households)

Difficult households Lowest income households Low income households Lower middle income households Middle income households Upper middle income households High income households Highest income households

1998

1999

2001

2002

0.9 1.3 1.7 2.4 3.6 4.0 5.9 8.8

1.6 1.8 2.1 3.7 5.7 7.2 10.1 12.0

3.9 3.2 6.3 8.5 12.5 16.5 22.1 26.0

2.1 2.8 5.5 10.7 17.8 28.1 37.2 53.8

Source: National Bureau of Statistics, China Statistical Yearbook 1999-2003 (Beijing: China Statistics Press).

Internet Development Use of internet has increased rapidly in recent years in the country. China Internet Network Information Centre (CNNIC), one of the most authoritative resources on internet development, has been reporting on internet usage every six months since 1997. According to its latest report in January 2005, China’s internet international bandwidth reached 74,429 Mbps and the number of internet users has increased to 94m at the end of 2004. There are 432,077 registered domain names under .CN and 668,900 WWW websites. About 39.6 per cent of users are female and 60.6 per cent are male. Young people are among the keen users, with 35.3 per cent aged between 18 and 24. Married and unmarried users account for 42.8 per cent and 57.2 per cent, respectively. Students are the largest population of users (32.4 per cent). Internet users spend, on an average, 13.2 hours per week on the internet and most users use 4 days per week. Internet is chiefly used for information and entertainment. Services that are most used include email (85.6 per cent), search engine (65.0 per cent) and news (62.0 per cent). However, only 40.4 per cent used online shopping. Books and magazines (58.8 per cent) and computer appliances (34.2 per cent) are among the most popular products that are purchased online. About 41.5 per cent users paid online for purchases. The major barriers for using internet are “no computer” and “donʹt know how to use it” (CNNIC, 2005a). 104

Innovation System for ICT: The Case of China

Table 3.11: Internet Users in Different Regions (2004) Region Beijing Shanghai Tianjin Guangdong Zhejiang Fujian Shandong Jiangsu Liaoning Helongjiang Hubei Shaanxi Jilin Shanxi Xinjiang Sichuan Guangxi Chongqing Hainan Hebei Ningxia Hunan Yunʹnan Gansu Inner Mongolia Anhui Jiangxi Qinghai Henan Tibet Guizhou

Users (unit: 10,000)

As % of regional population

As % of total internet users

402 441 193 1188 534 326 848 661 322 278 429 258 179 211 119 523 285 181 47 387 31 312 206 120 93 240 156 20 305 7 98

27.6 25.8 19.1 14.9 11.4 9.3 9.3 8.9 7.6 7.3 7.1 7 6.6 6.4 6.2 6 5.9 5.8 5.8 5.7 5.3 4.7 4.7 4.6 3.9 3.7 3.7 3.7 3.2 2.6 2.5

4.3 4.7 2.1 12.6 5.7 3.5 9 7 3.4 2.9 4.6 2.8 1.9 2.2 1.3 5.6 3 1.9 0.5 4.1 0.3 3.3 2.2 1.3 1 2.6 1.7 0.2 3.2 0.1 1

Source: CNNIC (2005a): 15th Statistical Survey Report on the Internet Development in China (see: www.cnnic.com.cn)

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Despite rapid economic growth in China, there has always been an ‘East-West divide’ in development level and the standard of living. This divide is also mirrored in the degree of ICT diffusion in the country, presenting a picture of ‘digital divide’. For example, penetration rate for telephone in 1999 is 15.41 per 100 in the Eastern region, 7.58 in the Central region and 5.53 in the Western region. Evidence (in January 2005) suggests that the penetration gap between highest region (Beijing) and lowest region (Guizhou) is more than 10 times (see Table 3.11).

Figure 3.5: Types of Internet Accessing Methods Leased L in e s 23%

B ro a d Band 32% IS D N 5%

D ia l U p 40%

Source: CNNIC (2005a): 15th Statistical Survey Report on the Internet Development in China (see: www.cnnic.com.cn).

CNNIC’s (2005a) report suggests that China is overcoming some of the earlier obstacles in internet development and succeeded in popularising internet. In an earlier study, Fan (2001: 34) found that “low transmission speed, high usage charges, and relative shortage of online Chinese information resources” are the major barriers to internet development. However, CNNIC (2005a) found that access speed is no longer a major issue because of developments in broadband technology (see Figure 3.5). It appears that high usage charges are also not being considered a barrier. In fact, CNNIC found a negative correlation between income and internet access. The possible answers to this finding are that as students are the main section of users, most of them will have less than RMB500 income per month.

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Innovation System for ICT: The Case of China

To sum up, it appears that China has made significant progress towards internet development, but is facing serious obstacles such as the ‘East-West’ and ‘Urban-Rural’. These obstacles need to be tackled timely to avoid negative impacts of ‘digital divide’.

ICT in Poverty Reduction Although China has achieved significant progress in poverty reduction (rural poor in China has declined from 250m in 1978 to 26m in 2004), “reducing poverty among the remaining ‘hard-core’ poor, however, has increasingly become an uphill battle” (UNDP, 2001). Poverty is found mostly in the Western regions, where geographic condition is less favourable and where infrastructure is inferior. Even in the Western regions, poverty is mainly seen in rural areas. Poverty reduction and rural development therefore go hand-in-hand. China’s effort towards reducing poverty is mainly focused on improving farmers’ earning ability, and access to education, market and technical information. It is believed that by employing ICT, governments at varies levels can provide farmers with market information to help them plan their production and extend markets. For example, “a group of vegetable farmers in Shandong province… have created their own website to extend their production market world-wide” (Wang, 2002: 3). Also, government has been investing heavily to improve telephone connection and internet access to promote greater social participation. China has worked closely with international organisations in applying ICT to reduce poverty. In 2001, Chinaʹs Ministry of Science and Technology and UNDP jointly launched a US$2.5m pilot project to show how ICT can be mobilised to reduce poverty in rural areas. The pilot project aimed to bridge the ‘digital divide’ between urban and rural areas by setting up information and communication centres in five poor counties in different areas. Building on the existing facilities, such as computer centres in middle schools, the project aimed to reach all households in the demonstration areas, including the poorest and most disadvantaged families. By meeting rural householdsʹ need for information on current market prices, new agricultural technologies and methods of sustainable farming, the project would help improve familiesʹ livelihoods. Eventually, such connectivity is expected to lead to a broader range of ICT related businesses in the rural areas. The initiative would facilitate a two-way communication between 107

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communities and administrative units on public services, regulations and policies, promoting transparency and participation (UNDP, 2001). The impacts of this initiative are yet to be studied. E-government The process of e-government in China involves construction of two information networks, one is for internal use which links different government departments and functions, and the other is for external use which serves the public. The process of e-government development went through four stages. In the 1980s, Chinese government started ‘office automation’ in which administrative processes were undertaken by using telephones, fax, and computers. Employees were trained to work with new working tools and methods. The second stage started in 1993 when the State Council initiated the three Golden Projects namely, Golden Bridge, Golden Custom and Golden Card projects. These projects laid down the physical infrastructure necessary for the realisation of e-government. The third stage started in 1998 that focussed on ‘Government On Line’, where central and local governments went online to publicise government information. China is undergoing a transition from a centralised economy to a market oriented economy, where government is required to change its main function from a planner to a guide and supporter. Instead of issuing orders and targets, government needs to provide supporting services. For this, ‘Government On Line’ was lunched in 1999, calling for 60 per cent of government organisations to get online within the year (Fan, 2001). The implementation was monitored by the Department of Informatization Promotion under the MII, who conducted regular survey. Good practices were promoted and shared among government departments. According to a recent survey by CNNIC, by the end of 2004, there were 16326 “gov.cn” domain names in use with 10260 registered to have their own WWW web servers for public services. The survey found that most common information available on government website include “department introduction” (66.3 per cent), “government function introduction” (61.2 per cent), “laws and regulation/policy/documents” (60.4 per cent) and “government news” (59.4 per cent). Most government websites also have interactive service, providing “government letter box” (45.8 per cent), “left message” (40.0 per cent), “report/letter visit (38 per cent) 108

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and “public option investigation/suggests” (30.2 per cent) (CNNIC, 2005b). The fourth stage, which started in 2002, shifted focus from hardware/infrastructure to software/content (Yang, 2005). Many departments customised their content to make information and services more relevant, understandable and accessible to their target audiences. Government has encouraged multi-channels and approaches, such as telecentre, commercial internet cafes and so on to bring government service to the public and allow everyone to benefit from it. As government-public interactive has been seen as a basis for a better e-government, in recent years, interactivity has been improved to enable communication flowing in both ways. The introduction of e-government leads to a “government process reengineering” which involves a series of changes in government administrative methods, operation process and methods of public communication (Su et al, 2003). The traditional working methods had to be replaced by the ICT based working methods, which rely heavily on the use of telephone, fax, computer, email and internet, and information sharing between the departments will become a major feature. The adoption of these new methods could greatly improve the working effectiveness and efficiency and reduce operational costs and bureaucracy. For example, Guangzhou Commercial Administration Bureau opened a network system which combined enterprises administration registration and annual monitor. As most departments involved in the enterprises approval process went online, it became possible to offer ‘one-stop’ online application service. This greatly reduced the time needed to complete the application from 2-6 months to 8 days (Beijing Informatization Office et al, 2003). It is clear that what involved in the e-government is no longer a simple technical transformation, but a “government administration reengineering” involving changes of objectives, concepts, functions and methods (Su et al, 2003; Beijing Informatization Office et al, 2003). E-government could help promote better communication between government and the public, and reduce the distance between the two. For example, it is reported that after publication of the draft 10th five year plan on the government website, more than 10,000 suggestions and feedback were received from the public (Su et al, 2003).

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E-education Although China has achieved primary education growth rate of 99.1 per cent in 2000, a gap between the rich Eastern regions and poor Western regions exists. Compared to urban areas, rural schools are often without funds, teaching resources and access facilities. As rural schools account for 88 per cent of the total schools and rural students account for 81 per cent of the total students, improving education in China means improving rural education. To improve rural education, the government introduced a series of programmes such as ‘National Modern Distance Education Programme in Rural Areas’, and ‘Modern Distance Education Programme in Western Primary and Secondary Schools’. The latter was introduced in 2003 to improve rural education through ICT- enabled distance education (Xinhuanet, 2005). Under this programme, the government will equip, from 2003 to 2007, tens of thousands of schools with disc-playing facilities, satellite TV, and internet access. In the first stage between 2003 and 2004, two pilot projects were launched to disseminate internet education in underdeveloped Western China. This helped to set up about 140,000 distant education facilities. In 2003, RMB 1.34b was spent on the pilot project ‘National Modern Distance Education Programme in Rural Areas’ involving 10,000 primary and secondary schools in countryside and it was completed successfully (Ministry of Education, 2004). China’ efforts in improving accessibility of education in poor regions through ICT were supported by other countries and international organisations. In 2001, with the support of Australia and World Bank, the government of Ningxia Hui Autonomous Region, one of the poorest Western regions, set up a distance-learning centre designed to develop education and eliminate poverty by using ICT. The centre is one of the 30 centres in the Global Development Learning Network (GDLN), administrated by the World Bank and links China to other countries (Ministry of Education, 2001). Chinese government places great importance on application of ICT in education. Efforts have been focused on the improvements in education accessibility, education technology, IT literacy, efficiency of teaching, and learning experiences. Education Law stipulates that government above county-level should give priority to satellite education and other modern teaching measures. Making use of electronic means in teaching has been included in the government’s 110

Innovation System for ICT: The Case of China

education reform and development (Ministry of Education, 2004). One of the major efforts in this area is the construction of the China Education and Research Network (CERNET) in 1994. This grew into an operative education network consisting of three tiers, namely, the national level backbone network, local area networks (LANs) and campus intranet. In 2002, 92.1 per cent of higher education institutes were connected to CERNET with 8m users (Zhao, 2004: 5). The integration of CERNET and China Education Network with Satellite and Broadband (CEBSat) has constructed the transmission platform with space and land together, providing a support network environment for modern distance education. Since 1999, 68 higher education institutions and the China Central Radio and Television University (CCRTVU), which is similar to the Open University in the UK, have been approved by the Ministry of Education to carry out the pilot experiment of modern distance education which is characterised by the computer network. By the end of 2002, 140 programmes in 10 disciplines had been developed with a total enrolment of 1,373,000 students (Ministry of Education, 2004). Table 3.12: ICT Infrastructure of Chinese University and Colleges (2002) The conditions of ICT facilities in China’s higher institutions Faculty offices connected to network (%) Classrooms connected to network (%) Classrooms with fixed LCD projector (%) Student dormitories connected to network (%) Institutions with wireless LAN (%)

All Institutions

University and Colleges affiliated with Ministries

University and Colleges affiliated with local governments

Community Colleges

81.6

84.9

81.0

81.1

41.1

40.9

41.8

39.3

19.2

20.3

21.0

13.0

36.0

47.5

35.1

32.4

3.6

4.2

3.0

1.3

Source: Zhao (2004) (see: www.cit.nus.edu.sg/dli2003/ Biography/Zhao/Guodong /Biography.pdf).

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Table 3.13: Implementation of Five Year Computer Education Plan Senior secondary school (%)

Junior secondary school (%)

Primary school (%)

Cities Counties

80 60

60 30

Countries

30

5

15 5 A few, no detailed requirement

Region

Source: www.nclis.gov/libinter/infolitconf&meet/papers/ma-fullpaper.pdf

Although intensive application of IT in education is being actively promoted, due to the differences in IT infrastructures, the levels of IT application differ from region to region. Besides, ICT application priorities differ between regions as different regions face different educational issues. In rural areas, ICT application focuses on the education accessibility, whereas in urban areas, the priority is to make use of available technology to improve the quality of education and to enhance the learning experience of students. For example, in some schools in Beijing, there is one computer for every ten students, and the introduction of a local education information network enables schools in the city to share information (Xinhuanet, 2001). However, in universities and colleges which have more resources than primary and middle institutions, the ICT infrastructure has improved significantly (see Table 3.12). Improving nation’s IT literacy is a part of government’s goals of educational programmes. In 1996, the Ministry of Education initiated a five-year plan (1996-2000) to promote computer education in primary and secondary schools. IT education is integrated into schools’ curriculum. The plan requires at least 25 computers in every senior secondary school, 20 computers in junior secondary school and 15 computers in every primary school. Table 3.13 shows the outcome of this plan. It is clear that urban areas and senior schools are better equipped than rural and primary schools due to better availability of resources. ICT is also employed for teachers training, information and material sharing and exchanging of experience. For this, the ‘National Net Alliance on Teacher Training’ project has been launched, which is 112

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expected to lead to a significant improvement of the overall quality of primary and secondary school teachers (Ministry of Education, 2004).

Conclusion China has come a long way in developing its ICT infrastructure and industry. China gradually built up a comprehensive ICT infrastructure. China’s experience demonstrates that the government played an instrumental role in actively pursuing the goal of ‘ICT for development’. China employs a ‘top-down’ approach, where central government guides ICT development through a mixture of heavy investment, direct intervention and policy initiatives, while ministries and local governments come up with implementation strategies according to their needs and conditions. Implementation of ICT strategies often start with pilot projects to allow learning and gaining of experience before they are spread to the whole country. ‘Localisation’ of ICT policies is encouraged to make the ICT application better suited to local conditions and needs. To certain extent, China’s hieratical institutional system developed over the years ensures the implementation of government policies, but overlapping responsibilities between ministries appear to have led to tensions which reduced the effectiveness of implementation. Despite significant achievements in ICT capability development and ICT diffusion, China faces some major challenges for future development. First, the rapid economic development puts more pressure on the ICT infrastructure. Policy liberalization brought only limited competition in the telecommunication sector, and China Telecom’s monopoly remains. To increase the amount and quality of service, more liberalization and competition is needed. Second, China’s effort in bridging ‘digital divide’ has seen initial results, but the gap still appears to be large. It appears that although ICT has the potential to narrow the gap between the higher efficiency and lower efficiency tiers of national innovation system, so far it has achieved only limited success in this area. It is unlikely that this can be achieved by ICT policy alone, a more holistic and integrated development policy is needed. Third, the diffusion of ICT depends on people’s ICT literacy. This is an area that needs significant investment. China’s accession to WTO has important implications for its ICT industry. It is necessary to improve its laws and regulatory 113

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environment in order to stimulate innovation activities, protect intellectual property rights and promote fair competition. Chinese software companies will face more competitions from foreign companies, as they are promised a level playing field over access to government contracts (China Daily, 6 February 2004), which was previously exclusively reserved for domestic companies. Given the stronger innovation capability and efficiency of foreign companies, Chinese companies have to improve their competitiveness to be able to survive. On the other hand, opening up will bring more opportunities for Chinese companies to collaborate with foreign companies. For example, China National Computer Software and Technology Service Corp (CS&S) entered into a co-operative agreement with Microsoft, whereby the latter will train 200 software developers and 100 software architects (China Daily, 6 February 2004). China’s experience in ICT development provides useful lessons for other developing countries as well. Given the versatile roles that ICT can play in social and economic development, developing countries should give ICT a developmental priority. However, they need to be aware that ICT itself does not offer a panacea for all ills. Before developing countries can benefit from ICT, several prerequisites need to be met. First, ICT infrastructures are public goods and creating them requires large investment. In developing countries with weak private sectors, only government has such resources, which means government needs to invest heavily in ICT infrastructure to provide necessary physical condition for ICT diffusion. Second, the extent to which that country can benefit from ICT depends on the quantity and quality of its human capital. Education therefore holds the key to a country’s ICT development and diffusion. Third, to optimise the impacts of ICT, government needs to develop a long term and integrated policy that ensures the coordination of all efforts. Finally, policy makers should review and learn from implemented programmes and promote successful cases and examples to enable the experiences to be shared across departments and regions.

Bibliography

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Beijing Informatization Office, Beijing Administration College, EGovernment Research Centre of Software Research Institute of China Academy of Science, Continue Education Institute of Qinghua University (2003): Introduction to e-government (Beijing, Qinghua University Press). CCID (2003): Annual Report on China’s IT Industry Development, 2002-2003 (see: www.ccid.com.tw). China Daily (2004): “Equality for foreign software firms” (6 February, see: www.china.org.cn/english/scitech/86422.htm). CNNIC (2005a): 15th Statistical Survey Report on the Internet Development in China, (January, see: www.cnnic.com.cn). CNNIC (2005b): Investigation Report on the Quantity of Information Resource of China’s Internet Network 2004 (February, see: www.cnnic.com.cn). Colle R D. and Liu Y G. (2002): “ICT capacity-building for development and poverty alleviation: enhancing the role of agricultural universities in China” (Paper presented to the Third Asian Conference for Information Technology in Agriculture, Beijing, China, 26-28 October). Davies H. (2001): “The influence of the environment and enterprise reform on commitment to technology development in China: an empirical analysis,” in International Journal of Technology Management, 21(1-2):22-41. Euromonitor (2001): International marketing data and statistics (London, Euromonitor). Fan X. (2001): Communication and Information in China: regulatory issues, strategic implications (Lanham MD, University Press of America). Gabriele A. (2002): “S&T policies and technical progress in China’s industry,” in Review of International Political Economy, 9(2): 333-373. Gao Z. and Tisdell C. (2004): “China’s reformed science and technology system: an overview and assessment,” in Prometheus, 22(3): 311-331. Gu S. (1995): “A review of reform policy for the S&T system in China: from paid transaction for technology to organizational restructuring” (Working Paper No 17, UNU/INTECH, Maastricht, The Netherlands) Gu S. (1997): “China’s national innovation system approach to participating in information technology: The innovative recombination of technological capability” (Working Paper 9701, UNU/INTECH, Maastricht, The Netherlands). Harwit E. (2004): “Spreading telecommunications to developing areas in China: telephones, the internet and the digital divide” in The China Quarterly, pp.10101030

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Hudson H. (1984): When telephone reach the village (Norwood, NJ, Ablex Publishing Corporation) Kraemer K. L. and Dedrick J. (2001): “Information Technology and Productivity: Results and Policy Implications of Cross-Country Studies” in Pohjola M. (ed.), Information Technology, Productivity, and Economic Growth (Oxford, Oxford University Press). Kshetri N. and Cheung M K. (2002): “What factors are driving China’s mobile diffusion?” in Electronic Markets, 12(11): 22-26. Lalkaka R. (2002): “Technology business incubators to help build an innovation-based economy” in Journal of Change Management, 3(2):167-176. Li L. (2004): “China still lags in tech www.china.org.cn/english/scitech/98900.htm).

creativity”

(22

June,

see:

Liu X. and White S. (2001): “Comparing innovation systems: a framework and application to China’s transitional context,” in Research Policy, 30:1091–1114. Meng Q. and Li M. (2001): “New economy and ICT development in China” (Discussion Paper No. 2001/76, UNU/WIDER, Maastricht, The Netherlands) Ministry of Information Industry (2004): Yearbook of China’s Information Industry, 2003-2004 (Beijing, City Publish House). Ministry of Education (2001): West Autonomous Region Offers Distance Learning (02 November, see: www.moe.gov.cn). Ministry of Education (2004): Survey of the Educational Reform and Development in China (see: www.moe.gov.cn). Ministry of Education (2005): The 9th News Announcement of the Ministry of Education, (7 June, see: www.moe.gov.cn). Ministry of Information Industry (2000): “The Fourth China International Ecommerce Conference Attracts the Attention from Many Communities of the Society” (see: www.mii.gov.cn/news2000/0410_1thm). National Bureau of Statistics (2004): China Statistics Yearbook 2004 (Beijing, China Statistics Press). Riskin C. (1991): China’s political economy: the quest for development since 1949 (Oxford, Oxford University Press). Sein M K. and Harindranath G. (2004): “Conceptualizing the ICT artefact: toward understanding the role of ICT in national development” in The Information Society, 20:15-24.

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Srikantaiah T K. and Dong X. (1998): “The internet and its impact on developing countries, examples from China and India” in Asian Libraries, 7(9): 199 -209. State Council Development Research Centre (2004): Almanac of China’s Economy, 2004 (Beijing, Publish House of Almanac of China’s Economy). Steinberg J. (2003): “Information technology and development beyond either/or” in The Brookings Review, 21(2): 45-48. Su X Y. Kong M. Yu H. and Zhu X F. (2003): The theories of e-government (Beijing, National Defence Industry Publish House). Tan Z. (1995): “China’s information superhighway: what is it and who controls it?” in Telecommunication Policy, 19(9): 721-731. United Nation Development Programme (2001): “China harnesses the Internet to reduce rural poverty” (see:http://www.undp.org/dpa/frontpagearchive/2001/february/23feb01/) Wang S. Wu Y. and Li Y. (1998): “Development of technopoles in China” in Asia Pacific Viewpoint, 39(3): 281-301. Wang W. (2002): “What does ICT bring to Chinese Farmers?” in ZEFnews (No.9, February). Xinhuanet (2001): “Schools in Beijing Open Information Network” (30 December). Xinhuanet (2005): “Distance Education to Reach Rural Areas by 2007” (10 January). Xinhua News Agency (2003): “China faces tightening technical trade barriers” (15 August, see: www.China.org.cn/english/Material/72469.htm). Xinhua News Agency (2004): “IT becomes pillar industry” (21 June). Yang Z. (2005): “Develop E-government with small steps and quick speed, and face to the digital divide” in Economic Observer (8 August). Yu G. (1998): Technology development report (Chong Sha City, China, Hunan People Press). Zhao G. (2004): “How ICT is used in on-line education school of China University: Results of the survey about China High Education” (see: www.cit.nus.edu.sg/dli2003/ Biography/Zhao/Guodong /Biography.pdf). Zhang M. (2002): “Information technology policy-making in the People’s Republic of China, International Journal of Public Administration,” 25(5): 693721.

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CHAPTER 4

Innovation System for ICT: The Case of India Angathevar Baskaran and Mammo Muchie

Introduction

The greatest challenge facing [India] is to make high technology work for the poor. -- Manmohan Singh, the Prime Minister of India (2004).

S

ince its independence in 1947, India, like other major developing countries such as Brazil and China, has been determined to employ science and technology to modernize the economy and address widespread poverty and underdevelopment in the country. Jawaharalal Nehru, India’s first Prime Minister, declared: “science alone...could solve these problems of hunger and poverty” (Nayar, 1983: 252). No wonder, the successive governments have shown a keen interest in exploiting the Information and Communication Technology (ICT) revolution not only to build a strong ICT industry to achieve economic growth, but also to address the age old problems in the field of education, health, rural development, poverty alleviation, employment, etc. Furthermore, the government believes that ICT can be a major facilitator of information transparency, good governance, and empowerment of grass-root democracy. In other words, India has decided to use ICT as a major vehicle for all round socio-economic development in the country. With a view to facilitate faster growth of ICT industry in the country, in 1998, the government had set up a National Task Force on 118

Innovation System for ICT: The Case of India

Information Technology and Software Development. The government has already implemented a number of recommendations of the Task Force to enable the growth of IT industry and widespread diffusion of ICT in the country. While taking steps to actively promote the growth of ICT Industry, the government is equally concerned about creating a ‘digital divide’ in society – a divide between those who have access to ICT based services and those who do not. Therefore, it is determined to see that the benefits of ICT reach all sections of the society. The government believes that if any technology can create new opportunities to bridge the gap between poor and rich in society, it is ICT. Therefore, to establish India as ‘knowledge super power’ and to bridge the digital divide, India has been making strong effort to foster an efficient innovation system for ICT. Over the years, a ‘duality’ or ‘lopsided’ phenomenon emerged in the Indian national innovation system (see Figure 4.1), as India put greater emphasis on ‘big-science’ programmes such as nuclear and space programmes that affected the allocation of resources towards other areas, mainly civil. While strong linkages between various actors such as the government agencies, R&D performing institutions, user agencies, and the industry were forged in the dual-use areas, such linkages have been weak in the civil areas. This affected technology accumulation in civil areas, while India has accumulated a high level of technological capabilities in complex dual-use areas such as nuclear and space systems (Baskaran, 2000, 2001; Chengappa, 2000). Despite its significant achievements in areas such as building strong industrial and R&D base, establishing a large number of science and technology institutions, and creating large pool of scientists and engineers, the Indian national innovation system has been criticised for its inefficiency in terms of low rate of growth, poor export performance, low quality of manufactured goods, relatively low level of competitiveness, and its inability to eradicate poverty (Baskaran and Muchie, 2003). Therefore, in this context, it will be interesting to examine the effort of India to develop an efficient innovation system for ICT that aims to achieve a number of socio-economic development goals. For this, in this chapter, we analyse the national ICT policies towards the industry and diffusion of applications, their impacts, and various developments in India. We will focus particularly on one issue whether the

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innovation system for ICT has been able to overcome the ‘lopsided’ phenomenon that persists in India’s national innovation system.

Figure 4.1: Three Major Features of Indian National Innovation System

Inward-looking Phase (1950s - mid 1980s)

Main emphasis: - To create indigenous capability to meet as much domestic demands as possible - To reduce and avoid foreign dependence wherever possible

Outward-looking Phase (Since late 1980s)

'Duality' Phenomenon

Main emphasis: - To accelerate the growth rate

Uneven technological capabilities in Civil and Dual-Use areas

- To increase competitiveness and export performance

Source: Baskaran and Muchie (2003)

ICT Policy Framework

Indian leaders and policy makers have had a ‘blind faith’ in science and technology to solve all kinds of socio-economic problems that never diminished. On the contrary, with the onset of ICT revolution, this appears to have reached a new height almost as a ‘religious belief’ that ICT would provide a cure for the country’s socio-economic problems such as illiteracy, unemployment, poverty, regional imbalances and so on. Initially, the ICT policy focus was on developing the industry and its export capacity. By the late 1990s, the policy makers in India recognised the capacity of ICT to transform the socio-economic conditions of the people both in urban and rural areas and decided to exploit it to achieve broader development goals, while continuing to pursue its industrial objectives. For example, the IT Task Force, (1998) perceived ICT “as an agent of transformation of every facet of human 120

Innovation System for ICT: The Case of India

life which will bring about a knowledge based society in the twentyfirst century” (IT Task Force, 1998). It is reflected in the preamble of Information Technology Action Plan, prepared by the IT Taskforce in July 1998: In the history of civilisation, no work of science has so comprehensively impacted on the course of human development as Information Technology (IT). Undoubtedly, IT has been the greatest change agent of this century and promises to play this role even more dramatically in the coming decades… For India, the rise of Information Technology is an opportunity to overcome historical disabilities and once again become the master of one’s own national destiny. IT is a tool that will enable India to achieve the goal of becoming a strong, prosperous and self-confident nation (Ibid).

To achieve this goal, it is recognized that the role of the Indian state is paramount. An expert committee on IT opined that “for information technology to improve the lives of the 40 per cent of the population, which lives below the poverty line, the government must play ‘a catalytic and enabling role’” (Government of India, 2001). Long before the liberalization of the economy in the 1990s, important policy measures were taken to promote and expand the electronics and computer industry in India. Because India failed to take advantage of the semiconductor revolution in the 1970s, the government was careful not to miss the computer revolution in the 1980s (Commerce, 1983: 1-2). The Computer Policy (1984) was announced to remove capacity curbs, liberalize the licensing system and import duty to enable economies of scale and to increase competitiveness (Commerce, 1984: 845). The Electronics Policy (1985) noted that “the software content of electronics is increasing and India is most appropriately placed to take advantage of this” (Bhojani, 1985: 807-808). The computer industry was predominantly left in the private sector and the government took measures to foster a competitive environment. Soon, hundreds of firms of all sizes emerged. This subsequently appears to have established India as a leading player in the software market in the 1990s. In 1998, the government set up the IT Task Force to suggest policy measures to establish an efficient innovation system for ICT to achieve industrial competitiveness and socio-economic development. It came up with the Information Technology Action Plan (Part-I), containing 108 recommendations (23 in the area of infrastructure development, 50 121

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for developing the ICT industry and exports (ITEX50), and the rest towards achieving ‘IT for All’). Particularly, the plan made recommendations for “enabling Indian exporters to capture a large share of the global software market in a short time” (Ibid). They focused on information infrastructure, internet access, software development and exports, hardware manufacture, electronic commerce, R&D in IT, manpower training and education. It also made a number of recommendations relating to areas such as telecommunications, finance, banking, revenue, commerce, electronics, human resource development, IT education and rural development. IT Task Force stressed that India can become a strong IT power only if ICT reaches out to the rural areas and small towns (Ibid). IT Action Plan (Part-I) focused on three areas: (i) achieving a 30 per cent annual growth rate from the 1998 level info-infrastructure (fibre optic networks, satcom networks, and wireless networks, and others) to facilitate fast growth of nation-wide internet, extranets, and intranets; (ii) reaching an export target of US$ 50b and establishment of a large domestic ICT market by 2008; and (iii) achieving the objective of ‘IT for All by 2008’. The Action Plan made a number of recommendations to promote ICT education, ICT penetration in rural areas, e-governance, and universal access to internet for achieving the objective of ‘IT for All by 2008’. By July 2000, the government has implemented 64 of the 108 recommendations, and another 37 are under implementation and the other 7 were either not accepted or not implemented (DIT website). The government implemented swiftly some recommendations related to the ICT industry such as the withdrawal of the monopoly of Videsh Sanchar Nigam Limited, (VSNL) a public sector company, over internet gateways, reduction of customs duties, and tax exemptions. But implementation of recommendations related to infrastructure and ‘IT for All’ objectives is slow and patchy. While IT Action Plan (Part-I) mainly focused on the “accelerated growth” of software industry, the Information Technology Action Plan (Part-II), prepared by the Task Force, focused on the IT hardware industry. It came up with 84 recommendations. It viewed both the hardware and the software industries as “two sides of the same gold coin representing India emerging as a Global IT super power” and argued that “the success of one of these industries depends on the success of the other (IT Task Force, 1998a). It was concerned because 122

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while the software industry has been growing fast since early 1990s, the hardware industry has been declining. The Task Force argued that the main reason for the slow growth of hardware industry in contrast to software was mainly due to complex import/export procedures and tariff regimes. Particularly, it argued that successive governments in India used import duty as an instrument for financial resource mobilisation which prevented a large scale growth of hardware industry. It pointed out how other countries such as China that avoided this practice succeeded in developing a high value added hardware industry. It warned that continuing the existing policy framework for hardware industry could seriously affect the large scale penetration of PC-based applications in the social and economic spheres of the country.

Figure 4.2: ICT Innovation System in India

Industrail Growth: Developing the ICT Industry (Software,Hardware,and ITES-BPO) and Increasing competitiveness

Socio-economic Development: Reducing Poverty & Rural underdevelopment, E-government, E-education, E-health and Universal Access to ICT

National ICT Policy Framework Information Technology Action Plan and Communication Infrastructure Plan, Parts I-III (1998). HRD in IT Policy (1998), Telecom Policies and Liberalization

ICTIndustry Department of Information Technology, Department of Comminications, and Department of Science and Technology

Industry Associations such as NASSCOM

Export and Employment Growth

Financial Institutions Schooling System S&T Infrastructure

Public R&D Organisations such as CSIR and Universities

Achieving 'IT for All' with Wider Diffusion of and Universal Access to ICT

Non-Government Agencies (Non-Profit Sector)

International and Regional Organisations

Department of IT, Department of Communications Department of Education Department of Health Department of Science and Technology, and Others

State and Local Government level Agencies

Source: Authors

In 1999, IT Task Force produced the Action Plan Part-III which outlined the long term policy towards IT industry, research, design and development, human resource development, citizen-IT interface, content creation and content industry and so on. While taking pro-active steps to promote the growth of industry and wider diffusion of ICT, the government is equally concerned about creating a ‘digital divide’ in the society. Because of concerns over 123

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inequalities and exclusions in the Indian society, the government clearly wishes digital literacy and digital inclusion, and not division. It is determined to see that the benefits of ICT reach all sections of society. With a view to give a concrete shape to this belief, the government has constituted a Working Group on Information Technology for Masses. The perception of the policy makers is that while ICT industry would be a major facilitator in creation of wealth, ICT could help address age old problems such as illiteracy, rural underdevelopment, poverty alleviation and facilitate information transparency, good governance, empowerment and grass root democracy. The government has set a number of targets to be reached by the year 2008. These include creating an ICT industry with a turnover of US$ 140b; ICT exports reaching 35 per cent of India’s total exports; wiring up all secondary schools and colleges; and creating annually 300,000 engineers. To achieve them a separate ministry was set up and an advisory committee comprising of well known professionals from Indian ICT industry has also been set up to assist the ministry. What becomes clear from various developments discussed above is that India has set in place a comprehensive policy framework, institutional and incentive structures to develop an efficient innovation system for ICT (see Figure 4.2). Objectives and targets have been clearly defined which particularly aim to achieve a strong IT industry with both hardware and software sectors playing equally important economic role, and facilitating universal access to the benefits of ICT in the country. We will now discuss how far these objectives have been realised.

Indian ICT Industry Indian ICT industry can be divided into two sectors -telecommunications and IT. Until the 1990s, the telecommunications industry remained under the state control as a monopoly. Then, it has been gradually liberalized and competition was created. First, private capital was allowed in the mobile phone sector, then slowly in the fixed line and long distance sectors. Since major changes are still taking place and their impacts are yet to take a concrete shape, we will not discuss in detail the Indian telecom industry here. The IT industry consists of three major sectors – hardware, software and services, and IT enabled services -- business process 124

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outsourcing (ITES-BPO). Although ITES-BPO is considered to be part of software and services sector, it has been growing fast and it is big enough to be considered as a separate sector. As the software and the ITES-BPO sectors have witnessed rapid growth since the 1990s, we will discuss and analyse these two areas more in detail. Software Industry Until the late 1980s, Indian IT industry was supplying highly skilled people at low cost to companies in the developed countries. In the 1990s, after economic liberalization, the IT industry shifted its focus to creating high quality software processes and reliable global delivery. ICT industry policies that were initiated since late 1990s appear to have made significant impact on its performance. As a result, particularly the software and the ITES-BPO sectors of the industry have grown significantly. The share of IT market increased from 1.22 per cent of GDP in 1997 to 3.5 per cent of GDP in 2003. Its size increased from US$ 5b to 16.4b over the same period. Also, the export performance of the software industry has increased, that is, from about 5 per cent of total exports in 1997 to over 20 per cent in 2003 (NASSCOM, 2003). The number of Indian firms achieving innovative quality techniques such as Capability Maturity Model (CMM) has been growing. For example, by 2002, 48 Indian companies have been awarded the highest level of CMM, compared to 36 in the US and 12 in other countries (NASSCOM, 2003; SEI Website). By the end of 2003, 65 companies achieved CMM Level 5 quality assessment, and 275 software and ITES-business processing outsourcing (ITES-BPO) companies have acquired quality certification. As a result, India has become a major choice for outsourcing software and ITES (Ibid). Particularly, for many US companies, India became the first choice for offshore software development (IT Task Force, 1998: note 21). Indian companies such as Tata Consultancy Services (TCS), Wipro, and Infosys have become capable of competing at international level. For example, TCS with the turnover of US$ 1.56b operates in 33 countries and has over 35,000 employees. However, Indian IT companies are still much smaller compared to IT giants like IBM, HP, or Cap Gemini (See Table 4.1).

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Table 4.1: Global Ranking of Leading Indian Software Companies (2004) Global Rank 1 2 3 4 5 6 ---14 ---16 17

Name of the Company IBM HP EDS Computer Sciences Accenture Cap Gemini --TCS --Wipro Infosys

Annual Turnover (US$ billion) 89 73 21.4 14.8 11.8 7.2 --1.56 --1.32 1.07

Source: Tata Consultancy Services (see: http://news.bbc.co.uk/go/pr/fr//1/hi/business/4071369.stm)

In 2003-2004 the software and services sector of IT industry grew by 20.4 per cent to Rs. 555b (US$ 12.2 b, i.e. 28 per cent in dollar terms). The software and services exports grew by 26 per cent to Rs.461b (US$ 9.55b) during the same period. The growth in ITES-BPO was the key factor behind the growth of software and services sector. In 2002-2003 the ITES-BPO sector grew by 59 per cent to US$ 2.3b. The main factors for this growth are: (i) improved efficiency and higher service levels; (ii) quality improvements due to better educated workforce; (iii) cost savings by 40-50 per cent; (iv) increase in BPO by existing customers; (v) better project management skills; and (vi) availability of highly skilled English speaking workers. The domestic software and service sector grew by 14.8 per cent to reach Rs. 154b ($3.37b) in 2003-2004 from Rs.134b ($2.78b) in 2002-2003. This is mainly because of increased demands in banking, insurance, financial services, government, and manufacturing sectors (MIT, 2003-2004: 12-13). Table 4.2 provides the growth in the IT industry in terms of production and exports over a five year period until 2002-2003. It clearly shows that software and services production and exports have grown over 40 per cent during this five year period and the ITES exports have grown by 65 per cent in 2002-2003. It is also evident from 126

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Table 4.3 that the turnover of the software sector outstripped and nearly doubled that of hardware by 2003-2004. Table 4.4 provides comparison between the hardware and software exports since late 1990s. It clearly illustrates the predominant role of the software sector in IT exports from India. It is evident that contrary to the policy objective of achieving a balanced IT industry where both software and hardware sectors grow strongly, they are experiencing uneven growth with the gap widening between them over the years. Table 4.2: Indian IT Industry Production and Exports (2002-2003) Production ICT Industry

Value (Rs. b)

IT & Electronics Of IT & Electronics: Hardware Software and Services ITES (part of Software & Services)

Exports

Growth %

CAGR % (5 years)

Value (Rs. b)

Value (U$ b)

Growth %

CAGR % (5 years)

974

22

25

531

11.2

26

41

375

15

11

560

1.2

-3

14

599

26

43

475

10

30

49

--

--

--

117

2.5

65

--

Source: National Task Force on Information Technology & Software Development (Government of India), National Background Note for Task Force on HRD in IT, Note: 1US$ = Rs. 42-43

Table 4.3: IT & Electronics Production 1998-99 to 2003-04 (Rs in billion) Sector Electronics Hardware Computer Software TOTAL

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

252.5

281.0

311.0

327.50

375

438.0

158.9

243.5

377.5

473.74

595

708.5

411.4

524.5

688.5

801.24

970

1,146.5

Source: Ministry of Communication & Information Technology (Government of India), Annual Report 2003-04, p. 9.

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Table 4.4: IT & Electronics Exports 1998-99 to 2003-04 (Rs in billion) Sector Electronics Hardware Computer Software TOTAL

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

18.0

14.0

47.88

58

56

60

109.4

171.5

283.50

365

461

555

127.4

185.5

331.38

423

517

615

Source: Ministry of Communication & Information Technology (Government of India), Annual Report 2003-04, p.16.

The number of IT firms in India has grown significantly as a result of policy initiatives. For example, the Software Technology Parks of India (STPI) played a major role in the growth of software industry and exports. They acted as ‘single-window’ in providing services to the software exporters and incubation infrastructure to small and medium enterprises. Over 7,000 units have been registered under STPI, of which 3,520 firms are exporters. These firms have exported software worth of Rs. 465.7b (US$ 10.2b) during 2003-2004, compared to Rs. 371.8b (US$ 7.75b) during 2002-2003. That represents a growth of 25 per cent in rupee terms and 32 per cent in US$. The members of STPI accounted for nearly 80 per cent of the national software exports (Ibid: 4). These figures suggest that policy measures towards increasing software exports have been largely effective. However, one cannot discount other external factors such as growing global demand and market that could have contributed to the growth of software exports from India. Particularly, the role of Silicon-Valley based Indian scientists and engineers in promoting the Indian IT industry appears to be significant (Saxenian, 2002).

ITES and BPO ITES is an area that witnessed rapid growth since late 1990s. According to the National Association of Software Service Companies (NASSCOM), India could earn up to US$ 24b from IT enabled services by 2006. Between 1991 and 2003, the employment in the IT industry grew by ten times (see Table 4.5). Table 4.6 shows the employment distribution across different areas of IT industry in 2003. It clearly shows the importance of ITES. Table 4.7 provides the projected targets 128

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for employment and exports in the IT industry by 2008. It suggests that ITES has great growth potential in terms of employment. Therefore, it is not surprising that the IT Task Force has placed greater emphasis on the importance of developing ITES such as call centres, medical transcription, insurance claim processing, back office operations, legal databases, content development and services, and logistic management. Table 4.5: Growth of IT Professionals/ Employment (1991-2003) Year

Number

1991 1997 2000 2003

56,000 160,000 284,000 650,000

Source: NASSCOM (see: http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4071369.stm)

Table 4.6: Employment in Different Sectors of IT Industry (2003) Sector

Number Employed

Software and Service Export IT Enabled Services (ITES) Domestic Software Market User Organisations

205,000 160,000 25,000 260,000

TOTAL

650,000

Source: Ministry of Communication and Information Technology (Government of India),

Since the late 1990s, another area that witnessed rapid growth is BPO. Firms in other countries resort to outsourcing their business operations mainly for two reasons – cost management and increasing complexity of ICT environment. India has emerged as one of the leading destinations for BPO due to location attractiveness and availability of large pool of English speaking skilled workers at low cost.

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Table 4.7: Projected Targets for Employment and Exports in Indian IT Industry (2008) Areas Share IT Exports and Industry in Total: IT Exports (As share of Total Exports) Share of IT Software & Services Industry in GDP Employment Generation: Software & Service Sector ITES Indirect Employment Hardware Sector: Direct Employment Indirect Employment Total Employment Generation

2002-2003

2008

20.4 %

35%

2.4%

7%

650,000 250,000 N/A

2.2 million 1.1 million 2-3 million

385,000 250,000

1.6 million 3.2 million Over 9 million

Source: National Task Force on IT & Software Development (Government of India), Basic Background Report: Strategic Policy for IT Industry, 1998,

However, the spread of BPO in India is mainly confined to some major cities where basic ICT infrastructure already exists and is being developed further. About 90 per cent of BPO are situated in 9 cities – Ahmedabad, Bangalore, Chennai, Hyderabad, Kochi, Kolkatta, Mumbai, Greater Delhi, and Pune. Most of the BPO services in India are related to medical transcription, call centre, and back office operations. The BPO has registered a significant growth both in terms of revenue and employment between 2001 and 2003. Its revenue grew to US$ 2.3b and it employed over 171,100 skilled people in 2002-03 (see Table 4.8). The ITES-BPO sector in India in 2002-03 accounted for 2 per cent of the global market and its revenue grew by 59 per cent to Rs.113b (see Table 4.9). Customer contact (voice, email, chat) was the main area of BPO growth which doubled in terms of revenue and employment in 20022003. The revenue grew from Rs.19.6b in 2001-2002 to Rs.39.7b in 20022003. In the area of finance, the revenue grew to about Rs.25b. Mostly, the BPO deals have come from the US and the UK. While there has been an increase in BPO deals from these countries, there was a decline 130

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in the BPO deals from the continental Europe and the rest of the world. Because of its potential for higher growth, the government has taken a number of policy initiatives including tax incentives, deregulation of telecom sector, setting up of ITES parks, venture capital incentives, supporting BPO-specific education. Table 4.8: Growth of BPO -- Revenue and Employment in Different Services (2001 to 2003) BPO

2001-02

I. Revenue (in US$ million): Customer Care Finance HR Payment Services Administration Content Development TOTAL II. Employment Customer Care Finance HR Payment Services Administration Content Development TOTAL

2002-03

400 300 30 110 185 450 1,475

810 510 45 210 310 465 2,350

3,000 15,000 1,500 7,000 14,000 39,000

65,000 24,000 2,100 11,000 25,000 44,000

106,500

171,100

Source: Ministry of Communications and Information Technology (Government of India), Task Force on HRD in IT,

Table 4.9: Growth of BPO Sector in India (1999 to 2003) Year Revenue in Rupees (billion)

1999-2000

2000-01

2001-02

2002-03

2.4

4.25

71

113

Source: Ministry of Communications and Information Technology (Government of India), Task Force on HRD in IT,

We can see that from the nature of growth of BPO in India that benefits of ICT industry such as employment are highly concentrated in some major cities. Policy initiatives to spread ICT to second and 131

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third tier cities have not been successful. Also, mostly these cities are concentrated in the Southern and Western India. Clearly, there is a regional imbalance in the way ICT industry has grown over the years. Problems with Indian ICT Industry Some argued that the Indian IT firms are “mere body shops…just about good enough for the outsourcing of some basic jobs” (Weber, 2004). Although such arguments may sound too negative, Indian ICT industry certainly suffers from a number of weaknesses such as uneven growth, imbalances between different sectors, weak linkages between the industry and R&D performing institutions such as universities, inability to perform at higher level of technological complexity, high concentration of firms in some major cities, and so on. We can see that the ICT industry in India is heavily concentrated in cities in Southern part of the country, especially Bangalore, Hyderabad, and Chennai. This regional imbalance in the growth of ICT industry is very striking. Although other cities in other regions are trying to catch up with them, it is unlikely that they will ever match the growth of ICT industry of the South. Particularly, Bangalore, which is now globally known as ‘the silicon valley of India’ and Hyderabad have grown as leading cities for ICT industry due to historical reasons. Their emergence as the hub of IT industry dates back to 1970s and 1980s. They did not emerge as ICT giant overnight or due to the national and state level policy initiatives since 1990s. In the 1970s and 1980s, most of the large public sector electronics and aeronautics companies such as Bharat Electronics Limited, Hindustan Aeronautics Limited, Electronics Corporations of India Limited, and Computer Maintenance Corporation, were established in these two cities for strategic reasons. Furthermore, these two cities have high concentration of space and defence research establishments. As a result, a large number of high tech firms such as ICT firms have came into existence as suppliers to these establishments. For example, because the National Remote Sensing Agency (NRSA) is located in Hyderabad, a large number of small and medium high tech firms emerged to cater to the remote sensing space programmes and remote sensing applications projects on the ground. Although one cannot argue that the Indian ICT industry growth in these two cities is entirely due to the factors discussed above, it will be difficult to discount that the presence of major public sector 132

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electronics firms and the space and defence establishments have played an instrumental role for the future growth of the ICT industry in these cities. Therefore, it will be very difficult for other cities in India to match the growth of ICT firms in Bangalore and Hyderabad. This lopsidedness is likely to grow rather than diminish in future. Another problem with the software industry is that it has failed to develop a high level capability for product development and innovation. This is partly due to the historic protective economic environment in the country and partly due to the complexities and risks involved in developing new products. Even leading Indian IT firms such as Infosys (the first Indian software firm to be listed on a US stock exchange) and Wipro that initially made some effort towards product development appear to have changed their approach and became mainly software service companies. However, to survive in an increasingly competitive environment in the global software service sector in the long term, Indian IT companies need to build product development capability (Krishnan and Prabhu, 2002). Another reason for the low innovation capability of Indian IT industry appears to be the export oriented policy pursued by India and its dependence on the US market. It is argued that these factors produce a ‘lock-in’ effect that perpetuates a lower innovative trajectory (D’Costa, 2002; Sridharan, 2002). It is also pointed out that export oriented ICT industry policies have led to competition in low value-added areas with low productivity, based on labour cost advantage, which affected building innovative capabilities in Indian IT firms (Parthasarathi and Joseph, 2002). Furthermore, it appears that India has failed to foster a fast growing domestic ICT market. Policies and incentives designed to promote IT exports have resulted in underdevelopment of the domestic market. The main focus of the Indian IT industry has been on exports. For example, in 2001-2002 the domestic IT market accounted for only US$ 1b compared to US$ 7.8b export market. This is due to such factors as high level of regulation, problems with computerisation initiatives, and high tariff rates for hardware. India spends only about 1.1 per cent of GDP on IT compared to 5 per cent by the US and 2.7 per cent by France (NASSCOM, 2003: 45). Another major weakness of the Indian IT industry is its dependence on the US and UK markets. For example, in 2002 about 66 per cent of Indian software export was to the US and about 14 per cent 133

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to the UK. The growth in different types of markets was also very uneven. For example, in 2001-2002 the revenue from software and business process outsourcing (BPO) came mainly from financial services (35 per cent), telecommunications (15 per cent), and manufacturing (12 per cent). The revenue from other major areas such as healthcare (3 per cent), retail (4 per cent), utilities (2 per cent) and government (1 per cent) was small. Furthermore, the growth of ICT industry in different ICT services has been uneven. In 2001-2002, software and services accounted for about 65 per cent (US$ 4.95b) of ICT exports from India. ITES including BPO accounted for 19.4 per cent (US$1.49b), and R&D services 15.8 per cent (US$1.21b). It shows that India has a significant presence only in two of the ten major IT areas, that is, custom application development and application outsourcing which account for only 10 per cent of global IT services market. In other major IT services markets such as system integration (22 per cent of global market), IT outsourcing (18 per cent), packaged software installation and support (13 per cent), and hardware support and installation (13 per cent), the Indian market share remained less than 1 per cent (NASSCOM, 2003: 28-34). Another problem facing the industry is that the Indian IT companies are generally small and they fail to benefit from economies of scale. For example, in 2001-2002, there were only five companies with turnovers above US$ 200m and another five with turnovers between US$ 100m and US$ 200m. They accounted for about 70 per cent of the turnovers of Indian IT industry. About 22 per cent of the rest of the market was accounted for by the Indian software subsidiaries of large multinational companies. The turnover of one of the largest Indian IT firm, Tata Consultancy Services, is small (US$1.56b) compared to big global ICT companies such as IBM (US$ 89b) and HP (US$ 73b), although its rate of return on invest is much higher, that is, about 25 per cent (Weber, 2004). Furthermore, the level of hardware penetration in Indian businesses is low and consequently businesses use small servers for big projects. The penetration of PCs (9 per 1000) and the internet (about 16.5 m subscribers) in India is low when compared to other large developing countries such as China (34 per 1,000 and about 68m respectively). This appears to have had an adverse impact on the growth of electronic commerce in India (see Website A).

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Table 4.10: Initiatives for ICT Human Resource Development in India Name of Initiative

Main Focus

Result/Progress Made

E-Learning

To integrate e-learning methodology with the conventional class room system to spread e-learning from teaching IT related subjects to other subjects.

8 projects were funded involving leading academic and R&D institutions such as IITs, IGNOU, C-DAC and BITS to design and develop technology and courseware for e-learning. Further 20 new projects are proposed.

Information Technology and Electronics Systems Maintenance (ITESM) Programme

Training instructors and setting up infrastructure for running this course in 100 it is in 35 States

Trained 200 ITI instructors, course material for two years prepared, basic infrastructure to run the course being set up.

Vidya Vahini Programme

To integrate ICT in the learning environment in the government aided schools

A pilot project involving 140 schools in 7 different states was completed. All principals of these schools and 950 teachers were trained.

Gyan Vahini

To upgrade IT infrastructure at university level institutions and connect then on intranet and internet.

A pilot project completed at the Delhi University.

Employment Generation Training Scheme

To train educated youth to fill up the shortage of IT personnel particularly in the states of NorthEast region. From the year 2000 it was extended to other regions targeting socially disadvantages students.

Spent Rs. 147m to fund 94 institutions which benefited over 10,000 students.

Software Packages from Microsoft Corporation for Schools

To distribute the software packages received from the Microsoft (worth US$ 1m) every year to various schools in the country

Software packages distributed to various schools and trusts, and Kendriya Vidyalayas and Navodyas.

Information Security Education and Awareness Programme

To introduce information security curriculum, train systems administrators, train executives/ officials from central and state governments

To be implemented over 5 years at the cost of Rs 880m.This will involve 5 Resource centres including IITs, and 50 other institutions such as engineering colleges.

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Name of Initiative

Main Focus

Result/Progress Made

Special Manpower Development Programme for VLSI Design and Related Software (SMDP)

To develop teaching and research infrastructure in 19 institutions in order to increase India’s share of global VLSI design market from about 0.5% to 5% by 2008.

First phase that started in 1998 was completed at the cost of about Rs.150m (5 years). Second phase initiated.

DOEACC Scheme

To develop quality manpower in IT by utilising the expertise available with non-formal computer training institutes.

Accreditation granted by DOEACC Society for IT courses from ‘O’ level – foundation to ‘C’ level-‘MTech’. Over 38,000 students have qualified in the 4 levels of courses.

Community Information Centres (CICs) in HR Development

To set up 487 CICs at Block headquarters in the North East states to provide IT services including IT training to students.

Infrastructure was created at the cost of about Rs. 2.5b (483 CICs in 8 States). Over 37,200 persons were trained. The project is being refined and more formally developed with the help of DOEACC and IGNOU.

C-DAC Initiatives

To develop skilled human resources for R&D related to advanced information technology products and solutions including high performance computing, and cyber security.

Conducted specifically designed postgraduate diploma / training programmes and masters programmes, involving 315 centres and 78,400 students.

Source: National Task Force on IT & Software Development (Government of India), Background Note for Task Force on HRD in IT, 1998,

To recapitulate, in its attempt to develop an efficient innovation system for ICT, India appears to have successfully set in place well defined targets and goals, policy incentives, and reasonably strong institutional infrastructure. However, there appears to be serious weaknesses in the system such as the weak linkages between various institutions and firms, mismatch between the growth of software and hardware sectors, high concentration of ICT industry in few cities such as Bangalore, Hyderabad and Chennai in the South and low level of technology accumulation that makes it difficult for firms to operate at higher level in the value chain. India also appear to have made some 136

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progress with respect to IT human resources development, one of the major elements required to create an efficient innovation system for ICT. This is discussed in some depth in the following section.

Development of ICT Skills Since 1995-1996 the demand for ICT workers in India has grown significantly. This is partly due to demand from developed countries such as the US, UK, Japan and Germany. The demand for ICT skills has been growing across four broad sectors, both in the export and domestic markets – IT services, software products, IT enabled services, and e-business. Although India produces significant number of scientific and technical personnel at all levels, there are concerns about meeting the future demands for skilled personnel. According to NASSCOM, India would require 2.2m ICT professionals by 2008. However, an expert committee has identified 15 major constraints in ICT human resource development in India. These included outdated equipment and shortages of teachers, shortages of space for labs and class rooms, inadequate linkages between academia and industry, lack of motivation to innovate teaching methods, lack of access to networking facilities, and the failure of conventional educational system to respond to the needs of fast changing technologies and modern industry (IT Task Force, 1998c). To address these problems, a Task Force on ‘Human Resource Development in Information Technology’ was set up to come up with policy measures. The Task Force submitted its report in February 2004 with the following major recommendations: (i) creating HRD Fund to help IT / ITES industries; (ii) common online test for IT / ITES and certification mechanism; (iii) IT security adherence; and (iv) creating employment potential in second and third tier cities. The Task Force placed greater importance to postgraduate education and research in order to move up Indian ICT into the value chain. It also put special emphasis on the need to develop highly skilled human resources for basic and fundamental research in ICT. Most of these concerns of the Task Force clearly reflect the age old problems in the Indian national innovation system, particularly the weak linkages between R&D performing institutions such as universities and the industry, weak diffusion of technological

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capabilities outside some islands of excellence, and capability to operate on higher level of technological complexity. Following the recommendations of the Task Force, the government has taken a number of initiatives towards development of IT skills, IT literacy, and IT learning environment. Objectives of these initiatives and the progress are illustrated in Table 4.10. It is very clear these programmes are designed to address the issue of creating universal access to IT literacy and skills, and also they attempt to diffuse ICT in remote regions of the country such as North-East states. It appears that many of these programmes have been relatively successful. However, many are at an earlier stage of implementation and it will be some time before we could assess their performance. Apart from the government initiatives, the NASSCOM has launched an ‘IT workforce development initiative’ in 2005. It is clearly concerned about future problems with ICT skills in the country and competition from other countries such as China. Its mainly aims to identify the needs of the industry in terms of number of persons, skill sets and quality in various disciplines at different levels and to strengthen Indian professional education to meet these requirements. For this, NASSCOM has joined hands with the University Grants Commission (UCG) and the All India Council for Technical Education (AICTE). Jointly, they aim to strengthen technical education through curricula, faculty, infrastructure and pedagogy improvements (The Hindu, 20 July 2005). Outside the government and industry IT education initiatives, numerous non-governmental agencies and multinational organisations have been active in designing and implementing micro-level IT education projects all over the country. It is very difficult to assess their overall impact. However, numerous studies about these initiatives or projects could be found in the literature. Some of these are briefly discussed in the following section.

Diffusion of ICT in India India has been utilising ICT applications in a number of areas since 1980s, long before the onset of internet revolution of the 1990s. After Rajiv Gandhi became the Prime Minister in 1984, his government introduced major ICT initiatives to modernize government services. Massive computerization programme was launched in public sector 138

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organisations such as railways, central government departments, and in commercial organisations. However, it was only since the late 1990s that India started witnessing wider ICT diffusion aimed at social change and economic development. IT Action Plan (Part-I) advocated the policy of ‘IT for all by 2008’. It made 51 recommendations (out of 108) to achieve widespread eeducation, e-governance, and universal access to ICT. India has initiated a number of measures based on these recommendations. But many are still in an early stage of implementation and it will be some time before their impact could be seen clearly. For example, the National E-Governance Action Plan was approved in November 2003 and it will be fully implemented only by 2007. The plan envisages the implementation of core projects called ‘Mission Mode Projects’ by the central and state governments involving areas such as income tax, pensions, national citizen database, land records, road transport, agriculture, local government, property registration, and e-commerce (MIT: Website). A number of projects have been already initiated aimed mainly at rural population in order to address issues such as poverty and inequality. Except few, most of them are local or regional projects. For example, the National Dairy Development Board (NDDB) introduced ICT based machines and system in milk collection centres in the state of Gujarat that integrated electronic weights, electronic fat testing machines, and plastic card readers to ensure fair prices for farmers. The system helped faster and accurate quality testing and measuring fat content. It also helped to reduce payment time to farmers and led to efficient procurement and distribution. The Dairy Information System Kiosk (DISK), developed by the Centre for Electronic Governance at the Indian Institute of Management, Ahmedabad, provides different types of information to over 50,000 farmers. This appears to have led to a more transparent and efficient cooperative system (Cecchini and Scott, 2003: 74; Bajwa, 2003: 53-54). India Health Care Delivery Project, jointly initiated in 1994 by the government and private sector, aimed to provide IT for rural health care system to reduce paper work and improve care and information. Personal Digital Assistants (PDAs), also known as hand held computers, are used by auxiliary nurse midwives participating in the project to reduce unnecessary paper work and help them to devote

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more time to deliver health care to the rural population. These devices also help the nurses to collect data and transmit them easily (Ibid). The Ministry for Rural Affairs & Employment and the National Informatics Centre (NIC) have been jointly implementing the land records computerization programme across the country. In states where all land records have been digitized the farmers have been able to secure title documents easily. Apart from central government projects, some state governments have been implementing their own programmes. For example, the state of Maharashtra has initiated a disaster management project using ICT to help officials to plan efficiently disaster preparedness, for better vulnerability analysis and response. The government of Maharastra in collaboration with the central government and the NIC has initiated another project, ‘Warna wired village’, covering 70 villages to serve the information needs of farmers (Bajwa, 2003: 53-54). There are other examples such as delivery of eye-care through web cameras and the internet in Mettur in the Salem district of Tamil Nadu. Furthermore, ICT applications such as Geographic Information System (GIS) are employed to alleviate land degradation and water scarcity in arid or semi-arid regions. Such a project has been implemented in Anantapur, a chronically drought-prone district in the state of Andhra Pradesh, which is also making strong efforts to establish strong egovernance. The project has been largely successful mainly because of the participation of the local people and integrating local knowledge through building partnership between the officials and the villagers (Puri, 2003). A research study (covering India, Latin America and Africa) found that, “India is way ahead of other countries and regions in the development and use of ICT kiosks,” due to “tiered franchised business model” (SchoolNet Africa: Website). There are over 1,000 kiosks in the state of Tamil Nadu alone (BBC News, 2004). India is leading in the area of E-governance initiatives compared to those in Latin American and other Asian countries. As technical training is easily available in India, there are more local ICT promoters compared to other countries. However, some of these E-governance projects in India enjoy only “limited success” because “people in villages some time are not aware of the services that these ICT kiosks can bring to them” (Ibid). The study pointed out that it is important to promote these projects among people in the local community before setting 140

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them up and it is also important to have clear programme for the longterm support and maintenance of these centres. Although there is a clear imbalance between men and women in the area of IT literacy, about 80 per cent of the ICT kiosks established newly are run by women and many of them have had very little experience with the technology. The main reason for this appears to be the dedication of women towards the ICT projects and their ability to learn quickly (BBC News, 2004). Although these cases suggest that India has been making significant progress towards achieving the goal of universal access to ICT, it is facing a number of socio-economic obstacles for achieving ‘IT for All in 2008’. These include poverty, illiteracy, linguistic diversity, inadequate public education infrastructure, inflexible curricula in technical institutions, high unit cost of PCs, weak information infrastructure, and inadequate infrastructure such as roads and electricity supply. For people with low literacy levels or no education the access to ICT is likely to be extremely difficult. Individuals, public and private organisations have started using increasingly the ICT, but still large number of people, small and medium businesses and educational institutions in rural areas are yet to benefit from the ICT. There are about 50,000 villages in India, which do not have telecommunication facility. Even in the rural areas where telecom facility exists, majority do not appear to have any access to ICT. For example, a survey of five villages in three states has revealed that very few people in villages have access to a computer or internet and a majority of the poor households owns only radios and some of them never viewed television (Pigato, 2001). The problem of poor access to ICT in the rural areas is evident from Table 4.11. To address these problems, the government has been trying to provide public telecom facilities to every village to promote internet access, e-education and e-government. Recently, the Minister for IT and Communications has announced a 10-point agenda for ICT development including speedy implementation of national egovernance plan to make government more citizen-friendly, to provide broadband connectivity at the most reasonable prices, to leapfrog mobile telephony to 4G, to connect all ISPs in India to a national internet exchange, to provide seamless communication connectivity to rural areas, to promote health care through telemedicine and internet

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access, and to increase PC penetration by introducing low-cost PCs (see Website B).

Table 4.11: Access to Different Sources of Information and Communications in Rural India (in %) Source of Information Radio Newspapers TV Telephone Fax Computer/ Internet

Personal Ownership

Shared / Communal Ownership

Access not Available

77.3 11.3 9.3 ----

22.7 80.0 84.0 63.3 0.7 12.0

-8.7 6.7 36.7 99.3 88.0

Source: Pigato (2001) (see: www.worldbank.org/afr/wps/)

Socio-economic Impact of ICT Policies in India As far as ICT industrial policies are concerned, impact of ICT can be viewed at two levels, direct and indirect. The direct effect is in the areas of employment, income and export earnings. The indirect effect is in increased productivity, competitiveness and growth of other sectors due to diffusion of ICT across the whole economy, and emergence of new services and spin-offs. While India’s ICT policies appears to have achieved significant gains in the area of direct benefits, the economy as a whole does not appear to have benefited because of highly regional concentration of ICT activity and low diffusion of ICT in other sectors of the economy. This is because of the excessive emphasis placed by the government on export-led growth. Furthermore, over emphasis on ICT sector is likely to have an adverse impact on other sectors of the economy which compete with it for skills (Joseph, 2002). The introduction of policy changes in the telecom sector has led to significant increase in telephone lines capacity (both fixed lines and mobiles) since 1997. Before 1992, the Department of Telecommunications enjoyed a complete monopoly over telecom services. In 1992, the mobile phone sector was privatized. In 1994, the fixed lines sector was also opened up, and finally in 1999 the long distance operation was opened up for competition. After VSNL was 142

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privatized in 2002, national and international call charges fell about 50 per cent (Cecchini and Scott, 2003: 79). Particularly, introducing private competition in the mobile phone sector has led to a dramatic increase in the use of mobile phones. By the end of 2004 the number of mobile phones surpassed the number of fixed lines. Around 7 per cent of people were using mobile phones in 2004 compared to less than 1 per cent a decade ago. That is, about 79.4 million people were using mobile phones in 2004. The annual rate of mobile phone growth is about 39 per cent. That is, about 1.5m people are buying mobiles phones every month (BBC News, 2 July 2004). It also appears that significant level of mobile phone penetration is taking place in the rural areas. The high growth of mobile phones in India reflects similar growth across many developing countries. During 2003-2004 the price of computers fell significantly because of reduction of excise duty on computers from 16 to 8 per cent. The price of entry level PCs dropped to Rs. 20,000, the notebooks to Rs. 50,000 and servers to below Rs.100, 000. The sale of PCs during 2003-04 was about 3m units. However, this increase appears to be mainly due to increased PC sales to businesses that accounted for 74 per cent of total PC consumption and also partly due to e-governance initiatives taken by the central and state governments. By the early 2003, the PC penetration was about 8m. The internet usage has also increased by 5.5 per cent and the number of internet connections in 2003-2004 reached about 4 million. By March 2003, the internet penetration was estimated to be 0.37 per cent of the population (MIT, 2003-2004: 11-12). Although employment in the ICT has grown significantly since 1998, ICT jobs have not benefited the weaker sections of the society. For example, a study carried out in the state of Tamil Nadu by ‘Nandini Voice for the Deprived’, a non-profit organisation, found that “the high cost of computer, lack of adequate knowledge of English and poor communication skills are keeping economically weak youth in Tamil Nadu from getting even low-end jobs” in the ICT area (Kumar, 2005). Table 4.12 provides selected ICT indicators for India for 1995 and 2000. Although these are slightly outdated, we used them to locate the trend and also because we do not think there is any dramatic change in these areas since 2000, except mobile phones and internet use. The table suggests that because of various policy initiatives since mid-1990s,

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India has witnessed significant expansion in access to ICT and applications. Table 4.12: India – Selected ICT Indicators India

Key ICT Indicators Infrastructure & Access: Telephone mainlines (per 1000 people) In largest city (per 1000 people) Cost of local call ($ per 3 minutes) Mobile Phones (per 1000 people) Radios (per 1000 people) Television sets (per 1000 people) Daily newspapers (per 1000 people) Computers and Internet: Personal computers (per 1000 people) Installed in Education (1000s) Networked PCs (%) Internet Users (1000s) Internet hosts (per 10 000 people) Annual dialup Internet tariff as a % of GDP per capita (peak tariffs) Global ICT Ranking: Digital Access Index (On a scale of 0-1, where 1= Highest Access) Overall DAI Index Rank ICT Expenditure: Total ICT ($ millions) ICT as % of GDP ICT per capita ($) ICT Business and Government Environment (Ratings from 1 to 7, 7 is the highest): Internet speed and access Internet effects on business Highly-skilled IT job market Competition in ISPs Government online services availability Laws relating to ICT use Secure servers

1995

2000

13 95 0.02 0 119 61 --

32 131 0.01 4 121 78 48

1.3 23.6 37.3 250.0 --

4.5 238.7 45.1 5,000.0 0.81

--

67.67

--

0.32** (Medium)

-7,250.0 2.1 7.8

19,662.0* 3.9* 19.0*

--------

3.6 3.2 4.4 5.1 3.9 4.4 122

Source: Data Development Group, World Bank, ICT at a Glance: India, 20 September 2004; ITU (2003), ITU Digital Access Index: world’s First Global Ranking (see: www.itu.int/newsarchives/press_release/2003/); *Data for 2001; **Data for 2002

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However, the extent of ICT diffusion particularly in the rural areas appears to be very limited mainly because of widespread illiteracy, high access costs, and inadequate infrastructure (World Bank, 2002: 12). Very small sections of people in the rural areas have access to a computer or internet connection. Still, a significant section of population appears to have no access to electricity, television, and telephone. As a result, the historic rural-urban imbalance in India persists. Also, even when ICT infrastructure reaches every village in India, it is unlikely to provide complete access to all people, due to inherent problems such as illiteracy, gender bias (towards male), and low income levels. Because of this, the government has been trying to promote mostly shared access or communal access to ICT in the rural areas. The ICT projects that were implemented so far have clearly demonstrated the use of ICT for development in a country like India where three quarters of its population live in the rural areas. They demonstrated diverse approaches towards ICT for rural development in India. They have also demonstrated a number of trends: (i) economically responsible projects have proved more successful than charitable or free models; (ii) projects that identified and cost the services they provide were more successful than others; (iii) a thorough understanding of the social and economic parameters of rural areas gave connectivity providers a significant advantage; (iv) while some projects at pilot scale proved to be very successful, their large scale versions appear to be less successful due to infrastructural problems in the rural areas; (v) projects aimed at rural population are likely to be successful when conducted by intermediaries that have experience and proven record of working with rural poor; (vi) e-governance projects enjoyed success when local administrative and political actors were actively involved in their implementation; (vii) ICT applications developed with active local involvement, taking into account the local conditions, proved to be more successful than those applications designed centrally or at a top tier of planning; (viii) projects that focussed on narrow set of services, taking into account the local needs and environment, are likely to be more successful; and finally (ix) projects that are implemented after raising awareness of the people about their benefits and providing training to develop local skills are likely to be successful.

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It seems many of the ICT projects initiated for rural development have not been thoroughly evaluated. India needs to learn from its own history, that is, how the use of radios, television, and telephone penetrated into rural areas. The main factors responsible for the spread of these technologies were: (i) the cheap availability of radio receivers and batteries in the 1960s and 1970s; (ii) the establishment of a network of All India Radio local stations using medium wave; (iii) the cheap availability of black and white TV sets and the establishment of low power transmitters and regional TV services; (iv) the widespread TV penetration that led to widespread Cable TV use; (v) development of public call offices (PCOs) in the rural areas that led to widespread telephone use subsequently; and (vi) the complementary role played by the state and the private sector that led to greater TV and telephone penetration in the rural areas. India should draw lessons from this experience. If the rural areas have to benefit from ICT, the state needs to create the basic infrastructure to make the availability of ICT cheaper and involve the private sector subsequently or in parallel to accelerate the process. The key factor is the need for lowering the cost of access to ICT in the rural areas. For this, the government needs to adopt an integrated approach towards ICT use across various sectors in rural development such as agriculture, education, health, livestock, and rural telecom. In other words, the need is not for a new set of technologies appropriate for rural areas, but institutional innovations in using the existing ICT infrastructure in the rural areas. Even if there is a need for developing new technologies, India should seek cooperation with countries such as China, Brazil, and South Africa so that it could share and benefit from similar societies.

Major Features of Indian ICT Innovation System Although India has established a strong world class R&D base in certain dual-use technologies such as satellites and rockets, it lacks such base in most civil production technologies. This is mainly caused by the lopsided national innovation system (NIS) that evolved over the years, influenced by historic, socio-political and technological factors (Baskaran, 2000; 2005). One of the major problems with NIS in India is the weak link between the industry and the R&D performing institutions such as universities and public research and development 146

Innovation System for ICT: The Case of India

organisations. This is no different in the ICT sector. In the words of Kiran Karnik, president of NASSCOM: “one of the failings of the Indian knowledge eco-system has been the lack of industry-academia collaboration” (Karnik, 2005). Karnik is also concerned about the quantity and quality of research in the universities. He is concerned that India is producing only about 500 PhDs in technology areas and “much research tends to be repetitive and irrelevant.” He argues that India needs to see a large increase in the number of researchers in science and technology areas and ensure the research they do is relevant, if it has to achieve its objective of becoming ‘knowledge super power’ (Ibid). Since early 1980s the state has been playing an instrumental role in developing an innovation system for ICT. Particularly, it has been playing a pro-active role since the late 1990s in formulating and implementing ICT policies aimed at achieving social transformation and economic development in the country. While doing so, the state is aware of the dangers of creating a ‘digital divide’ within the country at many levels and has been consciously taking measures to address this issue. For example, as only 120m children out of the total of 200m in the age group of 6-14 years are in schools, under the 10th Five-Year Plan, an education campaign called ‘Sarva Shiksha Abhiyan’ has been launched to universalize access to primary education and to improve school infrastructure (Bajwa, 2003 :51). But the important question is whether it would arrest the ‘digital divide’ in the country. Indian national innovation system has created a lopsided technology accumulation model that appears to have significant influence on the way the innovation system for ICT has evolved. There are uneven growth within the ICT industry, uneven concentration of ICT firms and infrastructure, and uneven access to ICT at regional and local levels. For example, while India boasts of centres of excellence such as Indian Institute of Technology (IITs) and regional engineering colleges, there are many substandard engineering colleges in the country, particularly in the rural areas and semi-urban centres. While the ICT infrastructure in the former is world class, it is basic or inadequate in the case of latter. This contrasting image of islands of excellence amidst sea of relative backwardness appears to be the case in many areas related to ICT applications and diffusion in India. The government is facing a major problem in finding necessary resources to develop ICT infrastructure as many parts of the country 147

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still lack in basic infrastructure such as schools, hospitals, and drinking water facilities. Implementation of recommendations related to infrastructure and ‘IT for All’ objectives is slow and patchy. This appears to be due to problems such as rigid bureaucratic culture and resistance to change, and lack of trained manpower to develop and maintain required systems, particularly in the rural areas. But successful implementation of ICT infrastructure plans is a vital part of developing an efficient innovation system. Despite these problems and drawbacks, India appears to have created an innovation system capable of utilising the technological opportunities and adapting to the technological changes. An example for this is the transformation of the telecom industry in India that has responded very well to rapid policy and technological changes over the last decade. In other areas such as creating jobs, developing ICT skills and utilising ICT applications the system appears to have achieved moderate success. However, it will face serious challenges in the future due to increasing competition in the global market and in stopping the widening ‘digital divide’ within the country.

Conclusions At the outset we have raised the question whether the innovation system for ICT in India has been able to overcome the ‘lopsided’ phenomenon that persists in its national innovation system. The answer is largely negative. Because, it largely mirrors Indian national innovation system and it has led to uneven growth within the industry and in the country. India has formulated a comprehensive policy framework to build a strong ICT industry playing a major role in the global market and to achieve socio-economic transformation through ICT, and make the country a ‘knowledge superpower’. The state has played a vital role in developing an innovation system for ICT to achieve these goals. So far, it has implemented a number of policies and programmes towards achieving these goals. While it has created a strong ICT industrial base and capacity to compete in some areas such as IT software and ITES-BPO in the global market, it does not appear to have achieved same level of capacity in the area of utilising ICT for socio-economic changes, that is, in terms of e-education, e-health, egovernment, and so on. However, a number of initiatives (national, regional, and local level) have been taken in these areas and some 148

Innovation System for ICT: The Case of India

progress appears to have been made. But these are unevenly spread across the country and resulting in some islands of excellence amidst sea of underdevelopment. These initiatives succeeded when local people were clearly informed of their benefits and where there were local participation and good co-ordination and understanding between local people and the officials. This reinforces the need for bottom-up rather than top-down strategy in achieving wider ICT diffusion. India has made significant progress in facilitating universal access to ICT, particularly in the areas of mobile telephones, TVs, computers, and internet. But, still most of the rural population and sizeable urban population have no access to ICT. Despite numerous policy initiatives to combat the ‘digital divide’, large section of people both in urban and rural areas are still outside this ‘mystical’ digital world. This situation clearly reinforces the fact that ICT is not a magic wand to make the age old problems of India -- poverty, inequality, and under development -to disappear overnight. While India should not fail to exploit ICT to combat these problems, it should not loose sight of its limitations. Otherwise, it will end up neglecting other tools and means of fighting poverty and underdevelopment.

Bibliography

Bajwa G. S. (2003): “ICT policy in India in the era of liberalisation: its impact and consequences,” in GBER, 3(2):49-61. Baskaran A. (2000): “Duality in national innovation system: the case of India,” in Science and Public Policy, 27(5) 367-374. Baskaran A. (2001): “Competence building in complex systems in the developing countries: the case of satellite building in India,” in Technovation, 21 (2): 109-121. Baskaran A. and Muchie M. (2003): “Towards African National System of Innovation: Sharing with the Experiences of Indian National System of Innovation” in Muchie M, Gammeltoft P., and Lundvall B. (ed), Putting Africa First: The Making of African Innovation Systems (Aalborg, Denmark: Aalborg University Press). Baskaran A. (2005): “From science to commerce: the evolution of space development policy and technology accumulation in India,” in Technology in Society, 27(2): 155-179.

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BBC News (2004): “Women lead rural India’s internet rush,” 7 July (see: http://news.bbc.co.uk/go/pr/fr/-/1/hi/world/south_asia/3871529.stm) Bhojani R. (1985): “Electronic policy: a package of surprise,” in Commerce, 27 April, 150(3857): 807-808. Cecchini S. and Scott C. (2003): “Can information and communications technology applications contribute to poverty reduction? Lessons from rural India”, in Information Technology for Development, 10: 73-84. Chengappa R. (2000): Weapons of Peace: The Secret Story of India’s Quest to be a Nuclear Power (New Delhi, HarperCollins Publishers India). Commerce (1983): “Growth of Electronics” (Bombay), 01 December, 147(3771): 1-2. Commerce (1984):“Towards a computer revolution,” 01 December, 149(3835): 845. D’Costa A. P. (2002): “Export growth and path dependence: the locking-in of innovations in the software industry,” in Science, Technology & Society, 7(1): 5189. DIT: Department of Information Technology (Government of India) website -www.mit.gov.in/atrnt.asp Government of India (2001): Report of Working Group on IT for Masses (New Delhi, GOI) Joseph K. J. (2002): “Growth of ICT and ICT for Development: Realities of the Myths of the Indian Experience” (Discussion Paper No. 2002/78, United Nations University). Karnik K. (2005): “Initiatives to power the knowledge economy,” in The Hindu (Tiruchirapalli, India, 18 July). Krishnan R.T. and Prabhu G.N. (2002): “Innovation in the Indian Information Technology Industry: A study of the software product development process,” in Science, Technology & Society, 7(1): 91-116. Kumar N. R. (2005): “Why IT jobs have not percolated to the weaker sections,” in The Hindu (Tiruchirapalli, India, 18 July). NASSCOM (2003): Strategic Review (New Delhi, NASSCOM). MIT (2003-04): Ministry of Communications and Information Technology, Annual Report (New Delhi, GOI). MIT Website: www.mit.gov.in/actionplan/majoractivities.asp

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National IT Task Force (1998): Information Technology Action Plan, Part-I, 4 July, Government of India (see: http://it-taskforce.nic.in/infplan.htm). National IT Task Force (1998a): Information Technology Action Plan, Part-II, 26 October (see: http://it-taskforce.nic.in/actplan/actplan2.htm). National IT Task Force (1998b): IT Action Plan: Long Term National IT Policy, Part III (see: http://it-taskforce.nic.in/actplan3/chap7.htm). National IT Task Force (1998c): Background Note for the Task Force on HRD in IT (see: http://it-taskforce.nic.in/actplan/actplan2.htm) Nayar BR (1983): India’s quest for technological independence: policy foundation and policy change, Volume 1 (New Delhi, Lancers Publishers). Parthasarathi A. and Joseph K. J. (2002): “Limits to Innovation with Strong Export Orientation: The case of India’s Information and Communication Technologies Sector” in Science, Technology & Society, 7(1): 14-49. Pigato M. (2001): Information and Communication Technology, Poverty and Development in sub-Saharan Africa and South Asia (Washington DC, World Bank) (see: www.worldbank.org/afr/wps/) Puri S. K. (2003): “Participation through communicative action: A case study of GIS for addressing land/water development in India,” in Information Technology for Development, 10: 179-199. Saxenian A. (2002): “The Silicon Valley Connection: transnational Networks and Regional Development in Taiwan, China, and India,” in Science, Technology & Society, 7(1): 118-149. SchoolNet Africa (No date): “India leads www.schoolnetafrica.net/index.php?id=237)

in

ICT

kiosks”

(see:

Software Engineering Institute (SEI): “The SW-CMM Maturity Profile” (see: www.sei.cmu.edu/sema/profile.html). Sood A. D (No date): “How to Wire www.indiatogether.org/reports/WireRuralIndia.htm)

Rural

India?”

(see:

Singh M. (2004): “Speech at the Shanti Swaroop Bhatnagar Awards Ceremony,” 13 September. Sridharan E. (2002): “The Capacity for Innovation and the Trajectory of the Indian IT industry,” in Science, Technology & Society, 7(1): 3-11. Weber T. (2004): “Earning IT money the Indian way,” BBC News, 14 December (see: http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4071369.stm) Website A: www.internetworldstats.com/asia.htm

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Website B: “Maran’s 10-point agenda for Indian IT” (see: http://shorl.com/fitubrefriraru) World Bank (2002): “Using information and communications technology to reduce poverty in rural India,” in PREM notes (no. 70, June).

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CHAPTER 5

Innovation System for ICT: The Case of Thailand Patarapong Intarakumnerd and Kasititorn Pooparadai

Introduction

T

hailand’s national innovation system (NIS) is in transition. The passive and slow technological learning of firms, ineffective and incoherent government policies, stand-alone education and training institutes, technologically unsupportive and risk-averse financial institutions, incapable trade/industry associations and unfavourable institutional contexts have influenced the nature and the pace of NIS during the past fifty years of Thailand’s industrialisation (see Figure 5.1). These have begun to change. One of the main actors of the NIS, the government, spearheads the change. A major shift in government policies and practices has, to a certain degree, encouraged and pressured other actors of the system to change as well. The present Thaksin government (since early 2001) has initiated policies enabling Thai firms move faster in developing their own technological capabilities. It has pressured universities to conduct more research and to be more relevant to industry. It has worked more closely with private-sector linkage organisations. It has stimulated entrepreneurship in Thai society (Intarakumnerd, 2004). The Information Communication Technology (ICT) has been widely accepted as one of the General Purpose Technologies (GPTs) which generate impacts on the whole economy across several industrial sectors. Thailand has put a lot of effort in strengthening its ICT infrastructure and capability and to use them to enhance its international competitiveness and social wellbeing. Several ICT policies have been initiated, together with required institutional changes to 153

Patarapong Intarakumnerd and Kasititorn Pooparadai

meet evolving challenges. Several programmes have been implemented to utilise ICT to specific sectors of the Thai economy and society This chapter discusses how Thailand has been making effort to develop an innovation system for ICT, that is, the institutional framework, national policies and initiatives to foster the ICT industry, ICT diffusion and their overall impact on the economy and the society.

Institutional Framework for ICT This section brings together institutions which, in their diversified roles and capacities, are major players in development of ICT in Thailand. Figure 5.2 shows these institutions in four groups.

Policy-making bodies: from supra-ministerial to ministerial level In 1992, the government of Thailand constituted a high-level, policy-making body, namely the National Information Technology Committee, or NITC, to develop policies and plans for promoting ICT development and their utilisation for economic and social development. The Prime Minister of Thailand was the chairman of the Committee and it had representations from high-ranking officials from government organisations, private sector in the relevant fields, and experts. The committee has set up a number of subcommittees to oversee and undertake activities for particular field of ICT development. A few selected subcommittees are: subcommittee on drafting electronic transaction law, subcommittee on IT for disabled and disadvantaged, subcommittee on IT policy planning and Thailand’s internet policy task force. The National Electronics and Computer Technology (NECTEC), a semi-autonomous body under the National Science and Technology Development Agency (NSTDA), Ministry of Science, Technology and Environment was assigned to host the secretariat office and to conduct supporting work for the committee.1 In October 2002, the Ministry of Information and Communications Technology (MICT) was established as part of the reform of bureaucracy. Before the reforms, the IT and communications were handled separately by two ministries, the Ministry of Science, 154

Innovation System for ICT: The Case of Thailand

Technology and Environment, and the Ministry of Transport and Communications, respectively. Under the new structure, both IT and communications have been converged within the realm of MICT.2

Figure 5.1: National Innovation System in Thailand (Past 50 Years)

Government Inefficient and Incoherent Policies / Lacking Long-term Vision Financial Institutions Averse to Risk Taking/ Insufficient Support to Industry

Public R&D Organisations Little or No Linkages with Other Institutions

Firms Slow Technological Learning

Inefficient / Lopsided National Innovation System

Industry/ Trade Associations Incapable/ Incompetent / Lacking Long-term Vision

Educational/ Training Institutions Standing Alone/ No Linkages with Other Institutions Source: Authors

The establishment of MICT as the front agency in charge of the national ICT development inevitably led to a declining role of NITC.3 Although NITC has not been dissolved officially, it is defunct in reality.4 MICT, on the other hand, was entrusted with the task of shaping the development of the ICT nationally, including resource allocation in this regard.5 However, the authority of the MICT does not extend to the arena of broadcasting.6 The MOST is still influential in term of technology development, particularly through its research and development programmes. At the policy forefront, the Ministry of Science, Technology and Environment hosts the secretariat office of the Electronic Transaction

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Commission (ETC). The Commission was founded in compliance with the Electronic Transaction Act B.E. 2544 (2001). 7

Figure 5.2: National ICT Development in Thailand -- Institutional Establishment

Policy Making Bodies Regulators National Telecommunications Commission

National Broadcasting Commission

Operating Agencies

Private Sectors: Selected

Source:

Software Industry Promotion Agency

Association of Thai Computer Industry

National IT Committee

Ministry of ICT

Ministry of Science and Technology

CAT Telecom

- National Economics and Social Development Board - Ministry of Industry - Ministry of Commerce - Ministry of Education

National Electronics and Computer Technology Center

TOT Corporation

Association of Thai Software Industry

Related agencies

Software Park Thailand

Thai Federation of Information Technology

Federation of Thai Industry

Thai Chamber of Commerce

Compiled by the authors using various sources including Thuvasethakul and Pooparadai (2003); House of Parliament, Thailand (2000, 2001 and 2002); Prime Minister Office (1992-2003); and NITC (1996, 2002, and 2003).

The work of agencies at ministerial level directly or indirectly affects the development of ICT. Particularly, the National Economic and Social Development Board (NESDB) plays an important role in this regard. The NESDB, which is responsible for formulating the five-year national economic and social development plans, is instrumental in integrating the ICT into the agenda for national development. The Ministry of Industry, Ministry of Commerce and Ministry of Education are key contributors in industrial development, e-commerce, and human resource development, respectively.

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Regulators In accordance with the Frequency Allocation Act B.E. 2543 (2000), two independent regulatory bodies are to be established, first, the National Telecommunications Commission (NTC) responsible for licensing, spectrum management, and supervision of telecommunications operators and, second, National Broadcasting Commission (NBC), responsible for regulating the radio and television broadcast sectors. NTC was finally set up in October 2004 whereas the formation of NBC remained mired in political manoeuvring. Hence, NTC is still in its embryonic stage but active in its endeavour to shape the regulatory environment. For instance, in June 2005, it organised a public hearing conference on its draft National Telecommunications Master Plan. Besides, it is working in close cooperation with the government as a core negotiator in a recent “bilateral free trade talk” with the US.8 There is no regulatory body in computer hardware and software sectors, however. Operating Agencies The institutions which are key drivers of ICT development at policy formulation as well as implementation levels are as follows: o

The National Electronics and Computer Technology Center (NECTEC), established in 1986, has responsibilities to undertake, support, and promote the development of electronic, computing, telecommunication, and information technologies through research and development activities (Website C). As the secretariat office of NITC before 2002, NECTEC was also responsible for the formulation of national IT policies and plans, as well as implementation of those plans.9

o

Software Park, also under NSTDA was established in 1998 to stimulate the development of Thai software industry towards a sustainable level and provide it the means to survive in rapidly changing global digital economy. To achieve this, Software Park offers a state-of-the-art infrastructure and investor-friendly environment that 157

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nurture young software entrepreneurs during the start-up period. It also aims to broaden knowledge and enhance skills of Thai IT professionals through various kinds of educational activities. Lastly, it establishes a business-tobusiness exchange both at national and international levels (Website E). o

Software Industry Promotion Agency (SIPA), established in September 2003 under MICT, is to be a central body in planning policies for software development. Its mission is to promote software industry through (i) skills strengthening and upgrading; (ii) increasing employment in the sector; and (iii) stimulating markets for Thai software at domestic and international markets. Since inception, SIPA has initiated a number of highly popular projects such as ICT City, Techno Tourism Center projects to diffuse knowledge and business opportunities to other regions in Thailand (Website D).

o

TOT Corporation Public Company Limited and CAT Telecom Public Company Limited, are formerly state own enterprises under Ministry of Transport and Communication, providing Telecommunications services in Thailand. They were made into corporations in 2002 and 2003 respectively, but are still operating under the supervision of MICT.

The role of private sector There is a positive trend towards public-private partnership. In the past, awareness and understanding of ICT policy among private sector was low.10 This is despite of the fact that private sectors, through professional and business organisations, have been represented in the policy-making bodies. NITC, for example, appointed representatives from general bodies such as the Federation of Thai Industry (FTI), The Thai Chamber of Commerce (TCC) as well as specific associations, particularly, Association of Thai Computer Industry, Association of Thai Software Industry, and Thai Federation of Information Technology. Furthermore, the director of the newly established

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Innovation System for ICT: The Case of Thailand

organisation, SIPA, is a well-known businessman, who remains influential in the private sector. Public-private partnership was highlighted in 2003 when MICT initiated a ‘low cost PC’ project to make PCs widely available to general public. Under this scheme, MICT allowed people to buy their PC at low cost. The price for desktop and notebook were as low as US$ 250 and US$ 400 respectively, inclusive of software. In this project, 18 indigenous manufacturers, all members of the Association of Thai Computer Manufacturing (ATCM) assembled the hardware, whereas MICT managed the project and handled public relations. CAT Telecom (previously the Communications Authority of Thailand) provided after-sale services while NECTEC localised Linux operating system and certified the quality of the products.11

National ICT Policies and Implementation (a) National IT policy: macro blueprints The history of the Thailand ICT policy began formally in the year 1996, when the first National IT Policy, namely IT2000, was formulated and endorsed by the NITC. The objective of IT2000 is for the country to properly exploit IT to achieve economic prosperity and social equity. The policy focused on three development agendas: (i) investing in an equitable information infrastructure to empower human ability and enhance life quality; (ii) investing in people to build a literate populace and an adequate information technology manpower base; and (iii) investing in good governance. Facing the wind of change in the socio-economic development as well as the technological advancement, at national and international arena, NITC realised that there was a need for a second phase of national IT policy, to give a thrust for Thailand to move forward into the next wave of digital economy. Consequently, NITC formulated a new 10-year IT policy framework, viz. IT2010 in 2001, which was subsequently endorsed by the cabinet in March 2002. IT2010 has set the key development objectives to exploit the benefits of ICT to move Thailand towards a ‘Knowledge-Based Society and Economy (KBS/E)’. The focal interest is, therefore, not on technology per se, but on the good use of ICT that would drive overall national economic and social development. In this regard, IT2010 159

Patarapong Intarakumnerd and Kasititorn Pooparadai

identifies three principles to support the ‘ICT for KBE/KBS’ framework: (i) building a knowledge-based human capital; (ii) promoting innovation; and (iii) investing in information infrastructure and promoting the information industry. Five major schemes were devised which included: • e-Society to focus on the IT usage for quality of life improvement, knowledge-based society development and digital divide reduction. • e-Education to develop and strengthen human capital in all levels to move the country towards knowledge-based society. This includes issues of life-long learning, computer literacy, human resource development, virtual education, etc. • e-Government to utilise the IT within the public sector, including central, provincial and local government agencies. This is to develop good governance which, in turn, will boost overall competitiveness of the country. • e-Commerce to strive for leveraging Thai industries’ competitiveness. The three application areas are: ecommerce for export, e-commerce for trade and services provision, and e-commerce for domestic consumption. • e-Industry to promote the utilisation and development of IT within the private sector, focusing on e-manufacturing and IT-related industries. Upon the approval of IT 2010 policy framework in March 2002, the Cabinet designated NECTEC and NESDB to jointly develop the first and current National ICT Master Plan for the year 2002-2006. This master plan was to be developed in accordance with IT 2010 policy framework as well as the 9th National Economic and Social Development Plan (2002-2006). The two agencies accomplished the task in September 2002 when the cabinet approval on the master plan was granted. The National ICT Master Plan identified the following four objectives: (i) developing and enriching the economy by ICT usage; (ii) strengthening ICT industry competitiveness; (iii) developing human resource base by inducing the application of ICT in education and 160

Innovation System for ICT: The Case of Thailand

training; and (iv) empowering the rural community to achieve sustainable development. The Master Plan is composed of seven strategies: .

•

Strategy 1: The development of the ICT industry into a regional leader, with the focus on development of software industry and the IT human resources.

•

Strategy 2: The utilisation of ICT to enhance the quality of life and society, emphasising the development and application of the equitable information infrastructure for areas such as education, and rural community.

•

Strategy 3: The reform and enhancement of the capacity of ICT research and development, and fostering a joint force of public and private sectors, and educational institutions to restructure the direction of R&D.

•

Strategy 4: The Social Capacity Leverage for Future Competition, focusing on awareness creation and understanding of ICT within the society.

•

Strategy 5: The development of entrepreneur capacity for the expansion of international markets, targeting particularly at the manufacturing sectors.

•

Strategy 6: The utilisation of ICT in small and medium enterprises (SMEs), aiming to encourage the SMEs to employ ICT in their business so as to boost their competitiveness.

•

Strategy7: The utilisation of ICT in government administration and services, so as to drive government efficiency as well as to transform government services to the citizen, moving towards the e-government.

The priorities to be accomplished during the first two years of the master plan are: (i) promotion of the software industry; (ii) development of various e-government applications; and (iii) promotion of ICT usage in SMEs. Through the course of future ICT development, public-private partnership will be emphasised and encouraged. 161

Patarapong Intarakumnerd and Kasititorn Pooparadai

Recently, the Ministry of Information and Communication Technology has developed the ICT operation plan for 2006-2007.12 According to the plan, four priority areas which need to be accelerated are broadband development, software industry, IT human resources and e-government. The evolution and timeframe of the abovementioned ICT policy blueprints are illustrated in Figure 5.3. (b) Role of ICT in National Development Plan The Ninth National Economic and Social Development Plan (20022006) adopts the philosophy of sufficiency economy as the guiding principle of national development. It has been formulated on the basis of shared vision of Thai society for the next 20 years which focuses on alleviation of poverty and upgrading of the quality of life for the Thai people. The Ninth Plan also emphasises the development of a ‘strong and balanced society’ comprising three aspects: quality society, knowledge-based and learning society, and, cohesive and caring society. The Ninth Plan consists of seven strategies which have been grouped under three main strategic clusters as follows: o

Cluster I: Establishment of good governance at all levels of the society. The focus in this group is on good governance strategy and the reform of management mechanisms in political, public, private and civil society sectors.

o

Cluster II: Consolidation of strong social foundation. Development strategies included in this group are (i) development of human potential and social protection; (ii) restructuring of management for sustainable rural development; and (iii) natural resource and environmental management.

o

Cluster III: Economic restructuring for balanced and sustainable development. This group emphasises macro-economic management to achieve a strong economic base. Development strategies consist of (i) macro economic management strategy; (ii) upgrading national competitiveness; and (iii) strengthening of

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Innovation System for ICT: The Case of Thailand

science and technology development. The role of ICT is acknowledged widely in this last strategy.

Figure 5.3: Evolution of ICT Policy in Thailand

Thailand ICT Policy: Evolution The Ninth NESDP

T imeframe 96

97

The Tenth NESDP S&T Strategic Plan (2004-2013)

98

99

00

01

02

03

04

IT2000 (1996-2000)

05

06

07

08

09

10

11

IT2010 (2001-2010) National ICT Master Plan (2002-2006) MICT Establishment (October 2002) MICT Operation Plan (2006-2007)

Source: Adapted from Thuvasethakul (2003) and Koanantakool (2002).

The science and technology development strategy of the Ninth Plan recognises the need to upgrade the development and application of ICT in order to provide key infrastructure for disseminating knowledge and information widely to Thai society. This will, in turn, increase competitiveness and facilitate economic rehabilitation. To achieve this, specific measures identified in the Ninth Plan are: (a) Developing IT infrastructure for wider and more equitable access which is both efficient and affordable. (b) Promoting the creation and application of IT for various activities such as life-long learning, commerce, industry, welfare of the people, particularly the disadvantaged and so on. (c) Accelerating the development of highly competent labour force in ICT to the demands of domestic and global labour markets. This involves developing ICT human resource as well as building up ICT skills for personnel in other fields.

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(d) Promoting the development of ICT industry, particularly the software industry and IT services, which leads to higher valueadded exports.

(c) The National Science and Technology Strategic Plan (2004-2013): The main objectives of this Strategic Plan (2004-2013), formulated by the National Science and Technology Development Agency (Ministry of Science and Technology), are to enhance Thailand’s capability of facing rapid changes in this age of globalisation and strengthening its competitiveness under the vision that “the Thai economy will be strong, the Thai knowledge-based society will be able to compete internationally, the Thai nation will be secure, and Thai people will have a good quality of life” (NSTDA, 2004:13). In driving towards the goals of this vision, four fundamental development factors are emphasised: (1) strength of the national innovation system, (2) strength of human resources, (3) an enabling environment for development, and (4) capacity of the four core future technologies, i.e., information and communications technology, biotechnology, material technology and nanotechnology. In addition, the strategic plan targets the development in three sectors including industrial sector, the community economy and the social sector. Two ICT clusters, software cluster and microchip cluster are included as strategic industrial clusters.13 Table 5.1: Key Issues in ICT Development

Policy/Plan 9th NESDP IT 2010 ICT Master Plan ICT Operation Plan S&T Strategic Plan

KBS/E

Infrastructure

Y Y

Y Y Y (Broadband)

Y

Y (Broadband) Y

Key Issues Software Good Industry Governance Y Y (e-Gov)

Innovation

IT Human Resource

Y Y

Y Y

Y

Y (e-Gov)

Y

Y

Y (e-Gov)

Y

Y

Source: Authors’ analysis

164

Y

Y (S&THR)

Innovation System for ICT: The Case of Thailand

To recapitulate, there is, to certain extent, coherent direction in the national ICT development. Key issues are reiterated across the national blueprints, as summarised in Table 5.1.

Impacts of ICT Policies and Strategies We will examine the impacts of the aforementioned strategies both in terms of the growth of ICT industry itself and towards achieving broader socio-economic objectives.

Growth of Hardware Industry Though production of electronic items, including ICT hardware, in the country dates back to 1960s, Thailand actively promoted electronics industry only since the late 1970s. The electronics industry played a significant role in the economy during the past two decades in terms of generating employment and export earnings and thus aiding overall development. By the year 2003 more than 600 firms, both foreign and local, were active in the field of electronics production giving employment to more than 0.3 million. In terms of distribution of employment, consumer electronics accounts for about 19 per cent, computers and other electronic capital goods 28 per cent and electronic parts and ICs accounts for 53 per cent (Joseph and Intarakumnerd, 2004:14). The major products of electronics industry include computers and components, integrated circuits and parts, Hard Disk Drives and parts. In each of these product lines the world leaders have their presence in Thailand and most of them are expanding their production base. Foreign firms like IBM, Fujitsu Cannon, Cal Comp, and Oki, Seagate, Lucent, AMD NS Electronics, to name a few, have established production facilities in Thailand. Thus unlike the ICT base of India which was built up mostly at the instance of local firms, the foreign firms have played a significant role in securing Thailand a position in the electronics map of the world.

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Table 5.2: Structure of Exports and Imports in Thai Electronics Industry Exports ($ Million)

1997

1998

1999

2000

2001

2002

Computer and Parts

6520.92

7575.09

7672.38

8432.30

7725.83

7282.63

Of Which Parts

2973.32

4714.60

5861.36

6434.79

5941.60

4461.88

Others

1227.43

1205.35

1177.67

1629.38

1646.78

1883.19

Integrated Circuits and parts

2307.93

2518.82

2255.00

4464.32

3486.71

3439.28

Of which Parts

304.93

481.98

492.69

556.52

277.50

364.95

Telecommunication equipment

505.68

528.37

532.91

884.71

796.26

875.74

Television

1028.49

1079.58

905.80

1093.87

915.86

1122.86

52.84

111.07

300.85

419.07

374.30

439.72

10415.86

11812.94

11666.94

15294.27

13298.96

13160.23

Radio Total Exports Imports ($Million) Computer

661.72

386.23

337.67

619.80

1098.55

1823.81

Computer components

3098.90

2406.82

1901.60

3053.93

2894.10

1851.65

Integrated circuits

2135.12

2148.89

1820.19

2786.50

2690.05

2648.05

Integrated circuits components

2720.24

2802.96

2279.98

3673.01

3046.62

2824.16

Telecom equipment

1821.00

1350.00

1420.00

1100.00

940.00

1010.00

Total Imports

10436.98

9094.90

7759.44

11233.24

10669.31

10157.67

Trade Balance

-21.12

2718.04

3907.50

4061.03

2629.65

3002.56

Source: Bank of Thailand (2003), and US Department of Commerce (see: Website G)

Given the nature of production process involved in electronics no country can afford to produce all the needed components and raw materials. Hence, to promote investment, the trade regime needs to be one that facilitates the free flow of inputs into and output out of the economy. Data presented in Table 5.2 suggests that Thailand presents a typical case wherein the trade policy facilitated free imports of components and materials through the liberalized trade policy regime which in turn led to substantial investment on the one hand and export earning and employment generation on the other. Undoubtedly, the electronics industry has made significant contribution to the overall economic development of the country. But 166

Innovation System for ICT: The Case of Thailand

based on a detailed analysis of the electronics industry of South East Asia, Ernst (2001) expressed the view that export-oriented production can no longer guarantee sustained growth and welfare improvement alone. Export led production also faces serious external challenges from volatile global finance, currency and export markets. The conclusion, if correct, appears to be applicable to Thailand as well. Three potential weaknesses identified by Ernst – a sticky specialization on exportable “commodities”, a narrow domestic knowledge base leading to limited industrial upgrading and limited backward and forward linkages - in the context of South East Asian countries could be applicable in the case of Thailand. Electronics industry comprises of a large number of products and Thailand has specialized in the mass production of a few products to serve the export market. This has led to a kind of sticky specialization with limited backward and forward linkages especially for materials and production equipment that give rise to very high level of import dependence and limited value addition. A recent survey notes that Thailand’s electronics-related firms play the role of a small subcontractors by supplying minor components for foreign firms in the ICT industry (Mephokee, 2003). Another striking feature of Thai electronic industry is the mismatch between local production and consumption at both component and equipment level. To illustrate the point, in the case of telecommunication equipment, Thailand exports almost 70 per cent of its production and at the same time imports more than 70 per cent of its domestic demand. Similar is the position of semiconductor devices. Moreover within electronics also there is very high level of specialization. The problem got compounded with limited industrial upgrading. Analysis of the stages of development of electronics industry in different countries in South East Asia shows the Thai electronics industry has been locked up in low value adding assembly of electronics commodities and there has been very limited industrial upgrading (Hobday, 2002). The survey by Thailand’s National Statistics Office in 1999 shows that domestic value added of this industry is only 10 per cent. This is six times lower than that of Singapore. This is because unlike Singapore and Malaysia where there are strong upstream activities like IC design and wafer fabrication, most of domestic value-added comes from packaging activities which

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is quite labour intensive (Intellectual Property Institute, Chulalongkorn University, 2003). Hard disk drive is an electronic product playing a significant role in Thailand’s electronics exports. The country is regarded as the most important global base for hard disk drive manufacturing. Thailand ranks second in the world of hard disk export, next to Singapore, with manufacturing segment of 17 per cent of world production in 2003. The HDD sector in Thailand employs more than 50,000 people generating an export worth more than US$ 5,000m. This has become possible due to the Thai manufacturing bases of the hard disk giants like Fujitsu, IBM/Hitachi, Western Digital and Seagate. Thailand-based operations generally import high technology components as raw materials and exports the products to markets worldwide. Nonetheless, the level of local content is estimated to be quite low, approximately 30-40 per cent of total production cost, due to the lack of suppliers, low quality domestic components and the complicated processes of buying between domestic factories. The industry relies heavily on technology transfer from their foreign affiliates. The foreign affiliates usually provide raw materials, machinery technology and markets. In addition, they play a major role in formulating marketing and production strategies (AIT/Asia Policy Research, 2003).

Growth of Software Industry The limit of Thai electronics industry strategy is evident from its less remarkable success in moving from IT goods (electronics) production to relatively more skill-intensive IT software and services. Perhaps the first explicit initiative in this direction could be traced to March, 1992 when the National Information Technology Committee (NITC) was formed under the Chairmanship of the Prime Minister, and comprising of ministers, permanent secretaries and high level officers from both public and private sector, with National Electronics and Computer Technology Center (NECTEC) as its secretariat. By the time the Ministry of Information Technology was formed in October 2002, the NITC had formulated three major policies pertaining to ICT in Thailand viz. IT-2000 - the first national IT policy of Thailand, and subsequently IT 2010 - a vision document providing a long term perspective and the IT master plan for the period 2002-06 (Koanantakool, 2003). 168

Innovation System for ICT: The Case of Thailand

One of the declared objectives of IT 2010 is to establish software production base in the country. The number of software companies promoted increased from mere 2 in 1996 to 49 in 2001 and declined to 13 in 2003. Since 1996, the cumulative number of promoted companies stands at 170. Out of these, 75 were fully owned by Thai companies, 34 were foreign companies and the others were joint ventures. Of these, 33 licenses were issued during 2002 and 2003 and hence most of them have not started operations. The total investment commitment by 137 companies promoted prior to 2002 amounted to 1632m Baht with a mean investment of 11.9 million Baht. But the actual investment made amounted to only 52 per cent (846.5m Baht) with an average investment of 9.7m Baht (1 US$ approximately equals 40 Baht). In the case of indigenous companies the investment commitments amounted to 532m Baht and actual investment was of the order of 389m Baht (73 per cent). When it comes to fully-owned foreign companies, total investment commitments were of the order of 113m Baht and the actual investment was about 90.8m Baht (80 per cent). This tends to suggest that in contrast to electronics, the foreign firms have been less enthusiastic to invest in the ICT software and service sector of Thailand. In the case of 55 joint ventures (1996-2002) total investment commitment was of the order of 986 million Baht with an actual investment of 365.9m Baht (35.7 per cent) (Joseph and Intarakumnerd, 2004: 16). Total employment commitment by the 170 promoted companies has been of the order of 4207, whereas the actual employment generated was only of the order of 1969 – a fraction of the total employment of one of the leading IT firms in India. Out of the realized employment, 1184 (60 per cent) was accounted by Thai firms, 165 (8 per cent) by foreign firms and 620 (32 per cent) by joint ventures. From discussion with industry sources it was discerned that the export base of Thailand is rather limited. The Master Plan (2002-06) has the target of producing software worth about US$ 2b, of which 75 per cent for the export market. However as a result of a series of policy initiatives to promote the use of ICT in different sectors of the economy, there is a growing domestic demand. In 2001 the IT market was estimated at US$ 1.6b, of which hardware accounted for about 63 per cent (Joseph and Intarakumnerd, 2004: 18). In 1997, the National Science and Technology Development Agency (NSTDA) received the approval of the Cabinet to set up the 169

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Software Park Thailand (SPT) in order to foster the first local cluster of software industries. The SPT has been successfully run, occupying 13,000 square meters of a high-rise building, for nearly two years. It received strong support from well-known transnational corporations like IBM, HP, SUN, Oracle, etc. Around 50 indigenous companies have fully occupied the available space. Among various facilities, the NSTDA together with the Carnegie-Mellon University has consistently offered training and certifying the Capability Maturity Model (CMM) to raise the standard of software production of the firms. Many of them now have customers and business links in foreign markets such as the US, EU, Australia, New Zealand, Malaysia and so on. Local universities are also participating with some companies in the SPT to produce the local e-learning services. The establishment of SPT has facilitated technology transfer within and outside the Park and encouraged a first step towards the clustering concept of innovation that the tenants will be able to learn from each other, NSTDA, participating universities, and firms located outside the park, especially trans-national corporations.

Socio-economic Impacts of ICT Thailand, being a developing country, is using the ICT for eradication of poverty. The main socio-economic impact is, therefore, in this area. In the recent World Summit on Information Society, the desirable Information Society is categorized as “a people-centred, inclusive and development-oriented Information Society, where everyone can create, access, utilise and share information and knowledge, enabling individuals, communities and peoples to achieve their full potential in promoting their sustainable development and improving their quality of life” (see Website J, 2003:1). Accordingly, ICT is a development tool contributing to the realisation of the Millennium Development Goals (MDGs). Yet, the uneven distribution of ICT among individuals, communities and nations, the digital divide, would pose a serious problem if the benefit of ICT cannot be reaped by all, but by only a small privileged section of the society.14 This section, therefore, begins with the overview of ICT diffusion in Thailand and analyses qualitatively on the impact of ICT on one of the MDGs, poverty eradication.

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Innovation System for ICT: The Case of Thailand

Although the slow diffusion of broadcasting technology is being compared unfavourably with internet, broadcasting technology has reached the citizens in Thailand as shown in Table 3. The country witnessed significant increase in computer penetration in the year 2003, as a result of government intervention described in public-private partnership section. In the area of telecom, mobile phone experienced exponential growth and surpassed the fixed line since 2001. Internet, which is instrumental to information and knowledge access, is steadily on the rise and there are around 7m internet users in Thailand. The number of broadband users, however, is estimated to be a mere 1 per cent of total internet users. Notwithstanding the positive trend, digital divide prevails for all types of technologies listed in Table 5.3. For instances, internet users are concentrated in the capital city, which made up nearly 30 per cent of the entire users. Table 5.3: ICT Diffusion in Thailand - Selected Indicators Indicators Percentage of Households with Television Percentage of Households with Radio Percentage of Households with Computers Number of fixed lines in operation per 100 Inhabitants Number of mobile users per 100 Inhabitants Number of Internet users per 100 Inhabitants

2000

2001

Years 2002

2003

2004

90.6

n/a

n/a

92

n/a

76.7

n/a

n/a

51

n/a

n/a

5.1

n/a

8.2

11.1

8.8

9.4

10.0

10.0

10.2

5.6

11.8

27.7

34.1

36.3

3.7

5.6

7.7

10.4

11.9

Source: NECTEC (2005); and NSO (1990 and 2000).

Thailand has begun to integrate or incorporate ICT into some (but not yet all) development strategies and programmes. To illustrate these indirect development effects, sample cases on the application of ICT are discussed here.15

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(a) Thailand Integrated Water Resource Management Project The project was started by the Office of the Royal Development Projects Board in 1998, in collaboration with the Suksapattana Foundation, and the Thailand Research Fund (TRF). This project uses networked computers to collect information related to water resources initially in the lower part of the Chao Phraya River. Since “poverty” can be a result of natural disasters including flood and drought, the development of a computerized information system on water resources, promoting the linkage of information, coordination and management of water resources previously scattered among various organizations, will improve management in preventive measures and problem solving after the disaster occurs. The data can also be made publicly available or further developed to raise awareness among the people (NECTEC, 2003a).

(b) Agriculture Information Network (AIN) The project aims to develop a national agricultural information network that includes agricultural information and geo-spatial databases, good agricultural practices, a warning system and risk management tool including information about crop and land suitability, market trend, government policy. Four modules were developed for different target groups, namely farmers, researchers, commodity based food industry and exporters of agricultural products. Farmers can have access to this information themselves or through ‘information/ technology brokers’. It is hoped that the project will support Thai farmers in becoming a sustainable self-learning community (NECTEC, 2002).

(c) One Tambon16 One Product and Thaitambon.com Thaitambon.com is regarded as a semi-public initiative as it was launched and maintained as public service by the Prime Minister and his ruling party – Thai Rak Thai (see: Website F). The scheme started in 2001 - about the same time as internet tambon,17 and the two operations are closely related. Many TAO officials are familiar with 172

Innovation System for ICT: The Case of Thailand

thaitambon.com to which they regularly supply information and updates. Thaitambon.com is a clearing house for local and community products. It complements the government’s ‘one-tambon-one-product’ (OTOP) initiative, which takes after Japanese Oita prefecture’s model. Both are expected to strengthen the link between rural producers with urban consumers, and ultimately the international market. Civil society, who are active players in working with the poor in Thailand also benefit greatly from ICT, particularly internet and ecommerce. One of the pioneers and still most popular among the development websites is www.bannok.com.18 It was initiated by a young development activist to show how ICT can benefit the poor and be a communication and information dissemination tool among rural development workers. The website features various volunteer projects, eco-cultural tourism, donation and volunteer drives, youth network, highland people’s museum, highland people’s bulletin board, antiwomen trafficking projects, etc. It won an innovation award by the World Bank in 2001. Another example is the Lighthouse Project, funded by Suksapattana Foundation which is an affiliation of a large corporation. The Foundation is interested in projects that encourage adults and children to learn new skills together through ICT. The Village that Learns was an experimental venture in Buri Ram, one of the poorest provinces in the country. The project provided computers, internet access, and training courses to rural people. A few of them became fascinated with the opportunity to learn new skills and new ideas, and became “trainers” to others in the village. The internet also brought in farming advice. Some villagers now keep spreadsheets to trace vegetable prices, which help them make farming decisions. They can also use them to monitor expenses and income at the end of each season. The computers and internet also serve as learning tools for children in the village. Despite impressive case studies, it is observed that traditional ICT technology such as TV, has not been used to a large extent to help the poor. This may be due to the commercial nature of the television business. Broadcasting technologies can be used to quickly introduce a subjec or an issue, and then point people to sites on the internet for more detail information, provided that access is available, and affordable to a large group of people in the country.

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It should be noted that while the cases above show that there is immense interest, on the part of the government and non-government organisations to deploy ICT for poverty reduction, no systematic mechanism to monitor and evaluate the actual results seems to be in place. Therefore, the cases here should be treated merely as a sign of Thailand acknowledging the potential contribution of ICT on socioeconomics development. The assessment on actual impact, which at present is lacking, should therefore be encouraged.

Conclusions Since 1990s, Thailand has been making effort to foster an innovation system for ICT. Since then there have been significant changes in how ICT progressed in Thailand. Two subsequent ICT master plans, together with the establishment of the ICT Ministry, and more structured ICT institutional framework provided stronger boost to ICT development in the country. Thailand has also recognised the role of ICT in solving socio-economic problems the country is facing. Several initiatives have been undertaken with a national perspective and have been embedded in broader socio-economic development strategies. ICT is acknowledged as one of the principal development tool to tackle poverty reduction, which is one of the major national objectives. The work in this area is spearheaded by government agencies (outside bureaucratic system) such as NECTEC. While it is believed that ICT policies have been relatively well formulated, the actual implementation of these policies has not been systematically monitored or evaluated. Although Thailand has made significant progress in fostering ICT for development, with more careful examination one can see there are still major weaknesses. For example, the electronics sector, the number one exporting industry, appears to be locked up in the lower end of the value chain, notwithstanding recent evidence suggesting an upward mobility along the value chain as shown in the case of hard disk drive. Software industry and ICT services are still lagging behind other countries of the region. Also, the access to ICT is still largely confined to relatively a small section of the society, mainly due to low income level and slow spread of computer literacy. Therefore, it is difficult to locate the exact nature of spillover effects of ICT on Thailand’s national innovation system.

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Nonetheless, based on the experience of the innovation system for ICT in Thailand, the following generalisations and policy recommendations could be made for other developing countries: (i) National policies and plans on ICT are necessary to initiate shared national vision and synergise collective efforts from various stakeholders in a country. Strong political will at the highest level of the government is imperative, particularly in developing countries that have weak technological capability and institutional environment. Autonomous and specialised policy agencies outside bureaucratic red-tape might be better instruments in formulating and coordinating national ICT policies. (ii) Nonetheless, national policies, political will and autonomous policy agencies are by no means sufficient to encourage the growth of ICT industry and generate spillovers to economic and social sectors. Implementation of these policies and plans at the lower levels are equally important. Many developing countries like Thailand are doing relatively well in policy formulation, but they are weak in implementing and monitoring these policies. (iii) Efficient ICT policy formulation and implementation process needs synergistic supporting intuitional framework with a clear-cut division of labour ranging from policy formulating, regulation, to operation levels. (iv) Finally, it is imperative to address the root causes that lead to unsatisfactory results or total failure of ICT for development strategies and programmes such as poor ability to access ICT, obstacles to rapid spread of computer literacy, poor ICT infrastructure, and failure to ‘localise’ ICT contents and applications.

Notes

1

The Ministry has changed its name to Ministry of Science and Technology after the bureaucracy reform in 2002.

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2

MICT is comprised of (i) government agencies such as National Statistical Office, Meteorological Department, and the Post and Telegraph Department, which has already been transformed into the office of the National Telecommunications Commission; (ii) State owned Enterprises which has just recently been transformed into public companies such as TOT Corporation Pcl., CAT Telecom Pcl., and Thailand Post; and (iii) newly established agency named Software Industry Promotion Agency.

3

This is despite the fact that, in January 2003, the Cabinet approved a reform in NITC structure to create the link between the new ministry and the existing NITC.

4

The last NITC meeting took place on 12 September 2003.

5

Government ICT projects at the value of 5 millions baht and above need to be considered and approved by MICT. Projects which require less budget than that amount can be approved from the Budget Bureau.

6

Broadcasting technologies, often termed ‘traditional media’, are also classified, but often forgotten or ignored, as ICT. Their prominent role was accentuated in the first phase of the World Summit on Information Society in Geneva (see Website B). In Thailand, the Government Public Relations Department, which operates under the Prime Minister Office, is in charge of broadcasting.

7

According to Article 36, Minister of MICT will chair the Commission and Director of NECTEC from MOST is the Commission’s secretary. For the details of the Act, see Website A.

8

Thailand is currently having FTA negotiation process with the USA. In telecom-related area, MICT and NTC are jointly leading the negotiation since a large number of issues involved regulatory environments.

9

For example, pilot projects such as SchoolNet (see UNDP, 2001) and initiatives to provide IT legal infrastructure.

10

Findings from IT 2000 Evaluation revealed that a large section of private sector industry did not know that such policy existed.

11

The project is considered a landmark in bridging the digital divide in Thailand, and often cited as a case study in forging public-private partnership. See, for examples, Thailand speech in WSIS Phase I (Website B); and UNESCAP (2005).

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12

The plan was completed in January 2005. However, the plan is relatively unknown to the public as there is no formal announcement. There is no apparent process to request for the approval at the cabinet level. Therefore, it is not clear if this plan should be treated as macro policy or ministerial operation plan.

13

Industrial clusters are geographical concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions (for example, universities, standard agencies, and trade associations) that combine to create new products and/or services in specific lines of business.

14

The eight MDGs are poverty eradication; achievement of universal primary education; promotion of gender equality and empowerment of women; reduction of child mortality; improvement of maternal health; combating HIV/AIDS, malaria and other diseases; ensuring environmental sustainability; and development of global partnerships for development. See Website H for background on MDGs; and see Website J for Building the Information Society: a global challenge in the new Millennium.

15

The information here is heavily, but not exclusively, drawn from NECTEC (2003 and 2003a). See Website C.

16

Tambon is local administration. villages.

17

Internet Tambon is the government’s initiative to connect almost 7,000 Tambon Administration Offices (TAOs) during 2001-2003. TAOs were recently upgraded from being inactive and powerless local administrative units to become the designated level of democratic decentralization. The primary objective was to improve the performance of these local units. Eventually, internet tambon was also expected to deliver other benefits such as promoting and expanding the market for local and community products via internet. See Website F for further details.

18

‘Bannok’ is a Thai word for rural area.

One Tambon is composed of several

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Bibliography

AIT/Asia Policy Research (2003): “Strengthening the Hard Disk Drive Cluster in Thailand” (An Interim Report submitted to National Science and Technology Development Agency, Thailand). Bank of Thailand (2003): Economic and Financial Statistics, First quarter. Ernst D. (2001): “From Digital Divides to Industrial Upgrading: Information and Communication Technology and Asian Economic Development” (Working Paper No. 36, East-West Centre, Honolulu, Hawaii). Hobday M. (2002): “Innovation and Stages of Development: Questioning the Lessons from East and South East Asia” (Paper presented to the SOM/TEGConference at the University of Groningen, The Netherlands, August). House of Parliament, Thailand (2000): “Frequency Allocation Act B.E. 2543 (A.D. 2000)” (see: www.kodmhai.com/m4/m4-21/N1/N-1.html). House of Parliament (2001): “Telecommunication Business Act B.E. 2544 (A.D. 2001)” (see: www.kodmhai.com/m4/m4-1/N128/N-128.html). House of Parliament (2004): “Electronic Transaction Act. B.E. 2544 (A.D. 2001)” (see: www.kodmhai.com/m4/m4-17/N58/N-58.html). House of Parliament (2002): “Public Reform Act B.E. 2545 (A.D. 2002)” (see: www.kodmhai.com/m4/m4-10/N39/N-39.html). Intarakumnerd P. and Panthawi P. (2003): “Science and Technology Development Toward a Knowledge-Based Economy” in Minoru Makishima M. and Suksiriserekul M. (eds.) Human Resource Development Towards A KnowledgeBased Economy: The Case of Thailand (Chiba, Japan: Institute of Developing Economies). Intellectual Property Office, Chulalongkorn Univerisity (2003): Development of Industrial Linkage and Innovation Capability (Report submitted to National Science and Technology Development Agency, 29 February). Joseph K. and Intarakumnerd P. (2004): “GPTs and Innovation Systems in Developing Countries: A Comparative Analysis of ICT Experiences in India and Thailand” (Paper presented to the Second International Globelics Conference: Innovation Systems and Development: Emerging Opportunities and Challenges, Beijing, China, 16-20 October). Koanantakool T. (2002): “National Information Policy in Thailand” (Paper presented to the World Summit on Information Society: APIN-WSIS Meeting, Bangkok, 14 December).

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Koanantakool T. (2003): “Thailand” in Yoon C. (ed.), Digital Review of Asia Pacific (Penang, Southbound). Mephokee C. (2003): “Thai Labour Market in Transition Toward a Knowledge-Based Economy” in Makishima M. and Suksiriserkul S. (ed.), Human Resource Development Toward a Knowledge-Based Economy: The Case of Thailand (Chiba, Japan, Institute of developing economies, Japan External Trade Organization). Ministry of Information and Communications Technology (2005): ICT Operation Plan 2006-2007 (Internal paper, Government of Thailand). NESDB (2002): The Ninth National Economic and Social Development Plan (20022006) (see: www.nesdb.or.th). National Information Technology Committee (NITC) Secretariat (1996): IT 2000 Policy, 2nd Edition (Thailand, National Electronics and Computer Technology Center). NITC Secretariat (2002): IT Policy Framework 2001-2010: Thailand Vision Towards a Knowledge-based Economy (see: www.nectec.or.th/pub/book/2005-2-25-235789IT2001.pdf) NITC Secretariat (2003): Thailand Information and Communication Technology (ICT) Master Plan (2002-2006) (see: www.nectec.or.th/pub/book/ICT_Masterplan_Eng.pdf) NECTEC (2002): ICT for Poverty Reduction: Examples of Programmes/Projects in Thailand (see: Website C). NECTEC (2003): ICT for Human Development: Thailand Case, unpublished paper. NECTEC (2003): IT for Poverty Reduction: Sample Cases from Thailand. NECTEC (2005): ICT Indicators 2005: Thailand in the Information Age (see: www.nectec.or.th/pld/documents_pris/ict_indicators2005_180705.pdf) NESDB (2002): The Ninth National Economics and Social Development Plan (Bangkok, Government of Thailand). NSO (1990 and 2000): Population and Housing Census (see: www.nso.go.th). NSTDA (2004): The National Science and Technology Strategic Plan (2004-2013) (Bangkok, Government of Thailand). Prime Minister Office (1992 to 2003): Regulations on Information Technology Promotion (see: www.kodmhai.com/Rbk/New2/N24.html) Software Industry Promotion Agency (SIPA) (2004): SIPA Annual Report 2004 (see: www.sipa.or.th/main/downloads/document/annual2004/annual2004.pdf)

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Thuvasethakul C. and Koanantakool T. (2002): “National ICT Policy in Thailand” (Paper presented to Africa-Asia Workshop: Promoting Co-operation in Information and Communications Technologies Development, Kuala Lumpur and Penang, Malaysia, 25-29 March). Thuvasethakul C. (2003): “Thailand ICT Policy” (Paper presented to the Regional Seminar on Enabling Policies and Regulatory Framework for Information and Communication Technology Development in the Asia-Pacific Region, 1-3 December). Thuvasethakul C. and Pooparadai K. (2003): “ICT Human Development within Thailand ICT Policies Context” (Paper presented to the 2nd Asian Forum for Information Technology, Ulaanbaatar, Mongolia, 2-3 October). UNDP (2001): Human Development Report 2001: Making new technologies work for human development (New York, Oxford University Press). UNESCAP (2005): Collection of Cases of Financing ICT for Development in Asia and the Pacific, (New York, UN). Website A: Website B: Website C: Website D: Website E: Website F: Website G:

Website H: Website J:

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CHAPTER 6

Innovation System for ICT: The Case of South Africa Angathevar Baskaran, Mammo Muchie, and Rasigan Maharajh

Introduction

We must continue the fight for liberation against poverty, against underdevelopment, against marginalisation…information and communication technology…is a critically important tool in that struggle. -- Thabo Mbeki, President of South Africa (Department of Education, 2003)

S

ince the end of the apartheid, South Africa has been attempting to reengineer its political and socio-economic structures to level racial inequalities, to eradicate poverty, to bridge the gap between the rich and the poor, to reduce regional imbalances, and to provide universal access to health care and education. For this, the government has been introducing significant changes to policies, institutions, and resource allocation. It has also been making effort to develop a strong and competitive national innovation system with the twin objectives of addressing the socioeconomic problems internally and raising the competitiveness of its industry to face the challenges of globalisation. However, as the legacy of apartheid lingers on, the country is facing many obstacles and the exclusion and division within the South African society continue to be major problems. For example, “the production of science is still dominated by historically white universities and technikons, and 181

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majority of scientists in the public sector are still white and male” (Mouton, 2003: 254). The national innovation system in South Africa appears to be still in transition. Before the dawn of democracy in 1994 South Africa, under the apartheid regime, used science and technology mainly to build defence and nuclear capabilities. The national innovation system was geared towards strengthening the capability to export military hardware. This resulted in a lopsided or uneven technology accumulation - a high level of capability in the defence and selected areas of civil industries, and a low or no capability in many civil sectors. The racial inequality perpetuated under apartheid was also reflected by the national innovation system in South Africa. The scientists were predominantly white, and R&D organisations and educational institutions were highly imbalanced between the white and black communities. The lopsided national innovation system coupled with apartheid policies exasperated the inequality, exclusion, division, disparity in income and social benefits. This division or lopsided development of South African economy is captured by Figure 6.1. In South Africa this division is known as the first and the second economy. The first economy is well developed (though mineral and financial based) and comparable to that of the EU or the US and has many similar characteristics of developed economies. The financial, technological and production systems and inter-linkages between these systems of the first economy are largely similar to that of developed countries. The first economy is outward looking and tends to link up with developed economies such as the US and Europe. On the other hand, the second economy is informal and rural/ agricultural based. It involves urban and semi-urban trading systems. And the education system is afflicted by severe disparities and imbalances. Therefore, the problem of lopsided national innovation system and the divide between the first and second economies have been posing serious challenge to the policy makers. Since mid 1990s, the democratic government has been taking efforts to correct the imbalances and to facilitate opportunities for the historically disadvantaged communities. This is clearly stated by the White Paper on S&T in 1996: “The vision is one where, on the one hand, South Africa uses S&T to become economically competitive on a global scale and, on the other hand, to provide essential services,

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infrastructure and effective health care for all South Africans” (cited in Mouton, 2003: 255).

Figure 6.1: Potential Role of ICT in the Lopsided or Uneven National Innovation System in South Africa

Lopsided/ Uneven National System of Innovation - Shaped by History of Aparthied - Racialised economy and social systems

First Economy - Similar characteristics as a developed economy - Mineral and Financial based - Tendency to link up with developed economies such as EU, and the US - Operates like a highly developed economy -- developed financial, technological, and production systems

Potential Role of Innovation System for ICT Bridging not only Digital Divide but also Bridging the First and Second Economies

Second Economy - Informal - Agricultural/ Rural - Urban / semi-urban trading - Disparities in Education

Source: Authors

Particularly, ICT is perceived as an important tool to achieve this. At all levels of government - local, provincial, and national - ICT policies and initiatives have been implemented to achieve socioeconomic objectives such as reducing poverty, empowering black businesses, removing imbalances in the education system and creating opportunities and employment in the rural areas. However, the situation in the ICT sector appears to be no different from other areas of the economy. Some imbalances in ICT infrastructure and access that existed in the country during the pre-democratic era appear to persist (Davie, 2005). In this context, it will be interesting to examine whether the innovation system for ICT will be able to bridge ‘digital divide’ and bridge the gap between the first and second economies in South Africa.

ICT Policy Framework and Initiatives As a response to the concern that Africa may be left behind in the information revolution the African countries meeting at the UN Economic Council for Africa (ECA) adopted a resolution in 1995 for 183

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‘Building Africa’s Information Highway’. They also adopted an action plan known as the Africa Information Society Initiative (AISI) which focuses on developing e-strategies at the national level called the National Information and Communication Infrastructure Plan (NICI). The focus of NICI is on: (i) development of physical ICT infrastructure; (ii) creating a legislative and regulatory framework; (iii) building national information resources; (iv) ICT applications in key social and economic areas; (v) linking national, regional, and global development goals; and (vi) development of human resources (UN Economic Commission for Africa, 2003). South Africa played a major role in formulating a number of continent level ICT initiatives such as AISI. Subsequently, the New Partnership for African Development (NEPAD) was initiated in response to the growing gap between Africa and the developed world. The NEPAD identified ICT as “central in the struggle to reduce poverty on the continent” (Department of Education, 2003). It set out the ICT policy framework for African countries. The major goals are: (i) E-governance and E-democracy; (ii) applications of ICT for education and health; (iii) ICT infrastructure to improve knowledge, economic development and advancement; (iv) fostering entrepreneurship through ICT and private sector participation; (v) harnessing ICT for development of agriculture and management of environment; and (vi) fostering a conducive regulatory environment (UN Economic Commission for Africa, 2001). Soon after the dawn of democracy in the early 1990s, the government White Paper on Science & Technology (1996) laid out its vision for creating an Information Society: A South African vision of the information society should seek to ensure that advantages offered by the information revolution reach down to every level of society and achieve as best a balance between individuals and social group, communities, and societies...The potential of information technology (IT) needs to be captured to serve people issues such as supporting education, providing household services and enabling social development (Department of Arts, Culture, Science and Technology, 1996).

In 2001 a Presidential National Commission on Information Society and Development (PNC on ISAD), consisting of representatives from public and private sectors was established to advise the government on using ICT for achieving socio-economic development and competitiveness. Another body, “Presidential International Advisory 184

Innovation System for ICT: The Case of South Africa

Council on Information Society and Development (PIAC on ISAD),” involving international experts, was also created to advise the government on the problem of ‘digital divide’. In 2002, the Advisory Council identified three major areas of focus for developing ICT: (i) education; (ii) health; and (iii) small, medium and micro enterprises (SMMEs). The Department of Communications (DoC) is a policy making body for the post, telecommunications and broadcasting services in South Africa. It set out the ICT policy framework under the Electronic Communications and Transactions Act (2002). The national ICT policies focus on following issues: (i) correcting the historical imbalances in the provision of communication services through easy and cheap access to ICT; (ii) developing an innovation system for ICT to benefit from the convergence in communication technologies; (iii) developing the ICT human resources to meet the needs of the industry as well as the socio-economic development programmes; (iv) making South Africa globally competitive in ICT products and services; (v) by opening up opportunities for historically disadvantaged communities; and (vi) to utilise ICT for further integration in Africa. In the year 2000, the Department of Trade and Industry set up the ICT Development Council to develop the ICT and Electronics sectors. Members of the Council included representatives from not only the multinational corporations but also small and medium local companies. It also consisted of companies owned or managed by the historically disadvantaged people. The South Africa IT strategy project (SAITIS) was developed by the Department of Communication and the Department of Trade and Industry, in consultation with all stakeholders including the private sector. SAITIS has four major objectives: (i) to create a robust, growing and sustainable ICT sector; (ii) to increase the use of ICT to achieve socio-economic development; (iii) to create a pool of ICT workforce; and (iv) to create a world-class ICT innovation system. These objectives reflect those set out by the Electronic Communications and Transactions Act (2002). SAITIS took specific initiatives to achieve these goals which include providing internet access in schools; creating an academy for software development and training; providing community internet access points; and providing government information terminals (UN Economic Commission for Africa, 2003a: 17).

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Figure 6.2: ICT Innovation System in South Africa

National ICT Policy Framework Increasing Industrial competitiveness

National Information and Communication Infrastructure Plan (NICI) ; NEPAD; South Africa IT Strategy Project; Electronic Government -- The Digital Future

Achieving Socio-economic Development: E-government, E-education, E-health and Universal Access to ICT

ICT Firms and Industry Associations Department of Trade and Industry Department of Science and Technology

Industrial Output, Export and Employment Growth

Public R&D Organisations Universities

Wider Diffusion of ICT and Wider Distribution of Benefits of ICT

Provincial and Local Government Agencies

BEE Companies Financial Institutions Schooling System S&T Infrastructure

Department of Communications Department of Education Department of Health Department of Science and Technology

Non-Government Agencies (Non-Profit Sector)

International and Regional Organisations

Source: Authors

Since late 1990s, South Africa has launched many projects for ICT innovation. For example, the Gauteng province set up an innovation hub between Johannesburg and Pretoria with the active involvement of the Council for Scientific and Industrial Research (CSIR) and the University of Pretoria. It aims to encourage high growth, innovationled and knowledge based businesses. In 1998 the Cape Information Technology Initiative (CITI) was set up as non-profit development agency to develop the Western Cape as a global IT hub and the IT gateway to Africa. It intends to build Cape Town as an ICT city (see CITI website). South Africa also has established the Spatial Development Initiative (SDI) and installed infrastructure for the development of cutting-edge technologies. The CITI encourages the growth of the IT clusters in the Western Cape. It also set up two highprofile task teams consisting of international experts to assist the government in closing the ‘digital divide’ (UN Economic Commission for Africa, 2003a: 17-18). The policy makers have identified three critical elements that will determine the impact of ICT on socio-economic development in South Africa: (i) cost-effectiveness of technology and solutions in order to benefit rural areas; (ii) sustainability of the technology; and (iii) 186

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capacity building and support mechanisms for efficient utilisation of ICT (Department of Education, 2003). South Africa, thus, appears to have clearly identified the goals for ICT innovation system. It has formulated a number of policies and set up necessary institutional mechanisms to implement various projects to achieve these goals (see Figure 6.2). We shall examine in the following sections the extent to which the policies and projects have been successful. First, we discuss the changes and growth in the ICT industry since late 1990s. Then, we shall discuss various developments in the area of ICT diffusion and applications.

ICT Industry The ICT sector is part of the Electrotechnical Industry in South Africa. The Department of Trade and Industry has been actively promoting the ICT and Electronics sectors. The South African Electrotechnical Export Council (SAEEC) is a Public Private Partnership (PPP) between business and the DTI to support and coordinate export initiatives from electronics, electrical engineering, and information technology and telecommunications sectors. The size of the ICT sector in relation to the electrotechinal industry and the total industry is given in Table 6.1. Telecommunications and information technology are not only the two top industrial sectors of the electrotechinal industry but also in the total industry in terms of size. They are much bigger than the aerospace and defence sectors combined, although the latter received more attention of the state during the apartheid era. This shows the importance of these two sectors for the economy in terms of contribution to GDP and employment. No wonder the government is keen on developing the ICT industry and making it strongly competitive in the global market. The ICT industry emerged strongly after a short period of downturn from the late 1990s and until 2001. According to a survey, of the 40 ICT and electronics companies that reported results for 2002, 77 per cent reported profit. Their turnover increased from R 67b in 2000 to R 88b in 2001 (an increase of 31 per cent) and to R 107b in 2002 (increase of 21 per cent). The survey also found that in many ICT subsectors in South Africa, the firms have acquired world-class technological sophistication and they can compete in developed markets such as the EU and the US. According to Bruce Conradie, an 187

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ICT analyst who led the research survey, “South African IT players are increasingly eyeing these markets, and their sense of self-belief is growing” (SouthAfrica.info, 29 April 2003). Furthermore, the survey revealed that an increasing number of South African firms are expanding into Southern, East and West Africa, and the country has become a favourable place for many multinational companies to base their regional offices - to oversee their operations mostly in the Middle East and Africa. Table 6.1: Relative Size of ICT Industry in South Africa Sector

Electrotechnical Industry Size (R billion)

Total Industry Size (R billion)

85

85

43 5 5

43 20 10

5

5

2 2 2.5 2.5 152

3 20 N/A N/A --

Telecoms (including Broadcasting) Information Technology Aerospace Defence Instrumentation & Process Control Security Automotive Power Other TOTAL

Source: Department of Trade and Industry, South Africa (2004), A Description of the South African Electrotechnical Industry, June, p. 15. Note: 1US$ = 6.5 SA Rand (2005)

However, the survey also revealed a number of negative trends: (i) the telecommunications policy and the Telkom monopoly have been hindering the development of the ICT sector and the diffusion of ICT into key economic sectors in the country; and (ii) there has been a shortage of ICT skills. Therefore, the report stressed the need for ICT skills development (SouthAfrica.info, 29 April 2003). Furthermore, the survey revealed that the overall electrotechnical industry “is not good at internationalisation” and “relatively unknown globally and therefore ‘undersold’” (Department of Trade and Industry, 2004). In 2002, South Africa moved from 46th to 38th place (out of 80 countries) in the World 188

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Economic Forum’s international competitiveness rankings. According to the CITI: “collaboration and clustering in the ICT sector were key” behind this improvement (see Website D). Another study in 2005, conducted jointly by independent research houses World Wide Worx, Razorʹs Edge Business Intelligence and Trigrammic, found that the ICT industry has fully recovered from the market slump of late 1990s. The number of loss-making public ICT companies has declined significantly, partly due to delisting of some of the poor performance companies, but mainly due to better management and economic environment. Only four of the 37 companies included in the survey made a loss in 2004, which was down from more than a quarter in 2001, and this compared well with other sectors. The profits made by surviving companies have more than trebled between 2000 and 2004 (i.e. from R 5.4b to R 18.8b). Their turnover has also more than doubled during this period, that is, from R 61b in 2000 to R129b in 2004. While the NASDAQ index in the US has fallen by 10 per cent in 2004, the share prices of South African ICT companies increased by 30 per cent. According to market analysts BMITechKnowledge (BMI-T), the value of ICT industry has grown by 9.7 per cent to R 45.6b in 2004, after it grew by only 1 per cent to R 41.5b in 2003. Despite the slow down in global ICT market, the industry grew at a compound annual growth rate (CAGR) of 11 per cent from 1998 to 2003. Particularly, “the IT industry growth outpaced the growth of South Africaʹs broader economy during this period” (Mzolo, 2004). ICT industry has employed 62,100 professionals and 30,000 others. Microsoft South Africa notes that salaries in the industry are almost five times higher than South Africaʹs average salaries. ICT industry contributed R 1.4 trillion that amounts to about 11 per cent of the GDP. This is likely to grow with the restructuring of the planned telecommunications sector (Ibid). The study found that all ICT sub-sectors witnessed significant overall growth. It also underlined the “extent to which ICT developments have come to affect the entire South African economy.” As ICT policy is both vertical, in dealing with policies governing sectors such as education, tourism, manufacturing and health, among others, and horizontal, tackling issues such as tariffs and pricing, and government procurement, the study concluded that “when the ICT sector is healthy, the whole economy is in a better shape” (Mail and Guardian on Line, 14 April 2005). 189

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Despite these positive developments, the ICT firms appear to be still cautious about the short-term future because of their experience with the recent slump in the global ICT market. There are also concerns about greater uncertainty in the domestic market due to a number of factors such as the impact of open-source software that is likely to be both a threat and an opportunity for the established software industry and the proposed ICT black economic empowerment charter. Besides, the growth of some sub-sectors such as networking, has been relatively slow, largely due to regulatory constraints. This appears to have had an adverse impact on other sub-sectors such as enterprise resource planning and the outsourcing industry. Particularly, the call centres have been unable to exploit their full potential in international market. However, the call centres are likely to grow strongly due to the deregulation of voice over internet protocol (Mail and Guardian on Line, 14 April 2005). The South African Technology Vanguard (Savant), a recentlylaunched partnership between the government and key industry players, has been trying to apply ICT to bridge the gap between first and second economies in South Africa. It argues that while South Africa should strive to compete in the outside markets by absorbing and applying sophisticated technologies such as ICT, the ICT industry should also simultaneously adapt and apply these technologies to the local market. It has been helping the industry to develop and expand the local ICT market such as ICT applications in banking, communications and media sectors (SouthAfrica.info, 29 April 2003) Savant aims to make South Africa one of the leading countries in ICT and electronics sectors by creating export opportunities, promoting foreign and local investment, developing ICT skills, and building innovation capabilities. It has identified six areas in which South Africa has competitive advantage: (i) IT training and certification; (ii) call centres; (iii) wireless development; (iv) pilot labs; (v) niche software development; and (vi) infrastructure development. Major South African companies that have contributed to Savant include Absa, Comparex Africa, CS Holdings, Dimension Data, MGX, MTN, Nedcor, and Telkom (SouthAfrica.info, 16 April 2003). The government has been making efforts to promote the Blackowned ICT firms. For this, the Department of Trade and Industry (DTI), in partnership with some non-profit industry organisations, has developed a database of Black Economic Empowered (BEE) companies 190

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in the ICT and E sector. During the first phase (by March 2003), the database held 250 companies. During the second phase another 600 companies were added to the database. The objectives behind the database are (i) to help firms and other players in the ICT and electronics sectors to identify BEE partners and to develop new value chains; and (ii) to help BEE companies to access both local and foreign markets. Over the years, there has been an increase in the number of BEE companies in the ICT sector (see Website B). To sum up, South Africa has formulated a number of policies and initiatives to increase the competitiveness of ICT industry, particularly the software and services sector. This sector experienced a downturn in the late 1990s due to the slowdown in the global ICT market. Although it has registered significant growth in terms of turnover, exports and employment since 2001, it seems to operate at a lower level of the value chain. Telecommunications sector Since early 1990s, the telecom sector in South Africa has undergone major changes, both due to technological changes and also due to government policy decisions towards liberalization of the sector. The government has been trying to expand the telecom infrastructure and also make telecom services cheaper and easily accessible to low income and rural population. In 1997, the government granted extension of license to Telkom for another five years with some conditions. In that year, the government also sold a 30 per cent stake in Telkom to the Thintana Communications consortium consisting of SBC Communications International and Telecom Malaysia. The agreement included a commitment to install 2.8m new main lines (including 12,000 payphones) and to replace 1.25m analogue lines by March 2002. Although the monopoly of Telkom ended recently, the second operator has not yet been licensed and therefore Telkom continue to be the sole provider of services in practice. Its right to provide basic services has been extended to include the second network operator and the signal carrier Sentech has been granted a wide-ranging licence to provide internet access services. The telecom sector in South Africa grew significantly. In early 1990s, its contribution to GDP was below 2 per cent, but by 2003 this 191

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increased to about 6 per cent. The ‘managed liberalization’ policy led to partial privatization in 1996. A five- year monopoly was given to Telkom in return for an increase of 2.69 million new lines. But, during this period of exclusivity the number of fixed lines actually declined. The strategy of boosting telephone penetration through granting exclusive license failed. Charges have increased by 27 per cent on average a year and the cost of local call became almost five times the rates of 1996. As a result, more than 2 million lines were not connected (that is, about 75 per cent of the license obligation). The end of monopoly of Telkom and the liberalization of the telecom industry in South Africa mean other operators will no longer need to lease their networks from Telkom at a rate demanded by it. They are likely to set up their own wireless-based networks or use satellite services. Mobile phone operators -- Vodacom, MTN and Cell C -- will also be allowed to lease facilities from other providers. These changes are likely to reduce the cost of phone calls (both local and international) and lead to expansion of the internet industry. Eventually, the aim is to make local calls free, providing a great benefit to the poor and to the economy as a whole (SouthAfrica.Info, 20 September 2004). However, this negative performance in the fixed-line sector was compensated by the fast growth witnessed in the mobile sector. Since 1994, the mobile phone market in South Africa has been expanding rapidly. Recently, it has been growing at a rate of 50 per cent per annum. It is the fourth fastest growing GSM (Global Systems for Mobile Communications) market in the world. According to ITU, the number of mobile subscribers has overtaken fixed line subscribers in 1999. By February 2003, the number of mobile subscribers was 14.5m as against 4.9m fixed line subscribers. One of the main factors contributing to the rapid growth of the mobile phone sector has been the introduction of pre-paid subscriber packages. The market size in 2003 in terms of customers was worth R 23b (Gillwald et al, 2004; see Website C). There are three major operators in this area -- Vodacom, MTN and Cell C. Parastatals Transtel, a division of Transnet, and Eskom are the only two companies that maintain private telecom networks. Communications satellite users include Telkom, Sentech and Transtel.

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Table 6.2: South Africa -- Key Telecommunications Indicators Key Indicators Annual telecommunication investment as % of GDP Total telecom revenue per capita (US$) Cost of local call for 5 hrs (US$) as % of monthly GDP per capita Cellular mobile telephone subscribers per 100 inhabitants Cellular subscriber per capita Internet user per capita Main lines per capita % Cellular revenue to total telecom revenue Total telecom revenue as % of GDP Waiting list for main lines Total telecom revenue per subscriber (US$) Main line telecom revenues per subscriber (US$) Cellular Revenues per subscriber (US$)

2000

2001

2002

1.4%

1.2%

0.7%

156.35

139.07

117.46

3.72%

3.43%

4.91%

19.1

24.2

30.4

0.19 0.055 0.114

0.24 0.065 0.111

0.30 0.068 0.107

44.3%

47.6%

57.0%

5.3%

5.4%

5.1%

50,000

N/A

N/A

514

394

286

652

551

474

363

273

220

Source: ITU World Telecommunication Indicators 2003

Because of its vast area, South Africa has a large telecom transmission infrastructure, covering about 156 million circuit-km. It is 23rd in the ranking of telecommunications development in the world. It has the largest, most developed telecommunications network in Africa with over 18m mobile and almost 5m fixed line subscribers (Hiles, 2005). The whole network is almost digital and digital microwave and optical fibre serve as the main transmission media for interconnecting all major centres (see Table 6.2). However, access to telecom services is still a major obstacle. The Independent Communications Authority of South Africa (Icasa) has been set up to promote quality and affordability of telecom services to the disadvantaged sections in the society (see Website A). The licensing of second telecom operator and the introduction of high-speed or broadband wireless access by Sentech 193

Angathevar Baskaran, Mammo Muchie & Rasigan Maharajh

are likely to cut the cost of phone calls and help widen the access to internet in the country. To recapitulate, the telecom sector in South Africa has seen some major changes since early 1990s. Although the sector has seen significant expansion both in terms of fixed and mobile phones, still large parts of the country lacks proper telecom infrastructure. Further, measured liberalization of the sector failed to make the services cheaper and easily available to the weaker sections of society.

ICT Initiatives for Socio-economic Development South Africa has initiated a number of ICT initiatives to achieve socio-economic development. Table 6.3 lists some of the major initiatives taken by the government and the progress made so far. The DTI has formulated a 5-year e-strategy towards human resource development, growth of industry, content and application development, increasing government use of ICT, and diffusion of ICT in the whole economy. The e-strategy is being implemented through a number of projects/ initiatives at different levels (national; provincial, and local). Most of these are listed in Table 6.4. The focus of the projects/initiative is on e-government, development of local software and content, e-education, internet development, and telemedicine (ehealth). In the following sections, we shall discuss various developments in these areas. We shall also present few cases to show the actors involved in formulating and implementing ICT projects and their likely impact or effectiveness.

E-government In February 2001, the Department of Public Service and Administration came up with a public service IT policy framework entitled Electronic Government: The Digital Future, which set out the ‘egovernment vision’ for South Africa: Information technology is a powerful enabler for delivery of services to the public, but…IT must bring value to government’s service delivery initiatives, and government agencies should have a universal understanding of IT value…the IT value should be regarded as the collective benefits—both economical and social-which are derived by all

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stakeholders (citizens, public servants, suppliers, etc) from the usage of equipment, software and /or services.

The South African government has been making strong efforts to develop e-government at all levels (local, provincial, and national). All the national government ministries and departments have developed websites to provide information to the public and also to facilitate some online public services. Many provincial governments also have their websites for information and public service. However, it is not very clear how effective the websites have been in helping the ordinary people in the country, particularly when a vast majority of them neither has access to them nor the knowledge and training to use them. The government is committed to make benefits of ICT accessible for the ordinary people, particularly in the rural and remote areas of the country. Since many of them individually cannot afford access to ICT, it has been trying to address the problem through developing shared or community access. For example, it decided to set up Public Information Terminals (PITs) in post offices, where a variety of government services can be accessed electronically. Additionally, Multi-Purpose Community Centres (MPCCs) are being established all over the country, where previously disadvantaged communities can access government related information (see Website C). Since 2002 the government has been implementing the ‘Gateway Project’ to provide government service delivery to all people, including those who live in remote and rural areas of the country. The provincial governments also started similar projects. For example, Cape Online and Gauteng Shared Service Centre are such projects in Western Cape and Gauteng provinces respectively. The impact of these initiatives and whether they are successful in meeting their objectives will be known only after few years.

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Table 6.3: South Africa--Government ICT Initiatives and Progress Made ICT Initiative 1. National ICT Strategy: Department of Trade and Industry devised a five-year e-strategy to achieve social development and sustainable economic growth.

2. Towards e-Government: Gateway Project

Cape Online Programme and Gauteng Shared Service Centre 3. Telecom Liberalisation: Partial privatization in 1996, and sweeping liberalization in 2004 4. ICT Sector Development and Investment: Centre for Internet Computing at UWC

Progress made Focus on: HR development, cost, growth of domestic industry, content and application development, diffusion of ICT in the whole economy, government use of ICT, innovation and R&D, and coordinated implementation. DoC initiatives to expand service in areas of marginal density, and Telkom launched youth-focused internet project. Work started in 2002. Aims to provide government service delivery to citizens irrespective of geographical location Initiatives by Gauteng and Western Cape provinces started

Mixed results. Cost of fixed line use has not come down which had negative impact on telecom and internet penetration.

A partnership between DTI, Telkom and UWC.

Cisco Systems’ “Networking Academy” in sub-Saharan Africa

Established at Houwteq by DoE’s Institute of Space Applications and Knowledge

Entrepreneurship and Support Programmes

ICT-SMME support programme (public and private partnership), Sector Partnership Funding (DTI), GODISA programme (SA&EU)

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ICT Initiative

Progress made

5. Local software and Content Development

The Human Languages Technology Initiative (HLT), and R&D on HLT (CSIR), and Gauteng Province’s initiative for HLT

6. Satellite Technology

To provide health services and education to remote locations.

7. Education DoC/DoE Strategy for ICT in Education and Shoma Project

To promote computer literacy, teacher development, and to develop an education portal to host educational materials.

Strategy for ICT in Education

Released by DoC and DoE in 2002

Gauteng Online Initiative, and Khanya Project of the Western Cape DoE

Initiatives taken at province level

8. Telemedicine and Health Care Telemedicine Pilot Project Telemedicine Corridor Project

Run by DoH to develop a cost-effective method for the country CSIR is developing mobile technology for rural hospitals in Eastern Cape Province

Source: bridges.org, Progress towards ICT integration in South Africa: a survey of Government initiatives, 4 June 2002.

Although some e-government projects were highly successful and effective, many such projects in various African countries in general ended in partial or complete failure due to the wide gap between the project design and the African public sector reality. In the African context, it is argued that e-government is “essentially an imported concept based on imported design” (Heeks, 2002: 1). The e-government concepts and designs have originated in the West, which largely are different from African realities. When the off-the-shelf e-government projects are implemented without taking into account the local ground reality, they are likely to fail. To avoid failure, such projects should match the local reality and African governments should not copy Western models (Heeks, 2002: 19).

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Table 6.4: Inventory of ICT Initiatives/ Projects in South Africa National Initiatives: 1. Black IT Forum (BITF) 2. BP Express Shops 3. Cisco Networking Academy 4. DANIDA Business-to-Business support programme 5. Digital Partnership 6. Digital Villages 7. Government department developments 8. Health Knowledge Network portal 9. HealthLink portal 10. Hewlett-Packard e-inclusion projects 11.Human Sciences Research Council of South Africa 12. Information and Communication Technology and Society Research 13. Information Systems, Electronics and Telecommunications Technologies – Sector Education and Training Authority (ISETT SETA) 14. Information Systems, Electronics and Telecommunications Technologies (ISETT) mobile 15. Internet Service Providers association (ISPA) Internet Exchanges 16. Internship Programmes 17. Legislative and Regulatory Reform 18. National Electronic Platform 19. National Gateway Project 20. National telemedicine System (NTS) 21. Presidential National Commission on Information Society and Development (PNC on ISAD) 22. SchoolNet South Africa 23. Shoma centres and curriculum development 24. Simputer South Africa 25. South Africa’s Judicial Inspectorate of Prisons

Regional Initiatives: 1. Acacia Initiative 2. African Information Society Initiative 3. Bellanet 4. Community Information Network for South Africa 5. Knowledge Environment for Web-based Learning 6. NEPAD and the e-African Commission 7. Southern African Non-Governmental Organisation Network (SANGONet) 8. United Nations Development Programme (UNDP) telecentres Provincial Initiatives: 1. Cape Online Initiative 2. Guateng On-Line 3. Innovation Hub 4. Khanya – technology in Education Project 5. Tygerberg Children’s Hospital and Rotary Telemedicine Project 6. Western Cape School Network

Local Initiatives: 1. Bandwidth barn Incubator Initiative 2. Community and Individual Development Association (CIDA) City Campus 3. e-township 4. eXactmobile telemedicine Project 5. Linux Labs 6. Lubisi Community Development 7. Manguzi wireless Internet Connectivity 8.On-Cue Compliance SMS Reminders 9. Stellenbosch e-Campus 10. Tsilitwa Wireless Connectivity Project 11. Smart Cape Access Project (SCAP) 12. WIZZY digital courier

198

Innovation System for ICT: The Case of South Africa 26. System Support IT Learnership 27. Telemedicine Research Centre 28. Telkom Centres of Excellence (CoE) 29. Translate.org translation project 30. Torque-IT and Umsobomvu Youth Fund (UYF) 31.WomensNet Radio Exchange Source: bridges.org, Inventory and Analysis of South African ICT Initiatives: government, private sector and civil society, October 2003.

For example, in South Africa a land licensing information system introduced by a municipal government failed completely because the system was never used as it was considered as a threat to the vested interests who used land licensing for their own gain. Another initiative that proved partially successful but ended as a failure, was the touchscreen kiosks for remote and rural communities in the North-West province of South Africa. Although they were used initially by the local communities, they became disused and were removed within a year, mainly because of lack of updated or local content and lack of interactivity (Heeks, 2002: 10). To achieve widespread diffusion of computer applications, like many other developing countries, South Africa has been encouraging the use of open source software. Particularly in the public sector organisations such as government departments the use of open source software will help avoid high cost involved in licensing branded software. The government is the biggest spender on ICT software in South Africa. The cost of software for nearly 400,000 PCs runs into millions of Rand every year. In 2003 it paid R 485m to the Microsoft for 100,000 operating systems, desktop suites and internet technologies supplied under three-year licences. Following this, the State Information Technology Agency introduced the policy to use open source software it they are more cost effective or more adaptable than proprietary packages. Furthermore, there is a strong argument in South Africa that open source software available for free will allow South Africa to develop its own technology skills and improve its efficiency and competitiveness. It is further argued that in less developed countries the government must use open source software to educate young people and deliver services more efficiently. Already many government departments 199

Angathevar Baskaran, Mammo Muchie & Rasigan Maharajh

have been using open source software for data processing and information management. For example, the Department of Public Services and Administration uses open source software for its anticorruption information management system (SouthAfrica.info, 22 August 2005). E-education The Ministry of Education has been trying to increase the ICT access in the education sector. Between 1998 and 2003, it initiated a number of projects with the objectives of boosting the capacity of the managers, teachers and learners and providing electronic resources to educational institutions. These projects are listed in the Tables 6.3, 6.4 and 6.5. The major ones include DoC/DoE strategy for ICT in education and Shoma project, SchoolNet South Africa, Simputer South Africa, and Khanya–technology in education project (provincial level). Most of the e-education projects are collaborative projects involving the government, private sector, and non-governmental organisations. Table 6.5 provides some examples of such collaboration. The government has launched a free education portal www.thutong.org.za - to provide a range of curriculum and learning material, professional development programmes for teachers, and administration and management resources for schools. The main aims of the portal are: (i) to enable the users to interact with experts from the education community, as well as with their peers, both within and outside the country; (ii) to encourage and develop professional and lifelong learning; (iii) to support the needs of various education sectors, grades and subjects through a searchable database; (iv) to provide news and information on the latest developments in the area of education; (v) to provide printable resource material to support the new national curriculum; (v) to get feedback from the users about the resources for quality and usefulness, and to encourage them to submit and share the resources that they might have developed in the course of teaching; and (vi) to serve as a one-stop SA education policy shop, carrying national and provincial policy documents and legislation plus amendments, annotated versions, commentary by experts, and summaries (SouthAfrica.info, 25 January 2005).

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Table 6.5: Initiatives towards E-education in South Africa (1998-2003) ICT Professional Development

Electronic Content Resources

Infrastructure and Connectivity

(a) 11 Teacher Development Modules for introducing ICT in schools.

(a) Development of content resources and making them available via satellite television, internet multimedia and print supplements.

(a) Microsoft has donated software and provided teacher development.

Project run by: SCOPE (Finnish Development Support), SchoolNet SA and South African Institute for Distance Education (b) Online and mentorbased in-service training to teachers to introduce ICT into curriculum and management.

Project run by: Mindset

(b) Digital content resources provided by the Educational Portal Project run by: Department of Education

Project run by: SchoolNet

(c) Teacher training in ICT integration into teaching and learning. Project run by: INTEL (‘Teach to the Future’ Teacher Development Programme)

--

(b) The Digital Partnership Programme provided 188,000 refurbished computers and 20,000 laptops.

(a) Licensing obligations of SENTEC to provide 500 schools with computer labs and teacher development. (b) Licensing obligation of 1,800 MHz/3G Frequency Spectrum to mobile operators to provide infrastructure and connectivity to schools (a) Telkom Foundation established Supercentres in more than 1,300 schools including computers, software applications, internet connection, monthly subscription, and rent-free telephone line.

--

(b) Telkom Foundation committed over R 200m to support ICT in education. Source: Department of Education (Government of South Africa), Draft White Paper on e-Education: Transforming Learning and Teaching Through ICT, August 2003.

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Thutongʹs development team ʺhas been particularly mindful of the needs of learners and educators from disadvantaged schools and from rural areas” and they encouraged “users to make full use of the extensive free resources and to print, photocopy, and distribute them for no profit - they just need to acknowledge the source” (SouthAfrica.info, 25 January 2005). The Thutong portal is a joint venture between the Department of Education, the SA Institute for Distance Education, the Multi-choice Africa Foundation, the Gauteng Institute for Educational Development, the CSIR, Mindset Network, Reusable Objects, SchoolNet SA, SABC Education and M-Web.

Table 6.6: Computers in Schools across Different Provinces -2002 (in %) Provinces Eastern Cape Free State Gauteng KwaZulu-Natal Mpumalanga Northern Cape Limpopo North West Western Cape National

Schools with Computers

Schools with Computers for Teaching and Learning

8.8 25.6 88.5 16.6 22.9 76.3 13.3 30.5 82.4 39.2

4.5 12.6 45.4 10.4 12.4 43.3 4.9 22.9 56.8 26.5

Source: Department of Education (Government of South Africa), Draft White Paper on e-Education: Transforming Learning and Teaching Through ICT, August 2003.

In 2002 President Thabo Mbeki proposed the idea of a national ‘ICT university’. Eventually, the African Advanced Institute for Information and Communication Technology (AAIICT) - also known as the Meraka Institute - was launched in Pretoria in 2005. The main objectives of ‘Meraka’ are: (i) to accelerate social and economic growth through training, research and development in ICT; (ii) to develop ICT products and services; (iii) to provide intellectual capital to the industry; (iv) to collaborate with local, regional and international ICT 202

Innovation System for ICT: The Case of South Africa

organisations through staff and student exchanges and co-operative programmes to tackle the ‘digital divide’; (v) to promotes the use of free and open source software (Floss) in the public, private and civil sectors (SouthAfrica.info, 20 May 2005). The Meraka Institute runs a number of programmes to address the question of ‘digital divide’. These are: (i) Human Language Technologies (HLT) -- to enable people to interact with technology and get information through language and to overcome barriers of language, illiteracy or disability; (ii) OpenPhone -- to provide multilingual voice services in all of South Africaʹs official languages; and (iii) National Accessibility Portal -- to access information and services irrespective of ability, gender, language and literacy level (SouthAfrica.info, 20 May 2005). According to the draft White Paper on e-Education (2003), between 2000 and 2003, the growth rate of schools that have acquired computers amounted to 59 per cent and was higher among secondary schools than primary schools. Table 6.6 shows schools with computers across different provinces in the country. Over all, at the national level, over 39 per cent of schools have computers and over 26 per cent schools use computers for teaching and learning. That means, more than half of the schools in South Africa do not have any computer facility. Table 6.6 illustrates the stark regional imbalance and disparity in the growth rate of schools with or without access to computer and ICT. Three provinces – Gauteng, Northern Cape and Western Cape – are far ahead of other provinces. Schools in these provinces have on average a better ICT infrastructure than schools in Eastern Cape and Limpopo. The schools in Free State, KwaZulu Natal, Mpumalanga and North West are somewhere in the middle (Department of Education, 2003). Schools in South Africa are beginning to use e-mail widely, as internet access is becoming more common. However, the use of internet for teaching and learning is limited due to high cost of telecom service, lack of local content, and inadequate technical support. In both the primary and the secondary schools, basic computer principles and word processing skills are taught. However, there is a gap in the ability of learners and teachers to use ICT effectively, to access highquality and diverse content, to create content of their own, and to integrate ICT into teaching and learning. The draft paper concluded that “the present situation…cannot be maintained if South Africa is to address the digital divide” (Department of Education, 2003). One of 203

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the measures taken by the government to change this situation was the liberalization of the Telecom industry. In September 2004 the government announced sweeping liberalization measures which ended the monopoly of Telkom and opened up the sector for competition.

E- Health One of the three areas identified for ICT applications and development in 2002, by the Presidential International Advisory Council on Information Society and Development (PIAC on ISAD), was health. The government has been trying to implement at different levels various e-health projects. The Department of Health has initiated a Telemedicine pilot project, to develop a cost-effective e-health system in the country. There are also provincial level projects such as Telemedicine corridor project in Eastern Cape and Tygerberg children’s hospital and Rotary telemedicine project. The number of projects in ehealth area seems to be small (see Tables 6.3 and 6.4), and they appear to be in an early stage of implementation and their effectiveness is yet to be studied.

Internet According to a study, by the end of in 2001, over 2.89m South Africans had access to the internet, that is, 1 in 15 South Africans (see Website C). According to another study, by the end of 2002, over 3.1m South Africans had access to the internet. In 2002, the growth in internet access was about 7 per cent. It was the lowest rate of growth since 1993 when internet became available to the public. It was also the first time when the growth fell below 20 per cent. The study found that although the total number of internet users has increased, internet growth rate slowed significantly between 1999 and 2002. The main reason appears to be the increasing call charges. During the five years of Telkom monopoly while the cost of internet decreased at international level by 65 per cent, it increased by 45 per cent in South Africa (SouthAfrica.info, 5 January 2004; Gillwald et al., 2004). The slow growth of access to internet appears to have made it difficult for South Africa to compete with other countries such as India in attracting jobs through outsourcing such as call centres (Emerick, 2004). As a result, 204

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the government has decided to end the monopoly enjoyed by the Telkom. This measure is likely to result in reduction in cost of call charges and make it possible, through competition, that most people could have high speed access to internet from their home and community centres. A survey of 2,200 small, medium and micro enterprises (SMME) with internet access revealed that nearly half of them used internet for e-mail and a third for online banking. The internet-packaged technology options have increased and the small businesses with internet connections started increasingly pursuing high-speed connectivity. However, the problem of affordability for those who do not have internet remains. The study also found that by 2002 the dialup market has grown over 1m, mainly due to vigorous marketing by Telkom and Absaʹs internet services (SouthAfrica.info, 5 January 2004). However, this situation is likely to change when a second telecommunications operator apart from Telkom enters the market, challenging the latter’s monopoly. The introduction of high-speed or broadband wireless access by Sentech is also likely to lead to increased internet access in the country (South Africa.Info, 16 April 2004).

E-Commerce /Online Banking According to a research survey conducted by internet analysts World Wide Worx (WWW), online banking in South Africa has been growing rapidly. That is, the number of online bank accounts grew by 28 per cent in 2003, reaching 1.04m accounts. The survey revealed that the big four banks in South Africa -- First National Bank, Standard Bank and Nedbank, Absa -- were holding the largest number of online banking accounts. The banking sector also witnessed a number of innovative ICT applications for the first time in the world. For example, the Standard Bank introduced online transfer of funds from mortgage bonds, using clientsʹ homes as collateral. It was the first bank in the world to do this. Again, Volkskas was the first bank in the world to implement remote network management to stabilise its network and obtain predictable response times. Another study found that the business-to-business e-commerce in the South African manufacturing sector “is in an embryonic stage” and the major constraints for this are “the slow pace of planned 205

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liberalization of the telecommunications sector, problems with consolidation of technical standards, unexpectedly high implementation costs, high cost of broadband connectivity and inadequate e-commerce infrastructures’ skills and capabilities” (Moodley, 2003: 37).

Case studies We shall discuss briefly four ICT projects at different levels to highlight the salient features of ICT projects in South Africa.

(a) Digital Doorway project The Digital Doorway is a joint project run by the Department of Science and Technology, the Centre for Scientific and Industrial Research and the power utility Eskom. It aims to establish more than 100 free-standing computer terminals in communities around the country to enable self-learning of computer skills (SouthAfrica.info, 20 May 2005). Also, it attempts to validate some findings from the research conducted in India, that is, children can acquire functional computer skills without any formal training. The project aims to provide computers to people in rural and disadvantaged areas, and allow them to experiment and learn with little outside help. The computer terminals could be used for typing of letters or messages, and they also carry mathematics, science, music and language applications, an HIV/Aids presentation, internet and e-mail access. The first Digital Doorway accessible 24 hours a day was launched in Cwili Village near Kei Mouth in the Eastern Capeʹs Libode district in 2002. Within a month, about 60 per cent of the villageʹs children had already taught each other basic computer functions (SouthAfrica.info, 9 July 2004). (b) ‘Connect Eastern Cape’ In 2004, in the province of Eastern Cape the government launched a project called ‘Connect Eastern Cape’ to help students in 150 underresourced schools to learn computer skills and to provide internet access. For the project, the South African Revenue Service donated over 400 computers. This is a collaborative project with the involvement of 206

Innovation System for ICT: The Case of South Africa

the government, businesses and other non-government agencies (Masango, 2004).

(c) ‘Kulisa Project’ Another project called ‘Kulisa Project’ in the province of Western Cape aims to provide ICT training to 130 young people from previously disadvantaged communities. The project is funded by DTI and another government organisation. CS Holdings, an ICT company will train these young people as technicians, and software developers (Pretorius, 2003).

(d) ‘Limpopoʹs rural i-community’ This is a three-year collaborative pilot project, jointly run by Hewlett Packard, the Limpopo provincial government and the Mogalakwena municipality in Mokopane. There is only one such icommunities outside South Africa, that is, Kuppam in India. The project aims to transform Mogalakwena into a self-sustaining economic community by using ICT to improve literacy, create jobs, raise incomes, and increase access to government, education, and healthcare services. The project aims “to ensure that every household has at least one person who can use the computer to access information or better their lives,” at the end of the project period. Local institutions such as libraries, schools, community centres, municipal offices, clinics and traditional authority halls have been provided with computer facilities. Daily training for both adults and children have been provided in various areas such as computer literacy, call centre training, computer repairs, and managing business. In the first year, the i-community has trained more than 1,000 people, including municipal councillors and staff, traditional healers, health officials, and students. Limpopo was chosen because of its remote location bordering three countries -- Zimbabwe, Mozambique and Botswana. Also, it has diverse races and both rural and urban settings. This would help to evaluate how it works in both rural and urban settings and how each group responds to it (SouthAfrica.info, 17 September 2003).

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The above cases exemplify the collaborative nature of ICT projects in South Africa. It appears that most of these projects are joint projects involving government departments, private sector organisations such as businesses, non-government (non-profit) organisations and the local government agencies. These projects are aimed at ICT training, IT literacy and creating local employment. They also indicate that different types of ICT projects are being implemented at all levels, some times on pilot scale. They also suggest that South Africa is drawing on the experiences of similar projects that have been implemented in other countries such as India.

Performance of ICT innovation System The innovation system for ICT in South Africa appears to have produced mixed results so far. In its effort to develop a strong ICT industry, South Africa appears to have witnessed relative success. But it is largely due to the recovery in the global market. It is not clear how far the national ICT policies contributed towards this. Though the ICT industry registered significant growth in software sector, it appears to have not succeeded in the areas of ICT- enabled services such as call centres and outsourcing. One of the main reasons for this is the high cost of telephone service. The government has responded by liberalizing the telecom sector. Similarly, although South Africa has witnessed significant developments since late 1990s in areas such as egovernance, e-commerce, IT literacy and skills, growth of fixed and mobile telephones, and internet expansion, there appears to be serious imbalances in the way these developments occurred. Table 6.7 provides selected ICT indicators for 1995 and 2001. They clearly show that South Africa has seen growth in these indicators during this period. However, they are not showing dramatic changes and overall, they are still relatively smaller. According to a study by the UN Economic Commission for Africa “South Africa has made considerable progress in ICT developments on all fronts” (UN Economic Commission for Africa, 2003a: 17). It significantly increased the use of ICT by developing the infrastructure and applications through various initiatives and by involving the private sector. South Africa has the largest GSM market outside Europe, and is ranked among the top 20 in terms of internet usage in the world. The computerisation of government operations also has 208

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been expanded. However, access to ICT is not available to all people, particularly in the rural areas. It is largely available to people in primary and secondary towns. Although ICT education appears to be improving, not all the schools have infrastructure and computers, and there is a shortage of IT-literate staff to maintain them (UN Economic Commission for Africa: Website). Further, while 72.2 per cent of Americans currently use the internet, only 6.4 per cent of South Africans have access to and use the internet (Department of Education, 2003). South Africa ranks 34th in terms of ICT readiness, according to the Global Information Technology Report 2004 published by World Economic Forum, among the 104 countries surveyed. The ranking went up from 37th place in 2003-2004. It is ahead of other major developing countries such as China (41) and India (39). The Report has taken into account variables such as quality of technical infrastructure, government prioritisation and procurement of ICT, and quality of maths and science education. The ranking was also done according to affordability of telephone connections and internet access, and availability of training opportunities for the labour force (SouthAfrica.info, 18 March 2005). However, the ICT diffusion in South Africa appears to be uneven almost in all aspects. For example, more than 50 per cent of the schools still do not have computers. Large section of people both in urban and rural areas still are excluded from enjoying the benefits of ICT due to poverty and stark income disparity. There are large areas still without ICT infrastructure such as telephones and internet. Therefore, despite strong efforts to avoid and bridge the ‘digital divide’, the problem persists. A study involving the participation of 2,400 consumers, 152 SMEs and 100 large corporations, found that “the digital divide” in South Africa “is not only a function of haves and have-nots, but also a function of knows and know-nots” (Hiles, 2005).

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Table 6.7: South Africa – Selected ICT Indicators South Africa 1995 2001

Key ICT Indicators Infrastructure & Access: Telephone mainlines (per 1000 people) In largest city (per 1000 people) Cost of local call ($ per 3 minutes) Mobile Phones (per 1000 people) Radios (per 1000 people) Television sets (per 1000 people) Computers and Internet: Personal computers (per 1000 people) Installed in Education (1000s) Networked PCs (%) Internet Users (1000s) Internet hosts (per 10 000 people) Annual dialup Internet tariff as a % of GDP per capita (peak tariffs) Global ICT Ranking: Digital Access Index (On a scale of 0-1, where 1= Highest Access) Overall DAI Index Rank ICT Expenditure: Total ICT ($ millions) ICT as % of GDP ICT per capita ($) ICT Business and Government Environment: (Ratings from 1 to 7, 7 is the highest) Internet speed and access Internet effects on business Highly-skilled IT job market Competition in ISPs Government online services availability Laws relating to ICT use Secure servers

101 417 0.60 14 335 132

112 415 0.07 252 338 152

27.9 92.8 -460 --

68.5 364.7 -3,068 54.45

--

33.40

--

0.45** (Medium) 78**

8,649.0 5.7 209.7

11,430.0 9.2 268.7

--------

3.7** 5.4** 4.3** 3.6** 4.0*8 4.588 521

--

Source: Data Development Group, World Bank, ICT at a Glance: South Africa (see: www.worldbank.org); ITU (2003), ITU Digital Access Index: world’s First Global Ranking (see: www.itu.int/newsarchives/press_release/2003/). *Data for 2001; **Data for 2002.

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Conclusions South Africa has been making strong efforts to utilise the ICT for achieving economic and social transformation in the country. The driving forces behind the ICT innovation system in South Africa mirror its national system of innovation. That is, both are driven by the twin objectives of achieving industrial competitiveness and socio-economic transformation to rid the country of the legacies of the apartheid era namely, racial, regional, and social inequalities. Like the national innovation system which has produced uneven and lopsided technological accumulation and growth in the economy, the innovation system for ICT has proved more efficient only in certain areas and inefficient in many other areas. Large sections of people and the country, particularly rural areas, have no access to ICT and they are not even aware of the benefits of ICT. It appears that the ICT innovation system in South Africa has not been able to remove the historical imbalances in the sector. However, one has to view this problem in a proper context. South Africa has been in transition in all aspects of life - political, economical and socio-cultural- since the early 1990s and it is a very young democracy. Therefore, it certainly will take time to solve historical imbalances and the innovation system for ICT will have a major role in solving this problem. South Africa has formulated a strong policy framework for developing an efficient innovation system for ICT and put in place the necessary institutional arrangement. In ICT sector, there has been significant growth in terms of turnover, exports and employment, particularly in the area of software. But the industry lacks the necessary competitiveness to operate at a higher level of value chain and technological complexity. In the areas of socio-economic development and ICT diffusion, it appears that collaborative approach to designing and implementing ICT projects by the government, private sector, and non-government (non-profit sector) agencies have been working successfully. A number of collaborative ICT projects in the area of e-education, e-health, e-government, IT literacy, and IT skills creation have been implemented at different levels (national, provincial, and local). Most of them are still in an early stage of implementation and therefore, it will be some time before we could assess their impact. However, there have been significant achievements 211

Angathevar Baskaran, Mammo Muchie & Rasigan Maharajh

in ICT usage like the increase in the use of fixed and mobile phones, computers, internet, IT literacy and IT skills. At the beginning of this chapter we have raised the question whether the innovation system for ICT will be able to bridge ‘digital divide’ and also help bridge the gap between the first and second economies in South Africa. The answer lies somewhere between ‘yes’ and ‘no’. The innovation system for ICT definitely has the potential to reduce certain economical, social and regional disparities, but it is unlikely to solve fundamental problems such as rural poverty and under development and imbalances in health care and education. For example, implementation of judicious and innovative land reforms could address the age old problem of rural poverty more effectively than a few thousand ICT kiosks spread across rural South Africa. Therefore, the policy makers should not ignore the limitations of ICT innovation system and they should strive to integrate it with other national policy frameworks to solve the problems of poverty, inequality, exclusion and division in the South African society.

Bibliography

Davie L. (2005): “SAʹs science & technology decade” (24 January, see: www.southafrica.info/ess_info/sa_glance/scitech/addison-book.htm). Department of Arts, Culture, Science and Technology, Government of South Africa (1996): White Paper on Science & Technology (Chapter 2, 4 September). Department of Education, Government of South Africa (2003): Draft White Paper on e-Education: Transforming Learning and Teaching through ICT (August, Government of South Africa). Department of Trade and Industry, Government of South Africa (2004): A Description of the South African Electrotechnical Industry (June). Emerick N. (2004): “SA leaps on to telecom superhighway” (13 September, see: www.itweb.co.za/sections/quickprint/print.asp?StoryID=146238) Gillwald A., Kane S., and Esselaar S. (2004): “South Africa”, in Research ICT Africa Network, ICT Sector Performance in Africa, March. Heeks R. (2002): “eGovernment in Africa: Promise and Parctice” (iGovernment working paper series, Paper no. 13, University of Manchester, Manchester).

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Hiles B. (2005): “South Africans love their cells” (10 June, see: http://www.southafrica.info/ess_info/sa_glance/scitech/mobility2005.htm). Mail and Guardian on Line (2005): “Union ʹshockedʹ by Telkom job cuts,” (25 March, see: www.mg.co.za/articledirect.aspx?articleid=45315&area=%2fbreaking_news%2fbreaking_news__business%2f). Mail and Guardian on Line (2005): “ICT is once more a healthy business in SA” (14 April, see: www.mg.co.za/printPage.aspx?area=/breaking_news/breaking_news__business/&articleId=234981). Mail and Guardian on Line (2004): “Telkom faces fine of billions” (25 February, see: www.mg.co.za/articledirect.aspx?articleid=43314&area=%2fbreaking_news%2fbreaking_news__business%2f). Masango D. (2004): “E Cape schools get connected” (11 March, see: www.southafrica.info/ess_info/sa_glance/education/update/ecapeschoolscomputers.htm) Moodley S. (2003): “Whither business-to-business electronic commerce in developing economies? The case of the South African manufacturing sector,” in Information Technology for Development, 10: 25-40. Mouton J. (2003): “”South African Science in Transition,” in Science, Technology & Society, 8 (2): 235-260. Mzolo S. (2004): “IT spend in SA continues to accelerate,” in Mail and Guardian on Line (22 December, see: www.mg.co.za/printPage.aspx?area=/breaking_news/breaking_news__business/&articleId=194133). Pretorius K. (2003): “ICT training for Cape youths” (26 November, see: www.southafrica.info/doing_business/economy/development/skills/kulisa261103.htm). SouthAfrica.info (2003): “Savant to promote SA technology” (16 April, see: www.southafrica.info/doing_business/trends/innovations/savant.htm). SouthAfrica.info (2003): “IT, telecoms gateway to Africa” (29 April, see: www.southafrica.info/doing_business/economy/key_sectors/ict-mittssa.htm). SouthAfrica.info (2003): “Limpopoʹs rural i-community” (17 September, see: www.southafrica.info/ess_info/sa_glance/social_delivery/update/i-community160903.htm). SouthAfrica.info (2004): “SA Internet access set to grow” (5 January, see: www.southafrica.info/doing_business/economy/infrastructure/internet.htm). South Africa.Info (2004): “Online banking clicks into gear” (16 April: see: www.southafrica.info/doing_business/trends/newbusiness/onlinebanking.htm)

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SouthAfrica.info, (2004): “Opening SAʹs digital doorway” (9 July, see: www.southafrica.info/ess_info/sa_glance/education/digitaldoorway.htm). SouthAfrica. Info (2004): “ʹBig bangʹ for SA telecoms” (20 September, see: www.southafrica.info/doing_business/economy/infra-structure/telecomsshakeup.htm). SouthAfrica.info (2005): “Thutong: SAʹs education portal” (25 January, see: www.southafrica.info/ess_info/sa_glance/education/update/thutong.htm). SouthAfrica.inf, (2005): “SA goes for software freedom” (22 August, see: http://www.southafrica.info/ess_info/sa_glance/scitech/open-source220805.htm). SouthAfrica.info (2005): “SA 34th in global ICT ranking” (18 March, see: www.southafrica.info/doing_business/economy/key_sectors/wefitreport2005.htm). SouthAfrica.info (2005): “SA launches ICT Institute” (20 May, see: www.southafrica.info/ess_info/sa_glance/education/update/meraka180505.htm). UN Economic Commission for Africa (2001): New Partnership for African Development (NEPAD): ICTs in the Development Process (November). UN Economic Commission for Africa (2003): Towards an Information Society in Africa: The case for National Policies (AISI Briefing Paper, no.1, January). UN Economic Commission for Africa (2003a): Policies and Plans on the Information Society: Status and Impact (October). UN Economic Commission for Africa (Website): “NICI Policy Development Process: South Africa” (see: www.uneca.org/aisi/nici/South_Africa/southafrica.htm). Website A: SouthAfrica.info, “Burgeoning telecoms market” (see: www.southafrica.info/doing_business/economy/key_sectors/telecoms.htm). Website B: www2.thedti.gov.za/BEECompanies/. Website C: SouthAfrica.info, “South Africaʹs telecommunications” (see: http://www.southafrica.info/doing_business/economy/infrastructure/telecoms. htm). Website D: “Cape Town: the innovation www.citi.org.za/Articles/Print.aspx?1=1000&ai=1342).

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(see:

CHAPTER 7

Innovation Systems for ICT: The Case of Southern African Countries Erika Kraemer-Mbula and Mammo Muchie

Introduction

T

oday African development has become a pressing concern for the international community. The obstacles faced by the African countries are innumerable, persistent and diverse. However, the consolidation of a modern infrastructure is commonly accepted to be an essential aspect to overcome some of them, in particular those affecting African economic growth. Infrastructure determines the cost of operating and interacting with the outside world (Lall and Kraemer, 2005). Africa is lagging behind and remains marginal to the dynamics of the global economy. This deficiency needs to be tackled directly through the promotion of activities that enhance local skills, absorptive capacity and access to inter-continental and foreign markets such as ICT. Such a response is very much linked to the existence of an adequate institutional system and the ability to design and implement an effective ICT strategy. This particular aspect remains a key challenge in most African countries because they have not yet been able to develop their national innovation system to the point of ‘critical mass’. Because of this deficiency, they have mostly resorted to regional effort to build their basic infrastructure and capabilities. However, regional initiatives overlap and serve as a basis to design national initiatives. Within a regional picture, the present chapter enhances the importance of horizontal cooperation and harmonisation among countries as a means to facilitate the diffusion and strengthening of ICT in Southern 215

Erika Kraemer-Mbula & Mammo Muchie

Africa. However, horizontal cooperation within regions must be also coupled with intra-institutional communication between regions to maximise the efficiency and avoid redundancy in African ICT initiatives.

Current Status of ICT in Southern Africa Figure 7.1 shows the level of modern infrastructures in SubSaharan Africa compared to other developing regions in the world. This figure reveals that Sub-Saharan Africa and South Asia are clearly the low performers within the developing world, in particular East Asia and Latin America. This international disparity is also visible within the Southern African region, where ICT penetration has evolved very differently. Despite their relatively small current values1, the development of ICT for most of these countries from 1990 to 2002/03 has been extraordinary. The last decade has seen a dramatic improvement in the ICT sector of the Southern African countries. Mauritius and South Africa, followed by Namibia and Botswana, lead the values per capita for the presented ICT indicators (personal computers, mobile phones and telephone mainlines) within the region, as shown in Table 7.1. South Africa and Mauritius are two main ‘outliers’ in the continent in terms of manufactures and exports performance.2 The positive relationship between ICT indicators and economic success supports the presumption that the level of ICT infrastructure is a determinant of development and economic growth. However, there is still a long way for most Southern African countries to achieve the ICT capacities of other developing regions, such as Chile or Korea. Information economy is being viewed by many developing countries as a means for leapfrogging into the frontier of economic development. The African countries are no exception to this. But, ICT is not a ‘cure for all’ thing, or an end in itself. The efficiency and flexibility of markets and institutions are important for adequate response from the civil society, local firms and other national actors. The fundamental problem for many African countries appears to be the absence of a national ICT policy strategy.3 However, the mere existence of ICT policy is not sufficient to ensure the wide access to ICT services and firms’ competitiveness that translates into sustainable 216

Innovation Systems for ICT: The Case of Southern African Countries

growth. For those countries where ICT policy exists, the efficiency with which these policies are implemented also matters.

Figure 7.1: Regional Distribution of Expenditure on ICT (2003) Internet Users

Personal Computers

Telephone Mainlines

Mobile Telephones

ICT Expenditure

250

200

150

100

50

0 Transition Economies

East Asia

South Asia

Latin America

Middle East and North Africa

Sub-Saharan Africa

Source: Calculated by the authors from World Development Indicators (2004) Note: Internet users, personal computers, mobile phones and telephone mainlines are taken per 1,000 population. Expenditure on ICT is taken as current US dollars per person.

Table 7.1: Evolution of Some ICT Indicators for Southern Africa (1990-2002/03) Country Mauritius South Africa Namibia Botswana Zimbabwe Zambia Mozambique Tanzania Angola Chile Korea

Personal Computers pc

Mobile phones pc

Telephone mainlines pc

1990

2002

1990

2002

1990

2002

3.78 7.05 0.00 0.00 0.20 0.00 0.00 0.00 0.00 9.39 36.76

108.32 69.57 54.74 38.67 17.38 7.09 3.96 3.57 1.26 106.48 480.77

2.08 0.16 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.06 1.84

226.98 242.12 54.74 188.00 28.57 11.46 8.65 12.71 6.39 342.26 620.77

52.47 93.45 39.29 20.58 12.65 8.38 3.35 3.06 7.61 65.97 305.98

270.32 106.57 64.75 87.21 24.74 8.20 4.59 4.69 6.10 230.36 488.59

Source: Calculated by the authors from World Development Indicators (2004) Note: Personal computers, mobile phones and telephone mainlines are taken per 1,000 population.

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Designing an ICT policy from the scratch is not an easy task. It requires an efficient bureaucracy and a strong institutional framework to formulate the key issues and establish further implementation instruments. Most African countries have a poor institutional infrastructure because of recurring conflicts, severe poverty and noncollaborative political regimes. Under these circumstances designing an effective ICT strategy seems too complex a task for these countries. Horizontal cooperation among countries in Africa is therefore considered an important instrument to shape the development of new ICT policies, for the better diffusion of ICT and for Africa’s participation in global economic and policy issues. As Adam (2004: p.3) puts it: The increasing digital divide, the unsatisfied demand for ICT services, and the capacity limitations of individual countries all necessitate its presence. A horizontal cooperation makes capitalizing on combined productive capacity, economies of scale and scope possible. It makes dealing with regional disparity easier.

The existence of regional economic communities in Africa has facilitated the formulation of ICT policies at a regional level from where national policies have been derived. The following section reviews some ICT strategies followed by Southern African countries at the regional level as well as some examples on collaborative projects and their implications for the wider economy and civil society.

ICT Strategies in Southern Africa

Regional initiatives During the last century, countries of Africa have taken many steps to bring about regional cooperation and integration. Regional cooperation becomes crucial to promote sustainable development, and is a tool in itself to achieve regional integration between countries. Regional economic communities bear the bulk of economic and social cooperation in Africa. Much of the coordination takes place through pan-African institutions such as the Economic Commission for Africa (ECA), the African Development Bank (ADB), the African Union (AU), the African Telecommunications Union (ATU) and the most recent 218

Innovation Systems for ICT: The Case of Southern African Countries

New Economic Partnership for African Development (NEPAD) as well as regional initiatives like the Common Market for Eastern and Southern Africa (COMESA), Economic Community for West African States (ECOWAS), Communauté Économique et Monétaire de lʹAfrique Centrale (CEMAC) and Southern African Development Community (SADC). These communities have played a particularly significant role in some aspects of ICT, such as telecommunications regulation. They have played a leading role in regional consultations and studies for the harmonization of policies, regulatory frameworks and infrastructure. Their relevance and activities have improved significantly in recent years. This chapter focuses on the influential initiatives carried out by the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Economic Commission for Africa (ECA) and the New Economic Partnership for African Development (NEPAD). The institutional framework for ICT development in Southern Africa is led by the Southern African Development Community (SADC).4 The SADC is the most advanced of all of the regional economic communities in ICT-related activities. Since its early days in 1980, the SADC has paid special attention to communications. It states that “countries of the region shall coordinate, harmonise and rationalise their policies and strategies for sustainable development in all areas for human endeavour” (SADC Treaty, 1992: Article 21, Chapter 7),5 including communications. concerning ICT at SADC are:

The

major

initiatives

• Creation of the Southern Africa Transport and Communications Commission (SATCC) in 1981. Currently, responsibility for the co-ordination of Telecommunications issues within SADC lies with SATCC based in Gaberone, Botswana.6 SATCC focuses on the rehabilitation and development of the regional transport and communications infrastructure in the region, acting as a broker for investment as well as coordinating programmes of action. Basic actions include the provision of advice on upgrading of infrastructure and bandwidth, maintenance of statistics on telecommunications infrastructure in SADC, and the elaboration of interconnection guidelines such as tariffs, liberalisation, privatisation and restructuring of 219

Erika Kraemer-Mbula & Mammo Muchie

telecommunications operators. SATCC had prepared the Model Regulatory Framework for Telecommunications (SATCC-TU) that was issued in 1998 and which facilitated the policy formulation process and enabled a harmonised regulatory framework within the region. Currently, operating policies and autonomous regulatory authorities are in place in eleven of the SADC 14 member states. • In August 1996, SADC signed the Protocol on Transport, Communications and Meteorology (24 August 1996) as a result of which the Southern Africa Telecommunications Administrations (SATA) was established in 1998.7 The SATA is the main consultative body of SADC in telecommunication matters. Its main objective is to harmonize interconnectivity in the SADC region. SATA operates under two key committees namely: (1) Policy and Strategy; and (2) Technology and Infrastructure. Several sub-committees are being created from time to time when necessary. SATA’s Regional Information Infrastructure Project (SRII) has been established in 1999 to study the technical, financial and economic feasibility of a regional network as envisaged by SADC. It seeks the completion of the interconnection of the countries within the region by 2006. The SRII has been incorporated in the NEPAD e-Africa ICT Infrastructure project for East Africa Submarine System (EASSy). Both projects will be seen in more detail in the following section. • In September 1997 a Telecommunications Regulators’ Association for Southern Africa (TRASA) was set up.8 TRASA includes the fourteen member states of SADC. It was created to harmonise the ICT regulation across the region by developing guidelines on key issues such as universal access and service, licensing policy for telecommunications service, tariffs, interconnection, fair competition and wholesale prices for the ICT sector. Also it has recently developed guidelines in the area of wireless and satellite regulation. TRASA developed a Model Telecommunications Bill in the spirit of the WTO Basic Reference paper on telecommunications regulation. The Association also requested the creation of NetTel@Africa;9 an E-learning platform for training regulators, private sector operators, 220

Innovation Systems for ICT: The Case of Southern African Countries

consumer groups, and academic institutions in aspects such as ICT applications and ICT policy drafting and management.10 • In August 2001, SADC adopted a Declaration on Information and Communication Technology, to create a favourable environment for ICT growth in the region feeding into national policies and laws.11 It also created an e-readiness task force to develop this policy document into an Action Plan entitled ʺBetter, Faster, Cheaper: Developing and Leveraging World Class ICT Networks for Social and Economic Advancement,” consisting of specific policy measures to transform SADC into an information based economy.

Inspired by the experience of SADC, the Common Market for Eastern and Southern Africa (COMESA) has also developed an ICT institutional framework and launched a number of ICT initiatives with the intention to harmonise policies among its member states.12 COMESA’s ICT strategy is thus more recent than SADC’s; COMESA ICT Policy and Regulatory Harmonization Programme was created in 1998. In line with the overall COMESA ICT strategy, the member states are expected to adjust their ICT programmes taking into account their own stage of development. National ICT policies must be established based on the COMESA ICT Bill and the COMESA ICT policy. • COMESA ICT Policy and Model Bill was adopted by its policy organs meetings in Sudan, March 2003. Member States are in the process of integrating them into their regulatory framework. ICT policy guidelines and strategies adopted until now are: interconnection, licensing, universal access competition and pricing and consumer protection. The overall ICT strategy aims to co-operate and co-ordinate the activities of the member states to develop and maintain their ICT networks, with particular focus on the development of ICT services in rural areas. • COMESA also supports one of Africaʹs most recent regional regulatory associations, the Association of Regulators of Information and Communications in Eastern and Southern Africa 221

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(ARICEA).13 ARICEA was launched in January 2003 as a consultative and collaborative forum to exchange ideas and experiences among members on issues related to ICT regulation. This forum is formed by public and private agents such as national ICT authorities, operators, service providers and consultants. The association supports some cooperative projects such as Catalysing Access to ICT in Africa (CATIA) programme,14 and NetTel@Africa.

the

network

on

capacity

building

The COMESA has proposed to collaborate with the Economic Commission for Africa (ECA) for the consolidation of its e-strategy that includes the ICT Policy and Model Bill. ECA as the regional arm of the United Nations in Africa, supports the economic and social development of its 53 member States, fosters regional integration, and promotes international cooperation for Africaʹs development.15 ECA has been a key promoter of African ICT for the last twenty-five years. The initial ICT programmes were initiated in 1979 with the Pan African Development System (PADIS), mainly consisting on a centralised database for participating countries. Since then major developments have taken place. Some of the most recent ones are the following: • In 1996 it launched its framework of the Africa Information Society Initiative (AISI) from recommendations of the Conference of African Ministers of Economic Development and Planning.16 AISI was developed as an action plan to build Africa’s ICT infrastructure. It has served as a basis for numerous ICT initiatives in the continent assisting over 28 African countries to initiate, formulate and implement their national ICT strategies for socio-economic development.17 The assistance to countries is formulated in terms of National Information and Communication Infrastructure (NICI) plans. These plans provide the basis for integrating ICT strategies into national and sectoral development plans, dealing with aspects such as physical infrastructure, regulation, enabling environment, development of human resources in the public sector and civil 222

Innovation Systems for ICT: The Case of Southern African Countries

society and training programmes. The plans are designed in close collaboration with local authorities and local private agents. • The formulation of ECA policies is supported by the Partnership for Information and Communication Technologies for Africa (PICTA). PICTA is set up as a forum to improve information exchange and collaboration around ICT activities in Africa. Members of this committee are ECAʹs institutional partners from the United Nations system, bilateral and nongovernmental organizations and representatives from the private sector involved in implementing AISI projects and programmes in Africa.18 • The African Technical Advisory Committee (ATAC) was formed in 1997 as the body responsible for advising ECA and its partners on the implementation of programmes and projects emphasized by AISI, as well as playing an advocacy role, identifying best ICT practices, and assisting ECA mobilize resources for its work programme.19 Its members are appointed by the ECA Executive Secretary formed by leading African ICT experts and professionals representing the Diaspora, private sector, civil society, as well as sector interests such as education, health, infrastructure and governance. Following its principles of knowledge sharing, AISI also serves as an informative instrument, providing the framework for co-ordination of the support that United Nations agencies provide for the construction of the most recent Pan-African ICT strategy of the New Partnership for Economic Development (NEPAD).20 One of the main priorities of the NEPAD is the promotion of regional integration in the continent given the small economies of scale held by individual African countries. Bridging the infrastructure gap has been identified as an important element of promoting regional integration in Africa. Infrastructure is defined in this context as energy, water, transport, and information and communications technology (ICT).21 • The e-Africa Commission was created on September 2002 by the NEPAD Steering Committee and it is the responsible body for the formulation and implementation of the NEPAD ICT 223

Erika Kraemer-Mbula & Mammo Muchie

programmes.22 It is composed of representatives of entities responsible for ICT activities across the continent with a secretariat based in South Africa. The Commission is the main advisor to the NEPAD Heads of State and Government Implementation Committee (HSIC) on ICT matters and oversees the structured development and execution of NEPAD’s flagship programmes (such as EASSY and COMTEL projects, both discussed below).23

The African private and regulatory agents are now realizing the need to collaborate and not work in isolation. Public and private actors with an interest on ICT across Africa are teaming up to share their experiences in regional organizations and through other international and regional institutions. Collaboration and information-sharing as an established principle at the regional level has promoted many projects involving public and private agents from Southern African countries. The following section discusses examples of such collaborative projects affecting the Southern Africa region.

Examples on regional collaborative e-projects The projects detailed in this section represent the recent and major collaborative projects in terms of ICT infrastructure affecting Southern Africa as well as other African countries. They are in different stages of development: some are still in the preliminary stage while others are well advanced. This section describes its nature, mission and stage identifying where possible, their impacts on civil society, local industries and ICT institutions. However, for the projects yet to be implemented (EASSy project and COMTEL) we are limiting ourselves to only highlighting their potential impacts. All these e-projects have many elements in common. In particular they all seek the establishment of effective inter-continental and international connectivity networks in Southern Africa. Their goal is to provide more reliable and cost effective ICT services by benefiting from the latest developments in information technologies. These projects have emerged from very different origins at different times and

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covering different countries. Table 7.2 provides the status of these projects and the countries involved in each project. Table 7.2: Collaborative Projects and Countries Involved E-project

Countries Involved

Status

SADC Region Information Infrastructure (SRII)

SADC members: Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. COMESA members- Angola, Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. Botswana, Ethiopia, Djibouti, Kenya, Madagascar, Malawi, Mozambique, Rwanda, Somalia, South Africa, Sudan, Tanzania and Uganda (membership expected from Burundi, Eritrea Lesotho, Zambia and Zimbabwe)

Started in 2000. To be completed in 2006

COMTEL project

EASSY project

Not started. Implementation expected to start in 2005

Not started. Implementation expected to start in 2005/2006.

Source: Compiled by the authors

The current challenge lies on the coordination of these sub-regional projects to maximise their potential and reduce the cost overlapping activities. This task is being carried out under the recent consolidation of the Pan-African framework brought by NEPAD. NEPAD has identified SRII, COMTEL and EASSy as priority projects to achieve the ICT infrastructure goals for African development.

• EASSy project (East Africa Submarine System)24 The high cost of telecommunications is a pressing problem in Africa. Ninety per cent of calls from African countries to other African countries are routed through Europe and the United States given its continued reliance on satellite connectivity. In this transit Africa pays an amount in excess of US$ 400m annually (World Bank, 2005). The EASSY project has 225

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been set up by the Africans to develop a continental fibre-optic backbone that interconnects African countries among them and with the rest of the world via undersea fiber-optic cables, offering a very high bandwidth necessary for African nations to catch up with the new global information technology (Dhliwayo, 2004). The EASSy project was born in 2003 and is supported by public and private investors from the telecommunications industry,25 business community, regional government and Pan-African institutions, especially NEPAD. Although the project is at its early stage, it has been identified by NEPAD as a priority flagship project for the enhancement of ICT infrastructure in Africa. The ultimate aim of the project is to reduce poverty and increase the economic opportunity of the citizens in the region on their efforts to achieve the Millennium Development Goals (MDGs). Most Southern African countries are members of the EASSy project. Currently there are 13 member states: Botswana, Ethiopia, Djibouti, Kenya, Madagascar, Malawi, Mozambique, Rwanda, Somalia, South Africa, Sudan, Tanzania and Uganda and it is expected that soon Burundi, Eritrea Lesotho, Zambia and Zimbabwe also will join the project. EASSy would complement the existing submarine cable networks established by SAT-3/SAFE/WASC26 and SEA-MEWE327 to complete a ring of undersea cables around Africa. It is planned to connect SAT-3 at Mutunzini in South Africa and SEA-ME-WE3 in Djibouti. Other landing stations will be in Maputo (Mozambique), Toliary (Madagascar), Dar es Salaam (Tanzania), Mombassa (Kenya) and Mogadishu (Somalia) and Massawa (Eritrea). The EASSy Submarine Cable takes advantage of some of the latest developments in undersea fibre optic technology to provide an affordable interconnection to African countries in a fibre-based network. At the core of the cable is optical fibre, an optimum medium for the transmission of information, which is carried through pulses of light.

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A detailed feasibility study has been carried out during 2005 and the technical, commercial and evaluation procedures have already been completed.28 Member countries, global investors and loans constitute the main sources of financial support for EASSy. The project is likely to be completed by the year 2007. However, its success depends very much on the number of participants and their financial contribution. • The COMTEL Project29 COMTEL was born in 1998 as a regional collaborative project to implement the recommendations of the Telecommunications Inter-connectivity Study from COMESA. Its aim is facilitating telecommunication networks and enhancing the growing trade relations within the region of eastern and southern Africa. COMTEL was implemented as a private company, COMTEL Communications Company Limited (CCCL), registered as an offshore company in Mauritius on 26th May 2000. CCCL is responsible for implementing, managing and operating the regional network through subsidiaries in other project countries. Its shareholders are national telecommunications operators (NTO) from the member countries, a strategic equity partner (named the Anderberg Consortium since 2003)30 and other corporate or institutional bodies. Share allocations consist of SEP 30 per cent, private sector investors 45 per cent and NTOs 25 per cent. The mission of COMTEL is to develop land telecommunications interconnectivity, by providing quality services, reliable network, bandwidth to the customers, new telecommunications/ICT services, and competitive tariffs, among the countries within the region. This project has been also prioritised under NEPAD’s flagship projects for ICT infrastructure, although COMESA and the African Development Bank are its major financial sources. The project cost has recently been estimated at US$ 270m. COMTEL covers the following countries: Angola, Burundi, Comoros, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Malawi, Madagascar, Mauritius, Namibia, Rwanda, Seychelles, Sudan, 227

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Swaziland, Tanzania, Uganda, D R Congo, Zambia and Zimbabwe. The network has been configured to include a mix of fibre optic, microwave and satellite connectivity, facilitating the transmission of voice, data of various bandwidth, and TV programmes across African countries. The technology utilised for the network is the Asynchronous Transfer Mode (ATM) Technology. ATM technology supports the transmission of multiple traffics (data, voice and video) and also allows the free intermixing of delay tolerant traffic with time sensitive voice and video traffic.31 The network will be built on existing layout infrastructure where available. However, new transmission routes have to be constructed to inter-connect the countries. Three rounds of feasibility studies have been done since COMTEL’s origins. The existence of many potentially overlapping projects required a consultative process by the NEPAD e-Africa Commission in 2004 to conclude that COMTEL would provide the best terrestrial backbone solution. The recent analysis of the COMTEL proposal carried out by the PTA Bank found it to be technically feasible,32 institutionally sound and financially and economically viable.33 The NEPAD Infrastructure Project Preparation Fund (IPPF), the African Development Bank, and the Development Bank of South Africa, have approved a budget towards Anderberg to cover part of the costs for the developmental work (OECD, 2005). Potential impact of EASSy and COMTEL The socio-economic potential impact of the completion of EASSy and COMTEL would be enormous. These networks would connect about 21 countries by terrestrial and submarine fibre backbone network. The implementation of these projects would result in competitive prices for African interconnectivity, reducing operational costs and user charges. These projects would connect 400m people with multiple cultures and languages, and their respective governments, ministries and telecoms operators. Some of the specific gains would be: 228

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-

An important role in achieving the Millennium Development Goals through the promotion of universal access to telecommunication services, especially of those more marginal rural areas and small African economies.

-

Reducing the cost to do business across the continent and with the rest of the world would attract greater levels of foreign investment in a wider range of sectors and also encourage the creation of local African ICT firms.

-

The potential increase in tax revenues derived from an increased ICT firms and other businesses would allow African governments to pay for a greater proportion of unmet social needs.

-

The estimated project return on funds invested in the longer-term is forecasted to have a positive impact on the regionsʹ economies.34

-

Enhance the concept of “African identity” through an increased connection of African countries among themselves, promoting trade relationships and mobility of people as a result of information-sharing practices.

• SADC Region Information Infrastructure (SRII) Some similar initiatives have already started to be put in practice. The implementation of the SADC Region Information Infrastructure (SRII) Project commenced in 2000 following the Feasibility Study Report that was done by the International Telecommunication Union (ITU) under AFRITEL Project during 1999. The objectives of this study were: (i) building a world class Regional Telecommunication Network; (ii) phased approach of building the network as short term, medium term and long term projects, on country by country basis; (iii) economic analysis, profitability and financial flexibility criteria, on country by country basis; and (iv) implementation of the network with agreements, on country by country basis (SATA 229

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Secretariat, 2005). The study consisted of two main areas namely: the transmission links of regional nature in the Democratic Republic of Congo and Angola and the construction of intelligent nodes in the SADC Region. The ITU/AFRITEL Feasibility Study Report concluded that the SRII project was technically, economically and financially feasible. The mission of SRII was to ensure digital connectivity between SADC countries. SRII identified 15 projects within the 14-country SADC region with the aim of closing regional gaps and upgrading existing links. The project was proposed as a 6year plan with an expected finalisation in the year 2006. SRII consists of a number of sub-projects designed for the short and medium term. The implementation of the subprojects is done through bilateral agreements between the participating countries. Short term projects include the connection of South Africa and Zimbabwe, Mozambique and Zimbabwe, Botswana and Zimbabwe and Tanzania and Malawi. The carriers involved in each country must thus secure the funding and implement projects themselves bilaterally. All the projects are based on telephone traffic flow and future needs. These projects were to be implemented in three phases: The phase 1 aimed at the digitalisation of all transmissions in the region, phase 2 aimed at the expansion of digital transmission for all technologies and the phase 3 intended to put all transmission systems into optical fibre. SRII has made rapid progress, completing most of its short and medium-term projects. The first two phases have already been completed. Work for the proposed projects for phase 3, have been already finalised, for example the links between South Africa and Namibia, and Botswana and a fibre link of South Africa to Zimbabwe. However some countries are facing problems for financing the remaining projects- particularly Zimbabwe, Malawi and Zambia. The reason behind these problems is common to all cases and simple: lack of funds. Resources to complete the gaps need to be mobilised through regional organs (SATA, SADC, NEPAD, ATU, ADB, DBSA, etc) both from the private sector (foreign as well as local) and development partners. SATA has recently launched a proposal 230

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through the World Bank to obtain funds to assist the financial problems for these countries. Impact of the SRII projects Although these projects have not yet been completely implemented preliminary results show that they have had a very positive impact in the new digital links as opposed to the satellite connection. According to SATA members SRII networks have positively improved the communication between neighbour countries and have had a visible effect on the creation of new ICT companies in the region. The increased connectivity between member states for those project that have been implemented have increased share of skills, cost and communications benefits to customers and mutual cohesiveness. However, it is still early to quantify the impacts and further studies are needed.

Conclusions A well distributed and cheap access to communications is a key factor behind the creation of ‘information societies’ in Africa. Despite a low level of ICT penetration in the continent, compared to the other developing regions, Africa is making great efforts to overcome the socalled ‘digital divide’. Since the African countries are directing transmissions through Europe and US communication routes, they are bound to spend more on this account. This appears to have contributed towards perpetuating the ‘digital divide’ in many African countries. African economies are generally too small and they lack the necessary institutional infrastructure to design effective ICT policies on their own. Regional initiatives have proved to be a key means to develop harmonised frameworks that serve as a basis for national ICT policies. In these terms, SADC has had a leading role in framing the institutional basis for ICT development. Regional economic communities have been the foundation for horizontal cooperation to emerge and for regional collaborative e-projects, such as ESSAy, COMTEL and SRIIPs. However, these projects need also coordination among themselves. A recent study done by the Department for International Development, UK (DFID) found out that COMTEL and EASSy might compete for the 231

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same markets at several points along their routes within Africa and also for the international connection of Africa internationally (DFID, 2004).35 Southern African countries might end up with several pieces of redundant infrastructure. Therefore, the role of NEPAD and its eAfrica Commission in overseeing the priorities, overlaps and gaps of infrastructure e-projects becomes crucial. Improved institutional information management can also play a critical role in linking national or regional organisations working on similar initiatives to consult, share information and collaborate on joint projects. The success of collaborative projects is highly dependent on the existence of available financial resources, which is one of the major factors affecting any initiative to modernize Africa. Some of the routes for interconnectivity do not attract commercial interest because the markets are too small and/or the political risks are too high. Despite the relevance of regional initiatives, individual African national governments need to provide incentives for private investors to fill the financial gap. Securing a stable investment environment should be coupled with more pro-active initiatives such as the provision of soft loans or specific licensing schemes. Despite these efforts to harmonise ICT development in the region, the status of ICT policies and activities varies greatly across SADC member states. Some countries like South Africa have made great advances while other countries still have more to do. The infrastructure gaps between countries and regions can be partly explained by the legacy of Africa’s colonial past and that will take some time to level. Southern Africa still faces many challenges in achieving its ICT development goals. Many of these are linked to the larger challenges that countries face such as war and poverty. However, this has not hindered the emergence of a path towards ICT development through collaboration, one of Africa’s greatest assets.

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Notes

1

Their values become nearly inexistent when South Africa and India are respectively excluded.

2

For detailed data see Lall and Kraemer-Mbula (2005), pp 31-45.

3

Interestingly, the penetration of ICT and the existence of an ICT policy do not seem to be necessarily correlated as some countries like Angola, Tanzania and Mozambique with a low penetration count with relatively more advanced schemes for ICT than Zimbabwe, with a higher level of penetration and inexistent ICT strategy.

4

SADC has 14 current member states: Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

5

The SADC Treaty is reproduced in SADC Declaration, Treaty and Protocol of the Southern African Development Community, SADC, Gaborone, 1992, p. 5. SADC documents may also be accessed at the institution’s official website: http://www.sadc.int

6

Until 2004 it was based in Maputo, Mozambique.

7

Official website http://www.sata-sec.net/

8

See official website http://www.trasa.org.bw

9

For more information on this project see http://www.nettelafrica.org/

10

Universities, research and training institutions from the member states and international partners are involved in this initiative. For more information see http://cbdd.wsu.edu/initiatives/nettel/

11

See http://www.tralac.org/

12

COMESA includes 20 member states which are: Angola, Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.

13

See official website http://www.aricea.org/

14

For more information on this project see http://www.catia.ws/.

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15

See http://www.uneca.org/

16

See official website http://www.uneca.org/aisi/

17

Countries that already count with an ICT policy are: Algeria, Benin, Burkina Faso, Burundi, Cape Verde, Comoros, Ivory Coast, Djibouti, Egypt, Ethiopia, Ghana, Guinea, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, South Africa, Sudan, Tanzania and Tunisia.

18

See http://www.uneca.org/aisi/

19

See http://www.uneca.org/aisi/

20

Furthermore, AISI has been considered as the starting point for the regional ICT strategy of NEPAD, which was decided on a NEPAD Conference in Senegal (April 2002).

21

See official website www.nepad.org/

22

See official website http://www.eafricacommission.org

23

24

Named “flagship programmes” as they are designed to become highly visible of NEPAD’s activity and influence benefiting NEPAD’s promotion for funding agencies. For more information see http://www.eassy.org

25

Some of the African telecommunication organizations include Tanzania Telecommunications, MTN and Zantel, Telkom South Africa, Malawi Telecom, TDM – Mozambique and SatCom Africa Networks Ltd.

26

Sat-3/WASC/SAFE is a major undersea optical fibre cable to directly link many African countries between them and to Europe and Asia. This cable network was led by Telkom S.A. and counted with 36 participants. The 28,000 km cable did cost $650 million US and was launched in Dakar on May 27, 2000.

27

SEA-ME-WE3 (South East Asia Middle East Western Europe 3) is an international submarine cable project that started in 1994. It includes 39 landing points in 33 countries and 4 continents.

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28

Indicating the total estimated cost for this project (US$200).This includes US$170 million for the System Supply and US$30 million for project management.

29

For more information see http://www.comesa.int

30

Anderberg International management is a private, independent and international telecoms infrastructure investment and management company, in charge to design, assemble and implement the COMTEL network. This company was appointed by COMESA in 2003.

31

See http://www.comesa.int

32

Eastern and Southern Africa Trade and Development Bank.

33

See the NEPAD e-commission report (2004), p.52.

34

The overall Internal Rate of Return of COMTEL is projected at 44.34%, with an Economic Rate of Return (ERR) at 48.6%. See http://www.comesa.int

35

DFID foresees that with the completion of ESSAy and COMTEL projects, South Africa ends up with three international outlets. Both routes potentially serve six of the same countries: Djibouti, Kenya, Uganda, Tanzania and Uganda, providing them with alternative routing but also redundancy.

Bibliography

Adam L. (2004): “ICTs and Regional Cooperation in Africa - Implication for CSOs” (Paper prepared for the Social Science Research Council, New York). DFID (2004): African ICT Infrastructure Investment Options (Balancing Act report, HMSO, UK). Dhliwayo L. (2004): “Developing a fiber optic backbone for Africa” (Paper prepared for Corning Inc). Lall S. and Kraemer-Mbula E. (2005): Industrial Competitiveness in Africa: Lessons from East Asia (United Kingdom, ITDG Publishing).

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NEPAD e-Africa Commission (2004): “Backbone telecommunications infrastructure development initiatives in Southern and East Africa” (Report, NEPAD). OECD (2005): “Investment for African Development: Making it Happen“, Roundtable organised under the joint auspices of NEPAD and the OECD Investment Committee. World Bank (2005): “Connecting Sub-Saharan Africa: A World Bank Group Strategy for Information and Communication Technology Sector Development”, (Working paper 51, World Bank). Website A: www.sadc.int Website B: www.tralac.org Website C: www.nettelafrica.org Website D: www.sata-sec.net Website E: www.trasa.org.bw Website F: www.aricea.org Website G: www.uneca.org/aisi Website H: www.nepad.org Website J: www.eafricacommission.org

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CHAPTER 8

General Conclusions: Innovation Systems for ICT - Implications for the Less Developing Economies Mammo Muchie and Angathevar Baskaran

T

he study concentrated on a group of emerging economies (Brazil, China, India, South Africa, and Thailand) that have a national system of innovation however lopsided and uneven it may be, and also an ICT specific industrial sector. Many developing economies in the poorer part of the world, as shown in the case of Southern Africa in this study, neither have fully functioning national systems of innovation systems nor ICT industrial sectors. The question then becomes what lessons can be drawn from the BRICS economies to the lesser developing economies whose primary task is to build an effective systems of innovation that can facilitate and support the uptake, creation and diffusion of knowledge, innovation, learning and technological capabilities. We start with the current phase of globalization with which the world economy is often described. Developing economies face a double constraint. On the one hand, they cannot avoid globalization; on the other hand they cannot afford to allow globalization wholly to dominate their development dynamics. They have to learn to engage whilst at the same time learning to insulate themselves from the adverse and deleterious effects of their insertion in the world economy. They need to conceptualize their development as a function of both engagement with the world economy as well as protection from the world economy by learning to be far when they are very near and even inside the global economic dynamics. Still more they must be capable of learning to undertake multi-faceted engagement, whilst also undertaking and learning varied strategies to protect themselves 237

Mammo Muchie & Angathevar Baskaran

without falling into autarchy. The key good that can facilitate engagement whilst permitting some protection can be technology, provided developing countries build institutions and learning to make innovative appropriation of new technologies. One of the enabling technologies that have a pervasive influence as a techno-economic technological paradigm is information and communication technologies. These technologies now have reached every corner of the world crossing all barriers such as the north and south division, rich and poor economies and various social, cultural, linguistic and spatial divisions. The important concern is how these technologies are enabling globalization to reach the remotest corner of the most remote rural backwater. Who drives them? What benefits and costs do they bring? Who are actually the beneficiaries and the losers? These questions cannot be answered in the abstract. The contributions in this volume show clearly that the context of the national system of innovation, whether it exists in a weak, strong, bifurcated, lopsided and uneven way or whether it is in a state of birth, emergence, consolidation, maturity or decline, has serious consequences in the manner in which information and communication technologies are created, appropriated, diffused and used in many of the economies. For the economies in the developed world, ICT develops as industrial sectors and promote economic growth and is essential for daily life and society. It has become central to the existence and reproduction of society, economy and various institutions. Also in the BRICS type economies ICT has emerged as industrial sectors to varying extent promoting more or less economic growth and with varying degree of success confronting the so-called digital divide, access and use. The country case studies revealed that innovation systems for ICT could perform more efficiently in achieving industrial and social economic goals when they are strongly linked to and supported by the institutions and infrastructure of national innovation systems. However, they also have shown how ICT specific system could be influenced by the lopsided or uneven phenomenon of national innovation system. Particularly, in achieving socio-economic objectives, the case studies have shown that strong linkages between various actors such as government agencies, industry, R&D institutions, private and non-profit organizations, and multinational organizations; the involvement of local people in and their awareness about the benefits of ICT projects; easy and cheap access to ICT; and well defined 238

General Conclusions: Implications for the Less Developing Economies

and useful ICT application for local people are the major factors that determined the rate of success or failure of ICT projects. For many of the poorer developing economies in Africa, Latin America and Asia the introduction of ICT as harbinger of globalization comes with a mixed blessing. This is illustrated by the case of Southern African countries in this study. If ICT is used mainly by external corporations, governments and other bodies engaged in facilitating speed and movement of primary commodity exports that these economies largely specialize in on the basis of static comparative advantage, then ICT mainly will help in recording and storing data and accelerating the rate of circulation and transaction of already produced commodities. This largely consigns its function to add cost whilst defraying some other leaving on balance unchanging the basis of the export economy of many developing countries. This role for ICT would not be as productive as one would hope for, as there is no value addition in knowledge and learning that accrues from the kind of ICT linkages with these economies. Unfortunately it seems to us, intuitively in many poor countries ICT will be used mainly to accelerate speed of transaction and circulation of the primary export economy and not to transform it. Where the value added from the ICT would come would be when it is integrated with what List called mental capital building as a means of augmenting wealth. In that case it means that the national system of innovation of these poor economies would need to evolve to integrate ICT to foster the building of mental capital as a means of wealth accumulation. Given that many of the poorer economies may not have the rudiments of a national system of innovation (as illustrated by the case of Southern African countries in this study), there would be a double challenge. First the very making of a national system of innovation must be on the policy agenda of national and international policy actors, and second the integration of ICT as the facilitator of globalization writ large across the globe need to be regulated from undermining the very making of innovation systems in these very poor economies. Such a regulated introduction of ICT would involve in fostering the creation of an incipient ICT sector, the building of mental capital and the beginning of diversification of the economy by adding a value added manufacture and service sectors along with the primary commodity economy. This expected synergy between the making of

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national innovation systems and the integration of ICT provides the trajectory for a developmental dynamics in these poorer economies. In reality many of these poor economies are faced with alternatives that are often pushed with the incentive of financial carrots to follow policies that are purchased by sacrificing developmental dynamics and features. We recall that in the 1980s a large number of very poor and vulnerable economies in Africa tasted the bitter medicine of structural adjustment where the key capacitating institutions such as education, health and infrastructure were mostly crippled by public spending cuts ostensibly because it was believed that getting macro-economic balance between national revenue and public expenditure is considered more important than spending in building mental capital as a means of creating wealth. Many economies faced a double bind where they had to export based on what they extract and farm in order to pay debt and service debt payments. As a consequence many of these economies became failed economies with negative or stagnant rates of economic growth, hardly registering any new social economic development and failing educational, health and infrastructural foundations. In Africa, many countries even lost what they built immediately after gaining independence in the 1960s. The economic ideas and policies and their implementation fostered more poverty production than poverty eradication. Many of these poor economies have not come out of the woods to date. In light of this negative experience for many of the poorer developing economies, it is important to re-think the deficits in the conception of their economic difficulties by received neo-classical theory and propose alternatives that can re-link the search for putting their economies on a pedigree of value added manufacture and services by building mental capital and wealth based on it. We propose that it is possible to approach the challenge by making national systems of innovation whilst learning and building the capacity for introducing new technologies through globalization and undertake policy learning to found an ICT sector however small that is, diversify the primary commodity economy and introduce new products and processes on the basis of knowledge-innovation, and extend ICT’s benefits more widely to more social economic groups in order to forestall the problems of ‘digital divide’. In principle the importance of creating a dynamic ICT sector and integrating this sector to the wider system of innovation can create 240

General Conclusions: Implications for the Less Developing Economies

significant developmental economies, efficiencies and dynamics. It is thus pivotal that ICT is recognised as a key technology system that can strengthen a country’s national system of innovation. Conversely unless development of ICT is also shaped within a socially and politically framed national system of innovation, it is likely to create more diseconomies than economies. Whilst the value of ICT and its importance in enabling to contribute to economic growth and solve broader social issues is unimpeachable, such economies might fall far short of their potential if the integration of ICT with national system of innovation and the vice versa remain unfulfilled. Many developing countries from the BRICS to the very poor ones face dualistic and bifurcated economic, social and political contexts that make it difficult to realise the full potential of ICT. Such constraints can be overcome only when there is a public policy environment to strengthen both ICT for innovation system building, and conversely innovation system building to integrate ICT capabilities, systems and uses. The ultimate test of this bond between system of innovation and ICT is not in the sophistication of the technologies, but in the context that facilitates their overlapping trajectories to solve the real problems of real people. Having said this we should caution about the limits of new technologies. We should not have undue optimism about the new technologies such as ICT and see them as intrinsically capable of generating solutions to social problems. ICT is not a magic wand to vanish all socio-economic problems over night. On the positive side, discussion on ‘digital divide’ has fostered debates on how to bridge regional, North-South, rural-urban, and agricultural-industrial divides. It has moved the debate to focus on inequalities and development. But these issues will not be solved by technology alone. It is not technical fix that will assist us in solving such broader social-economic problems. It is important to have systems of innovation perspective and try to bring about salient components by making parallel efforts in terms of developing human resources, institutions and organisational forms in order to undertake transformation and alleviate social divisions. The argument for linking ICT with a functioning system of innovation to overcome broader societal divisions is therefore compelling. We put this work together in order to provoke further debate and mobilise intellectual energy to find new perspectives and directions that can overcome the limitations of existing conceptions of development that suffer from serious deficit and search for new lines of inquiry that can 241

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assist in generating developmental dynamics rather than perpetuate the state of underdevelopment, inequalities of various types and poverty production.

242

Notes on the Contributors

Angathevar Baskaran Angathevar Baskaran holds a DPhil in science and technology policy studies from the Science Policy Research Unit (SPRU), University of Sussex, UK. He also holds post-graduate degrees in International Studies (Jawaharlal Nehru University, New Delhi), History (Punjab University, India); Political Science (Mudurai-Kamaraj University, India), and Financial Management (Middlesex University, London). He has done a pioneering work on technology accumulation in India’s space programme. His research interests are in the economics of innovation, national innovation systems, science, technology and development, university-industry linkages, export controls on dual-use technology transfers, and non-proliferation. He has published richly in reputable internationally refereed journals. His current affiliation is at the Middlesex University Business School, London. He is one of the external research collaborators at the Research Centre for Development and International Relations (DIR), Aalborg University, Denmark. He is also a Visiting Fellow at the School of IT Business, Information and Communication University (ICU), Korea. He can be reached at [email protected].

Erika Kraemer-Mbula Erika Kraemer-Mbula holds a degree in Economics and a Master degree in Science and Technology Policy from the Science Policy Research Unit (SPRU), University of Sussex, UK. She is currently pursuing a doctorate in Development Studies at the University of Oxford with a special focus on ICT in Southern Africa. Erika has extensive experience as a researcher and has worked as a consultant for international institutions such as the United Nations Industrial Development Organization (UNIDO). She has published in the area of technological and innovation strategies for firms both in developed and developing countries. She has recently published the book “Industrial Competitiveness in Africa”. She can be reached at [email protected]. 243

Notes on Contributors

Helena Maria Martins Lastres Helena Maria Martins Lastres (DPhil, University of Sussex, UK) is at the Institute of Economics, Federal University of Rio de Janeiro, Brazil, and coordinator of the Research Network on Local Production and Innovation Systems – RedeSist, Brazil, Economics Institute, Federal University of Rio de Janeiro, Brazil. She has been Visiting Professor at the Université de Rennes 1 since 2001 and was also visiting fellow at the Université Pierre Mendes-France, Grenoble, France (1999/2000) and Tokyo University (1991). Her interests are in the economics of knowledge and innovation; innovation systems; local productive and innovative arrangements; industrial and S&T policy. Her main work include: Systems of innovation and development: evidence from Brazil, Edward Elgar Publishing, 2003 and Advanced materials revolution and the Japanese system of innovation, Macmillan, 1994. She can be reached at [email protected].

José Eduardo Cassiolato José Eduardo Cassiolato, (DPhil, University of Sussex, UK) teaches innovation studies and is a coordinator of RedeSist (Research Network on Local Productive and Innovation Systems) at the Institute of Economics, Federal University of Rio de Janeiro, Brazil. He has been Visiting Professor at the Université de Rennes, Visiting Research Fellow at the Université Pierre Mendes-France, Grenoble, France, University of Sussex, UK and MIT, USA: his interests research interests are in the economics of knowledge and innovation; innovation systems; local productive and innovative arrangements; industrial and S&T policy. He was secretary for Planning at the Brazilian Ministry of Science and Technology. His main publications in English include Systems of Innovation and Development – Evidence from Brazil, Edward Elgar, 2003 and Hi-Tech for Industrial Development, Routledge, 1992. He can be reached at [email protected].

Kasititorn Pooparadai Kasititorn Pooparadai had PhD. in Science and Technology Policy Studies from Policy Research in Engineering, Science and Technology (PREST), University of Manchester, UK, in 1999. She is currently Head 244

Notes on Contributors

of the ECTI Policy Research and Information Society Index Study Section.Dr. Kasititorn has rich experience in the formulation of Information Technology Policy in Thailand having been principal coordinator for the IT 2010 formulation team and has published widely in the area. Her interests include research on the proactive role of Thailand in the international trade of ICT within the context of trade liberalization. She has published a book on “Digital Divide: Background and Conceptual Framework” in 200. She teaches postgraduate course on Social Implication of ICT at the Management of Information Technology, Walailak University, Thailand. She can be reached at [email protected].

Mammo Muchie Mammo Muchie is currently Professor and Director of Research Centre for Development and International Relations (DIR), Aalborg University, Denmark. He is also a Professorial Research Fellow at the Institute for Economic Research on Innovation, Tshwane University of Technology, South Africa. He has education from Ethiopia, USA, UK, and Russia and lectured in various universities in Holland, UK, USA, Kenya, and South Africa. He has been director of research on Civil Society and African Integration in University of Kwa-Zulu Natal, South Africa. His abiding research interest is to find conceptual tools for rethinking African unity, freedom and development. He has research interests in regionalization, integration, national systems of innovation, and science and technology for development. He has been co editor of Putting Africa First, The Making of African Systems of Innovation, 2003 and plans to write a book with Baskaran on the Indian National System of Innovation as a prelude to write another book on the African National System of Production and Innovation. He can be reached at [email protected].

Patarapong Intarakumnerd Patarapong Intarakumnerd has D.Phil. in Science and Technology Policy Studies from the Science Policy Research Unit (SPRU), University of Sussex (2000). He contributed to Thailand’s National Science and Technology Strategic Plan (2004-2013). His research 245

Notes on Contributors

interests are in various and multiple dimensions of national innovation systems in Thailand and other economies in Asia at a number of levels. Dr. Patarapong has published widely, served as editorial board member in leading journals. He is a founding member of Asian Network for the Economics of Learning, Innovation, and Competence Building Systems (ASIALICS), an Asian chapter of Global Network for the Economics of Learning, Innovation, and Competence Building Systems (GLOBELICS). He has been invited as an advisor and a consultant of research projects initiated by German Development Institute (GDI), Japan International Cooperation Agency (JICA) and United Nations Conference on Trade and Development (UNCTAD). He is co-editor with Bengt-Åke Lundvall and Jan Vang, on ‘Asian Innovation Systems in Transition’, Eldgar, 2006. His current affiliation is with the College of Management, Mahidol University, Thailand, and Global and Institutional Change at King Mongkut’s University of Technology Thonburi, Thailand. He can be reached at [email protected].

Rasigan Maharajh Rasigan Maharajh is the Chief Director of the Institute for Economic Research on Innovation (IERI) at the Tshwane University of Technology. This appointment follows eight years as Head of the Policy Group at the Council for Scientific and Industrial Research. Prior to joining the CSIR, he was the Coordinator of the Science and Technology Policy Transition Project for South Africa’s democratic government. This project developed the White Paper on Science and Technology which was adopted in 1996. Before 1994, he worked in the non-governmental sector whilst holding elected positions within structures of the Mass Democratic Movement and the African National Congress. His work spanned from adult basic education to the restructuring of the provincial and national educational and training frameworks. He has worked at different tiers of governance and in partnership with public and private agencies. He is an alumnus of the University of KwaZulu-Natal and Harvard Business School. He can be reached at [email protected].

246

Notes on Contributors

Vicente Guimarães Vicente Guimarães is a post-graduate research scholar (Economics) at Institute of Economics, Federal University of Rio de Janeiro, Brazil. Vicente can be reached at [email protected].

Yi Zhu Yi Zhu is a senior lecturer at the Middlesex University Business School, London. She holds a PhD in Commerce and has taught at universities in China and UK. Her research interests are in the international business and transitional economies, national innovation systems, and innovation management, with a special focus on China. She has published in the area of comparative management practices. She can be reached at [email protected].

247

Index China, 1, 3, vi, viii, ix, xi, xii, xviii, xx, xxi, 23, 25, 26, 31, 41, 42, 46, 71, 73, 75, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 110, 111, 113, 114, 115, 116, 117, 118, 123, 134, 138, 146, 151, 178, 209, 237, 247

A about socio-economic transformation, 26, 38 African Development Bank, xvi, 218, 227, 228 African ICT initiatives, 216

China National Computer Software and Technology Service Corp, 114

alleviating poverty, xx, 95 and South Africa, 24, 245 Angathevar Baskaran, 2, 3, v, vi, vii, 23, 43, 44, 118, 181, 237, 243

China Telecom, 88, 93, 113 cohesive and caring society, 162 Competence Building, xi, 24, 50, 246

B Baskaran,, v, 39, 119, 146

competitiveness, 26, 39, 45, 49, 62, 80, 84, 85, 86, 114, 119, 121, 142, 153, 160, 161, 163, 164, 181, 184, 189, 191, 199, 211, 216

Bell South, 57 Bengt-Åke Lundvall, v, xxi, 34, 246 Black Economic Empowered, xv, 191

computer literacy, 42, 44, 77, 160, 174, 175, 197, 207

BNDES, xi, 62, 82

D

Botswana, 45, 207, 216, 217, 219, 225, 226, 230, 233

denationalization of the industry, 65

Brazil, 1, 3, vi, viii, ix, xi, xviii, xx, xxi, 23, 26, 31, 41, 42, 46, 47, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 62, 63, 64, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 81, 82, 83, 118, 146, 237, 244, 247

developing economies, 24, 25, 35, 48, 179, 213, 237, 239, 240 diffusion of ICT, 28, 30, 37, 43, 51, 55, 73, 76, 77, 78, 80, 102, 113, 119, 123, 142, 188, 194, 196, 218

BRICS, xi, xviii, xxi, 24, 25, 35, 36, 237, 238, 241

digital divide, xix, xx, xxi, 25, 28, 30, 41, 43, 45, 54, 76, 78, 80, 84, 94, 106, 107, 113, 115, 117, 119, 123, 147, 148, 149, 160, 170, 171, 176, 183, 185, 186, 203, 209, 212, 218, 231, 238, 240, 241

C Canadian Telecom, 57

248

Index Digital divide, 94

Foreign Direct Investment, xi, 58

digital switching systems, 56, 57

foreign firms, 42, 59, 60, 62, 63, 64, 65, 67, 68, 79, 80, 165, 167, 169

E

foreign technology, 42, 59

East Asia, 216, 235

Friedrich List, 33, 34

Eastern coastal regions, 90, 94, 100

G

e-Commerce, 156, 160, 173

Global Development Learning Network, 110

E-commerce, 28, 72, 116, 139, 205, 208

global market/economy, 31

Economic Commission for Africa, xvii, 208, 218, 219, 222

GLOBELICS, xi, 24, 246

e-Education, 160, 201, 202, 203, 212

Guangzhou Commercial Administration Bureau, 109

e-governance, 122, 140, 141 E-governance, 72, 139, 140, 143, 145, 184, 208

H hardware-producing sector, 61

e-government, 55, 100, 108, 109, 115, 117, 141, 161, 194, 197

Helena Maria Martins Lastres, 244 horizontal cooperation, 45, 215, 218, 231

e-Government, 160, 161, 162, 196 E-health, 43, 148, 194, 204, 211

human capital formation, 79

e-Industry, 160 E-learning, 220

I

EMBRAPA, 52, 53

ICT applications, 53, 55, 58, 71, 74, 87, 92, 138, 140, 145, 147, 148, 184, 190, 204, 205, 221

emerging economies, xxi, 23, 237 Erika Kraemer-Mbula, vii, 45, 215, 243

ICT diffusion, 42, 43, 44, 45, 73, 78, 90, 106, 113, 114, 139, 145, 149, 154, 170, 187, 209, 211

e-Society, 160 evolutionary economics, 24

ICT education, 25, 122, 209 ICT industry, 42, 43, 44, 48, 51, 53, 55, 71, 79, 85, 92, 95, 101, 103, 113, 118, 122, 124, 125, 131, 132, 133, 134, 136, 147, 148, 154, 161, 164, 165, 167, 175, 187, 189, 190, 191, 208

F fibre backbone network, 228 fibre optic, 122, 226, 228 foreign competition, 52, 54, 93

249

Index Information Society, xv, xvi, 55, 77, 116, 170, 178, 184, 198, 204, 214, 222, 245

ICT infrastructure, 28, 41, 43, 46, 76, 103, 112, 113, 114, 130, 145, 146, 147, 153, 175, 183, 184, 203, 209, 216, 222, 224, 225, 226, 227

information-rich, 30

ICT initiatives, 138, 184, 194, 221, 222

innovation system, xix, 24, 25, 26, 31, 32, 33, 34, 35, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 52, 53, 57, 58, 80, 81, 85, 86, 89, 119, 121, 124, 136, 147, 148, 154, 174, 175, 182, 183, 185, 187, 208, 211, 212, 241

ICT networks, 221 ICT penetration, 122, 216, 231 ICT policy, xix, xx, xxi, 41, 43, 49, 71, 73, 113, 120, 149, 158, 159, 162, 175, 184, 185, 189, 216, 218, 221, 234

institutional environment, 175 intellectual property, 27, 35, 36, 114

ICT revolution, 25, 26, 28, 30, 52, 120

International Broadcast, 93

ICT specific innovation system, 39

internet exchange, 141

ICT strategies, 42, 85, 90, 113, 218, 222

ISRO, 39 IT Action Plan, 122, 139, 151

India, 1, 3, v, vi, viii, x, xi, xiii, xviii, xx, xxi, 23, 25, 26, 28, 31, 39, 41, 43, 46, 49, 52, 59, 96, 117, 118, 119, 120, 121, 122, 124, 125, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 165, 169, 178, 204, 206, 207, 208, 209, 237, 243

IT industry, 54, 55, 58, 61, 64, 66, 70, 98, 99, 101, 119, 123, 124, 125, 126, 128, 132, 133, 134, 151, 189 ITU, xi, xvi, xvii, 29, 36, 49, 50, 72, 144, 192, 193, 210, 229, 230

J José Eduardo Cassiolato, 244

Indian Space Research Organisation, 39

K

Indian space technology specific innovation system, 39

Kasititorn Pooparadai, vi, 44, 153, 245

indigenous technological capabilities, 52

Knowledge, xiv, 26, 50, 159, 178, 179, 196, 198

information based economy, 221

knowledge super power’, 43, 119, 147

information infrastructure, 30, 92, 122, 141, 159, 160, 161

knowledge system, 29

information management, 199, 232

250

Index national innovation system, 24, 30, 38, 39, 40, 41, 42, 43, 44, 45, 46, 48, 49, 53, 85, 86, 88, 113, 115, 119, 137, 146, 147, 148, 149, 153, 164, 174, 181, 182, 211, 215, 238

L Latin America, 140, 216, 239 learning divide’, 80 Linux operating system, 159

national market, 63

lopsided development, 47, 182

National Science and Technology Development Agency, xiv, 154, 164, 169, 178

M macroeconomic environment, 57

national system of innovation, 25, 28, 33, 34, 36, 37, 39, 41, 44, 46, 47, 48, 49, 53, 80, 211, 237, 238, 239, 241

Mammo Muchie, 2, 3, v, vi, vii, 23, 43, 44, 45, 118, 181, 215, 237, 245 Microsoft, 67, 100, 114, 135, 189, 199, 201

NEPAD, xi, xvi, xvii, 46, 184, 198, 214, 219, 220, 223, 225, 226, 227, 228, 230, 232, 234, 235, 236

Millennium Declaration, 29 Millennium Development Goals, xi, xiv, xvii, 29, 170, 226, 229

NEPAD e-Africa ICT Infrastructure project for East Africa Submarine System, 220

Ministry of Education, xii, 110, 111, 112, 113, 116, 156, 200

New Economic Partnership for African Development, xi, xvii, 46, 219

MNCs, xii, 52, 56, 57, 65, 66, 68, 70, 71, 79

new technologies, 29, 52, 78, 80, 146, 180, 238, 240, 241

monopoly of Telkom, 191, 192, 204 MOPT, xii, 88, 91, 93

P

Mozambique, 45, 207, 217, 225, 226, 230, 233, 234

Patarapong Intarakumnerd, vi, 44, 153, 246

Multinational Corporations, 51

People’s Bank of China, 92

N

Portugal Telecom, 57

NASSCOM, xiii, 125, 128, 129, 133, 134, 137, 138, 147, 150

poverty alleviation, 27, 29, 115, 118, 124

National Grid, 57

public-private partnerships, 55

National ICT policies, 221 National Informatics Centre, xiii, 140

251

Index Sub-Saharan Africa, 216, 236

R

system synergy, 39

R&D expenditures, 53, 61, 62, 65, 70, 79

T

R&D organisations, 41, 182

Tamil Nadu, 140, 143

Rasigan Maharajh, vii, 44, 181, 246

technical change, 24

Regional cooperation, 218

technological accumulation, 37, 211

Regional Telecommunication Network, 229

technological capabilities, 25, 27, 28, 42, 50, 52, 53, 59, 62, 66, 79, 81, 86, 88, 119, 138, 153, 237

S semiconductor devices, 167

technological capability’, 37

socio-economic development, 29, 30, 41, 42, 43, 45, 52, 53, 80, 84, 85, 87, 118, 119, 121, 159, 174, 184, 185, 186, 194, 211, 222

technological complexity, 45, 86, 132, 138, 211 technological development, 62, 65, 88, 155

Softex, 63, 71, 76, 83

technology absorption, 56

software industry, 44, 63, 69, 99, 100, 122, 125, 128, 133, 150, 157, 158, 161, 162, 164, 190

telecommunication industry, 95 Thabo Mbeki, 181, 202

software production base, 169

Thailand, 1, 3, vi, viii, x, xiv, xv, xix, xxi, 25, 26, 31, 41, 44, 46, 47, 153, 154, 156, 158, 159, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 178, 179, 180, 237, 245, 246

South Africa, v, vii, viii, x, xi, xv, xvi, xvii, xviii, xxi, 23, 24, 25, 26, 28, 31, 36, 41, 44, 45, 46, 47, 73, 146, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 206, 207, 208, 209, 210, 211, 212, 213, 214, 216, 217, 224, 225, 226, 228, 230, 232, 233, 234, 235, 237, 245, 246

transfer of technologies, 35 Trópico systems, 56

U

South East Asia, 167, 178, 234

UN Economic Commission for Africa, 184, 185, 186, 208, 214

Southern African countries, 36, 47, 216, 218, 224, 226, 232, 239

uneven technology accumulation, 53, 182

Southern African Development Community, xi, xvii, 219, 233

UNISYS, 60

252

Index World Bank, 28, 29, 72, 110, 144, 145, 151, 152, 173, 210, 225, 231, 236

United Nations, xi, xii, xvi, 29, 81, 150, 198, 222, 223, 243, 246 University Grants Commission, xiv, 138

Y

V

Yi Zhu, vi, 42, 84, 247

Vicente Guimarães, vi, 42, 51, 247

Z

W

Zhongguangchun, 94 Zimbabwe, 45, 207, 217, 225, 226, 228, 230, 233

White Paper on S&T, 182

253

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