Investment and Financing of the ICT sector. Arab Conference on Industrial Information and Networks Tunis

Investment and Financing of the ICT sector Arab Conference on Industrial Information and Networks Tunis - May 23, 2005

GICT Structure IFC Activities World Bank Units Global Communications Investment Portfolio & Technology Investment Policy InfoDev Provides long-term debt & equity financing for telecom infrastructure, broadband connectivity, IT, broadcast/media & satellite sectors Provides debt, equity & quasiequity financing to technology companies; manages IFC s ICT portfolio & provides credit review function Provides policy & regulatory advisory services to governments on telecom, postal, broadcasting & e- governance. Finances investments where market gaps exist. Grant-based facility for innovative applications of ICT with social impact

The Three Core Pillars of GICT s Strategic Vision Catalyzing Market Growth - Liberalization - Regulation - Finance private infrastructure - Finance Media Addressing Market Failures - Rural access - Broadband/Internet - National & regional backbones - State-owned incumbents Driving Demand Through Innovation - Finance ICT applications - Support ICT in non-ict sectors - Support convergence technologies

Map of GICT Activities (1996-2004) CITPO IFC Both CITPO and IFC Not active

WBG Worldwide Activities IBRD/IDA, IFC (including syndications) and MIGA commitments in ICT by region (2000-2004), in million USD Other, $54, 2% SA, $439, 14% SSA, $682, 22% MENA, $655, 21% EAP, $200, 6% ECA, $424, 13% LAC, $693, 22%

ICT in 1990 Fixed penetration: 46% in developed and 3% in emerging markets Mobile penetration: 12% in developed and 0% in emerging markets Outgoing international traffic per subscriber (voice): 99 m/s in developed and 108 m/s in emerging markets Investment in the Sector : US$13.7 bn total incl. US$4.6 bn private Technologies deployed Circuit switched fixed Analog mobile

ICT in 2005 Fixed penetration: 56% in developed and 11% in emerging markets Mobile penetration: 71% in developed and 14% in emerging markets Outgoing international traffic per subscriber (voice): 214 m/s in developed and 104 m/s in emerging markets Investment in the Sector : US$40.7 bn total incl. US$28.5 bn private Technologies deployed digital cellular fixed and wireless broadband IP switching

1. Global Village Impact on business models Impacts Global supply chain global competition New businesses through off-shoring (call-centers, data centers, accounting, etc.) 2. Backbones & Regional Connectivity Unequal development/lack of backbone on a regional, national & subnational level What business models could stimulate demand & attract new investments? PPP Cost of communications / leased lines 3. Internet Access Unequal internet access and prices around the globe and locally Local content Policy and regulatory reform to promote internet access

Close to One Trillion dollars of Investment in Developing Country Telecommunications 1995-2002 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 Telecommunications Investment % GDP 1995-2002 0.00 SSA EAP ECA LAC MENA SAR

A Growing Share Private By 2003, among all 164 countries with available data, 130 had three or more competing digital mobile operators. Since 1988, 76 developing countries have privatized their public telecommunication operators (PTOs), raising over US$ 70 billion Over the 1990-2001 period, developing countries attracted $331 billion of private investment into telecommunications (dramatic slowdown post 2000) 88 countries have attracted private participation in infrastructure worth more than 1% of their GDP over the 1990-2002 period, including 26 countries in Africa

7.0% With High Returns In Rollout Fixed line growth 1996-2001 6.72% 6.0% 5.0% 4.6% 5.4% 5% 4.0% No separate regulator Separate regulator No separate regulator Separate regulator Not liberalized Liberalized

With High Returns In Prices and Efficiency 20% drop in fixed prices where there is fixed competition 36% drop in international prices moving from public monopoly to competitive provision involving FDI Countries with PPI in Telecoms > 1% GDP see 5% productivity gain (lines/employee)

Percentage of Businesses Labeling Telecommunications A Significant Business Constraint 16 14 12 10 8 6 4 2 0 No Involvement Involvement Extent of Private Involvement in Fixed Provision

Continuing Investment Demand Estimates that developing countries need $100 billion a year in new investment to continue rollout. SSA alone will need nearly $4 billion (0.8% GDP) in new investment annually, plus an additional $3 billion in maintenance.

1.2 Attracting PPI PPI (% GDP) 1998-2002 1.1 1.0 0.9 0.8 0.7 0.6 LDC Average Independent Regulator......And Fixed and Mobile Competition

Attracting PPI, Cont d Six additional telecoms commitments to the WTO are associated with a 31 percent increase in private participation perhaps because of the stability and certainty such commitments bring. A survey of restrictions to telecoms FDI in fifteen Asian economies found fourteen of them have restrictions, ranging from 30 to 49 percent of total equity The top four constraints to investment rated by surveyed companies across 53 countries were policy uncertainty, macro instability, tax rates and corruption.

But growth outside mobile communications is constrained by political and institutional problems Incumbent fixed line operators are not privatized and are mostly inefficient In 14 MNA countries, 10 incumbents are state-owned, 4 are partially privatized. Morocco has now a majority private investor (CITPO followed the reform in Morocco). Limited effective independence for regulatory agencies Marginal or no competition in most ICT market segments (outside mobile) THIS IS THE CORE ISSUE

Competition is a global phenomenon, but many countries are left behind All developed countries and selected developing countries have competition in international communications. affordable calls for domestic users facilitates global integration facilitates contacts with overseas communities Many developing countries have restrictions to competition in international communications. most domestic users cannot afford the service 10% increase in communications cost means 8% trade economic and social isolation from the rest of the world

MNA Lags Behind Monopoly Partial competition Full competition Data not available

Prices are high and they are not decreasing fast enough 3 2.5 2 1.5 1 0.5 Saudi Arabia Bahrain Iran Oman Chile Prices are decreasing relatively slowly, compared with e.g. Chile, Estonia. Large gap between MNA prices and those of fully competitive countries 0 2001 2004 Price of a 1 min. call to the US

Only 1.6% of the Arab population has Internet access UNDP Arab Human Development Report

Broadband and backbone

The Role of Donors/IFIs: Policy and Regulation Bilaterals very active FY02-03 USAID funding approx. 115 ICT Sector projects Many multilateral players UNDP, MDBs World Bank has a major role Active in approx. 80 countries

The Role of Donors/IFIs: Investment Bilateral support for telecommunications: averages over $1 billion early 1990s, now under $100m. Only 14% of the projects listed in the PPI database 1990-2002 involved an IFI IFIs Account for Approx. 1/60 th of Investment Evidence of Counter-Cyclical Role IFC Grows After 2000, Especially to Africa Growing role in access programs IT in demand, yet often included in other sectors investment

Examples of WB/IFC activities Tunisia: WB lending for an ICT Sector Development Project ICT Strategy, Licensing, Regulation E-Government strategy, applications (e-justice, e-disabled, e-culture, ICT library, e- learning, Arabic DNS ) E-security training, National Back-up and recovery center, CERT Support to WSIS and Sector monitoring Morocco: IFC co-led Medi Telecom s US$1.1 billion Debt Restructuring In 2000, IFC approved a financial package for Medi Telecom to build and operate a nationwide GSM network in Morocco; One of the largest telecom project financings ever in Africa (US$1.6 billion). Awarded African Telecom Deal of the Year by Global Finance Magazine in 2000. IFC acted as Advisor and Joint Lead Arranger of Medi Telecom s debt restructuring that was successfully closed in July 2004. The original debt would mature in 2008 (B Loan; US$340 million) and 2009 (A Loan; US$66m and C Loan; US$22m). The loans had their maturities extended for three years (including one year grace period), until 2011 for the B Loan and 2012 for the A and C Loans; Sponsors committed US$50 million in additional contingent equity

Major IFI Investors 11 17 36 27 Number of Projects Listed in PPI Database IFC EBRD EIB Others

Conclusion Massive Rollout of ICT in the 1990 s, yet Mixed picture for Broadband and Internet (coverage and price) limiting the potential use of IT Growing share of private investment, yet Competitive and well regulated private investment climate is key to attract investors Considerable investment needs, yet Difficult to attract private financing : FDI reforms, WTO commitments, regulatory stability Pro-investment policy and regulation Leveraging government as a consumer, Public Private Partnerships Government-supported access initiatives

THANK YOU Michel Maechler, GICT mmaechler@worldbank.org http://info.worldbank.org/ict/ References (available on-line) Financing Information and Communication Infrastructure Needs in the Developing World: Public and Private Roles, The World Bank, February 2005. Competition in International Voice Communications, Rossoto C.M., Wellenius B., Lewin A. and Gomez C.R., World Bank Working Paper No 42, 2004.

Catalyzing Market Growth I. Policy Work Competition & regulatory reform, regulatory capacity building From segment focused policy & regulation to converged policy and regulation Spectrum policy Unprivatized incumbents Capacity-building & analytical work on policy & regulatory issues (regulatory toolkit, etc) II. Investments Infrastructure Support traditional players with full product range/new products Explore investing in broadband/alternative providers Finance regional players ( South South ) Explore working with emerging equipment suppliers Media Focus on large & rapidly growing media markets Finance non-controversial entertainment & advertising-based media Explore investing in media with news & editorial components

Addressing Market Failures I. Policy Work Universal/Rural Access Increased focus on broadband, ICT training, content National & regional backbones Analytical work & policy toolkits for extending access (open access study, etc.) II. Investments Increase public-private partnerships Develop SME & microfinance products to support the next billion Innovative financing schemes for universal/rural access Pre-privatization investments in incumbents Piloting on options for extending access (support for last mile pilots)

Driving Demand Through Innovation I. Policy Work e-legislation Regulation for e-government, e-commerce, security, etc. Analytical work & scalability experiments on ICT use in core sectors (education, health) II. Investments E-Government & IT Services: selectively expand into new markets IT Enabled Services/Business Process Outsourcing: emerging portfolio in a few key markets IP/Technology Products (software & IT hardware): focus on India and China Convergence: Applications & Services that emerge from the convergence of telecom and computing Financing for connectivity and ICT applications for governments and other sectors Financing the global network of ICT incubators, leading to broader innovation-support program

WBG Activities IFC, IBRD/IDA and MIGA commitments and syndications for ICT sector, 2000-2004 (excl AAA) USD millions TFs (w/ PPIAF & InfoDev), $70.55, 2% MIGA, $666, 21% IFC (excl B- loans), $1,156, 36% IBRD/IDA, $851, 26% IFC B-loans, $474, 15%

WBG- A Continuing Commitment IFC, IBRD/IDA, MIGA commitments and syndications for ICI sector (excl AAA) $1,000 USD millions $800 $600 $400 $200 MIGA TFs (w/ PPIAF & InfoDev) IBRD/IDA IFC B-loans IFC (excl B-loans) $- 2000 2001 2002 2003 2004 FY approved

IFC ICT Portfolio 8% 1% Cable and Broadband 26% Computer Systems Design and Related Services Content Fixed Telephony 45% 1% 3% Internet Access Providers (Including ISPs) Mobile Telephony 1% 15% Other (Satellite, Radio and Television Broadcasting, etc.) Private Equity/Venture Cap Fund - Regional

South Asia 13% MENA 11% IFC ICT Portfolio SECA 10% AFRICA 10% ECA 8% EAP 14% LAC 34%

Investment Focus in IT IT Services IT Enabled Services Software Development Software Products IC Design e-commerce e-government

Investment and Financing of the ICT sector. Arab Conference on Industrial Information and Networks Tunis - May 23, 2005