Article 3: April 2007

Volume 17, No. 1, April 2007

Internet in development: World Wide Web?

Charles Kenny

[The author is a development economist working in Washington, DC. This article is adapted from his book: Overselling the Web? Development and the Internet published by Lynne Rienner in September 2006. Chapter summaries and two free chapters are available at http://charleskenny.blogs.com. The views expressed are solely the author's own.]

Before the dot-com bubble burst, it was common place amongst pundits to consider the Internet as a powerful force for global change. Comparisons were made with the Industrial Revolution, the American Revolution and even with the taming of fire by prehistoric man. The punditry has fallen off along with the NASDAQ, but the influence of such ideas on the development community remains, with frequent calls for universal access to the Internet, wide scale subsidy of Internet-related industries and web-based economic growth. Is there anything to such hopes?

There has been a massive and impressive rollout of telecommunication’s infrastructure worldwide. From being mostly a preserve of the urban elite in developing countries only ten years ago, telephones are now ubiquitous even in rural areas of the poorest countries. More than half of the World’s households now own a fixed telephone, there are in the region of two billion mobile subscribers; and the mobile phone signal footprint now covers as much as 77 percent of the World’s population.

This has had a considerable impact on quality of life - survey evidence suggests that farms and enterprises with access to phones get more for their products whilst consumers with telephone access pay less, for example. And the mobile phone is being used to transfer cash in areas with few banks and fewer ATMs - 2.3 million people in the Philippines use m-commerce. It is little surprise, then, that a number of economists have run statistical analyses suggesting evidence of a link between telephone rollout and economic growth.

Even Internet use is expanding rapidly. The number of Internet users in developing countries increased from about one per thousand people in 1993 to 75 per thousand in 2003. In Kenya and Tanzania , surveys of businesses suggest that between 60 and 80 percent of firms use email.

At the same time, many people in developing countries have decided to stay offline, and advanced use of the Internet is extremely limited. A recent survey carried out in regions of India, Mozambique and Tanzania found that, in spite of the availability of public facilities in local towns, less that two percent of respondents had ever used the Internet (In contrast, seventy percent were regularly using the telephone). For buying and selling over the Web, secure servers are used to host e-commerce applications. Of 110,000 such servers worldwide, only 224 are in low income countries.

When you ask people in the developing world why they aren’t logging on, or why their company hasn’t built an e-commerce portal, the answer tends towards ‘why bother?’ For example, the two most popular answers to a survey of enterprises in Chile that asked why so few were using e-commerce were ‘it isn’t necessary’ and ‘our clients don’t use the Net.’ And it is the general state of development of a country that drives this low utility of advanced Internet applications. The human capital for such applications is lacking. Even in Chile , one of the richest developing countries in the world with an official illiteracy rate of just five percent, 80 percent of people lack the reading skills to integrate sources of information and learn new skills from online sources. The financial infrastructure for e-commerce is also inadequate - in China , only 13 percent of online transactions are completed with a credit card. And the physical infrastructure doesn’t help - FedEx doesn’t deliver Amazon packages to rural Brazil .

When seen in this light, the oft-touted ‘digital divide’ looks a lot like the traditional development divide. The Internet will have less impact on poor countries than on rich ones because the enabling environment for advanced applications isn’t there.

What does this suggest for predictions of global growth driven by the new Information and Communications Technologies? The evidence is that the telephone and the Internet are useful tools in developing countries, and they will have an impact. But the extent of that impact will be constrained by all of the usual factors that hold back growth - weak institutions, limited human capital and poor quality infrastructure. The Internet won’t allow countries to ‘leapfrog’ over such barriers.

And even optimistic estimates of the impact of the Internet on global growth reflect this, discussing impacts of a few percentage points of GDP. Compare that to the 10,000 percent difference between income per capita in Sudan and the United States , and it is clear how much more than Web it will take to conquer global poverty.

In turn, this suggests a role for Information and Communication Technologies in public investment plans and aid budgets, but also a need for caution. When done right, extending access to telephones or using networked computers in government can both garner significant development returns. But large-scale rollout of public Internet access points or subsidies for ICT industries may well divert resources from activities that will have a far greater impact on poverty reduction - educating young girls or vaccinating children against measles, as it might be. The Internet is a useful new tool in the fight against poverty, but every handyman knows you need a lot more than one tool to get a big job done.