Features

UNCTAD Information Economy Report 2010: ICTs, enterprises & poverty alleviation

20 July 2011
ITC News

 

A recent report by the United Nations Conference on Trade and Development (UNCTAD) highlights new opportunities for the poor to benefit from ICTs and mobile technology, urging governments and policymakers to take full advantage of these new opportunities to combat poverty in least developed countries (LDCs).

In mountainous Bhutan, mobile phone use has transformed the everyday lives of dairy farmers. In a country that five years ago had very few mobile subscribers, cell phones now help farmers find information about market prices and stay in direct contact with their customers. As a result, farmers sell their produce at higher prices and only ship sufficient milk to meet demand, subsequently avoiding waste and gaining more income. Mobile phones also have led to reduced travel and waiting times, enabling farmers to organize their work more efficiently. The Government of Bhutan recognizes the business potential of mobile phones, and now offers a mobile-based information service to farmers.

The Information Economy Report 2010: ICTs, Enterprises and Poverty Alleviation shows that Bhutan is far from an isolated case. In more and more low-income countries, farmers, fishermen and entrepreneurs are seeing mobile phones and other information and communications technologies (ICTs) as key tools to improve their livelihoods. Over the past few years, the penetration rate of mobile phones in the world’s least developed countries has surged from 2 to 25 subscriptions per 100 inhabitants. The technology involved is now simple and affordable enough to be purchased and used by the poor. They become ‘connected’, although often in ways that are different than in developed countries. The UNCTAD report urges governments and other policymakers to take full advantage of these new opportunities to combat poverty.

How mobile phones can help reduce poverty

Poor people often lack information that is vital for the work they do. This information can include current market prices, weather forecasts, and new income earning opportunities. Lack of such up-to-date knowledge adds to their vulnerability. For example, fishermen may only have time to visit one port while their catch is fresh. If the buyers at the port they select are paying a lower price than elsewhere, they must still sell there. Mobile phones can enable them to compare prices and choose the best options while still at sea. In southern India, for example, fishermen's profits increased by 8% thanks to better market coordination. When better access to information and better chances to communicate are available to poor people, information and communication technologies can assist them in significantly raising income levels.

The rapid diffusion of mobile telephony is making it possible – for the first time – for poor people to have immediate access to interactive communications. The penetration rate of mobile phones is much higher than that of other ICTs such as fixed telephone subscriptions, Internet, and broadband subscriptions. The spread of mobile telephony has to a large extent been a result of market liberalization in combination with technological and, most importantly, commercial innovation. The rapid uptake of mobile telephony among the poor is explained by the fact that mobiles respond to basic needs for communication, have limited skills requirements by the user and are relatively affordable to use. Text messaging and the use of the ‘missed calls’ feature help to make mobile use more affordable for the poor.

Along with greater connectivity, new applications and services that can be used with mobile phones are emerging in low-income countries. Mobile phones are used for voice communications and SMS, and increasingly for accessing the Internet. In some developing countries, mobile phones allow people without bank accounts to make person-to-person payments, money transfers, and pre-paid purchases. This allows for lower transaction costs, and easier, cheaper and safer money transfers to remote locations.

The use of the Internet to access market information among growth-oriented enterprises in developing countries varies between sectors. For enterprises that trade across borders (importers, exporters and businesses in the tourism sector) the Internet has become a critical tool for accessing and disseminating business information to and from external institutions and global business networks. However, most subsistence-based enterprises serve, at best, local markets and will only derive benefit from net-based market information if and when sufficient web-based data (local content in local languages) is available through local networks. Only then, and/or when consumer use of the Internet increases, will they have the necessary capacity to make use of web access. There have been many failed attempts at reaching the poor through web-based solutions. As noted by Harsha de Silva and Dimuthu Ratnadikawara in their 2009 study of ICT use in Sri Lanka to reduce transaction costs in agriculture: ‘There is no value in having all the crucial information in some website if the farmer has no access to the Internet.’

 

Meeting entrepreneurial needs

The UNCTAD report shows that micro-enterprises in low-income countries are rapidly adopting mobile phones as key tools for advancing their commercial activities. In Niger, grain traders are benefiting from lower transaction and information-search costs. In Ghana and India, mobile phones have become critical equipment for fishermen and fishmongers, resulting in more efficient markets and improved livelihoods. For women’s weaving micro-enterprises in Nigeria, the phones have reduced transaction costs. In addition, producers are saving time and money by eliminating travel that used to be necessary in order to locate buyers and negotiate the best prices. And in Bangladesh, a helpline has been set up offering information and advisory services to small-scale farmers with mobile phones.

In addition, new jobs have arisen catering to local demand for mobile phones and the associated applications and services. Throughout the developing world, there is a proliferation of shops and market stalls selling used and new mobile phones; kiosks that offer mobile phone applications and content; and activities such as installation, setup and various repair services. Selling airtime or mobile-money services on the streets or in shops engages millions of people in low-income countries.

There are, of course, ICT micro-enterprises in other sectors, notably PC refurbishment and repair, skills training, media distribution and digital photography services. These tend to make only small profits. For example, owners of Internet cafés do not currently generate great profits from their ICT-related activities but see them as a sideline supported by other enterprises or products (such as book selling or trade from family-owned businesses). In Mumbai, Nimmi Rangaswamy found that ICT micro-enterprises are seen as risky future investments that produce only small profits, insufficient to make a living.

Outsourcing reaches rural areas

The Information Economy Report 2010 also analyzed the potential contribution to poverty reduction of IT and ICT-enabled service-sector work, such as outsourced computer programming and various business processes. Many developing countries view the outsourcing and offshoring of such services as potential sources of employment and export revenue. For example, the Government of Kenya predicts that the number of domestic business-process-outsourcing jobs will grow from the current 8,000 to 120,000 by 2020. And Ghana aims to create 40,000 such jobs by 2015.

While outsourcing and offshoring may contribute to poverty reduction, that outcome is not automatic. Even in India and the Philippines, jobs created in these activities tend to be centred in urban areas and require relatively high skill levels. Their main potential contributions to the poor may arise through second-order effects, such as increased demand for domestic or other low-skill services. However, a new phenomenon known as ‘social outsourcing’ – the outsourcing of services to poor communities in developing countries with the explicit aim of poverty alleviation or the achievement of other development objectives – can contribute to reducing rural poverty.

 

Meeting entrepreneurial needs

The UNCTAD report shows that micro-enterprises in low-income countries are rapidly adopting mobile phones as key tools for advancing their commercial activities. In Niger, grain traders are benefiting from lower transaction and information-search costs. In Ghana and India, mobile phones have become critical equipment for fishermen and fishmongers, resulting in more efficient markets and improved livelihoods. For women’s weaving micro-enterprises in Nigeria, the phones have reduced transaction costs. In addition, producers are saving time and money by eliminating travel that used to be necessary in order to locate buyers and negotiate the best prices. And in Bangladesh, a helpline has been set up offering information and advisory services to small-scale farmers with mobile phones.

In addition, new jobs have arisen catering to local demand for mobile phones and the associated applications and services. Throughout the developing world, there is a proliferation of shops and market stalls selling used and new mobile phones; kiosks that offer mobile phone applications and content; and activities such as installation, setup and various repair services. Selling airtime or mobile-money services on the streets or in shops engages millions of people in low-income countries.

There are, of course, ICT micro-enterprises in other sectors, notably PC refurbishment and repair, skills training, media distribution and digital photography services. These tend to make only small profits. For example, owners of Internet cafés do not currently generate great profits from their ICT-related activities but see them as a sideline supported by other enterprises or products (such as book selling or trade from family-owned businesses). In Mumbai, Nimmi Rangaswamy found that ICT micro-enterprises are seen as risky future investments that produce only small profits, insufficient to make a living.

Outsourcing reaches rural areas

The Information Economy Report 2010 also analyzed the potential contribution to poverty reduction of IT and ICT-enabled service-sector work, such as outsourced computer programming and various business processes. Many developing countries view the outsourcing and offshoring of such services as potential sources of employment and export revenue. For example, the Government of Kenya predicts that the number of domestic business-process-outsourcing jobs will grow from the current 8,000 to 120,000 by 2020. And Ghana aims to create 40,000 such jobs by 2015.

While outsourcing and offshoring may contribute to poverty reduction, that outcome is not automatic. Even in India and the Philippines, jobs created in these activities tend to be centred in urban areas and require relatively high skill levels. Their main potential contributions to the poor may arise through second-order effects, such as increased demand for domestic or other low-skill services. However, a new phenomenon known as ‘social outsourcing’ – the outsourcing of services to poor communities in developing countries with the explicit aim of poverty alleviation or the achievement of other development objectives – can contribute to reducing rural poverty. 

  

UNCTAD’s policy recommendations
For governments and their partners

•  To reach the poorest groups in society, policies should focus more on supporting ICT adoption
at lower levels of economic activity, especially
in rural areas.

•  Government efforts need to become more demand-driven. Governments should learn how the poor are using mobile phones and other ICTs and build on such knowledge when designing future policies.

•  Further expansion of mobile coverage is important. At the end of 2008, almost half the rural population in LDCs were still not covered by a mobile signal.

•  ICT use needs to be affordable. In the case of mobile telephony, lessons can be learned from South Asia, which reports the lowest usage costs. Competition plays a key role in this context.

•  Governments should make better use of mobile phones when designing business support
services, and should adapt these services
to the capabilities and situations of poor users.

•  More attention should also be awarded to the ICT producing sector. At a minimum, a vibrant ICT sector is important for facilitating and sustaining more widespread use of ICTs in enterprises across sectors and industries.

•  Development partners need to stay abreast of new ICT developments, and to pay adequate attention to the potential of ICTs in their strategies for reducing poverty.

•  Governments and development agencies should work with the private sector and civil society: projects enhancing the productive use of ICTs
by small enterprises that typically employ the
poor often involve multiple stakeholders acting
in partnership.

  

Information Economy Report 2010, UNCTAD 

A full copy of the Information Economy Report 2010 can be downloaded free of charge at www.unctad.org/ier2010.