The global digital divide
There exists a wide digital divide between developed and developing countries. However, developing countries are catching up and narrowing the gap.
They also present significant growth potentials for companies in the information and communications industry.
- The digital divide between developing and developed countries is obvious in most ICT (information and communications technology) areas, including fixed-line telephone connections, broadband penetration and mobile phone telecommunications;
- Developing countries are catching up with developed countries in terms of mobile phones and Internet usage, but are lagging behind in terms of fixed telephone lines. This is due to the relatively high cost of upgrading fixed line infrastructure and the preference of first-time phone users in developing countries to opt for mobile phones;
- Wireless technologies hold the potential of bridging the digital divide between rich and poor countries because they help circumvent the cost of developing ICT infrastructure;
- Due to their large and younger populations, developing countries with strong economic performances and rising incomes present great potentials in terms of both production and consumption for companies the ICT industry.
The role of ICT and the digital divide
In the global economy, information and communication technologies (ICT) play a vital role:
- International trade is highly dependent on the accumulation and dissemination of information and knowledge;
- In many countries, the business environment can be vastly improved as business licensing and other bureaucratic procedures are streamlined thanks to e-governance;
- Information infrastructure thus weighs heavily in the decision of international companies as to where to set up new business and investment;
- ICT enables developing countries to become active participants in international trade and integrate into the global knowledge-based economy;
- In particular, mobile technology has enabled farmers and fishermen from rural communities to gain price information and new customers without the need to go through the middleman;
- ICT also allows many developing countries to make a leap towards higher value-added production and services. For example, India and China have become strong players in the ICT industry in terms of both software development and manufacturing of ICT goods such as mobile phones and computers.
The digital divide can exist within a country’s border or between countries:
- Within a country, the digital divide could exist along the lines of income, rural-urban locations, gender and age. In low-income countries, rural poor communities and women often lack access to information and communication technologies;
- There are also large differences between developed and developing countries in terms of access to the range of ICT services and technologies, including Internet access, mobile phone usage and fixed telephone lines.
There are differences between developed countries, where broadband is growing rapidly, and developing countries, where narrowband dial-up is still relatively prevalent:
- In many developed counties, the growth of broadband is largely due to competition and declining prices, but is also made possible thanks to available infrastructure;
- In low-income developing countries, expanding broadband infrastructure such as cable and optical fibre connections outside urban areas tends to be very costly;
- Wireless technologies can help circumvent the cost of infrastructure for remote or rural areas. Vietnam, for example, is using the cutting-edge technology Wimax (worldwide interoperability for microwave access, which offers much higher speeds and wider range than wi-fi or wireless fidelity) to bring broadband Internet to rural areas;
- Developing countries are catching up with developed countries in terms of overall Internet usage. In 1997, nearly three-quarter of the world’s population lived in developing countries but accounted for only 5% of the world’s Internet users. By 2006, the share of developing countries in total Internet usage had risen to over 30%.
In terms of broadband Internet access, the digital divide among countries is wide:
- High-income countries account for nearly three-quarters (74.0%) of total broadband subscribers worldwide;
- Denmark and the Netherlands have the world’s highest broadband penetration rate, with over 30 subscribers per 100 inhabitants;
- Whereas e-commerce is commonplace in the developed world, it has not taken off in developing economies partly due to the lack of financial facilities (such as credit cards and insurance services) that can support online sales and purchases;
- Additionally, prices for broadband Internet in developing countries are higher than in developed countries, thus putting broadband services beyond the reach of ordinary consumers;
- In absolute terms, China had a total 57.9 million broadband subscribers in 2006, accounting for nearly 15% of the global total;
- Broadband Internet growth in China has been extremely robust (with an average annual rate of 566% during 2001-2006). This breakneck growth could see China overtaking the USA by 2009 to become the world’s largest market in terms of the number of broadband Internet subscribers.
The global mobile phone market is growing rapidly in terms of both number and technology development:
- For the first time in 2002, the number of mobile phones worldwide outnumbered total fixed telephone lines. By 2006, the global number of mobile phone users reached 2.5 billion as compared to 1.4 billion fixed lines;
- The world’s top ten largest markets for mobile phones – Japan, Korea, Italy, the UK, the USA, Germany, France, Spain, Portugal and Australia – are almost entirely situated in Asia and Europe. However, mobile phone markets in many low-income countries in Asia and Africa record the strongest growth, with India being the world’s fastest-growing market;
Source: Telecom Regulatory Authority of India.
- In well-developed markets in high-income countries, mobile broadband services (also known as 3G services) are growing strongly. Such high-technology and high value-added services are key drivers of market growth as they significantly raise average revenue per user;
- On the other hand, in developing countries, more traditional services such as mobile banking and instant messaging are driving market growth. Due to lower income levels, average revenue per user in these markets are not growing as robustly as user numbers;
- The mobile phone is an important tool to combat poverty in many countries in Sub-Saharan Africa and South Asia. It effectively widens access to markets for poor rural farmers and helps them gain price information and new customers via mobile phone instead of the middle man;
- Mobile telephony offers a “technological leapfrogging” opportunity for developing countries to overcome poor landline infrastructure and close the digital gap. In 2006, lower-middle income countries accounted for 35.2% of total mobile phone users worldwide, almost comparable to the 38.7% market share of high-income countries;
- However, developing countries (particularly low-income countries) are lagging behind in terms of fixed-line telephones. This is because of the high costs of upgrading infrastructure required for fixed lines and the fact that first-time users of telephones prefer to opt for mobile phones. In India, for example, the number of landline telephone subscribers was down to 40.4 million in December 2006, from 48.8 million a year ago. At the same time, the number of mobile phone users grew 96.8% from the end of December 2005 to 149.5 million subscribers at the end of December 2006.
Source: ITU and UNCTAD. Note: Size of bubble denotes GDP as % of global total.
Although developed countries will continue to offer a solid consumer base for ICT products and services, the future expansion of the ICT industry will be driven by growth momentum in developing countries:
- Thanks to their younger age structure, larger populations and lower labour costs, manufacturers of ICT goods (e.g. mobile phones and computers) will be increasingly attracted to developing countries to invest and set up production. As a result, FDI inflows into these countries can be expected to rise;
- Brazil, India, Mexico, and Vietnam are among countries which have young and sizable populations, strong economic performance and rising incomes and thus possess enormous market potentials. ICT goods companies, mobile network operators and Internet providers will closely follow local government regulations on the ICT industry in order to grasp opportunities to expand robustly in these markets;
- An increasing number of developing countries will improve their business environments through e-government and e-business. This will help to facilitate national and international business transactions and boost economic growth in these counties.