Digitization: Why Developing Nations Must Invest Now – Analysis

One of the biggest stories of the year that has barely registered on the blips of policymakers and the wider public is the phenomenal growth of the Internet of Things (IoT). Its market size is expected to grow from $625.2 billion in 2015 to a whopping $1.29 trillion in 2020. But make no mistake – the IoT goes far beyond the offbeat smart speaker you can talk to and get today’s weather. In fact, its biggest disruptive potential lies in the way smart devices could address seemingly insurmountable developmental challenges. Healthcare, water, natural resource management, resiliency to climate change are just some of the areas where IoT devices could play a starring role. But is the developing world ready to embrace this second digital revolution in as many decades?

The exponential growth of the digital economy in recent years has been accelerated by the fact that as Internet access has expanded, the cost of Information and Communications Technology (ICT) infrastructure, equipment and software has gone down. The proliferation of high-speed broadband was accompanied by an overall decline in the average cost of one gigabyte of hard drive storage capacity from a ludicrous US$400,000 in 1980 to US$0.02 in 2016.

Unsurprisingly, developed nations have thus far benefited most of all from this. In 2016, for example, 95% of firms in OECD countries had access to high speed Internet, up from 86% in 2010. Meanwhile, developing countries are lagging far behind, but that doesn’t only serves to highlight IoT’s massive potential?

In fact, there are many applications of IoT which can be especially useful in the developing world, ranging from the most basic to highly sophisticated tasks: flow meters could be used to assess whether hand pumps are working properly; farmers could manage the irrigation of their plots from a distance using their smartphones; and sensors monitoring supply and storage temperatures of highly critical medications, such as the Vaccine Wastage Sentinel Monitoring System pilot project in Ghana, can reduce vaccine wastage and save lives.

As these examples show, the potential is most definitely there. A report by McKinsey even estimates that developing economies could generate nearly 40% of value in the international IoT market. However, these countries can only reach this potential if the right infrastructure is in place – and that’s where things get complicated.

The reasons for this are, as the World Economic Forum so redundantly puts it, “big, complex and multidimensional”. But it’s clear that the lack of adequate infrastructure development required to fully exploit IoT’s benefits plays a pivotal part, and keeps holding developing countries back. A report by the UN Broadband Commission for Sustainable Development found that of the 3.9 billion people in the world still not online, the vast majority is in the developing world. The report estimates that by the end of 2017, Internet penetration will reach only 17.5% across the least developed countries.

This shortfall is largely attributable to poor government policies, which have failed to recognize that getting a nation online is inextricable from enabling it to get ahead. As the International Telecommunications Union correctly points out, a starting point for the proliferation of IoT is simply setting aside telecommunications spectrum dedicated to handling traffic from such devices.

A prime example of this is Bangladesh. Ranking 145th out of 175 countries, the country has long floundered among the lowest ranking countries in the ICT development index (IDI). Although Prim Minister Sheikh Hasina embarked on a digitization program in 2010 in a bid to diversify its economy, not much headway has been made. While the government’s intentions were good, its execution was terrible.

After attempting to auction 3G spectrum blocks at exorbitant prices in 2013 resulted in large amounts remaining unsold, the Bangladeshi government is trying the same thing for 4G in an auction planned later this year. By setting the spectrum price above the market rate, and in addition charging a spectrum conversion fee of $7.5 million for each MHz of spectrum operators already hold in the 900MHz and 1800MHz band in order to be able use the spectrum for 4G services , the country’s top three mobile phone operators, Grameenphone, Robi and Banglalink, were prompted to write to the government and express their concerns about these unrealistic prices.

By hoping to unduly profiteer over the launch of 4G, Bangladeshi policy-makers risk stalling a digitization project before it has even begun. Dhaka’ failure to get its 4G network off the ground is even more worrisome when compared to other developing countries, where governments showed a more sensible attitude towards establishing a functional policy framework to help stimulate the growth of the digital economy.

The Philippines, a country not known for measured policy decisions, posted the strongest Internet speed growth in the Asia-Pacific region after its government became acutely aware that connectivity is key to future economic fortunes. To increase speeds, Manila established an ICT Department and aggressively pushed for telecom operators to invest in network technology. Consequently, both fixed and mobile speeds are improving. Following a report into the state of the Internet in his country, President Duterte also approved a plan to deploy a national broadband network in the next three to five years at a cost of $4.0 billion. Farther afield, the government in Botswana is similarly engaged. Having invested some €60 million through the Botswana Fiber Networks (BoFiNet) since 2014 as part of its ‘backbone’ project, Internet access has proliferated throughout the nation and connected hitherto offline communities. These national broadband networks in the Philippines and Botswana go hand-in-hand with policies that allow and encourage mobile operators to invest in the deployment of broadband fibre networks.

Both countries still have a long way to go, yet they demonstrate that governments with a holistic view of connectivity and ICT can put in place policies that will benefit them in the future. The digital policies of today cannot be extricated from future development goals; only nations with reliable, affordable Internet will be able to attract the investment they need to drive growth and become part of global IoT networks.

*Alicia Conway is currently undertaking a Master’s in Economics and Management in London