Navigating between Scylla and Charybdis

Development Centre

David Rooney

Will e-commerce help solve problems that have dogged developing countries for decades, or will a widening digital divide entrench them still further in a vicious circle of poverty? 

The mythical Greek hero Odysseus had to use all his intelligence to navigate between Scylla, a rock monster whose six heads plucked hapless sailors to their doom, and the fatal whirlpool Charybdis in his odyssey across the Mediterranean more than 2,000 years ago.

Today’s policymakers may be equipped with more up to date tools, but they face just as daunting a task when it comes to measuring the likely effect of electronic commerce on developing countries. The challenge now is to avoid the Scylla of technological pessimism – seeing an inevitably widening “digital divide” between industrialised and developing countries – without being sucked into the Charybdis of exaggerated claims about the Internet’s potential to resolve a host of development problems which have so far proved intractable.

The uneven spread of information technology (IT) worldwide risks reinforcing existing income and wealth inequalities within and between countries, but what remains unclear is whether the “digital opportunities” stressed by optimists will ever amount to more than a handful of anecdotes. While it is clear that e-commerce is making it easier for artisans, musicians and other artists in developing countries to access business-to-consumer world markets, cutting out layers of middlemen and improving the creators’ bargaining power, the Internet is so new that there is little historical evidence on which to base projections of future trends.

Globalisation can potentially help reduce the digital divide by encouraging the freer movement of technology across borders, from innovator to adopter countries. The cost of IT hardware has fallen significantly in recent years, offering poor countries and poor people access to markets, information, and other resources that would otherwise have been inaccessible. Developing countries, however, still have a scarcity of IT-related infrastructure, hardware and software investment, and know-how. IT experts are few, the allure of better-paid job opportunities in OECD countries looms large, and the communications infrastructure and regulatory environment vital for easy, affordable Internet access are often lacking.

Any analysis of the potential of e-commerce in developing countries has to be guided by a realistic assessment of two key elements: the prospects and timeframe for improving Internet access and affordability in low-income countries (no Internet, no e-commerce); and the major likely sources of demand for e-commerce transactions and web-based services in developing countries. At the same time, one has to consider the need to overcome infrastructure bottlenecks in related areas like electricity and transport, and the governance aspects of e-commerce, including consumer protection, security of transactions, privacy of records, and intellectual property.

Entrepreneurs in developing countries face huge obstacles in penetrating world markets and in expanding or diversifying sales in their domestic markets, such as limited information about market opportunities, limited access to financing, and limited capacity to satisfy the requirements of overseas customers when it comes to quality and cost.

These problems are not new. The challenge is how to use the Internet and e-commerce to remove, or at least to lower, these hurdles, as well as to overcome the new obstacles posed by new technology itself.

The lack of a critical mass of local users may limit network benefits to developing country entrepreneurs, for example, since the technology only becomes really useful when enough prospective customers and suppliers and enough locally relevant content are accessible online. But high access costs are a serious deterrent to wider adoption of the Internet in many countries. Telecommunications monopolies are one contributing factor to high costs, but low telecoms network density in rural areas can also prevent connection to the Internet via a local phone call, pushing up the price. The cost problem may explain why the Internet remains simply a medium for providing e-mail services in developing countries to a far greater extent than in OECD countries. E-mail is cheaper than other Internet options because it requires minimum time online, but while it may provide communication cost savings and other benefits to users, it is clearly an under-utilisation of the web’s potential.

Virtual trust

Developing country entrepreneurs also face the problem of building virtual trust. All international trade is based on trust to some degree, but this is particularly true of e-commerce because of the enormous security challenges posed by online transactions, the low entry costs, and the opportunities opened up for new, unknown suppliers. Reputation can matter even more in the world of e-commerce than in the bricks-and-mortar world, especially when transactions cross borders and raise thorny questions of legal jurisdiction. Geography is not supposed to matter in the virtual world but it still does. Individual Internet entrepreneurs, however trustworthy, may still struggle to reassure customers if the image of their country is one of weak respect for the law.

Various initiatives, both private and public, are afoot to establish a firmer basis for trust online – from real-time peer rating systems to voluntary codes of conduct to public accreditation schemes. It would be premature to pronounce any one approach as preferable and in any case sector-specific research is needed to address the concerns of different groups of entrepreneurs in developing countries. Governments need to work towards creating a climate of trust that makes it possible for agents to conduct business online without the need for face-to-face contact or a long track record of prior dealings. Beyond certain minimum standards of transparency, impartiality and efficiency, a legal and judicial framework for e-commerce needs to address specific concerns of protection of privacy, security and cybercrime, intellectual property, and treatment of digital signatures. Until the key policy elements are in place to the satisfaction of potential OECD e-commerce partners, industry self-regulation and private initiatives are likely to take precedence.

Official development assistance (ODA) from the Group of Eight leading industrial countries, and other members of the OECD’s development assistance committee (DAC) may be able to leverage private investments in the expansion of telecom and Internet infrastructure in developing countries. One possibility would be to lease spare capacity on privately launched low-earth-orbiting satellites during their low-traffic transit over poor countries to provide the latter with bandwidth at affordable costs. ODA assistance in capacity building in the areas of legal and regulatory issues can also help equip developing countries to play a full part in negotiations and discussions that are shaping global rules and protocols governing e-commerce.

The G8 is already committed to preventing the digital divide from widening further. At their annual summit in Okinawa in July, the G8 leaders highlighted this problem and adopted the Okinawa Charter on Global Information Society. The Charter called for a solid framework of IT-related policies and action to provide a basis for promoting social and economic opportunities worldwide and creating a truly global information society.

Public-private venture capital for developing country dot.coms is already in the works, with the recently announced Softbank/World Bank multi-million dollar fund. On a more modest scale, other initiatives linking information technology with finance like the Grameen mobile-phone-cum-bank network look promising, though they are still in early days. The approach to providing low-cost Internet access to the rural poor of Africa, Asia and Latin America will almost certainly be radically different from that followed in the OECD Member countries. Experimentation is needed and is happening throughout the developing world.

The main initiative to emerge from Okinawa was the establishment of the dot.force to provide a high-level forum for public and private sector leaders to discuss ways to bridge the digital divide. The dot.force is preparing an assessment of what is being done and what needs to be done to ensure that the benefits of the Internet extend even to the poorest countries and will report to the 2001 G8 Summit in Genoa. One thing is certain: the Herculean task of democratising access to the Internet and making its potential real for poor people in developing countries is only just beginning.

©OECD Observer No 224, January 2001

Economic data

GDP growth: -1.8% Q1 2020/Q4 2019
Consumer price inflation: 0.9% Apr 2020 annual
Trade (G20): -4.3% exp, -3.9% imp, Q1 2020/Q4 2019
Unemployment: 8.4% Apr 2020
Last update: 9 July 2020

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