UNDP/BDP Presentation at Lima Roudtable

UNCTAD Workshop on E-Commerce

Lima, 4-5 August 1999

Internet Users in Latin America (LA)

According to the latest estimates, currently there are an estimated 7 million Internet users in the region. However, user distribution by country is not even as almost 70% of these users are located in Brazil, Argentina, Mexico, and Chile -Brazil alone accounting for almost 50% of the total. Thus, there is an average of 65,000 Internet users per country, in a region of 34 countries and 450 million in population.

Even though current forecasts estimate that the number of users in the region will double by 2001, the most dynamic countries are now facing a slowdown in the growth rates of Internet users. In other words, essence, the global trend of an upward curve of marginal increases in Internet users seems to be stabilizing in this region.

Infrastructure

To date, only a handful of countries have laid out the basic infrastructure required for developing and deploying a national Internet (IP) backbones. Reasons for this include a) lack of public and private sector financial resources involvement, b) reliance on private sector only to build the infrastructure and c) lack of a national vision and strategic planning to ensure such development. As a result, access to the Internet is still limited to the large urban centres.

Most countries have one or more entry points to the Internet but only a handful have excess bandwidth capacity to support high-end Internet applications such as distance education, video-conferencing, e-commerce and virtual governance. In most countries, existing bandwidth is currently saturated and using the WWW, for example, is a real challenge to most users.

Starting in 1999, a few large North-American ISPs such as AOL,PSINet, UUNet, etc. have gone on a shopping spree, purchasing key national and regional ISPs with the purpose of expanding their user base and markets -and competing with national initiatives. However, these companies have already announced that they have no plans yet to make any serious investment in infrastructure and/or national and regional IP backbones in the region. Ironically, the same companies complain about the lack of technical and human capacity that they face when conducting business in the region.

Privatization

To a large extent, the privatization of the telecom sector has taken place in most countries in the region. However, it is important to distinguish between privatization and competition. In effect, in a few countries, firms and corporations acquiring the old PTT state-owned companies are given grace periods of 3 to 5 years (in some countries grace periods are of 20-25 years) in which they will face no competition. Thus, a new monopolistic situation has been created.

Perhaps one of the most interesting outcomes of the privatization process -and related to the control of the so-called "local loop"- is the changes in the pricing structure for telephone calls. In the past, the old PTTs used to cross-subsidized local calls by charging very high rates for international calls and providing access to the "local loop" at a very low cost (or free in some cases). Privatization has eliminated cross-subsidies and now local users pay "real" prices for both international and local calls; this translates into lower rates for the former and higher rates for the latter. The impact of this on Internet use has been negative so far as most users are now cost-aware and do not have the resources to openly "surf" the web. This has been at least the experience of a few of the existing 15 SDNP country hosts, such as Bolivia, Colombia, Mexico and Jamaica. This has mostly affected NGOs and SMEs (Small and Medium Enterprises).

A key outcome of the privatization process has been the development and deployment of national autonomous telecom regulator bodies, similar to the FCC and backed up by national legislation. This is indeed a positive move from the old PTT system in which they controlled both service provision and telecom policies.

E-commerce Issues in this Context

Recent estimates on e-commerce indicate that the US is 2-3 years ahead of European nations and at least 5 years ahead of all developing nations in the deployment and effective use of e-commerce in the real economy. Companies such as CISCO, Dell and related are indeed well positioned to take a leading role in the global e-commerce market.

The e-commerce market, in particular the business to business e-transactions, is larger than the book and music markets taken together and its value is estimated to be of about 40 billion US for next year. Estimates for business to consumer e-transactions are quite conservative and seem to indicate that its grow will be relatively slow.

However, for developing countries there are many issues that hinder the potential growth of this market such as:

1. SMEs in developing nations are faced with the lack of technical, human and financial resources. For example, for a SME to start up a credit card payment facility over the Internet an international corporate account is required at a cost that will exceed most budgets.

2. Secondly, SMEs and related enterprises in developing nations need to establish a "trust and secutiry system" which users from developed nations can effectively use and thus provide the needed revenue to make the operations sustainable. Not many developing countries provide business security or have credit rating facilities for customers and suppliers.

3. Infrastructure for delivery- a major problem in developing countries that unfortunately cannot provide the same cost-efficient and reliable network of delivery systems in developed countries, such as DHL or FedEx in the USA.

4. The areas of taxation and international trade regulations are key issues to be considered at both the national and international arena, in addition to the need to develop national legislation and support for e-commerce activities within the countries themselves.

The above are areas that UNDP and UNCTAD can provide assistance and guidance to developing countries. As an example, SDNP Honduras has initiated an e-commerce project in the country. The project aims at selling various articles produces by artisans located in 8 remote provinces, eliminating the middleman and providing the artisans with a "shopping window" open to the world. The project is so far using faxes and telephone calls as a secur means of processing payment for goods sold. We should remember that this was the same process used by e-commerce pionners in the USA 5 years ago.

UNDP and UNCTAD should aim to develop and assist developing countries leapfrog these five years by building public and private sector technical and human capacities needed for the full utilization of e-commerce and related IT areas such as public access centers and national backbone support.

Raul Zambrano
August 1999

| Brochures | Workshops | Papers | Evaluations | SIS | Guidelines |