UNCTAD REPORT SAYS E-COMMERCE STRONG IN DEVELOPED COUNTRIES, WITH POSITIVE IMPACT; OTHERS URGED TO SHOW POLITICAL WILL FOR TECHNICAL PROGRESS

UNCTAD REPORT SAYS E-COMMERCE STRONG IN DEVELOPED COUNTRIES, WITH POSITIVE IMPACT;

OTHERS URGED TO SHOW POLITICAL WILL FOR TECHNICAL PROGRESS

(Reissued as received.)

GENEVA, 20 November (UNCTAD) -– Electronic business continues to grow vigorously in developed countries, but divergences are surfacing among developing countries, says E-commerce and Development Report 2003, released today by United Nations Conference on Trade and Development (UNCTAD).  More and more governments and businesses in the developing world are nonetheless beginning to eliminate obstacles to the adoption of information and communications technologies (ICT).  While the immediate effects are not necessarily dramatic, the report predicts that improvements in the e-business environment should eventually result in productivity gains in these economies.  At the same time, many other developing countries still face difficulties in identifying and realizing the potential benefits of ICT and the Internet for their economic development.

In terms of Internet use, developing countries continue to grow faster than developed countries:  at the end of 2002, they accounted for 32 per cent of the world's 591 million Internet users, up from 28 per cent the previous year, and could well represent 50 per cent by 2008.  These estimates, although far from ideal, provide a reasonably good indication of whether the foundations of a “digital economy” exist in a given country.  Countries where such foundations do exist -– whose governments have pushed the development of the information society early on (such as Japan, Malaysia, Singapore and the United States) –- have benefited from ICT much earlier, the report finds.  But for developing countries to catch up with ICT developments globally, they must be committed at the highest political level, must pay attention to implementation issues and must strike the proper balance between the roles of the public and private sector in ICT development.

As to what the spread of ICT will mean for national economic performance, the report concludes that it has a positive impact on all factors affecting productivity and underpins growth in several countries where the technology really penetrated.  Systematic empirical evidence on developing countries is still not abundant, but many useful lessons can be drawn from available experience.  Governments should, for example, encourage greater understanding of best practices in the use of ICT so that the best possible choices can be made.  They should implement policies to facilitate greater access to low-cost, high-bandwidth Internet connections and the use of affordable software.  And they should play a leading role in addressing skill deficiencies in the workforce through training and education.  The UNCTAD recommends that the development and adoption of ICT in developing countries should follow a multi-stakeholder approach, including public-private partnerships, alliances and consortia.

Contrary to what might be expected, the report finds that no direct linkage can be established between a country’s income level and Internet usage rates.  Internet penetration rates in developing countries with comparable income levels vary by as much as 25 times.  While developing countries share many challenges in their efforts to participate in the information society, such factors as levels of awareness, the vitality of civil society, and the priority that government, business and other social agents give to these challenges (and the policy choices they make) matter as much as the availability of financial resources.

The report notes that the Web is growing rapidly in terms of active sites, whose numbers rose by 17 per cent last year.  The number of Internet protocol addresses using some kind of scripting language -– indicating higher levels of interactivity -– also mounted, by 52.1 per cent.  Similarly, the 14 per cent increase in the number of sites using the secure sockets layer protocol points to the continued expansion of business-oriented sites, which require secure transaction capabilities.

Internet hosts are heavily concentrated in the developed world:  North America and Europe account for 89 per cent of all hosts worldwide, and their numbers are growing faster than in the developing countries.  But industrial countries account for an even higher concentration of Internet users:  last year there were nearly 1,000 times more Internet hosts per 10,000 people in North America than in all of Africa.  Thus, little content is hosted in developing countries.  Hosting content in a developed country may, however, be the best option for some enterprises in developing countries, UNCTAD says:  it may be easier to host information about a tourist destination, for example, on a server located close to where the potential tourists reside.

Connection Costs Problematic

International bandwidth availability is especially important for developing countries because a large part of their Internet traffic (between 70 and 80 per cent) tends to be international.  Whatever limited international links are available tend to connect to the United States or Europe; only a handful of African countries, for example, have established links with their neighbours, and so a high percentage of intra-African Internet traffic flows through expensive intercontinental circuits.  The situation in Asia and Latin America, although somewhat better, also limits their participation in the global information economy.  Improvements in bandwidth availability and costs tend to be associated with a regulatory environment that promotes competition.  Bandwidth scarcity may reflect the high cost of connecting small, low-income (and, therefore, low-usage) or landlocked markets to the Internet backbone, UNCTAD finds.

In other cases, the lack of economies of scale may be aggravated by public or private monopolies or other anti-competitive arrangements.  High international bandwidth costs can also be determined by international charging practices whereby developing-country Internet service providers (ISPs) must pay the full cost of an Internet connection with a developed country.  Since for many ISPs in developing countries the cost of international bandwidth represents quite a sizeable proportion of their total costs, they have to pass it on to their subscribers; in the end, such arrangements imply that developing-country users subsidize developed-country users’ access to information hosted in the developing countries.

Sizing Up Global E-Commerce

By most estimates used in the report, over 95 per cent of e-commerce takes place in developed countries, with Africa and Latin America combined accounting for less than 1 per cent of the total.  Business-to-business (B2B) transactions represent around 95 per cent of all e-commerce transactions worldwide.  On a national basis, however, official statistics on e-commerce transactions are unavailable in all but a handful of countries.

According to official statistics from the United States, B2B e-commerce is concentrated in a few industry groups, dominated by manufacturing and merchant wholesalers.  The same sources put B2B e-commerce in the United States at $995 billion for 2001, citing a nearly 15 per cent share of e-commerce in total B2B trade, with vigorous growth expected.

The report does not include official figures for B2B online transactions in the European Union, but independent estimates put it at between nearly $185 billion and $200 billion at the end of 2002, concentrated mostly in France, Germany and the United Kingdom.  In terms of intensity of use, the Nordic countries are expected to stay ahead.

In several Asia-Pacific countries, enterprises increasingly view e-commerce as the wave of the future.  Governments in the region tend to prioritize the improvement of infrastructure and upgrading of skills that are necessary to participate effectively in the digital economy.  As a consequence, B2B e-commerce is projected to grow rapidly, from about $120 billion in 2002 to around $200 billion in 2003 and $300 billion by 2004, according to estimates quoted by UNCTAD.

In Latin America, the volume of B2B e-commerce is driven essentially by developments in Argentina, Mexico and, most of all, Brazil, where the value of all B2B online transactions was approaching the $12 billion mark in the first quarter of this year.  The 30 largest Brazilian companies account for 90 per cent of the country’s B2B e-commerce, and, therefore, for a significant share of the region as a whole.

On the retail side, or business-to-consumer (B2C) e-commerce, among the high-income market economies the share of Internet users buying online is highest in the Nordic countries, the United Kingdom and the United States.  Internet retail sales remain a small though growing part of total retail sales.  While more and more consumers are using the Web to get information on high-value products that they ultimately purchase offline, for some products, such as software, books, entertainment bookings and travel-related services, online sales are becoming very significant in these markets.

Among the developing regions, Asia-Pacific represents about 10 per cent of global B2C online sales, the vast majority of them generated by Japan, Australia and the Republic of Korea.  For China's large and fast-growing Internet population, lack of trust and the very limited availability of credit cards are two commonly quoted obstacles to buying online.  In Latin America, Brazil, Argentina and Mexico remain the largest markets.  Brazil has reached higher maturity as an Internet market and represents between 50 and 60 per cent of all Latin American online retail sales.  Few reliable data are available on Africa, but South Africa accounts for the lion's share of e-commerce on the continent.

Broadband Impact Remains Low in Developing World

The UNCTAD report discusses some technological issues that have been particularly prominent in the e-business arena in recent months and that will probably influence its development in coming years.

Broadband networks are now accessible to almost 320 million households, mostly, but not exclusively, in high-income market economies.  Growth in the number of subscribers, however, has not kept pace.  Estimates of the number of broadband users worldwide vary between 55 and 100 million people, more than 75 per cent of whom reside in just six countries.  The Republic of Korea leads the world in per capita terms, with more than 21 subscribers per 100 inhabitants.  Broadband is progressing fast in several other countries as well.

In most countries, where broadband penetration remains below the 10 per cent mark and prices are still fairly high, UNCTAD is predicting that the short-term impact of this technology on most business operations will remain limited.  However, significant penetration levels (above 40 per cent) could be achieved in several markets provided that the regulatory environment ensures sufficient competition among providers, both within and across the various technologies used to deliver broadband.  Particularly in developing countries, where digital subscriber lines (DSL) may not face competition from cable, fibre optic or wireless technology, it may be advisable for regulators to issue licences for alternative modes of delivery, such as fixed wireless.

No broadband application has so far emerged with an impact on the functioning of markets or on the management of companies that is substantially different from the effects of earlier commercial applications of the Internet.  This is not to say that broadband will have no impact on businesses.  Businesses buy much more online content than consumers, and broadband makes such content more accessible, easier to use and, therefore, more saleable, especially to small- and medium-size enterprises.  Broadband allows several users to share an Internet connection, which can reduce the cost of every individual connection -- an important consideration for smaller businesses, which account for a high percentage of ICT entrepreneurs in developing countries.  For larger enterprises, the ability to centralize data and applications in a single storage facility while enabling many users in distant locations to access and use sizeable amounts of information may facilitate the adoption of new forms of organization:  for instance, it may help make telecommuting a practicable idea for wider occupational categories.  Data-intensive operations in such sectors as finance or health care may see business process outsourcing accelerate when high-speed data transfers are possible between low-cost processing centres and their customers.

Security Concerns Rising

Another aspect of the everyday experience that e-business now represents for more and more people is security.  Many Internet users, however, take the Web for granted, expecting it to pose as little risk as water or electricity.  Unfortunately, such levels of security and reliability are not yet available, as the UNCTAD report makes clear.

Internet security problems can take multiple forms, ranging from “spam” (unsolicited e-mail), viruses, Web squatting, fraud and copyright violation to privacy infringement, harassment, denial of service and unauthorized entry into corporate or personal computers and networks (and theft or manipulation of the information stored in them).  Some of these problems have acquired serious dimensions; spam is now proliferating at an alarming rate.  By year-end, an estimated 50 per cent of all e-mails circulating on the Internet could be unsolicited.  The cost -– in terms of wasted information technology resources or lost user productivity -– could be as high as $20.5 billion worldwide.  To address this problem, a growing number of governments are implementing anti-spam legislation.

Several developing countries were among those most targeted by digital attacks last year; developing countries in general are the leading victims of attacks against government online systems, although such attacks are less frequent than those against businesses.  Their most important effect may be that the media attention they attract helps undermine public confidence in the Internet in those countries where awareness of and trust in the Internet is less advanced.

Reasonable protection against Internet-generated risks can be achieved through a combination of software, hardware and risk management strategies that contemplate all potential sources of liability.  Law enforcement agencies will have to adapt to the new commercial environment and ensure the rule of law on the Internet.  The UNCTAD's e-commerce report recommends that priorities in this area should include identifying risks and critical vulnerabilities, reinforcing international and cross-border cooperation in compliance and enforcement, educating consumers and promoting best practices.

For more information, contact UNCTAD Press Office, tel.: +41 22 907 5828, e-mail: press@unctad.org, Web: www.unctad.org/press; or Y. Kalindaga, tel.: +41 22 907 2042, e-mail: yusuf.kalindaga@unctad.org.

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