Session 5A: Poverty and Household Welfare
Prof. Simon Roberts, previously the director of Corporate Strategy and Industrial Development (CSID) at the University of the Witwatersrand and now chief economist at the Competition Commission in this paper explains the importance for industrial development of technological capability development across all economic sectors. The sector studies discussed here indicate that the traditional 'heavy' industries have not only developed leading technological capabilities in their fields but also created opportunities for lateral migration into 'smart industries' and other markets. The paper shows that for developing economies, technological advancement has less to do with pushing back technological frontiers than with the assimilation and adaptation of technologies.
The barrier model of productivity growth suggests that individual country productivity is related to the world technology frontier disturbed by national barriers. We offer a country study of the barrier model, exploiting the dramatic changes in the linkages to the world economy in South Africa (SA).
The productivity growth in the manufacturing sector panel for 1970-2003 covers a period of political and economic turbulence and international sanctions. The econometric analysis uses tariffs as a measure of barrier and fixed effects estimation to concentrate inference to time-series properties. The model shows how productivity growth can be understood as a combination of world frontier growth and the tariff barrier to international spill-overs. The estimates establish a long-run relationship where domestic productivity follows the world frontier, with change of barrier affecting transitional growth.
The reform of the telecommunications sector in the mid-1990s had as one of its areas of focus an expansion of access to telecommunications - both at the household ownership and the broader access levels. This paper examines the performance of policies around ownership and suggests alternative options for the future. It finds that despite the large rollout programme in fixed line telecommunications, there has been only very limited gains for rural and low-income users. Almost all the gains in ownership have come from the adoption of cellular by these groups. The paper demonstrates that this is the rationale choice for most low-income consumers given the different tariff structures and the average monthly spend on communication. The paper suggests that any future use of universal service funds should be more technology-neutral, which would enhance the roll of cellular telecommunication in such plans.
Telecommunications services are an important focus for most industrial countries in the current round of trade talks in services. Initial negotiating positions and country requests by these industrial countries all call for full liberalisation of the sector. James Hodge reports that SADC countries have already embarked on reform in telecommunications but few have made commitments in the WTO and almost none propose going as far as full liberalisation in the foreseeable future.
Negotiations on the liberalisation of telecommunications form an important part of service negotiations in the Doha Round. The negotiations cover all aspects of the telecoms sector, including fixed line public networks, mobile networks and the full range of value-added network services (VANS) such as Internet and virtual private networks. Liberalisation of trade in these sub-sectors involves removing entry barriers into the market (market access) and any discriminatory practices against foreign operators (national treatment). It applies to all forms of operations - whether it is a commercial presence in the host country or offering a cross-border service such as international voice or data traffic. Liberalisation does not include privatisation (public companies can continue to exist in a competitive environment) and does not eliminate ability to regulate the industry in a fair and impartial manner. In fact, negotiations in telecoms include a Reference Paper that lays down principles of fair regulation that countries can be asked to commit to. The Reference Paper covers regulatory principles in competitive safeguards, interconnection regulation, the allocation of scarce resources (like spectrum), universal service obligations, formation of an independent regulator and the public availability of licensing criteria.
The Botswana telecommunications sector is made of four major stakeholders. The Botswana Telecommunications Authority (BTA) is the sectors' regulator. The Botswana Telecommunications Corporation (BTC), a government owned company, provides fixed lines. Two private companies, Mascom Wireless and Vista Cellular provide mobile services. Very little research on the telecommunication sector in Botswana has been conducted. This study tries to help contribute to the understanding of the operations of the telecommunications sector in the country. A questionnaire approach was used to collect information in the report. Each of the above mentioned key telecommunications stakeholders was sent a questionnaire. The questionnaire was prepared by the World Bank and administered under the ambit of the Southern African Trade Research Network (SATRN). The rest of the study is organised as follows: Chapter 2 looks at the fixed line services; Chapter 3 deals with mobile services; Chapter 4 looks at Internet services; and, Chapter 5 provides conclusions.
Telecommunications services are an important focus for most industrial countries in the current round of trade talks in services. Initial negotiating positions and country requests by these industrial countries all call for full liberalisation of the sector. SADC countries have already embarked on reform in telecommunications but few have made commitments in the WTO and almost none propose going as far as full liberalisation in the foreseeable future. Fortunately, merely by committing to the current and planned future liberalisation, SADC countries can improve their existing offers in this sector dramatically. However, in developing a negotiating position each country needs to consider whether they might have to or want to go further than merely committing to their autonomous liberalisation.
SADC countries might have to go further if their position is inadequate to satisfy demands placed on them in the negotiations or if they want other countries to open up beyond what they are currently doing. Telecommunications reform might also be used as an offering to compensate other countries for refusing to open up another sector adequately. SADC countries may also want to go further because it might be in their own economic interests to liberalise the sector faster but cannot do so because of internal opposition. Negotiations offer an opportunity to get compensatory market openings from other countries in this or other sectors - an opportunity that might not arise for another 10 years! These market openings can help compensate the losers of any additional reform and in so doing overcome political opposition.
Even if some SADC countries are unwilling to commit beyond their current reform programme in telecommunications, they will need to prepare an adequate defence of their policies in order to fend off demands. They may also want to make use of the special and differential treatment provisions for developing countries in order to either limit the extent of their commitments or use the negotiation process to assist in sector development.
This paper examines possible negotiating positions that SADC countries may want to take in telecommunications. It begins with an overview of how telecommunication services are covered in the GATS and how specific articles may influence telecoms policy. It then examines the current liberalisation path that is being followed in SADC countries, including the rationale for such a path. Understanding the rationale for the approach is crucial to looking at the potential offers for SADC countries because it articulates the development goals and special market considerations that would form the basis for any articulation of special and differential treatment in the WTO. The current and planned future policy is also the basis for an immediate offer that would require no internal policy review. The paper then moves onto a brief assessment of the current policy regime in most SADC countries in telecommunications. This too is important for two reasons. First, if the policy is not effective then there is a basis for changing policy and therefore revising what one might commit to in the WTO. Second, if there is a decision to commit to more than the planned reform, then one needs to understand what might be the additional offers that are easiest to make and what the potential impact of such a move would be.
The paper then moves to specific WTO offers, requests and negotiating strategy. The current commitments by SADC countries are summarised and a maximum offer based on planned reform is converted into a GATS schedule. While most countries have very similar reform plans and hence a similar schedule, some countries do differ and so individual potential offers for each SADC country appear in the appendix. The paper then discusses various negotiating positions that countries might take.
This paper will identify differences in sector development in countries that have proceeded along various paths for sector reform. International experience demonstrates that economies adopting a more ambitious path for liberalization and market- friendly forms of subsidization perform better after liberalization. Economies that adopt both a policy of liberalization and privatization are the best performers.
A priority for the post-apartheid government was the extension of basic infrastructure services to the vast majority of citizens that were not serviced under apartheid. The Reconstruction and Development Programme set objectives for each of these utilities that would be achieved in the first decade of democracy, while departmental policy aimed to find means to achieving these targets. The strategy of choice in most sectors was one of ambitious rollout targets being set for utility operators. Targets were set for individual residential service (what we would term universal service) and for community service outside of individual homes (universal access). Whilst most utilities remained under public ownership, in telecommunications there was partial privatisation of the incumbent Telkom and the entry of privately owned mobile cellular operators. This paper examines how rollout targets and licence conditions for universal service have performed in this sector where private operators exist. It examines the failure of the Telkom licence and draws out some lessons for policy.
Rapid technological change has impacted on the provision of telecommunications in South Africa, as in other countries. The increasing capacity of fibre optic networks, the growing powers of computers, the growth of satellite communications and other broadband developments are major factors influencing growth. Data to support an "information society" is a major driver of technology, with data traffic volumes growing exponentially as business requires more information. The South African telecommunications parastatal (Telkom) is investing heavily in fibre using SDH (Synchronous Digital Hierarchy) transmission systems and technologies such as ATM (Asynchronous Transfer Mode) in attempts to match growth in demand. Wireless local loop systems such as Digital Enhanced Cordless Telecommunications (DECT) are also making a major impact on connectivity in rural areas.
Telkom was granted a monopoly license for five years by the government in 1997 with the explicit objective of extending telecommunications services in South Africa to facilitate broad-based economic development. In 1997 penetration rates were just 4 percent in rural areas, while in the country as a whole there were 11 telephones per 100 people. A regulatory body (SATRA) was established to monitor Telkom’s performance and service delivery milestones. As a result, the telephone monopoly has embarked on a mammoth internal restructuring exercise in an attempt to rectify its substandard levels of customer service and to improve communications support to historically isolated business units.
Section I of the paper examines the important telecommunications product areas. Vertical areas of operations are distinguished from the maintenance and extension of the network of fixed lines, the core telephone service and value added network services. Section II examines the corporate structure, ownership and control of Telkom. Section III assesses economies of scale in different areas, while Section IV examines vertical relationships and barriers to entry depending on control over access to the network drawing on an example from internet service provision. After outlining pricing trends in Section V, Section VI assesses Telkom’s performance against both financial and non-financial criteria, and reviews the impact of regulation.
In this way, the research aims to provide the foundation for discussing the role of the legislated monopoly over basic telephone services, and the implications for the future interface between competition policy and regulation when the monopoly ends.
This paper discusses one aspect of the somewhat discredited "new economy" namely the impact of information and communication technologies on the growth in volume and diversity of producer services. It provides an analysis of data on developments within transport, communications, finance and business services in South Africa and discusses the background of recent theoretical work regarding the impact of these developments on the economy as a whole. It is argued that thus far, very rapid development in the producer services sectors has had little impact on the rest of the economy. It is further argued that outsourcing of producer services combined with access to a broad variety of such services are important factors for reaping the full benefits of the observed developments in the producer services sectors. The paper also provides a discussion of the conditions under which extensive outsourcing will take place.
This paper uses two firm level surveys, the National Enterprise (NE) survey and the World Bank and Greater Johannesburg Metropolitan Council (GJMC) co-ordinated survey, to explore the implications of globalisation on employment in South Africa. We use the firm surveys to analyse the impact of trade liberalisation on the level and skill structure of employment. In the latter case we extend existing research in this area by focussing on the relationship between trade and choice of technology. We also analyse the impact of increased export orientation and foreign direct investment on employment. The results indicate substantial heterogeneity in the response of firms to trade liberalisation. On average large firms negatively affected by trade liberalisation reduced employment. No such relationship was found amongst small firms. Overall, however, the decline in employment due to trade liberalisation is likely to be small. Export competitiveness has improved through trade liberalisation, but this has not led to increased employment. Evidence of the impact of technological change on the skill structure of employment is also found. Increased use of computers, foreign investment and the importation of raw material inputs raise the skill intensity of production.
In most African countries small and medium enterprises (SME) account for a significant share of production and employment and are therefore directly connected to poverty alleviation. While in many respects the South African economy is different to that of other countries in the continent, for the poor population in the rural areas SMEs are also very relevant for employment and as an income source. Especially in developing countries SMEs are challenged by the globalisation of production and the shift in the importance of the various determinants of competitiveness. Through the rapid spread of information and communication technologies (ICT) and ever decreasing prices for communication, markets in different parts of the world become more integrated. Therefore, one basic question of this study is whether the use of ICT (as production technology, as information processing technology or as information communication technology) can help them to cope with these new challenges. The spread of ICT has led several commentators to argue that these technologies are creating a new economy – an information economy – in which information is the critical resource and basis for competition in all sectors – manufacturing and probably even more in services. Generally, from the performance perspective, the competitiveness effect of ICTs derives from the impact that ICTs have upon the productivity of the factor inputs. In this regard, ICTs can improve efficiency and increase productivity by different ways including, improving efficiency in resource allocation, reducing transaction costs, and technical improvement, leading to the outward shifting of the production function.
It is argued that in remote regions, the disadvantages that arise with isolation can be significantly lessened through access to rapid and inexpensive communication. However, there are also more pessimistic views that assume that the digital divide will increase and therefore producers in developing countries and especially in rural areas will face even greater disadvantages relative to their competitors in developed countries. Although South Africa is much more developed and its ICT infrastructure is far more advanced than in most Sub-Saharan African countries, in remote areas with a poor population similar difficulties as in other African countries exist with respect to education, unemployment, ICT infrastructure and role of the SME sector and therefore the above questions are also relevant.
So far there is little empirical evidence of how the diffusion and application of information and communication technologies (ICTs) can be a catalyst for economic competitiveness and growth in developing countries. After a review of the macroeconomics of ICT diffusion and growth effects in this study, we therefore particularly focus on how micro-level competitiveness is influenced by ICTs using enterprise survey data from two East African countries: Tanzania and Kenya. In so doing, we also account for other factors that obviously influence competitiveness. Hence, the analysis incorporates also the influence of the enterprise resources in terms of factor inputs, because the performance is partly a function of the resources that are invested in such basic factor inputs as labour, physical capital, and production materials. Besides, the saliencies of African SMEs (e.g., relatively small size and young age by international comparisons, and human capital stock) are drawn into the analysis. As the food processing, textiles and tourism sector, where we have conducted our empirical analysis of East African SMEs, are also of considerable importance for South Africa, we can draw some conclusions and develop policy recommendations, that are relevant especially for rural South African SMEs.
South Africa's telecommunications sector is the largest in Africa by important measures, including number of fixed lines, number of cellular subscribers, technological capability, equipment design, manufacturing capabilities, financial revenues, investment and data service users. There has also been substantial and increasing international participation alongside the linked processes of privatization and liberalization. This is consistent with interpretations of globalisation, which hold that there is a range of gains from wider and deeper internationalization of economic activity. I intend to investigate the extent and nature of internationalization in the South African telecommunications sector, determine its contribution to the growth of the sector as well as the degree to which such resource flows are supported by government policies. This paper will examine the impact that cross border telecommunication investment has on the SA telecommunications sector as well as on the economy as a whole.
After an outline of issues from the globalization and telecommunications literature, three key issues will be examined.
First, the extent of foreign involvement in the South African telecommunication sector will be reviewed, covering the provisions of capital, skills and technology in the supply of fixed-line and mobile telephone services. I will examine the magnitude of foreign investments over the 1990s and the extent to which they have been supportive of national goals.
Second, the changing nature of activities of South African telecommunications firms in foreign markets will be assessed. This will include an overview of the increasing internationalisation of South African firms, the main factors driving these trends, and discussion of the implications for their domestic operations.
Third, I will discuss the effect internationalisation has had on the development of the South African economy.
Because the New Economy is so intertwined with Information and Communications Technology, we are primed to think of New Economy developments as nothing more than technology-driven, productivity improving changes on the supply side. We then want New Economy developments to do what all technical progress has historically done. And we emerge disappointed when we find productivity has not skyrocketed, inflation has not forever disappeared, business downturns have not permanently vanished, and financial markets have not remained stratospheric.
This paper argues that the most profound changes in the New Economy are not productivity or supply-side improvements, but instead consumption or demand side changes. The paper summarizes the case for the importance of technical progress in economic growth, argues why the New Economy differs, and draws lessons from economic history to highlight potential pitfalls and dangers as the New Economy continues to evolve.
This paper discusses one aspect of the by now somewhat discredited 'new economy'Â, namely the impact of information and communication technology on the growth in volume and diversity of producer services. It provides an analysis of data on developments within transport, communication, finance and business services in South Africa and discusses on the background of recent theoretical work the impact of these developments on the economy as a whole. It is argued that so far the very rapid development in the producer services sectors has had little impact on the rest of the economy. It is further argued that outsourcing of producer services combined with access to a broad variety of such services are important factors for reaping the full benefits of the observed developments in the producer services sectors. The paper also provides a discussion of, under which conditions extensive outsourcing will take place.
The past two decades have witnessed far-reaching reforms in the provision of telecommunications services. Before the 1980's, telecoms services were mainly provided by state-owned enterprises and in rare cases by private monopolies with territorial or functional licenses. The 80's saw the role of the state being increasingly changed from that of service provider to that of regulator and policymaker. These developments were a result of technological changes that enabled some segments of telecommunications to be subject to competition. Regulatory reform was also often undertaken by governments as a strategy to attract investment in the sector to enable increased telephone penetration. Developing countries also faced pressure from Bretton Woods institutions and other international organisations to liberalise their markets. Liberalisation, privatisation and deregulation thus became the order of the day (Frempong and Atubra, 2001).
This paper deals with an issue that is often mentioned as an afterthought in discussions of regulatory reform: regulation and regulatory institutions. A review of a recent collection of writings on privatisation in developing countries reveals that little detailed work has been carried out on the experience of regulation (Makhaya, 2001). This tendency to overlook regulation is worrying as a study on developing countries found that the most disturbing issue in telecoms reform is the slow pace in developing regulatory capabilities (Achterberg, 2000). It is now a wellaccepted fact that liberalisation and/or privatisation of utilities such as telecommunications requires post-reform regulation for various reasons. These industries are characterised by natural monopoly in some segments; local calls are a well-cited example. Regulation is needed to protect consumers in areas that, even with modern technology, are still not contestable. In areas that can be opened up to competition, there are barriers to entry due to the nature of capital investment required and incumbency advantages such as customer loyalty. Competition has to be nurtured and the regulator has the power to influence the development of competition and the form it will take (Helm and Jenkinson, 1998).1 Regulation is also needed to ensure that license obligations (e.g. quality standards, interconnection) are met and to monitor the performance of any social obligations that firms have to undertake. Most importantly, regulation is needed to ensure that competition emerges in the sector. Without proper regulation, abuses of market power can go on unchecked and competition stifled.
It should also be acknowledged that privatised infrastructure facilities continue to occupy a strategic role in an economy: they have links to growth, poverty and the environment and regulation has to be put in place to deal with these externalities (Naidu, 1995). Telecommunications form the backbone of the knowledge economy. It is an important provider of income, employment and is a determinant of a nation's competitiveness (Chowdary, 1998). Public investments in communications and transport have been linked to economic growth.2 Community economic development also flows from increasing access to telecommunications: job creation, job maintenance and the creation of home-based industries are all facilitated by access to telecommunications. All the countries that are mentioned in this discussion regard competitive 1 This observation was made for the UK experience. 2 A study of 119 countries spanning the 1960 to the 1980s found a strong correlation between economic growth and public investment in transport and telecommunications (Easterly and Rebelo, 1993). 2 prices for telecommunications services as an important policy goal, given the linkages of the sector to production in other sectors.
The issue of regulation is particularly relevant to South Africa at this stage as the telecommunications industry is undergoing restructuring. Various policy directives have been issued to determine the course of the sector's development. The development of regulatory institutions is thus a crucial matter that needs to be adequately addressed. The regulator has various important functions to perform in this period of transition and beyond. Thus it is a cause of concern that ICASA is perceived as weak and under-resourced (Business Day, 01 February 2001). Policies such as market liberalisation and privatisation can lead to sub-optimal outcomes if the right institutions and processes do not exist. A study by Wallsten (1999) demonstrates that privatisation without competition can have negative effects. Wallsten performs a regression using data from 30 African and Latin American countries between 1984 and 1997 to show that privatisation, by itself, is negatively correlated with mainline penetration and connection capacity. Only when a strong regulator and competition accompany privatisation do gains such as increases in per capita main lines, increases in payphones and decreases in local price calls begin to emerge.
Most discussions of regulatory reform often assume that the appropriate regulatory institutions exist without exploring the validity of this assumption. This paper will attempt to identify the main determinants of regulatory effectiveness, especially in the context of setting up new institutions. The discussion will include a comparative study of the development of regulatory institutions in Ghana and Malaysia and the lessons these countries hold for South Africa. The paper will begin by a brief outline of the countries and their efforts towards regulatory reform followed by a discussion of what is meant by an effective regulator. The paper will then provide a comparative study of the determinants of regulatory effectiveness followed by a concluding section.
The purpose of this paper is to present a broad overview of the information and communications technology (ICT) industry in South Africa, based on available secondary sources. Because of the nature of the information economy and the requirements for high-level human resources in this sector, the paper also presents an overview of the status quo of skills required to ensure that the ICT industry will flourish and grow. The paper does not present detailed analyses of the sector but rather a bird's eye view that will enable those not involved directly in the sector to have a better understanding of the structure and boundaries that define it. The paper also raises issues and concerns that require further research and investigation, and that will hopefully stimulate interest in areas that to date have not received much attention. The paper covers the following topics: