Best Practices in Financial Mechanisms for ICT for Development in Asia and the Pacific

ESCAP is the regional development arm of the United Nations and serves as the main economic and social development centre for the United Nations in Asia and the Pacific. Its mandate is to foster cooperation between its 53 members and 9 associate members. ESCAP provides the strategic link between global and country-level programmes and issues. It supports Governments of the region in consolidating regional positions and advocates regional approaches to meeting the region’s unique socio-economic challenges in a globalizing world. The ESCAP office is located in Bangkok, Thailand. Please visit our website at <www.unescap.org> for further information.

The shaded areas of the map are ESCAP Members and Associate members.

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New York, 2006 i

BEST PRACTICES IN FINANCIAL MECHANISMS FOR ICT FOR DEVELOPMENT IN ASIA AND THE PACIFIC

United Nations publication Sales No. E.07.II.F.6 Copyright © United Nations 2006 All rights reserved Manufactured in Thailand ISBN 13: 978-92-1-120497-1 ST/ESCAP/2441

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PREFACE Asia-Pacific is home to more than 60 per cent of the world’s population and about 75 per cent of the world’s poor. Around 60 per cent of the region’s population lives in rural areas where poverty is greatest. The region also presents the greatest contrast between large, continent-sized nations, mountainous and landlocked countries, city States and island States with tiny atolls separated by vast stretches of the ocean as well as between some of the world’s richest and poorest nations. Information and communication technology (ICT) has become a powerful tool for poverty reduction and sustainable development by empowering rural and poor people. Yet, the digital divide between urban and rural people and the rich and poor in many nations of the region is still quite remarkable. To bridge this divide is a challenge for those countries, as they are forced to choose between many competing objectives in their development planning resulting in great demands for development funds whilst having limited resources. Bridging the digital divide requires concerted efforts of all stakeholders, adequate and sustainable investments in ICT infrastructure and services, capacity building, especially human resources development, and transfer of technology, among others, over many years to come. The WSIS stated in the Tunis Agenda for the Information Society that: “the financing of ICT for development needs to be placed in the context of the growing importance of the role of ICTs, not only as a medium of communication, but also as a development enabler, and as a tool for the achievement of the internationally agreed development goals and objectives, including the Millennium Development Goals.” In this regard, this publication offers examples of successful financing mechanisms for ICT development. It is hoped that these examples will be useful to all ICT stakeholders, and especially government ICT policymakers and implementers as well as NGOs, the private sector and civil society. It is further hoped that the publication will help them to take appropriate measures in their efforts to provide access to ICT for all rural and poor people through bridging the digital divide among and within the countries in the regions and thus promoting the integration of disadvantaged communities and social groups into the economic development of the Asia-Pacific region.

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CONTENTS Page Preface ..............................................................................................

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Introduction .......................................................................................

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ICT Development in the Asia-Pacific Region .................................... Azerbaijan ................................................................................... Export & Investment Fund .....................................................

4 7 7

Pakistan ....................................................................................... Public Sector Development Programme ................................ Roshan Programme ...............................................................

8 8 8

New Zealand ............................................................................... Community Partnership Fund ................................................

8 8

Palau ........................................................................................... Autonomous Agency Funding ................................................

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Thailand ....................................................................................... National Open Fund ............................................................... National Science and Technology Development Agency (NSTDA) ................................................................................ Public funding of Solar Power Systems ................................. Public funding of One Laptop per Child ................................. Funding RuralNet ...................................................................

9 9 10 10 11 12

Islamic Republic of Iran ............................................................... ICT Sector Improvement ........................................................

13 13

Uzbekistan ................................................................................... Asian Development Fund ......................................................

13 13

Sri Lanka ..................................................................................... Private Funding for Open Source ..........................................

14 14

Myanmar ..................................................................................... Economic Development Cooperation Fund ...........................

14 14

India ............................................................................................. Rural Innovation Fund ...........................................................

15 15

Lao People’s Democratic Republic ............................................. Jhai Foundation .....................................................................

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Contents (continued) Page Malaysia ...................................................................................... Selling Fish Online ................................................................. Wireless State ........................................................................

16 16 16

Funds-In-Trust Capacity Building ................................................

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Japan and Republic of Korea in India .........................................

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Muslim World ICT Fund ...............................................................

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e-Asia and Knowledge Partnership Fund ....................................

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Horizon Lanka Foundation ..........................................................

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United Arab Emirates ICT Development Fund ............................

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Private Capital ............................................................................. ICT Centres ........................................................................... Public School Design ............................................................. Malaysian Venture Capital Management ...............................

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Commonwealth Fund for Technical Co-operation .......................

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Business Cases ........................................................................... Online Gaming Tax ................................................................ Venture Fund Model .............................................................. Rural Mobile Banking Tax ...................................................... Rural Consumer Finance ....................................................... Market-Oriented Model from China ....................................... Pacific Island’s Common Resource Tax ................................

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Conclusion ........................................................................................

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INTRODUCTION The purpose of this report is to provide information on the various forms of financing mechanisms available to fund information and communication technologies (ICTs) for rural development projects in the Asia-Pacific region. It is believed by many that the faster the ICT sector grows, the sooner the country will achieve sustainable development. Access to information and ability to share information are critical to the development process. Technological change continues at a rapid pace with convergence of data, voice, video on platforms built for mobility. Therefore, it is assumed that implication of latest technological development will increase rural accessibility and expand connectivity. The World Summit on the Information Society was initiated in Geneva, Switzerland in December 2003. The Declaration of Principles from the first phase of the World Summit on the Information Society declared the need for utilizing ICT to promote the Millennium Development Goals (MDG), as well as provide a common vision, and key principles with specific focus on development of infrastructure, accessibility, and content. This was in addition to the development goals agreed upon at the Johannesburg Declaration and Plan of Implementation, as well as the Monterrey Consensus. The Declaration of Principles was further elaborated into a Plan of Action that identifies key action items such as the role of government and stakeholders. The purpose was to promote ICTs to form public/private partnerships for development, infrastructural development as foundation for accessibility, capacity building, and applications for process improvement in the areas of, among others, government, education, and health. The Plan of Action also defined indicative targets that could serve as global references for improving connectivity and access in the use of ICT’s. Two unresolved issues of the Geneva phase, such as financial mechanisms for ICT for development, and Internet governance1. The Task 1 Regional Action Plan Towards the Information Society in Asia and the Pacific, United Nations ESCAP, UN 2006.

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Force on Financial Mechanisms (TFFM) was created to evaluate existing financing mechanisms based on five categories: Enabling environment and policies, infrastructure, access, content and applications, and capacity development. The Task Force further enforced financing “at the core of all development discussions [as an] ingredient for alleviating poverty and securing sustainable development.2 ” “It is estimated that US$1 billion is needed over ten years to build infrastructures, subsidize about 600 million households unable to afford telephone costs, supply computers and provide Internet access at public places and schools.”3 ICT as a means to achieve a knowledgebased economy, combined with government priority in ICT development plans are believed to increase economic growth rate. There is growing emphasis on private sector investments to assist not only as a financial resource, but also as an important mechanism for transfer of technology and management experience. However, it has also been stated technological developments, if unmanaged, can further widen the digital divide. Government efforts to over regulate may lead to inflexibility and lack of transparencies. Instead, government should deploy a participatory approach in finding out how best to attract financing. Business leaders should also explore rural market opportunities in the areas of ICT infrastructure, educational services, accessibility, and entrepreneurship. The Financial Mechanisms for Meeting the Challenges of ICT for Development section of the “Tunis Agenda for the Information Society” stated, among other points, private sector participation was encouraged in addition to recognition that public finance plays an important role. The World Bank’s Information and Communications for Development 2006: Global Trends and Policies also indicated that although private sector competition was the driving force in ensuring technology 2 “Financing ICTD: The Report of the Task Force on Financial Mechanisms for ICT for Development”, UNDP, 22 December 2004, http://www.itu.int/wsis/documents 3 Peyer, Joelle Carron, Marie Thorndahl, Michel Egger, Sean O’Siochru, Yves Steiner, “Who Pays for the Information Society? Challenges and Issues on Financing the Information Society”, Bread for All, Lausanne, 2005.

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feasibility, closer cooperation between private sector and governments was necessary to ensure access and connectivity to all areas. To ensure access and connectivity, adequate and innovative methods of funding projects are also required. Financing for capacity building, communication access, backbone infrastructure development, and broadband capacity, among others need to be available. Financing modalities described in the World Bank report include public finance and private sector investments, public-private funding initiatives, non-governmental organization (NGO), and foundation involvement, as well as “business cases” for selecting new and emerging innovative financial mechanisms. In addition to public-private funding initiatives, it’s necessary to involve civil society organizations that work with public and private sectors. For technology to benefit rural areas of the Asia-Pacific region, it is necessary to invent and innovate from the ground up, working always in partnership with local communities to solve very local problems, and improve socio-economic conditions. Civil society initiatives to promote education, network information between NGOs or empowerment of women through ICT, for example, are typically funded by various trustees, corporations, foundations, publishers, in-kind donations, and universities.

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ICT Development in the Asia-Pacific Region Asia-Pacific economic growth prospects are widely publicized, but not all of Asia or the Pacific Islands have shared in the success. Asia-Pacific incomes are now more than 25 per cent of US levels and rising. Rapid growth has provided widespread prosperity. In China, for example, more than 400 million people are above the poverty line. Asia, with 60 per cent of the world’s population, accounts for more than 35 per cent of world output and 50 per cent of economic growth since 20004. In India, 70 per cent of population live in rural areas, but over 60 per cent of India’s GDP is generated in rural areas. Also, banks in Japan, after a decade of resolving bad loans domestically, are now venturing overseas to seek growth opportunities not only in established western markets but in emerging markets within Asia and the Middle East5. The Asian Development Bank also has attributed increased investments and exports, especially in China, and South Asia6. The International Telecommunication Union estimates the Asia-Pacific region will account for nearly half the global telecom market by 2010, driven in part by increased use of the mobile Internet. However, more than 700 million Asians still live in extreme poverty. Average incomes in Bangladesh, for example, are only US$2,000 a year. Every day there is news on China’s ever increasing gross domestic product, its industrial prowess, and economic might, however, over 60 per cent of China’s population live in rural areas for which many organizations have 4 Giles, Chris, “Asia Takes Central Place on World Stage”, Financial Times Special Report, 13 September 2006. 5 Nakamoto, Michiyo, “Japan’s banks look overseas for growth as debt crisis ends”, Financial Times, 13 September 2006. 6 Landingin, Roel, “Exports boost forecast for developing nation growth”, Financial Times, 7 September 2006.

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trouble imagining any near-term fix7. Improving communications in rural China is regarded as a crucial step to help the rural poor become affluent. ICT will provide an inexpensive way to market and distribute products. Statistics from the Ministry of Information Industry in China show that only 15 per cent of the rural population have access to telephones, and less than three per cent are Internet users. In India, for example, there are four phones for every ten citizens in major cities, but there are entire provinces where there are less than two phones for every 100 residents. In the Pacific Island developing countries, owing to vast distances, difficult rural topography, small markets and the lack of economies of scale, ICT improvements are slow and expensive. Users in urban or main islands can be reached via conventional telecommunication means, however, those on outer islands and in remote rural areas typically rely on high-frequency radio, microwave, and satellite links. Wireless access is available in some areas. Connectivity charges are very high among Pacific Island developing countries. Subscription charges for dial-up access to the Internet range from US$3 to US$175 per month. The price of full-time Internet access via a 64 Kbps leased line varies from US$700 to US$5,000 per month. These prices are up to 20 times higher than in Asian countries. However, the introduction of prepaid mobile phone services has led to an explosion in mobile customers leading to mobile subscribers exceeding fixed line subscribers, in some countries8. Various ICT success stories have been recorded. Increased revenue has been obtained through the sale of country initials as premium Internet domain names, as well as the lease/sale of extra telephone numbers in various Pacific Island developing countries such as Tuvalu, Niue, and the Federated States of Micronesia (FSM). In Tuvalu, for example, the contract leasing of the Internet domain “.tv” initiated in year 2000 will generate US$50 million over 12 years. The Solomon Island’s People First Network (PfNet) project to ensure Internet and email access using computers, shortwave radios, and solar energy has been widely noted as the region’s most successful ICT project implementations. Since 2004, online education 7 Kundu, Swati Lodh, “Rural China: Too Little, Too Late, Asia Times, 19 July 2006, http:// www.atimes.com 8 Guild, Robert, “Pacific Island States”, Digital Review of Asia-Pacific 2005/2006, http:// www.digital-review.org

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has been delivered to all the Pacific Island nations via satellite from University of South Pacific in Fiji. The goal is to deliver all university courses online by year 2020, depending on progress of telephone and Internet connectivity services9. Telecentres, and email centres have been created in remote locations often at places without any electricity. The tiny atoll of Niue also became the first in the world to offer wireless Internet connectivity to all its citizens. Nevertheless, progress is slow, and funding is insufficient. At the United Nations General Assembly, the Vice President of FSM recently mentioned “although overseas development assistance (ODA) from bilateral and multilateral donors needs to continue, foreign investments has to increase and more development partnerships need to be formed to increase/ obtain funding10.” However, reality is uneven progress exists in ICT development. Contributing factors are: proportion of cell phone subscribers, Internet users and PC owners, along with charges for Internet and phone services, Internet access in schools, the proportion of women professional technical workers, and competition among service providers. With a decline in ODA, foreign direct investment (FDI) has become the primary investment vehicle for long-term sustainability. Although, a steady decline in the scale of Japan’s ODA was reversed in 2005 when Japan announced an intention to increase ODA volume by US$10 billion over the next five years (until 2010), and to double its ODA to Africa until 200811. FDI promotes technology change, but an increase in FDI does not generate an immediate increase in flows to recipient country. FDI is highly selective, and less likely to go to countries that have small potential markets12. It has also been concluded that an increase in ICT investments is needed in order to increase FDI. Not all developing countries will meet this recommendation. There have been various discussions on whether ICT is a necessity for rural areas especially if the people are not aware of its usage, and 9 Prosser, David, “Teaching Net Straddles Pacific Islands”, BBC News, 19 July 2004, http://news.bbc.co.uk 10 “Vice President voices concerns at UN General Assembly”, 28 September 2006, http://www.pacificislands.cc 11

Pritchard, Bill, “ODA Japanese Way”, Inside Asia, 4 May 2006, http://insideasia.typepad.

com 12 Hudson, Heather E., “The Rural Challenge Changing Requirements and Policy Options”, University of San Francisco, http://www.benton.org

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benefits. Although “increased socio-economic development”, “engine for accelerated sustainable development and economic growth”, and “global competitiveness” are good aspirations, it is necessary to begin from ICT awareness combined with positive government policy designed for promoting ICT growth13.

Azerbaijan Export & Investment Fund The backbone of the Azerbaijan economy has been petroleum. With the increasing price of oil, the oil export pipeline is expected to generate up to US$160 billion in revenues over the next 30 years. The Export & Investment Fund will increase cooperation efforts in technologies, postal services, and telecommunications sectors14. The total project funding of US$350,000 for ICT development is also in joint collaboration with the United Nations Development Programme (UNDP), private fund trustees’ fees, and the Government of Azerbaijan. The recent input of AZN (172,000) or US$ (187,000) is the Government of Azerbaijan’s share. This agreement between the ICT Ministry of Azerbaijan and Trade Department of the United States will increase trade between the United States of America, and Azerbaijan. Additional efforts by Government of Germany and Azerbaijan to collaboratively expand ICT sector have been cemented through favourable investments. As part of the Government of Azerbaijan’s effort towards economic reforms, many large state enterprises will also be privatized. Previously, the United Nations Development Programme (UNDP) had funded ICT development for government agencies such as State Customs Committee (SCC) to fully audit the movement of imported/exported goods at various custom points via the Internet. 13 Sabola, Taonga, “ICT: A necessity in rural areas?”, 29 June 2006, http://www. nationmalawi.com 14 “Azerbaijan Export & Investment Fund got budget financing”, Baku Today, 29 August 2006, http://www.bakutoday.net

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Pakistan Public Sector Development Programme The Government of Pakistan has announced the highest ever budget for Public Sector Development Programme (PSDP) amounting to Rs. 435 billion (US$7.2 billion). Key strategic focus is on reducing poverty with emphasis on equitable development of all regions. Development of human capital, rejuvenating the private sector, and emphasis on ICT infrastructure are key focus areas. Public sector organizations are increasingly accepting that ICT can enhance productivity. Efforts to promote ICT, and expand ICT development have not been successful in the past. Initiatives created as part of the development strategy in 2000-2001 have not achieved any visible result. There is a positive outlook towards the ICT services market that may grow with the increase in firms eager to capitalize on the new opportunities of outsourcing, and call-centre activities, but the government continues to be the leading enabler of online services, although the private sector has now also begun to embrace e-commerce activities.

Roshan Programme The Government of Pakistan’s goal is to provide electricity to every village in Pakistan by 2007. Villages not close to the main electrical grids would be provided electricity through alternate sources of energy, specifically hydroelectric power15. It is further reported that Pakistan may plunge into an energy crisis by 2007 due to rising electricity demand from increased sales of electrical appliances. There has been funding proposal for Rs. 9 billion (US$149 million) from a consortium of private local banks.

New Zealand Community Partnership Fund As part of the Digital Strategy launched in 2005, The Government of New Zealand, through the Community Partnership Fund, provides seed financing of US$14 million over four years to improve communities’ capabilities to utilize ICT and develop local content, specifically to support 15 Kiani, Khaleeq, “Investment in Energy Sector Encouraged”, 11 September 2006, http://www.dawn.com

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grassroots ICT-related initiatives. This funding is a subset of the Digital Strategy Funding that the Government of New Zealand has already committed totalling $400 million for ICT related programs in all sectors, including $60 million to ensure the strategy is accurately implemented. The underlying impression is ICT can be used to bring communities closer, specifically communities that are isolated. Additionally, funding would be utilized to develop local content in order to increase participation by isolated communities in the democratic process of the country. The Digital Strategy also includes the Broadband Challenge to provide “cheaper, faster broadband” to regional centres, and previously unconnected areas. New Zealand’s ODA program, managed by New Zealand’s International Aid & Development Agency (NZAID), also maintains the Pacific Island Countries Participation Fund to increase attendance by Pacific Islands at regional and international conferences. These conferences will provide opportunities to enhance cooperation between NGOs, government, and private enterprises to discuss project opportunities, and funding initiatives.

Palau Autonomous Agency Funding The Palau National Communications Corporation, an autonomous agency of the Palau National Government provides full-service telecommunication, telephone, and Internet capabilities, as well as microwave facilities extending phone connections. The organization is self-funded through revenues generated from operations; no subsidies are provided by the national government. The initial funding was provided by the United States Rural Utilities Service in the amount of US$40 million.

Thailand National Open Fund In Thailand, the ICT Master Plan is developed as a five year plan (i.e. 2006-2010). Activities are planned and approved by a designated Working Group comprised of experts from public and private sector, as well as the National Electronics and Computer Technology Centre (NECTEC) in collaboration with the National Economics and Social Development Board. The Government of Thailand initiated the creation of a National Open Fund to encourage donations, with tax-break incentives, primarily to support and

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attract investments in ICT R&D by academic institutions, public and private research organizations, and public sector researchers. Statistics show for the year 2004-2005, the Government of Thailand had budgeted over US$3.6 billion for over 3,000 ICT projects primarily in the area of e-government, excluding US$1.2 billion for ICT hardware procurement for government agencies throughout the country16.

National Science and Technology Development Agency (NSTDA) The total value of the software market in Thailand is expected to rise to US$2.5 billion by 2009, as ICT development is a priority for the Government of Thailand17. In 2000, the Government of Thailand established the Software Park with the goal to encourage software development, and exports. The Software Park was funded by the NSTDA, an autonomous funding and research organization. The National Electronics and Computer Technology Centre (NECTEC), a specialized agency under the National Science and Technology Development Agency, Ministry of Science and Technology in Thailand, also have been working to promote the open ICT ecosystems concept. This would enable the opportunity for the government and industry sectors to evaluate open technology environments18. The purpose of this focus is to reduce dependency on proprietary, licensed software, as well as reduce costs19.

Public funding of Solar Power Systems The Solar Home System (SHS) project initiated and funded by the Government of Thailand provides over 200,000 households with a solar power system. SHS budget allocation consists of 5 billion baht (US$132 million).

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“Thailand Country Report 2005”, SEARCC EXCO Meeting, Sydney, Australia.

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“Opportunities for Investors in Fast Growing Software Market”, United World, 27 February 2006, http://www.unitedworld-usa.com 18 Pornwasin, Asina, “Working group charts roadmap towards open ICT ecosystems”, The Nation, 4 April 2006, http://www.nationmultimedia.com 19 Lohr, Steve, “Plan by 13 Nations Urges Open Technology Standards”, 9 September 2005, http://www.nytimes.com

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The SHS generates electricity to households not connected to the main electrical grid. When fully charged, electricity generated can power two neon lights, as well as a 14-inch television set for five hours. Cost of installation per household is 25,000 baht (US$657), and will be performed by the Provincial Electric Authority (PEA). SHS has a life of 25 years. The initial two years of service and maintenance is provided by Thailand Electric, and thereafter, maintenance is the responsibility of the Tambon Administration Organization (TAO), which in turn is funded by the Tambon Council, receiving direct budget allocations from the Government of Thailand20.

Public funding of One Laptop per Child The Government of Thailand aims to provide low-cost laptop computers to all of Thailand’s elementary school children. Laptops will be sold to governments and issued to children by schools. Laptops costing around US$100 will be distributed to one million children in rural areas. Random rural elementary schools have been selected to test 30 laptops. If the response is positive, the remaining laptops will be provided nationwide21. However, as a result of this initiative, the Government of Thailand intends to discontinue providing books for students22. It remains to be seen whether this US$100 million initiative is successful in Thailand. Production of laptops will begin when orders and payment for five to ten million laptops have been received. As of August 2006, total of four million laptops have been pre-ordered, specifically by Brazil, Argentina, and Nigeria, including Thailand. This initiative has also received support from private enterprises such as AMD, MIT, Nortel, and Red Hat. By 2008, the 20 “Poor people get solar power”, The Phuket Gazette Online, 7 September 2006, http://www.phuketgazette.net 21 “Thailand Plans 1 Free Laptop Per Child”, The Associated Press, 15 August 2006, http://abcnews.go.com 22 “One Laptop Per Child Reaches Thailand”, The Journal, September 2006, http:// www.thejournal.com

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OLPC project will also provide 1.2 million laptops to Libya at cost of US$250 million. Private enterprises such as Google and News Corporation are funding this initiative23. However, India has rejected the OLPC initiative on the argument that more teachers are needed prior to laptops for students24 . Some are questioning whether governments are diligently analyzing the cost and benefits of this project. Large funding is required, and most probably, the funding amount will be deducted from the country’s educational budget. Also, technology architects recommend the purchase of standard, properly equipped laptops with large capacity hard disks, broadband connectivity capabilities, and a device that is not powered by a wind-up handle25. It is believed an expenditure of US$100 million can easily support the purchase and maintenance of laptops that are equipped with standard necessities.

Funding RuralNet The initiative encourages students and youths to apply ICT skills in developing rural Thailand specializing in ICT-driven entrepreneurships as a model for social development. Thai RuralNet is funded by the Thai Health Promotion Foundation. The Thai Health Promotion Foundation in turn receives funding by the excise tax from the sale of alcohol, and tobacco. This would be a good model to replicate in other Asia Pacific countries as a percentage of the excise tax could be utilized to fund rural ICT development projects.

23 Hooper, Simon, “Laptop Bid to Bridge Digital Divide”, CNN, 13 October 2006, http:// edition.cnn.com 24 Sherriff, Lucy, “One Laptop Per Child Gains Ground”, The Register, 1 August 2006, http://www.theregister.co.uk 25 The laptops are equipped with Linux operating system, flash memory, and can be run on an outboard electricity generator that is pumped by hand.

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Islamic Republic of Iran ICT Sector Improvement The Iranian Minister of Information and Communications Technology is determined to improve the ICT infrastructure in Islamic Republic of Iran via investments in improving the capabilities to implement ICT for developmental projects. Improving the ICT sector is acknowledged as a priority. By 2010, the goal is to ensure 30 per cent of the population has access to the Internet, as well as 8,000 schools26. Financial incentives are proposed, but not approved, for private enterprises.

Uzbekistan Asian Development Fund Asian Development Bank’s (ADB’s) Asian Development Fund (ADF) approach for developing ICT in basic education is a key component of the first phase during 20062010. For Uzbekistan, 70 per cent of the total project cost of US$43 million was provided by the Asian Development Fund, and remainder provided by Government of Uzbekistan. Although steadily improving, Uzbekistan’s telecommunications infrastructure remains inadequate. The Government strategic policy is to privatize the Uzbek telecom operator and open market for competition in accordance with country’s aim to join the World Trade Organization (WTO).

26 “Economy Should Go Digital: Iran’s ICT Minister”, IranMania, 26 September 2006, http://www.iranmania.com

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Sri Lanka Private Funding for Open Source Google Foundation, the philanthropic segment of the popular Internet search engine, provides funding for Sri Lanka’s open source software projects through the Lanka Software Foundation (LSF) with donation of US$25,000. Open source software such as the Linux operating system offers the cost benefit of not paying high software licensing fees. The Google Foundation received an initial funding of US$90 million from Google, and was included as part of the initial public offering (IPO) process. Additional funding will be a one per cent donation based on Google equity and profits27. LSF is a not-for-profit organization that facilitates global open source projects and promotes local use. Its objective is to focus on human resources training specifically in the area of software development using open source software. Funding limitations have restricted number of projects conducted, although IBM and The Swedish International Development Cooperation Agency have provided financing for period of one year.

Myanmar Economic Development Cooperation Fund Korea International Cooperation Agency (KOICA), the Republic of Korea’s overseas aid agency, will provide funding for Myanmar ’s development programs with US$2 million. The program will cover projects in areas of ICT, electricity, rail transportation, health, and agriculture. Knowledge transfer will occur by Myanmar officials attending training in Republic of Korea. Investments in Myanmar have reached over US$190 million as of 200528. 27 28

Rogers, Garrett, “Google Foundation No More?”, ZDNet Blogs, http://blogs.zdnet.com

“South Korea to Fund Myanmar Development Programs”, Xinhua Online – China View, http://www.chinaview.cn

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India Rural Innovation Fund Microsoft India and Canada’s International Development Research Centre in collaboration with Swiss Agency for Development and Cooperation have launched a rural innovation fund to provide benefits of information technology in rural areas. Fund is to be created with a seed capital of US$200,000 to support IT projects that offer localized applications and solutions for rural communities29. The fund is to be managed by a committee within Mission 2007, an alliance of organizations with focus on bridging the rural-urban digital divide. Mission 2007 alliance aim is to provide Internet connectivity to over 600,000 villages by August 2007. The Government of India has provided Rs. 100 crores (US$22 million) for connecting 10,000 telecentres through NABARD. Additional amount of Rs. 6,500 crores (US$1.5 billion) is required to implement connectivity to all villages. Grassroot institutions are recommended to manage the knowledge centres in the villages, and this program should be part of the Bharat Nirman programme30.

Lao People’s Democratic Republic Jhai Foundation This is a non-profit organization working mainly in Lao People’s Democratic Republic to improve Internet connectivity in rural areas via wireless implementations, as well as the development of a human-powered computers (power generated by foot pedals), and wireless antenna implementations on trees. Jhai Foundation is in part funded by the Canadian International Development Research Centre, the American Embassy in Lao People’s Democratic Republic, and assortment of private individual donors.

29 Rangaraj, R., “Microsoft, IDRC Launch Rural Innovation Fund”, Chennai Online, http:// www.chennaionline.com 30 “Chidambaram promises funds for Mission 2007”, The Hindu, 13 July 2005, http:// www.hindu.com

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Malaysia Selling Fish Online The Government of Malaysia, with assistance from the Malaysia Fisheries Development Board have provided funding capabilities for fishermen in rural Malaysia to sell fish to any number of bidders around the world. The solution will benefit fishermen as they are guaranteed sales at the best price. Bidding prices for fish are communicated via email, and time range to place bids is provided31. In addition to the price of the fish, bidders will also pay for transportation costs, as well as the surcharge of five percent imposed by the fishermen association. Small percentage of the fee can be utilized to fund rural ICT development projects.

Wireless State The Malaysian state of Perak is progressing to become the first state in Malaysia to be provided with an extensive wireless broadband service by 2007. To ensure sufficient funding was available, all Perak Parliament Members were required to allocate RM 100,000 (US$27,000)32. Additional funding was requested from wealthy land/building owners as well. The government initiative is to provide public with free Internet access by 2010 throughout the state of Perak.

Funds-In-Trust Capacity Building This project initiated by UNESCO’s Information for All Programme (IFAP) focuses on capacity building via the development of distance training modules. This project was funded by Japanese funds-in-trust for UNESCO. The ICT for Library and Information Personnel (ICTLIP) was started in 2001, and was considered a success based on survey of telecommunication infrastructure, access to computers and the Internet, the availability of training in ICT skills, and accessibility of electronic resources in libraries. 31 Habibu, Sira, “Fish Now Sold Via the Net”, The Star Online, 7 July 2006, http:// www.thestar.com.my 32 Yeoh, Oon, “Perak Almost Covered with Wireless Broadband Internet Service”, ZDNet Asia, 5 July 2006, http://www.zdnetasia.com

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Japan and Republic of Korea in India As briefly mentioned, banks in Japan are venturing overseas to diversify their risk profile and invest in emerging markets within Asia and the Middle East. Private banks include Mizuho, Japan’s second largest bank by assets, and Bank of Tokyo Mitsubishi UFJ (MUFJ). There are also increased bilateral trade agreements between Japan and India in increasing Japanese investments specifically in the Indian electronics and telecommunication industry. The Manufacturer’s Association for Information Technology (MAIT) of India signed a MoU with the Japan Electronics and Information Technology Industries Association (JEITA) to strengthen and deepen economic, trade and investment among the two countries. Japan was India’s third largest FDI contributor between 1991 and 2006. The result of this collaboration is the creation of a joint Indo-Japanese taskforce on ICT to develop a roadmap to leverage technology for economic prosperity33.

Muslim World ICT Fund During the Malaysian Institute of Microelectronic Systems (MIMOS) conference in collaboration with the Islamic Development Bank (IDB), a multilateral financing institution, proposed the creation of US$1 billion fund. IDB created the fund to provide low-interest loans to its 57 member nations to apply ICTs in agriculture, health, and education34.

e-Asia and Knowledge Partnership Fund This fund was created by the Government of Republic of Korea to improve ICT access, and sharing knowledge through ICT in Asia-Pacific region. This fund is hosted by Asian Development Bank (ADB) in the amount of US$20 million35. The e-Asia program, which receives 50 per cent of the fund, will support educational and ICT training projects, as well as innovative approaches to promote ICT. The Knowledge Partnership Fund, which receives the remainder of the fund, supports capacity building projects to 33 “MAIT and JEITA sign MoU to foster ICT sector growth”, ZDNet India, 8 September 2006, http://www.zdnetindia.com 34 Sawahel, Wagdy, “Muslim world needs US$1 billion ICT fund”, 5 July 2001, SciDevNet, http://www.scidev.net 35 “Korea Establishes US$20 Million Knowledge and ICT Fund at ADB”, 5 June 2006, http://www.adb.org

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strengthen poverty reduction and social development. The maximum size of any individual grant will be US$500,000.

Horizon Lanka Foundation The foundation is funded by donations, and sponsorships from individuals to provide students a high school education in rural Sri Lanka with computer skills, and access to the Internet. As part of the “Fulltime Sponsorship Scheme”, the foundation requires Rs. 250,000 (US$2,300) per month to cover various ICT related costs, as well as teachers’ salaries. Foundation information also states over 50,000 hits are received per month, which could provide a revenue generating stream via advertising banners.

United Arab Emirates ICT Development Fund The Middle East’s first ICT Development Fund aimed at developing the UAE’s ICT sector36. Fund will be utilized to support training, specifically in the area of microelectronics and semiconductor technology, research and development, and technology transfer to the UAE. Fund income can be generated by a one per cent levy on the annual revenues earned by primary licensed operators such as Etisalat and Du, in addition to government and private grants, returns from investments, income from parents and other intellectual property derived from the Fund’s projects.

Private Capital ICT Centres Intel China in partnership with the Government of China will provide PC, Internet access, and ICT education in rural China for a period of five years (2006-2011)37. This project has received US$30 million funding from public-private partnership. Additionally, Intel will also provide funding to the province of 36 “Sultan Al Mansoori Announced Board of Trustees to Govern ICT Development Fund”, AME Info, 20 May 2006, http://www.ameinfo.com 37

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“Intel Aims at China’s Rural Market”, People’s Daily Online, http://english.people.com.cn

Guangdong for the construction of ICT application centres, development of information resources and local content, development of affordable software using Linux, and service promotions. Up to 1,000 ICT application centres will be constructed over a period of three years (2006-2009). Intel Capital created a venture fund to invest US$50 million in start-up organizations specializing on wireless technologies such as Wi-Max. Intel’s interest is to invest in the so-called BRIC powers that constitute Brazil, Russia, India, and China. Intel has also created a venture fund for the Middle East in Saudi Arabia. While Intel wants to obtain a financial return on its investments, its venture funds largely exist to help create new products and ultimately spur demand for new PCs or other products containing Intel chips. The Intel Capital China Technology Fund has invested over US$200 million primarily for the development of innovative semiconductor design, broadband capabilities, and cellular communications.

Public School Design Microsoft Corporation’s “School of the Future” opened in a workingclass neighbourhood of West Philadelphia, where due to high crime rates, majority of the working-class families had moved to the suburbs. This is an example of a public government requesting private enterprise assistance in developing an educational curriculum revolving around the use of ICTs. All students are provided laptops, no textbooks, and the entire campus is equipped with wireless Internet access. Funding of US$63 million was provided by the public school system, and Microsoft provided technical capabilities, personnel, and management skills. Similarly, by 2009, Microsoft will contribute US$10 million in the form of donations, and technical expertise/assistance to develop 100 ICT classrooms in rural China. This project incorporates ICT classroom construction, ICT teacher training centres, technology and solution development of distance education facilities.

Malaysian Venture Capital Management The funding amount of US$36 million was provided by Government of Malaysia, and managed by Malaysian Venture Capital Management. This program was initiated in 2004; as of September 2006, the initiative is progressing well, with plans to create Open Source Competency Centres, launch ICT open source awareness programs, and provide solutions to public organizations for e-government purposes. Beyond public organizations, Malaysia is utilizing open source to expand ICT infrastructure, and localized content applications for rural areas. 19

Companies assigned under this scheme will be required to expand skills, and obtain training in developing open source applications with the aim of creating over 40 open source software organizations by 2006 end38.

Commonwealth Fund for Technical Co-operation Commonwealth Fund for Technical Co-operation is a UK-based international development organization which has provided funding of 20 million TK (US$308,000) for development of four telecentres in Bangladesh. The project is aimed at developing environment for businesses in rural Bangladesh to use ICT as a source of economic activity39. The work to promote the use of ICT for community development and commerce will be performed in partnership with local NGOs, development organizations, and the Government of Bangladesh.

Business Cases Online Gaming Tax By 2011 the worldwide online gaming revenue is to reach US$12 billion with large percentage of revenue coming from Asia. A proposal to tax online gaming would provide funding revenues for ICT development purposes. China’s online market alone is expected to surpass US$2 billion by 201040; it is currently at US$900 million leading to higher valuations of Chinese online gaming companies that are publicly listed on the NASDAQ. India’s online gaming market has already reached US$50 million. With an annual growth rate of 20 per cent from 2006-2010 forecasted, the market will triple in size. Although the new US anti-online gaming legislation has a negative impact on this business segment, there is evidence many gaming companies are modifying their business model and reinventing themselves as an online entertainment company with a focus on, for example, fantasy sports games41. 38 Lui, John, “Malaysia sets up $36 million open source fund”, CNet Asia, 30 October 2003, http://www.silicon.com 39 “Minister in Bangladesh Frustrates Over Less Fund for Rural ICT Centres”, Telecentre, http://www.telecentre.org 40 Bremner, Brian, “China’s Online Gaming Craze”, Business Week Online, 24 July 2006, http://www.businessweek.com 41 “Pain depends for online gaming”, Comment & Analysis, Financial Times, 3 October 2006, http://www.ft.com

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The Asia Pacific region has already registered US$1 billion subscription revenues from online games, representing compound annual growth rate of 19 per cent42. The gaming market also continues to appeal to a new demographic of individuals who would never be considered as gamers, but have adopted casual gaming with enthusiasm. The Philippines is the only country in Asia that has several land-based casinos, as well as numerous online casino operators. Since the Philippines passed the Interactive Gaming Act in 2003, over 50 online gaming companies have obtained licenses to operate through the Cagayan Special Economic Zone. This zone provides a hub complete with Internet servers, telecommunication connections, collection payment systems, and toll-free telephone operations for Internet gaming companies. The Government of Philippines can earn tax revenue from gaming activities conducted. For example, gaming licenses are available from the Cagayan Special Economic Zone and Free Port43. In close proximity to China, Republic of Korea, Japan, and Hong Kong, Cagayan offers a commercially attractive business model for online gaming operators to target the Asian market. The model is designed to be financially and commercially desirable to both large and small internet gaming operators. The fee structure comprises of a nominal application fee, an annual fee, and two per cent interactive gaming tax on gross winnings. If the Government can regulate online gaming, and effectively tax it, a small percentage of the tax can be utilized to finance ICT development projects in rural areas. This could be a model that could be replicated for other countries in Asia. In the Republic of Korea, the government has also promoted the growth of the game development industry. Men employed by game development organizations are exempt from military service44. Tax rates are reduced from 30 per cent to 15 per cent, and a government aid program has been implemented for new gaming software development projects. 42 Lee, Zen, “AP Online Gaming Market to Surpass US$1 billion”, ZDNet Asia, 24 May 2004, http://www.zdnetasia.com 43 “Asian Jurisdiction Now Offers Internet Gaming Licenses”, Winner Online, 11June 2003, http://www.winneronline.com 44 Feller, Gordon, & Mary McNamara, “Korea’s Broadband Multimedia Marketplace”, Birds-Eye.Net, 26 March 2003, http://www.birds-eye.net

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China’s online gaming industry already has more than 15 million players with analysts forecasting industry’s growth to reach US$900 million by end of 2006. With almost 100 million Internet users, the Government of China acknowledges more than 60 per cent are online for entertainment purposes. Competition in the gaming sector is fierce. In many countries, the majority of the revenues earned come from game memberships, and pay-peruse fees from establishments such as Internet Cafes45. Online multi-player games earn bulk of their revenues from monthly subscriptions, and it is a favored model rather than the traditional retail sale of boxed CD-ROM games that can be easily pirated. Popularity of multi-player online games, prevalence of Internet Cafes, and prepaid online gaming subscription model are among the key factors that are contributing to the market’s growth.

Venture Fund Model Some venture funds for rural development have been available from year 2000, but there are now an increasing number of venture models for rural ICT development. Previously, we have seen examples of former Microsoft management executives collaborating with venture capitalists, and private donations to initiate development of wireless/wired connectivity for classrooms in rural Asia, for example, the Global Catalyst Foundation, the Tibet Fund, and National Innovation Fund46. Founders of successful organizations, who combine the pragmatic and results-oriented methods of a business entrepreneur with the goals of a social reformer, are funding ICT initiatives. Recently, the venture capital organization, Acumen, has provided funding of US$1 million to Drishtee, providers of e-governance, healthcare, and educational services to over 1,000 villages in rural India. One of the co-founder of MySpace.com, online social networking site, has provided seed financing (up to) US$50 million to further expand Internet usage in China. This fund will incubate NGOs and start-ups that are launching innovative ICT based efforts in the area of literacy, and health-care. Funding is typically provided by corporations, trusts, and “angel” investors. In the case of Acumen, seed financing was also provided by Rockefeller Foundation, Cisco Systems Foundation, and private philanthropists, aimed at reducing global poverty. Similarly, Social Venture 45 46

“Study: Online Game Revenue to Sky Rocket”, CNet News, http://news.com.com

Konrad, Rachel, “Nonprofit to Wire Up Rural Asian Schools”, 22 May 2002, http:// news.com.com

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Funds have been launched in Africa, and India. Although social venture funds typically include a non-profit approach, there have been discussions on whether social ventures can be based on a for-profit model. There is also an increase in emergence of capital venture in China started by young, educated Chinese returning home. Beijing-based China Venture Capital Association’s membership of more than 80 funds are turning to universities for prospective investments. For example, Tsinghua Investment Management, a China-United States fund, includes China’s Tsinghua University among its limited partners and has funded 14 ICT based projects.

Rural Mobile Banking Tax Funded by United States Agency for Development (USAID), the Rural Bankers Association of the Philippines-Microenterprise Access to Banking Services (RBAP-MABS) project, in collaboration with Globe Telecom, the largest mobile phone operator in the Philippines is enabling people to send and receive payments via text messages. Mobile commerce services can be replicated as a way to buy and sell goods and services in rural areas. As of April 2006, transactions of US$100 million are conducted daily47. A proposed tax on mobile commerce services could generate funding for ICT development purposes. Loan officers are travelling less, and banks are saving on travelling costs. The cost savings is further passed on to bank customers through reduced service fees and lower interest rates. This also reduces risks associated with collection and transfer of money in the field. Loan officers, who normally carry large amounts of cash while collecting payment from rural borrowers, have in the past been targets for robbery. According to a recent study conducted by Juniper Research, the global mobile commerce market will surpass US$88 billion by 200948. The biggest challenge facing telecom operators is how to increase Average Revenue per User (ARPU). 47 “Mobile phone banking expands into rural Philippines”, Chemonics, 24 May 2006, http:// www.chemonics.com 48

“M-Commerce”, GSM World, 2006, http://www.gsmworld.com

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Rural Consumer Finance Rural consumers are ready to purchase consumer durable products such as television and refrigerators provided electricity is available, and assuming banks are willing to provide consumer financing49. Although this is not a new initiative, there is evidence that banks are increasingly focusing on rural consumers as a potential market, for example, ICICI Bank, India’s second largest bank, and GE Money Asia, a unit of General Electric Company, providing financial services to consumers and retailers. A tax proposal on the revenues generated from rural consumers could be utilized for ICT development. Typically, banks did not venture to serve rural customers due to high expenses, and customers lack of capability to afford bank products. However, this has changed as ICICI Bank, in 2001, generated over US$32 million in net income by providing house loans, and credit cards to rural consumers. As of 2006, the Bank has established over 5,000 points of contacts for rural consumers through its various distribution channels such as branches, internet kiosks, and franchisees. Also, the rural segment is considered to be one of its strongest business segments, with a combined rural and agri-business revenue of Rs. 7,500 crore (US$1.6 billion) for 2006. ICICI Bank further provides services in rainfall insurance to protect farmers against the bad monsoons that spoil their crops. The Bank also provides government services such as providing facsimiles of land deeds and other government documents50.

Market-Oriented Model from China This has been characterized as the Zhejiang Model, and has been repeatedly mentioned as the way to solve China’s rural problems. The area of Zhejiang that was once largely agricultural-based in the 1970’s is today considered to have a healthy corporate sector. It has also been stated no matter how many western economists consider FDI and foreign trade as a way to reduce poverty, it has been the entrepreneurial spirit of the peasants in China that has alleviated rural problems. A bottom-up, entrepreneurial, market-oriented model is preferred over a large government investment and subsidized FDI51. 49 Mehra, Preeti and Richa Mishra, “Consumer durables must go rural way for growth: Study”, The Hindu Business Line, 17 October 2003. 50 Giridharadas, Anand, “In India, thinking big by thinking small”, International Herald Tribune, 1 October 2005, http://www.yearofmicrocredit.org 51 Huang, Yasheng, “Zhejiang’s rural entrepreneurs are a model for China”, Financial Times, 1 October 2006, http://www.ft.com

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Pacific Island’s Common Resource Tax Tuna is considered to be a common resource in the Pacific Islands. It is estimated that over US$2 billion is harvested annually. However, over 90 per cent of the catch, estimated at 2 million tons, is taken by distant-water fishing nations like Japan, China, and the Republic of Korea52. Up to US$70 million revenue is generated by licensing fees that are not monitored. With effective monitoring policies, it could fetch double the current revenue. There is no estimate on how much revenue additional resources such as fresh water prawn, and marine shrimps can generate. Rivalry among the Pacific Island nations compounded by unstable governments, lack of political will, and corruption are having a detrimental effect. If implemented effectively, taxing the annual harvest could also generate funding for ICT development.

52 Gregory, Angela, “Foreign aid a “poisoned chalice” for Pacific nations”, New Zealand Herald, Aug.

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Conclusion During both phases of WSIS, it was discussed that involvement from public, private, public-private partnerships, and civil society were required to ensure innovative solutions are designed and implemented to reduce the digital divide. However, as the issue of financing was discussed, direction and approach were dominated by private organizations and role of public governments. Recently, an increasing effort from foundations, venture capitals, and entrepreneurs has also materialized to provide funding to further improve education, open source development, e-business, e-health, and expand localized content.

Taxing proposals to generate funding for ICT development were stated in the hope that it may be effective, and sustainable. Proposals towards taxing online gaming as it is a large revenue generator for Asia; taxing revenues generated from the sale/lease of Internet domain names, as seen from cases in the Pacific Islands; mobile commerce services based on bank transactions in collaboration with telecom organizations, and spending on consumer durables in rural areas made possible by increasing number of banks focusing on rural consumer finance. Finally, it was proposed taxation on the amount of revenue generated by the harvesting of tuna, and fresh prawns could be utilized for ICT development purposes.

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