Khalid Sekkat (2) Aristomene Varoudakis
Figure 4. Potential impacts of further liberalization
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- Figure 5.c. On the spread of the internet
Figure 4. Potential impacts of further liberalizationFigure 5.a. On mobile phone penetration
Figure 5.b. On expenditures on telecommunications
Figure 5.c. On the spread of the internet
Note: Predicted rates of mobile phone and internet penetration, and expenditures shares shown in Figures 4a,b,c are calculated after controlling for differences in structural determinants across countries other than telecommunications market openness. Estimates are based on regressions 2, 3, and 4; Table 1. Average for each group of countries. Source: Authors’ calculations The demand-driven expansion in the size of the various segments of the ICT sector would be, on its own, a major stimulus to growth. But it would also generate multiplier effects on the economy, as the increase in ICT output would stimulate ICT sector investment, funneling demand for the output of other industries as well. For example, in the case of Tunisia, it has been estimated that broad-based ICT sector development, spurred by domestic demand and exports, could boost annual GDP growth by about 1.7 percent over a 5-year period, following opening up of the sector to competition (World Bank, 2001). Cross-country estimates also confirm that telecommunications liberalization is associated with higher growth rates in the long run (Mattoo et al, 2001). 5. Telecommunications Performance and Participation in the World Economy In this section we examine the potential impact of improved performance in telecommunications on MENA participation in the World economy. The later is assessed with respect to three indicators: manufactured exports, intermediate good exports and FDI inflows to the region. Regarding exports, we rely on a specification suggested by Sekkat and Varoudakis (2000). It relates the ratio of manufactured exports to GDP (in log.) to the GDP growth rate of main trading partners and the (log. of) real effective exchange rate.7 Note that the real effective exchange rate is measured such as an increase implies an appreciation of the exporter’s currency. We add to the original specification a telecommunication performance indicator as an explanatory variable. This is the first principal components of four telecommunication indicators8: Cost of 3 minutes local call in $, number of fixed phone, waiting list and number of mobile phone. All these variables are in log. and the last three are per 1000 inhabitants. Using the ratio of exports to GDP as a dependent variable avoids the problems due to the difference in countries’ sizes. As far as the determinants of export supply are concerned, the GDP growth rate of main trading partners captures the role of foreign demand. Its coefficient should, therefore, be positive: an increase in demand is beneficial to exports. As an appreciation of the exporter’s currency should harm exports the coefficient of the real effective exchange rate is expected to be negative. Finally, we expect the coefficient of telecommunication performance indicator to be positive because well-performing telecommunication services should strengthen links with global production networks and, thus, help improving export performance in manufacturing. The estimation is conducted on a panel of developing countries and combines cross-section and time series data. The series of GDP, manufactured exports, trading partner growth rate and real exchange rate are drawn from the World Development Indicators. Telecommunication series are drawn from World Telecommunication Indicators. The sample includes annual data for 37 developing countries. The period of observation is 1990 - 1999. We use panel data econometric methodology: tests of fixed and random effects are conducted to select the most adequate models. The estimates are heteroskedastic consistent. Table 2. Telecommunications performance and integration in the World economy: empirical estimates
Note: Method of estimation: Fixed effects, with White Heteroskedasticity-Consistent Standard Errors and Covariances; Student’ statistics in parentheses; except for growth rates, dependent and explanatory variables are in Log. Source: Authors’ calculations The results are presented in Table 2. It appears that the test for common intercepts rejects the null hypothesis and that the Hausman test statistics for fixed versus random effects does not reject the null hypothesis. These two observations justify the focus upon fixed effects models. To save on space fixed effects coefficients are, however, not reported. Despite the simplicity of the specification the overall quality of the fit is very high. Moreover, all coefficients are significant and have the expected sign. The coefficient of Telecom implies that availability of good telecommunication services foster manufactured exports. A one percent improvement of the indicator increases the ratio of manufactured export to GDP by 0.37 percent. To examine whether telecommunication services performance allows developing countries to better participate to the process of international fragmentation, we test the impact of such performance on intermediate goods exports. We use a similar specification as above, except that the dependent variable is the ratio of intermediate good exports to GDP. The equation was estimated using a sample of cross-section and time series data: 32 developing countries over the period 1990-1999. The expected sign of the coefficients and the econometric methodology are the same as before The series intermediate good exports are drawn from the CHELEM data base built by the Centre d’Etudes Prospectives et d’Information Internationale (CEPII, Paris). Here again the tests justify the focus upon fixed effects models. The overall quality of the fit is also very high and all coefficients are significant and have the expected sign. The coefficient of Telecom implies that availability of good telecommunication services foster exports of intermediate goods. A one percent improvement of the indicator increases the ratio of manufactured export to GDP by 0.18 percent. We turn now to FDI. Previous empirical studies differ with respect to FDI specifications (see for instance Schneider and Frey (1985)). The differences concern both the variables to be included in the specification and their definition (nominal versus real measures and levels versus growth rate). A common specification (see UNCTAD (1998)) relates nominal FDI to GDP, per capita GDP and the growth rate of GDP. Lucas (1993) showed that there also exists a high degree of responsiveness of FDI to incomes in major export markets. We, therefore, use these variables together with the telecommunication performance indicator to explain FDI inflows. Except for growth rates all variables are in log. The GDP captures the size of the host country’s internal market. A higher GDP is assumed to imply better market opportunity of the host country and then more attractiveness for FDI. The per capita GDP is related to the wealth of the resident of the host country and then to demand effectiveness. A higher real GDP per capita is assumed to imply better market opportunity of the host country and then more attractiveness for FDI. The GDP growth rate reflects the dynamism of the host country and its future market size. An increase in the growth rate of real GDP characterizes a dynamic economy which may be more attractive for investors. An increase of the real GDP of trading partners implies good export opportunity of the host country and similarly may improve attractiveness for FDI. Finally, good telecommunication services are assumed to facilitate integration into cross-border production networks, thus creating a supporting environment for investment. In sum all coefficients are expected to be positive. The FDI equation was estimated using a sample of cross-section and time series data. The data sources are the same as before. The sample includes annual data for 71 developing countries. The period of observation is 1990-99. We use the same econometric methodology as before. The fixed effects and the Hausman tests suggest focusing on fixed effects models. Although lower than for the exports equation, the overall quality of the fit remains high. All coefficients have the expected sign. However, per capita GDP is not significant. The coefficient of Telecom implies that availability of good telecommunication services increases the host country attractiveness with respect to FDI. A one percent improvement of the indicator increases FDI by 0.75 percent. In section 3 we have documented that despite steps taken recently, especially in telecom privatization (e.g., Morocco, Jordan), MENA still lags behind in regulatory reform of the services sector. Telecommunications markets remain less open to competition in MENA than elsewhere in the developing world. The lag of the MENA in this respect is reflected in the availability of telecommunications services in the region. Table 3 compares the four telecom indicators used for the regression across five regions of the World. Except for the cost of local call the MENA is among the low performing regions irrespective of the indicator. Table 3. Indicators of telecommunication availability in selected regions (1990-1999)
Cost= Cost of 3 min. local call in $ Fixed= Number of fixed phone per 1000 inhabitants Wait= Waiting list per 1000 inhabitants Mobile= Number of mobile phone per 1000 inhabitants Taking these results together with those of the econometric analysis sheds further light on the scope for improving the region performance both in terms of manufactured exports and FDI inflows thanks to more telecom development. Therefore, policy aiming at improving the performance of telecommunication services in the MENA region can entail important gains in terms of exports and FDI inflows and complement other policies (e.g. trade and exchange rate policies) undertaken in the region. 6. Conclusion and Policy Implications Evidence examined in this paper suggests strong linkages between export performance in manufacturing, participation in global production networks, attractiveness to FDI, and the performance of the telecommunications sector. The performance of the sector also appears to be critically driven by openness to competition and the quality of the regulatory framework. But in MENA countries telecommunications markets remain less open to competition than elsewhere in the developing world, thus denying the region the benefit of increased participation into global trade and stronger export and growth performance. The planed free-trade zone with the EU provides a unique opportunity to MENA to find a right place into EU production networks, and thus attract more FDI, increase exports, and benefit from knowledge and technology spillovers. But in order to encourage transnational companies to extend their supply chains to MENA through partnerships with domestic companies or new investment, further progress in lowering trade barriers should go in tandem with complementary policies in other areas. In particular, trade logistics, transport, and information systems would have to become more flexible, reliable and sophisticated. This would require ambitious opening up of service markets to competition—supported by continuous efforts at public enterprise reform in network industries; privatization; and pro-competitive regulation. Owing to complementarities among trade-related services, such as transport and finance, competitive opening of telecommunications markets would play a catalytic role in easing “beyond-the-border” constraints to trade and exporting. Greater market openness, coupled with pro-competitive regulation, appears to be a strong driver of telecommunications sector growth. With the right regulatory and business environment in place, telecommunications liberalization in MENA holds considerable potential for improving overall economic performance. Measures that secure the independence of regulatory bodies; guarantee a competitive interconnection regime in a multi-operator environment; and improve the transparency of licensing procedures, would ensure efficient provision of telecommunications services and reduce the “regulatory risk” perceived by investors. Moreover, international experience on reform sequencing suggests that countries embarking on sector liberalization should have introduction of effective competition as the major objective. The presence of strong, well established competition to the core-business of the incumbent operator might be a key determinant that accelerates the needed to introduce privatization in the incumbent operator (as, for example, in the case of Morocco). In these cases where competition has been introduced “at-the-margin” of the core business of the incumbent operator (Lebanon, Egypt), the bottlenecks related to the inefficiency and resistance to change in the incumbent operator, remained. Annex Part A. Factors of Market Openness in Telecommunications a) Degree of Effective Competition. The telecommunications market can be segmented in different ways. A first distinction is between services and networks. From the point of view of services, we can distinguish between voice and data services. If we consider the networks used to provide these services, we can distinguish among local, domestic long distance and international, fixed and mobile infrastructure. The dynamics of competition in telecommunications has common features with those of other vertically integrated utilities. Competition can be introduced at a service provider level, having different competitors using the same network infrastructure. In other cases, competition is introduced both at a service provision level and at a network operator level, with different service providers and different network operators. The number of players in each market segment and the relative market share is an indication of the degree of effective competition. When competition is present both at service provision and at network operator level, and the players are allowed to operate in both segments, it is important that service providers have equal and not-discriminatory access to the infrastructure of network operators. In addition, when a network operator has dominant position, other competing network operators must have fair and non-discriminatory access to parts of its network. Usually, countries in their process to open up the telecommunications sector to competition, do not open all segments of the market (services and infrastructure) at the same time. In opening up the sector to competition, for example, countries have decided to introduce competition in mobile services and infrastructure before voice services provided through fixed networks (e.g. Morocco). In other cases, international data services were opened up to competition before local and long distance services (Jordan). Even though it is hard to identify a ‘global best practice’ on the sequencing of sector reform, it is to be remarked that in the last 20 years, there is an evolution of the reform towards giving more importance to the objective of achievement of effective competition per se. The reform of the early ‘80s (Chile, United Kingdom), were inspired by the need of enhancing the efficiency of a public enterprise. Competition was seen as an effective incentive tool (Vickers and Armstrong, 1994). An example of this path of reform is the regulated duopoly British Telecommunications-Mercury in the United Kingdom (1984-1992). Countries that have more recently embarked in sector reform (e.g. continental European countries, many emerging markets like Morocco or Sri Lanka) had more technological options (growth of cellular, Internet), as well as policy tools (experience of already successful markets), to introduce effective competition from “day-one”. The time and impact of sector reform has also been more dramatic in these latter cases. Echoing this evolution, the indicator developed below emphasizes the prerequisites for achieving effective competition in telecommunications markets, as opposed to other dimensions of reform linked to the privatization of state-owned incumbents. In building a set of indicators to measure the degree of effective competition, the following section considers the degree of competition existing in different market segments (fixed line local, long distance, international, leased lines services and infrastructure; analogue and digital cellular services and infrastructure). b) Openness to FDI. A second factor characterizing the openness of the sector is the openness to Foreign Direct Investment. Telecommunications is a global industry, so that competition extends well beyond national borders. Global players found their international strategies on the capability to offer the same products in different international markets. An operator like France Telecom, for example, has numerous participations in telecommunications operators of Eastern Europe and Africa. Telefonica of Spain has a concentration of investments in Latin America and, recently, Morocco. Niche operators, like Millicom, emerged as holding companies with multiple participations in small cellular operators in Africa. This flow of investment is of crucial importance, as it allows to develop and transfer best practice and technological knowledge. The WTO agreement has specific provisions in the area of FDI in telecommunications services. Over 70 countries presented an offer to the WTO within the terms of the Negotiating Group on Basic Communications, which completed negotiations on 15 February 1997, allowing foreign operators in specific segments of their markets. Of the countries of the MENA Region, only three (Israel, Morocco and Tunisia), presented an offer. This is a striking difference with other emerging regions of the world, such as Central and Latin America, where 15 countries presented an offer. A new round of negotiations for telecommunications services is under way. The benefits of liberalization and influx of FDI, following the WTO Agreement on Basic Telecommunications 1997, have been estimated to be considerable for the countries presenting an offer, especially in terms of higher sector efficiency, falling prices, better network and service quality, increased competitiveness (Petrazzini, 1996). In developing countries in particular, openness to FDI is essential to reap the benefits from greater competition, as incumbents and potential domestic competitors are likely to operate at standards below international best practice. c) Pro-competitive regulation and Independence of the Regulatory Body A third crucial factor of market openness in telecommunications is regulatory reform and separation between the operation and the regulation of the sector. The crucial reason for the need of separation is, again, effective competition. Historically, the ministry in charge of telecommunications was policy-maker, regulator and operator in the sector. In the process of introducing competition to the incumbent operator, therefore, the independence of the regulatory function is a key requisite to ensure fair competition and avoid discrimination. The quality of the regulatory framework is also measured by other variables, such as an adequate interconnection regime, equal access to spectrum frequencies, well defined universal access obligations and so on. The presence of minimal, clearly defined and pro-competitive regulations and legal provisions in these areas is often associated to the reduction of the so-called “regulatory risk” in the sector, that is the risk that effective competition in the sector is hindered by inadequate, uncertain or discriminatory regulation. International telecommunications operators attribute a great weight to the quality of the regulatory framework and its capacity to reduce regulatory risk. These variables are often a major determinant in the price that investors are willing to pay for new cellular licenses, or in privatization transactions. In extreme cases, the constitute a “make-or-break” factor in the decision of the investors to enter a particular market (Smith, P. and Wellenius, B. (1999)). Directory: curated curated -> Concept stage curated -> Concept stage curated -> Republic of Côte d'Ivoire Urbanization Review curated -> Report No: aus11011 Central America curated -> Report No. 94474-pk fiscal Disaster Risk Assessment Options for Consideration curated -> Environmental and Social Management Framework for the Costa Rica Telecommunications Sector Modernization Project curated -> Environment Impact Assessment For Jiangxi Shangrao Sanqingshan Airport Beijing Guohuantiandi Environmental Technology Development Center. Ltd. 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