88239 The World Bank and Global Information Telecommunications Lending and Communication Technologies Department Policy Division A Preliminary Evaluation of the 1990s Using Cross-Country Data By Charles Kenny and Anat Lewin1 T his paper focuses on the performance of the World Bank Group’s (the Group’s) activities in the telecommunications sector during the 1990s, using data on telecommunications rollout and reform as well as data on the Group’s projects. The data suggests that World Bank projects are associated with progress in telecommunications reform and an increase in the growth rate of telecom- munications networks. The data also suggests that International Finance Corporation (IFC) projects are associated with more rapid rollout of telecommunications services at the national level. The World Bank and At the same time, the IFC became increasingly involved in Telecommunications Reform lending to, and investing in, private telecommunications companies. Its average annual investment commitments in Since 1951, the World Bank has undertaken 265 telecom- information and communication technologies grew from munications and information technology projects, totaling $269 million in the period 1993-95 to $457 million recently. $11.8 billion. For most of its history, the Group lent to In addition, the IFC attracted approximately $8 in outside public monopoly providers of telecommunications services. private financing for each dollar of IFC funding, and cre- The loans were used to purchase network equipment and ated 7 to 28 new telephone lines for each $1,000 it invested. roll out services. This approach added substantially to the size of telecommunications networks in the countries Since then, the early evidence of the success of reform has in which the World Bank was active. been supported by numerous evaluations. A number of cross-country studies have linked elements of the reform However, in the early 1990s, a combination of influences agenda—competition, strong independent regulation, and began to shift the World Bank’s thinking about its activities privatization—to increased rollout of services, improved in this sector, and the Group significantly altered its lend- access, and lower costs of service. 2 ing to telecommunications. Successful privatizations and the introduction of competition in some segments in the de- In turn, the World Bank’s technical assistance activities in veloped world combined with technology change and sug- the sector have met with considerable success. At the indi- gested that competition could flourish across an ever greater vidual project level for example, the introduction of private proportion of the sector. This meant that the World Bank competition in Peru over the course of the 1990s—supported could increase the impact of its lending dollar by support- by the World Bank—saw dramatic improvements in ser- ing institutional change—privatization, competition, and vice delivery. Between 1993 and 1998, the number of towns regulation—rather than investing directly in equipment. with telephone service doubled, fixed-lines in the country The World Bank Group 2121 Pennsylvania Ave. , N.W. | Washington, DC 20433 USA | p: 202-458-2400 | email: gict@worldbank.org | web: www.worldbank.org/ict The World Bank and Telecommunications Lending nearly tripled, the number of public phones increased by more which there was an IFC ICT project in the 1990s. To assess than six times, the number of mobile phones increased by a the success of projects within countries over time, the study factor of twelve, and the percentage of poor households in Lima identified the countries in which the Bank project system flags that owned a telephone increased twenty-one fold.3 ICT projects during the 1990s, and compared the total teledensity growth rate in the five years previous to project This note looks at the success of the World Bank in fostering start with the corresponding rate in the five years after project reform and improving teledensity in client countries on a cross- start. Countries for which fewer than two years of post-project country basis. It also evaluates the impact of projects on rollout growth rates were available (i.e., countries with the most re- of telecommunications services as a result of reform. cent projects) were omitted in this study but will be included in later iterations. Data sources Results The telendensity data (fixed plus mobile subscribers) used in this study were extracted from the International Telecom- Based on the evidence in Table 1, World Bank ICT projects munications Union’s (ITU) World Telecommunications In- are associated with significant improvements in the environ- dicators 2002 database. Data on the ment for private, competitive provision level of sector reform were extracted of services in developing countries. It from the ITU’s Trends in Telecommu- World Bank ICT projects should be noted that there are questions nication Reform 2002 report. World are associated with signifi- about causality governing these results. Bank and IFC project data were ex- Clearly, the World Bank is more likely tracted from the World Bank operations cant improvements in the to become involved in telecommunica- data systems (SAP and Business Ware- environment for private, tions sector reform in countries where house). competitive provision of there is already a commitment to reform. Bank assistance plays a role in higher services in developing It should be noted that the dataset used in growth rates and reform; it is not solely this study contains errors of commission countries. responsible for reform. Nonetheless, and omission in reporting on Bank some results are impressive. Compared projects, which we hope to remove in fu- to the average developing country, coun- 4 ture work. However, the effect of project miscoding is likely tries in which there has been a World Bank project have a 21 to reduce the perceived impact of World Bank telecommunica- percent higher proportion of separate regulators, a 19 percent tions reform projects, suggesting that any results indicating posi- higher proportion of competition in the data sector and a 7 tive performance are comparatively robust. percent higher proportion of mobile digital competition. And, notably, this has been reflected in higher subscriber growth rates in Bank project countries—13 percent growth in World Methodology Bank project countries as compared to 11.8 percent in the average developing country. To examine the success of World Bank projects, this study examined average data for the year 2000, covering the range Looking over time within countries, performance has been of reform indicators offered by the ITU, including presence of impressive, with growth rates averaging 10 percent prior to separate regulation, extent of competition in various subsectors, World Bank involvement, and rising to 26 percent after the level of privatization, and growth rate in the total subscriber project. Given that average growth rates for telecommunica- base over the 1990-2000 period. It analyzed averages for three tions rollout worldwide (even in countries that did not reform) groups of countries: all developing countries, developing coun- increased over the decade, some of this jump will be associated tries in which there was a World Bank information communi- with the global change rather than individual project impact. cation technolgies (ICT) project in the 1990s, and countries in As a point of comparison, the average annual teledensity growth 2 GICT Policy Division A Preliminary Evaluation of the 1990s Using Cross-Country Data rate for developing countries increased from 8 percent in 1990- reform rather than privatization (examples include projects 04 to 19 percent in 1995-2000. This global average of an 11 in Afghanistan, Algeria, Mali, Mauritania, Morocco, Sa- percent increase compares to a 15 percent increase in Bank moa, and Tunisia, for example). This prioritization reflects project countries. cross-country evidence suggesting that regulated competi- tion has a far more dramatic impact on sector performance At the same time, it should be noted that progress on some than privatization alone.5 And despite the privatization data, measures of reform is comparatively weak. For example, the overall picture is that World Bank involvement is asso- despite the World Bank’s reputation for ideological commit- ciated with both reform and a more rapid rollout of services. ment to privatization, a higher percentage of World Bank project countries have a state-owned operator than the aver- Regarding the IFC, since the Corporation is unable to invest in age developing country. This is in part because the main countries in which there is a monopoly public provider with no focus of stand-alone World Bank operations in the telecom- intention of reform, higher scores on privatization variables munications sector is usually market opening and regulatory spark IFC involvement rather than vice-versa. Furthermore, Table 1: Telecommunications Indicators for Bank and IFC Projects in the 1990s All available developing Bank ICT Project IFC ICT Project countries Countries in 90s Countries in 90s Project/Nonproject Comparators (%) (%) (%) Average annual growth rate of total subscribers 1990-2000 11.8 13.0 14.6 Countries in which growth rate inc reased 95 97 100 2 Countries in which growth rate decreased 5 3 0 Separate regulators 59 80 87 Countries in which incumbent is state-owned 46 48 27 Countries in which incumbent is partially privatized 37 37 53 3 Countries in which incumbent is fully privatized 11 12 20 Countries in which there is competition: fixed 21 23 20 Countries in which there is competition: mobile digital 47 54 45 Countries in which there is competition: mobile analog 43 55 46 Countries in which there is competition: domestic long distance 18 22 17 Countries in which there is competition: int'l long distance 18 22 13 Countries in which there is competition: ISP 74 90 96 Countries in which there is competition: data 53 72 86 Countries in which there is competition: leased lines 23 28 30 Before Bank After Bank Intraproject Comparators ICT Project ICT Project1 Average growth rate of total subscribers (%) 10.11 25.91 1 Only countries in which at least three y ears of post-project growth data are av ailable were included. 2 The countries in which the av erage annual growth rate 1990-2000 has decreased are: Afghanitsan, Armenia, Congo, North Korea, Tajikistan, Uzbekistan, and Iraq. 3 Status of incumbent data are unav ailable for 7 percent of countries. The World Bank Group 3 The World Bank and Telecommunications Lending the picture regarding IFC involvement and competition is Notes mixed, perhaps reflecting an early preference for IFC in- vestments in companies granted exclusivity rights (since abandoned). Nonetheless, the IFC’s association with rollout 1 The views expressed in this paper are those of the au- of services appears strong, with average annual growth rates thors and do not necessarily reflect those of the World in IFC project countries nearly three percentage points higher Bank, its Executive Directors, or the countries that they than the developing country average. represent. Thanks to Carlo Maria Rossotto for helpful com- ments on an earlier draft. 2 Kenny, C. (2001). Prioritizing Countries for Assistance Conclusions to Overcome the Digital Divide, Communications and Strategies, 41. Wallsten, S. (1999). An Empirical Analy- These results are preliminary, using simple techniques and sis of Competition, Privatization and Regulation in Af- imperfect data. Nonetheless, it is fair to say that World rica and Latin America, World Bank Policy Research Bank projects appear to be associated with progress on the Working Paper 2136. Fink, C., A. Mattoo and R. telecommunications reform agenda and with faster rollout Rathindran. (2002). An Assessment of Telecommunica- of services as a result. IFC projects also appear to be asso- tions Reform in Developing Countries, World Bank Policy ciated with faster rollout of services. While the lion’s share Research Working Paper 2909. Kenny, C. B. Lanvin and A. Lewin. (2003). The Digital Divide: 1990 to 2000 of credit should be attributed to the governments that imple- and Beyond, mimeo, World Bank. ment the reforms and the companies that provide the ser- vices, this evidence suggests that the World Bank Group’s 3 World Bank. (2002). Information and Communication project work facilitated the rapid rollout of telecommunica- Technologies: A World Bank Group Strategy Washington tions services to the citizens of its client countries over the D.C. last 10 years. 4 Analysis of ICT operations by the Bank is hampered by a coding scheme enacted in 2001, which does not allow for reliable tracking of ICT components and their volume in Bank projects. Primarily, the issue is that the World Bank project data captures a number of projects that did not involve a significant telecommunications component, and a number of early projects that were not primarily aimed at reform. However, capturing these “spurious” countries is likely to weaken the results, rather than strengthen them, so in all probability these results under- estimate the impact associated with World Bank reform- based projects rather than over-estimate them. 5 See the studies cited in footnote 2. It should be noted that in cross-sectoral operations such as structural adjust- ment loans, privatization was a more frequent compo- nent—including operations in Albania, Armenia, Geor- gia, Papua New Guinea, Ukraine, and a number of Afri- can countries. Cover photos (left to right): Curt Carnemark, Alan Gignoux, Bill Lyons, Alan Gignoux, Eloy Vidal. 4 GICT Policy Division