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goods is far from inelastic, the benefits of ICT are so computers and related software and services. The long term
numerous that investment in ICT is difficult to reduce,
even in times of crisis.
ICT is now an increasingly vital component of competitiveness
business strategies. It acts as a problem-solver rather than a
problem—especially during difficult economic times.
For example, Enterprise Resource Planning (ERP) systems
and other means of coordinating resources can contribute to
a quick recovery. Companies need not have precious capital
tied up in excess inventory. They can communicate and
implement changes in strategy and tactics efficiently and
rapidly—through email, groupware, and collaborative
software packages. This translates to an improved
performance. As ICT helps companies adjust their costs rapidly toagree with this analysis, adding that ICT will recover at a
fit their environment (reducing costs when times are hard
and expanding when the market picks up), it helps compa
nies cushion recessions and profit more from expansions.
According to the US Federal Reserve Board's Chairman,
Alan Greenspan, “The rapid acceleration of computers and
Telecommunications technology is a major reason for the
appreciable increase in our productivity…” (Alan
Greenspan, The Implications of Technological Changes, July
10, 1998, Charlotte, NC). Therefore, nations and companies
can ill-afford to ease up on their ICT expenditures,
even in the most difficult of economic times. most realized
that ICT investments may well shelter them from worse
economic plights.
Chairman Greenspan's comment highlights the importance
of ICT to all economies, especially those of emerging markets
where productivity and investment in ICT are still low.
Although many nations increased their ICT spending
sharply during the boom of the 1990s, unfortunately many
developing nations cannot afford to continue unfettered
funding of ICT-related projects in the face of economic or
political turmoil.
A case in point is Mexico. Faced with a currency crisis in
1994 and a resulting economic decline, Mexico's ICT
spending plummeted, shrinking by approximately 30% in
dollar terms in 1995 (in local currency terms, adjusted for
inflation, the ICT market declined by 2.5%). However, ICT
actually increased its share of GDP in 1995.
Furthermore, by 1997, ICT spending had nearly reached
its pre-crisis level of more than $14.3 billion. Looking at
the detail of the market, demand for telecommunications
was much less affected by the recession than demand for
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nature of telecommunications investments is such
that the economic downturn had a limited impact upon
spending. In the case of IT purchases, however, there was
a sharp decline in the months that followed the currency
devaluation. Conversely, the IT market rebounded
sharply in the following year.
Looking at 1998, IDC believes that the current Asian crisis
is more far-reaching than the Mexican crisis of 1994. Some
country markets are experiencing a sharp fall in ICT
demand, which will possibly decline more than GDP.
Looking forward, most experts believe that many of the
emerging economies currently under pressure will resume
economic growth during the next two to three years. We
faster pace, therefore acting as a driving force.
Another current concern is Russia, which looks likely to
move down the same path as Southeast Asia unless eco
nomic reform is rapid and effective. Although the evidence
suggests that maintaining these investments would enable a
faster rebound, Russian companies are reducing some of
their ICT purchases.
In the wake of a devastating crisis, emerging economies are
likely to retain funding for areas that will produce immediate
results in order to satisfy the masses. In Indonesia, for
For example, maintaining investment in ICT would be
unacceptable given the direct effects of inflation, currency
devaluation, and economic collapse. Ironically, many believe that
the ability of Indonesians to exchange information via the
Internet accelerated the change in government.
Finding the balance between long-term investments and
quick fixes is a serious problem for emerging economies.
ICT can help to stabilize these economies by generating
new wealth. However, to have a significant effect it is
necessary to maintain ICT investments for extended periods
of time. In the face of economic hardship, these expenditures
prove difficult to justify. The key is to find the balance between
encouraging investments over the long term
and managing the short-term problems of the macro
economy. This dilemma has led many countries to
develop ICT policies.
An ICT policy is a necessary part of economic management
for all economies. For emerging markets, we believe
an ICT policy is as important a path to parity with develop
operated markets as an industrial policy — arguably more so.
Digital Planet — The Global Information Economy