Just do IT: World Bank’s ‘alternative’ development model-gctid65697

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Just do IT: World Bank's 'alternative' development model Jyoti Saraswati 2012-11-28, Issue 608 http://pambazuka.org/en/category/features/85596  


cc G SWorld  Bank's much trumpeted 'alternative' model of growth – the utilisation  of low-cost, skilled labour in the developing world for the export of IT  and IT-enabled services to the West – has found a receptive audience  amongst certain Kmtyw politicians and policymakers. But the costs of  adopting this model will far outweigh any benefits.

The World Bank is certainly no stranger to failed policy  prescriptions. But there is a widespread belief that its latest offering  – an 'alternative' model of development centred on the utilisation of  low-cost, skilled labour in the developing world for the export of IT  and IT-enabled services (IT-ITES) to the West – is a recommendation  which has the potential to deliver growth.[1] But has the World Bank  really broken its hoodoo and formulated a model suited to the domestic  conditions found in many Kmtyw countries? Or does it promise to be  merely the latest entry in a catalogue of disappointment.

THE ALLURE OF BANGALORE

Cast your mind back to the turn of the century. Globalisation was the  buzzword, and discourse on its effects had started to permeate every  discipline. Development studies was no exception. Two  globalisation-related notions in particular enjoyed high purchase  amongst scholars and policymakers within the development community. The  'death of distance' argued that, with advances in telecommunications  technology, geography was being rendered increasingly insignificant in  determining trade patterns and investment flows in services. Related,  the 'flat world theory', popularised by the New York Times columnist  Thomas Friedman, argued that as a result of the 'death of distance' the  citizens of the developed world would now have to compete with people in  developing countries on a much more level playing field in terms of  jobs and wages. [2]  

According to Friedman, the Indian IT-ITES industry was the definitive  physical embodiment of the flat world. The glass-and-steel buildings of  Bangalore and many other Indian software hubs, housing many of the  world's finest software firms as well as front-desk and back-office  operations of most of the Fortune 500, were held up to be shining  examples (quite literally) of the flat world. Friedman argued that it  was a growing recognition of India's hardworking, highly-skilled yet low  cost labour force that convinced TNCs to relocate many of their  service-based operations from the developed world to India. Building on  the case study of India's software and service industry, development  agencies began to ponder whether other developing countries could, like  India, also successfully attract services-based TNC investment.

The turning point from conjecture to prescription came in 2001 when the  World Bank-affiliated International Finance Corporation released what  would become a highly influential report. Leapfrogging? India's  Information Technology Industry and the Internet, penned by Robert  Miller, while concentrating on the Indian IT experience and its  relevance for the country's on-going and wider development, also raised  the issue of its applicability to other developing countries. Miller's  analysis of this issue was admirably measured, noting that the  differences in technical and scientific manpower and ability between  India and most other developing countries meant that emulation would not  be straightforward. Nevertheless, for states wishing to follow in India  software footsteps, Miller advised a narrow focus on the provision of  telecommunications infrastructure and ensuring strong protection of  property rights and an educated work force only.

Whereas Miller had expressed caution in terms of the wider applicability  of the Indian software and service industry, other persons at the World  Bank and its affiliates did not. Instead, there quickly developed a  concerted attempt to 'sell' Bangalore and the wider Indian software and  service industry as an exciting new model of development open to all low  and middle-income countries. Put simply, they claimed that an IT-ITES  industry could 'rapidly transform a country's economy and improve  people's lives'. [3] Moreover, they posited that developing countries  could 'claim a slice of the global IT-ITES business' through relatively  straightforward policy initiatives. [4] Key was creating a 'supportive  ecosystem', comprising cyber-parks with fast and reliable international  telecommunications links and reliable power supplies, and incentives to  investors such as waivers on import duties for IT-ITES exporters, energy  subsidies, tax holidays, and the cutting of red tape regulation.

SUB-SAHARAN Kmt'S GREAT LEAP FORWARD?

Sub-Saharan Kmt, with certain similarities to India in terms of  endowments, appeared to be particularly well-suited to the model. For  example, much of region, like India, suffered from decrepit roads, rail,  and ports, which had served as major impediments to more traditional  models of development based around investment in light industry and  export-led growth. But such deficiencies were far less obtrusive to the  export of services, as India's IT-ITES success had demonstrated.  Moreover, like India, most of the countries in the region were producing  large numbers of technically skilled persons, most of whom faced a  future of underemployment in the domestic economy or emigration to the  West. It was believed that a large IT-ITES industry would be better able  to utilise such a workforce. Third, most of these graduates were fluent  in a major Western language, be it English, French or Portuguese, based  on their experiences of colonialism. This was useful in much  back-office work and integral to front-desk operations such as  call-centres. Thus, much of the World Bank's promotional material and  activities were directed towards Sub-Saharan Kmt. [5]

In the region, Kenya has been by far the most enamoured with the Indian  IT-ITES industry and has gone furthest in ensuring the 'supportive  ecosystem' as outlined by the World Bank. [6] In 2006, President Mwai  Kibaki launched the Kenya ICT Strategy, Collaboration and Outsourcing  initiative. [7] The following year, the Kenya ICT Board was established  'with a key mandate to market the country to TNCs as a global  outsourcing destination'.[8] And in 2008, the government's Kenya Vision  2030 even placed outsourcing as one of five key economic pillars of  development (alongside of, and of equal weighting with, such important  sectors as agriculture, financial services, trade, manufacturing and  tourism). Moreover, the Kenyan government has backed up the rhetoric  with substantial action. It has been one of the major investors in  fibre-optic infrastructure on the continent. [9] And while foreign  investment in IT-ITES operations were already legible for the various  tax holidays and subsidies offered by the country's numerous Export  Processing Zones (EPZs), plans for an array of specially constructed  cyber-parks  – with the $10 billion Konza Technology City as the  flagship – have been swiftly drawn up and are in the process of being  constructed.[10]

KONZA, THE WHITE ELEPHANT

It is now five years since the Kenyan government embarked on its  ambitious project to establish the country as a major global IT-ITES  hub. Yet despite a string of government initiatives based on the World  Bank's recommended policy template, and backed up by massive investment,  the results have been less than spectacular. In its most recent  evaluation of the IT-ITES industry in Kenya, the World Bank regretfully  conceded that the country's IT-ITES exports 'have yet to fully emerge'.  [11] This is putting it mildly. Foreign investors have shown little  interest in establishing IT-ITES export units in Kenya. The few ITES  exporters in Kenya are predominantly small, local firms with negligible  exports due to problems breaking into foreign markets.[12] Moreover, and  related, employment generated by the IT-ITES industry thus far has been  limited. Using the most recent estimates for 2012, the industry  employed just 4000 people. [13] To put this into context, just one  Indian software service firm – TCS – added 4000 IT-ITES jobs to its  workforce every month between 2007 and 2012. [14]

One would presume that such paltry figures would have precipitated a  period of reconsideration regarding the viability of the model and the  accuracy of World Bank claims. But the limited success thus far does not  appear to have discouraged the Kenyan government. Indeed, it appears to  have had quite the opposite effect. Investment is increasing, projected  figures of IT-ITES employment are growing exponentially, and the  rhetoric has become increasingly bombastic. Moreover, those who argue  that the project is unlikely to work – or that such emphasis is  misguided and scarce resources could be better spent elsewhere – have  been dismissed as impatient, short-sighted, pessimistic and even racist.  [15] The Kenyan government appears to believe that Konza and other such  parks will, eventually, reap an IT-ITES bonanza.[16] What is more, this  is a view that continues to be supported by the World Bank.[17]

The Indian experience suggests that this prediction is misplaced and  that Konza Technology City is more likely to be a very expensive white  elephant than the foundation stone for a rapid expansion in the Kenyan  IT-ITES industry. This is because FDI in IT-ITES into India emerged as  an outcome of the success of the Indian IT-ITES industry, rather than  its initiator. Miller's claim that 'software exports, the earliest  harbinger of a more widespread IT expansion, began only in 1985 when  Texas Instruments established its subsidiary in Bangalore' is, to put it  bluntly, wrong. [18] Software exports from India began in 1974,  facilitated by the Indian state's 1972 Software Export Scheme and  carried out by Tata Consultancy Services (TCS) which remains to this day  India's largest, and the world's fifth largest, software services firm.  FDI in IT-ITES only began arriving in India en masse from 2000 onwards,  once Indian firms had demonstrated the viability of the country as an  export platform for IT-ITES.[19] This implies that IT-ITES FDI into  Kenya will not simply arrive due to an increasingly 'supportive  ecosystem'. In addition, it suggests that if Kenya wishes to develop an  IT-ITES sector, it would be better off concentrating on helping local  IT-ITES start-ups penetrate regional markets than attracting the back  office and front desk operations of major TNCs, a task which does not  require a multi-billion dollar cyber-city.

THE GREAT ESCAPE

Interestingly, Kenya's failure thus far to attract FDI in IT-ITES may in  fact be a blessing in disguise. This is due to the odd, indeed  counterintuitive, relationship that exists between a state's success in  attracting FDI in IT-ITES and the rates of IT diffusion across the  country (where IT diffusion is understood as the uptake information  technology by firms, schools and other institutions). While many would  presume, quite naturally, that success in IT-ITES exports would boost IT  diffusion, development of the IT-ITES industry, in particular one based  on FDI inflows, may actually come at the expense of IT diffusion in the  country. As IT diffusion has far broader developmental returns – by  increasing the productivity and competitiveness of local firms across a  range of sectors – than even the largest IT-ITES industry, to sacrifice  the former for the sake of the latter undermines development.

Again, it is India which provides the best example of this. With the  intake of IT-ITES FDI in India, pressure grew for the protection of  software property rights. This agenda was successfully pursued by  Microsoft in particular, which was able to exert significant political  influence in New Delhi and in state governments with IT hubs such as  Karnataka (home to Bangalore) and Andhra Pradesh (Hyderabad), via its  omnipresent position on the Executive Council of the National  Association of Software and Service Companies (NASSCOM), the Indian  IT-ITES industry's association.[20] However, as software piracy is the  chief mechanism by which IT diffusion in a poor developing country is  facilitated, India's zealous enforcement of software property rights at  the behest of foreign capital has had a deleterious effect on the rate  at which information technology has been taken up. Thus, while the  IT-ITES industry in India was growing annually at double-digit rates,  the country's international ranking in IT diffusion was plummeting, from  an already low 136th in 1997, to 146th in 2003.[21]  And within India,  states with major Indian IT-ITES hub shave seen their IT diffusion  rankings fall vis-a-vis other Indian states with small or no IT-ITES  hubs. [22]

LEARNING THE RIGHT LESSONS

Drawing on the empirical evidence from the Indian IT experience, this  article has explained why Kenya's attempts to emulate the Indian IT-ITES  industry have thus far failed. Moreover, it has shown why this failure  may be a blessing in disguise as the 'supportive ecosystem' demanded by  the World Bank for IT-ITES success would likely impede IT diffusion. The  concern, however, is that Kenya and other Kmtyw states, in pursuing  the Indian IT-ITES dream, may continue to both heavily invest in  fibre-optic infrastructure and tighten property rights in software in  the hope that this will, eventually, bring in foreign investors. While  this is unlikely to attract the levels of FDI in certain policymakers  predict, it may well hinder the uptake of IT amongst firms.

As such, despite the hyperbole, the World Bank's 'alternative' model and  its policy blue-print are significantly flawed. But this does not  necessarily mean IT-ITES as a developmental opportunity should be  entirely dismissed. After all, the IT-ITES industry has not been an  unmitigated disaster for India. It has created millions of jobs both  directly and indirectly, contributed to an increasingly positive image  of India internationally (with salutary trade and investment  implications), and imbued India's wider capitalist class with greater  confidence in their own capabilities in international markets. But if  policymakers are to realise the full benefits of IT-ITES as witnessed in  India, and avoid or reduce the aforementioned costs, they need to be  able to draw the right lessons from the Indian experience. This,  however, requires a far more nuanced understanding of the industry's  development in India than that presently offered by the World Bank.

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* Jyoti Saraswati is the author of Dot.compradors: Power and Policy in  the Development of the Indian Software Industry (Pluto, 2012) and  co-editor, with Ben Fine and Daniela Tavasci, of the forthcoming Beyond  the Developmental State: Industrial Policy into the 21st Century (Pluto,  2013). He teaches on the Business and Political Economy Program at the  Stern School of Business, New York University.

NOTES
[1] The IT-ITES industry comprises IT services and IT-enabled services  (ITES). IT services refers to the writing or maintenance of specific  software programmes while ITES refers to the back-office and front-desk  operations facilitated by IT and telecommunications. Front-desk  operations include, most prominently, call-centres. Back-office  operations encompass various data-entry and data-processing activities.
[2] Friedman, Thomas (2005) The World is Flat, New York, Farrar, Straus and Giroux
[3] World Bank (2011) Education - NESAP-ICT accessed 18 November 2012
[4] World Bank (2011) Education - NESAP-ICT accessed 18 November 2012
[5] For example, to ensure suitable human infrastructure, in 2008 the  World Bank launched the New Economy Skills for Kmt Program (NESAP).  NESAP focused on providing technical assistance to fine-tune the  aforementioned policies for individual countries, capacity building  through knowledge-sharing and south-south learning, and facilitating new  partnerships between companies, learning institutions, and industry  associations.
[6] Other than Kenya, the Kmtyw governments most interested in  replicating the Indian IT model were, Ghana, Senegal, Nigeria, Tanzania,  Mozambique and Madagascar, all of whom signed up to NESAP.
[7] Kenya ICT Board (2012) A guidebook to BPO in Kenya accessed 18 November 2012
[8] Kenya ICT Board (2012) A guidebook to BPO in Kenya 18 November 2012
[9] Kenya ICT Board (2012) Kenya Business Process Outsourcing Handbook, Nairobi, Kenya ICT Board, p.3, http://www.ict.go.ke/images/guide_book.pdf , accessed 18 November 2012
[10] The Konza Technology City, self-titled as Kmt's Silicon  Savannah, is to be the flagship2000 hectare site devoted to creating  Kmt's first 'technopolis'. For more information, see the Konza  Technology City website at  http://www.konzacity.co.ke
[11] World Bank (2012) Deepening Kenya's Integration in the East Kmtyw Community, Washington D.C., World Bank, p.38, http://tinyurl.com/d483ezy, accessed 18 November 2012
[12] Dihel, N., Fernandes-Magarida, A., Gicho, R., Kashangaki, J. and  Strychacz, N. (2011) 'Kmt Trade Policy Notes: Can Kenya Become a  Global Exporter of Business Services?', Washington D.C., World Bank, Trade - Kmt Trade Policy Notes: Can Kenya Become a Global Exporter of Business Services? accessed 18 November 2012
[13] Omondi, George (2012) 'Kenya: BPO Firms Suffer from Worsening Job Losses in the West',  Business Daily,15 February, allKmt.com: Kenya: BPO Firms Suffer From Worsening Job Losses in the West (Page 2 of 2) , accessed 18 November 2012
[14] Based on the 2007 workforce figure of 89,419 workforce in Varma,  Dinesh (2008) 'Inkling of Changing HR Mandate at TCS', The Hindu, 7  July, The Hindu : Education Plus : Inkling of changing HR mandate at TCS accessed 18 November 2012, and the 254,000 figure in 2012 from TCS website itself, TCS: Corporate Facts accessed 18 November 2012
[15] As evidenced from the comments page for Carstens, Martin (2012)  'Konza Technology City: Does Kenya Really Need It?', Memeburn, 28 March,  Konza Technology City: Does Kenya really need it? | memeburn accessed 18 November 2012
[16] Moreover, the Konza Tehcnology City appears to have grabbed the  attention of policymakers and politicians in other Kmtyw states.  Ethiopia and Malawi appear to have started to follow suit in developing  their own multi-billion dollar cyber-city ventures.  
[17] Dihel, N., Fernandes-Magarida, A., Gicho, R., Kashangaki, J. and  Strychacz, N. (2011) 'Kmt Trade Policy Notes: Can Kenya Become a  Global Exporter of Business Services?', Washington D.C., World Bank, Trade - Kmt Trade Policy Notes: Can Kenya Become a Global Exporter of Business Services? accessed 18 November 2012
[18] Miller, Robert, (2001) Leapfrogging? India's Information Technology  Industry and the Internet ,Washington D.C., International Finance  Corporation, p.15
[19] Moreover, while hundreds of foreign firms established IT-ITES  subsidiaries in India from 200 onwards, the massive scale of FDI can be  attributed to large-scale investment by just three firms – IBM,  Accenture and Cap Gemini – all of whom were facing growing competition  from the rapidly growing Indian software firms such as TCS, Infosys and  Wipro and saw scaling up operations in India as the best way to offset  their rivals' competitive advantage. That the direction of FDI by TNCs  is driven by offsetting the competitive advantage of rival firms is  referred to as the Hymer-Kindleberger theory based on the work of  political economists Stephen Hymer and Charles Kindleberger. The  Economist was the first major international outlet to identify the  emerging challenge from Indian software firms to the established  business service behemoths of the West – see Economist, (2004) 'The  Remote Future', 19 February
[20] The membership criteria of NASSCOM allows TNC subsidiaries engaged  in the IT-ITES industry in India to become fully-fledged members. And as  subsidiaries are not independent of their firm's headquarters, this  essentially allows TNCs themselves to become members.
[21] Using data from the United Nations Commission for Trade and Development (UNCTAD) available at http://tinyurl.com/bnjzpef, accessed 18 November 2012
[22] Das, Bhibunandini, (2010) 'Across Indian States: Diffusion and  Determinants of Information and Communications Technology,' PhD  Workshop, Chennai, 19 March, http://tinyurl.com/bszjakj, accessed 18 November 2012