İstanbul, May 5, 2005

ANDREW VORKINK

The World Bank Representative of Turkey

Sayın Denemeç, sayın konuklar, iyi günler, bu andan sonra İngilizce konuşacağım çünkü benim için ingilizce konuşmak daha kolaydır, afedersiniz.

My remarks will be on the role of government in the information society and what is the balance between the government’s role and the private sector’s role. This is a Forum of ideas and exchange of ideas so I’d like to state a clear position on issues that you’ve heard about this morning. International evidence is quite clear that countries which are better equipped to become knowledge based have higher prospects for growth, prosperity then do countries which do not invest in knowledge based activities. Similarly there is a role in our view for government to play in creating knowledge based economies but it is a facilitation role to help the market to achieve its objectives for economy to become more knowledge based and I’d like to focus on 4 main issues in my remarks over the next couple of minutes. First of all the challenge between the production information and communication technology versus the issue of access and use of information technologies or ICT, secondly I will talk about how to increase the access to ICT in underserved areas, particular issue for Turkey, third the importance of increasing the use of ICT and fourth the issue of ICT is really one part of the larger puzzle so ICT in itself will not be the only way to create a knowledge economy.

Let me start with what some of the international evidence is. The international evidence shows that with the exception of one country, which is the US the ICT sector does not necessarily generate higher returns then other sectors. A somewhat surprising conclusion, another finding is that government’s support does not induce rapid growth of the ICT sector in the absence of broadly conducive macroeconomic and microeconomic climate relating to advance skills, universities, research centers and sophisticated users. Thus government intervention to support ICT on the production side does not create benefit to the economy on the production side.

Now how does Turkey compare and rank on high technology sector? Unfortunately at the present time Turkey does not have a comparative advantage in high technology sector and ranks behind countries such as Malaysia, Ireland, Mexico, Brazil, Bulgaria, Romania and Poland in the share of high technology in manufacturing exports. Even leaders of the proportion of high technology exports of GDP such as Malaysia which is almost 60% of high technology exports are finding it hard for the government to stimulate ICT production growth, a well known example of this is Malaysia’s attempt to create a multi-media super corridor, the government invested 10 billion dollars in public investment to create this corridor and it attracted one half of 1 billion dollars in private sector investment an example of if you build it as the government they will not come. What we feel is the attraction for private sector is not necessarily government investment but creating the broad environment which allows the private sector to operate more freely so what can the government do to focus on this broader environment to attract the private sector. We see number of things from international experience encouraging joint ventures, franchising, exchanges between local and foreign firms through the legal framework, supporting research and development and shifts of funds from basic to applied research, promoting protection of property rights in the high tech field and supporting the use of information and communication technologies by government agencies themselves because this is one of the best way to spread the use of information communication technology and create more sophisticated users. What do we feel that the government should not do? Tax specific brakes and other incentives for the high tech sector or segments of the high tech sector, directly embarking on joint venture projects for the high tech sector such as the Malaysia tried unsuccessfully and attempts to pick which in the ICT sector are likely to be the winners. We believe governments around the world have a very poor record of selecting winners in private sector.

My second main point on the difference between the role of government in production versus the role of access and use is actually the issue of production and use and access to use of ICT is what matters most. In OECD countries over recent 5-year period ICT use doubled its contribution to overall GDP growth over the prior 5-year period. The message is when ICT use goes up its contribution to GDP also goes up as a proportion of GDP so use is a key factor of success in growing the economy larger however policies to increase access and use to ICT need to be done in a cautious manner and a broad manner. There are number of evidence from international experience that it is important that the information infrastructure sector is efficient. For this the role of government is to guarantee competition and sound regulation of for example the telecommunication sector. Secondly access to use of ICT needs to be widespread; there the role of government can be to help support sustainable mechanisms to increase access to ICT throughout the country particularly in areas that are underserved and to devise legal reforms to facilitate the use of ICT such as e-commerce. Third the markets are clearly saying that the broader environment investment environment needs to be attractive and there the role of government can be to support reforms to improve the overall business environment and innovation technology adoption and reforms in education but the results of ICT investment need to be carefully monitored and evaluated. ICT spending including on products purchased by firms, government institutions, households, schools and telecommunication equipment have been increasing fast in Turkey, it has almost doubled in 5 year period but policy makers in our view should closely monitor and evaluate the outputs and impact of ICT investment. For example the cost and quality of service, the number of competitors, coverage in rural areas, the number of people trained to use computers in the internet and qualitative indicators of local website content. This to us is a proper role of government to monitor and evaluate. How is Turkey’s ICT infrastructure? There are main challenges in several areas for Turkey, first of all number of pc’s computers or other internet access devices in Turkey rank quite low in comparison with many other countries, similarly the number of internet users as we heard this morning is also relatively low in Turkey however other countries have been able to increase both the use of internet access and internet users in a fairly short period of time through certain kinds of techniques. So access to and use of ICT in Turkey is also not surprisingly tilted towards wealthier people, wealthier cities and large firms. There is above average connectivity in Turkey in the Marmara region, around Istanbul, Central Anatolia and the Black Sea. There is clearly below average connectivity in the Southeast, in the Mediterranean, and in the Agean area. What are some of the important areas, which can increase access? Certainly telecommunication policies are key, full liberalization of the telecommunication sector in Turkey, which occurred in 2004 has been an important direction. The need to improve competition and the pace of introduction of new technologies such as reviewing legislation on licensing and tariffs, reviewing legislation on leased lines, interconnection, carrier selection and number portability is an important issue which would improve telecommunications policy and in addition the need for sound regulation making sure that the telecommunication authority is strengthened to increase its duties fallowing the liberalization which has been occurring in Turkey.

Another key challenge for Turkey is how to increase access to public telephones and telephone services in undeserved reasons. Chile has an interesting example on this, it created a universal access fund through bidding process for subsidies and as a result it increased access in underserved areas dramatically in a short period of time at not high cost to the government. Another key dimension to increasing access relating to hardware equipments in the Internet in under served areas is the relationship between the government and the private sector. We believe that the experience shows that the government funded telecommunication centers are not economically sustainable in the long run, what does work are dominant private participation in telecommunications, a clear partnership between bidders and organizations to extend telecommunication services, operational activities of the centers which are self sufficient and development of on-line local content and staff training.

Now let me turn quickly to the issue of from access to increasing use, use of ICT by government role here is to focus on e-government where public sector reform is most important, shifting from delivering information from government to shifting to supporting on-line transaction tax payments, procurement services, government permits and experience shows that where the government increases its own use of ICT, this can be the single largest catalyst for ICT adoption by society at large but the private sector also has a role, e-business, e-sales, online payment systems and the banking sector and insuring that there are changes in laws to support business, e-signature something which was mentioned this morning. So my main conclusion on the use of ICT is the government’s role is to promote the use and not to buy the use because people not machines will bring about a change in a knowledge society.

My last point is that ICT is really only one small part of a larger puzzle and that for business to grow there need to be key considerations from the business side to help reduce costs where government can help by helping to reduce the legislation which promotes transaction costs and for businesses to rely on the improvement on the supply, quality standards and high skilled labors. For the private sector interestingly enough the key constraints to growth are policy uncertainty, macro economic instability, tax and regulation. When you pull businesses that constitutes 80% of the constraints on growth that businesses mentioned worldwide. Thus for knowledge society to grow a broader framework needs to be in place to tackle those kinds of issues and we believe if those issues are tackled that will lead to a more vibrant private sector.

Let me summarize the 4 key themes, increasing access to and use of ICT rather then ICT production is what counts. Government should help to facilitate access and use and not get directly involved in production. Increasing connectivity and underserved areas can be a role which government can help out. Creating the conditions to increase ICT is key, the government should focus on those assets, training, adequate software and technical support activities not just on hardware. And lastly creating a broad business climate conducive to the private sector is ultimately the most important requirement to increase access and use of ICT to grow a knowledge economy. Thank you.