THE ROLE OF ICT REGULATIONS IN AGRIBUSINESS AND RURAL DEVELOPMENT by Marina Kayumova eba.worldbank.org Enabling the Business of Agriculture Abstract Introduction Information and Communication Technology (ICT) Agriculture plays a vital role in the development of many supports farmers by facilitating access to markets through countries. Access to markets, finance and information are real-time data on market prices, weather forecasts, cornerstones for agricultural growth. Increased incomes information on pests, seed varieties and planting can only be sustained by linking farmers to markets techniques (Ogutu et al., 2014). Ultimately, the use of (Magesa et al., 2014). Being imperative to rural ICT-enabled solutions stimulates improvements in development, information and communication technology agricultural productivity and growth in farmers’ income (ICT) has immense potential to reduce poverty by (Lio and Liu, 2006). A major impediment for smallholder integrating isolated rural populations into economies and farmers to fully exploit the benefits of ICT is the lack of markets (Duncombe, 2016; Qiang et al., 2012). For sufficient infrastructure and mobile networks in rural example, the expansion of ICT network coverage led to areas. A reason for this persisting network coverage gap an 11% increase in household real consumption in rural stems from the significant capital investments required for Peru (Beuermann et al., 2012). Efficient use of ICT providing widespread ICT access, which mobile operators services help farmers to improve their commercial viability have often little incentive to make since the potential profit by increasing their agricultural productivity and margins in rural areas are relatively low (Kendal and profitability (Chatterjee and Nath, 2015; Salemink et al., Singh, 2012). 2015). On one hand, carefully designed government policies and ICT facilitates farmers’ access to real-time data on regulations can promote greater ICT penetration and the agricultural practices, seed varieties, pest management, provision of ICT services by private sector actors diseases outbreaks, market prices, and weather including mobile operators. On the other hand, information (Ajani, 2014; Ogutu et al., 2014). This cumbersome regulation of the ICT sector can hinder information is important for farmers to sustain and competition and inhibit the creation of innovative solutions diversify their production, take well informed decisions on that are responsive to users’ needs. sale activities and negotiate better prices for agricultural products, all of which ultimately contribute to greater This paper explores the relationship between regulations market participation and potentially higher incomes (Kiiza and ICT development indicators. The data on ICT et al., 2011). In Uganda, for example, an increase in regulations across 62 countries is part of a larger primary mobile network coverage from 46 to 70 percent of the data set collected in 2016, which focuses on legal barriers population between 2003 and 2005 positively influenced for businesses that are relevant to and operate within market participation of farmers producing perishable agricultural value chains. crops and located in remote areas as evidenced by 20 percent increase in banana sales (Muto and Yamano, The results suggest that higher quality regulatory 2009). frameworks for ICT are associated with higher mobile internet market penetration and better developed ICT Improved connectivity also stimulates better coordination infrastructure. Countries with few regulatory incentives to among actors across agricultural value chains, as well as improve mobile connectivity show significantly weaker market integration and transparency of market prices performance on ICT development metrics. The type of (Duncombe, 2016; Trienekens, 2011). In Niger ICT- licensing regime and the efficiency of spectrum allocation enabled access to market price information was found to can play an important role in encouraging the private reduce agricultural price dispersion across markets by 10 sector to invest and roll out mobile networks in rural areas. percent improving farmers’ relative bargaining position As experienced by European Union (EU) countries, and incomes (Magesa et al., 2014). Furthermore, ICT greater liberalization of the ICT sector promotes services improve communication of farmers with traders, ubiquitous connectivity. suppliers, extension agents and among each other (Furuholt and Matotay, 2011). The Role of ICT Regulations in Agribusiness and Rural Development 2 Enabling the Business of Agriculture ICT has also been linked to reduced transaction costs and Agricultural value chains are complex and involve a inefficiencies for agribusinesses in the context of variety of components beyond traditional inputs such as accessing agricultural input and output markets (Ajani, seeds or fertilizers. Agribusiness enablers, including 2014). In particular, mobile technologies can have an finance, transport services, and efficient and affordable even greater impact on transaction costs in remotely ICT, are widely understood to be important prerequisites located markets with poorly developed transport for farmers and other agribusinesses to secure market infrastructure (Duncombe, 2016). access. Since the quality of these enablers is to a great extent determined by regulatory frameworks, it is Despite the clear benefits of ICT to farmers and important that applicable regulations enable relevant agribusinesses who are predominantly located in rural businesses to operate competitively and in a manner that areas, access to communications is significantly more serves social welfare goals. The impact of ICT regulations restricted in those remote communities. Only 67% of the on mobile operators, and the consequent impact on rural rural population worldwide is covered by 3G signal (ITU, development and economic performance is fairly 2016). GSMA (2016) estimates that 1.6 billion people in underexplored in the literature. A comparative rural areas do not have access to any mobile network. assessment of the quality of regulations has also not been The most significant impediment to mobile access in rural possible to-date due to the lack of data (Jalilian et al., areas is the lack of sufficient infrastructure (Sangwan and 2007). This paper contributes to the existing literature by Komal, 2016; Salemink et al., 2015). A reason for this employing a new data set that covers ICT regulatory persisting network coverage gap stems from the issues specifically relevant for rural and remote areas. significant capital investments required for providing widespread ICT access, which private sector actors have ICT Regulations and Rural Development often little incentive to make. The potential profit margins ICT proliferation in rural areas depends on a number of in rural areas are relatively low because of lower factors, one of which is the enabling regulatory population densities (Kendal and Singh, 2012; Glass and environment (Ajani, 2014). Regulatory stimuli can trigger Stefanova, 2012). This implies lower return on investment telecommunication operators to accelerate network roll- and higher costs of service provision, which might not be outs. Thus, improving ICT infrastructure in rural areas affordable to end-users in remote locations (Samarajiva requires policy interventions that incentivize, facilitate and and Zainudeen, 2010). potentially aggregate investments by mobile operators (Galloway and Mochrie, 2005). This paper examines the role of regulations in facilitating ICT access and ultimately rural development. The Cumbersome ICT regulations can hinder competition and remainder of this paper is organized as follows. The next inhibit the creation of innovative solutions that are section discusses the role of an enabling environment and responsive to farmers’ needs. In many developing ICT regulations that are critical for expanding access to countries legal prescriptions are ultimately constraining rural areas. The third section presents the new data set ICT use. The reasons for poor ICT connectivity in rural on the quality of regulations followed by the analysis of areas lie in regulatory shortcomings that prevent private the relationship between regulations and key ICT sector from rural roll out of networks. Suboptimal development indicators. The final section draws some regulatory mechanisms often restrict the expansion of ICT concluding remarks. services to undeserved areas and limit the positive impact of ICT on agribusinesses. High transaction costs and The Role of Regulations arbitrary regulatory charges are reflected in the prohibitively high prices for end-users in rural areas An enabling agribusiness environment encompasses a (Samarajiva and Zainudeen, 2010). set of laws, policies, regulations which support agricultural activities, commercialization, pro-poor growth and rural On the other hand, carefully designed government development (Konig et al., 2013). Effective regulations policies and regulations can promote greater ICT improve coordination along the agricultural value chain, penetration and the provision of ICT services by the market access, and thus, positively influence profitability private sector, even in remote areas. In order to achieve of agribusinesses and agricultural productivity (Diaz- close to ubiquitous connectivity along with broader rural Bonilla et al., 2014; Divanbeigi and Saliola, 2017). development objectives, it becomes important for governments to create an enabling environment which The Role of ICT Regulations in Agribusiness and Rural Development 3 Enabling the Business of Agriculture encourages operators to roll-out networks to less for base stations and provide greater coverage in rural profitable geographic areas, particularly rural areas. For instance, a 700 MHz spectrum decreases the communities that remain underdeveloped (Salemink et number of base stations required to ensure certain al., 2015). network coverage by up to 65%, as compared to the 2.1 GHz spectrum (Buttkereit et al., 2009). Thus, spectrum When it comes to rural areas the deployment of fixed regulations that allow mobile operators to use lower radio broadband access networks using copper or fiber is frequencies—which includes digital dividend previously particularly difficult due to prohibitive cost (GSMA, 2016). deployed by analogue television—promote ICT Compared to fixed broadband mobile communication development in rural areas. In addition, practices such as technologies are easier to access. Thus, they are spectrum trading and infrastructure sharing foster considered more important for rural development efficiency by significantly reducing capital expenditures (Chatterjee and Nath, 2015). Indeed, in the past few years required for the provision of mobile services in rural the use of ICT in agriculture in both developed and locations. The simulation results modelled by Buttkereit et developing countries became possible because of the al. (2009) based on good practices with the strongest proliferation of mobile technologies (Ajani, 2014; Qiang et predictable impact on rural areas show that an effective al., 2012). Furthermore, mobile communication ICT regulatory framework could lower a monthly per- technologies allow for internet access via mobile phones subscriber cost for mobile services by up to 75%. that are more affordable for rural populations than larger electronic devices (Samarajiva and Zainudeen, 2010). As Benchmarking ICT Regulations a result, mobile internet market penetration generates more substantial economic and social benefits (Buttkereit A new data set produced by the World Bank Group’s et al., 2009). For example, a 1% growth in mobile network Enabling the Business of Agriculture (EBA) project allows coverage has been found to boost GDP per-capita by 5% benchmarking of regulations that impact firms along the (Chatterjee and Nath, 2015). In this respect, ICT agricultural value chain. This includes agricultural input regulations and government incentives that affect the regulations such as on seeds, fertilizers, machinery and business strategies of mobile operators deserve water as well as business enabling regulations covering particular attention. markets, transport, finance, and ICT. Certain telecommunication policy options can trigger The EBA 2017 report covers 62 countries in various higher mobile internet market penetration in rural areas. regions around the world (see Annex). Primary data is For example, the European Union (EU) regulations collected through a series of questionnaires completed by safeguard a free market for telecommunications to private and public sector experts in each country. In the stimulate investments in less attractive geographic areas ICT field this includes mobile operators, (Cambini and Jiang, 2009). Competition in the telecommunication lawyers and regulatory authorities. telecommunication sector is promoted through a general The data is further validated through an analysis of the authorization regime which allows mobile operators to relevant legislation and regulations. start a business with license exempt entry or a simple notification submitted to the regulatory authority as The EBA ICT data set features laws and regulations that opposed to obtaining an individual operating license. promote an enabling environment for the provision and These simplified entry requirements to start operations use of ICT services, with a particular focus on rural areas. reduce regulatory barriers that could otherwise relate to It covers information related to the licensing framework for discretionary, additional administrative charges or mobile operators, spectrum management and uncertainties over renewal of an operating license term. infrastructure sharing. A complete list of issues covered by the EBA ICT indicator is presented in Table 1 below. The expansion of mobile networks to remote areas is also influenced by spectrum management regulations and Table 1. Regulatory areas covered by EBA ICT indicator policies. Spectrum type and availability have a direct Type of licensing regime impact on the maximum coverage and capacity of mobile Technology and service neutrality base stations and, therefore, are determinative of the Validity of operating license investments required to cover a certain area. Lower radio Transparency of operating license costs frequencies significantly reduce the capital expenditures The Role of ICT Regulations in Agribusiness and Rural Development 4 Enabling the Business of Agriculture Predictability of renewal conditions for operating and infrastructure and conditions promoting ubiquitous mobile spectrum licenses connectivity. Allocation of low frequency spectrum and digital dividend Figure 1. ICT regulations, mobile internet market Voluntary spectrum trading penetration, and Mobile Connectivity Index Infrastructure sharing Individual questions on ICT regulations are assigned numerical scores ranging from 0 to 1. The scoring reflects the quality of the regulations, and is based on internationally recognized good regulatory practices that enable access to ICT in rural areas. Individual components are then normalized to a “distance to frontier” score, which captures the gap between a country’s performance and a measure of best practice across the entire sample of 62 countries. An aggregate EBA ICT score for each country is expressed on a scale from 0 to 100, where 0 represents the worst performancei. Results The literature generally supports the idea that effective regulations of the ICT sector can trigger mobile infrastructure development and improved internet access in rural areas. In order to investigate this relationship further the correlation between the quality of ICT regulations as measured by EBA and mobile internet market penetration is explored. As expected, stronger ICT regulations conforming to global good practices are positively associated with mobile internet market penetration (Figure 1). This relationship suggests that the total number of unique mobile internet subscribers expressed as a percentage share of the total market population is higher when the regulatory framework is more effective. Notes: The correlation between the mobile internet market penetration and the EBA ICT score is 0.66. The correlation A similar relationship is observed when correlating the between the Mobile Connectivity Index (GSMA) and the EBA ICT score is 0.70. The correlations are significant at 1% after quality of ICT regulations and the Mobile Connectivity controlling for income per capita. Index. Countries with stronger ICT regulations perform Source: World Bank (2017), GSMA Intelligence. better on the Mobile Connectivity Index (Figure 1). The Mobile Connectivity Index developed by GSMA measures The assessment of ICT regulations in the 62 countries the key enablers of universal adoption of the mobile covered reveals certain regional trends (Figure 2). Sub- internet across infrastructure, affordability, consumer Saharan Africa, South and East Asia have the greatest readiness and content dimensions (GSMA, 2016). The potential for improvement of their regulatory Mobile Connectivity Index offers an aggregate measure environments. These regions face particular barriers of physical prerequisites necessary for the population to related to ICT sector liberalization. None of the countries be able to access and use the mobile internet. Its positive in Sub-Saharan Africa, South and East Asia adopted a and significant correlation (0.70) with the EBA ICT score general authorization regime for mobile operators to enter indicates the importance of the enabling regulatory respective telecommunication markets. General environment for the development of adequate authorization regimes incentivize competition and pose fewer administrative barriers to market entry for The Role of ICT Regulations in Agribusiness and Rural Development 5 Enabling the Business of Agriculture telecommunication providers by reducing the regulatory Comparing countries that have similar proportions of their burden associated with obtaining an individual operating population located in rural areas, it is worth noting how license. differences in ICT regulatory frameworks as per the EBA indicator are reflected in the varied performance on ICT Figure 2. EBA ICT score by region development metrics (Figure 3). For example, both Vietnam and Sudan (both lower middle income countries) have approximately 66% of their population living in rural areas. However, they show a difference of around 10 percentage points when it comes to 4G coverage (20% in Vietnam vs. 8% in Sudan) and mobile internet market penetration (37% in Vietnam vs. 28% in Sudan). There is also a notable difference in the level of mobile development as reflected by the Mobile Connectivity Index (with a score of 54.42 for Vietnam as opposed to 28.38 for Sudan). Significant variance in the quality of the regulatory framework could be one explanation for these differences, given the similarities in income levels and the proportion of the rural population in each country. The Notes: OECD- High income OECD countries, LAC - Latin EBA ICT score for Vietnam is 77.78 whereas Sudan America & Caribbean, ECA- Europe & Central Asia, MNA- reaches only 33.33 points. Although both countries Middle East & North Africa, EAP - East Asia & Pacific, SSA-Sub- Saharan Africa, SAS- South Asia. impose individual licenses on mobile operators, the Source: World Bank (2017). licensing framework in Sudan is not transparent: operating license costs are not publicly available, which With respect to spectrum management, no country in undermines regulatory certainty and increases Sub-Saharan Africa allows voluntary spectrum trading investment risks. With regard to spectrum management, between mobile operators. As such, this prevents the Vietnam allows voluntary spectrum trading thereby efficient allocation of scarce spectrum resource, price promoting efficiency and flexibility on the use of radio reductions and the proliferation of new technologies. In frequencies. By contrast, spectrum trading is not South and East Asia the digital dividend spectrum has not permitted in Sudan. been licensed to mobile operators implying that the network coverage potential in rural areas is yet to be fully Figure 3. ICT indicators in countries with comparable realized. Indeed, countries such as Ethiopia, Burkina rural population Faso, and Lao PDR have one of the lowest mobile internet market penetration levels - on average below 20%. In contrast, OECD high income countries display stronger regulatory frameworks. Most of these countries have moved towards a general authorization regime reflecting more competitive and open telecommunication markets. All OECD high income countries license digital dividend frequencies to mobile operators and allow voluntary spectrum trading. The EU policy framework involves simplified and inclusive rules that promote competition. As a result, EU countries are among the top performers on the EBA ICT indicator. Countries like Denmark, the Netherlands, Spain and Poland have in place the majority of good regulatory practices, boosting ubiquitous connectivity beyond urban areas. This is also reflected in mobile internet market penetration levels, which are above 60% in these countries. The Role of ICT Regulations in Agribusiness and Rural Development 6 Enabling the Business of Agriculture term planning by mobile operators. The absence of technology and service neutrality in Ukraine coupled with restrictions on spectrum trading between mobile operators is further constraining the development of advanced communication systems. Stronger, more supportive regulatory environments for mobile operators thus are associated with more developed ICT sectors. As such, predictable legal environments and effective regulations can be understood to enable ICT proliferation and have a positive influence on rural development. Conclusions ICT-enabled agricultural services have proven to bring Source: World Bank (2017), GSMA Intelligence, World significant benefits to farmers ranging from the provision Development Indicators. of relevant information to an increase in incomes through Similarly, neighboring countries Poland and Ukraine, both greater access to markets. Despite this, and despite the with approximately 30% of their populations located in widespread proliferation of mobile technologies around rural areas, also differ in their levels of ICT development. the world, rural populations in general and farmers in Whereas almost universal 4G coverage has been particular continue to face restricted access to the internet achieved in Poland, Ukraine is just starting to roll-out 4G and ICT services. The main barrier to fully realize the networks. Similarly, Poland’s mobile internet market benefits of ICT for rural development is the network penetration is almost 20% higher than Ukraine. These coverage gap, whereby poor infrastructure limits ICT differences are also reflected in the Mobile Connectivity access. ICT regulations have an important role to play in Index where Ukraine scores 55.11, with ICT infrastructure bridging this gap and improving connectivity. being the weakest component, and Poland 72.71. Under EBA’s ICT indicator, Poland’s regulatory environment The strength or weakness of ICT regulation is clearly performs better than that of Ukraine (100 vs. 44.44). In associated with performance on key ICT metrics, line with EU regulations, Poland operates under a simple including network development and mobile connectivity. notification regime for mobile operators to enter the The significant positive correlation between the quality of telecommunication market. General authorization ICT regulations and mobile internet market penetration frameworks assure greater transparency and regulatory suggests that legal frameworks are an important element certainty. Indeed, the requirements to complete simple of an enabling environment for ICT services. Countries notification are publicly available online and there is no with weak regulatory frameworks that do not foster time limitation on the subsequent right to operate. By competition display significantly weaker performances on contrast, Ukraine requires mobile operators to obtain an ICT development metrics. As a result, further individual operating license, and that license must be improvements in access to ICT and resulting positive renewed every 5 years. Such a short validity creates effects for agribusinesses as well as rural development in uncertainties regarding renewal and undermines long- general are conditional, among other factors, on an enabling regulatory environment. 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The Role of ICT Regulations in Agribusiness and Rural Development 9 Enabling the Business of Agriculture Annex: List of Countries Covered by EBA High income Upper middle income Lower middle income Low income Chile Bosnia and Herzegovina Armenia Benin Denmark Colombia Bangladesh Burkina Faso Greece Georgia Bolivia Burundi Italy Jordan Cambodia Ethiopia Korea, Rep. Kazakhstan Cameroon Haiti Netherlands Malaysia Côte d'Ivoire Liberia Poland Mexico Egypt, Arab Rep. Malawi Spain Peru Ghana Mali Uruguay Romania Guatemala Mozambique Russian Federation India Nepal Serbia Kenya Niger Thailand Kyrgyz Republic Rwanda Turkey Lao PDR Senegal Morocco Tanzania Myanmar Uganda Nicaragua Zimbabwe Nigeria Philippines Sri Lanka Sudan Tajikistan Ukraine Vietnam Zambia i For more detailed information on the EBA methodology and details of the calculation please refer to www.eba.worldbank.org. The Role of ICT Regulations in Agribusiness and Rural Development 10