Governing e-commerce

The governments of developing countries cannot sit back and do nothing while the e-commerce revolution passes them by. This seemed to be the consensus among speakers at the "e-commerce in the Next Millennium" session at the Commonwealth Business Forum in Johannesburg recently.

"The challenge for government is to ensure the realisation of considerable economic benefits for countries that can accrue from electronic commerce, by liberalisation, without compromising public policy objectives such as the protection of domestic interests," says Mohd Othman Bin Yop Abdullah, the executive chairman of the Malaysian Multimedia Development Corporation (MDC). The MDC is responsible for the development of the Multimedia Super Corridor, Malaysia`s attempt at incubating a hi-tech industry.

The danger, Abdullah says, is that foreign corporations can swoop in and claim the most profitable sectors of the economy as soon as they are liberalised. High growth sectors such as telecommunications, banking and financial services, and high margin manufacturing are especially attractive to overseas investors. "There is a danger that e-commerce is a tool being used by the more developed economies to circumvent non-tariff barriers and gain access to the protected service sectors of developing countries," he says.

Abdullah believes that a liberalised economy attracts capital, especially in telecommunications infrastructure. And Todd Ramsey, the GM of IBM Global Government Industry in the US, believes capital flow is essential to economic development. "Much of the development the US has seen recently has been due to an efficient banking and stock exchange system, which attracted capital to crucial sectors."

But liberalisation can also hold a downside. Abdullah fears that a liberal developing economy can become a satellite of major producers, a nation of consumers. There is also the risk of capital outflows, which can cause massive economic disruption, he says.

So government must decide which role it is to play: either allow the private sector to lead in formulating national IT policies, or strongly intervene to coordinate the direction of the private sector.

There was also consensus among speakers for the desperate need for a legal framework in which e-commerce can be conducted.

According to S Ramadoria, CEO of Tata Consultancy Services in India, proposed Indian laws will recognise digital signatures and the validity of electronic contracts, as well as make provision for encryption and the limited liability of network providers. "Some of the problems faced by India are a lack of trust among partners and a lack of infrastructure," he says.

Ramsey concurs that government needs to lay down the law. He argues that those rules also need to be well understood. "The last thing you want are businesses innovating and then have their whole business destroyed by a change in some rule they didn`t even know about."

According to Abdullah, the government must put in place a speedy and effective mechanism to settle disputes, and standardise taxation on e-commerce transactions. "We need to inspire confidence in electronic transactions." He also wants to safeguard the community from negative content, but without reverting to censorship. He is not clear on how this can be achieved, however.

Governments also need to play a role in the development of infrastructure, the speakers say. And that is not only true for developing countries. "Networks today are not built for the new network economy," says Peter George, Nortel Networks president of the Europe, Middle East and Africa region. He believes only optical networks will be able to meet future demands for data transfer.

Edward Fenech-Adami, Prime Minister of Malta and chairman of the e-commerce discussion, says government must intervene when infrastructure is needed. "In Malta we needed a state-of-the-art telecommunications system, which only the government could provide. We needed to grant a cellular monopoly or nobody would invest. Now we can`t live with the monopoly and must liberalise the industry." The role of government, he says, is to manage such changes, not to build the infrastructure itself.

But that is exactly what Malaysia is doing, and at no small cost. The Multimedia Super Corridor is a 15km by 50km corridor south of Kuala Lumpur. The area has its own laws and policies to attract investment. It also boasts a network backbone that could handle up to 10Gb.

So what are governments to do? Ramsey believes every government can boost the IT industry by simply being an IT user. Government, he says, should only conduct tender and other business electronically as far as possible. "Government needs to take a leading action, not just stand on the sidelines." Such a policy, he says, will encourage businesses to move into e-commerce, will show faith in security protocols and solve the problem of Internet skills. "Getting government employees to use the Internet internally will already lift the skills pool," he says.

Others favour a more revolutionary approach. "Public policy must wholeheartedly embrace the information technology revolution through, among other things, a lowering or even abolition of taxes on computers and software products," says Kwesi Botchwey in his article Africa and Global Competitiveness in the Next Millennium. Botchwey is the director of African Programmes and the Centre for International Development at Harvard University. Representatives at the Southern Africa Economic summit in July this year even suggested that African governments subsidise PCs like some agricultural countries subsidise tractors.

Fenech-Adami is more concerned that the benefits for an information society are fairly distributed. "The onus is on the government to see that the revolution leads up to the betterment of all its citizens," he says.

Should government get it right, the benefits could be great, the speakers argue, but should it miss the chance to create these benefits, it may not get another opportunity. "It is evident that we are creating a new economic order, and we have to realise the fact. Government must not miss this opportunity. Government must manage the revolution," says Fenech-Adami.