Foundations for the Development of Information and Communication Technologies in Algeria .4~~~~~A 025 4 ~~~~~~~" Preliminary Report Report No. 25841 FOUNDATIONS FOR THE DEVELOPMENT OF INFORMATION AND COMMUNICATION TECHNOLOGIES IN ALGERIA April 2003 Global Lnformation and Communication Technologies Department Private Sector and Infrastructure Vice Presidency and Middle East and North Africa Region The World Bank This report is for restricted distribution. Recipients may use it only in the performance of their official duties. Its content may not be released without authorization of the World Bank. FISCAL YEAR 2003 July I - June 30 Vice President: Jean-Louis Sarbib l Sector Director Mohsen Khalil Country Director Christian Delvoie/Thedore Ahlers Sector Manager Pierre Guislain Task Team Leader Paul Noumba This report was prepared by a team comprised of Paul Noumba, Rachele Gianfranchi Hirschhofer (consultant), Yann Burtin, Isabelle Andress, Anupama Dokeniya (consultant), Mather Pfeiffenberger, Lucy Cueille (CITPO) and Abdul Aziz Wane (CITIN). External contributions were provided by Louis Lengrand et Associ6s (France). Support from the Italian Consultant Trust Fund (General - National Account) is gratefully acknowledged. Peer reviewers were Gareth Locksley and Christine Quiang (CITPO) at PCD stage and Paul Moreno-Lopez (MNSED), Christian Schmidt (MNSIF), and Howard P. Williams (CITPO) for final review. Significant contributions were received from Michel Welmond (MNSHD) and Cecile Fruman (MNCOI). Guidance was provided by Christian Delvoie, Theodore Ahlers (Country Directors), and Pierre Guislain (Sector Manager). Support from the counterpart team in Algeria in the provision of information is gratefully acknowledged-particularly from the Ministries of Post and ICT, National Education, Tertiary Education and Research, Vocational Training, Public Health, and many other public and private institutions. |"All reVOlutiofIS gcet,atef Unert4ainly, /i.mr * and opportunity,. TTdzy 's iIs i exception. 11ow we responad, how we J;irn: current oposJtiJunities into real befits w.ill ydL e jd ,O. lIuoW quickly wve can enter the 7urope'an I mJ a ,nornwj Socieiya -langernan Report, 1994 ACRONYMS AAI: Agence Algerienne d'Information AIG: American Insurance Group Algerie Poste: EPIC Algerie Poste Algerie Telecom; Algerie Telecom SPA ALBM: Algerian Business Machines ANA : Agence Nationale des Autoroutes ANDI Agence Nationale de Developpement des Investissements ANDRU: Agence Nationale de Developpement de la Recherche Universitaire ANDS : Agence Nationale de Documentation de la Sante ANF: Agence Nationale des Frequences ANVREDET : Agence Nationale de Valorisation de la Recherche et Developpement Technologique APS : Algerie Presse Service APSI Agence pour la Promotion, le Soutien et le Suivi des Investissements ARPT Autorite de Reglementation de la Poste et des Telecommunications ATM: Automatic Teller Machine, Asynchronous Transfer Mode BADR: Banque de l'Agriculture et du Developpement Rural bn: billion CATEL: Les Cibleries des Telecommunications d'Alg6rie CCP: Comptes des Cheques Postaux CDTA: Centre de Developpement des Technologies Avancees CERIST: Centre de Recherche en Information Scientifique et Technique CETIC: Centre des Technologies de l'lnformation et de la Communication CHU: Centre Hospitalier Universitaire CINDE: Costa Rica Investment and Development Board CNAT: Centre National d'Animation de l'Entreprise des Travaux CNC: Conseil National de la Concurrence CNEP : Caisse Nationale d'Epargne et de Prevoyance CPA : Credit Populaire d'Algerie DA: Algerian Dinar DOMSAT: Domestic Satellite Network DWDM: Dense Wave Division Multiplexing Technology Dz-PAC: x25 public packet data network EDS : Electronic Data Systems Corporation EEPAD: Rablissement d'Enseignement Professionnel a Distance EMISPHER: Euro-Mediterreanean Internet Satellite Platform for Health, Education and Research ENIE: Entreprise Nationale de l'Industrie Electonique ENIEM: Entreprise Nationale des Industries de l'Electromenager ENNA : Etablissement National de la Navigation Aerienne ENSI : Entreprise Nationale de Systemes Informatiques ENTC: Entreprise Nationale de Telecommunications ENTV : Entreprise Nationale de Television Algerienne EPE : Entreprises publiques economiques EPIC: Entreprise publique A caractere industriel et commercial ERIAD-SETIF: Entreprise des Industries Alimentaires Cerealieres et Derives de Setif ERP : Enterprise Resource Planning ESIS : European Survey of Information Society EU : European Union EUMEDIS : Euro-Mediterranean Information Society FINALEP: La Financiere Algero-Europ6enne FTA: Free Trade Agreement Gbits/s: gigabits per second GDP: Gross Domestic Product GECOS : General Computing Systems GFCF : Gross Fixed Capital Formation GEMED: Gesellschaft fir medizinisches Datenmanagement GMPCS: Global Mobile Personal Communications Services GoAl: Government of Algeria GSM: Global System Mobile HP: Hewlett Packard IAP: International Advisory Panel IBM: International Business Machines ICT : Information and Communication Technology/Technologies IDA: Irish Development Agency INI : Institut National d'Informatique INPI: Institut National de la Propriete Industrielle IP : Internet Protocol IPRs: Intellectual Property Regulations ISI : Import Substitute Industrialization ISP : Internet Service Provider IST : Information Scientifique et Technique IT : Information Technology ITCR : Instituto Tecnol6gico de Costa Rica ITU : International Telecommunications Union Kbits/s : kilobits per second Mbits/s, Mbps : megabits per second MEGAPAC: private corporate x25 data network operated by Algerie Telecom MFP : Multifactor Productivity Growth ML : main line MoF : Ministry of Finances MPICT: Ministry of Posts and Information and Communication Technologies MPT : Ministere de la Poste et des Telecommunications MPTIC: Ministere de la Poste et des Technologies de l'Information et de la Communication MSC: Multimedia Super Corridor NAFTA: North American Free Trade Agreement NMT: Nordic Mobile Telephone NEC: Nippon Electric Company, Ltd. NTT: Nippon Telegraph and Telephone Corporation OBA : Output-Based Aid OECD: Organization for Economic Cooperation and Development ONS: Office National des Statistiques ONDA Office National des Droits d'Auteur OTA : Orascom Telecom Algerie PABX: Private Automatic Branch Exchange PC: Personal Computer PCD: Project Concept Document POP: Point of Presence PROMEX : Fonds special de promotion des exportations PSTN: Public Switched Telephone Network PwC: PricewaterhouseCoopers SATIM Societ6 d'Automatisation des Transactions Interbancaires et de Monetique Sl : Servicio de Impuestos Intemos (Chilean tax administration) SMEs : Small and Medium-Sized Enterprises SMI : Small and Medium Industries SNTF: Societe Nationale des Transports Ferroviaires SOFINANCE: Societe Financiere d'Investissements, de Participation et de Placement SONATITE : Societe Nationale des Travaux d'infrastructure pour les Telecommunications SONATRACH : Societe Nationale pour la Recherche, la Production, le Transport, la Transformation, et la Commercialisation des Hydrocarbures SONELGAZ: Societe Nationale de l'Electricite et du Gaz SPA : Societe par particpations TDA: Telediffusion d'Alg6rie UFC: Universite de la Formation Continue UMTS: Universal Mobile Telecommunications System UNDP: United Nations Development Programme UNIDO: United Nations Industrial Development Organization UPU : Universal Postal Union VSAT : Very Small Aperture Terminal WLL : Wireless Local Loop WTO : World Trade Organization ZTE : Zhongxing Telecommunication Equipment Company Table of Contents EXECUTIVE SUMMARY ......................................................................1I I International. tren d s. l 2 Keydetermninan tsforICTstrategysuccess .................................................................3 2.1 Spell out a visionary ICT development approach ........................................................3 2.2 Express strong leadership and build political consensus ...............................................4 2.3 Develop and establish an up-to-date ICT regulatory framework ...................................4 2.4 Develop up-to-date information infrastructures through private sector participation ......4 2.5 Develop up-to-date human capital to use the information infrastructures and services ...5 3 Algeria s transition to an information society .5 3.1 Assets Algeria can use to succeed in its transformation . . . 5 3.1.1 A sound telecommunications reform underway since 2000 .5 3.1.2 Unmet potential (solvent) demand .6 3.1.3 Emergence of an ICT private sector .8 3.1.4 Hydrocarbon income .8 3.2 Main challenges . . . 8 3.2.1 Absence of a clear ICT development strategy .8 3.2.2 Strengthening and completing the regulatory framework .9 3.2.3 Unfavorable economic environment .9 3.2.4 Inadequate ICT training .10 3.2.5 Booming underground economy and piracy .10 3.2.6 Brain drain .1 3.2.7 Cost of ICT access .11 4 Growth prospects . 1 5 The way1forward. . .11 6 Action Plan Matrix . . .13 INTRODUCTION: OBJECTIVES OF THE NOTE ............................................ 17 CHAPTER 1: ELEMENTS FOR A VISION ............................................ 19 1 Defining information and communication technologies. 9 2 Exploring and exploiting new technologies .22 3 Implications of the ICT revolution .24 4 International experience perspective .25 5 Key &eterminantsfor ICT strategy succes ..28 5.1 Spell out a visionary ICT development approach .29 5.2 Express strong leadership and build political consensus .29 5.3 Develop and establish an up-to-date ICT regulatory fmework. .30 5.4 Develop up-to-date infornation infrastructures through private sector participation .... 31 5.5 Develop up-to-date human capital to use the information infrastructures and services.31 CHAPTER 2: ICT SECTOR REVIEW ....................................................... 33 1 Situation of the sector before the August 2000 reformn ........................................... 33 2 The posts and telecommunications sector reform .................... ....................... 36 3 Initiatives to implement an information society ................. .......................... 40 4 Operators and telecommunications service providers .40 4.1 Algerie Telecom - a difficult start ............................................. 41 4.1.1 Fixed telephony .................................................................. 41 4.1.2 Mobile telephony .................................................................. 42 4.1.3 Data transmission and leased lines .................................................................. 43 4.1.4 Internet services (Djaweb) .................................................................. 43 4.2 Orascom Telecom Algerie .................................................................. 44 5 Potential alternative operators .................................................................. 45 5.1 Tel6diffusion d'Algerie .................................................................. 45 5.2 A lg rie Poste .................................................................. 45 6 Internet service providers .................................................................. 46 6.1 CERIST .................................................................. 47 6.2 EEPAD-WANADOO .................................................................. 48 6.3 GECOS ................................................................... 48 6.4 BMGI .................................................................. 49 7 Computer distributors and service providers . ............................................................... 49 7.1 Major state-owned enterprises .................................................................. 49 7.2 Major private corporations .................................................................. 50 8 Information media player& .................................................................. 51 8.1 Press .................................................................. 51 8.2 Television and radio .................................................................. 52 CHAPTER 3: ASSETS AND CHALLENGES .................................................................. 53 1 Initiatives to develop ICT. 53 1.1 ICT in tertiary education .54 1.2 ICT in primary and secondary education .54 1.3 ICT in vocational training .56 1.4 ICT in research and development .56 2 Assets Algeria can use to succeed in its transformation . .57 2.1 Unmet potential (solvent) demand .57 2.2 Emergence of an ICT private sector .58 2.3 Hydrocarbon income .60 3 Main challenges ..60 3.1 Absence of a clear ICT development strategy . .60 3.2 Incomplete regulatory framework ..61 3.3 Unfavorable economic environment ..61 3.4 Inadequate ICT training ..63 3.4.1 Supply does not meet demand .63 3.4.2 Inadequate training content .64 3.4.3 Insulation of different ICT training programs .64 3.5 Booming underground economy and piracy . .64 3.6 Brain drain ..65 3.7 Cost of ICT access .65 CHAPTER4: OPTIONS FOR ICT DEVELOPMENT . ................................................................. 66 I Bolster the economy's competitiveness .................................................................. 67 2 Bolster the economy's diversification .................................................................. 69 3 Market simulation results ................................................................... 72 CONCLUSIONS: GUIDELINES FOR DEVELOPING ICT ................................................... 74 RECOMMENDATION 1: Define a consistent strategyfor the information society ......... ......... 74 1.1 Give a management structure and political legitimacy to the Algerian Information Society Program .................................................................. 74 1.2 Finalize the Information Society Program ................................................................ 75 1.3 Follow international technological progress while monitoring domestic evolution toward the information socety ................................................................ 75 RECOMMENDA TION 2: Strengthen the legal and regulatory framework and accelerate the pace of liberalization ................................................................ 76 2.1 Accelerate the liberalization of the telecommunications sector ................................... 76 2.2 Making ARPT fully operational and ensuring its independence ................................. 76 2.3 Open Algerie Telecom to private capital ................................................................ 76 2.4 Strengthen the legislation on intellectual property and curb piracy ............................. 76 2.5 Create a quality certification mechanism for IT service providers .............................. 76 2.6 Enact regulations on encryption and security of electronic transactions ...................... 77 2.7 Extend regulations on personal data and privacy protection to the Internet ................. 77 RECOMMENDATION 3: Promote the use of ICT in the public administration, businesses and civil society ................................................................ 77 3.1 Promote use of ICT by the administration ................................................................ 77 3.2 Eliminate customs duties and implement fiscal incentives for businesses ................... 77 3.3 Multiply Internet access to the Intemet countrywide ................................................. 78 3.4 Encourage partnerships with foreign companies ........................................................ 79 RECOMMENDATION 4: Diffzse ICT in the education and research sector ........................... 79 4.1 Design and initiate specific training programs in ICT ................................................ 79 4.2 Improve connectivity of schools and universities ...................................................... 79 4.3 Encourage research and innovation in ICT as well as partnerships with foreign universities ................................................................ 80 4.4 Create nationwide events ................................................................ 80 REFERENCES .................................................................... 81 BIBLIOGRAPHY .................................................................... 81 Internet sites .................................................................... 83 Portals .................................................................... 83 Provider sites .................................................................... 83 M inistries, political institutions, and administrations .......................................................... 83 Public organization sites .................................................................... 83 Corporate sites .................................................................... 83 Information sites .................................................................... 83 Embassy sites .................................................................... 84 Reports .................................................................... 84 ANNEX: A COMPARISON BETWEEN ALGERIA AND ITS NEIGHBORS ........................ 85 1 Methodology .................................................................... 85 2 Main findings.87 EXECUTIVE SUMMARY 1 INTERNATIONAL TRENDS The rapid expansion of information and communication technologies (ICT) in the last ten years has transformed developed countries into infornation societies. The benefits deriving from the adoption of new technologies have become a central issue in developing nations who also want to profit from this opportunity. Today's technical change is unprecedented in pace and scope. Information and communication technologies (ICT) are at the core cf such change, making spectacular advances. In 1930, a one- minute telephone call from New York to London cost US$300 at current prices; today it costs only a few cents. The cost of I megabit of processing power fell from US$7,600 in 1970 to 17 cents in 1999 - a 99.9% decline over the same period. These revolutionary changes have mainly benefited the developed countries. In the past, errors forced large firms to rework about a quarter of their orders. B-commerce now allows enterprises to check that orders are internally consistent by efficiently matching orders, receipts, and invoices. For example, the General Electric trading post network has significantly reduced its ordering errors and cut costs by 5 to 20%. Cisco Systems, the world's largest supplier of routers for Internet traffic has moved 70% of its customer support online, eliminating 250,000 telephone calls a month and saving more than US$500 million, about 17% of its operating costs. Another change is the growing importance in a number of industries of geographic clustering of enterprises, particularly small and medium-sized enterprises (SMEs). The benefits of clustering derive from external economies such as the availability of information, or proximity to pools of suppliers, customers, and skilled workers. Many high-tech clusters have emerged in industrialized countries. Many competitive clusters also exist in developing countries (Malaysia, India, China, Brazil, Costa Rica, etc). Aside from the massive increase in the use of ICT, the content of industrial products and activities shows an increasing share of information content. For example, around half of the value of a new car lies in its infornation content (design, process management, marketing, sales, etc.). ICTs are now pervasive in work methods, plant layout, the management of quality control processes, lean production, and just-in-time inventory systems. The internal organization of firms needs to be adapted to the major changes introduced by new technologies, while these make it easier to manage operations over long distances. ICTs enable enterprises to separate functions from production processes and to locate them wherever cost, efficiency, and market needs suggest. For instance, an enterprise may design a semiconductor in the United States with an affiliate in India, buy the wafer from a foundry in Taiwan Province of China, assemble and test the chip in the Philippines, and use an independent logistics company to ship it to Germany and market it all over Europe. Thefactors that matter b investors using new technologies and looking for competitive locations are specialized skills, modern infrastructure, strong institutions, low transaction costs, efficient local suppliers, clusters of enterprises and providers of business support. Overall, ICT plays two roles in the growth process. First it contributes heavily to capital accumulation. Second, it contributes to multifactor productivity growth (MFP).' The contribution of ICT to MFP depends both on technological progress in the production of ICT goods and services, and 2 on efficiency gains in ICT-using sectors. However, the extent to which these two aspects determine MFP growth is still uncertain. The ICT producing sector (manufacturing and services) has provided a considerable contribution to productivity growth in several OECD countries, as well as in the United States in the second half of the 1 990s. There is also evidence that certain ICT-using services have experienced an above-average pick-up in productivity growth in the same period. This indicates ICT spillover effects beyond the ICT sector itself, which is also confirmed by firm- level studies and studies for sectors which are heavy users of ICT, such as retail, trade, transport, and financial services. The experience of countries that made a successful transition to an information-based economy confirms that there is no single path to it, and that each national strategy must be tailored to the country's specific needs. Nonetheless, two generic approaches to the development of an information- based economy can be noted. For most governments the target is promoting a massive dissemination of ICT. This aims at maximizing the spillover effects, mainly on end-users. For other governments, however, the target is promoting the establishment of a national ICT pole of competence, capable of serving both internal and export demand. It must be pointed out nevertheless that having an ICT- manufacturing pole is not a prerequisite for a successful transition to an information-based economy for three reasons. First, proximity to hardware producers may not be as important as proximity to software producers and service providers, which are useful to firms needing skills and advice to implement ICT-related strategies. Second, because of the high entry costs and large economies of scale,3 much of the manufacturing of ICT hardware is highly concentrated, and only few countries have the necessary comparative advantages. The third and most important reason is that several countries that have successfully developed a vibrant ICT sector do NOT have a large ICT- manufacturing sector. Australia is a good example of this.4 Governments should therefore resist believing that deliberately developing an ICT manufacturing pole is a prerequisite to building an information-based society and ensuring enhanced economic growth. lDirk Pilat and Frank Lee, "Productivity Growth in ICT-producing and ICT-using Industries: A Source of Growth Differentials in the OECD?," DSTI/DOC (2001) 4, OECD, June 2001. 2 Dale Jorgenson, "Information Technology in the U.S. Economy", American Economic Review, Vol. 91, No. 1, March 2001. 3 An example of the high costs of creating an ICT-producing industry is the following: establishing a new semi- conductor plant cost some US$100 million in the early 1980s, but as much as US$1.2 billion in 1999 (United States Council of Economic Advisors, Annual Report, 2001). 4 David Gruen and Glenn Stevens, "Australian Macroeconomic Performance and Policies in the 1990s", in The Australian Economy in the 1990s, Sydney: Reserve Bank of Australia, 2000. 2 In 2002, the ICT market was estimated at 2.365 billion Euros worldwide, with the USA market valued at 804.1 billion Euros, Japan at 283.8 billion Euros, and Westem Europe at 641 billion euros. Broken down into equipment, software, IT services, and carrier services,5 the European Union market shows the following distribution: * ICT equipment: 150 bn Euros [28%]; * Software products: 65 bn Euros [10%]; * IT services: 140 bn Euros [22%]; * Carrier services: 275 bn Euros [40%]. In per capita terms, these market segments respectively represent approximately: (a) 678 Euros for carrier services; (b) 464 Euros for ICT equipment; (c) 164 Euros for software; (d) and 363 Euros for IT services. In other words, European Union countries spend on average: (a) 2.95% of GDPfor carrier services; (b) 2.02% of GDP for ICT equipment, (c) 0.71% of GDP for software; (d) and 1.58% of GDPfor ITservices. With an average 1652 Euros per capita in 2002, every European Union citizen spent approximately 7.26% of their income on ICT consumption. This figure provides a benchmark against which one could compare the status of development of an ICT market. 2 KEY DETERMINANTS FOR ICT STRATEGY SUCCESS Becoming an information society goes well beyond acquiring and installing ICT infrastructure. It is a social, cultural, and economic transformation process. Allowing technology to deploy all its potential is achieved with a long-term strategy aiming at setting up a favorable regulatory, economic, and social environment. On the basis of international experience, the preconditions for the information society to develop are determined by five fundamental dimensions: a visionary approach, strong leadership for a timely and effective implementation of the vision, an up-to-date regulatory framework stabilizing the business environrnent, up-to-date informnation infrastructures set up with private participation, and up-to-date human capital able to use the information infrastructures to their full potential. 2.1 Spell out a visionary ICT development approach International experience shows that the most successful countries are those with a sound development strategy spelling out the vision, and a roadmap to achieve clearly identified goals. In the EU case discussed later in the note, the vision is based on the need to strengthen the European Community's competitiveness and achieve sustained economic growth that will support job creation. The Bangeman Report provides the visionary approach. In Malaysia, the Multimedia Super Corridor project carne from the Prime Minister's vision of transforming Malaysia from a semi-industrialized country assembling low-end electronic products into an information-based economy that could compete internationally. In Algeria, a visionary ICT development approach is not yet formalized and diffused. The note suggests that core issues for the transition to the information economy are those of diversi fying the economy and improving the country's international competitiveness. This implies the emergence and development of new sources of economic growth. 5 Carrier services are defined as the companies providing communication services including voice, record, data, video and facsimile transmissions. 3 2.2 Express strong leadership and build political consensus Strong leadership is needed to transform vision into action plans, and to ensure that action plans are effectively implemented. Malaysia's and the European Union's approaches demonstrate the critical role expected from political leaders in providing the vision and in empowering executive bodies for effective implementation. In the Malaysian case, the Prime Minister Dr. Mahathir Mohamad has been instrumental throughout the implementation process of the information society program. MDC6 is fully empowered and equipped to implement the government's visionary ICT program, and reports directly to the Prime Minister who maintains a close supervision over the program implementation. In Algeria, there is the need for a strong cross-industry figure able to lead and supervise the timely implementation of the whole ICTreform process. Unless this is done, the slowdowns and delays in the implementation of reforms will diminish the credibility of the government's efforts and undermine its political support. 2.3 Develop and establish an up-to-date ICT regulatory framework Establishing a sound regulatory framework that is conducive to increased private sector participation is critical. More specifically, the regulatory framework, as well as the overall business environment, should be attractive to foreign and domestic private investors. Regulatory clarity and predictability are crucial in order to mitigate investors' risk perception and to promote fair competition. In Algeria, the first challenge is to develop a comprehensive regulatory framework that provides certainty and ensures predictability for potential investors and consumers. The second challenge is to develop internal capabilities to enforce those regulations effectively. The third challenge to further streamline the overall business environment, and accelerate the privatization of the economy. Among the top priorities that the government should address are: (a) strengthening the independence of ARPT; (b) expanding its regulatory mandate to cover the new regulatory areas of the information society; and (c) ensuring effective protection of intellectual property rights to curb rampant piracy. 2.4 Develop up-to-date information infrastructures through private sector participation Private sector investrnent is the driving force of the ICT sector, while monopolistic or anti- competitive environments are major barriers to private involvement. The situation of ICTs is drastically different from other infrastructure sectors such as transport, in which significant public investments are still crucial. The prime task of governments is therefore to safeguard competitive forces and ensure a strong and lasting political will in favor of ICT sector development. There will be no need for large government investment, though government leadership could justify funding of targeted flagship applications for demonstration purposes. Additionally, governments should consider "smart subsidies" to promote ICT use by schools, public administrations, and small 6 MDC: Multimedia Development Corporation is set up to oversee the implementation of the MSC (Multimedia Super Corridor), one of the most visible projects that is being implemented by MDC. The MSC's International Advisory Panel (IAP) meetings have always been a key event in the country with the Prime Minister's presence. IAP members include top ICT company leaders (The Acer Group, Alcatel, BCE Incorporated, Bloomberg LP, Centre for Strategic & International Studies, Cisco Systems Inc, Compaq Computer Corp, Computer Associates, DHL Worldwide Express, EDS, Ericsson, Fujitsu limited, Infosys Technologies Ltd, Intel Corporation, IBM, Lucent Technologies, Microsoft Corporation, Motorola, NEC Corporation, NTT, Nokia, Ohmae & Associates, Oracle Corporation, Reuters Group plc, Siemens AG, SAP AG, Sony Corporation, Sun Microsystems, and Dell Computer Corporation). 4 businesses. In total, the fiscal impact of ICT policy measures will be positive as demand for ICT consumption develops. In Algeria, the challenge to attract private investors in building information infrastructure remains. The international private companies with ICT-related businesses are few and limited. The political instability and social turmoil of the last decade have contributed to weakening the country's attractiveness. 2.5 Develop up-to-date human capital to use the information infrastructures and services The review of international experience also shows that countries, which have a well-educated population with exposure to new technologies, have a comparative advantage in moving towards an information-based economy.' Nonetheless, ICT dissemination should be preceded by a thorough reform of the education system, a re-skilling of the trainers, and a well-designed dissemination plan, which will target first tertiary education and then younger students. Currently, the number of students trained each year in informatics, electronics, and telecommunications remains completely inadequate to bolster the emergence of a competitive ICT sector. Training oriented towards the new professions created by the technological revolution must be set up by the State in cooperation with private professional associations. In light of the above, public-private partnerships must be encouraged, and the regulation in force must be adapted to facilitate increased private participation in the education system in Algeria. In Algeria, the supply of CT skills is deterred by several weaknesses: inadequate ICT training content in relation to market needs, excessive insulation of training programs, inadequate training facilities in relation to market needs (volume and quality), and devastating impact of massive brain drain. 3 ALGERIA'S TRANSITION TO AN INFORMATION SOCIETY Algeria looks at the building of a modern and dynamic ICT sector as a promising opportunity to make its economy more competitive and further diversified from hydrocarbon. However, in terms of information infrastructure development, the country lags far behind its neighbors. 3.1 Assets Algeria can use to succeed in its transformation Algeria can use the following major assets in undertaking the transition to the information society: (a) sound telecommunications reform underway since 2000; (b) unmet potential and solvent demand; (c) emergence of an ICT private sector, although still fragmented; and (d) hydrocarbon revenues. 3.1.1 A sound teleco,nntunications reform underway since 2000 Algeria is in the midst of reforming its information and communication technology (ICT) sector. With the support of the World Bank, the government began a postal and tele communications sector reform in 2000. Its main achievements include: (a) adoption of a pro-liberal telecommunications policy 7 It is worth remembering that the worldwide strong growth of the ICT sector led to a shortage of executives and technicians at the same time as the supply of services was expanding. For example, Motorola was forced to cancel its project of a software development center in Egypt because of the inability of the Egyptian educational system to provide the engineers and technicians necessary to develop this center's activities. In effect, such a center requires a critical mass of 300 to 500 highly qualified engineers to be competitive, which the Egyptian market was not in a position to provide. 5 statement in 2000; (b) enactment of a new Post and Telecommunications Law (Law 2000-03) in August 2000; (c) establishment of an independent regulatory body (ARPT) which has been operational since May 2001; (d) corporatization of Algerie Telecom (AT) and Algerie Poste (AP); and (e) award in July 2001 of the second GSM license to Orascom Telecom Alg6rie8 (OTA) for US$737 million. As a result, the number of fixed-line subscribers increased from 1,600,000 in 1999 to 2,000,000 in December 2002. Similarly, the nunber of mobile subscribers increased in relative terms, reaching 400,000 in December 2002 compared to 72,000 in 1999. With the opening up of the Internet market to competition in 1999, more than 75 ISPs were granted licenses. The total number of Internet subscribers increased to 60,000 in 2002 compared to 20,000 in 1999. Figure 1: Highlights of Algeria's telecommunications sector reform | - t T _ - - Mobile Subscrlber evolution in Algeria Post and Telecom reform agenda 400000 _ __________ _ 2350C000 - 1999 2000 2001 2002 150000 ,44 A? e 10s0coo0 ,,0 __ ~~~~~~~~~~~~~~0 2003 2003 2004 2005 0 2r'd GSM award of the license; C-2nd GSM: beginning of commercial operations. To carry the reform effort further, in May 2001 a Steering Committee composed of representatives of the public, private, and education sectors was set up to report on the development of the information society in Algeria. The decision process was stalled during 2001-2002 because of prerogative issues between ministries, and the committee's recommendations in its October 2001 report were never implemented. 3.1.2 Unmet potential (solvent) demand The demand for ICT goods and service consumption remains largely unmet. Long waiting lists for telephone services (800,000 for fixed lines and 600,000 for mobile) show the scope of the situation. Teledensity remains low at 64 per 1000 people in 2001 for fixed, and below 3 per 1000 people for mobile. Tunisia and Egypt, which had a similar teledensity in the early 1990s, outperformed Algeria by the end of the decade. Telecommunications tariffs for services provided by Algerie Telecom (the state-owned public operator) are generally low with regard to connection, subscription charges, and local calls, but remain high for international calls, implying an urgent need to rebalance tariffs. 8Since then, OTA has invested US$550 million (including the first payment of its license fee), and has created 1,000 direct jobs and 5,000 indirect ones. 6 Figure 2: Algerian telecom performance vs. neighboring countries Teledensity of fixed lInos Operational Profile of tho Algarlan Telecom Sector 10 32s° o Alpri3000000 W.lN LIM a Turisfa ~~~~~~~~~2500000 OC.;*ert~ to ne 2000000 1500000 4 m ~~~~~~~~~~~~~~10D0000 500000 2 ~~~~~~~~~~~~~~~~~~~0 l19011'199219 e31994 15 19871S79a 1920- - - Likewise, the explosion of the number of Intemnet users in less than three years (150,000 in 1999, 400,000 at the end of 2001, and probably 1 million at the end of 2002) outlines another dimension of the potential demand. The number of Internet users in Algeria is estimated to be much higher number than the number of Internet subscribers. This is due to the success of cybercafes which, despite high tariffs (Dinar 50 to 100 an hour), are very popular. With no need to own a computer or pay a monthly subscription fee, cybercafes represent a more affordable way to access the Internet. Their success in promoting Internet use is perceived, according to numerous observers, as an important element of openness to the outside world, as in the case of TV satellite dishes a decade earlier. For public administrations and corporations the situation is not better. Despite the absence of detailed information on these entities' equipment in tenns of modem communication tools, it is likely that the needs are enormous. As a matter of fact, very few Algerian firms have local area networks, and rare are those already connected to the Internet. Indeed, there are some ongoing projects: improvement of budget management, implementation of banking compensation and tele-compensation systems. But overall, both ministries and their territorial extensions do not have access to automated management procedures. The modernization of the public administration will require automating and networking offices. This will enable it to simplify procedures and give better visibility to decision-makers and managers. Equipping administrations with local and wide area networks and Intranet will allow online government services to be offered gradually, and enable the government to make considerable savings on its budget and to improve the quality of its services. However, systematically resorting to turnkey integrated solutions should be avoided. On the contrary, an outsourcing strategy needs to be devised, and its outline and guidelines should be defined as soon as possible. For Algerian businesses, the major issue is integrating computerization and Internet into their development strategy and making additional organizational efforts to strengthen their competitiveness. To accelerate these changes, the government can implement fiscal incentives, namely: (i) facilitation of staff training and re-skilling through "matching grants" mechanisms; and (ii) abolition of customs duties on ICT equipment imported by corporations to modernize their information and commnunications system. 7 3.1.3 Emergence of an ICTprivate sector The most recent information collected9 indicates that there is an important ICT industry cluster emerging in Algeria with significant growth potential being fueled by economic liberalization and revitalization efforts. Industry leaders interviewed in Algeria are optimistic about the growth of the ICT sector. There is growing demand for ICT equipment and services such as network installation, systems integration, and custom application development, particularly for Web-based systems and networked applications. The presence of local private sector companies has increased in the last three years but remains fragmented, with small and medium family-run businesses, which can hardly compete against either the large international players or against public companies. Hence, the growth of private companies remains limited to the smaller revenue-generating segments of the ICT sector. 3.1.4 Hydrocarbon income Income from Algeria's significant hydrocarbon reserves should facilitate the implementation of the government's Information Society Program. It is probably with this in mind that the government decided to adopt the Algiers Technology Park (Cyberpark Sidi Abdallah) project. Though the outline of this project is still in the process of being defined, it is important not to base an ICT development strategy only on government efforts. It would be, for example, more efficient once the Technology Park is developed for the authorities to delegate its management to a private operator with the required experience and know-how in the development of such structures. This can be done through management contracts linking the manager's remuneration to operational performance achieved. 3.2 Main challenges Many challenges are still to be overcome to allow an information society to materialize in Algeria. Among the most significant are: 3.2.1 Absence of a clear ICT development strategy The need to outline a visionary approach towards developing ICT. It is clearly stated in the Steering Committee Report of October 2001 that: "... there is currently no clear and consistent strategy in this respect. Indeed, a multitude of projects have been conducted in different sectors for three years. Ministries, administrations, public entities, state-owned enterprises, private companies, all have, in some way, proclaimed intentions to improve computer equipment, develop networks, generalize Internet access. But there is so far no material and precise inventory of what exists, what is being developed, and what will be. For instance there is no inventory of the companies' networks: how many are there, what are he populations affected, what is their degree of interconnection with exterior networks? " This lack of information and prospective vision entails the risk of duplicating tasks, or on the other hand to promote isolated, mutually incompatible projects. The absence of a reflection on the use of ICT will inevitably be disappointing for many socio-professional categories. The general public will probably have to content themselves with sporadic recreational access to the Internet in the cybercafes, while entrepreneurs may risk not capturing expected benefits from significant investments made to upgrade their information and communication systems. Finally, policy makers will be disappointed by the extremely low impact of large ICT public investments on growth and diversification of the economy. 9 ICF Consulting Group, Algeria ICT Cluster: Inventory and Assessment Report, February 2003. 8 3.2.2 Strengthening and completing the regulatory framework To date, the regulatory framework for a competitive and private ICT market has been partially defined. The new legal and regulatory framework is organized around many new institutions: (i) the Post and Telecommunications Regulatory Authority (ARPT); (ii) the National Agency for Frequencies (ANF - under MPT supervision), recently set up to manage the spectrum band;'° (iii) and the National Commission that manages access to towers, masts, and other infrastructure for radio transmission ("points hauts") by telecommunications operators and the military. " A reduction in the number of players may prove a beneficial decision to avoid coordination difficulties and competence conflicts, which could harm the smooth development of the sector. It seems to be equally desirable to reinforce ARPT independence to protect it from political pressures. While the authority enioys wide- ranging financial and decision-making autonomy, all the members of its board are appointed and liable to dismissal by decree from the President of the Republic. This ambiguity weakens one of the central players of the new ICT environment and should be addressed. Finally, Law 2000-03 is imprecise in many areas Wth regard to the distribution of tasks and competencies between the Ministry and ARPT. Although the existing business environment is conducive to individual initiatives and could support the development of a vibrant ICT sector, it is also clear that Algeria will have to review and streamline existing legislation or regulations and should enact necessary decrees for the rapid development of a vibrant ICT sector. For instance, rules related to consuner protection or with respect to public order have not yet been transposed to the Internet. On the other hand, specific regulations will have to be adopted. 12 In particular, the issue of ISP liability, where it hosts unlawful sites or contents, will have to be clarified and requires an open consultation process with the private sector. Also, current management of national domain names (the suffix "dz") should be revised by the industry with the government's help. According to private ISPs, the allocations are "drip-fed". CERIST in particular requires that the site be hosted in Algeria, which prompts Algerian promoters to register their sites under international suffixes (.com, .net).. Ensuring efficiency and transparency of the allocation process is necessary to avoid "cyber-squatting" and critical to industry development. An independent non-governmental organization should be in charge of that mission. 3.2.3 Unfavorable economic environment Several deficiencies still characterize the economic environment in Algeria. Recent analyses (World Bank, 2002 a, b) detail thoroughly the major bottlenecks affecting the business environment and private sector development Setting up a company remains difficult in Algeria, despite the implementation of public agencies to facilitate the process, and entrepreneurs complain about W Note that the ANF is not operational yet. Its creation decree gives it the responsibility to manage the entire spectral resources, including frequencies used by security services. ARPT was also delegated the management of the frequency band for commercial applications. It has no authority as to other frequency bands. "It is an interministerial commission that can include operators' representatives and ensures the coordination of access to and use of sites for towers, masts, and other infrastructure for radio transmission ("points hauts"), which are also considered strategic sites for national defense. 12 Protection of personal data and privacy, extension of the concept of "author rights", legal acknowledgment of electronic signature, commercial rules specific for all parties contracting over the Internet, or implementation of penalty procedures against unlawful behavior or content. 9 excessive paperwork,'3 and difficulty in obtaining the assistance they need in executing their project, as well as in acquiring real estate. According to many persons interviewed, the chance of obtaining a bank loan to set up a company in the ICT sector (computer consultancy or production, Internet, etc.) is almost non-existent, unless one has sound collateral and personal property to mortgage.'4 Possibilities of financing in sectors producing intangible assets are very limited, since there is only one public corporation, which could offer venture capital financing (Finalep), but it has neither resources, nor a current understanding of the sector. 3.2.4 Inadequate ICT training Deficiencies are blatant as regards telecommunications, especially if compared with the reeds for local executives that arise from the sector deregulation. Likewise, the number of informatics graduates, future players in the implementation in corporations of functional and technical solutions, is low in relation to the needs generated by the cngoing changes. Finally, most training institutions face difficulties in recruiting and retaining teachers/researchers. Each year, numerous teachers and young graduates choose to go abroad to find jobs with higher status and salaries. With a limited intake capacity, the different institutes for higher education apply a severe selection process. On the other hand, there are very few vocational training institutes on ICT in Algeria. Higher education in ICT is organized around the three programs: informatics, electronics, and telecommunications. Bridges between them have yet to be built. Corporations rate the level of the training as satisfactory, even though graduate students still have much to learn about the working environment. Computer scientists usually master the computer languages and the various operating systems, and often have a "development" culture, not always relevant to the expectations and needs of Algerian businesses. 3.2.5 Booming underground economy andpiracy The "underground" economy occupies a predominant place in the functioning of the Algerian economy. This phenomenon is particularly noticeable as regards ICT products. Pirated subscription cards and satellite TV packages can be bought openly. Business software is not spared from this scourge. The latest versions of software and software packages are accessible at 2% of their licensed price. Faced with such a difference, consumers do not hesitate. The legal machinery does exist, but is not effectively enforced. The Office National des Droits d'Auteur (National Office for Copyright) theoretically carries out inspections of merchants and firms, but legal proceedings are extremely rare. The government's motivation does not seem to be very strong, despite its declared intention. However, the stakes are high here. The multimedia market would represent about one billion Dinars per year, and the loss of eamings for the State, in the form of uncollected taxes, is considerable. 3In June 2001, statistics were significant: 43,000 files were pending at the APSI (future ANDI). 14 The main problems deterring the performance of the financial sector as perceived by entrepreneurs are: (a) credits are not granted on the basis of expected profitability but rather on past history and guarantees offered; (b) excessive collateral required - around 2 to 3 times the loan amount; (c) cumbersome procedures and centralized decision-making process in banking institutions; (d) banks lack modern, computerized equipment and systems; (e) the payment system is very slow - it may take up to 3 weeks to clear a check between banks in Algiers; and (f) the cost of credit is too high - around 10% - and the approval cycle is too bureaucratic. 10 3.2.6 Brain drain Some refer to this as a real "national disaster". The brain drain is an issue of particular concern in the ICT field. A significant percentage of young engineers trained in informatics, electronics, or telecommunications have no hesitation in taking the first opportunity to leave Algeria. This often occurs on the occasion of a training abroad. The major national institutes have modified the way they plan and select candidates to be sent abroad for training. Priority is given to married candidates rather than single ones. Every company and organization interviewed ia the course of this study had suffered several departures among their best staff. To retain their engineers, managers must adjust the level of salaries. There is a general consensus on how to deal with and retain qualified staff in Algeria, and that is by offering them interesting and rewarding professional perspectives. 3.2.7 Cost of ICTaccess 45. The "democratization" of ICT access appears to be one of the major issues for successful ICT sector development. In effect, for the average Algerian, the cost of access to ICT is not yet affordable. Standard computer equipment costs five times the average monthly salary.'5 Everything included, home Internet access (telephone and computer equipment, subscription, cost of communications, etc.) is estimated at Dinar 150,000 by the Steering Committee on the Information Society. There is a significant risk of expanding the "digital divide" within the country if ICT cost is not brought down. The "two-tier" information society could also become a concem in the private sector with, on the one hand, large finms equipped with Intranet, and on the other hand isolated SMIEs. 4 GROWIH PROSPECTS The diffusion and the effective use of ICT should have an impact on Algerian growth as it has in most advanced countries, where it represents between 4 and 8% of GDP. In Algeria, ICT sector revenues represented around 0.9% of GDP implying an average yearly consumption of ICT around US$16 per capita in 2001. This valuation is obviously largely below the potential that could be developed if the transition to an information-based economy proved successful. With the liberalization of the telecommunications sector, ICT revenues could amount to US$1.1 billion in 2003 representing 1.9% of the GDP or an average ICT expenditure of US$35 per capita. Our estimates for 2007 are: (a) US$2.75 billion for ICT market valuation; (b) an average ICT expenditure of US$35 per capita; and (c) 4.1% of GDP. However, promoting ICT use in Algeria should not be limited to a passive dissemination of infrastructure, but should rather be a part of a strategy aiming at improving firms' and administrations' procedures and efficiency. For this, the authorities should implement programs which encourage an effective ICT integration in the productive and administrative process. The priority should be given to programs targeting the increased use of ICT by businesses and institutions, while the diffusion of ICT in households or by individual consumers could follow as a second phase. 5 THE WAY FORWARD During the past two years several declarations of intent have been made with regard to developing a vibrant ICT sector in Algeria, but the government's capability to implement reforms in a timely and efficient manner has been lacking. The following recommendations have been formulated with this reality in niind and with particular attention paid to the three main challenges facing the State decision-making apparatus, namely: * The absence of a permanent pro-reform political leadership; 'I About Dinar 50,000 for a PC without peripherals. * The vast powers enjoyed by extremely powerful lobbies bene fiting from advantageous positions; * The weakness of public institutions to lead and implement complex reforms efficiently. The concluding chapter presents a set of guidelines to be initiated by the Government of Algeria. These guidelines are measures of economic and social policy deemed necessary to start the process of transition and transfornation into an information society and aim at representing a platform for the government to articulate a more detailed strategy. In the chapter pilot or flagship applications are not explicitly reviewed and discussed. This should be done by the Steering Committee in a second phase, after complementary analyses and widespread consultations with respective stakeholders. The primary step is to establish a consistent development strategy. This implies increasing the political legitimacy of the project by making it a priority for the highest authorities. The definition of a set of monitoring and evaluation tools as well as setting up an independent observatory is required Completing the legal and regulatory framework is the second requirement for the development of information infrastructures with increased private sector participation. Several regulations should be modified or adopted to create an enabling environment for e-commerce and e-government, as well as to attract ICT multinationals. In parallel, regulation enforcement should be improved to establish consumer confidence in electronic transactions, and strengthening ARPT's independence should be addressed to provide regulatory clarity and predictability to potential investors. In particular, the issue of ISP liability, where it hosts unlawful sites or contents, will have to be clarified and requires an open consultation process with the private sector. Also, current management of national domain names (the suffix "dz") should be in order to ensure the efficiency and transparency of the allocation process. Dissemination and use of ICT, in particular connectivity, depend on the successful and timely liberalization of the telecommunications sector. While a favorable regulatory framework for liberalization is being implemented, proactive steps to promote the use of ICT in businesses (SMEs in particular) and public administrations is a prerequisite to progressively shift to an information-based society. Specific incentives for small businesses to upgrade their management and information systems (MIS) as well as to establish modem communications facilities through corporate Intranets should be considered. In parallel, e-govermment applications should be developed at local and central government levels. This implies multiplying the number of access points to the Intemet all over the country, making the population more familiar with the use of ICT, and supporting household connection programs. The capacity of different administrations to offer institutional and practical information on public websites will foster the creation of an e-govermment strategy. Finally, widespread use of ICT can happen only through dissemination of technology throughout the education system. Training the trainers is central for a productive use of ICT infrastructure and should be set as an utmost priority. Teachers, particularly those in primary and secondary schools, are not yet prepared to use and integrate ICT into their education programs. Unless a large-scale training effort is set up, there is a high risk of failure of Internet educational programs at school. However, training by itself cannot address all the constraints to teachers' particiation in the government's ICT strategy. Lower salaries than the rest of the region, a lack of support services, and the difficult conditions in which teachers often work are preliminary constraints which should be addressed prior to the introduction of ICT. The creation of a more conducive education sector environment is key to the successful adoption of ICT in education. The projected efforts to modernize education administration will have a number of important benefits. Aside from greater efficiencies, this has proven to be a quite viable manner of 12 introducing the culture of ICT within the sector over the long run. Furthermore, the promotion of connectivity and the use of informatics in research and learning in tertiary education constitute promising approaches. The initiatives targeting tertiary schools as vectors for ICT development are very sound. This level of the education system will benefit the most from the introduction of new technologies, particularly as it will provide in relatively short terns the opportunity to exploit and contribute to the global arena of research and learning. The authorities have initiated and funded a large-scale connectivity project for schools, high schools, and universities as part of the economic recovery program. Indeed, the low connectivity of schools and universities is a significant barrier to the development of the information society. But it is essential that these large investments are part of a strategy sustainable in the long run. Purchasing infrastructure is not sufficient to diffuse ICT. Accurate evaluations of the maintenance costs and of the rapid obsolescence of technology have to be taken into account in such a strategy. The Ministries of National Education and Vocational Training could launch tenders to outsource installation, management, maintenance, and renewal of the computer network and Internet access in schools, colleges, universities, and research centers and avoid contracting for the procurement of these systems. This would also contribute to building the basis for gateways between education, research, and business. The relations between the three sectors could be expanded through various mechanisms such as: (i) apprenticeships and school training; (ii) co-financing of research projects; and (iii) incubation platformns. 6 ACrION PLAN MATRIX Recommendation Action Entity in charge Course of actions Target Comment _______________deadline # I - Define a # I- Give a Govemment - Implement Immediately consistent strategy for management structure Ministry of Posts and ICT recommendation of Oct. the Information & political legitimacy 2001 report Society Program to the IS Program - Reestablish a Steering Committee #2- Prepare the Steering Committee - Conduct additional Short term Information Society work and research Program - Specify monitoring indicators - Organize consultative process - Validate the program #3- Monitor domestic ICT observatory within - Monitor the program Immediately and intemational trends Ministry of Posts and ICT implementation - Monitor and review international trend - Publish a quarterly report #2- Strengthen the #1- Strengthen ARPT's Government, Parliament - Amend appointment Short term regulatory framework independence and and dismissal provisions and accelerate the expand its mandate over of Law 2000-03 liberalization of the new ICT infrastructure telecom market regulations _ #2- Develop ICT Government, Parliament - Enact new legislation Medium term content regulation and on e-commerce and e- its related regulatory government issues institution 13 Recommendation Action Entity in charge Course of actions Target Comment deadline _ _ _ _ _ #3 - Promote Government, ARPT - Allow public utility Short term infrastructure-based entities (Sonelgaz, TDA, competition Sonatrach, etc.) to resell unused bandwidth by issuing specific regulations - Promote Intemet access through cable distribution #4- Update IPR Government, Parliament - Amend the existing Medium term legislation and enhance IPR legislation and enact its enforcement to curb implementation rules software piracy - Strengthen the capacity of regulatory entities in charge of IPR (ONDA, ARPT, INPI) - Strengthen the capacity of policy and custom special squad in charge of combating piracy #5- Create a quality Government (MPTIC) and - Prepare a chart of Medium term certification mechanism associations of IT quality measures for IT for IT service providers providers and user groups professionals - Establish a certification mechanism #6- Enact regulations Government - Parliament - Prepare draft Medium term on encryption, security, Consultation with legislation or regulations personal data enabling stakeholders (civil society, on main e-transaction e-transactions (e- professionals) issues commerce/ e- - Organize consultative government) process with interested stakeholders - Finalize drafts and submit to Parliament #3- Promote the use of #I- Promote the use of Govemment and each - Govemment to Medium and ICT in the public ICT in the public ministry prepare a plan to long term administration, administration Coordination by Ministry modemize its internal businesses and civil of Posts and ICT management and society information system, including rolling out corporate networks and Intranet - Diffuse usage of email throughout government agencies - Cabinet to validate a multiyear plan for the modemization of govemment's communication network and information systems - Develop pilot e- govemment applications - Ministry of Posts and [CT to ensure overall coordination and achievement of targets ._______________ _specified 14 Recommendation Action Entity in charge Course of actions Target Comment _____ _____ _____ ____ deadline _ _ _ _ _ #2- Eliminate customs Govemment - 0% customs duty on Medium term A duties on ICT and Ministry of Finance and software, computer, and comprehen- implement fiscal Ministry of Posts and ICT telecom equipment for sive fiscal incentives for small in consultation with households and schools impact businesses professionals and users - Preferential financing should be groups schemes for households to prepared acquire computers prior to the - Targeted fiscal approval of incentives to SMEs to these facilitate staff training on measures. ICT and access to consulting services on ICT needs. - Avoid direct capital subsidy #3- Multiply Internet ISPs - Government to Medium term access points design and implement an countrywide OBA scheme to support the roll out of Internet points of presence by ISPs in non-economically viable regions - ARPT to implement the OBA scheme - ARPT to propose and to finance through universal access service fund cheaper rate schemes for households surfing the web #4- Encourage Cyberpark Sidi Abdallah - Promote exchange Medium term partnerships between authority and training programs Algerian ICr firms and - Reduce bureaucracy foreign fimis for creation of joint ventures - Improve intemational transport facilities #4- Diffuse ICT in the #1- Design and initiate ICT firms, Ministries of - Modemize and Short term education and research specific training Education, Vocational expand the scope of sector programs on ICT Training, and Posts and existing training ICT institutions specializing in ICT - Adapt the curricula to the market needs with regard to skills and volume - Train teachers, especially in primary and secondary schools - Set incentives to encourage enhanced use of ICT in teaching curricula 15 Recommendation Action Entity in charge Course of actions Target Comment deadline #2- Improve the Ministries of Education, - Design an OBA Medium term connectivity of schools Vocational Training, and scheme leading to and universities Tertiary Education auctions to outsource the program's implementation - Outsource the computerization and Intemet connectivity to private and specialized operators #3- Encourage research Ministries of Posts and - Set up short -term Short and and ICT innovation ICT and Research, business incubation medium term specialized agencies facilities to foster stan-ups (ANVREDET, ANDRU, - Promote exchanges etc.) and Cyberpark Sidi between firms and Abdallah research institutes (intemships, fellowships) - Set up grants for such businesses #4- Create nationwide Ministry of Posts and ICT - Organize a national Immediately events on the Intemet yearly event on the and the infonnation Intemet (fete de l'Intemet) society - Organize competitive scholarships for innovative projects on ICT #5- Support ICT Local govenmments, - Provide exposure to Short and multiservice centers communities Intemet medium term - Provide basic training on computer software - Provide access to e- govemment applications when available 16 INTRODUCTION: OBJECTIVES OF THIE NOTE The rapid expansion of information and communication technologies (ICT) in the last ten years has become a major issue in developing countries aiming to accelerate the upgrading of their economy and attempting to bridge the growing digital divide with the developed countries. Algeria, a vast African country inhabited by a young population and highly endowed with hydrocarbon resources, is particularly affected by this evolution. The Algerian authorities have acknowledged the importance of information and communication technologies, and they are aim to transform their country into an infonnation society. To this end, they are making an effort to improve the diffusion of information technology. Carrying out this effort in a consistent and continuous way is necessary to bridge the gap that separates Algeria from its neighbors. In response to a request from the Algerian authorities, the World Bank started a reflection about Algeria's transition prospects to an information-based economy. This work was carried out in four phases. * In November 2000, at the end of a first series of interviews with the authorities, a World Bank team'6 suggested a methodology for organizing the reflection on the development of an ICT sector in Algeria. The methodology accepted was based on three axes: (a) keeping an ongoing dialogue with the Ministry of Posts and Telecommunications; (b) identifying national priorities and defining the short- and medium-term initiatives envisaged; (c) setting up a Steering Committee to carry out workshops and lead in the adoption of a national plan for the development of an information and communication technology sector. A preliminary note on an ICT development strategy in Algeria'7 deepened this initial contribution. This note was discussed with the authorities during a mission in October 2001, and its key suggestions were validated. In parallel, the Steering Committee set up by the government wrote a report on the current situation and the prospects for development of the information society in Algeria. This report'8 was delivered to the government in October 2001, but was not truly implemented. * Finally, on behalf of the World Bank, the consultancy firm Louis Lengrand et Associes (LL&A) produced a study on the development of the supply for ICT products and services in Algeria.'9 The objective was to better outline the structure of ICT supply, identify the key players, gain an understanding of the economic environment of the ICT sector, appraise the level of competence of employees in the sector, and gauge the capacity of the education system to deliver the skills 16 Cf. Aide-Memoire of the November 2000 Mission. This mission included: Paul Noumba, Mohammad Mustafa, and Yann Burtin (CITPO). " Note written by Anupama Dokeniya and Paul Noumba (CITPO). 8Rapport sur la Societe de I 'Information en Algerie, October 2001. 9 To this end, two consultants from LL&A went twice to Algeria, from February 22 to 27 and from March 8 to 13, 2002, in order to interview the key private and public players in the ICT field. Over sixty people were interviewed, belonging to different strata of the Algerian economy and society: representatives of ministries, public organizations, research centers, educational institutions, private and public entrepreneurs, Internet service providers, representatives of foreign companies, etc. 17 that the new market requires. LL&A also formulated recommendations for the implementation of a global and consistent action strategy and concluded its report as follows: "Having an economy in transition and on the verge of gradually opening up to market mechanisms, with a young population, curious about what is happening worldwide and eager to use new modes of communications, Algeria has obvious assets for making a successful transition to the information society. However, it is still necessary to define a global and consistent strategy to create an economic environment encouraging private initiative and to enable the largest possible number of Algerian citizens to access modern communication too&'.20 An earlier version of this note consolidates in a single document the lessons learned throughout this process. Its short-term objective was to provide inputs for the discussions that took place during the International Symposium on ICT and the Information Society in Algiers, held from December 9 to II, 2002. Its second aim is to contribute to the extensive reflection undertaken by the authorities and other development partners in the effort to diversify the Algerian economy and make it less vulnerable to hydrocarbon price fluctuations. The remainder of this note is organized into five chapters. The first chanter introduces a definition of the extensive range of equipment and services covered by the tern "information and communication technologies." It then outlines the concept of "new economy" as opposed to the broader "information society," which the Algerian government has emphasized. The second chapter is a thorough review of the ICT sector in Algeria. It analyzes the approach to reform of the telecommunications and postal sector, as well as the initiatives undertaken by the government to promote an information society. This chapter concludes by analyzing the strengths and weaknesses of the key players in the field. The third chapter highlights how, in spite of the numerous assets favorable to the development of an ICT sector in Algeria, many obstacles still need to be overcome. The fourth chapter looks at the options open to Algeria for the development and diffusion of ICTs as well as their implications for the Algerian economy. The conclusions propose a set of guidelines and actions to be undertaken to develop an ICT sector. They focus on specific measures that would allow Algeria to channel individual efforts and private and public sector initiatives more effectively. A bibliography is provided at the end of the document and a comparative market study is summarized in the Annex. 20 Louis Lengrand et Associes, Analysis ofStrengths, Weaknesses, Opportunities and Threats in the ITMarket in Algeria, Versailles, April 19, 2002. 18 CHAPTER 1: ELEMENTS FOR A VISION In Algeria, the private sector remains weak and efforts to curb public sector dominance in the economy have not yet been successful. What then are the prospects for the future international competitiveness of the Algerian economy? This report suggests that a successful telecommunications reform would create a dynamic ICT sector and act as a catalyst on the overall economic transformation process. As observed in countries that have gone through this process, by promoting effective use of ICT, Algeria could develop new business opportunities and improve the competitiveness of its economy. The overall challenge facing the Algerian authorities is one of market globalization and international competitiveness. In other words, the global economy is changing rapidly due to constantly emerging new technologies, which alter the relations between businesses and other entities, thus influencing how governments, businesses, and societies are organized. Confronted with this reality, the Government of Algeria has few other alternatives than that of preparing its society and economy for the radical transformations induced by the shift to the new economy. These changes offer significant benefits to such countries, which can use ICT in their economic interest; those countries that cannot adapt risk being marginalized or excluded. The remainder of the chapter is organized as follows. The first section provides a definition of ICT and its market scope. Section two discusses economic benefits derived by effective and pervasive use of ICT. These benefits accrue through: (a) productivity gains generated by economic activities using ICT to re-engineer their processes, business operations, and innovation; (b) reduced transaction costs which lead to additional productivity gains. Section three briefly discusses relevant international experience, and on this basis section four concludes by providing a snapshot of key determinants for ICT strategy success. 1 DEFINING INFORMATION AND COMMUNICATION TECHNOLOGIES We define information and communication technologies (ICT) as a generic term that covers both information technology (computer hardware and software) and telecommunications equipment and services. The ICT market refers to the combined industries of information technology equipment (computer hardware, communication equipment, office equipment, data communication and network equipment), software products, IT, and carrier services. As a result, broadcasting is covered due to its telecommunications dimension, namely use of spectrum and telecommunications infrastructure to deliver content services. However, we do not include broadcasting content in our formal definition of ICT.2' Similarly, we do not extend our ICT definition to cover postal activities, but discuss in the note the important role that could be played by the postal sector in promoting ICT use and bridging the digital divide in Algeria. 21We review, however, key postal and entertainment industry players in Chapter 3 of this note with the aim of identifying ways and means through which ICT could quickly disseminate in Algeria. 19 In 2002, the ICT market was estimated at 2.365 billion Euros worldwide, with the USA market valued at 804.1 bn Euros, Japan at 283.8 bn Euros, and Western Europe at 641 bn Euros. Broken down into equipment, software, IT services, and carrier services,22 the European Union market shows the following distribution: * ICT equipment: 150 bn Euros [28%]; * Software products: 65 bn Euros [10%]; * IT services: 140 bn Euros [22%]; * Carrier services: 275 bn Euros [40%]. The following chart provides Westem European ICT market growth by segments. The equipment segment remains in recession. The IT and carrier service segments are the main engine of growth in the sector. In 2002, the sector average growth rate was around 1.1%, compared to 4.1% the previous year. Figure 3: ICT market growth in the EU Western European ICT market growth by segment, 2001-2003, in % 13 2001 02002E20031 5 4 -4,6 =-Allv- 5 3 ~~~~~~~~~~~~~~~~~4 3,2 7 -1,5 . L ErL .5-' .10 Total [CT Software products IT services Canier services Total ICT equipment Source: EITO Update 2002 in cooperation with IDC Market value 2002: 641 billion Euros In per capita terms, these market segments respectively represent approximately: (a) 678 Euros for carrier services; (b) 464 Euros for ICT equipment; (c) 164 Euros for software; and (d) 363 Euros for IT services. In other words, European Union countries spend on average : (a) 2.95% of GDP for carrier services; (b) 2.02% of GDP for ICT equipment, (c) 0.71% of GDP for software; and (d) 1.58% of GDPforlTservices. With an average 1652 Euros per capita in 2002, every European Union 22 Carrier services are defined as companies providing a vast range of communication services including voice, record, data, video, and facsimile transmissions. 20 citizen spent approximately 7.26% of their income on ICT consumption. This figure provides a benchmark against which one could compare the status of development of an ICT market. Furthermore, a review conducted on 1998 data shows that the European Union ICT sector accounted for the following: * 2% of enterprises in the European Union, representing 390,000 firms out of which 340,000 were in the service sector; * 2.8% of European Union employment, representing 4.3 million persons employed out of which 2.7 million were in services (including I million in telecommunications services); * 4.1% of the European Union's GDP is represented by value-added in the ICT sector. In Finland and Ireland, the ratio is 6.5% and 6.4% of GDP respectively, while France lags behind at 2.4%. Table 1: Overview of the ICT sector weight relative to the total economy in the EU, USA, and Japan Total Share of ICT Total ICT sector sector in total economy economy (%) EU- 15 USA Japan EU- 15 EU- 15 Number of enterprises (1000) 389 173 (a) 44 (a) 19370 2.0 Number of persons employed 4300 4521 (a) 2060 (a) 152500 2.8 (1000) Value added at factor cost (Bin 315 512.8 (a) 182.9 (a) 7616.9 (b) 4.1 Euro) (a) OECD data for 1997. USA, Japan - number of establishments instead of enterprises; (b) Gross domestic product. Source: European Commission, Commission Staff Working Paper: European Competitiveness Report 2000. Employment opportunity figures in 1998 in Europe show that telecommunications services represented around 24% of total ICT employment. The service sector represented around 63% of this total while 37% was in the manufacturing sector. The sector's contribution to total employment varied from country to country, but had reached 3% in more advanced economies as shown in the following graph. Figure 4: ICT sector employment as a percentage of total employment in Europe (1998) 455 3~~~~~~~. 2.5~~~~~~~~~~~~~~~~~. 1.5 - _~~~~~~~~- . 2.5 Source: Eurostat, OECD in Richard Deiss, Inforrmation Society Statistics, European Commission DG Information Society, 2001, p 3. 21 With the widespread adoption of the Internet, pervasive use of computers has helped the transformation and streamlining of business and government processes. 2 EXPLORING AND EXPLOITING NEW TECHNOLOGIES 23 Today's technical change is unprecedented in pace and scope. Information and communication technologies (ICT) are at the core of such change, making spectacular advances. In 1930, a one- minute telephone call from New York to London cost US$300 at current prices; today it costs only a few cents. The cost of 1 megabit of processing power fell from US$7,600 in 1970 to 17 cents in 1999 - a 99.9% decline over the same period. The cost of sending 1 trillion bits fell from US$150,000 to 12 cents. These revolutionary changes have mainly benefited the developed countries. In the past, errors forced large firms to rework about a quarter of their orders. E-commerce now allows enterprises to check that orders are intemally consistent by efficiently matching orders, receipts, and invoices. For example, the General Electric trading post network has significantly reduced its ordering errors and cut costs by 5 to 20%. Cisco Systems, the world's largest supplier of routers for Internet traffic has moved 70% of its customer support online, eliminating 250,000 telephone calls a month and saving more than US$500 million, about 17% of its operating costs. In the United States the average value of inventories is 2.3% of annual (non-farm) sales and 4.2% of final goods sales. Each stage of the value chain holds significant inventories: 37% by manufacturers, 25% by wholesalers, and 27% by retailers. Effective and pervasive use of E-commerce applications can help reduce inventory costs significantly. Another change is the growing importance in a number of industries of geographic clustering of enterprises, particularly small and medium-sized enterprises (SMEs). The benefits of clustering derive from external economies such as the availability of information, or proximity to pools of suppliers, customers, and skilled workers. Many high-tech clusters have emerged in industrialized countries. Many competitive clusters also exist in developing countries (Malaysia, India, China, Brazil, Costa Rica, etc). Aside from the massive increase in the use of ICT, the content of industrial products and activities shows an increasing share of information content. For example, around half of the value of a new car lies in its information content (design, process management, marketing, sales, etc.). ICTs are now pervasive in work methods, plant layout, the management of quality control processes, lean production, and just-in-time inventory systems. The internal organization of firms needs to be adapted to the major changes introduced by new technologies, while these make it easier to manage operations over long distances. ICTs enable enterprises to separate functions from production processes and to locate them wherever cost, efficiency, and market needs suggest. For instance, an enterprise may design a semiconductor in the United States with an affiliate in India, buy the wafer from a foundry in Taiwan Province of 23 This section draws on: UNIDO, Industrial Development Report for 2002/2003: Competing Through Innovation and Learning, 2002. 22 China, assemble and test the chip in the Philippines, and use an independent logistics company to ship it to Germany and market it all over Europe. The factors that matter to investors using new technologies and looking for competitive locations are specialized skills, modern infrastructure, strong institutions, low transaction costs, efficient local suppliers, clusters of enterprises, and providers of business support. Box 1: Impact of ICT on transaction costs The use of [CT can impact business revenues positively by reducing the times and costs of transaction. This is the example followed by Dell, today one of the largest computer companies. In 1994, the site wwwvw.dell.com was launched, and two years later an e-commerce capability was added. The following year, Dell became the first company to record US$I million in online sales. Today, Dell operates one of the highest volume Internet commerce sites in the world, The basic concept behind this is the direct relation with the customer, which allows the business to better understand customers' needs and efficiently provide the most effective computing solutions to meet them. This direct model cuts out internediaries (middlemen) that add unnecessary time and cost, or can diminish the understanding of customer expectations. The "direct model" allows the company to customize its products in order to meet client preferences, and to be more proactive to technology changes than its competitors. The company is increasingly realizing Internet-associated efficiencies throughout its business, including procurement, customer support, and relationship management. At www.dell.corn, customers may review, configure, and price systems within Dell's entire product line, order systems online, and track orders from manufacturing through shipping. At valuechain.dell.com, Dell shares information with its suppliers on a range of topics, including product quality and inventory. Dell also uses the Internet to deliver industry -leading customer services. For instance, approximately 113,000 business and institutional customers worldwide use Dell's PremierDell.com web pages to do business with the company online. Though the impact of ICT is greater in advanced economies, it is also important in daily low-tech activities that are predominant in developing countries. ICTs also have significant impact on national economic performance, though there is much debate about their precise efect.24 Developing economies with fast growth in consumption of ICTs (India, Korea, Taiwan, Thailand, etc.) appear to have significant positive GDP growth. Box 2: Innovative use of ICTs in developing countries In rural Southern Ghana, petrol stations now place orders by telephone - a task that once entailed traveling to Accra. In Zimbabwe, a company generated US$15 million in new business by advertising on the Internet. In the mountains of Lao People's Democratic Republic, drivers of yak caravans use mobile telephones to call ahead and find the best route to deliver their goods to market. Fishers off the shores of Kerala, India make phone calls from 7 kilometers out to sea to determine which market is paying the most for their catch and then sail there. Source: Baxter, Perkin and Mulligan,(2001, background paper) in UNIDO, Industrial Development Report 2002/2003: Competing Through Innovation and Learning, Vienna, 2002. When effectively used, ICTs can create new opportunities for learning, marketing, and empowering people. It is to take advantage of these possibilities that many governments are adopting policies 24 The ICT impact on development is derived from increased productivity gains and lower transaction costs for businesses and governments. A significant portion of the economic impact is also derived through the emergence of new businesses that did not exist before or that would not have emerged without pervasive use of ICT. ICT growth impact could hence be captured through more or less standard economic tools. Conversely, ICT poverty impact is probably best captured through appropriate redistribution policies effectively implemented by governments. But, as ICT use also impacts people's daily lives, some linkages could also be found with new opportunities provided to individuals who can appropriate and use the technology to change the way they manage and organize their lives. 23 facilitating ICT development and diffusion. But one issue of uncertainty is the capacity of countries without an industrial basis to leapfrog and catch up by becoming information societies. The evidence so far shows that most countries that have succeeded with ICT have been relatively industrialized. Effective use of ICT requires massive investment in infrastructure and building capabilities which are lacking in the majority of developing countries. Additionally, considerable time can pass before the benefits of ICT are realized. Hence, a critical mass of ICT diffusion in coverage, organizational adaptation, and learning is needed for widespread productivity gains. Redesigning processes and developing a new business culture are also needed. Productivity gains often arise not directly from technologies but from the increase in productivity enabled by the new systems, procedures, skills, and attitudes. In developing countries, it must be taken into account that the critical mass of ICT and necessary skills and organizational capabilities may not exist for some time. 3 IMPLICATIONS OF THE ICT REVOLUTION Did the developed world really enter into a new economy25 during the past decade? The term "new economy" refers to a combination of factors and changes. First, it is about digital communication, diffused by the rapid expansion of the Intemet. This promoted the emergence of new activities and of numerous commercial and technical innovations. Would the "new economy" concept thus refer to the macroeconomic evolution partially induced by the pervasive dissemination of the Internet? Looking at the American economy from 1992 to early 2001, there is an uninterrupted growth along with falling unemployment and very low inflation. This new phenomenon encouraged macroeconomists to coin the term "new economy." This term indicated how business cycles, connected to market adjustments, seemed to have disappeared to make way for continuous growth. The only problem, wondered Dang Nguyen (2001), was the spontaneity of the phenomenon: "Why did this phenomenon take such a long time to show while informatics26 and computers have been around for 40 years?" His answer is unequivocal. In effect, before Internet diffusion, the development of informatics as a mean of communication developed without inducing rapid productivity improvements. The differences between systems and notably their functional incompatibilities did not allow businesses to optimize their organization, hence maximizing the productivity gains. Built on an open protocol, the Internet eliminated these constraints, allowing enterprises to better integrate communicating informatics into their organizational evolution. This explanation is sustainable and reinforces to some extent the paradox evoked by Solow (1987), whose relevance was questioned by numerous articles published later (Oliner and Sichel, 1995; Gordon 2002). Though there is no formal causal relation between the exponential dissemination of the Internet and acceleration of growth in the United States or in Europe, it can be observed that increased Internet connectivity was one of the main engines of growth during the last decade. Pervasive Internet connectivity enabled businesses to modify their plans and to progressively develop a "Net Economy."2' This served the purpose of accelerating growth and generated a phenomenon that Business Week magazine (1996) called the "new economy". 25 The concept of the "new economy" was first proposed by in 1996 by the magazine Business Week. (See Michael Mandel, "The Triumph of the New Economy", Business Week, December 30, 1996.) 26 By "informatics", we mean the use of computer tools and systems by corporations and administrations to better communicate between them. 27 E-commerce, online advertisement, sale of digital information, and massive recourse to ICT in reorganizing work within companies, though implementation of Intranets in particular. 24 The means of information exchange such as the telephone and public data transmission networks that preceded the Internet had already allowed industrialized countries to offer universal service in telecommunications. But the major change introduced by the Intemet was to eliminate user charges and allow a much more affordable access charge. Hence, the most important feature, which is responsible for the development of the Internet, is the use of information for commercial exchanges and production. This information has now become ubiquitously accessible and at a negligible cost. Whenever computerization remains uneven and costly, this would mean that informatics did not lead to the expected productivity gains. The globalization of economic activity has also had a direct effect on other sectors of society. Governments, politicians, civil society, unions, and even legislative processes now have to take account of the global dimension. So, as the new information technology and its networks advance and becomes more pervasive, economic operations and indeed activity in general are becoming increasingly knowledge-based and directed by information; and the field in which knowledge is expressed is becoming world-wide, or global. This global knowledge-based community, with its increasingly dominant information and communications networks, the new technology they use, and the information they impart, and the interrelationship between this infornation, the networks, and the various levels of government and people, as well as the society in which these phenomena operate, is called the Information Society. 28 4 INTERNATIONAL EXPERIENCE PERSPECTIVE ICT plays two roles in the growth process, first by contributing heavily to the increase in overall investment, second by contributing to multifactor productivity growth (MFP)29. The contribution of ICT to MFP depends both on technological progress in the production of ICT goods and services, and on efficiency gains in ICT-using sectors.30 The extent to which these two aspects deternine MFP growth is still uncertain. The ICT producing sector (manufacturing and services) has provided a considerable contribution to productivity growth in several OECD contries, as well as in the United States in the second half of the 1990s. There is also evidence that certain ICT-using services have experienced an above-average pick-up in productivity growth over the same period. This may indicate that ICT is starting to have spillovers beyond the ICT-sector itself, which is also confirmed by firm-level studies and studies for sectors which are heavy users of ICT, such as retail, trade, transport, and financial services. The experience of countries that made a successful transition to the new economy confirms that there is no single path to it, and that each national strategy must be tailored to the country's specific needs. However, two generic approaches to the development of an information society can be noted. For most govemments the target is promoting a massive dissemination of ICT. This aims at maximizing the indirect effects, mainly on end-users. For other governments, however, the target is promoting the establishment of a national ICT pole of competence, capable of serving both internal and export demand. 28 European Commission DW External Relations, The Information Society and Development, 2001. 29 Dirk Pilat and Frank Lee, "Productivity Growth in ICT-Producing and ICT-Using Industries: A Source of Growth Differentials in the OECD?" DSTI/DOC (2001) 4, OECD, June 2001. 30 Dale Jorgenson, "Information Technology in the U.S. Economy", American Economic Review, Vol. 91, No. 1, March 200 1. 25 The ICT dissemination approach emphasizes the multiplier effects?' ensuing from an efficient use of ICT by all sectors of activity. Effective adoption of ICT induces the maximization of intersectoral synergies. This was the approach chosen by South Africa and Malaysia. The promotion of an ICT- producing industry emphasizes the establishment of a productive ICT sector, able to diversify export revenues or meet national demand through commercialization of ICT goods and services. This was the approach chosen by Costa Rica, India, and Brazil. The two approaches are far from being mutually exclusive, and a national strategy can seek to maximize one or several objectives at the same time. It must be pointed out that having an ICT-producing sector may not be a prerequisite for growth based on new technologies for three reasons. First, proximity to hardware producers may not be as important as proximity to software producers and service providers, which are useful to firms needing skills and advice to implement ICT-related changes. Second, due to the high entry costs and large economies of scale,32 much of the production of ICT hardware is highly concentrated, and only a few countries will have the necessary comparative advantages to succeed in it. Third, and most important reason is that several countries characterized by high ICT investment and use, as well as high productivity growth, do NOT have a large ICT sector. Australia is a good example of this.33 Governments should resist believing that deliberately developing an ICT manufacturing sector would be a good path to build a new economy and ensure improved economic growth. In the case of Malaysia, the goal of establishing an ICT pillar was to accelerate the transformation process of its national economy and to tie it to the global economy. The outcome of this strategy has been the implementation of the "Multimedia Super Corridor."34 3 'Its effects accrue through productivity gains, reduction of transaction costs, and creation of new activities. 32 An example of the high costs of creating an ICT-producing industry is the following: establishing a new semi-conductor plant cost some US$100 million in the early 1980s, but as much as US$1.2 billion in 1999 (United States Council of Economic Advisors, Annual Report, 2001). 33 David Gruen and Glenn Stevens, "Australian Macroeconomic Perfornance and Policies in the 1990s", in The Australian Economy in the 1990s, Sydney, Reserve Bank of Australia, 2000. 34 Kenichi Ohmae, in his work The Invisible Continent: Four Strategic Imperatives of the New Economy (New York: Harper Business, 2000), comments on his interaction with the Prime Minister of Malaysia during the conception of this project. 26 Box 3: Typology of ICT national development strategies - Costa Rica, Brazil, Malaysia, South Africa The Costa Rican ICT strategv was aimed at one central obiective: to diversify the national economv throueh the development of new erowth sources based mainly on exports. The construction of a large technologv park alona with the building of a business environment and a competitive infrastructure enabled Costa Rica to attract the largest technologv firms. Today, the countrv is home to the second biggest microprocessor plant oDerated by Intel which provides at least one- third of the Intel microorocessors used worldwide. The establishment of this Dlant broueht in its wake the develooment of a real industrial cluster in this field (Acer. Microsoft). More than 1.000 comDuter engineering service comDanies are currentiv based in the countrv and emDloy more than 1.000 professional executives. The exports ensuing from this new sector rose rapidly from US$25 million in 1997 to US$200 million in 2001. Finally, ICT products and services represent 38% of Costa Rica's exports today. As for Brazil. it chose to consolidate the development of an ICT industry capable of serving its national market more efficientlv. This strategy started around the end of the 1970s. throuRh Public programs aiming to eauiD the countrv with a real electronic and telecommunications production capacitv. and has since then been consolidated through economic liberalization that allowed Brazilian firms to face intemational competition. In 1997. the ICT sector Produced more than 1.2 million PCs. eouivalent to US$2.5 billion. Comnao. Hewlett Packard. and Enson have since then outsourced a laree Dart of their production to Brazilian units. Finally, the software industry saw the creation of more than 10,000 frmns employing around 200,000 people. Malavsia decided to Position its strategv to accelerate the transformation of its economv with a view to becoming a kev olaver in a elobal market. To achieve this. the authorities emDhasized the uDprading of the overall communications infrastructure. and the creation of a technologv hub allowing national and intemational investors to relocate and develop. This was how the Multimedia SuDer Corridor (MSC) vroject came about. The hosting infrastructure is estimated to cost around US$40 billion. The govemment also offered tax breaks for firms willine to invest in the corridor. The authorities hoped that the induced effects ensuine from the MSC activities would benefit the overall economy, which would facilitate the gradual extension of the corridor to the more remote localities. Finaliv. the approach chosen bv South Africa consisted of Placing ICT at the core of the countrv's development effort. To this end, the ICT strategy. conceived throueh dialogue with all the forces for change in the country, targeted four main obiectives: (i) to facilitate the creation of an environment favorable to the sustainable develovment of a dvnamic ICT sector, (ii) to increase the adoption and use of ICT in order to facilitate the socioeconomic develooment of the countrv: (iii) to create availability of an ICT-qualified labor force; and (iv) to introduce an ICT culture encouraging innovation and creation of companies. Source: UNDP Creating a Development Dynamic: Final Report of the Digital Opportnity Initiative, New York, 2001, pp. 19-31. The beginming of the 1990s brought a period of sustained growth for the United States, while the European Union, in spite of having controlled inflation, experienced weak growth and growing unemployment (around 11% of the active population). Europe progressively lost market share and leadership in the telecommunications field. 5 In 1993, the European Commission prepared a White Paper on European growth and competitiveness, an initiative later followed by the Bangeman Report, which recommended the adoption of a European program for the development of an information society (see below). 35 The first digital switches were developed in Europe in the 1970s, but the fragmentation and compartmentalization of national markets did not allow them to have global commercial success. 27 Box 4: The Information Society Concept At the Brussels Summit of December 1993, the European Council requested a report on the Informnation Society for its Corfu meeting on 24 - 25 June 1994. A group of bading specialists reported on the specific measures to be taken into consideration by the European Community and the Member States for developing their ICT infrastructures. On the basis of this report, the Council successively adopted an operational program defining precise actions and necessary means. The Bangeman Report was published on May 26, 1994 with recommendations for the European Council on "Europe and the Global Information Society." The Report introduced the idea of a "new industrial revolution... based on information, itself the expression of human knowledge." The recommendations argued that Europe was already participating in this revolution, but with an approach that was still too fragmented, which could reduce the expected benefits. The report suggested the need for new policies adapted to technological progress and evolution of markets as a precondition for the information revolution. The key issue for the emergence of new markets was to establish a sound regulatory environment allowing full competition, a prerequisite for mobilizing private capital for innovation, growth, and development. In conclusion, the report recommended to the Member States of the European Union: Accelerating the ongoing process of liberalization of the telecommunications sector (opening to competition infrastructures and services still under monopoly, removing non-commercial political burdens and budgetary constraints imposed on public telecommunications operators, and setting a clear timetable for implementing and achieving these goals); Establishing at the European level a minimum set of regulations to ensure the emergence of efficient information infrastructures and services (such as licensing, network interconnection and interoperability, protection of intellectual property rights, privacy, electronic protection, legal protection and security, and competition policy, etc.) A priority issue is the adjustment of international, long distance, and leased line tariffs to bring these down in line with the rates of other advanced countries. Source: European Comnmission, Recommendations to the European Council on Europe and the Global Information Society (Bangeman Report), 1994. After its adoption by the European Council in 1999, the a-Europe initiative was launched. This initiative aims at getting every citizen, school, company and public administration online as quickly as possible. E-Europe builds on the existing ICT policy framework, namely on those principles which guide the establishment of a common telecommunications market within the European boundaries. The initiative focuses also on the priority actions to overcome those handicaps, which hold back the rapid uptake of digital technologies in Europe.36 A comparison between Algeria and neighboring countries of the Middle East and North Africa Region is presented in the Annex. The comparison illustrates the current situation related to the potential for development of an ICT sector. Algeria scores last among the sample, which comprises Jordan, Egypt, Tunisia, Algeria, and Morocco. 5 KEY DETERMINANTS FOR ICT STRATEGY SUCCESS Becoming an information society goes well beyond acquiring and installing ICT infrastructure. It is a social, cultural, and economic transformation process. Allowing technology to deploy all its potential is achieved with a long-term strategy aiming at setting up a favorable regulatory, economic, and social environment. 36 In a report published in 2001 (The Information Society and Development), the European Commission concluded that the information society in Europe has developed considerably further. Nearly one-third of EU homes are connected to the Internet and nearly two-thirds of Europeans have a mobile phone. Almost half of workers use computers in their jobs, and electronic commerce between companies is growing. However, the Commission underscored the need for more structural reform to exploit the full potential of these technologies for efficiency gains. Modernizing the public sector should go beyond the introduction of new technologies and addresses working practices, procedures, and rules to maximize the technology impact. The conclusion is therefore straightforward: "Investments engaged on these technologies will only show their full potential if institutions and processes of the old economy are adapted to make full use of these possibilities." 28 On the basis of intemational experience, the preconditions for the information society to develop are determined by five fundamental dimensions: a visionary approach, strong leadership for a timely and effective implementation of the vision, an up-to-date regulatory framework stabilizing the business environment, up-to-date information infrastructures developed through private participation, and up- to-date human capital able to use the information infrastructures to their full potential. 5.1 Spell out a visionary ICT development approach After carrying out a complete e-readiness assessment, countries contemplating a move towards an information-based economy usually spell out a visionary approach that is reflected in their strategy. International experience shows that the most successful countries are those with a sound development strategy spelling out the vision, and a roadmap to achieve cbarly identified goals. In the EU case mentioned above, the vision is based on the need to strengthen the European Community's competitiveness and achieve sustained economic growth that will support job creation. The Bangeman Report provides the visionary approach. In Malaysia, the Multimedia Super Corridor project came from the Prime Minister's vision of transforming Malaysia from a semi-industrialized country assembling low-end electronic products into an information-based economy that could compete intemationally. In Algeria, a visionary ICTdevelopment approach is notyetformalized and diffused. There is a need to build a common vision, which could be shared by all politicalforces. 5.2 Express strong leadership and build political consensus Strong badership is needed to transform vision into action plans, and to ensure that action plans are effectively implemented. The approaches of Malaysia and the European Union demonstrate the critical role expected from political leaders in providing the vision and in empowering executive bodies for effective implementation. In the Malaysian case, the Prime Minister Dr. Mahathir Mohamad has been instrumental throughout the implementation process of the information society program. MDC37 is fully empowered and equipped to implement the government's visionary ICT program, and reports directly to the Prime Minister who maintains a close supervision over the program implementation. 37 MDC: Multimedia Development Corporation is set up to oversee the implementing of the MSC (Multimedia Super Corridor), one of the most visible projects that is being implemented by MDC. The MSC's International Advisory Panel (IAP) meetings have always been a key event in the country with Prime Minister's presence. IAP members include top ICT company leaders (The Acer Group, Alcatel, BCE Incorporated, Bloomberg LP, Centre for Strategic & International Studies, Cisco Systems Inc, Compaq Computer Corp, Computer Associates, DHL Worldwide Express, EDS, Ericsson, Fujitsu limited, Infosys Technologies Ltd, Intel Corporation, IBM, Lucent Technologies, Microsoft Corporation, Motorola, NEC Corporation, NTT, Nokia, Ohmae & Associates, Oracle Corporation, Reuters Group plc, Siemens AG, SAP AG, Sony Corporation, Sun Microsystems, and Dell Computer Corporation). 29 Box 5: The Multimedia Super Corridor (MSC) in Malaysia Kenichi Ohmae comments on page 57 of The Invisible Continent: Four Strategic Imperatives of the New Economy (New York: Harper Business, 2000): "1 was personally involved in the original concept development of MSC from day one in 1993. I tried hard to figure out how a developing country like Malaysia can keep pace with the development of the invisible continent. I came to the conclusion that throwing the whole economy country into the twenty-Jirst century across the board would be not only impossible, but unwise, given the complexities of a multiracial society with a dominant Islamic culture. So my recommendations to Dr Mahathir, Prime Minister of Malaysia, was to carve out a large enough area to experiment with the future. A body of appropriate laws was put in place, governing (cyberJaya )) a new fully intelligent city named after the Malaysian word meaning cyber community. An area offifeen kilometers wide and fifty kilometers long immediately south of Kuala Lumpur was chosen as the corridor. We chose nine flagship applications to demonstrate how new continents were different from the old ones. The cyber law (communication multimedia act 1998) has passed the parliament, and the first group of the Electronic government moved to Putra Jaya in June 1999. " As shown below, the MSC project has since developed and is considered to be a success. In August 2001, there were 551 MSC status companies compared to an original target of 500 by 2003. 600-, F E Nb of approved MiSC companies 50-lE Nb of world class companies in M4SC 400- 1997 1998 1999 2000 2001 Source: MSC Comm. September 2001 In the European Union's case, the heads of state and government are kept informed regularly through council meetings on progress made in the implementation of the information society program and ensure overall consistency of national programs with the community program. In Algeria, there is the needfor a strong figure able to lead and supervise the timely implementation of the whole ICT reform process. Unless this is done, the slowdowns and delays in the implementation of reforms will diminish the credibility of the government's efforts and undermine its political support. 5.3 Develop and establish an up-to-date ICT regulatory framework Establishing a sound regulatory framework that is conducive to increased private sector participation is critical to developing a vibrant ICT sector. More specifically, the regulatory framework, as well as the overall business environment, should be attractive to foreign and domestic private investors. Regulatory clarity and predictability are crucial to mitigate investors' risk perception and to promote fair competition. 30 To develop informatin infrastructure, governments are advised to strengthen the independence of and empower regulatory authorities, accelerate the opening up of telecommunications infrastructure and service provision that are still under monopoly control, and establish a predictable environment to make strategic planning and investment possible. In parallel, new regulations are needed in key areas such as intellectual property, privacy, transaction security, electronic protection (encryption), and digital signature in order to maximize the benefits expected from pervasive use of ICT. In Algeria, the first challenge would be to develop a comprehensive regulatory framework covering all the areas mentioned above. The second challenge would be to develop internal capabilities b enforce those regulations effectively. Among the top priorities that the government should address is effective protection of intellectual property rights. Of course, privacy safeguard requirements increase as pervasive use of ICT develops. Finally, to &velop trust among potential users of e- commerce services, the government would also have to establish sound regulations on transaction security, confidentiality, and integrity. 5.4 Develop up-to-date information infrastructures through private sector participation Private sector investment is the driving force of the ICT sector, while monopolistic or anti- competitive environments are major barriers to private involvement. The situation of ICTs is drastically different from other infrastructure sectors such as transport, in which significant public investments are still crucial. The prime task of governments is therefore to safeguard competitive forces and ensure a strong and lasting political will in favor of the information society. There would be no need for large govemment investment, though government leadership could justify funding of targeted flagship applications for demonstration purposes. Additionally, governments could consider "smart subsidies" to promote ICT use by schools, public administrations, and businesses. In total, the fiscal impact of ICT policy measures would be positive as demand for ICT consumption develops. In Algeria, the challenge to attract private investors in building information infrastructure remains. The international private companies with ICT-related businesses are few and limited. The political instability and social turmoil of the last decade have contributed to weakening the country's attractiveness. 5.5 Develop up-to-date human capital to use the information infrastructures and services The review of international experience also shows that countries which have a well-educated population with exposure to new technologies have a comparative advantage in moving towards an information-based economy.38 Nonetheless, ICT dissemination should be preceded by a thorough reform of the education system, a re-skilling of the trainers to complement the students' training, and a well-designed dissemination plan which will target first tertiary education and then younger students. Currently, the number of students trained each year in informatics, electronics, and telecommunications remains completely inadequate to bolster the emergence of the information society. Training oriented towards the new professions created by the technological revolution must 38 It is worth remembering that the worldwide strong growth of the ICT sector led to a shortage of executives and technicians at the same time as the supply of services was expanding. For example, Motorola was forced to cancel its project of a software development center in Egypt because of the inability of the Egyptian educational system to provide the engineers and technicians necessary to develop this center's activities. In effect, such a center requires a critical mass of 300 to 500 highly qualified engineers to be competitive, which the Egyptian market was not in a position to provide. 31 be set up by the State in cooperation with private professional associations. In light of the above, public-private partnerships must be encouraged, and the regulation in force must be adapted to facilitate increased private participation in Ihe education system in Algeria. In Algeria, the supply of ICT skills is deterred by several weaknesses: inadequate ICT training content in relation to market needs, excessive insulation of training programs, inadequate training facilities in relation to market needs (volume and quality), and devastating impact of massive brain drain. 32 CHAPTER 2: ICT SECTOR REVIEW This .chapter reviews the development status of the ICT sector in Algeria with the objective of assessing its readiness. The chapter begins with a review of the telecommunications sector prior to the 2000 reform launched by the governnent. It then discusses the reform, and examines preliminary steps taken by the Algerian government to develop an Information Society Program. The last section of the chapter describes activities and operations of key sector players (Algerie Telecom, Orascom Telecom Algerie, Algerie Poste, and others). 1 SITUATION OF THE SECTOR BEFORE THE AUGUST 2000 REFORM From 1975 to 1981 the Algerian government made significant investments to upgrade and extend its public telecommunications network. As showed in the chart below, public investments in the telecommunications sector consistently represented between 0.3 and 0.6% of the country's GDP. Figure 5: Public telecom investments in Algeria 250 j1.20% 200 - A . . . ---A--- Invest. Tel (M$) '1.00% X *: 150 - !. \ * ^- . ^- _~~~Invest.Tel/GDP (/i:.0 .150 A,.A'- A .~~ A A * ' * 0.60% t 100 A . 0 > A 0.40% 50 0.20% 0 I I I I I I I I I I I I I I 0.00I-° % Source: ITU, World Telecommunication Indicators, 2002. From 1980 onwards, public investment decreased from 0.40 to 0.20% of GDP, which was insufficient to cope with the snowball effect induced by the previous decade's efforts to overcome saturation and to upgrade the telecommunications infrastructure. During this period, public investments in telecommunications only represented an average of 0.70 to 1% of the gross fixed capital in Algeria as shown in the following graph. 33 Figure 6: Telecom investment as % of GFCF uL 2.50% - 0 1.50%7 ~1.00% I - data. C k 0.00% Source: ITU data. As a consequence of the reduction in telecom investment, the waiting list for telephone connections lengthened and reached seven years at the beginning of the 1990s. The quality of service deteriorated while faults became more frequent. The extension of today's unmet demand is explained not only by the slowing down of investment, but also by multiple managerial and operational deficiencies that characterized the Algerian Posts and Telecomrnunications administration. Figure 7: Algerian telecommunications sector inefficiencies 2,500 2,000 O Waiting List 3 Capacity to connect| ,500 - Connected Subscribers|__ _ 1,500 0 0 x 1,000 500- A le 141 lelelllt Source: ITU data. 34 The unmet demand was estimated in 2000 at 800,000 demands for fixed lines, and 600,000 for mobile phones. Service quality and staff productivity were low (in 1998 only 66% of faulty lines were back in service within 48 hours, while in 2000 there were 98 main lines per employee). In comparison with other countries of the region, telecommunications tariffs in Algeria are generally low in regard to connection, subscription charges and local calls. However, tariffs for international calls are high, between US$0.72 per minute for calls to Southern Europe and US$2.13 to Asia, excluding other Maghreb countries where a call costs US$0.20 per minute. Table 2: Benchmarking39 telecommunications sector performance in Algeria Indicators for Telecommunications, Algeria and comparators, 2000 Algeria Egypt Greece Morocco Portugal Spain Tunisia Turkey Telecommunications Tel mainlines per thousand 57 86 532 50 430 421 90 280 Mainlines per employee 98 100 289 98 234 415 129 254 Cost of 3-min. local call 0 O 0 0.1 0.1 0.1 0.1 0 0.1 Business telephone monthly subscription (US$) 2.7 1.8 6.6 9.4 10.3 10.7 2.2 3.2 Business telephone connection charge (US$) ' 46.5 288.2 27.4 94.1 65.9 157.6 67.2 20 Faults per 100 mainlines 2 12.0 6.9 10.0 24.8 10.5 1.5 43.0 55.4 Telephone mainlines,waitingtime (years) 5.4 1.9 0.2 0.1 0.2 0 0.9 0.5 Source: ITU, World Telecommunication Indicators. Notes: 1. Data for Tunisia and Spain are 1999. 2. Data for Egypt, Morocco and Tunisia are 1999. The legal, regulatory and institutional framework was inadequate. The Constitution of November 22, 1976 stipulates that posts and telecommunications are public property. The Ministry of Posts and Telecommunications was the regulator and the operational entity. It held the monopoly for telecommunications and postal services (including financial ones) and managed them as departments of the Ministry. As a result of the inadequate institutional environment, telephone density remained quite low at 57 per 1000 people in 2000, and this ratio has been largely static over the last 10 years (see Figure 8 below). Tunisia and Egypt, with a similar telephone density in the early 1990s, outstripped Algeria by the end of the decade. Figure 8: Teledensity of fixed lines in a sample of North African countries Teledensity of fixed lines 12 Algeria 10 D Tunisia l ~~~~Morocco 199 Egypt 19 94 95 19 19 98 99 20 .2 75 ~ ~ ~ ~ ~ ~ ~ 3 0 0 Q. 2-] 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: ITU data. 39The quality of service has significantly improved in countries such as Tunisia and Egypt since 1999. ITU data are not yet available for either of the two countries. In the case of Tunisia figures updated by the Ministry of Development and International Cooperation indicate that faults per 100 main lines have declined to 29. 35 We have analyzed the teledensity evolution for the year 1998 (fixed lines) for a sample of Mediterranean countries including Algeria, Greece, Spain, Egypt, Morocco, Portugal, and Turkey, and estimated the Jipp curve: Logd= - 2.23+0,96LogIB ; R' = 0.91 [eqn. I (-4.88) (7.52) kCap 0 where - d: fixed teledensity for 100 inhabitants ; and [GDP/capita] = income per capita. For this sample, it appears that an evolution of 1% of GDP per inhabitant would entail an improvement of the teledensity of 0.96% on average. If Algeria had followed the average trend highlighted by the sample, its teledensity would have been 8.6% in 1998 instead of the 5% observed. This result confirms indications provided earlier, though it does not provide a clear diagnosis of the causes. We then modified the model in order to highlight the importance of other explanatory variables in the development of teledensity, namely: (a) investment in telecommunications per inhabitant [InvTel/cap], (b) productivity of the operator through the number of main lines per employee [ML/empl]. Log(d)= - 2.56+ 0. 13 Log GDP I+ 0.l 3Log InvTel +1.39LogI ML ;R2 = 0.98 (-4.05) (0.34) Capita) (1.07) (GFCF) (3.23) Empl) [eqnr 2] The model [eqn. 2] shows that GDP or public investment variables are not relevant explanatory variables for the sample of countries studied.40 On the contrary, gradual improvement in operator productivity seems to have been the main explanatory factor. In this case as in the previous one, teledensity in Algeria would have reached 7.14% in 1998 instead of the 5% observed. The poor sector performance observed in Algeria was probably due to inappropriate structural organization. Algeria seems therefore to have deviated from the average trend observed among its neighbors. This finding led the authorities in 1999 to undertake a thorough reform of the sector. 2 THE POSTS AND TELECOMMUNICATIONS SECTOR REFORM The Algerian government opted for a thorough reform of its posts and telecommunications sector in order to face the challenges of the 21't century and to guide the country towards the information society. This reform was dictated by the necessity to ensure the competitiveness and diversification of the Algerian economy, and to promote the development of a competitive and dynamic telecommunications sector. The reform is taking place in the context of increased globalization and pending Algerian membership in the WTO. The implementation of the Association Agreement with the European Union is an additional incentive to reform. The strategy prepared and adopted by the Govemment of Algeria in June 2000 aims at catching up with global telecommunications sector developments. Its main objectives are: * To increase the supply of and facilitate access to telecommunications services for the largest number of users, especially in rural areas. It is essential for the GoAl to satisfy the demand for telephone services (business and residential) and make these services competitive; * To improve quality and widen the range of services offered. The GoAl sees this as a necessary step in order to improve the telecommunications sector's performance within five years. Also, this is needed by a society and business community increasingly dependent on information; 40 The coefficients (estimators) are not significant for these two variables. 36 * To ensure access to telecommunications services and information networks by the rural population and other disadvantaged groups. The GoAl foresees the impact of rural access to telecommunications and information networks on economic, social, and cultural development. Access will be ensured by defining the obligations of public and private telecommunications operators in achieving universal service; * To develop a reliable national telecommunications network connected to information highways. The GoAl considers that the telecommunications reform is key to the modermization of the public administration and Algerian private companies and the prerequisite for the expansion of electronic commerce; * The GoAl feels that the telecommunications reform will make its economy more competitive and less vulnerable to the volatility of oil revenues. The reform should enable the emergence of new economic activities and the creation of new direct and indirect jobs. The main lines of the govemment's reform program are focused on: * an overhaul of the legal and regulatory framework for posts and telecommunications, in order to give a solid, transparent, and reliable foundation to the sector's reform; * separating the Ministry of Posts and Telecommunications (MPT) into a telecommunications company, a publicly-owned postal operator, and a regulatory authority. A ministerial department is left in charge of the sectoral policy of posts and telecommunications; * liberalizing the postal and telecommunications mnrkets, increasing competition, and attracting private sector investment in these sectors; * opening up the ownership of the incumbent to a strategic investor in a first phase, followed by a takeover bid; * preserving and developing universal service nationwide in accordance with procedures yet to be determrined by the government, and notably as regards operators' financial participation in this service. The liberalization agenda adopted in this light is summarized in the table below: Table 3: Telecommunications liberalization calendar adopted in May 2000 Measure Implementation Date Comments Liberalization of value-added services August 2000 Tender launches, licenses should be awarded in Award of one or two VSAT licenses December 2001 December 2002. Awadfootwrraloprat sDeember 2002 Recruitment of advisers for this transaction is in Award ofone or two rural operators' licenses December 2002 progress. Award of one or two long distance and international December 2003 Recruitment of financial adviser for these transactions licenses ___________is in progress. Recruitment of advisers in charge of this transaction Award of the third GSM license December 2003 is in progress. Award of radio local loop license December 2004 Recruitment of financial advisers for this trnsation Award___of_radio __local__loop__license__December___2004 is in progress. Full openinp oftelecommnunications market December 2004 Source: MPT (2000). Law 2000-03 on posts and telecommunications regulation was adopted by Parliament in August 2000, and enacted soon after by the President of the Republic. The law establishes: * the separation of posts and telecommunications activities; 37 * the constitution of a publicly-owned company, Algerie Telecom, in charge of managing the public telecommunications service previously managed by the Ministry; * the creation of an EPIC to manage the postal public service (Algerie Poste); * the creation of an independent regulatory authority for the posts and telecommunications sector (ARPT); * the opening up of the telecommunications market to competition in accordance with three service regimes: individual license regime, authorization regime, and class license regime (regime de simples declarations); and * the gradual liberalization of the postal market. This law was supplemented by numerous implementing orders, notably: (i) Decree No. 01-109 of May 3, 2001, concerning designation of ARPT Council Directors; (ii) Decree No. 01-123 of May 9, 2001 relating to the operational arrangements which apply to each network type, including radioelectric networks, and to different telecommunications services; (iii) Decree No. 01-124 of May 9, 2001 concerning definition of the procedures which apply to competitive calls for tenders for the award of telecommunications licenses; (iv) Decree No. 01-417 of December 20, 2001 concerning authorization for the establishment and/or the operation of public telecommunications networks, including radioelectric networks other than GSM mobile networks, and provision of telecommunications services by Algerie Telecom SPA. Other important texts are in the process of being adopted, notably as regards competition, universal service, access to scarce resources (numbering, frequencies, sharing of infrastructures), and dispute resolution. In this scheme, the Ministry still keeps two of its former four roles, namely enacting regulations and sectoral policy. In the future, these two roles should be transferred to other institutions and the Ministry transformed in a special unit of the President's office. In this scheme, the Parliament should enact regulation and the sector policy should be carried out by the !pecial unit. The Regulatory Authority is established by Law 2000-03 as an independent authority enjoying wide-ranging financial'" and decision-making autonomy. Its board consists of seven members, all of them appointed and liable to dismissal by decree from the President of the Republic. Decisions taken by the authority can be appealed in Administrative Court, but the proceedings do not have suspensory effect. The Regulatory Authority's main tasks are to: * Ensure fair and dynamic competition in the postal and telecommunications sector; * Ensure equal access to telecommunications infrastructures by different players, and supporting infrastructure-based competition development; * Plan, manage, assign, and monitor the use of commercial spectrum; * Approve interconnection reference offers; * Award operating authorizations and approving equipment; and * Arbitrate disputes between operators and between users and operators. The development plan of ARPT anticipates a total staff of 167 people, divided into five directorates and sixteen departments. As of September 2002, ARPT was not fully operational. Though it has recruited its key directors, numerous positions are still to be filled. The new legal and regulatory framework is organized around many new institutions: (i) the Post and Telecommunications Regulatory Authority (ARPT); (ii) the National Agency for Frequencies (ANF - under MPT 41 In order to ensure its autonomy, the law disposes that it can be self-financing, by offering specialized services to third parties, a percentage on license sales, and a fee paid by operators. The main resource is the fee on frequency allocations. As an example, the two GSM licenses represent 70 channels each. Each channel costs Dinar 10 million. In total, the profit on those two licenses is Dinar 1.4 billion (or US$17 million). 38 supervision), recently set up to manage the spectrum band;42 (iii) and the National Commission that manages access to towers, masts, and other infrastructure for radio transmission ("points hauts") by telecommunications operators and the military.43 A reduction in the number of players may prove a beneficial decision to avoid coordination difficulties and competence conflicts, which could harm the smooth development of the sector. It seems to be equally desirable to reinforce ARPT's independence to protect it from political pressures. This could be done through a modification of procedures for appointment and dismissal of its board members (tenure limitations, no dismissal during tenure except on grounds of proven gross misdemeanor, etc.). Finally, a more detailed reading of Law 2000- 03 reveals numerous imprecise provisions as regards the distribution of tasks and competencies between the Ministry and the ARPT. Figure 9: Telecommunications sector chart for Algeria in 2002 Algerie - Secteur des Telecommunications - 03/2002 Ministere des Postes et | Politique Telecommunications Sectorielle Autorite de Regulation Agence Nationale Reglemen- des Postes et Teecommunications des Frequences tation Fournisseurs des Opeations Services services Internet Algerie mobiles.Intemationa .... ........................................... ........... .... . ... . . .... . ..... . . ... .. . .. . . . . ... . .. .. . .. ... . Telecom (AT) M e E- Kiosques Longue IOO% Gouv. Multi - Rseaux Dsac 0 ~ ~~~~~~Services pflv6s ..i..... .......... -0 | - Lk '°'Local v Fourniture Public des Services de Telecommunications de services Source: World Bank staff, 2002. 42 Note that the ANF is not yet operational. Its creation decree gives it the responsibility to manage the entire spectral resources, including frequencies used by security services. ARPT was also delegated the management of the frequency band for commercial applications. It has no authority as to other frequency bands. 43 It is an interministerial commission that can include operators' representatives and ensures the coordination of access to and use of sites for towers, masts, and other infrastructure for radio transmission ("points hauts"), which are also considered strategic sites for national defense. 39 3 INITIATIVES TO IMPLEMENT AN INFORMATION SOCIETY A Steering Committee was set up by the Government on May 9, 2001 to prepare an exhaustive inventory on the development of the information society in Algeria. This committee, composed of some thirty participants, including representatives of ministries, public entities, teachers and Internet service providers, wrote and handed to the GoAl a report on the stakes and conditions preliminary to the construction of the information society in Algeria. Completed in October 2001, the report defines briefly the offering in the ICT field. It analyzes the regulatory, fiscal, economic, and financial deficiencies currently hindering both private and public initiative, hence the emergence of the information society. The Committee also formulated a series of recommendations, of which the most significant are the following: * Promoting the use of ICT in education; * Complementing the existing telecommunications regulatory framework by enacting new regulations necessary for the dissemination and adoption of ICT; * Adopting incentives to boost demand and use of personal computers and the Internet (abolishing customs duties and taxes on computers and multimedia products); * Offering special rates for Intemet users by Algerie Telecom; * Restructuring the financial and banking sector, * Implementing specific programs to help administrations and government departments to become model users of ICT. In terms of action methodology, the report proposes pursuing and refining the approach initiated by the Steering Committee. It recommends setting up working groups44 formally entitled to study the current situation and present proposals for the preparation and implementation of the Informnation Society Program. These proposals would need to be validated at a national conference involving civil society, the private sector, govenmment, key players, and financiers. The decision process was stalled during 2001 because of prerogative issues between ministries. The recommendations presented by the Steering Committee were not adopted and there was no follow up with the creation of working groups. The slowness of the procedure, aimed at opening the debate to a maximum number of players in the Algerian society, contributed to this slowdown. The inability of leveraging the momentum of reforms is one key problem of Algerian policymaking and is determined by the rigidities in the decisional process. It should be addressed as a prerequisite for the adoption of ICT. After the recent cabinet's reorganization in June 2002, the Ministry of Posts and Telecommunications (MPT) was renamed the Ministry of Posts and Information and Communication Technologies (MPICT). The new ministry should rapidly begin to define the government policy for the ICT sector, and engage in the harmonization and completion of the existing legislation and regulation. 4 OPERATORS AND TELECOMMUNICATIONS SERVICE PROVIDERS This section analyzes the existing ICT supply in Algeria. Sectoral players operating public networks or service providers are reviewed so as to highlight their weaknesses and strengths in the perspective of the information society development. 44 Those groups are eight: education systems and ICT, legal and regulatory framework, public health and ICT, industry and ICT services, provision of online services, use of ICT at national level, SME/SMI development and ICT, and connectivity infrastructure. 40 4.1 Algerie Telecom - a difficult start Officially established in March 2001, Algerie Telecom is still not fully operational, in spite of the appointment in April 2002 of its Board and Director General.4s The delays observed in the appointments of its leaders, and in its operational start-up reveal the contradictions of the Algerian government in implementing its structural reforms. The national telecommunications infrastructures consist of a public switched telephone network (PSTN), two mobile telephony networks, one of which is digital and uses the GSM standard, a public data transmission network (Dz-PAC), and an Internet platform managed by Djaweb, a subsidiary of both Alg6rie Telecom and Alg6rie Poste. Alg6rie Telecom also operates optical fiber transmission links on behalf of other parties (Sonatrach, Bank of Algeria, etc.) in exchange for the right to use up to 50% of the resulting capacity. 4.1.1 Fixed telephony The fixed line network covers the overall Algerian territory. It uses a wide range of technologies: * A general network including: (i) 10,700 km of fiber optic cable (recently expanded to 14,000 kIn); and (ii) 22,200 km of digital radio links; * A satellite transmission network composed of three international terrestrial stations (two for Intelsat and one for Arabsat) and 46 DOMSAT stations; * A rural network composed of 136 master stations making it possible to connect 1,400 localities.46 * The digitalization rate is around 85% as regards transmission networks and 100% as to switching. 1.88 million main lines (MLs) were in service on December 31, 2001, compared with installed capacity of 2.8 million; and * 5,000 public phones directly managed by Algerie Telecom and 11,6004' operated by private SMEs under the name "kiosques multiservices."'48 Additionally, there is an international infrastructure which connects Algeria to the rest of the world, namely: (a) fiber optic terrestrial cables with Morocco and Libya (140 Mbits/s); (b) Tunisia (622 Mbits/s); and (c) a submarine cable49 to France (565 Mbits/s). A new submarine cable (Algiers- Palma50) has increased the transmission capacity from 2.5 to 10 gigabits per second at the main nodes of Algiers, Oran, and Constantine. Telecommunications investment, hindered by an unfavorable financial environment since the mid- 1990s, has started rising again. From less than 6 billion Dinar in 1996, public telecommunications investments have reached 14 billion Dinar in 1999 and 19 billion Dinar in 2000. Thanks to the deployment of these financial resources, the network's capacity growth rate was maintained at 12% per year. 45 Who is also Chairman of the Board. 46 In 2001, the MPT launched on behalf of Algerie Telecom a tender for the extension of 164 WLL rural radio networks to cover 2,200 localities and serve 120,000 subscribers. 47 The figure was 1,670 in 1996. 48 Which represents around 36,000 main lines in total. 49 Belonging to a consortium of 60 telecom operators including Alg6rie Telecom, SEA -M E-WE2 cable connects Europe to East Asia and has landing points in Algeria, Egypt, and India. Its bandwidth is 2,560 Mbit/s. 50 ALPAL2 - Algiers Palma de Majorque submarine cable is a 312 km cable that connects Algeria to Spain using the most advanced technology (Dense Wave Division Multiplexing Technology). Its total bandwidth is 160 Gbits/s and has cost 16.6 million Euros for its construction. 50% of this cost was covered by Algerie Telecom. 41 Box 6: Position of foreign equipment providers Swedish Ericsson is the foreign operator dominatine the field of teleDhonv. Thanks to its exclusive Dartnershiv with the Aleerian state since the beginning of the 1970s. the company has vrovided up to 95% of the fixed telephony ectuipment installed by Algerie Telecom. It also owns a 35% stake in Sitel. a factory based in Tlemcen where the Axe switching svstem is locally assembled, tested, and shipped to different technical sites within the countrv. The rest of the company's capital is held bv public comoanies (ENTC 20%. Homelet 20%. Sonatite 15%. BCEA 10%). and its oroduction caDacitv has been expanded from 150,000 to 300.000 main lines in 2000. and could easilv reach 600.000 units. Though Ericsson has been for a long time the onlv eQuiDment provider. todav other companies are trying to force their wav into the market. This is the case for Alcatel. who is however the provider for the Dublic data transmission networks DZPAC. Alcatel also won 50'/o of the tender offered by Orascom Telecom Algerie. the second GSM network private operator. The German comanvy Siemens won the other half of the tender. The historicallv dominant position of Ericsson on the Algeria market does not represent a risk for the competitiveness of the environment as long as the bidding process is carried out in a fair and transparent manner. Diaweb, the public Internet service provider launched early 2002 by the MPT. chose the American firm Lucent for its platform. Bull (France) is also present on the market, mainly as a provider for comruters and computer network eQuipment. The comDanv had also delivered 70 automatic teller machines (ATM) to SATIM. a consortium established bv local Dublic banks, for the purpose of installing and operating an electronic banking system. Other companies exploring market opportunities are China's Huawei and ZTE, Canada's Nortel, and America's Motorola. Until December 2003, fixed telephony will remain Algerie Telecom's exclusivity. The public operator will, however, need to rapidly develop its management capabilities in order to sustain fierce competition. The company will need to develop new business skills in management audit, market analysis, marketing, and quality control and put customer satisfaction at the top of its priorities. To facilitate this radical change, a general 20 to 30% stake in Algerie Telecom should be opened to strategic investors. This capital opening represents a major stake for the company, both to increase its investment capacity and to benefit from management and technology know-how. 4.1.2 Mobile telephony Mobile communication services have been available in Algeria since 1991, when an NMT analog cellular network was put into operation. A GSM network was put into service in 1997 and connected around 106,000 subscribers in 2002. Mobile communications services are expected to be corporatized in a wholly owned subsidiary (Mobilis). Finally, Alg6rie Telecom also belongs to the Thuraya consortium that provides GMiPCS communications worldwide. In less than one year of operation, the Thuraya service operated in Algeria by Alg&rie Telecom connected 4,000 customers. Compared to the 66,000-customer base of the consortium worldwide, the Algerian market growth seems to have been tremendous.5' With a view to preparing the operator for market liberalization, the MPT (acting on behalf of Alg6rie Telecom) launched an invitation to tender in 2001 for the acquisition of 500,000 additional lines. Six companies responded: Motorola (USA), Siemens (Germany), Alcatel (France), Ericsson (Sweden), Huawei Technologies (China), and Zhongxing Telecom (China). In the pre-selection phase, the two Chinese companies were disqualified for "insufficient references."52 Alcatel made the lowest-cost financial proposal at 75 million Euros, against 121 million Euros by Motorola, 184 million Euros by Siemens, and 193 million Euros by Ericsson.53 51 Thuraya service tariffs: (a) terminal set cost is 82,000 DA; (b) activation fee is 25,000 DA; (c) monthly subscription fee is 1,000 DA; and (d) communication cost varies from 40 DA/mn for national calls to another 52 Thuraya customer to 56 DA/min for a domestic call to the fixed network. Which caused an official complaint from Huawei to the President of the Algerian Republic. 53 This tender was just canceled by the authorities due to various irregularities, and should be relaunched by the general management of Alg6rie Telecom in the near future. A new tender was organized by Algerie Telecom in October 2002 and was won by Ericsson. 42 4.1.3 Data transmission and leased lines 103. A public data network (DZPAC) with X.25 technology is operated by Algerie Telecom. In December 2001, this network connected 4,460 subscribers against 1,960 subscribers on December 31, 2000. However, unsatisfied demands remain high and are estimated between 2,000 and 2,500. According to the law, the provision of public data communication services is opened to competition, but Algerie Telecom's exclusivity on the local loop makes this impossible. To develop corporate network solutions, and support the modernization of corporate communications systems in Algeria, there is a need to accelerate the opening up of the local loop. At present, all major ISPs operate their backbone networks but are forbidden by law to connect end users. Enabling the connection of corporate end users through wireless systems could indeed support the Information Society Program contemplated by the Government of Algeria. Alg6rie Telecom also provides a wide range of leased lines to businesses and government users. According to Law 2000-03, the provision of leased lines is opened to competition, though only officially licensed operators can compete. In 2002, only Orascom Telecom Algerie had the right to sell unused capacity to third parties. Officials are considering legal options to promote the provision of leased lines by altemative operators such as Sonelgaz and TDA. 4.1.4 Internet services (Djaweb) In early 2002, Algerie Telecom implemented its own Internet platform. Before this date, the main Internet service providers had to connect to the global network through VSAT links offering a relatively limited transmission rate. The platform has connecting capacity for 100,000 subscribers and can handle around 10,000 simultaneous accesses through the public switched telecommunications network. It also enables connections through leased lines. The country's 48 wilayas are served through points of presence (POP) connected by 8 Mbit/s links to the three regional nodes of Constantine, Oran, and Algiers. The national Internet platform is connected via an international 34 Mbit/s link. Figure 10: Djaweb's Internet platform Algeria Telecom Internet Network Architecture Source: MPTbaprpsrs oi~~d 'nfr o ens i t r e, 201 14 sitie S 8 M <14 siles 4 LGEt ~~~ATM 34 MIbps tO A N 1 4 495 Ps A T4 Mbp s ~~~~~~~A 4 AiMbps / 0 1 7 s i te s Source: MPT, Rapport sur la Societe de l 'Inforinationl en Algerie, 2001. 43 Calling the number "1515" enables a direct connection to Djaweb and does not require any preliminary subscription. This offer54 has already experienced a strong success and seems to have lowered the cost barrier to the Intemet for some subscribers. 4.2 Orascom Telecom Algerie In July 2001, Orascom Telecom Algerie (OTA) obtained a GSM license for US$737 million payable in two installments, the first paid on August 24, 2001, and the second in December 2003. The investment bank BNP-Paribas assisted the Government in preparing and organizing the transaction. Between the time of the estimates and the award date, the collapse of the telecommunications market and the growing difficulties of operators engaged in heavy investments for the acquisition of UMTS licenses in Europe made the Algerian government proposal less attractive. In the end, out of three pre- selected operators (Orascom Telecom, Orange, and the consortium Telefonica-Portugal Telecom Moveis), only two submitted an offer. The opening of the proposals revealed a significant difference between the two offers: US$737 million from Orascom, against US$422 million from Orange. Today, there are questions about the "pan-African" strategy of the group (subsidiaries in Sub- Saharan Africa are for sale), and its growing financial difficulties are hindering its growth, including in Algeria. This jeopardizes its target of becoming the main operator in North Africa and Middle East. Orascom Telecom Algerie (OTA) was set up in the wake of the tender. The company's capital increased in early 2002 from US$382 to US$412 million, and would again increase to US$510 million by early 2003. " OTA is owned for 53% by the Egyptian parent company (Orascom Telecom Holding), another 43% is owned by a consortium (ORATEL56) of sub-regional institutional investors and Algerian institutional investors, and the last 3.4% is held by the Algerian group Cevital (specializing in agribusiness). Cevital seems to be considering increasing its stake to 10%, which would give it a seat on the operator's board. The technical specifications imposed on Orascom Telecom Algerie are based on the company's goodwill (and not from any external requirements). OTA wanted to reach 500,000 subscribers at the end of the first year of operations, and cover the 12 most populated wilayas (August 12, 2002). At the end of the fourth year, OTA should cover all communities with a population of over 2,000, all major roads, airports, ports, and tourism and economy areas. By November 30, 2002, OTA had connected around 280,000 subscribers; its commercial service was available in sixteen localities (Algiers, Constantine, Oran, etc.) and partially covered the territory of important wilayas. The acute financial difficulties faced by the parent company (Orascom Telecom Holding) and the press uproar in the summer of 2002 on the license award represent weaknesses for its future.5' 54 Without login and without password, but easy to interface with the telephone book, according to Djaweb managers. 55 In a recent interview published by IT Mag No. I (Algiers, October 29-November 4, 2002), Lionel Coussi announced that AIG (American Insurance Group) would become OTA's shareholder with a total contribution estimated at US$40 million. 56 Oratel International Inc. is controlled by eight shareholders: Orascom Telecom Holding (15.8%), Naguib Onsi Sawiris (24.3%), Jordan Mobile Telecom Services (24.3%), Palestinian (bmmercial Services Co. (18.2%), Palestinian Pension Fund (6.1%), La luxembourgeoise General Mediterranean Holding (7.3%), Sheikh A. R. El Jereissy (1.2%), and Sheikh A. Sharbatly (2.7%). 57 OTA's total investment in 2002 is estimated at US$550 million, and was mostly equity financed. In 2003, the company expects to raise financing from local banks to match its investment needs which are estimated at US$1.3 billion including the license cost. 44 5 POTENTIAL ALTERNATIVE OPERATORS There are many projects aiming to depby telecommunications infrastructure. They mostly emanate from large state-owned enterprises wishing to consolidate and develop the existing infrastructures for their own needs in order to offset the inadequacies that had characterized the public telecommunications service. Sonatrach (hydrocarbon), Sonelgaz (electricity and gas), TDA (Algerian Television Broadcasting), Air Algerie (Algerian Airlines), ENNA (Air Navigation National Enterprise), SNTF (Railroad Transportation) and ANA (Highways National Agency) have deployed a large number of fiber optic cables or microwave links. On December 31, 2001, these state-owned enterprises operated a total of almost 6,000 km of fiber optic cables. Further to these enterprises, three ministries (national defense, health, and vocational training) are currently restructuring their networks. Box 7: Sonatrach's telecommunications network With a turnover of US$25 billion and 130,000 employees, Sonatrach is the largest company in Algeria and in Africa. It ranks as the twelfth-worldwide largest company. Faced with the inadequacies of the public operator, the company started building its own telecommunications network in 1990. At that time, the service provided by the ministry was not considered reliable and could stop a pipeline from operating for two weeks. Thanks to this investment, representing no more than 2% of the cost of a gas pipeline, the company has an up-to-date telecommunications network (mainly fiber optic-based). The telecommunications infrastructure is jointly operated with Algerie Telecom and includes 50,000 private telephone lines and 7,000 Internet addresses. Furthermore, it is about to put into place several Intranets, distributed according to professions (upstream, downstream, transport, partners, etc.). This project should be completed by the end of 2004. For the time being, the company does not intend to put its overall network onto an Extranet, but is thinking about doing so for the firms in its direct environment (service providers, banks, insurance companies, transporters, etc.). Meanwhile, for its network maintenance, the company outsources more and more. 5.1 TeIediffusion d'Algerie TDA (T6l1diffusion d'Algerie) uses only half of its capacity for its transmissions (broadcasting of the national television channel and four radio channels). It rents part of its capacity to a Dutch satellite operator on behalf of television channels established in the Persian Gulf. TDA would like to use its residual capacity to host new operators. TDA is also looking out for new initiatives in the audiovisual area (private channels, private local radios) and in the telephony area. In this context, TDA has proposed to provide leased lines (34 Mbps) to OTA and to Intemet service providers, but was denied this right by the regulator. TDA's network consists of 7,200 km of microwave links serving the northem part of the country while 100 VSAT stations (of which 50 are operated by Algerie Telecom) serve the rest of the country. Currently, TDA has three points of presence in Algiers, Oran, and Constantine allowing it to provide microwave links at 2 Mbps. TDA also uses its international bandwidth (8 Mbps for incoming traffic and 2 Mbps for outgoing traffic) for Internet flow. 5.2 Alg6rie Poste The postal network is comprised of 3,310 post offices of which 1,000 are connected through the MEGAPAC59 network. Algerie Poste is thus the only financial institution in the country capable of offering real-time payment services nearly nationwide. Postal financial services generate more than half cf postal revenues and represent around 75% of post offices' activities. Algerie Poste also manages 5 million CCP accounts (postal checking accounts) and 3.2 million saving accounts on behalf of Caisse Nationale d'Epargne et de Prevoyance. 58 TDA has declared that its points of presence should soon become ten. 59 The MEGAPA C network is the private communication network of the Ministry of Posts and ICT. 45 Globally, the main changes in the postal sector are a larger integration of ICTs and greater market liberalization. These trends have transformed the traditional postal service with regard to mail distribution as well as for financial services. Algeria is also affected by these transformations. The main international courier services (DHL, Federal Express) are already gaining market share where the incumbent offers a low quality service or cannot cope with the demand. The table below illustrates the modest growth of postal revenues in Algeria from 1990 to 1999. Development prospects for postal activities depend on a substantial improvement of supply to generate a growth in demand. Table 4: Algerian postal turnover 1990 to 1999 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Postal activities 377.2 420.2 941.9 1100 983 1152.5 1762.1 1622.8 1704.3 1668.6 Postal financial 1097.1 1829.6 2122.7 2562.4 2882.5 3100.2 4571.4 5230.4 6369.4 7177.5 services Source: MPT (2001). The 2001-2004 economic recovery program therefore allocated US$83 million to improve postal infrastructures in order to strengthen the competitiveness of Algerie Poste. The new strategy of the state-owned Algerie Poste is based on a better use of ICT to improve the quality of services offered to the public. The growth potential of mail and parcel activities can be achieved if significant investments are made in developing the infrastructures and operational capacity. The operator enjoys one principal asset: the capillarity of its collection network allowing it to reach the whole population, including those in rural areas, and its CCP customer base. Algerie Poste could thus become a key vehicle for ICT dissemination,60 and particularly for the dissemination of Intemet access points.6' This would contribute to bridging the di ital divide, notably for rural communities, and would improve access to many governmental services. 2 6 INTERNET SERVICE PROVIDERS Non-existent ten years ago, faltering, and reserved for a few research centers five years ago, the Intemet is carving out a role for itself today in Algeria. Some have been quick to compare the imnpact of the Intemet today to the phenomenon of satellite dishes at the end of the 1980s, when those antennae clandestinely entered Algerian homes, helping Algerian society to open up to the outside world. In 1995, President Zeroual decided to equip the Presidency of the Algerian Republic with a website, and the government published the country's finance law online for the first time. These two events contributed to the dissemination of the Intemet. However, with a density of only 13 Internet users per 1,000 inhabitants, Algeria is lagging well behind developed countries and neighboring countries like Morocco or Tunisia. The number of Intemet users63 is estimated to be slightly over 400,000, perhaps 500,000. This figure can only be estimated, since the majority of connections are made through cybercafes, of which there were 2,300 60 Algerie Poste could focus on the development of platforms logistically efficient for mail and parcel delivery. 61 An example of this is the operation "Intemet for all": an email address for every citizen who would like to have one. 62 The impact of diffusing egovernment services through the postal network would have several positive impacts, including offering secured electronic payment, which could contribute to reducing the money supply circulating in the form of bank notes and hinder the development of illegal business activities. 6 By this is meant the number of users, not of the subscribers to an ISP. 46 to 2,400 in March 2002. The number of subscribers as reported by the operational Intemet service providers is estimated at around 60,000. The number of websites has increased (about 2,000 in March 2002) and Algeria now has around ten portals available. In early 2002, the ISP Authorization Commission listed 74 Intemet service providers (ISPs), of which only ten were operational. Several operators underestimated the investment and technical skills necessary to start an ISP activity. Others requested the authorization just to avoid rnissing the opportunity. Finally, a last catgory of ISPs offer a cybercafe service, despite their ISP status.64 The market showed good prospects for growth with estimates of more than one million users by the end of 2002. The infrastructure was supplemented with the launch of an IP platform by Diaweb in early 2002. Algericom, a private provider based in Oran, also planned to set up its own regional backbone and announced the implementation of a 500,000 subscriber capacity platform in 2002. Likewise, Telediffusion of Algeria (TDA) began the developnent of its own Internet access network in 2002. All these initiatives aim to capture a potential demand estimated to be significant, but that remains unmet due to the cost of telephony equipment and services, which is unaffordable for most Algerian households.65 Box 8: Djaweb, unfair competition? Apart from the difficulties in settinR up Algerie Telecom. this is another subiect that illustrates the State's contradictions when dealing with the deregulation of the telecommunications sector. Three years after the first private providers appeared. the MPT launched its own Intemet access service in earlv Januarv 2002. Named Diaweb. this network links to three POPs (Algiers. Constantine. Oran) and allows access to the web from the entire territorv. with 10.000 nossible simultaneous connections. A connection is established without subscription. through a four-digit simplified number. "15 15". The intention is laudable. since Diaweb's goal was to allow Intemet access to the largest possible number of users. particularly in the areas not covered bv private providers. But the cost of the service remains high: Dinar 2.04 for a minute. or 20 to 30°/o more expensive than others. The Ministry anticipated the future increase in local telephone communication costs. The connection through "15 15" aroused violent criticism from anDroved ISPs. who had no hesitation in calline it "unfair competition" and asked for a simplified number for themselves.66 Others state that "Diaweb doesn't bring anv added value in terms of services" and feel that the customers will make the choice at the price level. A latecomer to the market. will Diaweb stay the course? Its promoters' ambitions are barely disguised: to make Djaweb to Algerie Telecom what Wanadoo is to France Telecom. 6.1 CERIST The Research Center on Scientific and Technical Information (CERIST) was the first organization (and for a long time, the only ISP) to offer Internet access. Founded in 1986, and set up under the supervision of the Ministry of Higher Education and Research, CERIST is a statutory body with official scientific and technical capacity. To date, CERIST remains the first Internet service provider with 18,000 active subscribers. Its infrastructure includes an access link of 20Mbits/s towards the USA, over 80 access points distributed all over the country, around 2,000 PSTN lines, and 40 leased lines (64 kbits/s) for connecting its subscribers. 64 The ISP Authorization Commission voluntarily extended the scope of the decree, in order not to limit individual initiative. Many are candidates to offer access to the network, but few propose original information, services, or commercial exchange offers. 65 This cost is estimated at around 150,000 DA, everything included, to access the Internet (US$1,879, Euro 2,130). 66 ARPT (local regulator) recently granted similar abbreviated numbers to competing ISPs thus ensuring a level playing field. 47 Due to its status, CERIST management is trying to disengage from its ISP activity in order to refocus on its core activity and let the private sector take care offurther developing the Internet. Its Internet activity could therefore spin off or undergo privatization. 6.2 EEPAD-WANADOO Founded in 1992, EEPAD was at first, until 1995, a vocational and distance learning institute. Its promoter Nouar Harzallah is a former high-ranking official of the Ministry of Vocational Training. From 1995, EEPAD started using information technologies (videoconference) for its training activities. Thus, it participated in 1996 and 1997 in the first telemedicine experiments carried out between Algiers University Hospital Center (CHU) and Paris Necker Hospital and Cochin Hospital. In 1998, the corporation obtained an ISP agreement and sets up its first point of presence in Annaba. In March 2001, it signed a franchise contract with the French operator Wanadoo, to create Wanadoo- Algeria. This franchise contract was at first signed for eighteen months. Then, the two parties agreed to establish a common subsidiary of which Wanadoo now owns a 25% stake. As regards training, in 2001 EEPAD launched the operation "50,000 Hours for Schools". In the form of free access coupons distributed in schools, this operation was a real success! 7 The corporation wants to implement a distance learning platform and hopes to connect between 100,000 and 200,000 subscribers. It is also hoping to capitalize on the development of &cornmerce, even though the absence of an adequate regulatory framework does not yet allow online payments. EEPAD employs 73 people and makes a turnover of Dinar 150 million, 60% of which come from its Intemet subscribers. Box 9: EEPAD-WANADOO, the largest private Algerian ISP With 18,000 subscribers and an average tariff of 30 dinars per hour, EEPAD-WANADOO is currently the leading Algerian ISP, sharing this spot with CERIST. Today, it is the only one capable of offering access to almost all Intemet users in the country, with seven platforms installed or in the process of being installed nationwide. Its customer base is 60% corporations (half private, half public) and 400/o individuals. EEPAD's CEO announced in 2002 400,000 connections per month (of which 54% were in France) and one million hit pages. EEPAD also interconnects 50 firms through specialized lines. Furthenmore, it is conducting two projects with two banks (one private, one public) to interconnect all the branches through secure Intranets. Among other innovations, EEPAD also launched a prepaid card called Cartanet, with a price starting at Dinars 500 and three different service levels: Standard, Plus, or Gold. The card is sold in Kiosques Multiservices and cybercafes, and enables users to surf the web, have a standard or voice email address, and even build personal pages. 6.3 GECOS GECOS was created as a corporation in 1994 to commercialize and install computer equipment. In 1997, Younes Grar left his position as a researcher on the Intemet project with the Center for Development of Advanced Technologies (CDTA) and was appointed Chairman of the Board. Taking advantage of the legal vacuum concerning the Internet, GECOS launched Internet subscriptions for some private businesses. Some ten privately-owned newspapers threw in their lot with the company. The service was almost free, because the goal was to "change mentalities" and get exposure. In 1997, the corporation opened the first cybercafe in Algiers. The second one opened one year later and was a resounding success, in spite of high communications charges (Dinar 250 per hour, and many technical difficulties). With the liberalization of the htemet in 1998, GECOS was granted the first ISP authorization. GECOS then announced its intention to acquire its own broadcasting station. In March 2000, the equipment was held for several weeks at the Algiers airport. This happened again in November 2001, 67 Deployment on a large sale of this operation is still depending on negotiations with the Ministry of Education. 48 when the corporation decided to implement a second VSAT station to connect with Canada. Thanks to these investments, GECOS is one the few ISPs enjoying its own intemational access infrastructures. At present, GECOS claims 10,000 subscribers, of which 3,000 are firms, and owns 200 cybercafes. GECOS also provides the Internet connection to 12 ministries, is operational in four major cities, covers 14 wilayas, and is expanding at a steady pace. Besides the provision of Intemet access, it also offers website design and training services. Its capital stock is Dinar 25 million, of which 30% is controlled by the Ababou Electronics and Gemed groups. In 2001, the corporation recorded tumover of Dinar 80 million, with profitability of around 10%. 6.4 BMGI BMGI Intemational was an Internet pioneer in Algeria. Its strategy consisted of developing content services instead of selling Intemet access. Originally a consulting firm in the computer field, BMGI took an interest to the Internet in 1995. That year, the company obtained a contract to design Holdmec's68 sites. In the wake of this, it continued with the design of Saidal's69 websites. It obtained an ISP agreement in 1998. In 1999, BMGI created a website publishing tenders. The site is called: www.business-dz.com. In 2000, the business portal was launched.70 To finance its activity, BMGI intensified its training offering and proposed its first training sessions on website design and maintenance (web master), as well as leamring seminars for executives on efficient use of the web. It makes a turnover of Dinar 12 million and employs about fifteen permanent staff and works with two computer service firms. 7 COMPUTER DISTRIBUTORS AND SERVICE PROVIDERS There are no official statistics on computer availability in Algeria. The October 2001 Interim Report on the Information Society cites two sources: (a) the magazine Arabies which estimated at 600,000 units the stock of computers in Algeria in 2001; and (b) the customs services which estimate that 300,000 computers are imported into Algeria each year. This absence of figures illustrates the low level of computerization of the Algerian economy. The Algerian administration and corporations have not yet begun the computerization of their procedures and management. Several sectoral players emphasize, moreover, that the use of computers is still too often limited to word processing. What is more, the virtual non-existence of local networks in firns and administrations show that the computer tool has not yet been integrated as a factor to accelerate productivity and economic development. The absence of a national reflection or policy as regards the computerization of the State, and the various restructurings of the State apparatus could probably explain the current situation. Diffusing the use of e-mail in the administration would be a first step towards a knowledge-sharing culture which would impact efficiency and effectiveness. 7.1 Major state-owned enterprises Following the dissolution of the Commissariat national a l'Informatique in 1975, the information technology sector was restructured into several subsectors, namely into different state-owned enterprises. The following furms are the major state-owned enterprises active in the sector. 68 Public holding in the mechanical industry sector, grouping 40 companies and employing 36,000 people. 69 Public companies holding in the pharmaceutical fields. 70 But all these activities are not very profitable, due to lack of web resources. 49 ENIE (Entreprise Nationale de l'Industrie Electronique) specializes in manufacturing consumer electronic products (television sets, VCRs, hi-fi systems, active and passive components). Jointly with ENSI, ENIE owns Alfatron, a subsidiary specialized in PC assembling and corporate network installation. Alfatron is a corporation with a capital stock of Dinar 39 million, and it has a manufacturing facility in Oran than can produce up to 50,000 PCs a year. It employs 50 persons, of which 30 are engineers. It is Microsoft-certified for its computer network installation, and Intel certified for the integration of micro-processors into computers. Its tumover rose from Dinar 70 million in 1986 to 350 million in 2000. ENSI (Entreprise Nationale de Systemes Informatiques) is a state-owned enterprise with a capital stock of Dinar 92.5 million. It was transformed into a stock corporation in 1988 and is one of the firms that could be privatized. It specializes in studies, corporate advisory services, software development, PC assembling (see ENIE), design and maintenance of corporate networks, and training. ENSI also commercializes Intemet access. CETIC (Centre des Techniques de l'Information et de la Communication) was created in 1976, and became a stock corporation in 1983. CETIC's capital stock is Dinar 4.7 million, and it is 100% state- owned.7' Its activities are management consultancy, computer services, and audit. It benefits from a close partnership with Bull and is the local subcontractor for PricewaterhouseCoopers (PwC). In the long run, equity investment by PwC in CETIC's capital is envisaged. CETIC employs 100 permanent staff and also works with a network of 250 independent consultants. Its tumover in 2000 was Dinar 311 million and its operating profit was Dinar 21 million. 7.2 Major private corporations Though there are no overall statistics allowing an analysis of the private sector structure in the informatics area, it can be observed that over a few years, there has been a proliferation of brand names and small business start-ups. The latter are mainly in the field of equipment and software distribution, and provide some consultancy, maintenance, and training services. As for many similar initiatives in Algeria, promoters do not systematically conduct marketing surveys, since they estimate that existing supply does not meet demand. King Line Computer belongs to this category. It has a production capacity of 300 machines a month, and has established a well-organized distribution network. Overall, the majority of the firms in the sector are merely representatives of foreign brands. Partnerships, especially industrial, are rare. The IT market gives the impression of a certain confusion: equipment incompatibilities are frequent. As regards software, piracy is the ma.jor problem Microsoft Algeria estimates that near 95% of software used in the country is pirated. Some of its executives, in their statements to local press, even suggested that the largest firms exceed the agreed number of software licenses. To combat this ihenomenon, Microsoft wishes to develop a partnership with the Algerian authorities. This partnership is focused on assistance in computerization, staff training, and an intensified information campaign to raise awareness on the need to enforce IPRs (intellectual property regulations). In that perspective, Microsoft has signed a convention with the Ministry of Vocational Training, and is negotiating another one with the Ministry of National Education. Microsoft has also obtained the establishment of an association of software publishers and developers, and hopes accordingly to contain software piracy growth in Algeria. 7 The management proposed a gradual opening of the capital to employees, executives, and external consultants, so far without success. 50 Box 10: ALBM or how to bypass local bottlenecks Algerian Business Machines, created in 1995, is an Algerian limited liability company with a capital stock of Dinar 500 million. It succeeded the former IBM local branch that closed in the early 1990s because of the security situation. Initially an almost exclusive distributor of IBM products and services in Algeria, ALBM graduated to business-partner status three years later. Acting both in the information and the communications areas, ALBM has two main activities. Further to commercializing IBM PCs, software, and services, ALBM also sells IBM management applications, and recently started an ERP activity. 80% of its customers are in the public sector banks, insurance, industry, administration. However, the company has been able to contract several multinationals (Coca Cola, Aventis, etc.). Meanwhile, private sector customers are rare. To bypass the Algerian legislation preventing companies from owning foreign currency accounts and to respond to intemational tenders, ALBM has created an offshore company, jointly owned with IBM Europe. The offshore company responds to tenders on behalf of ALBM. This activity generates a turnover of around Euro 6.5 million which subsequently transferred to ALBM in the form of equipment provision. ALBM's total turnover was estimated at around Dinar 200 million in 2001, and Dinar 10 million in annual profits. The company's capital stock is controlled up to 48% by its Director General, 16% by various individuals, and the remaining 36% by its employees. ALBM employs 30 people, of which 20 are for customer care service. In general, the IT service sector appears as an emergent and poorly-structured market. Except for a few state-owned enterprises set up in the 1970s after the dissolution of the Commissariat a l'lnformatique, the market is characterized by a few dozen small businesses. These firrms are not yet specilized though they could easily adapt to meet their customers' needs. In conclusion, for Algeria to meet the domestic demand for information infrastructure that will increase as a result of the privatization and sector restructuring policy, there is a need for industry consolidation. This can be achieved through the privatization of existing public manufacturing entities (ENIE, CETIC, SITEL, etc.), in parallel with efforts to attract foreign multinationals to establish local factories and offices in the country. Only a combination of both approaches would enable the country to avoid massive and costly imports of ITproducts in the future. 8 INFORMATION MEDIA PLAYERS 8.1 Press Since the press was opened up in 1990, many new titles have appeared. Today, all opinions are represented. In 2002, 184 titles were listed, representing a circulation estimated at 1,700,000 daily. The freedom of tone, readily critical of the government, is striking. Box 11: The newspapers, pioneers of the Internet They were the first enterprises in civil society to invest in the Intemet. At the urging of Younes Grar, Chairman of the Board of GECOS, the newspapers in Algeria were quick to seize the opportunity to broaden their audience and "get out" their edition in spite of circumstances (strikes, paper shortage, censorship, etc.) in order to demonstrate their know-how to the world. The first one to go online was El Watan, quickly followed by the other major titles. Today, newspapers have a noticeable presence on the Algerian net. Around fifteen titles have a website where the daily edition can be read free of charge, and archives can be accessed. Portals all have links with all press sites, or offer a thematic selection of articles. In their summary, more and more titles develop pages specializing in multimedia. Certain subjects, like the award of the second GSM license, occupy a significant place and contribute to enlivening discussion among the population about the information society. Some of the major daily newspapers of the Francophone press are: * El Moudjahid (the government-authorized voice) * El Watan (100,000 copies, collectively owned by journalists originating from El Moudjahid) * Liberte (150,000 copies, liberal and rather close to the business world) * Le Matin (90,000 copies, Algiers daily newspaper, voice of part of the opposition) 51 * Le Quotidien d'Oran (40,000 copies, quality newspaper, it rapidly surpassed its sphere of influence to become national) * La Tribune (known to be close to the FLN reformers). El Khabar is the most important Arabic newspaper. It has a circulation of 400,000 copies, adopts an independent tone, and is widely read. In addition to these titles, there are wired reports produced by the public press agency (APS) and those of a private agency called AAL. Even if no journalists have been imprisoned since the election of Abdelaziz Bouteflika, the press law remains restrictive as to journalists' freedom of expression. It provides for prison sentences for "violation of the press laws" such as "defamatory writings", "insults" or "offense" to the Head of State, or dissemination of information deemed "false", "alarmist" or "of a nature to harm State Security"72 8.2 Television and radio The state-owned enterprise ENTV is in charge of producing programs of the television channel Canal Algerie, of which 70% is in French and 30% in Arabic. Canal Algerie, under state monopoly, is broadcast by Telediffusion d'Algerie countrywide. Though there are no specific audience ratings, it is obvious that public television suffers from competition from satellite-transmitted channels. 73% of households owns a TV set, most of which are also equipped with a dish allowing it to receive hundreds of channels through European and Arabic satellite TV packages.73 A semi-clandestine market for receivers and pirated cards has grown up in the last two decades and is rapidly developing. In early 2002, a pirated card price was Dinar 2,000 to 3,000, compared with Dinar 40,000 four years earlier. Monthly recharging of the card costs between Dinar 130 and 150. Piracy is therefore endemic in the sector and should be curbed. The final recommendations suggest updating the relevant regulation and strengthening the resources needed for its enforcement. Like television, radio is a state monopoly. Algeria has four national stations: one in Arabic, one in French, one in Tamazight (the Berber language), and a fourth one, Bejaia, broadcasting in all those languages and playing music in a format oriented towards young people. The sector review carried out in this chapter provides a snapshot on the nature and scope of the issues Algeria must face and overcome to achieve the development of an ICT sector. The supply of telecommunications services overall is inadequate, and the unmet demand remains significant. The Algerian society and economy have not started their computerization yet, which casts question on a rapid transition to the information society. 72 This law is supposed to have been revised for the past three years, but discussions of the new test are always delayed. 73 In its release dated November 20, 2002, the daily paper Le Soir quoted: "Algeria imported during the first nine months of 2002 the equivalent of US$122 million for satellite TV equipment. Germany provided US$40 million, France US$17 million, and USA US$33 million of these imports." 52 CHAPTER 3: ASSETS AND CHALLENGES Algeria has numerous assets that, if properly valued, would allow it a make a rapid transition to an information-based economy. But the recent history of the country shows that the difficulties to overcome are significant. This chapter presents an overview of the initiatives undertaken to promote ICT use, reviews the Algerian assets in the development of an ICT sector, and outlines the challenges that prevent a successful transition to an information society. 1 INITIATIVES TO DEVELOP ICT The President of the Republic, Abdelaziz Bouteflika, frequently mentions in his speeches the strategic importance of the ICT sector in Algeria's modernization and economic development policy. On December 31, 2001, lie emphasized "the importance of the stakes of the technology battle" that Algeria must face, which implies that the country must "progressively rebuild the information society." Several ministries are particularly involved in the rapid expansion of ICT. The Minister of Communications, Mohamed Abbou, pointed out in January 2002 the urgency of "generalizing the use of information and communication technologies in various areas such as public administration." Box 12: The Sante Alg6rie (Algeria Health) Network Launched in January 1999, the Algeie Sante network was at first a simple website, before becoming a full Intranet in January 2002. Still in development, it was projected in 2002 to interconnect 13 University Hospital Centers (CHU) in the country, 15 secondary hospitals (out of 32), and 10 specialized organizations under ministerial supervision. Piloted by the Agence Nationale de Documentation de la Sante (ANDS-National Agency for Health Information), Sante Algerie relies on a network platform, around ten (10) servers (authentication and remote access, message services with web interface, information systems and databases, etc.), a fiber optic Ink with a 34Mbits/s bandwidth, and 512 PSTN links. When completed, the Intranet will connect all internal networks connecting public hospitals. It will also seek to support increased information sharing among health practitioners by enabling direct connection to specialized central databases and other resources (e-mail service, discussion forums). At the final stage, the Intranet will be transformed into a national web portal for the medical sector. Among ongoing and programmed projects, there are three rmin directions: tele-assistance (aid to diagnosis, aid to medical exploration interpretation, aid to therapeutics), epidemiology watch or monitoring, and tele- education (training in blood transfusion project). As to telemedicine, a first successful experiment took place on February 17-19, 2002 between Marseille (France) Public Assistance Hospital and Bab El Oued CHU. The experiment was repeated in April at an international congress on emergencies, and in June with a live broadcast in an amphitheater of a neurosurgery operation. The ANDS is also the focal point in Algeria of the telemedicine initiative EUMEDIS, called EMISPHER. This project aims to set up through the Intemet a permanent network of hospitals and primary health care centers in the Mediterranean Basin. The Minister of Health and Population uses another means to promote the use of Intemet in his administration. He sends intemal memos by e-mail, answers correspondence from his colleagues and staff electronically, and participates directly in the discussion forum on the site www.Alg6riesante.dz. The Ministries of Vocational Training, National Education, and Higher Education and Research sought to engage in significant projects to promote the use of ICT. Though the importance of these 53 initiatives has been proven, many of the practical arrangements for effective integration of ICT into these professional sectors have not been thoroughly examined. 1.1 ICT in tertiary education The Government strategy to improve the diffusion of ICT in the tertiary education system is based on three actions: modernizing the tertiary education administration, promoting the use of ICT as a support to research and teaching, and encouraging the establishment of ICT as an independent field of research. There are a number of very sound dimensions to Algeria's first two strategies for the acceleration of ICT diffusion and development via the tertiary education sector. Efforts to modernize the education administration will have a number of important benefits. Aside from greater efficiencies, it has proven to be a quite viable manner of introducing the culture of ICT within the sector over the long run. Furthermore, the promotion of connectivity and the use of informatics in research and learning in tertiary education constitute promising approaches. This level of the education system will benefit the most from the introduction of new technologies, particularly as it will provide in relatively short terms the opportunity to exploit and contribute to the global arena of research and learning. Box 13: Hopes for a Virtual University Among the information society projects piloted by the Ministry of Higher Education and Research, distance learning occupies a crucial position. In effect, due to the size of the country, and regions sparsely inhabited and poorly covered by public services, this concept is a strategic one for better dissemination of knowledge throughout the overall territory. The Virtual University project is led by the Vocational Training University (UFC), a structure created in 1990, that has an intake of nearly 50,000 students each year. Intended for young people who did not go beyond their high school diploma (bac) and want to obtain bac+3 diplomas, the UFC has already been practicing distance learning through postal services for three years. It uses ICT in the dissemination of its teaching through its Internet site. It is also the focal point in Algeria for the Avicenne project of the European Commission, that aims to connect both sides of the Mediterranean through distance leaming facilities using the Internet. Unfortunately, due to an inadequate telecommunications infrastructure and an incomplete legal and regulatory framework the implementation of this project has been delayed. 1.2 ICT in primary and secondary education Algeria's 17,000 primary schools, 6,000 middle schools and 1,300 high schools are still barely equipped with computers, and are not yet connected to the Internet. Most of them have equipment limited to one or perhaps two PCs used for daily management. The authorities would like to accelerate the introduction of the computer and the Internet in schools and high schools. However, this introduction should be combined with training the teachers to use these tools and be based on the gradual development of specific educational tools. "Tarbianet" aims to promote ICT in the education sector through three actions. First, it entails the modernization of the education sectors' administration. Second, it focuses on distance learning education. Third, it aims at diffusing ICT in schools. This final action consists of three interventions: (1) equipping schools with computers and Internet access; (2) training teachers in the uses of ICT for pedagogical purposes; and (3) developing educational content. 54 Box 14: Teachers to be convinced With half of the teaching profession over forty years of age, the Ministry of National Education expects some difficulties as regards general acceptance of computers in schools. According to the Permanent Secretary of the Ministry, teachers hired over 20 years ago have rather limited cultural knowledge and know almost nothing about computers. A large training effort will have to be deployed, with the support of the firms in charge of installing computers, and of the wilayas willing to participate. The wilaya of Algiers, for example, started in 2000 to equip around 50 schools with computers, and had also launched a training program for "relay teachers" interested in computers and capable of arousing interest in their colleagues. In another initiative, the Ministry of National Education is already preparing its "roops" for ICT. Since 2000, it has been mandatory for the Ecoles Normales Superieures that train teachers for secondary education to organize ICT training courses. As part of the economic recovery program, a Dinar 3 billion program is envisaged to equip all Algerian high schools within two years. This program plans the installation of 20 to 30 computers per school, and 5 computers for the libraries. These media will be assigned in priority to the schools achieving highest scores on end-of-year examinations.74 To this effect, the Ministry of National Education started negotiating in 2002 with two local distributors (Alfatron and King Line Computer) for the supply of computers, user training, and maintenance of the systems that will be installed in various schools. The Ministry of National Education is also engaged in deploying an Intranet to connect its central departments to the 48 wilaya management units. In a second stage, wilaya management units will be in charge of extending the Intranet to reach all the high schools under their supervision. At the end of 2001, 31 wilayas had already undertaken this process. There are, however, three fundamental and overlapping challenges to the introduction of ICT in the basic education sector. First and foremost, creating the human capital base that would be more receptive to ICT is not dependent on the presence of computers but on the general qcality of instruction. If teaching is of poor quality, then addressing this shortcoming should be the priority. There is little proof (and some evidence to the contrary) that introducing computers into an ineffective learning environment can improve pedagogical results. Better schooled students will constitute a human resource base in phase with an information-based economy more than poorly schooled students who had a chance to see some computers in their schools. Second, using input measures as an indicator for progress towards ICT is misleading and can constitute very expensive investments with a high risk of a meager return. Setting goals such as 20 computers per school for the entire country overshadows key issues about how these will be used and maintained. The Algerians plan to start with the best schools to install these computers. Are these excellent schools in need of this subsidy? On the other hand, these schools may have the best human capital as well as qualified and motivated teachers, which would increase the possibilities of diffusion and effective use of ICT. Third, the cost of maintaining infrastructure and overcoming institutional barriers is usually underestimated in the education sector. The absence of appropriate institutional arrangements, infrastructure, and capacity to provide technical support is a key and costly constraint to the effective use of computers and to Internet access in schools. The Algerian experience with a "virtual university" has been limited because of lack of infrastructure and an appropriate regulatory framework. Such problems will not be any easier to resolve in primary and secondary schools. Finally, the Ministry of National Education initiated negotiations with Microsoft Algeria for the provision of software and training services.75 In this program, teacher and pupil training will first consist of an introduction to the operation and use of a computer, and in a second phase, integrating the use of computer tools into the educational approach. Once high schools are equipped, the 74 In 2001, a pilot operation was able to equip 150 of them. 75 Microsoft proposes a fixed price of US$75 per machine for these services. 55 initiative will be extended to middle schools, and then primary schools. This equipment plan must be completed in 2010. 13 ICT in vocational training With 800 establishments, 937 specialties taught and 4,200 trainees enrolled each year, the Ministry of Vocational Training has a nationwide network of training facilities. To improve internal coordination and management and enable more effective cross-fertilization exchanges among all its training facilities, the Ministry has engaged the implementation of a national Internet network. Called "Intranefp", this network will include almost 1,000 access points, with hierarchical and controlled access. Transmission capacities (leased lines) and IP access will be leased from Djaweb, a joint subsidiary of Algerie Poste and Algerie Telecom. The Intranet will also allow circulation of training programs and statistical data as well as desktop orientation to trainees. The Ministry signed a partnership convention in July 2001 with Microsoft Algeria for the acquisition of software. 1A ICT in research and development In the ICT field, there are nearly fifty laboratories linked to universities or other specialized research institutions. The most involved body is CERIST. It has several laboratories: artificial intelligence, relational databases, information systems, research and development in scientific and technical information (IST), computer networking, and multimedia. It employs 263 people, of which 87 are researchers. CDTA (Centre de Developpement en Technologie s Avancees), was founded in 1988, and is in charge of scientific research and technological and economic development in various areas. The center owns several research laboratories: systems architecture, robotics, micro-electronics, software engineering, and ionized environments. Its activities enabled several technological innovations.76 The CDTA employs 245 people, most of them researchers. The authorities have set up two agencies dealing with research outputs and economic development. The National Agency for University Research Development (ANDRU) is a public entity in charge of preparing, initiating, and evaluating the annual and multi-annual research programs. It is assisted in its mission by the National Agency for Economic Development of Research and Technological Development (ANVREDET) that implements the technological development national strategy and organizes the implementation of technology dissemination networks and observatories. Concerned for a long time with the ICT issue, the Minister of Tertiary Education and Research obtained for the 2001-2004 period, in the framework of the economic recovery program, a substantial budget allocation for the promotion of the ICT in his sector. This budget of Dinar 6.4 billion is distributed between six priority actions: * Development of telemedicine: Dinar 1.1 billion * National network for the production of software: 0.5 billion * Equipment of laboratories to produce integrated circuits: 0.25 billion * Dissemination of distance learning: 1.35 billion * Installation of Intranet networks and purchase of computer equipment: Dinar 2.4 billion. * Construction of an integrated circuit production plant: Dinar 2 billion. 76 Among the most significant innovations are the development of a micro-computer adapted to the Algerian environment, televisual display system, informatics networks, a robot capable of moving on four axes, image acquisition and processing system, and expert system for diagnosis of respiratory diseases. 56 The proliferation of initiatives shows how the Algerian business community and the authorities are interested in pervasive diffusion of ICT, and of the Intemet in particular. Through their promotion activities and their debates in the media, they participate in the public dissemination of the concept of information society. Many colloquia, seminars, workshops, and press conferences have been held in Algiers in the last three years." Newspapers like El Watan or La Tribune publish daily one or two pages on the multimedia sector. The Press Agency (APS) also disseminates numerous wire reports on the subject Further to these promotion actions, CERIST also identified in early 2001 over 100 developments of ICT sector-type projects. They cover many economic sectors including agriculture, transport, industry, education and training, health, business, culture, and tourism. But this enthusiasm is rather poorly channeled and does not allow maximization of synergies between the different initiatives. It is hoped that a true cross-sectoral initiative will now emerge thanks to the restructuring of the Ministry of Posts and Telecommunications into the Ministry of Posts and Information and Communication Technologies. It is also hoped that intemational cooperation programs, in partnerships with OECD academia, will help promote and advance the research agenda. 2 ASSETS ALGERIA CAN USE TO SCCEED IN ITS TRANSFORMATION This section briefly analyzes the major assets Algeria can use to develop a more robust ICT sector. Three are highlighted: (a) unmet demand for ICT use; (b) emergence of an ICT private sector, although still fragmented; and (c) hydrocarbon revenues. It is worth noting that a stronger political will for developing the ICT sector is needed for these elements to become true assets for the transition. 2.1 Unmet potential (solvent) demand As indicated in previous chapters, the demand for ICT goods and service consumption remains largely unmet. Long waiting lists for telephone services (800,000 for fixed lines and 600,000 for mobile) show the scope of the situation. Likewise, the explosion in the number of Internet users in less than three years (150,000 in 1999, 400,000 at the end of 2001, and probably 1 million at the end of 2002) outlines another dimension of the potential demand. The success of the cybercafes, in spite of unaffordable tariffs (Dinar 50 to 100 an hour), shows the population's real interest in the Intemet. It is perceived, according to numerous observers, as an important element of openness to the outside world, as in the case of satellite TV dishes a decade earlier. The Algerian public is asking for new services and new forms of media. Orascom Telecom Algerie quickly identified this evolution when they tested their products on "focus groups". This was also the case of the prepaid card launched by EEPAD-WANADOO, with more than 10,000 units sold in two weeks. For administrations and corporations, the situation is not better. Despite the absence of detailed information on these entities' equipment in terms of modem communication tools, it is likely that needs are enormous. As a matter of fact, very few Algerian firms have local area networks, and rare are those already connected to the Intemet. In the latter case, the Intemet connection is limited to a few executives or managers. The Algerian administration has not started its automation yet. Indeed, " CERIST identified around 60 promotion initiatives between 1999 and 2000. These initiatives are increasingly covered in the press. 57 there are some ongoing projects: improvement of budget management, implementation of banking compensation and tele-compensation systems. But overall, both ministries and their territorial extensions do not have access to automated management procedures, mr to a generalized use of e- mail. The modernization of the public administrations will require automating and networking offices. This will enable it to simplify procedures and give better visibility to decision-makers and managers. Equipping administrations with local and wide area networks and Intranet will allow online government services to be offered gradually, and enable the government to make considerable savings on its budget and to improve the quality of its services. However, systematically resorting to turnkey integrated solutions should be avoided. On the contrary, an outsourcing strategy needs to be devised, and its outline and guidelines should be defined as soon as possible. An innovative modernization process of the administrative system should rely as much as possible on the outsourcing of certain functions to national and international service providers. Doing this would entail: (a) externalization of the technology obsolescence risk; (b) transformation of capital expenditure into operating expenses for the administration; and (c) supporting the development of a competitive national supplier in the area; (d) development of local content in both Arabic and French. For Algerian businesses, the major issue is integrating computerization and Internet into their development strategy and making additional organizational efforts to strengthen their competitiveness. To accelerate these changes, some incentives could be implemented by the government, namely: (i) facilitation of staff training and re-skilling through "matching grants" mechanisms; and (ii) abolition of customs duties on ICT equipment imported by corporations to modernize their information and communications system. 2.2 Emergence of an ICT private sector The most recent information collected'8 indicates that there is an important ICT industry cluster emerging in Algeria with significant growth potential being fueled by economic liberalization and revitalization efforts. Industry leaders interviewed in Algeria are optimistic about the growth of the ICT sector. They point to an important market developing in the country with increasingly large ICT implementation projects being commissioned and significant growth projected over the next five years. There is growing demand for ICT equipment and services such as network installation, systems integration, and custom application development, particularly for Web-based systems and networked applications. For 2002, the ICT supply was estimated around US$1.4 billion'9 by the above-referenced ICF report. The largest revenue-generating segments identified are: computer hardware, telecom equipment and services, electronics products, and devices. The smaller segments are packaged software, ISPs, and integrated IT services. The private sector is present as small local companies and large international brands, the first concentrating on ISPs and IT services, the second involved mainly in telecom equipment and telecom service. (Substracting revenues generated by the electronics products and devices gives an ICT market valuation of around US$700 million in 2002 which is consistent with the growth assessment provided in our market simulation results in Chapter 4). 78 ICF Consulting Group, Algeria ICT Cluster: Inventory and Assessment Report, February 2003. 79 This figure is quoted by ICF Consulting Group. These figures differ from the market simulation results in Chapter 4 for three reasons: I) ICF's ICT sector definition includes 'electronics and components'; 2) the base year considered is 2002; and 3) market estimates are based on a different methodology. 58 The private companies working in the computer hardware segment are divided into two main groups: wholesalers importing and distributing major international brands and local assemblers of PC "clones". The estimated revenue generated by the segment in 2002 totals US$200 million. The wholesalers rely on a wide range of retail distribution partners among which many are small private companies. Importers of branded systems and peripherals are mostly small family-run companies. The suppliers of international brands such as IBM, Compaq, HP, Dell, and NEC are estimated to commercialize 100-120,000 systems per year with a retail value of approximately US$60-70 million. Locally assembled clones represent about 70% of total PC sales, which amount to 200,000 PCs per year. The number of local private assemblers is estimated at 10-15, each with 5-10% share of the market.80 The participation in telecom equipment and telecom services remains limited to multinational corporations and large public companies. This is a result of the country's import substitution strategy (ISI) adopted during the 1960s and 1970s. The ISI aimed at creating a national industrial base to reduce dependence from high value-added imports produced by more developed countries. Economically, the result was inefficient. The national industry ended up supplying the domestic market at higher costs than would have been the case with importing material from international producers. These costs were dealt with through public resources. Today, private international players8' supply most of the local market, either through their offices or through local prtners. Orascom Telecom Algerie stands out as the first private sector wireless provider. In addition to that, smaller private companies such as ISPs are beginning to make modest investments in telecom equipment, such as Cisco networking products and sate llite communications. Electronics products and devices represent a segment of US$700 million where the local private sector is present with 25 manufacturers/distributors in the country. The main producers of this type of equipment are ENIE and ENIEM, two publicly owned companies. The smaller segments of packaged software, ISPs, and IT services represent a minor share of the ICT sector, with estimated yearly revenue of US$50 million.82 These are the segments where the local private sector is more active and a number of domestic companies carry out their business.83 The presence of local private sector companies has increased in the last three years but remains fragmented, with small and medium family-run businesses, which can hardly compete against either the large international players or against public companies. Hence, the growth of these private companies remains limited to the smaller revenue-generating segments of the ICT sector. 80 The major Algerian private player in the assembling industry is King Line Computers, smaller ones are Microland and Perax. In the wholesale and distribution activities, ALBM (IBM) and PC Compo (HP, Compaq). 81 Ericsson, Rohde & Schwarz, Siemens, Alcatel, Motorola, Nortel, Huawei, ZTE, Zander, and Schlumberger. 82 The total off-the-shelf software market in Algeria is estimated at $5 million annually with Microsoft accounting for about 80% of this total and Geni Soft for 80% of the software purchased by the government sector. 83 Two established local companies, G6ni Soft and Technosoft, commercialize branded "off-the-shelf" software, and there are a small number of startups and private individuals making initial strides in software development. As for ISPs, since 1999 the government has awarded 67 private licenses and there are currently 10-15 ISPs in operation. For IT services, estimates speak of 20-25 small private firms as well as of a number of independent consultants. Nonetheless, the major share is managed by four major public sector companies: CERIST, CETIC, CNAT and ENSI. 59 2.3 Hydrocarbon income Income from Algeria's significant hydrocarbon reserves should facilitate the implementation of the Information Society Program. It is probably with this in mind that the government decided to adopt the Algiers Technology Park (Cyberpark Sidi Abdallah) project. Though the outline of this project is still in the process of being defined, it is important not to base an ICT development strategy only on government efforts. It would be, for example, more efficient once the Technology Park is developed for the authorities to delegate its management to a private cperator with the required experience and know-how in the development of such structures. In other words, hydrocarbon income could pre- finance sunk cost investment, thus facilitating the start-up of private investment in new technology development. This could be done through management contracts linking the manager's remuneration to operational performance achieved. However, it is also generally observed that those countries which are endowed with large natural resources experience difficulties in developing a productive economic sector. The availability of hydrocarbon revenues enables the public sector to make large current expenditures independently from the real productive economy. Algeria experiences the same paradox, as the availability of huge hydrocarbon revenues has impeded the implementation of critical economic reforms. From another perspective, if its investments are not productive, the country runs a risk of dissipating its resources and impoverishing future generations. 3 MAIN CHALLENGES Many challenges are still to be overcome to allow a true information society to materialize in Algeria. Among the most significant, as identified in the Steering Committee Report on the Information Society, are: 3.1 Absence of a clear ICT development strategy It is clearly stated in the Steering Committee Report: "... there is currently no clear and consistent strategy in this respect. Indeed, a multitude ofprojects have been conducted in different sectors for three years. Ministries, administrations, public entities, state -owned enterprises, private companies, all have, in some way, proclaimed intentions to improve computer equipment, develop networks, generalize Internet access. But there is so far no material and precise inventory of what exists, what is being developed, and what will be. For instance there is no inventory of the companies' networks: how many are there, what are the populations affected, what is their degree of interconnection with exterior networks? " Likewise, no market survey was undertaken to know the profile of the estimated 500,000 Intemet users. What age are they, what is their socio-cultural profile, what use of the web do they make, what are their service expectations? This lack of information and prospective vision entails the risk of duplicating tasks, or on the other hand promoting isolated, mutually-incompatible projects. The absence of a reflection on the use of ICT will inevitably be disappointing for many socio-professional categories. The general public will then probably have to content themselves with sporadic recreational access to the Internet in cybercafes. Entrepreneurs may risk not capturing expected benefits from significant investrnents made to upgrade their information and communication systems if corporate value-added services needed to improve their internal management processes are not available. Finally, policymakers could be disappointed by the extremely low impact of large ICT public investments on growth and diversification of the economy. 60 3.2 Incomplete regulatory framework Although the existing business environment is conducive to individual initiatives and could support the development of a vibrant ICT sector, it is also clear that Algeria will have to review and streamline existing legislation or regulations and should enact necessary decrees for the rapid development of a vibrant ICT sector. For example, rules related to consumer protection or with respect to public order can be transposed to the Internet without any specific adaptation. Likewise, the law protecting intellectual property and establishing copyright can be extended to software and computer programs.84 On the other hand, from the perspective of developing an ICT sector, specific regulations will have to be adopted.85 In particular, the issue of ISP liability, where it hosts unlawful sites or contents, will have to be clarified and requires an open consultation process with the private sector. Also, current management of national domain names (the suffix "dz") has shortcomings. According to private ISPs, the allocations are "drip-fed". CERIST in particular requires that sites be hosted in Algeria, which prompts Algerian promoters to register their sites under international suffixes (.com, .net). The government should help the industry revise the way domain names are currently handled Ensuring efficiency and transparency of the allocation process seems to be a critical claim from the industry players, namely because it is necessary to avoid "cyber-squatting." They expressed the wish for the establishment of an independent non-governmental organization that could be in charge of that mission. CERIST, which is one of the several competing ISPs, can no longer be in charge of this important "market regulation" mission. 3.3 Unfavorable economic environment Several deficiencies still characterize the economic environment in Algeria. Recent analyses (World Bank, 2002 a, b) detail thoroughly the major bottlenecks affecting the business environment and private sector development. This section re-examines some of the nmin problems highlighted in this note that are of such a nature as to exert a lasting influence on the development of the ICT sector in Algeria. The SME-SMI sector currently represents 75% of non-hydrocarbon GDP. It is essentially composed of micro-businesses, mainly active in the import-export and service sectors. Most of them are privately-owned companies or limited liability companies whose capital belongs to the members of one family. Opening to external investors or to employees is still relatively rare. Most investments are equity-based, which limits the capacity for developing production structures. However, setting up a company remains difficult in Algeria, despite the implementation of public agencies to facilitate the process. For example, the National Agency for Investment Development (ANDI) authorizes tax breaks during the first years of the company's activity.86 But entrepreneurs complain about excessive paperwork,8" and difficulty in obtaining the assistance they need in executing their project, as well as in acquiring real estate. 84 Similar to legislation in developed countries, reproduction or adaptation of a software, without authorization from its author, is restricted to only one copy for backup purpose. 85 Protection of personal data and privacy, extensiori of the concept of "author rights", legal acknowledgment of electronic signature, commercial rules specific for all parties contracting over the Intemet, or implementation of penalty procedures against unlawful behavior or content. 86 Profit tax breaks for five years, reduction of social security contributions, VAT exemption, real estate tax breaks, etc. 87 In June 2001, statistics were significant: 43,000 files were pending at the APSI (future ANDI). 61 Access to commercial information is also cited as a significant obstacle to companies' development. Algerian businesses experience difficulties in: (i) obtaining reliable statistics on national demand; (ii) obtaining relevant information about new technologies available on international markets; (iii) identifying export opportunities that can be upgraded; (iv) identifying possible partnerships and alliances with foreign firms; and (v) obtaining relevant information on the legal and regulatory framework that governs their activities. Increased and effective ICT use by industry players could facilitate infornation flow and help businesses to perform better. The Algerian banking sector is also cited as a barrier to economic development, ald more specifically to the rapid expansion of a real market economy. The banking market remains dominated by six public establishments, despite the liberalization that occurred in the 1990s.88 There is no real-time interbank compensation system at the national level, which seriously curtails the fluidity of financial flows.89 Though they hold substantial financial reserves, Algerian banks essentially lend to large national firms operating in the industrial sector. In 1997, loans to the private sector were around 50% of GDP, compared with 51% in Tunisia. According to many persons interviewed, the chance of obtaining a bank loan to set up a company in the ICT sector (computer consultancy or production, Internet, etc.) is almost non-existent, unless one has sound collateral and personal property to mortgage.90 Possibilities of financing in sectors producing intangible assets are very limited, since there is only one public corporation which could offer venture capital financing (Finalep), but it has no resources. Another financing corporation, Sofinance, engaged in this activity in 2001, but essentially targets sectors like real estate and power station construction. Finally, the Algiers Stock Exchange is not a source of financing.9' Algerians' habits in terms of payment means do not facilitate the modernization of banking 92 activities. Personal checks never worked, because merchants, facing too many dishonored checks, systematically refuse them. As to electronic money, it is limited to a few hundred cash withdrawal cards. 88 Private banks (Citibank, BNP Paribas, Societe G6n6rale, Arab Banking Corporation, Nantexis) are not sufficiently capitalized to play a role and focus on trade financing. 89 Elements from the ongoing central bank project and payment system can be found in the Project Appraisal Document for the World Bank Financial System Infrastructure Modernization Project in Algeria, June 25, 2001, Report No. 22475-AL. 90 The main problems deterring the performance of the financial sector as perceived by entrepreneurs are: (a) credits are not granted on the basis of expected profitability but rather on past history and guarantees offered; (b) excessive collateral required - around 2 to 3 times the loan amount; (c) cumbersonr procedures and centralized decision-making process in banking institutions; (d) banks lack modern computerized equipment and systems; (e) the payment system is very slow - it may take up to 3 weeks to clear a check between banks in Algiers; and (f) the cost of credit is too high - around 10% - and the approval cycle is too bureaucratic. 91 The Algerian stock exchange holds only one weekly trading session of four titles, with an average total transaction volume of less than US$0.5 million. Three stocks are from state-owned companies (Eriad Setif (light drinks and food processing) - Saidal (chemicals) - Hotel El Aurassi (hotel services)) and one credit title (obligations) is from Sonatrach. Treasury bonds are also traded in primary and secondary markets, at competitive short-term interest rates and mostly among insurance companies. Total volume trading is around US$350 million equivalent (less than 1% of GDP) compared to Egypt - US$28.74 I million (36.8% of GDP); Morocco - US$10.899 million (39.1% of GDP); Tunisia - US$ 2.828 million (12.9% of GDP); Jordan - US$4.943 (72.2% of GDP). 92 Circulating cash and notes represent on average 50% of the monetary mass. 62 Box 15: A guarded debut for credit cards The socio-political context in Algeria was not favorable to the use of payment instruments other than cash. The Algerians pay their commercial transactions in cash, since merchants do not trust the banking system. However, credit cards are making a guarded debut in Algeria: 100 at La Poste, 250 at Khalifa Bank, some at Al Baraka, BADR or CPA. Up to now, these cards only allow cash withdrawal from ATMs. It is even said that most ardholders use it only once a month: to withdraw their whole salary. Two establishments hope to install payment terminals at commercial outlets. But, due to the absence of an interbank compensation system, and sometimes even the absence of communication retworks between different branches of a single bank, electronic money so far remains a pilot experiment. A public institution specialized in this field, SATIM, was to launch an electronic money network at the end of 2001, in association with Visa IntematiDnal, but the project was delayed. It plans to equip 500 commercial outlets, distribute 50,000 cards and enable real-time transmission of account-to-account and bank-to-bank financial transfers. Ten banks will also be associated with this project. Alg6rie Poste also intends to install payment terminals at commercial outlets. 3.4 Inadequate ICT training Training in the ICT field is divided into three programs: informatics, electronics, and telecommunications, and is characterized by: (i) inadequate training cntent in relation to market needs; (ii) excessive insulation of programs; and (iii) inadequate facilities in relation to the demand for skilled staff. 3.4.1 Supply does not meet demand Algeria has 14 universities. The most prestigious in technology curricula is the Houari Boumedienne University for Sciences and Technology, called "University of Bab Ezouar". Each year, it enrolls around 6,000 students in the highly-regarded informatics program. Each year, the university delivers around 300 graduate and 700 undergraduate degrees. The following figures were obtained nationally at the end of the academic year 1999-2000: Graduates: * informatics: 1,100 graduates (delivered by 26 colleges or institutes) * electronics: 900 (delivered by 21 colleges or institutes) * telecommunications: 62 (delivered by 2 colleges) Undergraduates: * informatics: 8,800 graduates (850 colleges or institutes) * electronics: 8,000 (720 colleges or institutes) * telecommunications: 75 (3 colleges or institutes) Deficiencies are blatant in telecommunications, especially if compared with the needs for local executives that will arise from the deregulation of the sector and the introduction of competition between different operators in the fixed and mobile telephony segments. Likewise, the number of informatics graduates is low in relation to the needs generated by the ongoing changes. Demand is high, but there are few "chosen", due to existing university intake. Finally, most training institutions face difficulties in recruiting and retaining teachers/researchers. Each year, numerous teachers and young graduates choose to go abroad to find jobs with higher status and salaries. 63 3.4.2 Inadequate training content With a limited intake capacity, the different institutes for higher education apply a severe selection process. The National Institute for Informatics (INI) has trained informatics engineers for thirty years. Each year, it has 250 to 300 students (15 to 20% of the first-year students do not complete the course). The first two years have a common-core syllabus, through which students learn all computer languages. The next two years allow them to specialize: information systems (predominantly oriented towards applications design and development) or computer systems (predominantly oriented towards operating systems and equipment).93 The fifth year is dedicated to field experience in a corporation, after which students are asked to write a master's degree thesis on their corporate project. On the other hand, there are very few vocational training institutes on ICT in Algeria. The initial training constitutes the main part of what is available, and there are few training institutes similar to the Indian model of the "National Institute of Information Technology" that enabled India to develop an international skills cluster for software development. 3.4.3 Insulation of different ICT training programs Higher education in ICT is organized around the three programs: informatics, electronics, and telecommunications. Bridges between them have yet to be built. Corporations rate the level of the training as satisfactory, even though graduate students still have everything to learn about the working environment. The absence of institutional relations between training institutions and business world do little to increase the "professionalization" of education. Computer scientists usually master the computer languages and the various operating systems, but often have a culture that does not always meet the expectations and needs of Algerian businesses. 3.5 Booming underground economy and piracy The "underground" economy occupies a predominant place in the functioning of the Algerian economy. Due to the low standard of living and to the fact that manufactured goods are expensive and mostly imported, the population has a natural tendency to obtain many products through "black markets" supplied by smuggling and piracy. This phenomenon is particularly noticeable as regards ICT. Pirated subscription cards and satellite TV packages can be bought openly, and even sometimes in official foreign TV operator retail outlets. These pirated cards are affordable (less than Dinar 4,000 per month), and can pick up absolutely every pay-TV channel, for a monthly top-up fee. Piracy targets all multimedia products, with the exception of satellite TV: CDs, CD-ROMs, games software, videotapes, and DVDs. Business software is not spared from this scourge. The latest versions of software and software packages are accessible at 2% of their licensed price. Faced with such a difference, consumers do not hesitate. The legal machinery to combat this does exist, but appears almost impossible to apply due to the scale of the phenomenon. The Office National des Droits d'Auteur (National Office for Copyright) theoretically carries out inspections of merchants and firms, but legal proceedings are extremely rare. The government's motivation does not seem to be very strong, despite its declared intention. However, the stakes are high here. The multimedia market would represent about one billion Dinars per year, and the loss of earnings for the State, in the form of uncollected taxes, is considerable. 93 The Internet is conceived as a work tool, and is accessible to students only from the fourth year. Priority is given to scientific training. Management represents between 10 to 14% of the training volume. 64 3.6 Brain drain Some refer to this as a real "national disaster". The brain drain is an issue of particular concern in the ICT field. A significant percentage of young engineers trained in informatics, electronics or telecommunications have no hesitation in taking the first opportunity to leave Algeria. This often occurs on the occasion of a training abroad. Training seminars or colloquia organized in Algeria also offer such opportunities, through contacts with representatives of foreign firms. The major national institutes have modified the way they plan and select candidates to be sent abroad for training. Priority is given to married candidates rather than single ones. Expatriation towards France is less systematic, due to a very restrictive immigration policy. However, Germany and Canada (especially Qu6bec, the French-speaking province) have become preferred destinations. In Canada, the Algerian population is estimated at between 30,000 and 40,000, twice more than ten years ago. The countries of the Persian Gulf remain important destinations for Algerian emigrants. Every company and organization interviewed in the course of this study had* suffered several departures among their best people. To retain their engineers, managers must adjust the level of salaries. In the public sector, a newly-qualified engineer starts at Dinar 18,000 to 20,000 per month. But in larger firms like Sonatrach, salaries can start at Dinar 30,000 up to 50,000 per month in ten years, not to mention benefits (soft loans for home purchase). Others, like CETIC, have systematized incentive formulas allowing experienced professionals to reach Dinar 40,000 to 50,000 per month in income. ISPs, such as EEPAD, have opened their capital to employees. There is nevertheless a general consensus on how to deal with and retain qualified staff in Algeria, and that is by offering them interesting and rewarding professional perspectives. 3.7 Cost of ICT access The "democratization" of ICT access appears to be one of the major issues for successful ICT sector development. In effect, for the average Algerian the cost of access to new technologies is not yet affordable. Standard computer equipment costs five times the average monthly salary.9' Everything included, home Intemet access (telephone and computer equipment, subscription, cost of communications, etc.) is estimated at Dinar 150,000 by the Steering Committee on the Information Society. There is a significant risk of expanding the "digital divide" within the country if ICT cost is not brought down. The "two-tier" information society could also become a concem in the private sector, with on the one hand, large firms equipped with Intranet, and on the other hand isolated SMEs. 94 About Dinar 50,000 for a PC without peripherals. 65 CHAPTER 4: OPTIONS FOR ICT DEVELOPMENT In recent years, Algeria has engaged in a number of socioeconomic reforms aiming to accelerate its transition to a market economy. With respect to ICT, the Algerian authorities devised and implemented a posts and telecommunications sector modernization and liberalization policy. With respect to foreign trade, measures for the liberalization of imports were put into place in the early 1990s. These should be completed in the forthcoming years with the entry into force of the Association Agreement with the European Union and WTO membership. Other significant socioeconomic modernization measures are being considered or planned by the government. However, in spite of initiatives undertaken to accelerate the transition to a free-market economy, the public sector still represents more than 50% of GDP, while hydrocarbon sales account for 95% of export revenues and 75% of state fiscal revenues. The core issues for the transition to an information- based economy are those of diversifying the economy and improving the country's international competitiveness. This implies the emergence and development of new sources of economic growth. The primary issues are those of fostering the creation of new sources of evenue allowing the Algerian government to cope better with fluctuations in international hydrocarbon prices. New business creation is also necessary to generate new employment in sectors so far insufficiently exploited. Large-scale distribution and effective use of ICT should not target building an ICT- producing industry" as much as improving the performance of traditional sectors, making them more competitive in international markets and improving their exports through adoption and effective use of ICT. This is the basic paradigm on which the ICT development strategy should be built. The diffusion of ICT will generate needs for increased and improved services, as well as software. In these segments we can already observe a degree of private sector devebpment composed of locally- owned small and medium industries.96 The sector is still fragmented, but growing. By propelling ICT diffusion in the administrative and productive sectors of society the State will generate a significant push for new business creation, and for the consolidation of service-related businesses. 95 The justification for this recommendation can be found in Chapter 1, International Experience Perspective. 96 Chapter 3, Assets Algeria Can Use in its Transformation. 66 Box 16: ICT in the management of the Algerian Ministry of Finance's budget system Algeria's Ministry of Finance (MoF) is currently undergoing a budget system modernization project (US$24 million) with the assistance of the World Bank. Once completed, this project definitely represents an asset for Algeria's path to the information society. The project is aimed at standardizing the accounting and budget procedures to align the management of Algerian finances with those of the international community. This project has two components: modernization of the budget system, which includes the restructuring of public expenditure procedures, and the implementation of computerization systems to manage these processes. This implies that in the medium term, the MoF will be equipped and enabled to manage electronically the annual budget plan of the State. The electronic system of the MoF will then have to be expanded and integrated with all other technical ministries, a process which will greatly enhance the transparency and efficiency of the country's public expenditure. Currently, the project has initiated its first component. When it reaches its third stage, the project will need a general vision defining the main framework and the successive steps for the computerization of Algeria's public sector. A key aspect of this will be to integrate the MoF with other ministries. In this process, the Steering Committee and the Ministry of Posts and ICT have an important role to play in sharing their ICT expertise and their information on the market to optimize the interconnection of different sectors of the public administration. Source: World Bank staff. 1 BOLSTER THE ECONOMYS COMPETITIVENESS The strategy for ICT development must target their diffusion and effective use. This wiU accelerate the changes both in public and private sectors. This conclusion, shared by the Steering Committee, is based on the observation that the Algerian economy would benefit more from the changes brought about by a massive and effective use of ICT, than from the emergence of a production pole in this sector. The economic and social transformation will derive from the indirect or multiplier effect P ensuing from an effective use of ICT. Promoting ICT in Algeria should not be limited to a passive dissemination of PCs or Internet in corporations and administrations. Such a situation would merely entail massive imports of equipment. It is rather about implementing programs encouraging ICT integration in the education system, as well as in the public administration, to improve their procedures and adaptability, and make them more efficient. There are three main reasons why the public administration is seen as the best channel to diffuse ICT: first, the public sector has both the institutional, financial, and human means to enter into the intensification process at a relatively low cost because there are a lot of computer systems throughout the central and municipal government levels. This infrastructure is not yet networked, but it is already present in the administration and certain government institutions are already well advanced in the intensification of ICT. What needs to be designed is a formal process whereby progressively more institutions enter into this process. The design should explicitly include performance-based targets and results, since ICT inputs to the public sector can be measured very easily. Second, public sector employees are the segment of the population that can count on a stable stream of income. Intensification of the use of ICT in the public sector will expose a large proportion of the population to the benefits of the technologies, and sooner rather than later the families of the public employees will be brought to use ICT by themselves. With their modest but stable income, the best potential for developing the ICT market would appear to be public sector employees. 97 These effects materialize through productivity gains, decrease in transaction costs, and creation of new activities. 67 Third, intensifying the use of ICT in the public sector will automatically compel businesses and other interested parties to deal with the public sector through ICT as well. Especially if the intensification is made progressively and successfully in areas where it can bring this positive externality to the fore (for instance, in the Large Taxpayers Unit recently established in the Ministry of Finance, and in the Agency to Promote Investment (ANDI) created last year). The introduction of principles and practices of "e-government" could be the catalyzing factor for a significant cultural change. Online administration could enable greater transparency in the decision- making processes and reinforce the efficiency of the administrative system through improved supervision of its operations. Enabling the online administration could help lay the foundations of a true cultural change, in relation to the perception of the State by citizens and entrepreneurs. The Algerian government should thus launch a range of pilot projects with a view to not only creating collective awareness, but also to giving an irreversible signal of good governance. Three phases. could characterize this transfornation. The first one would be to make available online the administrative procedures and forms that citizens and entrepreneurs need in the norma I course of their business. The second one could be to allow the electronic submission of requests and forms, even if the expected final service could still require further evaluation or information offline before the administration's final decision. Finaly, the third phase would allow online request and delivery of certain administrative services. It goes without saying that the impact of such a program will remain limited as long as insufficient households and corporations are connected. Efforts should therefore be made to promote connection of households, corporations, and administrations to maximize the social spillovers of the program. In the case of the Tax Departments of Chile, the use of ICT improved the service between the tax administration and the taxpayers (natural or legal persons). Enabling taxpayers to access complete and reliable tax information online, and giving them the possibility to execute online tax transactions translated into a redistribution of productivity gains on both sides. This leveraging effect is what should be maximized. Box 17: Example of a successful e-government project - Online tax return in Chile The Chilean tax administration. the Servicio de Impuestos Intemos (Sll) gave prioritv to the development of an online tax return service, and has since then become a model of Intemet adoption and ownership in Chile. It also stands out as the undisputed leader in vublic sector modernization processes. thus becoming a reference for other public institutions. This Year. more than half of the information submitted by employers and a quarter of tax retums in the country were executed online. The Intemet enabled the Chilean govemment to streamline the tax return process, which in the past was renowned for being cumbersome. The streamlining mainly consisted of substantially reducing the risks of tax evasion and errors throueh the enhancement of database reliability. Processing costs were sienificantiv reduced as there are fewer people involved in the evaluation of their retums and there is no longer phvsical transfer of tax documents. The Sl website ensures two kev functions: (i) allowine taxnavers to communicate with the tax administration in the context of tax retums; and (ii) making all the information on tax regulation available to administration users. The svstem also allows users to access personal infomiation relating to their tax revenues as Drovided to the administration bv third parties such as banks. emplovers, or other firms. Access to this confidential information is Drotected bv a personal code and allows the taxpaver to check the reliabilitv of the information contained in his/her tax file. By ensuring total confidentiality of this data, the Sli wished to build a relationshin of trust with its users. Accordingto a studv conducted in 2000. some 860.000 people had access to Intemet. It was estimated that 85% among them, or 734.000 out of Chile's 2 million taxpaVers (individuals or corporations) had used the svstem. The Sll website has thus become one of the most visited websites in the countrv. Institutional users (employers, banks and other entities) generated 57.5% of the 713.282 files received in 2000 against 4.2% in 1998. More than 94.9% of tax return corporate statements were done electronicaliv in 2000. awinst 40.5% in 1998. Acceptance by individual taxpayers was slightly lower with only 25.7% of tax return statements done online in 2000. Source: Liselott Kana and Fernando Barraza, "Taxing Time for E-govemment," OECD Observer, June 2001. 68 2 BOLSTER THE ECONOMY'S DIVERSIFICATION The hydrocarbon sector accounts for 300/0 of Algerian GDP, more than 95% of export earnings, and 75% of tax revenue, but directly contributes to only 3% of job creation.98 To reduce unemployment, growth would have to rely on the diversification of the non-hydrocarbon sector, driven by labor- intensive industries and services that are able to compete in open markets. Diversifying the economy will be difficult since Algerian corporations are not prepared for it (inadequate shareholding, and failure to adopt modem managerial practices). Algerian enterprises do not have a particular competitive advantage in any sector, except in those related to hydrocarbons. Most traditional industries - leather, textiles, mechanical industries, agro-industries - have difficulties facing fierce international competition. Tourism has a considerable potential but has not yet been fully exploited due to a critical security situation and lack of adequate infrastructure. Box 18: How ICT transformed Ireland Many people think that this remarkable shift is the result of Only a hundred years ago, Ireland suffered from one of the tax breaks and other incentives. Actually, it was achieved most consistent, virulent cases of chronic poverty in through a single minded approach to reconceiving Irish motcossen,viuet ae o 35ncpoet in ndustry to take advantage of the invisible continent. The Europe. Only 3.5 million people live in the Irish Republic, rootstof thetnew Irvshtpolicy datembackbto1982iwenthe but there are 70 million Irish people around the world. roots of the new Insh pohcy date back to 1982 when the government hired the noted US ICT policy expert Ira In the 1960s and 1970s, the Irish economic strategy Magaziner to formulate a policy which took shape in the changed. Instead of exporting people to places with following years, wth the goveansent refining and employment, the Irish Development Agency (IDA) tried to implementng these ideas. create employment in the island. IDA offered grants and tax breaks to industrial companies, inviting them to As Europe united into a single region with a single relocate to Shannon and Dublin. What seemed like a currency, Ireland became the electronic hub of the new sensible strategy did not work. American and Japanese Eurobond as exemplified by the Financial Services Center companies prefered to locate their European operations e of Dublin. Ths center, located in a redeveloped complex- Glasgow Wales or somewhere else in continental Europe. dockland, is more a center for backroom operations than one for banking like the city in London. The early 1990s saw a change in the Irish strategy. Rather The growth of the Irish economy at 6 to 7% in the mid- than trying to attract the manufacturing industry, they was one of the Ighes t 6 to 7% it thed targeted the service sector, identifying their major asset in 1990s was one of the hghest in the world until it reached their hardworking, clever, and English-speaking people. an unprecedented 10.5% in 1998. Ireland managed to Joining the European Union meant removing restrictions leapfrog 150 years of ndustral development to move into on trade, immigration, and commercial activity, while the networked economy. To best understand the single- investing in communications networks and minded approach to realizing the e-hub the Irish telecommunications infrastructure, without dictating how government s IDA considered the following steps: that infrastructure should be used. American insurance * purchase of state-ofphe-art high speed Internet companies soon set up claims processing operations in connections to 24 European cities the US and Ireland taking advantage of the time difference between the Asia, reducing communications costs; US and Dublin. This type of service became so popular * development of a hundred-acre national digital that 2,500 American companies shifted part of their park and an &commerce campus at City West operations to Dublin creating 250,000 jobs; one job for with a high-speed telecommunications backbone; every fourteen residents of Dublin. In parallel there are * introduction of a 12.5% corporation tax rate for more than six hundred Irish-owned software companies all business activities; and fifty to sixty new startups every year. * introduction of legislation to ensure the validity of electronic signatures. Adapted from Kenichi Ohmae (2000), pp 119-121. Despite liberalization of trade, ecports of goods outside the hydrocarbon sector represent no more than 10% of the imports and around 5% of total Algerian exports. Most products currently 98 World Bank, A Medium- Term Macroeconomic Strategy for Algeria, 2002. 69 exported are very basic (olive oil, fish, salt, couscous, pasta, fruit juices, and some textiles). In general, lack of exposure to foreign market requirements represents one of the most important challenges faced by Algerian enterprises looking for export opportunities. Only 21 Algerian enterprises were certified ISO 9000 as of December 2001. In addition, labor costs in Algeria are relatively uncompetitive in comparison to other countries in transition, which is yet another burden on the international competitiveness of Algeria's manufactured products.9 Box 19: Technology foresight in Costa Rica-building consensus among key stakeholders Costa Rica exports more software per capita than any Meantime, Intel was starting to look for a site for a chip other Latin American country. Two recent decisions by assembly and testing plant. CINDE campaigned for Costa Intel have contributed to the development of the domestic Rica, and in 1996 Intel decided to locate its plant there. industry. First, Intel decided to invest in a center to Four factors were the key determinants for this choice: develop software for the company and to contribute to semiconductor design, moving beyond the limits of an * Costa Rica had political and social stability, the rule older assembly and testing plant. Second, through its of law was enforced, and the country showed a low level venture capital fund, Intel invested in one of the country's of corruption. The framework was made of relatively most promising software companies. Reinforcing these liberal rules relating to intemational trade and capital activities is the presence of internationally recognized flows; the country had a relatively well-educated and centers of research, training, and education. technically skilled workforce with acceptable knowledge of English and at low cost; a "pro-business" environment How did Costa Rica achieve such success? The with a favorable attitude towards foreign direct country's long commitment to education has been critical. investment; a good package of incentives; and good Human skills, while important, need to be complemented location and transportation logistics. by other factors. After the economic crisis of the early 1980s, it became clear that the country had to abandon * The country's growing emphasis on attracting high- import substitution. So it moved to promote exports (and technology foreign direct investment gave credibility to improve access to the US market) through two systems of the case that it had the human resources Intel required. tax incentives: a system of export processing zones that * An aggressive, effective, and knowledgeable foreign allowed companies to import all their inputs and investment promotion agency (CINDE), with links to the equipment tax free and avoid paying income tax for eight government, arranged successful meetings between Intel years. This system became key in attracting high- executives and public authorities. technology multinational companies. To help domestic companies become export oriented, firms were given an * The government understood the importance of an income tax holiday, the right to import equipment and Intel investment in the country. The president met with inputs tax free, and a subsidy equal to 10% of the value of Intel executives and encouraged the rest of the their exports. The subsidy was meant to compensate government to help the company set up its plant in the exporters for inefficiencies in such public services as country. ports, electricity, and telecommunications and for the high costs of financial services like banking and insurance. Spillover benefits: Intel's investment has had a big c o n e ls . impact on Costa Rica's ability to attract other foreign Technology foresight: The new export promotion model direct investment in high-technology industries - and on was supported from the beginning by the Costa Rica the economy's general competitiveness in skill-intensive Investment and Development Board (CINDE), a private industries. Intel's reputation for rigorous site selection has non-profit organization founded in 1983 by prominent given other companies the confidence to invest in the business people, supported by the government, and country. Intel has also contributed by training its own financed by donor grants. Its broad aim was to promote workforce and supporting universities. The Instituto economic development, but attracting foreign direct Tecnol6gico de Costa Rica (ITCR) has gained "Intel investmnent was always a top priority. Associate" status and several new degree programs. In the early 1990s CINDE realized that the country was Intel's presence has increased awareness of career losing competitiveness in industries relying on unskilled opportunities in engineering and other technical fields. At labor and that the North American Free Trade Agreement the ITCR enrollment in engineering grew from 9.5% of (NAFTA) would give Mexico better access to the LB students in 1997 to 12.5% in 2000. market. So it decided to focus its efforts to attract T investments only in sectors that were a good match for Today the country Is followmg a strategy that appears to Costa Rica's relatively high education levels. It chose enjoy strong support from key stakeholders: recognizing electronics and related activities, rapidly gowing the need to liberalize telecommunications, improving electronics an related activities, pidlygrg infrastructure through private sector participation, industries that required skilled labor. improving the protection of intellectual property rights, and improving access to foreign markets through free trade agreements with such countries as Canada, Chile, and Mexico., Some reforms have met with resistance and Source: Rodriguez-Claire 2001 in UNDP (2001 b). open expressions of disagreement, but this is all part of the policy debate in a pluralistic society. 99 Out of a total of six segments of manufacturing analyzed by the World Bank team (4 Medium-Term Macroeconomic Strategyf or Algeria, 2002) Algeria has the highest unit labor costs for four segments (steel- machinery, chemicals -rubber-plastic, leather-footwear, wood-paper-furniture) and is rated average for two segments (textiles-confection, food-beverages-tobacco). The ICr sector will facilitate the creation of new sources of growth outside the hydrocarbon sector. A massive dissemination of ICT will accelerate the transformation of the economy by enabling the manufacturing and the service sectors to better meet national and international demand. Such a process will start within the ICT sector itself. In effect, the ICT sector represents generally between 4 and 8% of the GDP in most advanced countries where the transition to an infornation- based economy was successful. In Algeria, ICT sector revenues represented approximately US$478 million in 2000, which is the equivalent of 0.8% of GDP. This is a rough market valuation provided here for the illustrative purpose. It was derived from the following assumptions: * Telecommunications service revenues in 2000 represented around US$300 million (mostly from Algerie Telecom's turnover on its carrier service revenues); * The telecommunications and IT equipment segment, which is relatively well developed and diversified in Algeria,'00 generated a turnover estimated at US$151 million. To derive this figure, it was assumed that telecom and IT equipment represented approximately 35% of the turnover generated by the electronics and telecommunications manufacturing sector which was DA 32.327 million in 2000 (or US$431 million). This estimate is, however, very conservative, and does not fully capture IT equipment consumption. * The software segment is more difficult to assess, due in particular to the scope of piracy, which is estimated to affect 95% of software installed in Algeria. Nevertheless, several sector players valued this market segment at US$20 million in 2000. * The information service segment is assessed through ISP activities. In 2000, only a few ISPs were operational (CERIST, GECOS, EEPAD and BMGI) and generated around US$5 million turnover for their information service business. This amount is considered to represent 80% of the information service market, giving a total estimate of US$6.3 million. This figure differs from that quoted in Chapter 3 by ICF Consulting Group for one main reason. Our definition of the ICT market, which is consistent with the European Commission's definition, differs from the one adopted by ICF (the standard OECD definition) in that it excludes 'electronics products and devices', a segment which represents more than half of the total ICT sector in ICF's projections (US$740 million). Moreover, our base year is 2000. However, after subtracting revenues generated by electronics products and devices, our projection for 2002 is consistent with ICF's findings. The revenue distribution shown below clearly indicates that the ICT sector remains at an early development stage in Algeria. Equipment and carrier services represent approximately 95% of the revenues generated against 75% in mature markets. One of the objectives of the Information Society Program should therefore be to rebalance the ICT market structure, namely by developing information services and software products. * Telecommunications or carrier services 63% * Telecommunications and IT equipment 32% * Information services 1% * Software products 4% 100 CATEL produces telecommunications cables (copper) and plans to launch fiber optic cable production. ENTC manufactures PABX and telephone sets and also provides telecommunications installation and maintenance services to corporate users. Sonatite provides installation and maintenance services and is often contracted by Algerie Telecom to install new public switching systems and transmission systems. SITEL, a joint venture between Ericsson and other local public companies, assembles the AXE 10 digital switching system and has provided 95% of the exchanges installed by Algerie Telecom. On the IT side, there are various local companies assembling personal computers (Alfatron, Kingline Computer, etc.). 71 With the telecommunications liberalization becoming effective, and a successful implementation of the Information Society Program, the ICT sector will quickly expand. To assess its scope, the following assumptions are made: * Demographic growth rate declines from 2.8% in 2000 to 2.4% in 2007; * Fixed line growth rate will decline from 7% in 2002 to 2% in 2007, reflecting the substitution effect between fixed service and mobile; * Three mobile operators (Algerie Telecom mobile, Orascom Telecom Algerie, and GSM3) are operational during the period resulting in an increased price competition and tremendous service diffusion; * The mobile growth rate declines progressively from 150% in 2003 to 40% on average in 2007; * The average revenue generated per fixed line increases from US$150 in 2001 to US$197 in 2007, reflecting the rebalancing of Algerie Telecom's tariffs. * The average revenue per mobile customer decreases from US$360 in 2001 to US$237 in 2007 due to increased competition; * GDP average growth rate of 3% per year during the period; * Carrier service revenues slightly decline from 63% in 2000 to 59% in 2007; those for telecom and IT equipment decline from 32% to 29%; those for software products increase from 4% to 8%; and those for information services increase from 1% to 3%. 3 MARKET SIMULATION RESULTS As a result, mobile teledensity increases from 0.32% in 2001 to 5.6% in 2004 and to 13.6% in 2007. Conversely, fixed teledensity slightly increases from 6% in 2001 to 6.8% in 2007. Improved services to corporate users (leased lines and other corporate services) will be the principal engine of growth in the fixed service business. The number of fixed telephony customers increases from 1.86 million in 2001 to 2.41 million in 2007. The mobile subscriber base expands from 100,000 in 2001 to 4.8 million in 2007. Figure 11: Telecommunications market assessment in Algeria 8000000 25.00% 7000000 -Abc, fmxesAT : 20.00°/.-_- -Dese ic . 60000n :-i" Cel 1-1° - ti" Den be o 5000000 Total / 15. - 4000000 - 3000000, 10 00% - 2000000 1000000. 0oooo X ..0 ! o - 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 Source: Authors' estimates. The income distribution over different market segments will change slightly compared to the 2000 figure discussed earlier. Telecommunications services will decline from 63% to 58.7% of total revenues. Similarly, the telecommunications and IT equipment segment will decline from 32% to 30%. Conversely, we anticipate a significant growth of information services and software product revenues which will respectively represent 3.2% and 8.8% in 2007. As a result, ICT sector revenues 72 will increase from US$505 million in 2001 to US$2.745 million in 2007, out of which fixed service revenues will represent US$448 million. The ICT sector weight in the Algerian GDP'°' will increase from 0.9% in 2001 to 4.1% in 2007 (see Figure 12 below). Telecommunications services will remain the principal engine of growth during the period and its share of GDP will reach 2.4% in 2007 compared to 0.6% in 2001. Figure 12: Telecommunications projected revenues Source: Authors' estimates. 25.00%- 20.00% D c _ --Densite Mob 15.00%- 10.00% 5.00% - 0.00% 2001 2002 2003 2004 2005 2006 2007 Finally, every Algerian is expected to consume more ICT services and products. On average, ICT expenditures per capita will increase from US$16 in 2001 to US$78 in 2007. 101 The Algerian GDP is assumed to be growing at 3% per year. 73 CONCLUSIONS: GUIDELINES FOR DEVELOPING ICT During the past two years several declarations of intent have been made with regard to developing a vibrant ICT sector in Algeria, but the govermment's capability to implement reforms in a timely and efficient manner has been lacking. To formulate the following recommendations, we tried to take this reality into account and have paid particular attention to the three main weaknesses of the State decision-making apparatus, namely: * The absence of a pernanent pro-reform political leadership; * The vast powers enjoyed by extremely powerful lobbies benefiting from advantageous positions; * The weakness of public institutions to lead and implement efficiently complex reforms. This concluding chapter presents a set of guidelines to be initiated by the Algerian government and their tentative timetable. These guidelines are measures of economic and social policy deemed necessary to start the transition and transformation into an information society. These guidelines result from the diagnoses made in previous chapters and aim at representing a platform for the government to articulate a more detailed strategy. For the remainder of the note, pilot or flagship applications are not explicitly reviewed and discussed. This should be done by the Steering Committee in a second phase, after complementary analyses and widespread consensus would have led to the adoption of a strategy. RECOMMENDATION 1: DEFINE A CONSISTENT STRATEGY FOR THE INFORMATION SOCIETY 1.1 Give a management structure and political legitimacy to the Algerian Information Society Program A new Minister of Posts and ICT was appointed by the government in July 2002, and the government should provide clarification as to the role of the new ministry in the development of the information society. The organizational decree of the new ministry should be published to consolidate its key role. The Information Society Program should be presented as a national priority by the highest authorities, which have to ensure consistency across sectors and among policies as well as supervising continuity in its implementation. Further to statements from ministers already engaged in promoting the use of ICT in their departmnents, it is dso important that the Algerian government design a strategy of institutional communication on the advantages of ICT for Algeria. A preliminary action in defining a strategy would be to reinforce the Steering Committee and to enable the implementation of the recommendations in its October 2001 report A legitimate and credible management structure is vital to elaborate and implement the program for an Algerian information society. The management will be responsible for finalizing the project, following up on its implementation, and reporting on progress made and difficulties encountered. 74 1.2 Finalize the Information Society Program The Steering Committee should organize and supervise all the additional work needed to transforn the recommendations on the Information Society into a program. It should organize consultations with the administration, businesses, and civil society, identify the priorities for each sector and assess development perspectives for each of them. The need for information and training should be explored and assessed. No study has been made thus far to define the perception and use of the Internet by Algerians. The Steering Committee should request studies to better understand needs in terns of access, information services, content, and training. With a better knowledge of the market, the Steering Committee should then organize the consultation process to validate the program and the related action plan. The head of the Steering Committee should be a well-known personality, capable of rapidly uniting consensus on the main objectives of the program. 1.3 Follow international technological progress while monitoring domestic evolution toward the information society The Ministry of Posts and ICT should develop a capacity for technology and infcrmation observation, allowing it to analyze relevant international experiences and evaluate those that can be replicated in Algeria. Meanwhile, the Steering Committee should define a set of statistical indicators to monitor and evaluate the implementation of ICT-related projects. It should next elaborate a qualitative analysis of the relation between increased diffusion/use of ICT and progress toward the information society. These indicators could be: (a) the development of demand for access to and use of ICT by citizens, administrations, and businesses; (b) the supply of ICT; (c) competition dynamics through the evolution of price, quality of service, and variety of available services; and (d) the impact in terns of jobs and creation of new activities. Box 20: Regional ICT initiatives in the Arab world The ICT policies of the govermment of the United Arab Emnirates aims to encourage investors to establish their enterprises in the country and to assist local business. A full-fledged ICT plan has been devised and is explicitly backed by the political leadership. It is a regional reference in ICT development, with proven results in creating technology parks, attracting leading companies in the ICT sector, and implementing e-govenmment and e-leaming initiatives. The advent of Dubai Intemet City and Dubai Media has attracted world-class players in their related fields (e.g., Microsoft and Oracle). Egypt has also defined a comprehensive national ICT plan. In September 1999, the government announced that the development of the ICT industry was a national priority. This led to the creation of a separate Ministry for Communications and Infomiation Technology. A three-year national plan for ICT development was designed in close collaboration with the private sector and industry experts. With almost 80%/o of its software exported to the Arab world, Egypt is slowly emerging as a regional software development hub. A five-year plan to promote the software industry aims at developing the existing software market, estimated at US$50 million, to reach US$2 billion. Jordan has also embarked on an ambitious plan to make full use of ICT potential to support the national program for economic growth. In 1999, King Abdullah launched the REACH initiative to bolster the country's ICT sector and maximize its ability to compete in local, regional, and global markets. This initiative aims to achieve full scale Intemet access within five years. Source: Adapted from Soumitra Dutta et al. in The Arab World Competitiveness Report 2002-2003, World Economic Forum, 2003, pp. 186-207. 75 RECOMMENDATION 2: STRENGTHEN THE LEGAL AND REGULATORY FRAMEWORK AND ACCELERATE THE PACE OF LIBERALIZATION 2.1 Accelerate the liberalization of the telecommunications sector Democratizing the access to the telephone, the Internet, and the computer is imperative for Algeria's transition to an information-based economy. The Algerian government must therefore accelerate the liberalization of the telecommunications sector and implement the liberalization calendar adopted in 2000 in a timely fashion. In so doing, the government should pay attention to promoting infrastructure-based competition by allowing alternative carriers (Sonatrach, Sonelgaz, TDA, etc.) to sell their unused bandwidth. 2.2 Making ARPT fully operational and ensuring its independence Making ARPT fully operational and strengthening its independence through modification of the procedures for appointment and dismissal of its board members is a priority for the liberalization process to accelerate. While the authority enjoys wide-ranging financial and decision-making autonomy, all the members of its board are appointed and liable to dismissal by decree from the President of the Republic. This ambiguity weakens one of the central players of the new ICT environment and should be addressed immediately. 2.3 Open Algerie Telecom to private capital Opening Algerie Telecom to private capital is planned in 2004. The public operator will, however, need to rapidly turn around its management capabilities in order to meet strong competition. The company will need to develop new business skills in management audit, market analysis, marketing, and quality control and put customer satisfaction at the top of its priorities. To facilitate this radical change, a 20 to 30% stake in Algeria Telecom should be opened to strategic investors. The capital opening represents a major stake for the company, both to increase its investment capacity and to benefit from management and technology know-how. 2.4 Strengthen the legislation on intellectual property and curb piracy It is necessary to strengthen the legislation on intellectual property and its enforcement. Although a new law on the activities of the posts and telecommunications sector was adopted in August 2002, many other regulations must be modified or created to enable the development of e-commerce and e- government. For instance, current laws do not clearly define the regime applicable to intellectual property on the Internet. Although the law of 2002 lays the foundations for the devebpment of information infrastructures through increased private sector participation, endemic software and artwork piracy deters the emergence of an ICT private sector in software, information services, and electronics for the general public. 2.5 Create a quality certification mechanism for IT service providers Certification procedures should clearly define a certification and quality label for service providers, equipment dealers, or installers. Support must be ensured to those professional organizations able to set and define standards on the quality of service and to impose codes of conduct. Their presence would contribute to a rapid increase in demand. Currently, and since the dissolution of the 76 Commissariat National a l'Informatique, the IT sector does not have a shared set of rules or standards specifying the quality of services expected from different IT providers. 2.6 Enact regulations on encryption and security of electronic transactions The regulatory framework currently in force in the ICT field does not cover the issues of electronic payment, electronic signature, and security of electronic transactions. Algerian Internet users have no legal protection when using their credit cards to buy online. Algeria has no standards for network and data security. Electronic signature is not legal yet, which can only hinder the development of e- commerce and e-government applications. 2.7 Extend regulations on personal data and privacy protection to the Internet The regulations in force concerning personal data and consumer privacy protection do not take into account exchanges over the Internet. It is now indispensable to update the regulation in force and elaborate e-commerce certification standards, which will enable consumers to trust online transactions (email, chat, purchase online). RECOMMENDATION 3: PROMOTE THE USE OF ICT IN THE PUBLIC ADMINETRATION, BUSINESSES AND CIVIL SOCIETY 3.1 Promote use of ICT by the administration The creation of Intranet systems in the public administration will enable the streamlining and automation of administrative procedures, and help reconnect governments (local and central) to citizens. Currently, most Algerian public institutions do not have an Intranet, nor a developed e-mail or knowledge-sharing culture. This absence contributes to the lack of transparency and the slowness of administrative decisions. Intensifying ICT use in the public administration is the best strategic option to diffuse its usage among the population. The government should prompt ministries and decentralized admiiistrations to offer practical infornation online. The concept of egovernment must become a priority for the Algerian authorities, since it can channel the efforts underway to improve the performance of administrations and public organizations. Currently, not every public administration has a website, the few existing ones offer discontinuous access and some are never updated. It is not possible today to download any official form except archived laws and decrees published in the official journal. 3.2 Eliminate customs duties and implement fiscal incentives for businesses Eliminating customs duties on computer and telecommunications equipment is necessary to diffuse ICT among the population. Currently, computers remain unaffordable to most households, although the government has decreased custom duties to 5%. To ensure every household is given an opportunity to access and use the Internet, the government could establish a program aimed at facilitating household computer access. Such a program could be worked out in collaboration with the 77 banking sector and employers. The government should encourage banks to offer consumer credit at preferential rates'02 enabling Algerian households '03 to acquire home computers. Algerian SMEs should benefit from incentive mechanisms supporting the development of communication systems and research and development in ICT.'04 These fiscal incentives should be targeted (matching grants schemes for training and consultancy services, R&D contracts awarded on a competitive basis), or market-based (tax incentives, personnel,based schemes). Currently, very few private companies in Algeria, and especially SMEs, have modem information and communications facilities. For those already equipped the upgrading of existing information systems remains underdeveloped. Algeria should also look into intemational support (Euro-Mediterranean partnership) for initiatives aiming at promoting trade and investment between SME members in the Mediterranean Area.'105 3.3 Multiply Internet access to the Internet countrywide Internet access in Algeria is limited and must be increased. The generalization of access points should be a priority in order to close the "digital divide". Specific incentives could be considered to channel private investments to meet these needs. Currently, due to insufficient coverage and scarce capacity of the public telecommunications network, access to the Internet remains difficult if not impossible outside the main cities. Supply is fragmented and the offering from providers is often limited to some communities or one region. By designing and implementing specific OBA schemes, the government can accelerate the rollout of Internet points of presence (POPs) by private ISPs in non-economically viable regions. The multiplication of access packages and subscriptions would contribute to diffusion of partial Intemet access while waiting for universal access to become a reality. The implementation of non- geographical numbering (in the form of shortcut numbers such as Djaweb's "1515") must be extended to all ISPs owning national or regional backbones. Additionally, ARPT could consider establishing a special Internet rate to enable cheaper connection during "off-peak" hours. Such a tariff scheme could be subsidized by the universal access fund. 102 In 1998, the Swedish government reformed the tax system to enable employees to purchase PCs tax free from their employer. The employer administers the scheme, typically providing the PC to the employee, who in return repays it over a period of 36 months. Payments were deducted from the gross salary. All employees were eligible, even those who did not need a machine. Financing for the initial capital was provided by banks, which took advantage of a government guarantee. As a result, PC penetration in Sweden increased the most of all European countries. 03 Korea, for example, launched a PC subsidy scheme that enabled one million households to buy desktop PCs for under US$900. 104 UK Online for Business is the most successful business support network model. The program is a government-industry partnership to support businesses in making the best use of ICT. Help and support are provided through a variety of contact points: (a) a network 400 advisers in over 100 contact centers nationwide; (b) Internet portals with access to inforrnation and e-business planning tools; (c) call centers and help lines; and (d) a partnership program to help spread best practices among SMEs. The support network was promoted by a marketing campaign in mass media (TV, radio, trade press). So far, the project has succeeded in getting over I million SMEs online. °S www.smexchange.org- is an organization targeting information sharing and capacity building among intermediary organizations from Europe and the Middle East and North Africa. 78 3.4 Encourage partnerships with foreign companies Partnerships (associations, capital acquisition) between foreign and national companies are rare. However, they have the advantage of facilitating technology and know-how transfer. It is also necessary to allow Algerian companies to access foreign computer service firms more easily, by reforming the method of remuneration of foreign consultants, for instance. RECOMMENDATION 4: DIFFUSE ICT IN THE EDUCATION AND RESEARCH SECTOR 4.1 Design and initiate specific training programs in ICT Training oriented towards the new professions created by the technological revolution should be set up by the State in cooperation with private professional associations. In light of the above, public- private partnerships must be encouraged, and the regulations in force should be adapted to facilitate increased private participation in the education system in Algeria. Currently, the number of students trained each year in infornatics, electronics, and telecommunications remains completely inadequate to bolster the emergence of the information society. Widespread use of ICT will depend on the efficient diffusion of technology throughout the education system. ICT dissemination in the education system should be accompanied by greater public awareness about the potential benefits of the transition to the information society. ICT dissemination should be preceded by a thorough reform of the education system, a re-skilling of the trainers, and a well-designed dissemination plan, which will target first tertiary education and then younger students. ICT adoption at the tertiary level has proven to generate the most significant spillovers both for the students and the global research and learning arena. The promotion of connectivity and the use of informatics constitute promising approaches to upgrade human capital and support the development of a more active entrepreneurial base. Training the trainers is central for a productive use of ICT infrastructure and should be set as an utmost priority. Teachers, particularly those in primary and secondary schools, are not yet prepared to use and integrate ICT into their education programs. Unless a large-scale training effort is set up, there is a high risk of failure of Intemet educational programs at school. However, training by itself cannot address all constraints to teachers' participation in the govemrnent's ICT strategy. Lower salaries than the rest of the region, a lack of support services, and the difficult conditions in which teachers often work are preliminary constraints which should be addressed prior to the introduction of ICT. 4.2 Improve connectivity of schools and universities The authorities have initiated a large-scale connectivity project for schools, high schools, and universities as part of the economic recovery program. Indeed, the low connectivity of schools and universities is a significant barrier to the development of the information society. But it is essential that these large investments are part of a strategy sustainable in the long run. Purchasing infrastructure is not sufficient to diffuse ICT. Accurate evaluations of the maintenance costs and of the rapid obsolescence of technology have to be taken into account in such a strategy. The Ministries of National Education and Vocational Training could launch tenders to outsource installation, management, maintenance, and renewal of the computer network and Internet access in schools, colleges, universities, and research centers and avoid contracting for the procurement of these systems. This would also contribute to building the basis for gateways between education, research, and business. The relations between the three sectors could be expanded through various 79 mechanisms such as: (i) apprenticeships and school training; (ii) co-financing of research projects; and (iii) incubation platforms. 4.3 Encourage research and innovation in ICT as well as partnerships with foreign universities Research and innovation should be supported to develop a high technology sector still almost non- existent in Algeria. There is, however, a potential to be exploited in research centers, particularly in software production. The support can be conveyed through three major vehicles. The first is the creation of business incubation facilities for research and innovation businesses inside the Algiers Technology Park (Cyberpark Sidi Abdallah). The second will be to encourage businesses to create exchange and summer programs for students and technicians. The third will be to set up a grant mechanism directed specifically to such businesses. 4.4 Create nationwide events A communication campaign could be judiciously completed by the creation of events both festive and interactive, e.g., Intemet Fest, best website competition, contest of the best ICT project for alumni and students, with the awarding of a prize by the President of the Republic. Such events would be useful to promote awareness of the potential benefits of the development of an ICT sector. 80 REFERENCES BIBLIOGRAPHY ACT and Irish Ministry for Public Enterprise (1998). Report of the Advisory Committee on Telecommunications. Dublin. Available at www.act.iol.ie Artus, Patrick (2001). La Nouvelle Economie : La Decouverte. Paris: Collection Reperes. Atrostic, B.K., John Gates; and Ron Jarmin (2000). Measuring the Electronic Economy: Current Status and Next Steps. Washington, DC: US Census Bureau. Booz Allen Hamilton (2002a). 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Washington, DC. 82 INTERNET SITES Portals - www.algeriacom.com - www.algeriainfo.com: portal site of GECOS - www.allafrica.com - www.business.dz: BMGI site - www.cirtaonline.com - www.edjazair.com - www.objectifAlgerie.com - www.wanadoo.dz: EEPAD site Provider sites - www.cerist.dz - www.djaweb.dz - www.gecos.net - www.wanadoo.dz Ministries, political institutions, and administrations - http//:membres/lycos.fr/mfdgep: Direction de la Prevision - Ministere des Finances - www.ands.dz: Ministere de la Sante et de la Population - www.apn.dz: Assembl6e Populaire Nationale - www.cg.gov.dz: Premier Ministre - www.douanes.dz: Customs site - www.meducation.edu.dz: Ministere de l'Education Nationale - www.mesr.edu.dz: Ministere de l'Enseignement superieur et de la Recherche - www.mir-algeria.org: Minist&e de l'lndustrie et de la Restructuration - www.ons.dz: Office National des Statistiques - www.pmepmi-dz.com: Ministere des PME-PMI - www.postelecom.dz: Ministere des Postes et Telecommunications - www.promex.dz: Office de Promotion du Commnerce Exterieur Public organization sites - www.ands.dz: Agence Nationale pour la Documentation en Sant6 - www.cdta.dz: Centre de Developpement des Technologies Avancees (CDTA) - www.cerist.dz: CERIST - www.tda.dz: Telediffusion d'Algerie Corporate sites - www.cetic.dz: Centre des Technologies de l'Information et de la Communication - www.ensi.dz: Entreprise Nationale de Services Informatiques - www.khalifa.com: Khalifa Group - www.orascom.com: Orascom Information sites - www.aai.dz: Agence algerienne d'information 83 - www.algeria-interface.com: Site d'Informations en Ligne Franco-Algerien - www.aps.dz: Algerian Press Service - www.elwatan.com: Newspaper El Watan - www.entv.dz: Tel6vision Nationale - www.latribune.com: Newspaper La Tnibune Embassy sites - www.ambafrance.dz.org: site de l'Ambassade de France REPORTS - Rapport de l'Union Internationale des Tel6communications (UIT) sur les telecommunications en Afrique (fevrier 2002, disponible www.itu.int) - Rapport Esis 2, de l'Observatoire europeen de la societe de l'information (disponible sur www.esis-eu.org) - Rapport de l'Union europeenne sur le Programme indicatif national algerien 2001-2004 - Rapport sur la soci6t6 de l'information en Algerie (octobre 2001, pilote par le Ministere des Postes et Tel6communications) 84 ANNEX: A COMPARISON BETWEEN ALGERIA AND ITS NEIGHBORS Chapter 2 identified the major weaknesses Algeria must overcome to develop its ICT sector. That analysis is supplemented in this Annex by a comparative analysis of Algeria in relation to a sample of neighboring countries. First we will present a description of the methodology used and then comment on the results. We will conclude by providing a rough assessment of the current situation of the Algerian ICT sector versus other selected countries of the region. This can be used as a proxy for the growth potential represented by the ICT sector in Algeria. 1 METHODOLOGY The comparative analysis is based on six reference variables, namely: * distribution of fixed telephony services (number of fixed lines per 100 inhabitants); * distribution of mobile telephony services (number of mobile subscribers per 100 inhabitants); * distribution of personal computers (number of PCs per 100 inhabitants) * distribution of Intemet servers (number of Intemet hosts per 100 inhabitants); * percentage of university or tertiary education students in a specific age range; and * literacy rate of the population. The country sample includes Jordan, Egypt, Tunisia, Algeria, and Morocco. The first two variables allow the country's telecom sector performance to be defined, particularly in its capacity to meet the connectivity needs of the economy and society. The second two variables were used as proxies for the business potential related to ICT diffusion, while the last two aim at defining the human capacity for taking advantage of the changes brought about by the diffusion of the Intemet. Indeed, the chosen variables do not represent sufficient conditions for the emergence or the development of the infornation society. They simply allow the reader to: (a) roughly evaluate each country's readiness; and (b) make a comparison between them. The sample countries are then normalized against a reference country which scores 100 on each variable. The values of the reference country have been identified through a two-step process. We have identified the Algerian GDP quintile (the five countries which are in the same GDP range) and have selected the best performer for each indicator. This generated a sound benchmark against which Algeria and other countries of the region can measure their e-readiness and look to for their ICT development. 85 Table 5: Reference values to evaluate e-readiness Algeria Egypt Jordan Morocco Tunisia Refrence Reference ________________________________ _____ _____________ _____ Value*: Country: Telephone lines per 100 pop 6.04 10.3 12.74 3.92 10.89 15.50 Iran Mobile phones per 100 pop 0.32 4.33 14.39 15.68 4.01 20.40 Paraguay Internet hosts per 10,000 pop 0.21 0.28 4.20 0.81 .20 6.80 Kazakhstan Personal Computers per 100 pop 0.71 1.55 3.28 1.31 2.37 6.97 Iran Gross tertiary enrollment 14.92 38.84 19.48 9.34 17 25.81 Kazakhstan Gross literacy per 100 (pop above 15 yrs) 66.7 55.3 89.7 48.9 71 93.50 Paraguay * Among the countries which are in the same GDP quintile as Algeria, the best performer sets the benchmark for each indicator. Sources: For ICT-related indicators: ITU, World Telecommunications Indicators (March 2002); For GDP and education- related indicators: The World Bank, World Development Indicators (July 2002). Figure 13: Representation of selected countries' e-readiness Jordao2001 O, . Tunlsla-2001 telephone lnes Gross ad ulltteracI s o Mobil ephones Groosstertiaryeorolment [ntrnethonts PersonalComputers Aliesda.2001 -rr Egypt-2001 _ - 0ss nuq.slvsow 0.0 rross -/ - Morocco.2001 Oro sari, 500c 0,0. rosa,, m K 1~~~~~~~~~9 m rca. rc G--# _- 86 2 MAIN FINDINGS All five countries, with the exception of Jordan, show either a significant lag or an unbalanced development in their telecommunications connectivity. The heavily underdeveloped information infrastructure present in all countries hinders the business potential connected to use of the Internet, with Jordan again as a notable exception. Algeria scores last on all indicators, which draws attention to the need for the country to address its weaknesses before the gap with its neighboring countries widens further. However, it must also be noted that this analysis does not yet show the effects of the recent liberalization of the Algerian telecommunications sector and of the introduction of partial competition in the mobile sector. Jordan'06 represents the best performer in our sample and is a model for the other countries. It shows a gradual and consistent positioning in all of its ICT components and in the quality of its human capital (as shown by the diamond-like shape of the graph). Tunisia and Egypt show an unbalanced development of their telecommunications, with a high penetration of fixed phones (respectively 10.9 and 10.3 per hundred inhabitants) and low mobile connectivity (4.01% and 4.3%). Morocco107 also shows unbalanced telecom connectivity, with a strong substitution effect of mobile for fixed lines: 15.7% of its population have a mobile subscription and only 3.9% have a fixed line. The number of Internet hosts and personal computers is very low for the whole sample, with the exception of Jordan (4.2 hosts per 10,000 inhabitants and 3.28 PCs per 100 people) and Tunisia as a second best (0.20 hosts and 2.37 PCs). Algeria, compared to the other countries of the sample, shows a significant lag on all indicators. The true asset of the countries considered resides in their young population and in the potential represented by the education system. Literacy and university study registration rates are relatively satisfactory in most countries, with Egypt leading the figures for gross tertiary enrollment (38.8% of that age group) and Jordan, Tunisia, and Algeria with an average of 17.2%. Egypt is indeed the leading country in the quality of its human capital formation, with the high standing of its universities and quality of its scientific education being renowned in the whole region. Still, significant efforts still need to be made with regard to literacy both in Egypt and Morocco. Once the problems related to the development of ICT infrastructure have been addressed, and the training programs updated accordingly, the quality of human capital will allow a more effective use of ICTs in all these countries. This analysis can be used as a proxy of unmet potential demand for ICTr infrastructure and as an indicator measure of the potential impact these infrastructures could have. The diamonds give a rough indication of the potentially strong multiplier effect, which will take place in Algeria as well as in the other countries, once the infrastructure is developed and ICT use is more diffused. 106 Jordan has a strong ICT agenda, backed by King Abdullah, which focuses on human resource development. However, the cost of access remains relatively high in comparison to the per capita income. The average price of a PC remains unaffordable for the majority of the population. The proliferation of Internet cafes has helped improve the country's ICT readiness. Internet penetration is gradually increasing (4% in 2001) due to various initiatives taken by the government in this respect (access in schools and through IT community centers). Amman remains the regional hub in portal development (e.g., Maktoob, Ambia Online, and Al Bawaba) and is the preferred location of the content industry. 107 The poor telecommunications infrastructure in Morocco deters ICT growth. Fixed teledensity has been decreasing for the past couple of years due probably to mobile substitution. As a result, the Internet penetration remains as low as 1.3% in 2001, and PC penetration is also very low (1.3% in 2001). However, Morocco has the best regulatory environment in the region and is ahead in terms of wireless sector liberalization. 87 Global Information and Communication Technologies Department Private Sector and Infrastructure Vice-Presidency and Middle East and North Africa Region U The World Bank