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Report says China tops manufacturing, India leads in software, call centres, related services; other developing states show promising growth in "ICT" sector
The majority of computer chips, telephone handsets, laptops, TV screens, DVD players and other electronics and telecommunications products are now manufactured in developing countries, a new UNCTAD report reveals, and developing nations´ share in exports of services related to information and communication technology (ICT) is also growing. However, this is primarily due to strong growth in the developing world´s two largest economies, China and India.
China is the world´s largest exporter of ICT goods, and India leads in international sales of ICT services.
The Information Economy Report 2007-2008 (1) details how the ICT industry is growing faster than many industries globally and is increasingly shifting to the developing world, mainly Asia. The ICT industry not only includes the assembly of hardware or consumer electronics, but also the delivery of ICT services, such as those related to software and IT consulting, telecommunication and call-centre activities. The latter have particularly grown in developing countries as they search for new market niches and job opportunities in the services industries. In such countries as Morocco, Ghana, and Egypt, government-devised development policies have spurred economic expansion of ICT business and employment.
The Information Economy Report 2007-2008 shows that the sharp decline in trade in ICT products that followed the Nasdaq crash in 2000 has been fully reversed, with growth rates in ICT goods trade equal to those in overall manufacturing trade -- and with above-average growth in ICT services trade. The report argues that the shifts from developed to developing countries (chart 1) will continue and that the ICT sector will play an increasing role in emerging South-South trade -- trade between developing countries. The impressive economic growth of some large developing nations, including China, India and Mexico, is having a significant impact on ICT sector performance in other countries in the South.
In terms of value, South-South trade in ICT goods overtook South-North trade in 2004 (chart 2). Moreover, the US$410 billion value of South-South trade in ICT goods had almost reached the US$450 billion value of North-North trade, and is likely to have surpassed it in 2006. In developing countries the potential for ICT uptake is considerable, the report says, and hence demand for ICT goods is high.
The report shows that world exports of ICT-enabled services grew faster than total services exports during 2000-2005. In 2005, the US$1.1 trillion value of ICT-enabled services represented about 50% of total services exports, compared with 37% in 1995. This has created new export opportunities for developing countries.
The most dynamic industry sector is computer and information services, where exports grew six times faster than total services exports between 1995 and 2004. The share of developing countries in this export sector increased from 4% in 1995 to 28% in 2005 (chart 3). Most strikingly, in 2005 (the latest year for which global comparable figures are available) developing countries´ exports reached the 1998 level of OECD countries´ exports of computer services -- in other words they were only seven years behind and probably further caught up in 2007. This is largely due to the dominance of India in the global ICT services market.
ICTs have played a critical role in the expansion of the economies of China and India, the report notes. China specializes in the production of ICT goods, which grew dramatically between 2000 and 2005. In 2004, the value added of the industry reached 7.5% of GDP, a 30% increase in value from 2003. The ICT sector is the country´s largest trade sector, accounting for 34.4% of total trade in 2006. In 2004, China overtook the United States as the world´s largest exporter of ICT goods. In 2006, its ICT exports reached a value of US$299 billion.
India is the world´s largest exporter of ICT related services and the main market for business process outsourcing. In 2006, the Indian ICT industry accounted for 5.4% of GDP, up from 4.8% in 2005 (agriculture contributed 18% to GDP). The value of software exports alone exceeded that of foreign direct investment (in the same year) in a country which is also a major destination for FDI. Primarily driven by ICT, the share of services in India´s total exports increased from 18% in 1995 to 37% in 2006.
FDI in the ICT sector is also growing strongly, with developing countries increasingly becoming a target of FDI flows. While most of these flows are directed to Asian emerging economies, they account for larger shares of GDP in smaller developing countries. This has included large inflows in the electronics industry. South-South investment flows in the telecommunications sector are also on the rise, driven by large TNCs from such countries as South Africa, Malaysia and Mexico.
The report predicts that international sourcing of ICT production and ICT-enabled services will continue, with a huge potential for developing countries. But at the same time, competition will increase and countries wishing to attract FDI and outsourcing contracts will need to invest in their domestic labour skills, telecommunication infrastructure, and in improving their investment climates.
Sound government policies can be instrumental in the development of national ICT sectors in developing countries, the report stresses.
Tables and figures
Chart 1. World exports of ICT goods, 1996 - 2005
Chart 2. Direction of ICT goods trade originating in developed and developing economies,
Chart 3. Exports of computer and information services by level of development
Source: IMF BOP data and UNCTAD calculations.