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The Economic Benefits of Strategic ICT Spending Economic models help governments worldwide identify optimal ICT policies and investments

ICT FACTS • The ICT sector accounts for up to 7.5% of GDP worldwide, and an even higher proportion of GDP growth.2 • In advanced economies, for every single percentage point increase in broadband penetration in a particular area, employment growth is estimated to increase 0.2 to 0.3 percentage points per year.3 • Broadband networks provide a constructive platform for addressing a variety of public challenges including health care, education, homeland security, and workforce/ economic development.4

The global economic crisis has intensified pressure on governments around the world to develop policies and programs that will result in the highest possible return, both in jobs and revenue. As emphasized by the International Monetary Fund (IMF) in its latest forecasts for the global economy, any further investments made by national governments to support their economies should also address longer-term economic needs.1 Many countries that have evaluated the merits of investments in traditional industries such as manufacturing, textiles, and automotives are discovering a better and longer-term ROI in the growing information and communication technology (ICT) sector. To determine the relative merits of investments in the ICT sector, governments are now developing region-specific ICT Economic Models. These models use quantitative data to determine the risks, benefits, and probable outcomes of various ICT investments and initiatives. Using the models and other economic data, countries including Turkey, Portugal, Australia, and Brazil have made strategic investments in the ICT industry designed to produce new jobs, greater revenue for the government, and more stable overall economies.

Why Invest in ICT? Research and implementations around the world have repeatedly shown that ICT investments can positively impact jobs, productivity, GDP growth, and innovation. The demonstrated effects of investment in the ICT infrastructure include: • Creation of high-skilled, high-paying jobs • Improved international competitiveness • “Spillover effect,” creating opportunities in many other industries • Better quality of life through enhanced education, health care, etc. • Stronger, more competitive small and medium businesses

• Improvement of national and global commerce through easier and faster creation, distribution, and consumption of information • Development of ICT workforce with knowledge and skills to export technology to trade partners As these and other benefits of ICT investments have become increasingly evident, the challenge has become identifying the wisest investments—those most likely to increase GDP, put people back to work, and lower costs—both in the immediate future and for years to come.

The Economic Benefits of Strategic ICT Spending

CASE STUDIES As demonstrated by the following examples from Turkey, Portugal, Australia, and Brazil, ICT Economic Models are now being used to facilitate better ICT investment decisions by governments around the globe.

Turkey’s government provided $100 million in financial support for ICT purchases by small and medium businesses, in addition to reducing the VAT on PCs from 18% to 8% for three months.

Example #1: Turkey Lowers VAT to Spur Job Growth During the initial development of its economic stimulus program, the Turkish government focused primarily on tax reductions for the non-ICT sector. TUBISAD, a local nongovernmental organization (NGO), pointed out an important reason for the government to expand its consideration to the ICT industry: On average, in Turkey it takes $61,000 to create a new job in a traditional sector such as the auto industry, compared to just $5,000 in the ICT sector. Turkey’s local manufacturing high-tech industry also had excess inventory of personal computers on hand and high unemployment.

“ICT has proven to be a key enabler of socioeconomic progress and development, enhancing productivity and therefore economic growth, reducing poverty and improving living standards in many ways.” – Soumitra Dutta and Irene Mia, The Global Information Technology Report 2008–2009: Mobility in a Networked World, 2009 World Economic Forum

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By examining its economic data, the Turkish government identified that reducing the value-added tax (VAT) on personal computers has the most beneficial investment. Turkey’s ICT Economic Model projected: • A 10 percentage point reduction on VAT would increase PC sales by 10.3% • The tax reduction program has a net present value of $279 million over a five-year period • The VAT reduction would lead to an additional 14,000 to 15,000 jobs in PC manufacturing and retailing industries over a five-year period • Each dollar lost on VAT revenue returns $1.31 to the government in other taxes

By June 2009, just three months after the VAT was reduced, the benefits predicted by the ICT Economic Model were evident: • Increased nominal tax revenue for the government • Increased demand for ICT-related purchases due to favorable public responses to the price reductions • Greater local PC production, which increased 4.3% in April 20095 Shortly after the initial three-month period expired, the policy’s success convinced the government to extend the VAT reduction an additional three months. Turkey’s ICT Economic Model is now being used to evaluate other stimulus-program options such as providing cash rebates to first-time PC buyers and subsidizing the cost of broadband for PCs purchased by teachers.

The Economic Benefits of Strategic ICT Spending

Example #2: Portugal Program Generates New Jobs and Economic Growth Portugal recently instituted a national technology plan called Plano Tecnológico with the overarching goal of building a knowledge-based society. As part of that plan, the government worked with Intel and other public and private partners to develop an innovative educational technology program built on a unique, sustainable economic model. The initial financing for the educational program came from a spectrum auction that raised €460 million. The funds have been used in many ways, including subsidizing technology purchase programs for students and teachers. Local telcos, software developers, and content providers create products for the educational programs, and Portugal is one of the first countries in the European Union to manufacture its own computers—including 500,000 Magellan PCs now being produced for the country’s primary-school students. Within just a few years, Portugal developed a highly successful economic model that has generated €2.3 billion in economic activity, and features products and services now being exported to trading partners. For example, Venezuela has ordered 1 million Magellan PCs that are being manufactured in Portugal. In addition, Portugal Telecom is conducting an initial service deployment in Namibia. The anticipated direct and indirect economic benefits of Portugal’s ICT investments include:6 Direct Benefits • Creation of local jobs associated with hardware and software production and support services • Increased revenues and salaries associated with job creation • Improvements in physical and Internet infrastructure

• Export increase; improvement in balance of trade Indirect Benefits • Indirect economic activity produced by creation of new production and service jobs • Enhanced ability to attract foreign investment due to stronger workforce skills • Improvement in international competitiveness • Buildup of local IT capabilities and ecosystem • Increased tax revenues Example #3: Australia Economic Data: Smart Technologies Australia has been examining the potential economic benefits of adoption of smart technologies. Deployment is still in its infancy and is expected to continue over the next five to 10 years for smart technologies in five areas: electricity, irrigation, health, transport, and broadband communications.

“Indeed, investing in highquality, affordable information infrastructure, education, and knowledge may be the best way to innovate out of this crisis, especially for developing countries. Investing in broader access to knowledge becomes even more important during times of crisis, rather than less so.” – Confronting the Crisis: Its Impact on the ICT Industry, February 2009, pg. 71

The adoption of smart technologies and systems in these five areas is conservatively estimated to result in the following impact to the economy and jobs:7 • An increase in the net present value (NPV) of Gross Domestic Product (GDP) of between $35 billion to $80 billion over the first 10 years, with precise estimates depending on how much spare capacity is in the economy • With the economy operating at full employment, an increase of labor productivity of around 0.5% as the deployment of the technologies becomes widespread • With the economy operating at less than full employment, a more pronounced impact on jobs is expected as the technologies become widespread. In 2014 alone, this is expected to result in more than 70,000 jobs being added to the economy 3

The Economic Benefits of Strategic ICT Spending

The combination of higher productivity and employment levels could result in an increase in standards of living as follows: • An investment in smart-grid technology in the order of $3.2 billion over seven years that results in lower electricity usage of around 4% would boost: - The NPV of GDP between $7 and 16 billion over a 10-year period - Jobs by 17,600 in an economy operating at less than full employment • The adoption of smart systems through a $200 million investment in the irrigation areas of the Murray-Darling Basin that enables a 15% water saving would boost: - The NPV of GDP between $420 and $670 million over a 10-year period - Jobs by 800 in an economy operating at less than full employment • The adoption of an integrated national electronic records system for health—just one aspect of how smart technologies could assist in the delivery of better health outcomes—through a $6.3 billion technology investment would boost: - The NPV of GDP between $6 and $13 billion over a 10-year period - Jobs by 12,000 in an economy operating at less than full employment • The adoption of smart, integrated transport systems, accompanied by regulatory and governance reform, would boost: - The NPV of GDP between $12 and $26 billion over a 10-year period - Jobs by 30,000 in an economy operating at less than full employment • As well as more effectively enabling smart technologies in other sectors of the economy, a $12.6 billion investment in the deployment of fiber-to-the-node broadband technologies throughout the community would conservatively boost: 4

- The NPV of GDP between $8 and 23 billion over a 10-year period - Jobs by 33,000 by 2011 in an economy operating at less than full employment Example #4: Brazil Stimulates Economy with ICT Investments In Brazil, the government recognized the potential for powerful returns from investment in the growing ICT sector, which now comprises 7% of the country’s GDP.8 The challenge was prioritizing ICT investments that would generate the highest returns in the short term. The government turned to economic data to guide its decisions. Potential programs were rated based on their likely impact on socioeconomic development as well as ease of implementation. Seven ICT programs stood out, ranging from broadband cost reduction to acceleration of key regulatory processes. The Booz and Company data showed the programs could have a significant impact on the national economy, including: • Creation of at least 15,000 jobs and formalization of up to 50,000 jobs • Development of more than 1 million new broadband access lines in households, small businesses, and Internet cafes

• Sales of up to 5 million new PCs The ICT-related data was presented to key government officials at both the state and federal level in formal workshops attended by the Minister of Development, Industry, and Foreign Trade. The government chose to move forward with one of the suggestions—elimination of the VAT on broadband, which lowers end-user pricing by 18%—and is continuing to review other suggestions. The tax reduction is expected to benefit citizens, small and medium businesses, and Internet service providers in a country in which broadband access has not matched the growth in PC ownership and only 20% of households have any type of Internet connection. The anticipated economic impact of the tax reduction includes: • More than 1 million new broadband users • New jobs across the ICT sector • Greater productivity among SMBs • Enhanced broadband access in small towns and other areas previously excluded due to the high acquisition cost

The Economic Benefits of Strategic ICT Spending

Designing Your ICT Economic Model What Can an ICT Economic Model Do? • Provide what-if analyses on a wide variety of ICT policies and programs • Evaluate the costs, benefits, and tradeoffs of ICT investments • Calculate benefit-to-cost ratios • Generate detailed projections over multiple time frames

The success of the ICT investments made in Turkey, Portugal, Australia, and Brazil illustrate the value of using economic data and specifically ICT Economic Models to identify the best ICT investments. Economic models should be tailored to the particular dynamics of the country for which they are created, but there are common elements in the design and implementation process, including the following steps: • Identify the potential ICT policies and investments that need to be analyzed and model them • Gather the raw data needed for the economic model, such as tax rates, rebates, and broadband coverage rates • Ensure that the model is easy to interpret and clearly identifies expected costs and benefits • Produce a comprehensible report and disseminate it to key stakeholders, offering recommended actions based on the analysis provided by the economic model • Make adjustments to the model. Insert revised raw data as it becomes available, and create analyses of new policies and investments

Get Started Today Today’s governments are under pressure to respond quickly to the global economic crisis, investing in programs that will generate maximum revenue and jobs. The success of ICT Economic Models in Turkey, Portugal, Australia, and Brazil demonstrate the potential of such models to eliminate guesswork and identify the most promising ICT investments based on cost-benefit and revenue projections.

Intel World Ahead Program The Intel World Ahead Program aims to enhance lives by accelerating access to uncompromised technology for everyone, everywhere. Focused on developing communities, it integrates and extends Intel’s efforts to use technology to help people improve their lives, societies, and economies. We’re working with governments, development organizations, community groups, and other technology leaders to create the world ahead—a place that empowers the next billion people through: • Access to technologies best suited for local needs • Connections to the world via high-speed technologies • Education that prepares them for the future • Content and services that improve their lives • Health care improvements via technology

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The Economic Benefits of Strategic ICT Spending

1. In his comments at the press conference accompanying the release of the IMF’s latest forecast, IMF Chief Economist Olivier Blanchard noted the importance of trying to use fiscal measures that address longer-term economic needs. He emphasized spending on all forms of infrastructure, including ICT. 2. World Bank database. 3. Robert W. Crandall, Robert E. Litan, and William Lehr, “The Effects of Broadband Deployment on Output and Employment: A Cross-Sectional Analysis Of U.S. Data,” Issues in Economic Policy: The Brookings Institution, No. 6, July 2007. 4. Ibid. 5. www.todayszaman.com/tz-web/detaylar.do?load=detay&link=178295. 6. Measuring the Economic Impact of Magellan A First Look; Vital Wave Consulting, June 2009 7. “The Economic Benefits of Intelligent Technologies,” Access Economies Pty Limited, May 2009. 8. IBGE — National Accounts, Analysis Booz & Company, 2009. INFORMATION IN THIS DOCUMENT IS PROVIDED IN CONNECTION WITH INTEL® PRODUCTS. NO LICENSE, EXPRESS OR IMPLIED, BY ESTOPPEL OR OTHERWISE, TO ANY INTELLECTUAL PROPERTY RIGHTS IS GRANTED BY THIS DOCUMENT. EXCEPT AS PROVIDED IN INTEL’S TERMS AND CONDITIONS OF SALE FOR SUCH PRODUCTS, INTEL ASSUMES NO LIABILITY WHATSOEVER, AND INTEL DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY, RELATING TO SALE AND/OR USE OF INTEL PRODUCTS INCLUDING LIABILITY OR WARRANTIES RELATING TO FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR INFRINGEMENT OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT. UNLESS OTHERWISE AGREED IN WRITING BY INTEL, THE INTEL PRODUCTS ARE NOT DESIGNED NOR INTENDED FOR ANY APPLICATION IN WHICH THE FAILURE OF THE INTEL PRODUCT COULD CREATE A SITUATION WHERE PERSONAL INJURY OR DEATH MAY OCCUR. Intel may make changes to specifications and product descriptions at any time, without notice. Designers must not rely on the absence or characteristics of any features or instructions marked “reserved” or “undefined.” Intel reserves these for future definition and shall have no responsibility whatsoever for conflicts or incompatibilities arising from future changes to them. The information here is subject to change without notice. Do not finalize a design with this information. The products described in this document may contain design defects or errors known as errata which may cause the product to deviate from published specifications. Current characterized errata are available on request. Contact your local Intel sales office or your distributor to obtain the latest specifications and before placing your product order. Copies of documents which have an order number and are referenced in this document, or other Intel literature, may be obtained by calling 1-800-548-4725, or by visiting Intel’s Web site at www.intel.com. Copyright © 2009 Intel Corporation. All rights reserved. Intel and the Intel logo are trademarks of Intel Corporation in the U.S. and other countries. *Other names and brands may be claimed as the property of others. Printed in USA

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