Achieving universal internet connectivity will require significant investment in digital infrastructure – including for commercially unviable locations. For this to happen, a wider investor base, more powerful financing tools, an enabling policy environment and better coordination systems must all be developed.
Introduction: Closing multiple digital gaps
Digital infrastructure and connectivity feature prominently in ‘build back better’ initiatives to boost post-pandemic economic recovery and resilience – understandably so, given the centrality of digital tools in modern society. Internet access is vital for economic growth, as it can increase productivity and improve access to markets and information. Digital technologies can be leveraged to widen social inclusion. The catalytic role of digital connectivity in sustainable development is also recognized in the UN’s Sustainable Development Goals (SDGs), and articulated in the stated aim of the UN’s Roadmap for Digital Cooperation of ‘achieving universal connectivity by 2030’.
But the ability to connect remains profoundly unequal. While the number of people using the internet surged to 4.9 billion in 2021, following the connectivity boost associated with increased online activity during the COVID-19 pandemic, 37 per cent of the world’s population have never used the internet. Of those 2.9 billion people who are still offline, 96 per cent live in developing countries. This gap in internet access between high- and low-income countries is usually referred to as the ‘digital divide’.
At the same time, efforts to build information and communication technology (ICT) infrastructure and strengthen digital connectivity need to take into account the reality that the digital divide is not a single gap. Rather, it consists of multiple – and often interrelated – sub-gaps. For example, people in rural areas are half as likely to use the internet as those living in urban areas. There is also a gender gap, with more women than men remaining offline (particularly in least developed countries). Generational and educational gaps contribute to the overall digital divide.
And even among the 4.9 billion people identified as internet ‘users’, the ability to connect regularly and meaningfully remains unequal. Key factors determining internet access and usage include the affordability of devices and services, as well as the level of digital skills. Meaningful connectivity also implies being able to access and transfer data freely and securely, both domestically and across borders. Breaches of data privacy, the use of surveillance technologies, and the spread of misinformation and harmful online content present threats to meaningful connectivity.
In sum, closing the digital divide involves addressing both gaps in access (i.e. linked to digital infrastructure and network coverage) and gaps in adoption (i.e. actual usage). This chapter focuses primarily on the infrastructure gap, partly because the ‘build back better’ movement emphasizes investment in digital infrastructure and technology, and also because internet access is a necessary (though insufficient) condition for narrowing the digital gap.
The International Telecommunication Union (ITU) estimates that $428 billion in investment will be required over the period 2020–30 to provide the world’s unconnected population with access to broadband internet. Comparable figures from the Global Infrastructure Hub – a G20 initiative – indicate that there is a $1 trillion gap between the cumulative investment expected (on current trends) in telecommunications infrastructure over the period 2016–40 and the investment needed. The most important funding gaps are expected in sub-Saharan Africa, South Asia and the East Asia/Pacific regions, with the specific investment requirements and technology options – from wireless broadband to fibre and satellite – varying between regions and countries.
Closing these financing gaps will require a significant shift in how elements of the international system work together. It will require leveraging public and private finance, as well as increasing collaboration between G20 members and the rest of the world.
The role of private investment and mobilized private finance
Mobilization of private capital has been a consistent theme of ‘build back better’ and similar post-pandemic recovery initiatives. And at first sight, engaging the private sector in the rollout of digital infrastructure does not seem to be a major problem. In fact, traditionally the private sector has been the primary investor in ICT infrastructure. For example, the current 4G coverage around the globe has been financed mainly by private capital – including investments by network operators, tower companies and internet service providers. It is expected that the private sector will meet $288 billion of the $428 billion investment requirement identified by the ITU (see above), while public sector money will principally target areas that are not (or not deemed to be) commercially viable.
The current private sector-led investment model faces numerous obstacles. On the supply side, the deployment of infrastructure is associated with high costs and/or high risks due to the challenges of ‘last-mile’ telecommunications connections in remote areas.
However, in reality the current private sector-led investment model faces numerous obstacles. On the supply side, the deployment of infrastructure is associated with high costs and/or high risks due to the challenges of ‘last-mile’ telecommunications connections in remote areas. Moreover, most of the capital needed for ICT infrastructure is traditionally debt-financed, but this source of capital is not readily available in low- and middle-income countries. On the demand side, the lower incomes and/or lack of digital skills of end-users in these countries are deterrents to current and projected take-up of service – this reinforces the reluctance of the private sector to invest in networks in remote areas.
Where private investment is insufficient, the public sector has an important role to play – both in complementing the finance available from the private sector and in creating an enabling environment to attract more private investment. ‘Blended finance’ is a potentially useful tool in this context. It is defined as ‘the strategic use of (development finance and philanthropic) funds to mobilise private capital flows to emerging and frontier markets’.
Compared to other sectors such as energy, construction or banking, ICT has not received the same attention from development finance institutions (DFIs), multilateral development banks (MDBs) or bilateral development finance providers. Of the $50 billion per year, on average, mobilized from the private sector by official development finance interventions for development in 2018–20, only $0.7 billion per year targeted the ICT sector. As ICT infrastructure projects become more complex and costly, and as the internet becomes more ubiquitous, there is an urgent need to leverage the roles of the private and public sectors more effectively to fund ICT infrastructure.
Existing minilateral and multilateral efforts
The G7 and G20 have acknowledged the digital divide, and have launched efforts to promote universal internet access. For example, digital connectivity is one of the four pillars of the G7’s Partnership for Global Infrastructure and Investment (PGII), launched in June 2022 as an apparent update to the 2021 Build Back Better World (B3W) Partnership. One aim of the PGII is to build secure ICT networks and infrastructure ‘to power economic growth and facilitate open digital societies’. Together, the G7 partners aim to mobilize $600 billion by 2027 for the PGII, with the US committed to raising $200 billion across all four pillar areas.
As part of President Joe Biden’s initiative to strengthen global infrastructure and enable digital connectivity, USAID launched Digital Invest in 2022. This new blended finance programme seeks to leverage $3.45 million in public funding to secure up to $335 million in private capital for internet service providers and financial technology companies in Africa, Asia and Latin America. The EU’s Global Gateway, which aims to generate infrastructure development investments of up to €300 billion in the period 2021–27, also targets digital infrastructure as a key sector.
The G20 has played an important role over the years in efforts to harness the digital economy as a driver of economic growth and development. In order to encourage digital infrastructure and connectivity efforts across G20 members and also with the rest of the world, the G20 – in close cooperation with the OECD – developed ‘Guidelines for Financing and Fostering High-Quality Broadband Connectivity for a Digital World’ in 2021. Digital transformation was also one of the 2022 Indonesian G20 presidency’s three key pillars, and the G20 has reconfirmed a commitment to address the digital divide and boost digital infrastructure investments. But the G20 is unlikely to find a consensus on related digital connectivity issues given clear divisions between members, for example on data regulation and cross-border data flows. With India – a country that is enacting data localization requirements – holding the G20 presidency in 2023, it will be easier for G20 members to find common ground on issues such as increasing digital infrastructure investment and supporting digital skills.
Mobilizing finance and creating an enabling environment for digital infrastructure are also part of efforts by the World Bank. The Digital Development Partnership (DDP), administered by the World Bank, brings together public and private sector partners to catalyse support to low- and middle-income countries. In 2021, the DDP’s ‘lending leverage’ reached $9 billion, meaning that every dollar of donor funding generated around $950 in further lending.
Other key multilateral initiatives include the UN secretary-general’s Roadmap for Digital Cooperation, mentioned above, and the Broadband Commission for Sustainable Development. The latter is a joint initiative by the ITU and the United Nations Educational, Scientific and Cultural Organization (UNESCO) to promote internet access. With numerous actors involved and initiatives under way, greater collaboration among all stakeholders is required.
China’s role in global digital infrastructure financing and standard-setting
Efforts by the US, Europe and other G7 partners have to be seen in the context of competition with China. At the same time, the world’s leading democracies still cooperate with China on digital infrastructure and connectivity issues in key international forums – including the above-mentioned efforts at the G20.
China’s ‘Digital Silk Road’ (DSR) was launched as a component of the Belt and Road Initiative (BRI) in 2015. It focuses on financing ICT infrastructure in many countries of the Global South. While determining exact investment figures is difficult, one estimate is that ‘Chinese ICT infrastructure financing across Africa surpassed the combined funds from African governments, multilateral agencies, and G7 nations’ in 2017. More recently, China’s Global Development Initiative from 2021 includes digital economy and connectivity aspects.
Chinese-led investments can help fill the infrastructure investment gap in the Global South. But Chinese-led investments in ICT infrastructure have also raised multiple concerns in the West, including related to Beijing’s role in promoting critical technologies such as 5G networks and setting technology standards, which could pose risks for security and human rights.
China is playing a leading role in international standard-setting bodies. For example, between 2015 and 2022, Zhao Houlin of China was secretary-general of the ITU. This specialized agency of the UN is responsible for issues related to ICT, including standard-setting for critical technologies and 5G regulatory activities. An election for a new secretary-general in September 2022 was widely seen as a pivotal moment both for the ITU and the future of digital communications, as it effectively pitted two visions of the internet – an open versus a state-controlled one – against each other. In the event, the US candidate, Doreen Bogdan-Martin, was elected, defeating Rashid Ismailov of Russia.
In the ICT sector as elsewhere, the world’s leading democracies need to carefully manage competition and cooperation with China. On the one hand, development initiatives should be considered separately from other areas of geopolitical competition. But on the other hand, critical infrastructure and standard-setting related to digital technologies are at the heart of the tensions between Western countries and China. The G20 is thus a very important forum for engagement, and for balancing sometimes conflicting imperatives around global interoperability and national security.
What more needs to be done
While important building blocks and global initiatives are in place to close the funding gap for ICT infrastructure in low- and middle-income countries, what has been missing is the political leadership to drive this agenda forward. The G20 can and should play a critical role in advancing and implementing ICT development in the widest sense, and in this context this chapter proposes the following policy recommendations:
Recommendation 1: Broaden the base of financial contributors and enhance the role of MDBs
Options to broaden the base of ICT investors can focus both on the private and public sectors, and could include recruiting new private actors such as digital companies with an e-commerce focus. But given that ICT infrastructure investment is driven by the private sector, this model has limits. Thus, new emphasis needs to be placed on leveraging public financing – especially for commercially unviable ICT infrastructure investments in remote areas and digital skills development.
In this regard, the role of MDBs can usefully be enhanced. MDBs can scale up both public and private funding for priority issues. Because the ICT sector has traditionally not been at the focus of their financing efforts, MDBs should make connectivity a new funding priority area. A first step would be to increase MDBs’ own capital commitments towards the ICT sector. But the considerable capabilities of MDBs can also be harnessed more widely to strengthen cooperation between the public and private sectors. In their investment mobilization efforts, MDBs should continuously emphasize the strong link between internet access and the SDGs.
Recommendation 2: Expand the financial toolbox and reform UASFs
Blended finance is not new to the financing toolbox for ICT investment. Existing mechanisms include some that use loans, grants, guarantees or subsidies. Financing can be delivered through structured funds such as ‘universal access and service funds’ (UASFs). UASFs seek to extend network coverage into remote areas, and their funding is usually linked to levies on telecommunications companies.
However, UASFs have a mixed track record and need reform. With approximately 100 countries having operational UASFs, there is no one-size-fits-all approach. Modernizing UASFs could involve expanding the scope of digital technologies that can be supported by such financing tools, and widening the range of eligible beneficiaries. Most UASFs are currently funded via mandatory contributions, but a new approach to funding should go beyond reviewing the level of fees imposed. Instead, sources of funding from industry should be considered as ‘anchor funds’ to mobilize investment from other actors. In some instances, reform of UASFs needs to be targeted at building trust by improving fund administration, transparency and accountability.
New financing arrangements are emerging, including bond financing. Cryptocurrencies are also starting to be used for development financing. Such innovative instruments can play a role in expanding the financial toolbox; however, their benefits and risks are still being evaluated.
Recommendation 3: Optimize non-financial instruments to create an enabling environment
Governments indirectly influence the investment decisions of the ICT sector through the regulatory and legal environment, which affects companies’ actual and perceived costs and the risks of technology deployment and operation. Non-financial incentives can be put in place to facilitate investments in connectivity. These include urban planning (such as ‘dig once’ and ‘dig smart’ policies) and the streamlining of approval processes for ICT infrastructure development.
Non-financial incentives can be put in place to facilitate investments in connectivity. These include urban planning (such as ‘dig once’ and ‘dig smart’ policies) and the streamlining of approval processes for ICT infrastructure development.
The use of broader policy tools (such as taxation) is particularly important for the ICT sector because rapid technological change is challenging existing regulation, business models and market structures. Keeping legal and regulatory frameworks up to date – and even promoting so-called ‘anticipatory governance’ models that apply foresight to technological and societal developments through engagement across different sectors and with the public – can help countries to attract ICT investment. Greater international cooperation can facilitate the exchange of best practices.
Recommendation 4: Strengthen coordination between actors in the digital infrastructure space
The range of actors – including consumers, the private sector, national and subnational governments, DFIs, and bilateral and multilateral donors – in the digital technology space has rendered cooperation complex. Interests and agendas around digital infrastructure development are diffuse. Better coordination between the public and private sectors, and also between domestic and international actors, is needed to reduce systemic redundancies and maximize the impact of investments to improve the quality and spread of ICT infrastructure.
International forums, such as the OECD and G20, already play a critical role in exchanging information, and in developing guidance on best practices related to digital infrastructure finance. They are also useful for providing multi-stakeholder platforms for cooperation. But, as discussed previously, there is significant scope to enhance the role of MDBs in leading the financing of ICT infrastructure expansion. In addition to making digital investments a priority, MDBs could strengthen collaboration to explore co-financing opportunities and share expertise. The global presence of MDBs and their operations across multiple sectors put them in a unique position to embed digital connectivity initiatives in a system-wide approach.
Other sectors, for example transportation and energy, often require civil works such as those for laying fibre-optic cables. Cross-sectoral collaboration could bundle digital infrastructure deployment with major works already planned or in progress in other sectors, thus avoiding duplication, minimizing costs and reducing environmental impact. Similar benefits could be achieved by strengthening cross-border coordination between neighbouring countries in the rollout of digital infrastructure.
Moreover, multilateral cooperation on standards (e.g. linked to financial transparency and environmental sustainability) could help attract private sector finance to investment in ICT infrastructure abroad. In this regard, the Blue Dot Network – a multi-stakeholder initiative formed by the US, Japan and Australia that certifies infrastructure development projects worldwide – should expand its membership, for example by including the EU and UK.
In sum, if the G20 members do not significantly scale up financing and identify innovative initiatives to leverage both public and private funding for ICT infrastructure and connectivity, the existing digital gaps will only widen. But if the G20 can rise to the challenge, universal and meaningful connectivity can contribute to sustainable economic growth, social inclusion and climate action. There has never been a more pressing time to put internet access at the forefront of economic development, and to mobilize concerted effort from the public and private sectors.