Memo # 6: Foreign Investment in Telecommunications

The question asked was to address an issue with investment in telecommunications in a foreign country. For this memo, I wish to examine a related topic. In 2006, a paper was published for the Southern Association for Information Systems Conference, entitled Telecommunication Investment in Economically Developing Countries. The short paper addressed the annual budget expenditure of economically developing countries ("EDC") into the telecommunications structure of the country. The basis of the study is the Annual Telecommunications Investment ("ATI"), defined by the authors as "the annual expenditure associated with acquiring ownership of property and plant used for telecommunication services." Id. at 30. This expenditure was then compared to the nations' Gross Domestic Product to determine the percentage of GDP invested in telecommunications and whether this investment has spurred overall growth in the GDP. The results are interesting and provide the evidence that EDC's need greater foreign investment in their telecommunications industries. As many of these nations still have a nationalized, government funded telecommunications industry, the spending is often limited by government budgets and political will. There are a few major conclusions to draw from the research.
Many of the EDC's profiled by the study, nations in Africa, Eastern Europe, Central America and Asia, are spending no more then 2.5% of the annual GDP on ATI. That is in line with many of the industrialized nations. The United States is the amongst the lowest spenders, at .5% of the nation's GDP. However, the United States invested $34 billion in 2002 into the telecommunications industry. Industrialized nations have the resources to expend the billions needed to grow and maintain the telecommunications network. For a better comparison, look at the data from Gambia and the Czech Republic. In 2002, the Czech Republic, a relatively strong industrialized economy, spent 1.7% of the GDP on ATI. Gambia, a decidedly developing nation, invested 2% of the GDP on ATI. But here is the difference; the actual amount spent by the Czech Republic was $810 million while Gambia's actual expenditure was $8 million. The equality of percentage of GDP when viewed in terms of actual dollars is staggering.
The ramifications are huge. The authors state that the investment required to raise a nations telephone infrastructure (again, simply telephone infrastructure) from 1 phone for 300 inhabitants to 1 phone for every 100 inhabitants is $8 billion. Staggering; to take a EDC to the basic telephone infrastructure of 1 phone (AGAIN JUST PHONES) for every 100 inhabitants requires a 10,000 times increase in the investment a reasonably developed nation, like the Czech Republic, provides in a year. At current investment levels, that is a million times increase for Gambia. EDCs cannot make these telecommunications investments on their own, using the resources within the nation.
For the EDCs of the world to reach even a remedial level of telecommunications infrastructure, either foreign investment is required to enable the growth, or else the nation must be willing to take on huge amounts of debt to grow the network. Two nations, Azerbaijan and Gabon attempted the second route. In 2002, Gabon spend 229% of the GDP on ATI while in 2000, Azerbaijan invested 436% of its GDP on ATI. But it is unclear whether these debt-fueled investments will actually grow the national economy. A better route, a safer route for a country, would be to allow foreign investment in the telecommunications network, enabling a nation to provide necessary service without encumbering the economic hardship of debt.