November 9, 2011 Telecoms and Puerto Rico s Development José J. Villamil Estudios Técnicos, Inc.
Presentation Plan The Global Context Telecommunications and Development Puerto Rico s Economic Development ICT in Puerto Rico Looking Forward Puerto Rico Chamber of Commerce
Title The Global Context Sub Title A powerful force now drives the world toward a single converging commonality, and that force is technology. It has proletarianized communication, transport, and travel, making them easily and cheaply accessible to the world s most isolated places and impoverished multitudes. Theodore Levitt, The Globalization of Markets 3
Title The Global Context Sub Main Title Features New modes of integration Financial markets - Mergers, acquisitions and their implications - Hedge Funds and the Sub-Prime issue - Sovereign Wealth Funds The Network Firm The management of the global economy Capital mobility Short term financial flows Direct foreign investment The IMF and the World Bank Globalization as a microeconomic phenomenom Firms, not states, as drivers of globalization Tensions arise from differences in national and firm objectives. Consolidations are now a global phenomena Brands matter Enabling technologies used to be centralized, derived technologies migrated, but this is changing 4
The Global Context A changing context New competitive advantages Intangibles as the major trade component A new global economic center of gravity Network formation as a core competence The network firms and horizontal integration Markets are now global. E-bay and Amazon as poster children The marginal cost of information is nil, information is both a public and a free good The space that matters is no longer physical, but abstract. 5
Telecommunications and Development Templates Line chart The Contribution of ICT Investment to GDP Growth The Contribution of ICT Investment to GDP Growth 1.4 1.2 1990-1995 1995-2000 1.0 0.6 0.5 0.6 0.6 0.4 0.4 0.5 Rep. of Korea Finland The Netherlands United Kingdom United States Source: ICT and Economic Growth: Evidence from OECD Countries, Industries and Firms, 2003 Note: Data Available for U.S.A.: 1991-95 & 1996-01; U.K: 1984-94 & 1994-98 ; Finland: 1990-95 &1996-99 ; Korea: 1991-95 & 1996-00; The Netherlands: 1991-95 & 1996-2000. 6
Country Internet Use/ U.S. Internet Use Telecommunications and Development Editable diagram Venn diagram Economic Development and Internet Use 1.40 Iceland Norway 1.20 U.S. 1.00 Ireland Singapore 0.80 0.60 P.R. 0.40 Mexico 0.20 0.00 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 Country Per Capita GDP/ US Per Capita GDP Source: IMF; PR Planning Board; ETI and Internet World Statisitcs 1. In order to establish a link between economic development and Internet use, a comparison was made by Estudios Técnicos, Inc. using the GDP per capita of each country and the Internet use rate. The U.S. was selected as the benchmark rate with a value of 1.0. 2. What the graph clearly demonstrates is that higher income countries have more intensive Internet use. 7
Internet Use Growth 2000-2010 Telecommunications and Development Editable diagram Venn Economic and Internet Use Growth Rates 2000-2010 diagram 30.0% 25.0% 20.0% Jamaica Mexico Dominican Republic 15.0% 10.0% P.R. Norway Chile 5.0% U.S. Iceland Singapore 0.0% -2.0% 0.0% 2.0% 4.0% 6.0% Real GDP Growth 2000/2010 There is widespread evidence that a robust ICT infrastructure drives economic growth Source: IMF; PR Planning Board; ETI and Internet World Statisitcs How P.R. Fares Today: Number of Internet Users Per 100 People 8 Region Estimates Developed economies 71.6 Deveveloping economies 21.1 World 30.1 United States 79.0 Puerto Rico 40.6 Sources: ITU (2010).Key Global Telecom Indiators for the World; Estudios Técnicos (May,2011).
Telecommunications and Development Puerto Rico Chamber of Commerce Worldwide, it is estimated that e-commerce delivers: 1 2 3 4 5 6 15% savings over other forms of commerce, Generates a $10 trillion market. It also represents an important source of job growth. It also translates into higher wages, with the average wage for an ICT worker 75% greater than the average earnings for the U.S. worker. World exports of ICT were $1.4 trillion in 2009 and grew at an accumulated annual rate of 5.6%. In China and India exports grew during the period at 27.9% and 28.4%, respectively. 9
1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Puerto Rico s Economic Development Templates Line chart A history of lost competitive advantages 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% % Change Real GNP Average Growth per Decade Financial Crisis Energy Crisis "Volcker Recession" Hurricane Hugo Hurricane Georges 9/11 Partial closing of government 10
Puerto Rico s Economic Development The Limits of our Economic Model The previous graph illustrates the limits of Puerto Rico s approach to development However, the implications of these limits were mitigated by: Life extenders Petrochemicals Government expenditures Section 936 Section 901 The three buffers Federal transfers The informal economy Government employment 11
Puerto Rico s Economic Development The 2001-2010 Decade Editable diagram Venn diagram GNP Real Growth 4.0% Fiscal Years 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 2.7% 2.1% 1.9% 1.5% 0.5% 0.6% -0.3% -1.2% -2.2% -2.9% -4.0% -3.8% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 The economy was 3.5% smaller at the end of 2010 than it was at the beginning of 2001, and 12% smaller at the end of 2010 than at the beginning of 2007. 12
Puerto Rico s Economic Development The 2001-2010 Decade: Looking for Explanations Some explanations: The loss of competitive advantages High transaction costs Institutional obsolescence Poor fiscal and economic management A changing global context The concern for Puerto Rico s development experience arises from the fact that sustained negative economic performance has cumulative effects that could make recovery more difficult if not impossible. 13
Puerto Rico s Economic Development Templates Projections 2011-2014 Line chart 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 1.5% -0.3% 2.1% 2.7% GNP Real Growth Puerto Rico 1.9% 0.5% -1.2% -2.9% -4.0% -3.8% -2.2% 0.6% 1.0% 0.9% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Projected growth rates are clearly insufficient to resolve employment and other social and economic needs. Source: Puerto Rico Planning Board 2001 2012, Estudios Técnicos, Inc. 2013-2014. 14
C&IT in Puerto Rico Internet Use Templates Line chart 60% Internet penetration 2005-2011 50% 40% 45% 48% 30% 33% 35% 38% 20% 10% 0% 2005 2006 2008 2010 2011 15 1,500,837 users 12+ in age
C&IT in Puerto Rico Templates Line chart How do they connect? 90.0% 80.0% 70.0% 77.8% 60.0% 50.0% 40.0% 30.0% 34.8% 20.0% 10.0% 0.0% Personal Computer Cellular phone 14.4% Computer at place of work or school 12.0% 4.6% 4.4% Family member or friend's computer Mp3 (Ipod) Video Game Console 3.0% 2.8% Handheld Electronic Games Electronic Tablets (Ipad) 16
C&IT in Puerto Rico Although total employment in ICT fell in the decade due to the recession, it still is responsible for a substantial number of jobs. 17 ICT Employment, 1999 & 2010 1999 Word Processors and Typists 9,310 Electrical and Electronic Equipment Assemblers 7,640 Data Entry Keyers 4,280 Telecommunications Equipment Installers and Repairers, Except Line Installers 2,560 Computer Programmers 1,800 Computer Operators 1,610 Computer Support Specialists 1,350 Telecommunications Line Installers and Repairers 1,230 Computer and Information Systems Managers 900 Electromechanical Equipment Assemblers 860 Computer Systems Analysts 830 Graphic Designers 750 Computer, Automated Teller, and Office Machine Repairers 590 Network and Computer Systems Administrators 550 Computer Science Teachers, Postsecondary 480 Database Administrators 240 Computer Software Engineers, Systems Software 100 Network Systems and Data Communications Analysts 90 Computer Software Engineers, Applications -5 Desktop Publishers -5 Total 35,160 ICT Employment as Percentage of Total Employment 3.53% 2010 Word Processors and Typists 7,160 Data Entry Keyers 2,720 Telecommunications Line Installers and Repairers 2,100 Computer Support Specialists 2,630 Computer Programmers 1,680 Computer Systems Analysts 1,110 Graphic Designers 960 Computer, Automated Teller, and Office Machine Repairers 910 Computer Operators 860 Computer and Information Systems Managers 840 Network and Computer Systems Administrators 880 Computer Software Engineers, Applications 550 Electrical and Electronic Equipment Assemblers 640 Telecommunications Equipment Installers and Repairers, Except Line Installers 550 Computer Hardware Engineers 240 Database Administrators 220 Computer Science Teachers, Postsecondary 220 Total 24,270 ICT Employment as Percentage of Total Employment 2.55% Source: U.S. BLS, Occupational Employment Survey, 1999 and 2010. Note: 'Computer Hardware Engineers' and 'Computer Specialist, All Other' were not available for 1999.
C&IT in Puerto Rico abc CIO and other Broad Band Initiatives* PR Bridge Initiative $25.8 mm in ARRA funds INTENE/SUAGM $22.6 mm requested for broad band project INTECO $12.9 mm for broad band Project Broad Band Mapping $1.4 mm *Source: Modelo Económico para la Nueva Economía, 2011. 18
C&IT in Puerto Rico The Regulatory Framework Puerto Rico has looked at Telecommunications as a sector to be regulated The Telecommunications Regulatory Board is a regulator and was created when the privatization of the PRTC first came up in the early nineties In Singapore the parallel agency is the Media Development Authority A Telecommunications Blueprint was prepared some time ago and the Chief Information Officer position created in 2009 The IPTV issue illustrates the need for a new public policy that looks upon Telecommunications as a sector to be promoted and not just regulated Telecommunication Technologies are enabling technologies 19
Looking Forward Templates Line chart The need for Increasing Investment Construction Investment / GNP The Development Gap: C/GNP-I/GNP 18% 16% 14% 17% 15% 14% 13% 13% 12% 100.0% 80.0% 84.0% 88.5% 12% 10% 11% 10% 9% 60.0% 8% 6% 4% 7% 6% 40.0% 20.0% 25.7% 15.3% 16.3% 2% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7.0% C/PNB IIB/PNB IC/PNB 20
Looking Forward Templates The social dimension Line chart Unemployment Rate Total 50.0% Labor Force Participation Rate (Fiscal Years) 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.5% 12.0% 12.1% 11.4% 10.6% 11.0% 10.4% 11.0% 16.0% 13.4% 15.9% 48.0% 46.0% 44.0% 42.0% 40.0% 47.9% 47.0% 47.0% 46.6% 46.2% 46.4% 45.4% 45.8% 45.1% 44.1% 42.5% 41.1% 10.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 38.0% Source: Puerto Rico Planning Board. 36.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Junta de Planificación and Departamento del 21
Looking Forward Templates The social dimension Line chart 22 Puerto Rico is well positioned to developed as a regional ICT hub as reflected in the WEF report and the World Bank s Doing Business 2011 report. Recent studies on CAFTA +RD conclude that ICT is an important area of opportunity. Table 7 Networked Readiness Index Latin America and the Caribbean, 2010-2011 Economy Econom a Rank Index Barbados 38 4.32 Chile 36 4.28 Puerto Rico 43 4.10 Uruguay 45 4.06 Costa Rica 46 4.03 Brazil 56 3.90 Panama 60 3.89 Trinidad & Tobago 63 3.83 Colombia 58 3.80 Jamaica 73 3.78 Mexico 78 3.69 Dominican Republic 79 3.62 Peru 89 3.54 El Salvador 92 3.52 Guatemala 94 3.51 Argentina 96 3.47 Guyana 100 3.43 Honduras 103 3.34 Ecuador 108 3.26 Venezuela 118 3.18 Paraguay 127 3.00 Nicaragua 128 2.99 Bolivia 135 2.89 Source: World Economic Forum (2011). The Global Information Technology Report 2010-2011.
Closing Remarks Specific Needs Shifting the policy emphasis from material to intangible production and exports Developing critical mass in key areas that support knowledge based initiatives Creating networks to compensate for scale limitations Redefining the economy and transforming its institutional framework, in line with global realities Generating Strategic Intelligence as a continuing institutional learning process Technology Products Markets Completing the value chain in manufacturing In telecommunications moving from a regulatory to a promotional mindset 23
Puerto Rico Chamber of Commerce THANK YOU!