Financial Inclusion Via Sea Cable
Solomon Islands, the last large Pacific country without an international fiber-optic connection, is set to enjoy the biggest boost to internet connectivity ever thanks to the new Coral Sea Cable. Bandwidth will increase by a factor of a thousand or more, rising from a 16 Gbps (16 billion bits per second) satellite connection to 20 Tbps (20 trillion bits per second). The World Bank estimates that the 4,700 km cable linking Sydney, Honiara and Port Moresby has the potential to boost GDP by $5 billion and create 300,000 jobs by 2040.
These estimates may seem optimistic, but they are based on data from other regions that undertook similar investments in communications infrastructure. In these instances, improved connectivity resulted in the rapid growth of digital services and the development of new marketplaces, products and services that created jobs and enhanced productivity. With some of the lowest rates of financial inclusion in the world and smartphone penetration of just 31 percent, the potential impacts of improved connectivity on the digital economy of Solomon Islands are tantalizing indeed. This is true for most other Pacific island countries as well.
Tapping the potential of the Pacific islands
There is a risk, however, that it remains just that: potential. Those expecting Pacific states to follow similar paths to other newly connected regions are underestimating the range of unique development challenges that will need to be tackled for this vision to become a reality. Large economies can combine massive government-backed infrastructure investment, dynamic market forces and tech-ready populations to good effect, triggering exponential growth in short time frames. These conditions do not currently exist in the Pacific and will be challenging to replicate.
in the following three areas:
- Improve domestic digital infrastructure.
- Nurture the development of local digital products.
- Improve digital and financial literacy.
Map of the Pacific Islands
Improving domestic digital infrastructure
The geographic realities of many Pacific island states defy conventional market-driven strategies. Small, dispersed customer bases make ensuring nationwide access to the benefits of high-speed internet particularly challenging. Mobile network operators must try to balance massive infrastructure investments with a small revenue base. Many end up deciding to concentrate their investments in more profitable urban areas, keeping prices high and excluding remote and low-income customers. Similar dynamics apply to digital financial services, with service providers dedicating only limited resources and attention to agent networks in remote and rural areas.
In the long run it is expected that the fiber-optic cables will significantly reduce data costs. However, there will still be limited incentive to scale up investment in “last mile” infrastructure. In Fiji and Papua New Guinea, for example, a single company (Vodafone and Digicel, respectively) dominates the market. Without competitive pressure, these companies can defer the disruptive transition from a low penetration/high fees model to a more inclusive one. Market forces alone are thus unlikely to be the drivers of rapid change in nascent Pacific digital economies. External interventions and considerable support from governments and development partners will be required to ensure that the benefits of improved connectivity are shared equitably.
Nurturing the development of local digital products
Small market size will also have an impact on the development of digital products and services designed to meet local needs. Whereas large economies with a big pool of potential customers allow start-ups and innovations to achieve profitability with a small role in a larger eco-system, this is much harder, if not impossible, in markets in the Pacific region. This handicap is compounded by inadequate infrastructure: while remote populations will need USSD-based platforms to connect via 2G, urban populations are looking for more sophisticated smartphone apps to take advantage of much faster 4G connections. Separate services will need to be developed for markets that are barely big enough to support one service. Without government intervention and support from development partners, innovators and tech start-ups will struggle to build their businesses and gain the market share required for them to be financially sustainable.
Improving digital and financial literacy
Similarly, efforts to increase uptake of digital and financial services will yield little fruit if people don’t know how to use them. It won’t be enough to depend on early adopters, who are mostly young people living in urban locations with access to fast network. Serious commitment is required to ensure that all Pacific Islanders, including women and people living in rural areas, are able to fully access and use digital and financial services.
During the Digital Pacific Conference in Samoa in June 2018, Pacific leaders emphasized that investments in upgrading education and worker's skills will be crucial in order to reap the potential benefits of digital technology for sustainable development in the Pacific. This will require a commitment to support ICT training and STEM education that can support the shift in labor market demand and the implications on skills development, training and education initiatives. Additionally, Pacific governments and development partners should continue their support to include financial education into national curricula.
The hard work is just beginning…
To ensure that better connectivity leads to a truly inclusive digital economy, stakeholders must first understand the unique challenges of the Pacific and recognize that the region is unlikely to follow the same path as examples from Asia or Africa. Connecting Pacific island countries with fiber-optic cables may have been challenging, but that was actually the easy part. Governments and development partners must now develop last mile digital infrastructure, nurture local innovators and e-commerce start-ups, and improve the digital and financial literacy of the population. The hard work required to ensure that Pacific islanders truly reap the benefit of these investments has just begun.
The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.