NIC Research - E-Commerce at the Grass Roots

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E-Commerce at the Grass Roots:
Implications of a “Wired” Citizenry
in Developing Nations

Prepared for the National Intelligence Council
by Booz-Allen & Hamilton
3190 Fairview Park Drive
Falls Church, Virginia 22042
30 June 2000

The views expressed in this paper are those of the author and do not represent official US Government positions or views.

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Key Judgments

The widespread availability of Internet access is certain to have significant effects on the developing world, most of them positive. Economics and politics depend completely on the transmission or exchange of information. The introduction of a major new information medium that ultimately reaches almost universally down to the local level will have a profound effect on local economic and political activity. We are seeing this phenomenon now in the developed countries. We will begin soon to see the effects of Internet availability in the developing world as well.

The following are the major effects anticipated on local economic and political activity in developing nations—

General

It will not be necessary to wait until Internet access is widespread at the local level to begin seeing important effects. The first 5 to 10 percent of Internet “pioneers” in each locality will be the local economic and political leaders, magnifying the Internet’s early effects.

The trend toward “infinite” Internet capability at “zero” cost will make Internet access in developing countries available sooner than commonly projected

Although the economic and political effects of Internet introduction will be positive on balance, enhanced Internet communication by itself will not overcome all the problems of the developing countries. Cultural obstacles, oppressive governments, ethnic bitterness, poor nutrition, ill health, and many other factors will still impede economic and political progress.

Infrastructure limitations will hinder Internet growth in the developing world, keeping countries from realizing its full potential. Significant effects of Internet penetration can be expected nevertheless, even in countries with poor infrastructure services.

India and China are likely to lead the developing world in the assimilation and application of the Internet at the local level, with urban areas leading the countryside. The major cities in western Russia will adopt the Internet and see its local effects at an early date, but most of Russia will lag behind significantly. South Africa will make relatively rapid Internet progress, while the rest of Sub-Saharan Africa and the disrupted economies of Latin America will make progress, but at slower rates.

Economic and political relationships between expatriates and their places of origin will expand, sparking an increased flow of capital and ideas. Emigration to developed countries is likely to slow and in some cases reverse.

Economic Effects

The ready availability of local pricing information will induce greater market efficiency, reduce consumer prices, increase consumer choice, and increase demand.

Traditional middlemen will be squeezed, with many being forced out of their present economic roles. They are likely to become the core of a more modern service sector, focusing on transportation, distribution, and finance.

Entrepreneurs will thrive, often vexing established interests. Local cartels, barriers to entry, and restraint of trade—promoted by both private and governmental interests—will tend to unravel.

Entrepreneurial access to capital will improve.

Agricultural markets will develop local commodity exchanges. A market system that sets prices for future product delivery will facilitate farmers’ planning while giving them greater access to working capital.

The role of local governments in the economy will shrink somewhat as private economic activity becomes more difficult to monitor, regulate, tax, or obstruct. Petty bribery will diminish.

Organized criminal activity will be facilitated by Internet communications. Countries with weak legal structures will be especially susceptible to online crime.

Political Effects

Increased flows of news and information will make local populations better informed, especially about domestic events and conditions. Public morale and compliance will be affected, the options of local leaders limited.

Local elections—already democratically contested even in some authoritarian countries—will become livelier. Low-risk avenues for expressing and organizing political opposition will increase.

Many countries will see an increase in popular feedback to local (and higher) officials, resulting in somewhat greater leadership accountability.

The activities of nonpolitical voluntary associations—especially religious groups—will be facilitated, with unintended political effects.

Oppressive governments will have a variety of counter-Internet measures available to them, which will delay and offset positive trends to some degree. Traffic volume, system complexity, technological advancements, and the ready availability of encryptionwill limit governmental options, especially at the local level.

Governments are likely to try to use the Internet to their advantage, flooding local Internet channels with supportive news and information. Adroit disinformation to mislead the public and confuse opponents is also likely.

Table of Contents
		Page
Key Judgments		i
Table of Contents		iv
Scope and Research Note		v
I. Prospects for Internet Availability and Usage in Developing Nations		I-1
	A. Assumptions on Internet Availability	I-2
	B. Modes of Internet Usage	I-4
	C. Trust, Credit, and Law	I-7
	D. Prospects for Secure Communications	I-8
	E. The Internet as a Tool for Preserving the Status Quo	I-9
II. Effect of Widespread Internet Availability on Local-level Economics		II-1
	A. Local Market Liquidity and Efficiency	II-2
	B. The Agricultural Economy	II-8
	C. Local-level Entrepreneurship	II-12
	D. Cartels, Barriers to Entry, Restraint of Trade	II-15
	E. Capital Accumulation, Investment, and Credit	II-18
	F. Employment Patterns and Labor Migration	II-23
	G. Taxation, Regulation, and Licensing	II-27
	H. Informal vs. Declared Business Activity	II-31
	I. Crime and Corruption	II-34
III. Effects of Widespread Internet Availability on Local-level Politics		III-1
	A. Increased Access to News and Information	III-2
	B. Local Political Activity	III-5
	C. Connectivity with Expatriates and Distant Domestic Groups	III-8
	D. Adroit Internet Usage by Governing Political Powers	III-11

Scope and Research Note

This paper postulates economic and political effects of widespread Internet availability at the local level in selected countries and regions of the developing world. It addresses the changes in local economic and political activity that are likely or at least possible once large numbers of people obtain Internet access.

Several topics lie outside the scope of this paper—

How soon widespread Internet access is likely to be attained in each area. Its widespread availability is taken as a “given” condition. Timelines clearly will vary greatly from region to region.

Current and near-term Internet developments in the countries and regions under study, except as they appear to point the way to long-term effects.

The nature and evolution of Internet technology, except in special cases where it may have a unique impact on the developing world.

The effects of widespread Internet access in the developed countries, except where they may be suggestive of future phenomena in the developing world.

It is, of course, difficult to research the future. The study team found virtually no published material that directly addressed the topics within the paper’s scope. Our research plan included the following steps—

Find information on how local-level economic and political activity takes place today in the countries under study, in the absence of widespread Internet access. This data formed the baseline on which future Internet availability was conceptually overlaid, permitting potential changes to be identified. Information of this type, on local economic and political patterns, was surprisingly difficult to find.

Find information on current and near-term Internet development in the developing world. We focused on the countries and regions under study, but also looked at other areas for development patterns that might be applicable.

Identify and interview an expert on each of the five geographic areas under study, asking particularly for their expectations once widespread Internet access was attained. Interviewees were identified not only for their geographic area expertise, but also for their record of publishing future-oriented, technology-oriented analysis.

The subject matter experts interviewed were—

-Sub-Saharan Africa: Dr. Robert Houdek, National Intelligence Officer for Africa. Dr. Houdek served much of his diplomatic career in African countries and has focused special attention on the technological outlook for the continent.

-China: Dr. Daniel Rosen, National Economic Council, Executive Office of the President. Until May 2000, Dr. Rosen was a Research Fellow at the Institute for International Economics in Washington, DC. He specializes in Chinese economic development and telecommunications issues.

-India: Ms. Carol Charles, Assistant Director, Global Information Infrastructure Commission and staff scholar at the Center for Strategic and International Studies in Washington, DC. Ms. Charles, a native of India, has focused much of her research on that country.

-Russia: Dr. William K. McHenry, Associate Professor, McDonough School of Business, Georgetown University, Washington, DC. Dr. McHenry teaches information systems and electronic commerce, has made more than 20 research trips to Russia, and has published on the outlook for information technology in Russia.

-Latin America: Dr. Mark Falcoff, Resident Scholar, American Enterprise Institute, Washington, DC. Dr. Falcoff specializes in current analysis and future projections on Latin American economics and politics.

Subsequent to the research phase, a substantial part of the work for the paper consisted of a disciplined projective analytical process, focused on identifying proximate and second-order effects on local economics and politics of widespread Internet access in the countries under study.

The literary style of this paper is somewhat unusual, consisting almost entirely of “bullet” paragraphs, grouped under topical headings. The scope of the paper is broad, covering a wide range of long-term economic and political developments in five major geographic areas. The bullet format was used to highlight and encapsulate a wide variety of topics as efficiently and clearly as possible. Weaving a narrative around these major points would probably have obscured them to some degree and would have made for a much longer paper.

I. Prospects for Internet Availability and Usage
in Developing Nations

The thrust of this paper is to assess the long-term economic and political impacts of widespread Internet use on specified, high-interest countries and regions. To lay a proper foundation, however, certain assumptions must be made and generalizations offered that will set the terms for the geographically specific projections. These factors fall into several categories, discussed at length in the sections that follow—

Key assumptions and systemic factors relating to Internet availability and usage

Modes of Internet usage foreseen

Elements of trust, credit, and law that must be in place before electronic commerce (e-commerce) can develop

Prospects for the availability of secure Internet communications

The Internet as a tool for preserving the status quo.

A. Assumptions on Internet Availability

A number of assumptions underlie the prospective analysis that comprises the main body of this paper—

This paper takes as a given the prospect for widespread popular access to the Internet in the countries of Africa, Asia, Eastern Europe, and Latin America that are under study. We do not predict the rate of this Internet penetration, such as what percentage of the population in a particular country will have Internet access by what date. Instead, our concern is the nature of the local-level economic and political effects that can be expected, at whatever time this Internet penetration does in fact occur.

By “widespread” Internet access, we mean the point at which about half of a population has such access. This certainly does not mean that 50 percent of the population must each have their own, Internet-served, personal computer (PC). Computers — or other Internet user devices that are not PCs —can serve more than a single person. One device may be shared by members of a household, or by several households. A device may be available to many individuals when placed in a library, school, political office, farm cooperative, “cyber-café,” or other common facility.

As important as “widespread” Internet availability will be, many significant effects of Internet access will come well before such a large proportion of a country’s population will be able to go online. At both the national and the local level, significant changes will probably begin to take place when only the first 5 or 10 percent of the population gains Internet access. This is largely because these Internet pioneers will naturally be among the leaders in a country’s economy, government, academy, or other major institutions.

An important but unquantifiable factor in the growth of Internet availability is the trend toward “infinite” Internet capacity at “zero” cost. User devices and network services that are beyond the financial reach of most people in developing countries now will probably come within their reach as time passes. Simple linear extrapolations of Internet availability based on recent trends will probably be too pessimistic. The stultifying effect of high telecommunications costs will probably be the primary obstacle to rapid Internet growth in developing countries.

The development of Internet connectivity alone will not be sufficient for the full ramifications of Internet access to be felt in the economic and political spheres. Certain infrastructure services must be available for the Internet to have its fullest effect, principally, reliable and economical electric power and telecommunications. For e-commerce to thrive to its fullest extent, there needs to be a functioning online payment system and a business environment characterized by trust and law.

In the absence of fully satisfactory infrastructure services, payment systems, and legal frameworks, widespread Internet access can still have significant economic and political impact, even if its full potential remains unrealized. The greatly increased communication facilitated by the Internet will still promote economic growth and political activity to a marked extent, even if the environment in which it is operating is less than optimum.

The prerequisite for literacy, especially in English, will become less important over time. Literacy is now virtually essential for Internet use today, and it will continue to be an important factor in the ability of a population to make full use of the Internet. Technology will reduce its criticality to some degree, however. Voice recognition and audio signal processing will continue to develop, and will probably make it possible for illiterate users to communicate effectively over the Internet. The further development of graphical interface technology will have a similar effect. Finally, the quality of automated language translation will continue to improve, reducing many language barriers.

B. Modes of Internet Usage

There are several ways in which the Internet can be used as a communications medium, and these modes will find a variety of applications and adaptations in developing countries. In view of the rapid advance of Internet technology, it is likely that these modes of usage will evolve significantly over the next two decades, new modes will probably be introduced, and perhaps some present usage modes will become obsolete.

Subject to that caveat, the following modes of Internet usage are now available in the developed world and are postulated to be the primary modes of usage that will be used in developing countries over the coming two decades. The key, basic attributes of each mode are noted briefly, as they would apply in developing countries.

Electronic mail (email)
This is the basic mode of Internet communication, in which a single person, business, or other organizational entity composes and transmits a text message to another person or entity. A message can be sent simultaneously to multiple addressees. The sender can transmit at any time, and typically within a matter of minutes, the message will be waiting for the recipient(s) to receive and open it. In many systems, more complex data files can be attached to email messages and transmitted to the recipient. Basic literacy is required. Email may be encrypted for privacy. Several global email services are provided free to users, including Hotmail, Yahoo, Juno, and in many countries, AOL.

News groups and bulletin boards
In this mode, an Internet site is established on which users post information, statements, or questions. Other users access the site; can read, copy, or print selected materials; and may post responses to questions or statements that have been posted by others. News groups are typically established to serve a universe defined by some affinity or common interest. Access can be worldwide, but many serve strictly local concerns. The news group server need not be geographically near its users; it can be located anywhere on the Internet. In many news groups, data files may be posted for downloading by others. Basic literacy is required. Users need not identify themselves. Encryption of news groups is theoretically possible, but all users would have to be privy to the key; encryption is rarely used. Typically, there is no cost to set up a news group once basic Internet service has been procured.

Chat rooms
A chat room is a more dynamic form of news group. Many users can access the site simultaneously, interactively asking and answering questions, making and responding to statements. All users logged on to the site see all such interactions. As with news groups, chat rooms are organized to serve an affinity group, although anyone who knows the address can gain access unless blocked by the group’s administrator. Users need not identify themselves. Literacy is required. Access can be established worldwide, but many chat rooms serve local concerns. Servers need not be local, but rather may be anywhere on the Internet. As with news groups, encryption is theoretically possible, but rarely if ever used. Typically, there is no cost to set up a chat room once basic Internet service is procured.

Web sites
In their simplest form, web sites are static but readily updatable displays of text and graphics. New postings are under the control of the site’s webmaster. Many users can access the site simultaneously, but in the simple case, users are passive readers rather than interactive discussants. Users do not identify themselves. Access can be established worldwide, but sites may serve only local concerns. Servers need not be local, but rather may be anywhere on the Internet. Web technology is developing rapidly, with vast advances over the simple form described above now the norm in the developed countries. State-of-the-art web sites typically feature complex graphics, video, continuous data updates, database access, commercial transaction support, and email communication with the site sponsor, with new features appearing daily. The resources and expertise required to manage a site that uses advanced technology are considerable, but such sites may be reached by anyone with Internet access. Web sites that wish to restrict access typically do so by requiring passwords for entry.

Other communications modes
Additional modes of communication via the Internet are available at least in rudimentary form or are being developed, some of which no doubt will find ready application in developing countries. These presently include—

-Telephone-like voice communication, at low or no cost worldwide, either point-to-point or in conference mode

-Transmission of video camera images, either still, sequenced, or streamed to show continuous motion

-The combination of the above technologies in video telephony or teleconferencing

-Audio streaming, permitting the one-way transmission of broadcast or recorded voice communications to an unlimited number of listeners

-Messaging and paging

C. Trust, Credit, and Law

As important as commercial trust, credit instruments, and contract or consumer law may be to e-commerce in the developed world, we must avoid mirror-imaging these standards and expectations when postulating the growth of e-commerce in developing countries.

Most of any commercial process involves the acquisition or exchange of information. The actual exchange of money for delivery of goods is only the final step in this informational process. Internet connectivity devoid of any provision for supporting financial transactions can still facilitate commercial activity: vendors can advertise goods for sale, shoppers can find information on price and availability of goods, terms can be negotiated, and arrangements for payment and delivery can be made. Consider the similarity to the telephone: only a fraction of the telephone traffic between businesses or between a business and the public involves actual transactions. Most traffic involves the exchange of information.

Thus, there need not be any provision for trust, credit, or law at all for widespread Internet availability still to have a profound beneficial effect on economic activity at the local level in developing countries.

As undeveloped as credit instruments and contract law may be in the countries and regions under study, nevertheless the Internet itself may be a vehicle for the introduction of certain advances in these areas.

A potentially significant development in this field is the advent of digital money. Today, the technology, associated banking infrastructure, and legalities are still embryonic, even in the developed countries. It is premature to project the ready availability of digital money in the developing world within the time horizon of this paper, but this is not to preclude unforeseen technological advances that bring it about sooner than expected. Even when (if) the use of digital money becomes relatively common, its use at the person-to-person or small business level would no doubt remain futuristic.

D. Prospects for Secure Communications

Another systemic factor that will play a role in Internet usage in the developing world is the increasing availability of technology—typically encryption—that can make communications unreadable by outside parties. Even today, strong encryption programs (PGP, for example^[1]) are universally available free or at low cost.

In commercial terms, the assurance of communications privacy will facilitate the use of Internet communications for business negotiations and other sensitive matters, but perhaps more important at the local level, it will keep government and entrenched interests from monitoring informal or underground economic activity.

In political terms, private communications among opposition, dissident, or rebellious political elements will complicate the monitoring task of governments, political police, and dominant political parties.

Encryption aside, the growing volume of Internet traffic in developing countries will have much the same effect on economic and political situations. Local authorities, much less entrenched local business interests, will have little ability to intercept and monitor even unencrypted Internet traffic, trying to identify those few messages that contain pertinent information. Except in extraordinary circumstances, capabilities for sophisticated cryptanalysis or even traffic analysis that might exist in national governments will not be applied to monitoring diffuse economic and political activity in the thousands of localities in each country.

E. The Internet as a Tool for Preserving the Status Quo

As suggested in the foregoing sections, the Internet has vast potential for enabling people in the developing world to engage in freer local economic and political activity, with far-reaching implications at the macroeconomic and national political levels. This is by no means a one-way street, however. Entrenched economic and political interests will be able to use the Internet as a tool for maintaining their dominant positions, especially because they typically command greater resources and coercive authority.

The ways in which this phenomenon may be observed include the following—

Disruption of communications through attacks on servers or virus introductions into sites considered to be undesirable

Surreptitious interception and reading of communications; noting originators and recipients of encrypted communications

Introduction of disinformation into newsgroups and chat rooms, including the appropriation of user identities to induce confusion or discord

Blockage of access to sites considered to be undesirable

Probably the most powerful, the potential to flood Internet news and information channels with material that reflects a government’s position on issues.

In addition to these means of defending entrenched interests, local economic or political entities in many developing countries would face few restraints on the use of coercive measures, such as—

Damaging or confiscating computers

Forcing the shutdown of web sites

Intimidating individuals known or suspected to be using the Internet in ways that threaten established economic or political interests.

II. Effects of Widespread Internet Availability
on Local-level Economics

The arrival of widespread Internet service in developing nations will be a catalyst for productive economic activity and more rapid growth. A key component of economic activity, in developing countries as elsewhere, is information. Information on the availability, attributes, and prices of goods and services must be exchanged before any physical transaction can take place. The ready availability of such information is an important factor in how rapidly economies develop. The Internet will be an important new vehicle by which economic information is exchanged in the developing world.

It is important, however, to resist excessive optimism. Enhanced opportunities for communication alone will not overcome cultural obstacles, oppressive governments, infrastructure shortfalls, ethnic bitterness, poor nutrition, ill health, or many of the other factors that stand in the way of economic progress in the developing world. Most of the events and trends postulated in this section are indeed expected to be positive, but the outlook must be tempered by a realistic recognition of the limiting factors also at work in the developing world.

In this section of the paper, we will consider the likely effects of Internet availability on a variety of economic phenomena that take place at the local level. The first segment under each topic will address phenomena that are likely to be universal or at least common. Following that initial segment, specific comments will be offered concerning the five countries and regions under consideration: Sub-Saharan Africa, China, Russia, India, and four selected states in Latin America: Nicaragua, El Salvador, Colombia, and Ecuador.^[2]

The economic phenomena to be addressed are the following, all with a focus on the local level—

Local market liquidity and efficiency

The agricultural economy

Local-level entrepreneurship

Cartels, barriers to entry, and restraint of trade

Capital accumulation, investment, and credit

Employment patterns and labor migration

Taxation, regulation, and licensing

Informal vs. declared business activity

Crime and corruption.

A. Internet Effects: Local Market Liquidity and Efficiency

Let us focus first on the local producer of goods, whether a farmer growing crops for sale, or a small-scale handicrafter or manufacturer. In traditional economic arrangements, local producers have few options when it comes to selling their goods: they can sell them at retail to passers-by or in a local market, or they can sell them at wholesale to a middleman. The middleman will pass the goods onward, often through several sets of hands, transporting them to city markets or in some cases for export.

These traditional economic outlets essentially force the local producer to accept whatever prices are offered. The farmer cannot typically take time out from his labors to carry produce to a distant city for a better price, whereas the handicrafter or manufacturer will have filled the needs of his neighbors for his product and requires access to more distant buyers.

As maligned as they often are, local middlemen perform an essential service, for which they are entitled to payment. They purchase, aggregate, transport, and resell the goods of the producers. It is typical, however, for middlemen to take advantage of the dependence of local producers on their services—and of their access to information on supply, demand, and pricing—to pay only a pittance for the producer’s goods, while making a markup of several hundred percent.

How will these traditional market relationships change once access to the Internet becomes widespread in these areas? Several major effects can be postulated—

Probably the most critical single change will be producer access to current pricing information. A farmer, for instance, could go to the local co-op or supply store and use its Internet terminal to check current produce prices in the city or elsewhere in the province. This information would give the farmer new options. If the city price were attractive, he could take or send a load of produce there with a high degree of certainty as to the price he could get. At the same time, the farmer would now have a greater degree of bargaining power with the middleman—he would know how much the middleman could get for his produce, have the option of avoiding the middleman, and thus could probably drive a more favorable bargain. (See Section B of this chapter for further analysis of the effects of Internet availability on the agricultural economy in the developing world.)

Internet connectivity will also inform local producers of the existence of potential buyers with whom they have not been traditionally acquainted. Perhaps the middleman from the next valley or the next town is prepared to offer a better price this month than the middleman in the local village. Altering traditional buyer-seller relationships does not come easily, but neither is it easy to keep willing buyers and sellers from doing business together.

Supply-side effects of Internet availability will mirror the above demand-side effects. Local producers purchase raw materials, tools, seeds, fertilizer, and so forth from middlemen or local shops. With the benefit of Internet connectivity, producers will be able to shop more widely for better prices for these inputs. A supplier in a nearby city, or two towns away, may be willing to sell needed supplies more cheaply than the traditional local vendor. So the local manufacturer may make the trip to take advantage of cheaper supplies, or may use his new knowledge to gain bargaining leverage with his traditional supplier.

In addition to these immediate effects of Internet availability, important second-order effects can also be anticipated. What becomes of the middlemen, for example? Their traditional advantage over producers, based largely on their command of market information, will be eroded. The first reaction in most cases will be to try to protect their status through coercion, either directly or through the agency of local political officials. This can be only a temporary holding action, however, not a permanent means of preserving the status quo.

Ultimately, however, traditional middlemen will be forced by competitive pressures (and enticed by business opportunities) to become more market-oriented service providers. A natural avenue for this evolution will be for middlemen to establish service firms offering transportation, distribution, wholesaling, or business finance. Some middlemen will be unable to cope with the challenge of Internet availability, but many will adapt and thrive, using the Internet to provide business services effectively and profitably.

Perhaps the most far-reaching second-order effect will be lower prices and broader choices for consumers throughout the developing world. As Internet availability catalyzes greater competition, the economic inefficiencies of traditional processes will be squeezed out to an ever-increasing degree. More efficient processes result in lower prices to consumers. This increased purchasing power, plus the enhanced information flow produced by Internet availability, will give rise at the same time to a broader array of goods and services available to consumers in developing countries. Perhaps the greatest obstacle here will be situations in which prices are controlled or subsidized by the government.

The quickening of economic activity resulting from Internet availability will immediately highlight shortfalls in infrastructure, especially the demand for better roads and telecommunications. Virtually all parties in each economy will have a keen interest in infrastructure improvement, which will translate into greater political will for governments to provide such services or facilitate private investment (often from overseas) to provide them. Rising prosperity will provide a somewhat greater means for infrastructure improvements to be financed.

A final effect on market activity that can be postulated in an environment of widespread Internet access is the proliferation of online advertising in developing countries. Especially at the local level, advertising currently is sparse because of the expenses involved and the dearth of appropriate media. As entrepreneurs make greater use of the Internet, advertising will probably flourish, especially the commercial use of email, news groups, and chat rooms. Legal restrictions on such use will be weak or nonexistent, and it will take some time for consumers to develop a concerted resistance to “spam,” if they are inclined to do so at all. As annoying as advertising can be, it is essential to vibrant commercial activity, conveying important information about the attributes, availability, and price of goods and services for sale. Although the effect on economic growth of a proliferation of advertising is impossible to quantify as yet, it will certainly be positive.

We will next examine how these postulated effects of Internet availability on local market liquidity and efficiency are likely to apply in the cases of the countries and regions under study.

Sub-Saharan Africa

Market conditions vary across the continent, but most commonly, prices for basic commodities are set by the government, with freer pricing allowed for other items. In fact, about half of economic activity takes place informally, without regard for governmental pricing rules or policies.^[3] The advent of widespread Internet availability in this environment would significantly boost the efficiency of markets at the local level, as buyers and sellers could readily ascertain local product availability, compare prices, and opt for the most advantageous transactions available.

Outside South Africa, most countries in the region have imposed quasi-Leninist structures on their economies, which is the greatest single factor accounting for economic underperformance in Africa in the latter decades of the 20^th century. As opportunities for free and rational transactions multiply in an environment of widespread Internet access, failed market policies are likely to be abandoned altogether.

South Africa leads the continent by far in Internet growth. Although virtually all countries have at least one Internet service provider (ISP), South Africa accounts for more than 90 percent of Sub-Saharan Africa’s Internet installations and growth.^[4] Telecommunications infrastructure is commensurate with this pattern. Economical wireless communications links will be essential for significant Internet growth in most of Africa in the coming decades.

China

In a marked departure from recent history, most prices are determined in the marketplace; the government sets prices only for basic grains, energy, and steel. Less than 20 percent of produce originates on state-owned farms. Likewise, distribution is almost entirely accomplished by the market. At the local level, the distribution system consists of a highly fluid network of independent small truckers, and resellers working from carts and heavily loaded bicycles.

Thus, the scope for Internet-based local market activity in China is considerable, although it does not appear to have started as yet. The publication and exchange of data on price and availability of agricultural inputs and products and consumer-oriented manufactured products would add a significant degree of efficiency to the market in these areas.

Local commodity exchanges have sprung up across China, dealing in most commodities not under government price controls (i.e. grain, steel, and energy). Many of these are no more than open air markets, where producers, distributors, and resellers gather weekly. These local exchanges would be highly amenable to Internet use, posting prices, and matching buyers and sellers from within a local area. As the geographic reach of commodity exchanges expands, the number of separate exchanges would diminish as a result of consolidation.

Infrastructure shortfalls will be an obstacle to the rapid development of local-area e-commerce. Roads, telecommunications, and business finance are the areas most in need of improvement in this regard.

Most local business is conducted face-to-face, so any move to local Internet-based commerce would entail an adjustment to Chinese commercial culture. Few factors are as significant as guanxi, the network of personal relationships that underlies local commerce everywhere in China. There are already signs of a readiness to evolve away from person-to-person commercial contacts, however. China is the world's top market for pagers,^[5] and the country is expected to have as many as 70 million cell phone users by the end of 2000.^[6]

Russia

Commercial culture in Russia is severely underdeveloped, constituting a fundamental obstacle to the establishment of functioning local markets. The 74 years of Soviet rule, building atop an insular economy, resulted in a culture where the virtues of free exchange are barely understood. Indeed, capital, investment, and profit are widely seen in emotionally negative terms. A grim egalitarianism reigns, which punishes initiative and inventiveness. The situation is captured by a common anecdote: a peasant who has no cow sees that his neighbor has bought one. Rather than ask how he might acquire a cow of his own, the peasant plots to kill the one his neighbor has acquired, bringing him back down to his level.

There certainly are exceptions to this dreary rule, however. Several million Russians have been involved at one time or another in “suitcase trading”—buying goods in Russian cities and bringing them back to towns or the countryside to sell, or even engaging in small-scale cross-border trade with countries in central Europe or elsewhere on Russia’s periphery. Internet access will facilitate such local-level trade by telling sellers what products are most in demand and by telling buyers who has what products for sale at what price.

Russian e-commerce sites sold only about $60,000 worth of goods over the Internet in 1999, mostly handicrafts, jewelry, and liquor. Most purchases involved payment of cash on delivery.^[7] The total volume of e-commerce in which Russians were involved in 1999 exceeded $500,000.^[8]

Internet advertising in Russia is in its infancy, but in relative terms is already significant. Advertising revenues in 1998 reached about $500,000; relative to the estimated 1.3 million Internet users during the year, the figure is a healthy one.^[9]

India

India is well positioned to take advantage of t