Madagascar Digital Economy Assessment JUNE 2019 Madagascar Digital Economy Assessment Madagascar Digital Economy Assessment JUNE 2019 2 Table of Contents Background and Rationale to the Digital Economy Assessment (DEA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Madagascar Digital Economy Assessment Summary of Main Findings and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Madagascar at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 The National Development Strategy & Digital Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Diagnostic Methodology and Structure of this Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Summarized Version of Diagnostic for Public Dissemination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Ongoing Assessments Complementary to the DE4A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Digital Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Importance of Digital Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Socioeconomic Rationale for Digital Infrastructure Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Alignment with Country Development Strategy & Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Diagnostic Findings: Current State of High-Speed Internet Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Constraints to High-Speed Internet Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Digital Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Importance of Digital Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Socioeconomic Rationale for Digital Platform Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Alignment with Country Development Strategy & Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Diagnostic Findings: Current State of Digital Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Current State of Digital Government Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Hurdles to Digital Platform Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Importance of Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Socioeconomic Rationale for Digital Financial Services Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Alignment with Country Development Strategy & Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Diagnostic Findings: Current State of Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Availability and Use of Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Enabling Environment for Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Constraints to Digital Financial Services Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 3 Digital Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Background and Importance of Digital Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Diagnostics Findings: Current State of Digital Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Madagascar Digital Economy Assessment Policy Framework and Business Environment for Digital Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Support Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Entrepreneurship Culture and Talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 Financial Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Digital Skills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Importance of Digital Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Socioeconomic Rationale for Investing in Digital Skills Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Alignment with Country Development Strategy & Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Diagnostic Finding: Current State of Digital Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Digital Skills Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Skills Supply: The State of Digital Skills in Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Demand for Digital Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Constraints to Developing and Attracting Digitally Skilled Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Conclusion: A Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Annex 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Annex 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Annex 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 4 LIST OF FIGURES Figure 1: The Five Pillars of the Digital Economy and Corresponding High-Level Targets . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 2: Mobile Subscription Rate Per 100 Inhabitants, Percentage of Individuals Using the Internet, . . . . . . . . . . . 23 Madagascar Digital Economy Assessment Figure 3: Cost of Mobile Cellular Basket, Mobile Broadbank, as Percentage of GNI per Capita . . . . . . . . . . . . . . . . . . . . .24 Figure 4: Cost of Fixed Broadband Basket and Broadband Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 5: The National Fiber Backbone and International Undersea Fiber Connectivity (Present and Future) . . . . . 25 Figure 6: Fiber Optic Backbone Throughout Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 7: Revenues per Operator and Service, and Number of Subscribers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 . . . . . . . . . . . . . . . . . . . . . . . . 35 Figure 9: Entrepreneurial Growth Stages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Figure 10: Internet Users and Mobile Phone Subscribers in Madagascar Benchmarked to the Region . . . . . . . . . . . . . 73 Figure 11: Students and Graduates from ICT Programs in Tertiary Education, % of All Students or Graduates. . . . .74 Figure 12: Number of Male and Female Students Enrolled in ICT Programs 2016-2017. . . . . . . . . . . . . . . . . . . . . . . . . . . .74 . . . . . . . . . . . 75 LIST OF TABLES Table 1: Key DFS Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Table 2: Determining Current State of Digital Financial Services, 2017 Global Findex Survey . . . . . . . . . . . . . . . . . . . . 96 Table 3: Credit and Savings in Selected Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Table 4: Indicators for Digital Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 LIST OF BOXES Box 1: Key Dates for the Telecommunication Sector in Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Box 2: Better Coordination of Digital Government Services Through a Centralized Agency . . . . . . . . . . . . . . . . . . . . . . .39 Box 3: Some Examples of Bank-Led Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Box 4: State of the Domestic E-Commerce Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Box 5: Taking the ‘Silicon Savannah’ to the Next Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Box 6: Government Procurement as a Tool to Foster Innovation and Support Digital Entrepreneurs. . . . . . . . . . . . . .62 Box 7: Using ICT to Support Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 5 Background and rationale to the Digital Economy Assessment (DEA) Madagascar Digital Economy Assessment “Digital Economy Moonshot” for Africa (DE4A) calls for every Afri- can individual, business and government to be digitally enabled by 2030. These goals include Figure 1 - mental to bringing more people online. : the development of a tech-savvy workforce with both the basic and advanced digital skills to support increased technology adoption and innovation, by developing and applying digital technologies in ways that creates new opportunities. : the presence and use of digital platforms that can support greater digital exchange, transactions and access to public and private services online.1 1 For smoother narrative and alignment concerning digital private sector development – the parts related to 6 commercial platforms have been merged with the section on entrepreneurship. the ability to pay, save, borrow, and invest through digital means, which is key to accessing digital services and increasing the rate of online transactions. Madagascar Digital Economy Assessment products and services leveraging new technologies and business models, which can widen and deepen digital economic transformation. The DEA is designed as a practical guide on the state of digital economies across Africa, and aims to identify key levers and constraints that can be lifted through targeted reform pro- a national dialogue on how to further a country’s digital economy, taking into account its 7 Madagascar Digital Economy Assessment Acknowledgements This report was researched and prepared by a cross-sectoral task team, comprising of experts - tal Infrastructure), Maimouna Gueye (Senior Financial Sector Specialist), Anne Hilger (Young collectively referred to as ‘the core research team’). Additional contributions were provided by Heriniaina Andrianasy (Public Sector Specialist), Tim Kelly (Lead Digital Development Spe- cialist), Dorothee Delord (Senior Financial Sector Specialist), Noro Aina Andriamihaja (Senior Financial Sector Specialist), Hajarivony Adriamarofara (Governance Consultant), Herilala Axel (Governance Consultant), Luke Jordan (Digital Government Consultant) and Tom Steinberg (Digital Government Consultant). Guidance was provided by Mark Lundell (Country Director), Coralie Gevers (Country Manager), and Manuel Vargas (Manager, Governance Practice). Com- the document. The team would especially like to thank the Ministries [to be included] and civil 8 society and private sector stakeholders [to be included]. Acronyms Madagascar Digital Economy Assessment ADSL Asymmetric Digital Subscriber Line AMIC Association Malagasy des Investisseurs en Capital AML Anti-Money Laundering ANRE National E-Governance Agency API Application Programming Interface ARPU Average Revenue Per User ARTEC Autorité de Régulation des Technologies de Communication ATM Automatic Teller Machine B2B Business to Business B2C Business to Customer B2G Business to Government BCMM Madagascar Mining Cadastre BEPC Secondary Education Degree BCM Central Bank of Madagascar BOA Bank of Africa BPO Business Process Outsourcing C2C Customer to Customer CEDS Diplomatic and Strategic Study Center CEPE Primary Education Degree CERT-MG Computer Emergency Response Team - Madagascar CMIL CNaPS National Social Security Agency CNTEMAD National Centre of Distance Learning of Madagascar CPDCE Committee for the Development of Electronic Commerce CSBF Banking supervisor CTMM DDoS Distributed Denial of Service attacks DE4A Digital Economy Moonshot for Africa DEA Digital Economy Assessment DFS Distributed File System DGA Django Girls Antananarivo DGI Tax General Directorate DGSU Digital Government Services Unit DREN Regional Directorate of the National Education DSI IT Department EASSy East African Submarine Cable System EDP Economic Development Paper ENAM National School of Administration of Madagascar ENI National School of Computer Science 9 FDTIC Universal Access Fund Fintech Financial Technology FRAM Parents Association (School) Madagascar Digital Economy Assessment GDP Gross Domestic Product GDSU Global Digital Service Unit GNI Gross National Income GSMA Global System for Mobile Communications HHI ICT Information and Communications Technology IEM Initiative Emergence Madagascar. IFC International Finance Corporation IMF International Monetary Fund IT Information and Technology ITU International Telecommunication Union IXP Internet exchange point KM Kilometer KPO Knowledge Process Outsourcing KYC Know Your Customer LDC Least Developed Countries LFS Labor Force Survey LIONS Lower Indian Ocean Network LMD License, Master, Doctorate MB Megabyte Mbps Megabyte per second MEF Ministry of Economy and Finance MEN Ministry of Education MFI MFPRATELS Ministry in charge of Public Functions MG Madagascar MGA Malagasy Ariary MGIX Madagascar Global Internet eXchange MID Ministry of Interior and Decentralization MNO Mobile Network Operator MPTDN Ministry of Telecommunications, Posts and Communication MSME Micro, Small and Medium Enterprises NCSI National Cybersecurity Index NDP National Development Plan NIF NTIC Nouvelles Technologies de l'Information et Communication OMNIS PAPSP Public Sector Performance Project PDF Portable Document Format 10 PFM Public Financial Management PGDI Governance and Institutional Development Program PIC Integrated Growth Poles Project Madagascar Digital Economy Assessment PoPs Point of Purchase PPP Public Private Partnership PREA RTGS Real Time Gross Settlement S.A Société Anonyme SADC Southern African Development Community SIGFP Integrated Public Finance Management System SIGMP Integrated Procurement Management System SME Small and Medium Enterprises SMS Short Message Service SOE State Owned Enterprise SONAPAR National Society of Participation SOP Series of Projects Telma Telecom Malagasy TVET Technical and Vocational Education and Training UN United Nations UNCTAD United Nations Conference on Trade and Development USA United States of America USD United States Dollar USF Universal Service/Access Fund VAT Value-Added Tax 11 Madagascar Digital Economy Assessment Summary of Main Findings and Recommendations 12 Summary of main findings and recommendations DIGITAL INFRASTRUCTURE Madagascar Digital Economy Assessment Key Issues Mobile and internet penetration remain low Recommendations Devise and implement a national broadband plan that contains concrete and realistic tar- gets and timelines for increased internet penetration - ent use of the universal access fund (FDTIC) DIGITAL PLATFORMS Key Issues Madagascar lacks a central coordination unit for all digital government services, resulting hampers the possibility of integration. Recommendations Create a digital government services unit them based on new methods and practices DIGITAL FINANCIAL SERVICES Key Issues The legal and regulatory framework is somehow limitative and not up to date with the trends and digitalization development Cost of entry into the market to new competitors is high Recommendations for consumer protection and capacity building 13 Build capacity of existing and potential DFS providers, including knowledge and bench- DIGITAL ENTREPRENEURSHIP AND COMMERCIAL PLATFORMS Madagascar Digital Economy Assessment Key Issues Despite a blossoming business process outsourcing (BPO) and IT sectors, ideation and ear- lack of early-stage pipeline. Commercial platforms are at an incipient stage. startups in particular Recommendations including incubators and other entrepreneurship organizations Enhance access to funding by supporting the creation of business angel networks, and re-examine international electronic transaction costs and restrictions DIGITAL SKILLS Key Issues Digital skills development, as well as technology adoption more broadly, are constrained by the low level of basic literacy and numeracy skills Recommendations Develop sustainable models for public universities to cope with larger student numbers and make funding based on results (employability) of graduates Provide merit- and means-tested scholarships to select universities, establishing linkages to the promotion of digital skills. 14 15 Madagascar Digital Economy Assessment Introduction Introduction Madagascar Digital Economy Assessment Madagascar at a Glance - lometers. It has a population of approximately 25.5 million people, more than two thirds of which are below the age of 25, and urbanization currently stands at 38 percent1. Despite the country’s extensive economic opportunities and expansive natural resources, real GDP per capita is one of the lowest in the world: it is estimated that in 2019, approximately three imparted to decades of political instability and recurring crises, which have severely thwart- economy2 Madagascar has embarked on a positive trajectory since the return to constitutional order in 2014. Economic growth has consistently improved during the last four years, with GDP growth accelerating from 2.3 percent in 2013 to an estimated 5 percent in 2018. These achievements were underpinned by an ambitious economic reform program, aiming to attract private sec- report within the space of a year, to reach the 162nd rank out of 190 economies. Improvements were registered in particular with regards to starting a business, obtaining credit and en- since independence, shoring up hopes for long-term stability and continued growth. The President presented his overall program, “Madagascar’s Emergence Initiative”3, which is based on three main pillars: i) improving basic social services; ii) strengthening governance and democracy; and iii) promoting economic growth. The digital economy can support one of Madagascar’s key challenges going forward: sus- taining a more inclusive growth. The country’s impressive economic expansion has been driven so far by only a handful of highly performing sectors, either based in urban areas or on exports of key commodities4. These have excluded the majority of the population, which lags behinds: in 2012, it was estimated that 93 percent of the population was engaged in 1 UN Census bureau 3 Initiative Emergence Madagascar. 16 4 Mining and high value agricultural products such as vanilla the informal sector, mostly operating at a subsistence level5. The poverty rate inched back a mere 2 percent between 2014 and 2018 to reach 75 percent of the population: only a small dent in spite of positive economic results. A well-functioning and performing digital econo- Madagascar Digital Economy Assessment and services to the population, create high value jobs and export revenue, and attain greater international competitiveness. The National Development Strategy & Digital Economy Digital entrepreneurship and the ICT sector are at the heart of the new government’s devel- opment strategy. The newly elected President, Andry Rajoelina, has highlighted his support to - zation of public services. The government’s development strategy, “ of the six priority sectors for economic development (“ ”). Currently, according to this document, the ICT sector con- tributes 1.6 percent to Madagascar’s GDP6. The document points to Madagascar’s low labor costs and high skills of computer engineering graduates as clear factors of competitive advan- tage in the sector’s development. The document also calls for the development of a ‘business environment conducive to private sector which will create new companies and new jobs’7. The time is opportune to leverage the potential of digital technology to support a respon- sive government and promote a vibrant digital economy. Digital transformation has been described as the fourth industrial revolution, and if harnessed strategically, it can help re- - prove access to public services and to information, thereby strengthening government ac- countability and trust in the State. Much remains to be done in Madagascar. According to the 139 economies in the 2016 Networked Readiness Index (NRI), which measures the degree of 8 . 9 However, thanks to increased mobile coverage (86 percent in 2018 ) and reduced commu- nication costs, internet usage is rapidly progressing, reaching 10 percent of the population 6 P233, IEM 7 P226, IEM 8 Networked Readiness Index (available at: http://reports.weforum.org/global-information-technology-re- port-2016/networked-readiness-index/) 9 According to the Communication Technology Regulation Authority (Autorité de Régulation des Technologies 17 de Communication, ARTEC) in 2017, up from 0.65 percent a decade ago.10 Mobile phone usage tripled in the last decade11, boosted in part by a youthful population, 41 percent of which is aged 14 and under in 201712. Madagascar Digital Economy Assessment Madagascar has already made remarkable progress in the digital economy. Thanks to an en- - ing the country with the fastest broadband internet on the African continent, internationally ranking ahead of countries such as France, Canada and the UK.13 The country is increasingly becoming a destination for technology intensive business process outsourcing (BPO) compa- nies, providing telecom and data processing services to major international businesses such as Air France, Amazon and Deliveroo. The BPO sector currently generates revenues estimated at people by 203014. A dynamic mobile money industry is providing growing opportunities for million in 2016). The telecom industry also plays an important role in the promotion of start- ups through incubator programs such as NextA (Telma) and FabLab (Orange). The advances by improvements in service delivery while simultaneously promoting the digital economy. Diagnostic Methodology and Structure of this Report economy pillars, as well as several in-country missions during which members of a core re- search team conducted broad consultations with counterparts, government, the private sec- tor, and user representatives (for a comprehensive list of stakeholders consulted, please see the Acknowledgement section). The analysis also draws on regional and global benchmark- ing, based on standardized indicators which form part of the DEA diagnostic methodology. diagnostic, and build further dialogue with counterparts and stakeholders [this will be done after the Decision Meeting takes place]. data, https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=MG) 13 Madagascar was linked up to the East Africa, Submarin System (EASSy), a submarine Fibre Optic cable connect- ing Sudan to South Africa. At 24.9 megabits per second, Madagascar’s broadband speed is now more than twice the global average (see Chapter 3). https://www.cable.co.uk/broadband/speed/worldwide-speed-league/ 18 14 Madagascar Country Economic Memorandum (2019) - tic methodology (described in the ‘About the DE4A Assessment Framework’ section at the Madagascar Digital Economy Assessment chapter explores the prospect for expanding digital government, and the third and fourth - tal entrepreneurship ecosystem. The last chapter looks at the current state of digital skills attainment and coverage, in relation to the basic, advanced and e-business skills needed to support further uptake of digital services, and application of digitally-enabled solutions. Summarized Version of Diagnostic for Public Dissemination This report is intended to provide a more in-depth perspective for each of the pillars, pre- senting detailed information of the current situation and recommendations, in conformity - ferent pillars. Nevertheless, in order to communicate the results and recommendations to high-level decision-makers and the wider public, a summarized version of the report is also made available [following decision meeting]. This summarized version, visually intuitive and easy to read, will be limited to 7 pages maximum, available for both print and online reading [e.g. HTML format]. What this Assessment is not About aspects are not covered for both practical and methodological reasons. Given space limitations and the typology used, important “analog complements” for the full functioning of a digital - the role of legal and regulatory frameworks, other institutional dimensions are contemplated to a lesser extent. This is the case, for instance, of responsive and accountable institutions, - son. In addition, the understanding of these institutions – let alone providing recommenda- The second type of analog complements refers to infrastructures beyond those dedicated to 19 has become an IT and business process outsourcing (BPO) hotspot. Yet consultations with private sector actors suggest that, of all the growth constraints for the sector, many are not - Madagascar Digital Economy Assessment straints stem from electricity problems (e.g. the high cost of generators) and poor public transportation (for BPO employees). In a similar vein, the development of a vibrant e-com- merce sector in Madagascar – as in any country – is dependent on a minimally performing addressing system, which is inexistent in the country. Despite the importance of these analog elements, they are not addressed to their full ex- tent in this assessment. Doing so would expand the report beyond the acceptable length and Madagascar’s digital economy. Yet, in order to shed light over important factors that are not Madagascar, as we highlight below Ongoing Assessments Complementary to the DE4A In parallel to the DE4A the Madagascar Country Team is conducting a series of assessments Country Economic Memorandum which, amongst others, closely examines the growing business and knowledge process outsourcing (BPO and KPO) sectors, as well as competi- tion in the telecommunications sector. The second one refers to a Digital Government Ma- turity Assessment, which provides an in-depth evaluation of Digital Government Services in Madagascar followed by a blueprint for short and medium-term development of the sector. End-user research is currently being conducted with public service users, to identify the most research is the essential step prior to the development of a “catalog of services”, one of the key recommendations in the section “digital platforms” of the DE4A.Finally, in complement to an Identity Management Systems Assessment previously conducted, a new study reviews the national legislation and its conformity to issues such as data privacy and protection. 20 21 Madagascar Digital Economy Assessment Digital Infrastructure Digital infrastructure Importance of Digital Infrastructure Madagascar Digital Economy Assessment 1971: International telephony is introduced Until 1997, the only operator and backbone infrastructure owner was the incumbent SOE Telecom Malagasy, created in 1993 1 , enters the market 1998: Orange Madagascar2 is introduced 2001: Telma is privatized3 - ment still currently holding 19.9 percent of shares) 2001: Gulfsat Madagascar (Blueline,) beginn providing internet, and mobile ser- vices in 2004. - necting otherwise isolated populations to each other and to the rest of the world, and serving as a basic building block for economic productivity. Investments in technology can feed and an increase of 1 per cent in mobile-broadband penetration is associated with an increase in 0.15 per cent in GDP. The 2030 Agenda for Sustainable Development also recognizes the im- economy, with great potential for job creation, and contribution to GDP. However the cost of 1 Madacom was purchased by Celtel (which became Zain), a mobile telecommunications company founded in company Bharti Airtel. 2 Orange Madagascar is a subsidiary of Orange S.A., formerly France Télécom S.A., a French multinational tele- communications corporation. 3 France Telecom and Distacom became the shareholders of Telma to the tune of 32 percent each in 2001. The 22 internet access tends to be high in island nations with low population density such as Mad- agascar, because they need to deploy submarine cables for both domestic and international Madagascar Digital Economy Assessment Socioeconomic Rationale for Digital Infrastructure Development - ity of ICT services, and are key to promoting the digital economy. New submarine cables will provide additional links and capacity as well as diversity Madagascar towards the African mainland and other international cable systems, while an extended backbone will facilitate the physical access to the network will allow a greater number of people to connect, commu- nicate, and gain access to information, thereby reducing the digital divide. It should also lead circle. Madagascar’s economy has already shown steady growth in recent years, which has helped to increase consumer spending on consumption in general and on telecom services in particular. These services are also expected to become cheaper should there be an intensify- ing competition between the existing operators. Alignment with Country Development Strategy & Goals Madagascar’s last ICT National Policy for Development dates back to 2005, and was developed by the Ministry of Telecommunications, Posts and Communication (MPTDN). The vision of the no broad policy document for ICT, the existing legislation aims to promote improved network - . The MPTDN has supported a number of projects to broaden ICT infrastructure and use. These includes (a) extending infrastructure to uncovered zones; (b) developing the Smart City Nosy Be; (c) deploying “digital window” computer labs in educational institutions; and (d) expanding the higher education research network and distributing tablet computers to schools. 23 Diagnostic Findings: Current State of High-Speed Internet Development Madagascar Digital Economy Assessment Although penetration rates have massively increased in recent year, Madagascar has one of the lowest ratios of mobile connection to population in the world. Penetration rates for mobile cellular subscription increased from 12 percent a decade ago to just over 40 percent in 2017, and the percentage of individuals using the internet rose almost tenfold between 2012 and 2017, to reach 10 percent. Although penetration rates remain well below averages in neighboring countries and Sub-Saharan Africa, they are consistent with countries with hardly shifted, still situated at 0.28 per 100 inhabitants. In addition, while 70 percent of the world’s youth (15-24 years old) are online, and 30 percent in LDCs on average, it is estimated that less than 20 percent estimated to be online in Madagascar (ITU). The prices of mobile cel- below Least Developed Country (LDC) and world averages. However, these services remain too expensive for a large portion of the population: Madagascar ranks 164 out of 181 on the cost of mobile cellular basket as a ratio of GNI per capita (see high cost of mobile broadband as per- with Madagascar ranking second to last after Burundi on the broadband basket cost to GNI ratio 24 Madagascar Digital Economy Assessment in terms of smartphone ownership in low and middle-income countries. constraining investments. The average revenue per user (ARPU) for mobile subscription is Access Fund (FDTIC), created in 2006, is key to promoting accessibility. As discussed later, the FDTIC aims to contribute to the funding of ICT development, and increase nationwide accessibility in underserved areas by extending the national backbone. SCALE OF INTERNET SERVICES AVAILABLE - ing station, owned by Orange, connects on the eastern coast in Toamasina, while the Tel- ma-owned EASSy landing station is situated in the south-eastern town of Toliara. The ME- TISS submarine cable, in which Telma has invested, is expected to connect in 2019, while the Africa-1 cable is expected in 2021. However there is currently no cost-connect policy that would allow several cables to connect on same landing stations. 25 Madagascar Digital Economy Assessment incumbent operator Telma. The backbone runs 10,000 km across the country, connecting 60 to reach a total of 11,000 km. In 2014, the Government adopted a decree promoting mutu- - structure already exists. Under the present legislation, all other mobile and internet service 26 Madagascar Digital Economy Assessment by Iridium Africa Services Corporation4. All mobile operators have deployed 3G and, following - cess networks are being rolled out, enabling converged voice, data and entertainment services ANALYSIS OF SECTOR AND MARKET STRUCTURE by three operators: Telma, Orange, and Airtel. Until 2006, Orange Madagascar was the leader in the market with 60 percent of shares. Growing competition with the launch of Telma Mo- bile in 2006, and Celtel (Zain) in 2006, boosted the sector. Both operators invested an esti- 5 , and Telma has overtaken Orange as market competitiveness of an industry, indicates a high degree of market concentration6. - Le secteur de la communication” (2014) 6 The HHI for Madagasar is 3,094 percent, above the 1,8 percent value indicative of high market concentration. of the index indicate higher market concentration and monopoly power as well as decreased competitiveness. For the purpose of the report, the market share has been calculated in terms of the estimated number of sub- 27 Madagascar Digital Economy Assessment - lion in revenues, with 24 percent growth), driven by rapid proliferation of smartphones, ex- panding coverage and growing adoption of 3G/4G services. The launch of 4G and LTE mobile broadband services will allow more and more data services to be launched and the consump- tion of these high value-added services will enable the mobile operators to reverse their stagnating or declining average revenue per user per month (ARPU). POLICY FRAMEWORK AND REGULATORY ENVIRONMENT Pro-competition policies and interventions are the cornerstones of dynamic telecommuni- cations and ICT sectors. They play a pivotal role in creating the conditions for the reduction of - 7 tomers, thus closing the virtuous circle. However, the regulator ARTEC has not complied in the past its statutory duties, and the market mechanism is not currently operating at its op- 7 The Regulation Authority for Communication Technologies for Madagascar (Autorité de Régulation des Technologies de Communication, ARTEC) was created in 2006 (Decree No. 2006-213), replacing the former 28 regulator, OMERT (established in 1997, Loi n° 96-034). timum in Madagascar8 - cient to support the further development of a pro-competition environment. The law does not Madagascar Digital Economy Assessment include for example any provisions to consider national monopolies for voice and data trans- mission exercised by the incumbent operator as “essential facilities”, given that they were in part funded by the universal access fund (FDTIC, see below), and that it is too costly (and since 2014, banned) for competitors to build an alternative network given the weak ARPU. This allows the owners of backbone facilities to control the prices charged and to determine the pri- - ities for all operators with a view to enabling fair competition in retail markets. The early phase of liberalization should also be characterized by a focus on regulation of - by those operators. But the Malagasy telecommunications legal and regulatory framework - age entry of operators that progressively develop their own infrastructure and the licensing to be paid is prohibitive. Unbundled licenses increase the burden on the regulator and operators, who must follow procedures for the award of each individual license. Costs are said to be prohibitive (entry, renewal, and taxes), but no information is publicly accessible on costs and procedures to ob- tain a license from ARTEC. Prohibitive licensing costs creates a further barrier to investments the ARTEC’s website, Telma’s license is not publicly available and the licensing procedures applying to the operators, as a former SOE, are unclear. According to the GSM association, the taxation on telecommunication has a major impact on the penetration rate. Combined taxes on ICT (VAT and excise tax) amount to 30 percent in 2016, one of the highest in SSA. Rwanda, Senegal and Kenya removed VAT on mobile phones. In Kenya, this led to an increase by 30 to 40 percent of penetration rates of mobile phone subscribers. The GTM has lobbied government for reduced taxes, and in particular to elim- notion of dominant position and establishing and publishing a list of operators in a dominant position; and 6). ARTEC is also responsible for awarding licenses, price regulation, setting technical and service standards, 29 inate excise and custom taxes on mobile phones and computers, in order to support their objective of doubling the penetration rate of mobile phone subscribers. Government partially acceded by reducing the excise tax from 20 to 18 percent on mobile phone in 2019. Madagascar Digital Economy Assessment The FDTIC has contributed to the expansion of Madagascar’s backbone, but opacity in the 9 adopted the Telecommunication in the adjudication of funding. Part of the FDTIC funds were to be allocat- ed to the development of Telma’s infrastructure during the 2004-2008 “priority development phase”, due to its status as a new entrant. However, procedures for allocating the funds and corresponding investments were never published. In addition, subsidies were extended be- yond 2008, even when Telma became the market leader10. The FDTIC is estimated to have re- 11 , and Telma reported subsidies amount reports on its website, these provide no indication of how the funds were spent. Constraints to High-Speed Internet Development . Understanding how Madagascar is connected to international and regional networks (through undersea internet cables, or cross-border terrestrial links for land-locked countries). Looking at the national backbone, related regulation and business practices, as well as Internet Exchange Points (IXPs), datacenters/hosting etc. Examining local access and mobile networks (2G, 3G, 4G), as well as related market dynamics and structures, regulation and business practices. Exploring policy, legal, and regula- tory aspects related cybersecurity, spectrum, and data protection. FIRST MILE: INTERNATIONAL CONNECTIVITY The cost of access to international bandwidth is excessively high and unregulated in Mad- 9 Decree N°2007-031 10 There are 4.5 million Telma Mobile subscribers, against 2.6 million for Orange and 2.6 million for Airtel in 2018 (Source: ARTEC). 11 This represents 2 percent of revenues from Telecommunication operators, based on revenue data obtained 30 from ARTEC. agascar, contributing to the high costs of internet. The cost of access to the international - alent to 155 Mbps). This price is more than 3 times higher than in other African countries. Madagascar Digital Economy Assessment set by the operators owning the facilities (Orange and Telma), submitted and approved by ARTEC, which did not conduct independent exercises to verify their reasonableness. These prices should be decreasing at the same rate the world over, given that the cost of 1km of cross-connect or open-access policies in Madagascar, preventing several cables from land- ing in the same landing station, and open access to the cables for any operator wishing to resell telecommunication and ICT services from. SECOND MILE: BACKBONE NETWORKS The cost of access to the backbone network is also excessively high and unregulated. The cost times higher than in other African countries. According to ARTEC, this price was suggested by Telma and agreed to by the regulator without any further calculations. ARTEC has not regulated the downstream wholesale markets for backhaul and last mile. Con- a new operator to get into this market segment due to the absence of a policy to unbundle the local loop (last mile) through proper downstream wholesale market regulation which entails the technical standards for the mode of unbundling. Internet exchange point in Madagascar emanating from the voluntary collaboration between rd Af- rican country to have developed its . The MGIX helps to reduce internet costs by international bandwidth. LAST MILE: INTERNET SERVICES - car. This due in part to the high costs of interconnection between the networks of operators. 31 There is no evidence that the regulator has determined the cost of interconnection across the - tween Fixed to Mobile, and Mobile to Mobile network is presently MGA 1.85 per second. Ac- cording to the regulator, this rate for interconnection has been agreed by Telma and Orange Madagascar Digital Economy Assessment (who jointly have the highest market share) on a commercial basis and approved by ARTEC, once again without making any determination on its reasonableness. This value is well above - alent of MGA 1.0 per second. In addition, there is no policy for the application of pro-active used to create a conducive environment for new operators to enter the market and compete with the historical incumbent in the long run. INVISIBLE MILE: SPECTRUM MANAGEMENT, CYBERSECURITY & PRIVACY In a liberalized market, fair and indiscriminate access to spectrum is of paramount importance12. 13 , but the plan has not been shared. Moreover, during consultations held with Orange, it came to our knowledge that ARTEC had assigned spectrum to both Telma and Orange for their mobile ser- - tered within the GSM band. This approach is discriminatory to the extent that a contiguous block owner has a lower operating cost, and constitutes poor spectrum management. Furthermore, with the digital switch-over of the broadcasting services in July 2015, the resulting digital divi- dend ought to have been reorganized for the purpose of optimizing the 4G network operations in In 2014, Government adopted a legal framework on personal data protection14, and on cy- bercriminality15. The texts are well drafted and in line with the SADC model laws. However, implementation is still lacking: Madagascar lacks a cyber-security operational framework, and has yet to create a Computer Emergency Response Team (CERT-MG). 12 The spectrum is a scarce natural resource for telecom development (mobile services principally). 13 This is a legal obligation under decree 2006-213 14 Law N°2014-038 32 15 Law N°2014-006, updated by Law N°2016-031. Recommendations Recommendation 1: Devise and implement national broadband plans that contain concrete Madagascar Digital Economy Assessment and realistic targets and timelines for increased internet penetration. This includes estab- lishing priority areas for connectivity, building on national sectoral objectives in terms of digital governance, economic development, health, education, etc. Recommendation 2: - nologies and operators’ business models, laws dating back to 2005/06 are no longer respon- sive to today’s reality. In addition, there are clear gaps in the present laws regarding the regulation of competition. Furthermore, while the networked society is in the making, new laws on Data Protection, Cybersecurity, and Electronic Transactions will have to be enacted - dictability in terms of the legal framework. Recommendation 3: legislative reform to remove opacity and discretionary power, implementing clear rules for the allocation of funds based on the national broadband plans (R1), adopting a detailed op- and technical reports. Recommendation 4: Review and reorganize the ARTEC structure and operations. This im- plies reinforcing its independence and human resources capacities, and promoting more proactive ante regulations. This would entail, inter alia: Assessing upstream wholesale markets, and setting wholesale prices. Introducing asymmetric regulations, to allow new operators to enter the market and com- pete with the historical incumbent. Introducing the ‘essential facilities’ regulation framework coupled with open-access and regulate cross-connect at landing stations. - 33 34 Madagascar Digital Economy Assessment Digital Platforms Digital Platforms Importance of Digital Platforms Madagascar Digital Economy Assessment SOCIOECONOMIC RATIONALE FOR DIGITAL PLATFORM DEVELOPMENT - ciency gains and strengthening good governance. Digital government systems can help lift the constraints on the execution of government’s most fundamental functions, from plan- ning and policy development to service delivery. Furthermore, secured digital systems avoid the risks of mismanagement and prevent the loss of crucial government datasets. On the user side, interoperability can help reduce administrative burden by applying the “once-only” documents, and by lowering direct and indirect costs for users to interact with the adminis- via SMS, and payments can be made through Mobile Money (see chapter 5). Digital technol- ogy can also help government understand its citizens better and achieve stronger outcomes and ensure better contact with citizens – especially in remote or less densely populated ar- - mation to citizens and businesses. Platforms foster greater collaboration between private and public actors in solving societal problems. Through open access, private operators can build on existing platforms, provide new services, and contribute to growing uptake. This also allows Government to leverage external developments and private sector innovation for outside-in transformation. Some public services can even be commercialized, thereby helping to develop new sources of rev- enues for government. Such synergies also contribute to stimulating the digital economy, and creating high value jobs. The IT sector holds many prospects for Madagascar, given the availability of skilled labor force (see chapter 7) and a broadband speed comparable with ad- vanced economies (see chapter 3). ALIGNMENT WITH COUNTRY DEVELOPMENT STRATEGY & GOALS Modernization of the administration, including through digitalization, has been de- clared a priority by the Malagasy Government. The “Modernization of Madagascar” is (IEM), and “Digital innovation and good governance” is one of its seven strategic objectives. This strategic objective aims to restore trust in public ser- 35 vice, for more responsible and accountable civil servants. The country’s digitalization is described as the basis of good governance, as well as an impulsion for economic, so- cial and political development. Following discussions with the administration, key sec- Madagascar Digital Economy Assessment , decentralization of public services, land management, education (e.g. distance teach- - the Diagnostic Findings: Current State of Digital Platforms CURRENT STATE OF DIGITAL GOVERNMENT SERVICES The digital government agenda has recently generated renewed interest and leadership in Madagascar, but many challenges remain. For more than a decade, the country lacked a coher- ent strategy and coordination for digital governance, which led to an extreme fragmentation of initiatives. In addition, online government presence has not focused on user experience and services, and uptake remains weak. Of the top 500 websites receiving the highest average daily visits and pageviews in Madagascar, there are 56 local content websites, of which 17 are gov- ernment websites. Of those 17, 7 are either internal websites, or used mostly to access subdo- mains for internal use (see annex 1). Yet, web analytics suggest that there is a strong demand for Government content, which would be boosted if supply was to be improved. Figure 8 36 Service Delivery Madagascar Digital Economy Assessment actionable information regarding the delivery of services, be them online or in-person. Yet, a simple government form, need to be carried out in-person, as government websites are have sprung-up independently, with no standardized information architecture or design. For example, at the time of writing, there were three identical websites for the Ministry of - istry of Finance (mfb.gov.mg, mef.gov.mg, and mefb.gov.mg). which is the most visited and used government website. The CNAPS social security fund also CNAPS obligations, and one for employers providing an employee dashboard, and allowing are entirely managed by GasyNet, of which the Malagasy administration and the compa- ny SGS are joint shareholders. Since the establishment of this 10-year contract, and com- bined with other customs reforms, there has been a net amelioration on risk analysis, rev- enue mobilization, and trade facilitation. Another successful PPP was implemented in the urban commune of Mahajanga as of 2014, in partnership with the Telecom operator Telma. The commune developed a local tax collection initiative through mobile money M-Mvola, program, a years-worth of taxes were collected in just one month, while users praised the system for its convenience. - agement System (SIGFP, ) for budget execu- tion, which was developed in 2008 and is run and entirely paid for by the Ministry of Finance. - 37 tory, and one for the Treasury directory. The SIGFP is used by every single Ministry and many public institutions, as well as 110 communes at the district level for the Treasury system. It was - Madagascar Digital Economy Assessment SIGFP as “average”. is a taxpayer registration system, which was developed internally and is managed by the Tax General Directorate (DGI) within the Ministry of Finance. It is connected to several SIGMP is the procurement management system used by every public institution, developed with support from the African Development Bank (AfDB). It is managed by the procure- ment regulator ARMP, and was deployed throughout Madagascar as of 2010. The SIGMP is connected directly to the SIGFP, and operators must be registered in the SIGFP as tax pay- collaborate. AUGURE is the civil servants human resource management system launched in 2017. It was developed jointly by the Ministry of Finance and the Civil Service Ministry, with support from several donors. Data is entered into AUGURE by every Ministry, includ- ing 20 central Human Resource Directorates and 21 regional administrations, and consol- every single civil servant at all levels of government – information that was not previously as a result from pushback from the administration but is being relaunched with support Since 2018, Government also began piloting its version of “X-Road”, an interoperability sys- - ly and freely exchange data. X-Road was originally developed by the Estonian Government . The pilot was implemented by a small group of IT specialists from the DGI, CNAPS, MID, Ministry of Justice, and ANRE, with support from the Estonian e-Governance Academy, Mad- agascar’s National School of Informatics (ENI), and interns. They adopted an agile approach to technology deployment, and were able to install a functioning version by the end of 2018, which connected the CNAPS, DGI and MID databases. Data-matching between registries shows that out of the 700,000 individuals registered on the CNAPS database, only 400,000 were registered as taxpayers, thereby pinpointing to greater revenue mobilization potential. 38 deployment of shared services across Government, and the incremental implementation of the once-only principle. Madagascar Digital Economy Assessment HURDLES TO DIGITAL PLATFORM DEVELOPMENT Policy and Institutions There is no unit coordinating and promoting ICT policies across government. There is cur- by the MEF is the most widely used digital product across government. Initially available on the Government intranet, the Ministry of Finance made it available online, cutting out the need for the e-governance agency’s (ANRE) intranet. The Ministry of Telecommunication has not coordinate and implement Government policy with regards to the digital development plan. In the absence of clear leadership, digital governance has been thwarted in the last decades by a lack of coherent vision, strategy and coordination. Each Ministry, institution and some- times department has its own IT Services Directorate (DSI) and has designed and imple- mented its programs in silo. Systems are conceived in an ad-hoc manner as a response to one internal problem – rather than focused on end-users needs (i.e. citizens) and economies of scale generated by interoperability of systems. The situation is exacerbated by fragmented the Ministry of Finance concluded in 2013 that donor interventions had contributed to the - tems that cohabited without any interoperability rules. This did not favor the emergence of MID for driver’s licenses and the Electoral Commission for electoral cards). Nevertheless, no coordination has been established among any of these initiatives, reducing the opportunities for interoperability and economies of scale. Since 2017 Government has made positive advances towards coordinated improvement of digital government services, further elaborating on a - 39 ect (PAPSP), the Malagasy Government created an inter-ministerial group to work on digital - eral coordination of emerging initiatives carried out by the government, this group has been Madagascar Digital Economy Assessment playing an essential role with regards to: i) promotion of agile methodologies for software development; ii) focus on user-centric design of digital services; and iii) promotion of in- teroperability across government systems. Box 2: Better Coordination of Digital Government Services Through a Centralized Agency A common denominator amongst the best performing African countries in digital gov- ernment is the existence of a centralized agency with the authority and skills to coor- This is the case, for instance, of the Department of Information and Communication Technology in the Seychelles (DICT), the Information and Communication Technolo- gies Agency in Kenya (ICTA), the Rwanda Information Society Agency (RISA), and Na- mibia’s Department of Public Service Information Technology Management (DPSITM). following attributions: Promote and coordinate the implementation of digital government initiatives. level agreements. Promote and coordinate the development of sectoral and integrated information systems. Provide technical support across government ministries and agencies in the devel- opment, implementation, operation and maintenance of digital infrastructure in the public service. Facilitate specialized ICT training in the public sector. Capacity and resources - The country has an excellent pool base of developers and designers (see chapter 5), several 40 services1 Madagascar Digital Economy Assessment - vices or to establish partnerships with the private sector. In no other area there is such a level of knowledge asymmetry between governments and vendors as in the digital sector. And the limited set of digital in-house skills combined with their underuse by political leaders has led provision of biometric driving licenses is a good case in point. The initiative was negotiated by the MID and launched in 2016 with Cetis, a Slovenian company. In 2018, the MID terminated the partnership, on the grounds that the driving licenses were not biometric. A poorly drafted (including biometrics). The Government could no longer deliver driving licenses, nor verify the authenticity of existing licenses. The MID launched a new biometric license in May 2019 with a - fees for visas on arrival at the airport, which was launched in 2017 without DGI’s involvement: the operator began collecting revenues, without making regular payments to the treasury. User-centricity The Malagasy government has limited capacity to identify and prioritize needs for citizens and businesses. No data is captured on usage of government services, and an ongoing as- 2 reveals that Ministries are unable to list the number and type of services they provide, the number of users, let alone their satisfaction with these services. - vices (e.g. biometric drivers’ licenses) to be based on untested assumptions on which services are the most demanded by the Malagasy population. An inward-looking approach to service design prevents the roll-out of user-centric digital 1 Such as the MID, MIF, CNAPS 41 exceptional level of understanding of the needs of public service users. Nevertheless, in most cases, the approach adopted by governments – and often encouraged by donors – follows an ‘inward-looking’ perspective. That is, the development of technologies that tends to privilege Madagascar Digital Economy Assessment solutions aimed at reducing the transaction costs within administration (e.g. human resourc- - ing of internal systems whose linkage to the provision of better services is often unclear. Connectivity, interoperability and infrastructure There is no coordination on government connectivity and interoperability. ANRE, through a subscription with Telecom operators, has been providing intranet services. However, this there is growing uncertainty over whether the service will continue in the future. The intranet 3 . Oth- er Ministries and institutions have individually negotiated their own internet connections directly with service providers. In many agencies, civil servants will use their own prepaid internet connections. There is no readily available information on how much Government as a whole spends on internet connections. There is no operating infrastructure for the interoperability of government datasets and systems across government. There are promising – albeit incipient – measures to promote interoperability across government systems. The initial implementation of X-Road is a sig- appropriate policy and investment. In a similar vein, the reforms in civil registration and “once-only” principle, and the implementation of end-to-end digital services with secured authentication procedures. There is no coherent vision regarding the management of data infrastructure. This partly management projects and initiatives proposed by the private sector, contributing to a frag- mented approach. Infrastructure mutualization remains a major challenge, and Government generally has too many servers and departments working in silos. The Ministry of Finance managed by the Information Systems Directorate (DSI). For the time being, the DSI provided 42 3 Although Ministries are expected to pay for the service, in practice none of them do. the initial investment, and each direction provides its servers and bears the operating costs of the data center. The notion of shared service remains limited to the use of common prem- ises hosting some infrastructures and does not represent at this stage a broader attempt at Madagascar Digital Economy Assessment mutualizing and optimizing infrastructure usage. There is limited leveraging of the existing data infrastructure to inform decision-making. Limited interoperability amongst government datasets and low capacity on data analytics hampers the government’s usage of data to better conduct its routing activities. Customs remains the most advanced data analysis service with the launch in 2016 of a mirror statis- are used to inform inspections, and to reduce the burden to private sector operators in the import and export sectors. This initiative is still at a relatively experimental stage and needs to be systematized and anchored in the organization’s procedures. The idea of setting up a data exchange platform between Customs and the DGI has been raised by the new Director General of Customs. Yet, technicians lack training on business intelligence tools, and there is a lack of demand for such data at the decision-making level. Security of the data and systems infrastructure is considerably low. According to the Cyber- security Index 2018 (NCSI 2018), Madagascar’s digital government systems are amongst the most vulnerable in the world, with the country ranking second to last out of 100 countries. its levels of digital development and cybersecurity. That is, despite the country’s low levels government systems and data to both domestic and external threats. An ongoing assessment on personal compact disks and store them in their personal place of residency. 43 Recommendations Recommendation 1: Create a Digital Government Services Unit Madagascar Digital Economy Assessment Drawing from the experience in both developed and developing countries, Madagascar’s capacity to deliver digital services could be substantially boosted through the creation of a Digital Government the unambiguous authority to coordinate digital projects across government. To ensure interoper- and PPPs, this agency should have veto authority over spending on technology projects undertaken by other departments and Ministries. In this regard, the agency would also be responsible for devel- oping guidelines and principles for insourcing and outsourcing of digital goods and services. Recommendation 2: Strengthen support to ongoing Civil Registration and Identity Man- agement Reforms - dinated and supported by individuals with the appropriate technical skills. Measures should replaced by a single number to be used across government. Recommendation 3: Build a catalog of services, and start prioritizing which digital ser- vices are delivered of services should be periodically updated, and should ultimately enable monitoring of: the satisfaction of users with these services. Through extensive research with users, the govern- ment would select which services are to be prioritized for development. Only once those pri- Recommendation 4: Start to develop digital services according to Internet-era standards The development of digital government services – both insourced or outsourced – should begin to follow standards that ensure that public services are faster, cheaper and better. This includes ensur- ing that services are developed with core objectives in mind, such as interoperability, user-centricity and economies of scale, and following internationally acknowledged service design standards.4 4 The “design principles” initially developed the UK’s Digital Government Services is widely accepted as the - ciples are: i) start with user needs, ii) do less, iii) design with data, iv) do the hard work to make it simple, 44 v) iterate. then iterate again, vi) this is for everyone, vii) understand context, viii) build digital services, not websites, ix) be consistent, not uniform, and x) make things open: it makes things better. 45 Madagascar Digital Economy Assessment Digital Financial Services Digital Financial Services Importance of Digital Financial Services Madagascar Digital Economy Assessment SOCIOECONOMIC RATIONALE FOR DIGITAL FINANCIAL SERVICES DEVELOPMENT thereby helping to reach more people. Today most people and small businesses are not fully inte- do not have safe vehicles for investing, and cannot access lending options beyond their personal - underserved populations, using notably mobile-phone-enabled solutions. Fintech not only en- reducing associated costs, it also enables access to new information services that help assess risks. - doubled in the last 3 years. However, it is still well below the 43 percent average for sub-Saharan Africa (82 percent in Kenya and 42 percent in Senegal 42). The rapid expansion of mobile money ALIGNMENT WITH COUNTRY DEVELOPMENT STRATEGY & GOALS Digital Financial Services will play a prominent role in Madagascar’s 2018-2022 Financial In- - phones. The most common reason cited by Malagasy people for not having a bank account is that they do not have enough money to open one. Banking penetration levels are growing both through branch expansion and the “ ” of civil servants: since 2013 the authorities have worked to pay government employees via bank accounts. Since October 2014, all such payments have been made through bank transfers, with only employees living in very remote areas of the interior of the country that are not serviced by bank branches being exempted from also plans to digitalize the Postal Financial Services, which include elements of DFS. 46 Diagnostic Findings: Current State of Digital Financial Services AVAILABILITY AND USE OF DIGITAL FINANCIAL SERVICES Madagascar Digital Economy Assessment (Central Bank of Madagascar) and by the CSBF (Banking supervisor). So far, commercial banks have a low risk-appetite and an asset-heavy model, wider coverage and penetration has been limited, and 86 percent of the credit market is concentrated within 4 main banks1. Most commercial banks (10 banks out of 11) provide digital services to their clients. 8 are using internet banking, and most work with the three mobile money operators (M-Vola, Orange, and Airtel Money). The electronic connection between Banks and MNOs is - collaboration with the Mobile Operator Orange. The Bank of Africa has invested since October 2018 in the development of a DFS platform, 750,000) are using the ‘MyBOA’ internet banking service. It has digitalized its network of 180 Automatic Teller Machine (ATM), with advanced features and services for the clients, including web portal and mobile apps. It is planning to launch a mobile wallet product under the brand name “YUP”. Recourse to formal savings and borrowing is still scarce and innovative services such as digital credit, (e.g. M-Shwari), have yet to appear. In 2017, the number of adults who saved in a formal money. Borrowing from friends or family is more popular (37 percent) than borrowing from a Financial inclusion initiatives have been predominantly led by mobile operators, with ‘Mo- 47 1 Banky Foiben’i Madagasikara, Financial Stability report, 2017 bile Money’ services launched jointly with banks in 2010. There are currently three major providers of mobile money: Telma (M-Vola), Airtel and Orange Money. Together they have over 19,000 cash points within the island: 128 mobile money agents per 100 000 people, less Madagascar Digital Economy Assessment than the 276 agents average in Sub-Saharan Africa. Bank branches serve even less custom- ers with 2.3 agents for the same number of adults. Telma is far more developed in its mobile Percentage of adults with a bank account (Global Findex 2017) 18% 4% Active mobile money users 1.2 million Active mobile money agents for 100.000 adults 128 Less than 100 Demand for mobile money has increased steadily, but the potential for expansion remains 2 . The total number of subscribers rose from 2.3 million in 2013 to over 4.6 million in 2016. The number of active subscribers3 reached 1.3 million people in June 2018 (up from 760,000 in 2015). This represents about 10 percent of the adult population, much lower than the low-income country average of 35 percent. This is however much higher than for debit and credit cards, which respectively have 3.2 percent and 1 percent adoption rates. Use of digital payments remains low: 15 percent of adults made or received a digital payment in 2017, and only 1 percent paid a utility bill digitally or made online payments. Furthermore, less than 1 percent said to have used their debit or credit card to make a purchase, which shows that merchant payments are highly under-developed. As to remittances, there are more people using cash (12.3 percent) to transfer money than people using an account (7.5 percent), which shows low adoption of digital means of payments. Compared to its peers, Madagascar has one the lowest usage of digital payments (Table 3 in Annex). customers, can play a key role in bringing credit to the poor through digital technologies. services to poorly documented and low-income customers (including in-depth face-to-face client screening interviews, group lending schemes, micro and short-maturity credit, in- branches per 100,000 Malagasy – a bigger network than Malagasy banks (2.2). There are 2 Nearly 2.62 million adults own a mobile phone, without access to transaction account. 48 55.6 MFI depositors and 16.8 borrowers per 1,000 adults4. Given a business model focused on small loans to the poor, outstanding loans remain small at 0.8 percent of GDP. Madagascar Digital Economy Assessment mid-2017, cash payments were received by around 11,000 active civil service teachers, 11,000 retired civil service teachers, 15,000 active auxiliary “FRAM” teachers and 90,000 scholarship recipients5. In rural areas, teachers sometimes need to travel for days to collect their cash sala- ry, contributing to teacher absenteeism. Teachers, students and taxpayers are potentially those who could to receive and make government payments through an e-money transaction account. Some pilots of digitalization of Government tax services have been initiated since 2016 both at the Central and local level. In 2016, the Commune of Mahajunga began collecting taxes via MVo- la. The operation was considered a success, and paved the way toward the digitalization of the commune’s receipts and expenditures operation. In 2017, the Central Tax Directorate launched an online tax payment service with two mobile money operators, Orange Money and MVola. ENABLING ENVIRONMENT FOR DIGITAL FINANCIAL SERVICES The central bank has adopted an enabling environment for DFS. The legislation on electronic money was introduced in December, 2016. The Malagasy Parliament adopted Law No. 2016- 056 on e-money and electronic money institutions (EMI), which regulates the issuance of 16 The enactment of the e-money law, putting the sector on an improved legal footing, has sown the seeds for further expansion. The regulator (CSBF) has taken the lead in coming up with the proper structure to actions will be to enter into consultation with other sector regulators, the Central Bank and the ICT regulator, ARTEC, in order to consolidate the regulatory provisions for mobile money and DFS in general. This is a good regulatory approach in the digital environment and the natural (ii) the principle of a deposit guarantee fund for MFI clients; (iii) more stringent prudential - the CSBF, including tools derived from the “CAMELS” approach, and above all extending e-money license to be soon issued by the CSBF. 4 IMF FAS 2017 49 5 Based on data provided by the authorities. CONSTRAINTS TO DIGITAL FINANCIAL SERVICES DEVELOPMENT Market Development Madagascar Digital Economy Assessment The DFS market is only interoperable between mobile money wallets. There is room to improve interoperability, with the objective of achieving full interoperability, from bank accounts to - sign and implement a National Payment Switch project to address the issue of interoperability. the Malagasy population is more comfortable with tangible rather than virtual money. The coun- Policy & Regulation The legal and regulatory framework is somehow limitative6 and not up to date with the trends - dressing the emergence of new business models where platforms that act as a payment inter- mediaries have been developed. Vanilla Pay and Teknet are example of private initiatives that This could very well be a lost-opportunity for their businesses and for the DFS ecosystem. Revenue sharing models for DFS are impacted by the monopoly of the telecommunication in- the commission level in the absence of proper regulations and determinations of the regulators Financial service delivery to marginalize populations and in rural areas is hampered by regu- - there are no clear laws which govern agent banking. All these factors limit the growth of the sector and hamper outreach to a non-traditional population segments. Technical limitations of the availability of MNO services in rural areas have been reported, leading to continued preference for OTC providers and credit unions. Know Your Customer (KYC)7 unfavorable: there are no provisions for tiered KYC for low value accounts. AML regulation 6 Example, the current foreign exchange code doesn’t fully comply with total liberalization of the current account 50 7 Know Your Customer (KYC) is the process of identifying and verifying the identity clients. Madagascar Digital Economy Assessment Market Entry Cost of entry into the market is considered high. Many of the potential DFS suppliers, in- enterprise (EME) too high. As such they are not able to modernize their activities and become and available, and the three mobile money operators are interconnected8, the intermediary Managing Risks of Digital Finance product consumers. Strengthening consumer protection in Madagascar is important, both - - viously unfunded consumers. Innovative tools and approaches should be adopted to adapt include for appropriate disclosure mechanisms for digital credit products; rules on digital - fer with no penalty; data protection and privacy laws and regulations to create a balanced approach to innovation and consumer protection. Many jurisdictions around the world are - protection should also be reviewed to ensure that these associations are in a position to play a meaningful role. These associations seem to have a broad mandate in support of consumer 8 Madagascar is the second country in Africa where te three mobile money operators are interoperable among 51 themsekves. and outreach capabilities. They also have some level of government involvement / oversight Madagascar Digital Economy Assessment of these limitations can be reduced through technical assistance, support in developing a stream of income from public donations, and possible consolidation of the 3-5 existing as- sociations into just one or two. - - building the skills, attitudes and behaviors needed to sustainably and responsibly use formal that leverages knowledge of psychology, behavioral economics, social marketing and com- Alongside improved Internet performance, Madagascar has seen the emergence of vari- ous forms of cybercrime, varying in their severity. These include computer-related fraud (in particular on social media platforms or related to mobile banking), cyber harassment, hacking, Distributed Denial of Service attacks (DDoS) and website defacement.9 Madagascar adopted a number of laws relating to cybersecurity in 2014 and 2015. Financial Infrastructure Retail Payments Infrastructure The National Payment System in Madagascar is based on the RTGS10 (for large-value and sys- temic transactions) and teleclearing systems, which are owned and operated by the Central Bank. The transactions cleared and settled in the two systems are denominated exclusively in Ariary, the local currency. Participants are credit institutions holding an account on the Central Bank majority of checks and bills of exchange are dematerialized and treated within teleclearing, the use of modern payment instruments is still limited. There are 1.71 ATMs per 100,000 inhabitants 9 ARTEC 10 RTGS (Real Time Gross Settlement) is an electronic payment system that allow individuals to transfer funds 52 between banks. The transmission takes place on a real time basis. Payments (including, in many cases, of large values) are mostly cash-based, including the government salaries and payments. Checks are widely utilized, but more as credit instru- ments and can be endorsed. The infrastructure for cards and electronic payments acceptance Madagascar Digital Economy Assessment (ATMs, POS) is clearly underdeveloped. There are no cards switch infrastructures and inter- mobile network operators (MNOs) supplying mobile payment services have set up interop- erable solutions, there is no interoperability for proprietary cards. This results in overlapping working collaboratively with the private sector on a national switch that will provide full interoperability, from bank accounts to e-money wallets, and provide other services to in- crease the acceptance of electronic payments (QR code scheme). The forthcoming national switch is expected to service all electronic payments, including ATMs/POS networks, Internet banking, proprietary cards, mobile payments, and any new instruments that would become available at a later date. The objectives are to: i) attain com- plete interoperability through a neutral and seamless working platform; ii) achieve greater network and scale economies, thus reducing the service cost for users; iii) overcome depen- dence on foreign entities; and iv) use the infrastructure for the existing and future payment instruments. The switch will provide the following services: a platform for driving shared - sonalization and processing centre for processing payment cards and the clearing and settle- ment of all card transactions initiated at relevant ATM and POS acceptance infrastructures; dispute resolution platform along with AML safeguards; a smart card management module. Credit Infrastructure private credit bureau gives hope of including more borrowers. Madagascar ranks at the 124th - ness report. Some evidence suggests that credit constraints are particularly acute for micro enterprises, women entrepreneurs and exporters. Barriers to access to formal credit (and the limited size of informal loans within small local communities) prevents high-poten- employment opportunities, and households and businesses struggle to mobilize funds. For every 1,000 adults, there are only 28.8 borrowers at commercial banks (IMF FAS 2017) in Madagascar. The legal framework for setting up a private credit bureau was enacted in 2018. 53 local legal framework, was licensed in 2018, and will manage credit information sent by local organizations through an advanced technology platform, which will integrate and consoli- date all data on the reliability of a credit applicant into a single report. The local entity will operate under the supervision and control of the Central Bank. Madagascar Digital Economy Assessment Recommendations and Next Steps framework, funding and development strategy. Recommendation 2: Develop regulations for the implementation of the Banking Act, This is a good opportunity to strengthen the framework for consumer protection includ- ing through the development of protocols, manuals and approaches to be used for the su- tools should also be developed and strengthened including surrounding complaints handling which can be valuable for both consumer protection and as a mechanism to highlight sys- temic issues which can even have stability and integrity dimensions. MARKET LEVEL SUPPORT interoperability. This could include three key components: 1) Improve infrastructure (switch implementation and standards; and 3) obtain stakeholders engagement. Recommendation 5: Provide advisory services to existing and potential DFS providers. and assistance on pricing and transparency. IFC could help obtain the market insights to en- sure the Central Bank incorporates providers’ needs while preserving risks. 54 55 Madagascar Digital Economy Assessment Digital Entrepreneurship Digital Entrepreneurship Background and Importance of Digital Entrepreneurship Madagascar Digital Economy Assessment Digital entrepreneurship is a key pillar of the digital economy and is linked to continued eco- nomic growth, wealth creation and higher standards of living. Digital entrepreneurship, seen to encompass the launch of new ventures in the digital sector, also including digital private services, leverage new technology and business models, and open new markets. They can contribute to net employment growth, and help enhance competitiveness and productivi- ty of the economy. Vibrant digital entrepreneurship ecosystems are needed to help digital - - (both technical and business ones), access to markets, and an overall conducive business environment that motivates the creation and use of novel digital technologies. Madagascar possesses some strengths when it comes to digital entrepreneurship. These in- clude: (i) a government and emerging policy with strong commitment to the ICT sector’s development (through the “ ” or IEM) and entrepreneurship more broadly (through the “ ” entrepreneurship program); (ii) availability of a pool of strong technical skills (computer engineers) at a competitive cost despite being well above the new minimum wage of MGA 200k, e.g. around 3 times that in the case of fresh TVET - although price remains a keen issue; and (iv) an established and growing BPO/KPO sector. Yet several important weaknesses inhibit digital entrepreneurship in the country. These in- clude: (i) infrastructure, notably access to energy and the cost of internet access (treated in detail in the infrastructure chapter), although some co-working and other spaces are being provided (such as Ivotech by the AUF); (ii) weakness of support provided to early stage en- - (v) the dispersion of actors, with few informal or formal connections (through joint events, etc.), meaning there is no real ‘ecosystem’ and therefore no networking and agglomeration 56 Diagnostics Findings: Current State of Digital Entrepreneurship POLICY FRAMEWORK AND BUSINESS ENVIRONMENT FOR DIGITAL Madagascar Digital Economy Assessment ENTREPRENEURS There are numerous policy and action areas relevant to digital entrepreneurship in the government’s IEM strategy, although they currently lack a clear implementation plan. The IEM document suggests ten actions (with many related sub-actions) in the ICT sec- tor, of which several are of important to digital entrepreneurship, including, among others , the creation of a digital entrepreneurship incubator. A national program for entrepreneurship was just created, but implementation details must - panies through both soft loans and leasing. It is focused on agribusiness, tourism, handi- craft, and all other sectors “that create value”. Details are still forthcoming in terms of the management of the fund, although ( ), the govern- ment shareholding agency, will be possibly one of the Fund managers. Business development services may be made available through “specialized partners”, though this remains to be and company formalization, and participation in the reduction of rural exodus, with a pri- ority on youth-led/young projects. The creation of the fund is indeed intended to respond to the fact that 70 percent of unemployed Malagasy are youth, and that between 400-500 000 youth are entering the job market every year, with few perspectives of employment. It is un- 57 State of the Domestic E-Commerce Industry E-commerce has already seen recent legislative improvements, but is confronted with Madagascar Digital Economy Assessment transactions, and transport logistics, while real market potential remains to be proven, . A Steering Committee [1] for the Development of Electronic Commerce (CPDCE) was created in 2012, and contrib- uted in 2014 to the adoption of e-commerce laws. However, the country still lacks an na- tional e-commerce assessment. Logistics are one of the main bottlenecks: the country’s sheer size, its geographical isolation, and the degraded transport infrastructure hinder online shipping sales, both on the domestic market and internationally. Delivering prod- Other constraints include the lack of secure servers, and the fact that payments cannot currently be made online in Madagascar[2] through mobile money, Paypal and wire transfers, but consumer trust in online payment remains low, and consumer protection organization are extremely weak. There is only one Malagasy e-commerce website, of the 500 most consulted websites in Madagas- car[3], and most online commerce is done informally via Facebook. The overall business environment for digital entrepreneurs in Madagascar remains poor, and (161/190 in Doing Business), better on starting a business (81/190) and protection of minority interviewees, and there is no tax provision for young digital startups as in some success- to improve the environment for digital entrepreneurs. These include regulation for data and privacy rules, open data, the cost of data, and high import duties on imports of digital - and transactions, and transport logistics, while real market potential remains to be proven, SUPPORT ORGANIZATIONS Ideation and early stage entrepreneurs receive little support, and later stage support suf- fers from lack of early-stage pipeline. The rapid mapping and meetings conducted reveal 58 that, despite several initiatives, there are no real business incubation programs that provide - port of business and technical mentors. Such programs exist in many other African coun- tries (CTIC in Senegal, iHub in Nairobi, BongoHive in Zambia, mLabs Southern Africa, etc.) Madagascar Digital Economy Assessment and would help early stage entrepreneurs launch and structure their business. In particular, - tions in this space being more technically focused. This is typically done through a “mini- possible to gauge the market, prior to building out their product/company. Quality of support - neurial or business experience themselves. Later stage support exists, including new initia- tives from large players (Orange, Axian) are coming up in the later (digital) entrepreneurship Support is highly geographically concentrated in Antananarivo. Although spatial concentra- tion and geographic agglomeration are a very good thing for digital entrepreneurs generally - trepreneurs in other areas (for example the National School for Computer Science, ENI, in Fianarantsoa). This is further exacerbated by poor road and transport infrastructure, which some forms of trainings and programs to be delivered to entrepreneurs in the Regions virtu- ally, such as those conducted by mLabs in South Africa for example. 59 Taking the ‘Silicon Savannah’ to the next level Madagascar Digital Economy Assessment - fered by that infrastructure, can be. To address this, the government of Kenya identi- The Kenya Industry and Entrepreneurship Project (KIEP), expected to be launched mid-2019, was designed to 1) support hubs to achieve a more sustainable business - of rapid technology skills expand the reach of their services, to increase the pipeline of local talent that can feed into startups; 3) establish a program to link local traditional industries with startups, to open up the local market for startups, and increase the ca- pacity of local industries to absorb innovation and technology, bringing them into the digital economy; 4) establish a program to link local industries with students, to have an alternative rapid way of coming up with and testing new market approaches and products, help the industry scout local talent, and help students better understand the private sector and their opportunities there, including as entrepreneurs. The project has a strong gender focus, with built-in mechanisms to increase the num- international networks of mentors and funding. ENTREPRENEURSHIP CULTURE AND TALENT 2017 Global Entrepreneurship Monitor report, and entrepreneurship is seen as a good career choice by 84 percent of respondents. In contrast, perceived opportunities for entrepreneur- ship are low (24 percent), competencies are perceived as a key constraint (55 percent), fear of failure is high (42 percent), and entrepreneurial intentions are low (40 percent). This leads to many detected opportunities not to be pursued, despite international evidence that business 60 A multiplication of startup competitions is rapidly becoming detrimental to Digital Entre- preneurship. Challenges and competitions are a valuable way to motivate students and im- prove their attitudes to entrepreneurship and enhance their skills and are provided in most Madagascar Digital Economy Assessment is the case in Madagascar, can create and entertain skepticism about digital entrepreneur- ship, whether with would-be entrepreneurs or with policy makers. Indeed, it seems that the those competitions into businesses, so that the events end up being more like a PR exercises, - pear, and cannot recall any successful stories from several years of competition. Entrepre- neurs themselves were also gaining in skepticism, as it seemed that prizes were attributed to Madagascar does relatively well on gender entrepreneurship in general, but much more is participation in ownership (42 percent in the most recent enterprise survey). However, anec- dotal evidence from interviews points to low female participation, in line with most countries, in the digital entrepreneurship space in particular, which is male dominated. There are initia- tives, such as Django Girls Antananarivo (DGA) which trains girls from 16 years of age in Djan- go (an open-source web programming tool). These aim to explicitly boost female participation in this space. That being said, and beyond skills building coding bootcamps, it would be useful to have a gender-sensitive incubation program that actively sources and supports female dig- sector, due in part to brain drain. The issue of digital skills is treated in depth in a separate chapter. - and gaming sectors. There is however a perceived growing skills gap, with not enough graduates coming into the market each year to satisfy local demand, both from TVETs and from universities. graduates from both TVETs and universities try to go internationally (France, Mauritius), or to stage (directly in schools) and train their graduates. It was surmised that brain drain would get 61 worse, particularly in light of visa facilitation by France targeting this sector (FrenchTech Visa). This “hot topic” of brain-drain was recently discussed at Vivatech in Paris. Madagascar Digital Economy Assessment technical and business trainings need to be increased. Although there are entrepreneurship courses embedded in some of the well-reputed higher business education institutions in An- tananarivo (INSCAE; ISCAM, etc.), some of which are open to external participants, there is little cross-over between the digital technical side ( , or the private IT schools in Antananarivo) and the business side for the time being. Thus, a lot of startups that are seen in digital startup competitions are technically interest- ing, but founders lack the business skills to build a company, which can be seen anecdotally by the fact that very few create companies beyond a Facebook page. This is compounded by the lack of early stage support for technical founders, to either matchmake them to a busi- ness co-founder (through meetups etc.), or increase their business skills. Another way to im- prove entrepreneurial attitude could be the use of Personal Initiative (PI) training, an inno- vative, psychological-entrepreneurship training that has been tested in several developing - Project, which notably plans for the digitalization of government payments and of Micro Fi- MARKETS The domestic market for digital products and services holds promise, but few linkages are currently being made to key economic sectors and local demand. Due to the technical rather than business background of many founders, some entrepreneurs believe the domestic mar- ket to be small to nonexistent. However, although there is low internet connectivity, mobile connectivity is higher. Thus, the market for mobile-enabled services is not negligible, as can be seen by the growth in mobile money / banking sector. For example, some sectoral applica- up is tackling the waste management sector through digitally enabled services is included below by way of an example. Other sectors with high potential for digitally enabled services potentially include the tourism and agricultural sectors. This may point to weaknesses in support provided to entrepreneurs at the early stages (guiding entrepreneurs on market op- portunities; supporting local tailoring of solutions to local conditions), and match-making (through meet-ups, competitions) between technical (digital) skills and sectoral talent. 62 Government procurement as a tool to foster innovation and support digital entrepreneurs Madagascar Digital Economy Assessment Public procurement has the power to create new markets for innovation and in many countries the government is the biggest procurer of goods and services, which makes them an attractive client for smaller companies, including digital entrepreneurs. How- ever, public procurement is often an ignored and untapped source to promote SME development, and several constraints inhibit SMEs’ participation in public contracts, including complex legal and regulatory frameworks or payment delays. Cities like Policy-makers could consider the 2017 public procurement for innovation framework from OECD or lessons from the 2017 review of the Small Business Research Initiative (SBRI) in the UK that usefully outline the importance of public procurement, and how to improve the public sector’s role to support innovation and develop better services. Other country examples of public procurement successfully targeting smaller com- panies includes Chile (Chile Compra’s eProcurement), Prompye in Peru. Insomuch as concerns Madagascar, some type of payment guarantee facility would likely need to be instituted to facilitate transactions with digital companies and entrepreneurs, owing to mistrust and perceived payments issues and delays in transacting with government. Government procurement could potentially give a boost to the sector. In view of the new government’s focus on e-government and e-services in its strategy; as well as ed-tech and other public sector digital services, there is a potential that public procurement for these initiatives could work as strong market catalyst for the private sector, notably digital entre- preneurs. However, there is high skepticism and reticence from the private sector to work with the public sector, notably in terms of public procurement (corruption, favoritism), de- lays, payment issues. This could potentially be solved through a neutral party involved (such towards SMEs and entrepreneurs exists in Kenya (AGPO - https://agpo.go.ke/), although the Kenyan government is currently working on this to improve the process further. The planned - cial Inclusion Project would also help. International market access for digital entrepreneurs is problematic. The BPO/KPO sector is almost exclusively turned towards the international market, and notably France, seeing also 63 that they are often subsidiaries of French or international BPO/KPO companies (see above - - nal networks. Several interviewed entrepreneurs were working with client aggregators that Madagascar Digital Economy Assessment source and aggregate clients for them based in France or elsewhere, but this client prospec- tion is done on a very ad-hoc basis. There is currently no support through intermediaries or government to help with market intelligence for access to foreign markets. Facilitating internationally. That being said, international payments remain an issue that would need to be resolved for this to happen (See DFS chapter; UNCTAD). This would have to be a prior - ternationally on electronic transactions. FINANCIAL CAPITAL startups in particular. A 2016 FinScope survey found that 41 percent of households were fully 17 percent had access to other non-bank institutions and 29 percent only had access to infor- starting from transaction accounts and credit for micro, small and medium-sized enterpris- es (MSMEs), has severe repercussions on the life of the Malagasy. Madagascar only ranks 124 out of 190 in the 2019 ranking for access to credit, though this is an im- provement from 133 in 2018. Some evidence suggests that credit constraints are particularly acute for micro enterprises, women entrepreneurs and exporters. Lacking access to formal credit (and given the limited size of informal loans within small local communities), many 1 This seems to be due and low deposit rates, and to a particularly high level of risk aversion among Malagasy banks, 2 rates are set at market-determined rates. 64 2 IMF Country Report No. 16/377, December 2016 Early stage access to risk capital is also currently highly constrained: Grants, apart from the few that are given for entrepreneurship competition prizes, are virtually nonexistent3. There is anecdotal evidence on business angels making investments in early stage companies, but Madagascar Digital Economy Assessment there is of yet no formal or structured angel network in Madagascar. One interesting avenue companies (for example Nelli-Studio) that are being bought out by the larger BPO/KPO sec- in the larger companies. There are also some prizes from entrepreneurship competitions, with the strong caveats given earlier. - arakap started in 2017, and has now invested in 3 companies (out of 127 applications), with the Orange Fab incubator. Investisseurs & Partenaires (I&P) targets growth stage ventures, 4 portfolio. All 3 funds are part of an association of Malagasy venture capitalists, the . On the debt side, the new government soft loan and leasing program announced in February should help greatly, although details on its operationalization are missing. Eligibility criteria for the fund have been announced, but are still to be further details (together with its op- erationalization). Existing guarantees (SOLIDIS, or ARIZ backed by the ) also seem to be somewhat functioning, though they tend more to facilitate increases in deal sizes than a “GO/NO-GO” decision to invest in new ventures. Fintechs are starting to enter the market and (timidly) disrupt business as usual. Two notable - gration of payment solutions for ecommerce platforms) and PAYPITE, which is building a blockchain / cryptocurrency solution for international money transfers between Madagascar and is looking at francophone Africa expansion. Jamaa funding, an international crowdfund- ing platform that targets (social) entrepreneurs in Francophone Africa, has made a few timid - includes the provision of matching and small grants to entrepreneurs in agriculture and tourism, but it is focused on three regions of Madagascar outside of the capital, and is not focused on digital entrepreneurs. 65 4 Association Malagasy des Investisseurs en Capital, http://www.amic.mg/index.php/annuaire-des-membres Recommendations Recommendation 1: Carefully design operational and implementation details for the Madagascar Digital Economy Assessment numerous planned policy interventions to support digital entrepreneurship. This should be conducted in partnership with relevant private sector organizations, and learning from and adapting successful experiences abroad, such as those from Kenya. A spe- - lenging existing players, in terms of data provision and the electronic transactions environ- ment more generally, where market power is currently unregulated, and in terms of access to international markets. The establishment from the outset of clear M&E systems would also help pilot and adapt the large range of new initiatives as they are launched. Recommendation 2: Strengthen cohesion, quality, and reach of the digital entrepre- neurship support system. Support to platforms can help reinforce linkages within the ecosystem: between existing in- cubators and other entrepreneurship organizations so they share skills and resources, attain scale and better coordinate start-up competitions and events; between technical and busi- ness universities so that tech entrepreneurs become more sensitive to markets; and between local and foreign and diaspora networks to open markets, facilitate the provision of men- torship services and transform brain drain into eventual brain gain. This could be usefully cycle, for existing or new structures that could develop as part of an Enterprise Supplier De- expand support geographically, leveraging on technology (e.g. virtual programs like mLabs in South Africa) and existing institutions (e.g. the Computer Science university in Fianarant- PIC2 project5). Recommendation 3: Enhance access to funding. An important step to develop the deals pipeline would be supporting the creation of business angel networks, with linkages to the diaspora and formal agreements with their host states aims to contribute to the sustainable growth of the tourism and agribusiness sectors by enhancing access to enabling infrastructure and services in the Target Regions of Madagascar: Diana in the North, Atsimo-An- entrepreneurship support component, the SOP has already led to the establishment and reinforcement of 66 for tax incentives comparable to those given for other charity investments. International industry, so that funds can be more easily raised, including through crowd-funding. Madagascar Digital Economy Assessment Recommendation 4: Boost support to inclusiveness and gender-sensitivity for digital entrepreneurship. This notably means boosting tailored programs for women digital en- trepreneurs, as well as possible outreach into poorer neighborhoods in Antananarivo and in secondary cities. 67 68 Madagascar Digital Economy Assessment Digital Skills Digital Skills Importance of Digital Skills Madagascar Digital Economy Assessment SOCIOECONOMIC RATIONALE FOR INVESTING IN DIGITAL SKILLS DEVELOPMENT Digital skills and literacy are essential ingredients in building an inclusive digital economy. - portunities and be competitive on the labor market. This is true both for basic digital skills (user skills) and for more advanced skills (from work on software applications and systems - do not allocate resources for professional training on basic ICT skills. In fact, on-the-job environments, raising demand for complementary skills such as information processing or communication, which is already an issue in Madagascar according to employers. The in- - ogy (ICT) further hampers a government’s ability to reach all citizens through novel service delivery tools. As governments across the world, including in Madagascar, strive towards - gage with these new platforms could potentially exclude the neediest segments of the pop- ulation. For example, in the UK digital skills correlated strongly with income1, a correlation which is likely to be even stronger in a poor country, such as Madagascar. Yet digital skills development, as well as technology adoption more broadly, are constrained by the low level of basic literacy and numeracy skills. About 29 percent of people aged 15 and above are not literate2. In 2015, only 19 percent of the 2nd grade students in public schools - education system with few cognitive skills. Only six out of ten children in primary school reach the last grade. Therefore, without complementary investments in basic numeracy and promote greater opportunity and shared prosperity. 1 Youth Employment UK, 2017 69 ALIGNMENT WITH COUNTRY DEVELOPMENT STRATEGY & GOALS Given its young population, with 41 percent of the population aged 14 and under in 20173 and Madagascar Digital Economy Assessment from technological advancements. The Malagasy government has recognized this opportu- Madagascar Action Plan of 2007-2012, which encouraged the expansion of ICT infrastruc- ture and access, including the establishment of ICT centers in schools (Isaacs, 2007). This process of emphasizing ICT usage and skills has culminated in the Malagasy government declaring the integration of technology in the educational cycle a priority for the Ministry of National Education and Technical and Vocational Training (MEN), resulting in the launch of a new policy initiative on ICT integration in education and training. “ Digital skills development is also aligned with the priorities of the government’s “ ”, with its focus on institutional development, including a movement towards e-governance, human capital, and entrepreneurship. Strong digital skills are nec- allowing citizens to interact with digital government service, and providing opportunities for entrepreneurship. Diagnostic Finding: Current State of Digital Skills DIGITAL SKILLS DEVELOPMENT Basic Education Despite having the fastest broadband in Sub-Saharan Africa, access to electricity remains a digital skills. In the latest yearly school census (2017-18), only about 2 percent of public pri- - ed in the capital region. In 14 out of the 22 educational regions, less than 1 percent of schools school infrastructure are also visible when considering the share of schools having access to digital technologies, such as computers or tablets: Almost 4 percent of schools in the capital region having access to a computer, while in some regions, not even a single school can boast evident from global surveys, such as the global competitiveness survey. A sample of 68 local 70 businesspeople rated internet access in schools at 3.7 out of 7, placing Madagascar 92nd out 4 The low availability of Madagascar Digital Economy Assessment percent of national education directorates at the regional (DREN) and district (CISCO) level Partner initiatives and cooperation with the private sector have aimed to distribute com- puters and tablets to children and youth (see Table A3.3 in annex for examples). The MEN is further embracing the usage of digital tools for learning, through piloting programs such as Mahiratra, a tablet-based application for preschoolers focusing on early literacy and numer- acy and school readiness.5 The government has further recognized the need to teach basic programs in 214 public and private high schools in the Analamanga region, teaching initia- tion, software use, and internet use. A curriculum reform is planned as part of the Education Sector Plan for 2018-2022 refocusing the curriculum on skills and competences rather than rote learning and providing an opportunity to integrate ICT and socio-emotional skills. The revised curriculum is expected to include algorithm and coding classes. However, given the previously described constraints in terms of access to digital tools, it remains to be seen to what extent the government’s new curriculum plans can be realized. Technical and Vocational Training Technical and professional education and training in Madagascar was led by the Ministry of Technical and Vocational Education (METP), which has recently been integrated into the Ministry of National Education and Technical and Vocational Training. The development 2015/040 on the orientation of the national employment and professional training policy. - - - for existing employees. It has been established in March 2019. This relatively narrow focus 4 The indicator is based on a survey of 68 local businesspeople. Given the large geographic disparities observed, it is likely that this sample does not have a representative impression of schools and overestimates true inter- net availability in schools. 5 The Mahiratra program, Smart in Malagasy, started in 2018, introducing 60 tablets in 8 preschools in the Analanjirofo, Alaotra Mangoro, and Analamanga regions; it is set-up as a randomized controlled trial but has yet to complete a full cycle. The Digital School program, in partnership with Orange, placed digital kits into 42 primary and 117 high schools, the impact on the public at large remains negligible considering more than 71 25,000 public primary and secondary schools in the country. could potentially be extended to a larger training fund, though tax collection remains low, at about 11 percent of GDP (IMF, 2017). The Education Sector Plan for 2018-2022 envisages the development of TVET along three axes: 1) centers for the development of competences, Madagascar Digital Economy Assessment public or privately funded, targeting students who completed at least primary education; Baccalaureate) and are open to those with 9 years of general education; 3) centers for the technical training centers have access to electricity, computers, and the internet and many Higher Education Madagascar’s tertiary education system is composed of both private and public institutions that operate in the “License, Master, Doctorate” (LMD) system (Bachelor, Master, PhD pro- - and 21 public institutions (subordinated to the Ministry of Higher Education, with another 5 attached to other public institutions), most of which are concentrated in Antananarivo. An - related to ICT. A large share of students is enrolled in private universities, which have sprung up in Madagascar since the early 2000s. Further, a few highly specialized private institutes (examples are E-media or the national d’habilitation”) due to lack of funds, no inspections were carried out in 2018. Inter- views with the directors of one of the best public universities (the Ecole Nationale d’Infor- 6 illustrated a similar curriculum, focusing heavily on foundations, such as advanced mathematics, in the Bach- elor’s program which is in line with international programs, while also fostering links with potential employers through internships and employers’ feedback on course content. Both able to complete the studies. 6 ENI selects students based on a written ‘concours’, while IT University uses on high school grades, especially in mathematics and sciences. Admission rates at ITU, a private university with high tuition fees, are 75 percent; 72 ENI, admits about 25 percent. Life-long learning In addition to universities, the National Centre of Tele-Teaching of Madagascar (CNTEMAD) Madagascar Digital Economy Assessment provides higher education through distance learning. CNTEMAD operates 36 regional dis- tance learning centers for 16,000 students annually, with plans to open two new centers in the upcoming year and a goal of establishing centers in all 119 districts in Madagascar. A sec- ond distance learning institution, the Distance Learning Center, was set up to provide short courses in select topics, such as communication and technologies, to government agencies - car encourages women to pursue careers in the ICT sector through leadership development, exchanging technological knowledge, and increasing participation of women in media and technology. SKILLS SUPPLY: THE STATE OF DIGITAL SKILLS IN MADAGASCAR Despite recent leapfrogging in broadband speed and the government’s focus on the digital economy, skills vary tremendously between the average citizen and a small group of devel- opers. Due to the lack of recent surveys7 user, digital specialist, and e-business skills. Basic digital skills User or basic digital skills refer to the lowest level of digital skills; they commonly capture an individual’s ability to use ICT tools, systems, and devices. This includes being able to man- age information (e.g. a search engine); communicating (email, or personnel messaging ser- vices); transacting, buying goods or services online or using mobile money services; problem solving, for example with a device using online help; and creating new content, such as com- pleting online application forms (Youth Employment UK, 2017). In 2017 less than 10 percent of the Malagasy population was using the internet through any device type and connection have tripled over the last 10 years but remain at only about half the regional average in 2017. 7 The last household survey (ENSOMD) was conducted in 2012-2013, the latest labor force furvey (LFS) in 2012, 73 Madagascar Digital Economy Assessment Despite relatively low access, those with access increasingly use digital tools, such as mobile money, as is evidenced in the sharp increase in the share of adults having a mobile money account and making or receiving digital payments with that account (see chapter 5). In 2017, about 11 percent of individuals used their phone or the internet to access an account (the SSA average is 21 percent) and about 12 percent had a mobile money account (up from 4 percent in 2014, but still below the SSA average). The likelihood of making or receiving mobile pay- ments has been increasing between 2014 and 2017 and increases with educational attain- ment: in 2017, 35 percent of Malagasy with secondary education or above made or received could also relate to educational attainment correlating with income and hence the ability to money. Instead of buying a phone, customers can buy a SIM-card and use the mobile phone constraint is the level of basic literacy and numeracy skills: About 29 percent of people ages Specialist skills Specialist level digital skills refer to the ability to research, develop, design, manage, main- track; among those that do, enrollment (as a share of total enrollment in TVET courses) is on average slightly below 10 percent (with a maximum of 30 percent of students in Itasy region). Madagascar has increasingly become a destination for francophone business processing and - tion, and app testing. Apart from French language skills, Malagasy empathy has been partic- 74 ularly highlighted as key for the sector’s success. E-business skills E-Business and technology skills refer to the ability to identify new business opportunities Madagascar Digital Economy Assessment or ways of doing business for digital technologies. E-business has a lot of potential in Mad- agascar, however, current uptake remains low (in 2017, only 10 percent of sampled internet users had conducted a purchase online, but 54 percent reported to be ready). These advanced Madagascar has seen an increase in both, the share of students currently enrolled in ICT programs and the share of graduates from ICT programs (Figure 11). In 2016, about 6 percent of all students were enrolled in an ICT program and 6 percent of graduates did so from ICT programs. The share of female students in ICT compared to all female students has increased over the last 10 years from about 1 percent in 2007 to 3 percent in 2016. However, due to a larger increase in male students in ICT programs, the share of women among ICT students has decreased from 32 percent in 2007 to 23 percent in 2016. Looking at share of female stu- dents in informatics only in the academic year 2016-2017 (Figure 12) shows that about 20 - ent study years, suggesting that women do not seem to opt for shorter programs. 75 DEMAND FOR DIGITAL SKILLS - ing employees with computer skills as their primary concern related to skills. Finding em- Madagascar Digital Economy Assessment ployees with the right socio-emotional skills (work ethic and commitment or interpersonal ability to work in both French and English) presented a greater challenge to companies than the availability of general IT skills (see Figure 13). Firms active in tourism and those located - - process outsourcing (BPO), and software development sectors, who provide training ranging from basic typewriting to high-end software development. On present evidence, Madagascar has an unusually strong supply of software development talent, - cessing and software development sectors. Yet, this supply is unstable and may be at risk. Con- versations with a member of the ICT committee and with executives of companies active in the - straints (particularly due to the new “tech-visa”, facilitating emigration to France); the share 76 CONSTRAINTS TO DEVELOPING AND ATTRACTING DIGITALLY SKILLED LABOR Given proper teacher training and good integration into the curriculum, ICT can com- Madagascar Digital Economy Assessment plement teachers and improve learning. In Gujarat, India, for example, a comput- er-assisted learning program improved learning especially for the worst-performing students by adding to teaching and learning time. In Kenya, teachers received tablets to support instruction, leading to an increase in reading performance. Madagascar is planning a curriculum reform to integrate ICT into schools. Programs that were not well integrated into the curriculum did not improve learning and only fostered basic - use of these laptops, without being able to transfer skills to other operating systems - integrate ICT into the school curriculum, to train teachers in the usage of ICT, to use ICT as complements to teachers rather than substitutes, and to include foundational computer training in the curriculum to develop skills beyond basic processing. Numeracy and literacy: Functional literacy and numeracy form the base for the develop- ment of even basic digital skills. The low literacy rates in the country are constraining digital skills development. Access to electricity and usage of connectivity and ICT equipment in schools: Gaps in access are likely to fundamentally constrain the development of basic and more advanced digital skills. Teacher capacity and teacher shortages: In addition to the lack of digital infrastructure, Mal- teachers have no formal teacher training and just under half of all primary teachers (45,000 2018). Teachers oftentimes lack basic skills, such as language skills: The 2016 Service Delivery Indicator (SDI) survey suggests that only 3 percent of teachers were able to correct the sen- tence “L’accident avait vu par trois personnes” even though the correct alternative (“a été - grams are subject to connectivity constraints and fail to adapt to the level of teachers’ skills 77 (in particular with regards to French skills). Table A3.2 (annex) provides an overview of mobile teacher training programs, their methods, and results (if available). Madagascar Digital Economy Assessment - students (approximately 50 percent according to interviewees) would like to emigrate upon - research given the limited funds available. Because of the lack of teachers, IT University now collaborates with universities in France and regularly hosts guest teachers for select cours- es. Further, Malagasy students oftentimes complete their PhD abroad due to better learning - Curriculum alignment with industry needs: Collaboration between employers and training - ket observatory exists, hampering planning. 78 Recommendations Recommendation 1: Invest in literacy, numeracy and digital skills. Madagascar Digital Economy Assessment - lets for teacher training and student learning, and investment in basic infrastructure, such Recommendation 2: Establish a system for the collection, analysis, and dissemination of information on labor market outcomes of graduates (tracer studies) and vacancies and skills needed by employers (labor market observatory). This will facilitate the interaction between the educational system and the labor market. The regular collection of these data should inform labor market policies and curriculum adap- making would enable better faculty development. Recommendation 3: tertiary-level ICT studies. - Recommendation 4: Increase funding for public universities to cope with larger student numbers and make funding based on results (employability) of graduates. Recommendation 5: Provide merit- and means-tested scholarships to select universities. This could help counteract the income- and gender-imbalance in the sector. Many private implemented (and their students’ employability should be assessed regularly). Recommendation 6: Invest in household, tracer, or employer-based surveys. This will provide a more nuanced and comprehensive overview of the state of digital skills across the country. Surveys could also help understanding the extent of brain drain in the country, which was mentioned as 79 80 Madagascar Digital Economy Assessment Conclusion: A Way Forward Conclusion: A Way Forward Madagascar Digital Economy Assessment The Madagascar Digital Economy Assessment comes at an opportune time given the Gov- administration and responsive public service. Recent investments in the digital infrastructure, led by a dynamic private sector, have expanded both the reach of the telecommunication net- work and the speed of internet, with Madagascar harboring the fastest broadband in Africa, and one of the fastest in the world. In addition, universities annually produce small cohorts of highly skilled software development talent. These combined factors have helped attract sig- In spite of this optimistic outlook, many challenges prevail. The telecommunication infra- large majority of the population. Extremely low rates of basic digital skills constrain demand for public and private digital services, and the supply of specialized digital skills is unstable and could be at risk of depletion due to brain drain. Overturning these trends is essential to prevent further entrenching the digital divide, and to promote more inclusive growth. Im- framework, and strategic and transparent funding from the Universal Access Fund. Fostering dynamic digital platforms, which are able to provide innovative solutions that technology development, that focus less on digital and more on service design, leading to - tal economy. Increasing the number of graduates that Madagascar produces yearly, while helping women and marginalized populations access ICT education, will support the strong projected growth of ICT, promote a more dynamic digital public sector, and help reduce the digital divide. This can be achieved in part by supporting the sustainability of digital skills. - through access to international insights and benchmarks, facilitating access to funding, and strengthening the digital entrepreneurship support system. Linkages could be created be- 81 tween existing incubators and other entrepreneurship organizations; technical and business universities; and local and foreign and diaspora networks to open markets. Madagascar Digital Economy Assessment Finally, in sectors where the public sector plays a direct role – such as the delivery of digital areas where the private sector and civil society drive the agenda, the government still holds - larly salient when it comes to the promotion of the digital economy. 82 References Madagascar Digital Economy Assessment https://www.ca- ble.co.uk/broadband/speed/worldwide-speed-league/ IMF (2017). “Madagascar – Selected Issues.” International Telecommunication Union (2018) “Percentage of Individuals using the Internet – by Country”. RATSIMBAZAFY, C., Global Entrepreneurship Monitor, Rapport de Madagascar, 2018 2019 MIHARISOA RAHARISON, L., Essentielle Magazine, No78, Fevrier 2019, pp. 52-53 Repoblikan’i Madagasikara, Initiative Emergence Madagascar - Stratégie de Croissance Accélérée, 2019 Repoblikan’i Madagasikara, Initiative Emergence Madagascar - Rattraper le Retard de Développe- ment de Madagascar, 2019 SONAPAR, Guide pour les TPME, accessed at https://www.sonapar.mg/index.php/fr/nos-services-5/ 2019 - http://documents.worldbank.org/curated/en/517281522548048451/Mada- gascar-Basic-Education-Support-Project 83 https://www.entrepreneur.com/article/288769 https://www.cbinsights.com/research/startup-failure-reasons-top/ Madagascar Digital Economy Assessment https://hbswk.hbs.edu/item/why-companies-failand-how-their-founders-can-bounce-back https://stileex.xyz/echec-start-up-malgaches/ https://www.fastcompany.com/3003827/why-most-venture-backed-companies-fail - nes-malagasy-3619/ Digital Skills UK”. Available at: https://www.youthemployment.org.uk/basic-digital-skills-uk-survey-results/ 84 85 Madagascar Digital Economy Assessment Annexes Annex 1 Core indicators for the five DEA pillars Madagascar Digital Economy Assessment Pillar 1: Digital infrastructure Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Year Value Year Value Benchmark Mobile broadband 2016 6.1 2012 0.07 16.7 (SSA) Source: Global Internet subscriptions Information Report, 2016 per 100 population Fixed broadband 2017 0.1 2007 0.0 0.6 subscriptions (per 100 (SSA) people) Mobile network 2016 92.16 2012 23.0 82.5 (SSA) Source: Global coverage, % pop. Information Report, 2016 available. Average monthly 2015 442 2007 10,000 200 (Kenya, wholesale price of 2016) Oct 2017 international E1 capacity 300 (Burundi, link from capital city to 2014) Europe (2 megabits per Average monthly retail N/A N/A N/A N/A price of high-speed internet service (1 megabits per second per 86 Pillar 2: Digital Platforms Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Benchmark Madagascar Digital Economy Assessment Year Value Year Value E-Government ranking (and 2018 170 (0.28) 2008 135 (0.31) (0.33) (SSA) score) in global survey (UN, 2018) Number of online N/A N/A N/A N/A transactions for government services (per year) Value of online transactions N/A N/A N/A N/A for government services Number of digitally-enabled N/A N/A N/A N/A issued (per 100 people) Country Rank (and value) 2017 118 (29) 2015 137(13) (27.4) in the UNCTAD B2C (SSA) E-Commerce Index, Index (0-100) (UNCTAD) ICT use for Business-To- 2016 4.24 2013 4.39 4.20 Business Transactions, 1-7 (SSA) 87 Pillar 3: Digital Financial Services Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Benchmark Madagascar Digital Economy Assessment Year Value Year Value % of adults with a 2017 17.9 2011 5.5 42.6 (SSA) Source: Global Findex transaction account 2013 78.6 2009 94.1 85.6 (SSA) Source: Enterprise transaction account Surveys (world bank 2013). % of adults making or 2017 15.0 2014 5.4 34.4 (SSA) Source: Global Findex. receiving a digital payment in past 12 months % of adults who used the 2017 1.7 2014 0.0 7.6 (SSA) Source: Global Findex internet to pay bills or to buy something online in the past year N/A N/A N/A N/A payments # of retail electronic/digital N/A N/A N/A N/A transactions per capita 88 Pillar 4: Digital Entrepreneurship Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Benchmark Madagascar Digital Economy Assessment Year Value Year Value Performance: Number of N/A N/A N/A N/A sector per 100,000 people in the working age population Performance: Number N/A N/A N/A N/A internet infrastructure, R&D, Business Services) per 100,000 people in the working population Policy: Doing Business 2019 48.89 2010 45.21 51.61 (SSA average) distance to frontier (DTF) Infrastructure & Supports: N/A N/A N/A N/A Number of tech hubs & accelerators in the country per 100,000 people in the working age population. Infrastructure & Supports: N/A N/A N/A N/A using e-mail to email or website interact with clients/ suppliers: 62 % in 2013 having their own 2013 (Enterprise Survey) Financial Capital: Venture N/A N/A N/A N/A Venture capital availability [ (Number of deals, Capital 1=extremely Invested (USD)) extremely easy]: 2.3 in 2017 Source: Global Competitiveness Index Markets: ICT service exports 2016 11.1 2007 35.7 14.7 (% of service exports, BoP) (SSA) November 2018 Culture: Risk taking index N/A N/A N/A N/A (Global Preferences Survey) 89 Pillar 5: Digital skills Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Benchmark Madagascar Digital Economy Assessment Year Value Year Value Educational system Internet access in schools – 2017 3.7 2007 2.0 3.3 Source: Global as score from 1 to 7 in Global (SSA) Competitiveness Index Competitiveness Index 1 Quality of math and 2017 3.9 2007 3.7 3.4 Source: Global science education – as (SSA) Competitiveness Index score from 1 to 7 in Global Competitiveness Index 2 Local availability of N/A N/A N/A N/A Availability of research specialized training services and training services, 1-7 – as score from 1 to 7 in (best): Global Competitiveness 4.2 in 2017 (4.0 in SSA) 3 Source: Global Competitiveness Index Adaptation of the Education N/A N/A N/A N/A The exact expression System to the labor market, cannot be found in the (Index, 0-4) GCI. Below is what exist in the latest IPD database Do any formal or informal N/A N/A N/A N/A Question present in the institutions link the 2009 IPD but not in the education system with the next (2012 and 2016) version. Suggest using the market? (Index, 0-4) indicators below 2013 10.5 2009 17.0 19.1 (SSA) Source: Enterprise survey, 2013 workforce as the biggest obstacle Tertiary education 2016 4.8 2012 4.1 9.0 (SSA) Source: UNESCO Institute enrollment (% of population for Statistics. Benchmark at tertiary education level) here is from UNESCO estimation for SSA Availability of Skilled Labor Availability of scientist and 2017 3.7 2007 4.4 3.4 (SSA) engineers (1-7, best) 1 The Global Competitiveness Report 2017-2018. See: http://www3.weforum.org/docs/GCR2017-2018/05FullRe- port/TheGlobalCompetitivenessReport2017–2018.pdf 2 Ibid 90 3 Ibid Core Indicators: Digital Current Status Previous Status Trend & Observations Infrastructure Year Value Year Value Benchmark Researchers in R&D (per 2016 79.4 2011 108.7 482 (SSA) Source: UNESCO Madagascar Digital Economy Assessment million people) Institute for Statistics (“Researchers per million inhabitants(HC)”. Brain drain: capacity to N/A N/A N/A N/A Indicator split into two retain and attract talented indicators shown below people (1-7, best) Country capacity to attract 2017 3.1 2013 3.0 3.3 (SSA) Source: Global talent, 1-7 (best) Competitiveness Index Country capacity to retain 2017 2.8 2013 3.0 3.2 (SSA) Source: Global talent, 1-7 (best) Competitiveness Index Perceived capabilities 2017 55.4 39.9 (South No previous data available. (% of 18-64 population Africa) who believe they have knowledge to start a business) 91 Annex 2: Digital Financial Services Supplementary information Madagascar Digital Economy Assessment Potential for financial inclusion Percentage of adults with access to a mobile money account 92 The Modernization Strategy of the Malagasy National Payment System 2017-2021 in a Nutshell Madagascar Digital Economy Assessment Payment Aspects of Financial Inclusion framework.1. STRATEGY PRINCIPLES AND PILLARS reached by 2021, are: points of service, and reduce the use of cash by 30%. BASIC PRINCIPLES Principle 1: Active engagement of the public and private sector public and private sector actors. Such an engagement must be explicit, strong and continued over time, and each entity involved must dedicate the resources necessary to ensure strat- egy implementation. Furthermore, in order to sustain implementation progress, the strat- egy must be supported by concerted and coordinated actions and by a calendar that is to be agreed among all parties concerned. Principe 2: Clear and balanced legal and regulatory framework Successful implementation of the strategy depends on the clarity, balance and comprehen- siveness of the legal and regulatory framework. Such framework must contribute to creating an environment that is conducive to the expected developments, cover all risks inherent to the systems, promote competition, and protect the consumers. Principle 3: A robust and safe infrastructure - frastructures. The infrastructures must be compliant with international standards. They 1 , report by the Committee on Payments and Market Infrastructures and the 93 must support optimal service provision, incorporate innovations, and allow for the execu- tion of cross-border transactions. Madagascar Digital Economy Assessment - ment system issues. Priority pillars The essential pillars for payment system development are the following: Pillar 1: Development of payment products and services that match the needs of users Pillar 2: Promotion of use of payment products and services Pillar 4: Development of cross-border transactions and regional integration Actions and indicators The actions to be taken within the context of the strategy are reported in Section III below. They are grouped based on the strategic pillars to which they refer. The indicators are as- Rate of reduction of use of cash: 30% Number of ATMs per 100,000 inhabitants: 2,5 Number of POS per 100.000 habitants: 10 Number of subscribers to mobile money services: 7,500,000, of which 2,500,000 active %of adults having a debit card: 6% % of adults using a debit card to make payments: 2%. 94 Future Architecture of the National Payment System of Madagascar Madagascar Digital Economy Assessment The Current state of Digital Financial Service in Madagascar (Figures and Table) Table 1. Madagascar DFS Market, 2017 IFC Figure 3. Mobile money market share, GSMA Registered MM Accounts 4.2 M MM transaction volume 48.3 M MM Transaction Value 3.1 B 33.9 M 3.1 B Internet banking transaction volume 28.8 M 95 Figure 4. Mobile money agents per 100,000 adults, IFC Figure 5. Bank branches per 100,000 adults, IFC Madagascar Digital Economy Assessment 96 97 Madagascar Digital Economy Assessment Indicators Cameroon Kenya Madagascar Malawi Senegal Sub-Saharan Africa Digital payments in the past year (2017) Made or received digital payments 28.6% 79% 15% 27.6% 39.5% 34.4% Used an account (% paying utility bills) 5.2% 35.5% 1% 4.5% 7.4% 7.5% Used an account to pay private sector wages 4.2% 17.2% 2.6% 4.9% 3.8% 5.7% Used an account to receive government payment --- 14.7% -- 4.4% 7% 7.3% Used the internet to pay bills or to buy something online 5.6% 26.1% 1.7% 8.3% 10.4% 7.6% Used the mobile phone or the internet to access an account 15.6% 71.8% 10.7% 20.1% 29.4% 20.8% Use debit card or credit card to make a purchase 2.9% 12.7% -- 2% 5.1% 7.5% Domestic remittances Sent or received domestic remittances through an account 20.4% 59% 7.5% 15.1% 23.9% 22% Sent or received domestic remittances through an OTC account 22.1 6.6% 6.9% 8.9% 17.5% 11% Sent or received domestic remittances through Cash only 8.9% 1.3% 12.3% 3.3% 4.3% 9.4% Savings 10.9% 26.8% 4% 8.8% 7.3% 7.7% 30.2% 3.3% 7.1% 6.6% Saved using a savings club or person outside the family 31.9% 34.7% 3.6% 31% 23.8% Saved any money 57% 70.3% 44.3% 51.8% 45.1% Credit 7.7% 19.2% 3.8% 8.6% 7.8% 9.8% 2.1% 16% 2% 6.9% 4% 10% Borrowed from Family and friends 32.7% 45.2% 36.9% 31.2% 29.9% 30.4% Borrowed any money 52.7% 64.4% 47.9% 52% 45% 42.9% Outstanding housing loan 5.9% 8.4% 2.4% 5.6% 4.3% 5% 98 Madagascar Digital Economy Assessment 2 Cameroon Kenya Senegal Malawi Madagascar Sub-Saharan Africa Saved at formal Institution, 2017 10.9% 26.8% 7.3% 8.7% 4% 11.1% Saved at formal institution, 2014 7.7% 30.2 6.6% 7.1% 3% 8.9 Borrowed from formal Institution, 2017 7.7% 19.2 7.8% 8.6% 3.8% 7.9 Borrowed from formal institution, 2014 2.1% 16 4% 6.9% 2% 6.1% Assessment dimensions and measures/indicators Data Source 4 Digital Financial Services Madagascar Digital Economy Assessment 4.1 Uptake & Usage of Digital Financial Services 4.1.1. % of adults with a store-of-value transaction account 17.9% n/a 4.1.3 % of adults using internet or mobile phone to access transaction account 10.7% 4.1.4 % of adults making or receiving a digital payment in past 12 months n/a 4.1.5 % of adults who used the internet to pay bills or to buy something online in the past year 1.7% 4.1.6 % of agricultural payments made via digital channels n/a 4.1.7 % of domestic remittance senders/receivers using digital channels 7.5% 4.1.8 % of wage earners receiving wage payments via digital channels 2.6% 4.1.9 % of Firms accepting digital payments n/a 4.1.10 # of retail electronic/digital transactions per capita n/a 4.1.11 Volume of electronic/digital transactions per capita n/a 4.2.1 Market Entry 4.2.1.1 % of retail electronic/digital transactions per capita facilitated by nonbanks n/a 4.2.2 Delivery Channel & Product Innovation 4.2.2.1 % of G2P social transfers disbursed via digital channels n/a 4.2.2.2 # of non-branch access points per 100,000 adults (e.g. agent, PoS, ATM) 2.32 4.2.2.3 % of accounts opened via remote channels 4.2.3 Managing Risks of Digital Finance n/a 4.3 Financial Infrastructure 4.3.1 Retail Payment Systems 4.3.1.1 Volume of transactions processed by retail payment systems n/a 4.3.1.2 Value of transactions processed by retail payment systems n/a 4.3.2 Credit Reporting Systems / Secured Transactions 4.3.2.1 Strength of legal rights index (selected components, tbd) 2 6 4.3.2.3 Credit registry coverage (% of adults) 6.3 4.3.2.4 Credit bureau coverage (% of adults) 0 99 Annex 3: Digital Skills Supplementary information Madagascar Digital Economy Assessment Table A3.1: % schools with at least one Total number of schools ALAOTRA-MANGORO 1.61 1,240 AMORON’I MANIA 0.3 1,002 ANALAMANGA 13.02 1,659 ANALANJIROFO 0.58 1,371 ANDROY 0.37 1,355 ANOSY 0.39 767 ATSIMO-ANDREFANA 0.92 1,847 ATSIMO-ATSINANANA 0.15 1,336 ATSINANANA 1 1,696 BETSIBOKA 0.59 511 BOENY 2.43 740 BONGOLAVA 0.35 571 DIANA 2.15 836 HAUTE MATSIATRA 1.53 1,112 IHOROMBE 0.32 618 ITASY 3.09 648 MELAKY 0.22 448 MENABE 0.93 535 SAVA 0.86 1,281 SOFIA 0.44 2,295 VAKINANKARATRA 2.41 1,327 VATOVAVY FITOVINANY 0.04 2,345 Total 1.69 25,540 100 101 Madagascar Digital Economy Assessment Figure A3.1: Name and time period Program Madagascar Digital Economy Assessment Digital School Program, MEN The Digital School Program was implemented in Madagascar in 2015 and in partnership with Orange placed digital kits into 42 primary and 117 high schools. In addition to the school kit (consisting of 50 tablets, 2 Raspberry Pi servers, and 1 video zones for schools but has been unable to do so. Instead, schools are using the Raspberry Pi or local servers to access a digital library with information Malagasy. One Laptop Per Child France Laptops to 140 children between 5 and 15 in Nosy Komba, Madagascar. and the French organization Gducoeur school and at home. A number of educational applications were pre- loaded onto the laptops including digital and writing books in French and Malagasy. 130 computers shipped to the University of Antsiranana and 235 computers were distributed to schools in villages where Peace Corps volunteers were Peace Corps Volunteers and stationed. In all, the computers were expected to connect nearly 70,000 youth. University of Maryland/ Baltimore County Training Centers (UMBCTC) Coderbus, a mobile computer The bus is connected to the internet and visits locations around the capital. lab designed to teach According to the Director of Coderbus, 80% of the children they serve have computer skills to children never touched a computer before and 60% are between 7 and 10 years old. ages 7 to 17 the program. Additional funding from the Organisation Internationale de la Francophonie (OIF) has facilitated putting in place a second bus and expand services to three additional cities (Mahajanga, Moramanga, and Toamasina). 102 Name and time period Sample Methods Results Francophone Initiative 500 rural teachers Teachers received mobile phones Increased peer to peer contact Madagascar Digital Economy Assessment for Teacher Training in Amoron’I Mania and technological support in and positive impacts on (IFADEM), 2012/2012 region addition to workbooks and in teaching methods, but no person training in French. The improvement in the level of mobile part of the program French. consisted of 1) free communication with tutors and peers; 2) a daily teaching resources (songs, short stories, pronunciation guides). Madagascar School Recent high school Trainees work alongside current n.a. Project graduates often teachers and receive mentoring, with no formal monitoring, and food. In addition teacher training to learning pedagogy, trainees and minimal must learn French and English and experience in leading children, computers to seek out resources. who receive a two-year teacher training Ca. 1000 teachers in Pre-service teacher training; Preliminary program Enseignants du Primaire 8 regions Teachers received a tablet and evaluations do not show an SIM card for their personal phone. increase in teachers’ skills. The Started in 2017 The program has 3 components: is attributed to the high level self-instruction (through the of content delivered (e.g. text tablet/phone), tutors (available via books that often had close to phone), and in person group work. 200 pages), which was further mostly delivered in French, a language that many of the teachers in the program were 103 Number of Training With electricity With computer With internet Centers/Schools (%) (%) (%) Madagascar Digital Economy Assessment ALAOTRA-MANGORO 31 90 84 48 AMORON’I MANIA 18 83 83 56 ANALAMANGA 207 98 86 52 ANALANJIROFO 11 82 55 45 ANDROY 1 0 0 0 ANOSY 12 75 92 83 ATSIMO-ANDREFANA 24 92 88 58 ATSIMO-ATSINANANA 8 63 50 38 ATSINANANA 27 100 93 41 BETSIBOKA 1 100 100 100 BOENY 36 100 75 47 BONGOLAVA 4 75 75 0 DIANA 29 90 72 55 IHOROMBE 3 100 100 33 ITASY 12 92 75 58 MATSIATRA AMBONY 31 100 97 61 MELAKY 1 100 100 100 MENABE 15 100 80 87 SAVA 14 79 71 64 SOFIA 14 64 79 57 VAKINANKARATRA 38 92 97 45 VATOVAVY-FITOVINANY 5 80 100 20 104 Madagascar Digital Economy Assessment 105 Total Total female Total computer Share CS/ Total female CS % of female CS (of CS students in private students science Total students (%) students female students) centers ALAOTRA-MANGORO 2074 611 255 12 146 24 146 AMORON’I MANIA 2604 1025 7 0 7 ANALAMANGA 27163 11725 3107 11 2912 25 1410 ANALANJIROFO 1123 151 0 ANDROY 36 11 0 ANOSY 814 345 106 13 55 16 51 ATSIMO-ANDREFANA 3907 1507 460 12 383 25 260 ATSIMO-ATSINANANA 526 152 5 1 5 ATSINANANA 4007 1788 74 2 74 4 48 BETSIBOKA 104 42 0 BOENY 4594 1745 447 10 347 20 233 BONGOLAVA 450 164 0 DIANA 7364 2327 189 3 126 5 125 IHOROMBE 240 114 71 30 71 62 39 ITASY 1141 459 335 29 319 69 182 MATSIATRA AMBONY 1897 884 290 15 290 33 171 MELAKY 110 32 0 MENABE 790 255 19 2 8 SAVA 1348 413 172 13 172 42 112 SOFIA 1530 431 190 12 190 44 120 VAKINANKARATRA 3888 1619 168 4 168 10 75 VATOVAVY-FITOVINANY 446 88 0 TOTAL 66156 25888 5895 9 5253 20 2992 Madagascar Digital Economy Assessment 106 Madagascar Digital Economy Assessment