# Introduction

The rise of digital technologies and the digital economy offers a once in a generation opportunity to unlock new pathways for rapid economic growth, economic mobility, innovation, job creation and access to quality services that would have been unimaginable even a decade ago. The accelerating pace of technology diffusion, the convergence of multiple technologies, and the emergence of global platforms are disrupting traditional development models. Digital technologies are expanding access to global markets, changing business models and delivering enormous productivity gains. Digitization is expanding access to basic needs and services. In 2016, the global digital economy was worth $11.5 trillion, or 15.5 percent of global gross domestic product (GDP). It is expected to reach 25 percent in less than a decade, far outpacing the growth of the ‘traditional’ economy.

The information and communication technologies (ICT) sector holds enormous potential for welfare improvements by creating and enabling more jobs and economic opportunities, improving labor productivity and by generating more consumer surplus (World Bank, 2016). Through these channels, continuous development of ICT services holds enormous potential for economic growth and poverty alleviation. While the internet could be an effective force of development, it also poses potential risks. Some of the key risks highlighted in the World Bank (2016) report are the risk of concentration of market power as well as greater inequality among the nation’s population manifested by the digital divide. Further, issues such as privacy, cybersecurity and internet governance need to be kept in mind as approaches to regulate the internet are considered.

Djibouti is particularly well placed to take advantage of the digital economy. The country has a regional comparative advantage as the landing site of the undersea fiber optic cables. The full potential of this geo strategic position does not seem to have been exploited, however. The development of the sector has been driven by the economic strategy of Djibouti Telecom (DT) - the single national fixed and mobile operator to provide ICT services.<sup>1</sup> DT has a monopoly in all telecommunications markets, including those that are typically open to competition such as mobile and data services. It represents a significant portion of the economy, with revenues accounting for around 6 percent of GDP.<sup>2</sup> DT’s strategy is outward oriented, selling much of its capacity on the international market, mainly to Ethiopia. The operator has banked on the country's geostrategic position between the Middle East and Africa to successfully become a reliable offeror of connectivity between the two regions for global communications carriers. Unfortunately, this approach has not been equally matched by efforts to expand broadband access and use in the domestic market. DT’s bandwidth is not widely offered to consumers and businesses locally, leaving the domestic market in shortage.

In 2016, Djibouti ranked 161<sup>st</sup> of 175 countries in the ICT Development Index published by the United Nations International Telecommunications Union (ITU),<sup>3</sup> the last place among lower

> 1 The only two other countries in the world with a single operator are Ethiopia and Cuba. The Democratic Republic of Korea introduced a second mobile operator in 2015.

> 2 Source: World Bank, Telecommunications Sector in Djibouti: Finding the Path to Growth, 2015 (p.6).

> 3 See http://www.itu.int/net4/ITU-D/idi/2016/#idi2016countrycard-tab&DJI.

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