Vol. 5, No. 9 (April 01, 2012)

ICT Development in the South Caucasus: Comparative review

Fuad Aliyev, Fulbright Fellow, CACI, SAIS
Jahandar Gadirov, ICT market and data analysis expert*

The countries of the South Caucasus region have demonstrated quite interesting performances in terms of economic development and competitiveness moving up and down in various indices and reports by international organizations during the last decade.  If we examine the rankings on the Ease of Doing Business of the World Bank, for example, we see that Azerbaijan, which was ranked 38th just a few years ago and named a top reformer back then is only ranked 55th in 2010 due to the fact that one of the indicators “Employment,” in which Azerbaijan has been traditionally showing top performance has been removed recently and not counted during the last index calculations.  This example alone shows how varied development in the region is.

According to the Global Competitiveness Report (GCR) Competitiveness Index for the last 5 years, there has been steady growth among the countries of the region, but with some fluctuations as a result of the above-mentioned versatile nature of the countries’ performance along all the competitiveness indicators.  Azerbaijan’s leading position, however, both in the region and in the CIS is clear.

This being so, whether it is Azerbaijan’s natural resource-driven development, Georgia’s liberalization efforts or Armenian diaspora assistance, we cannot consider current economic development and growing competitiveness sustainable if innovation and efficiency issues are not taken into consideration.  Here, we will try to compare performance of the region’s countries in terms of information communication technologies (ICT) to get some sense of long-term competitiveness opportunities of the three countries.

Considering the above-mentioned GCR’s relevant innovation and sophistication factors sub-index, one may find Azerbaijan ranked 60th (61th in 2010-2011), Armenia—112th (116th in 2010-2011), and Georgia—118th (125th in 2010-2011).  Obviously Azerbaijan is much more competitive in this regard.

Another WEF annual—the Global Information Technology Report (GITR) based on so called Networked Readiness Index (NRI)—would be even more helpful in assessing the ICT development in the South Caucasus.  The latest NRI has been released recently in April 2012 and includes 142 countries of the world.

The average rank of the CIS countries among 142 economies is 81, and the average rank of the South Caucasus countries is the same.  Thus, in general the region is on the same page in terms of ICT development with the others CIS countries.  However, Azerbaijan has demonstrated better performance than Armenia and Georgia, ranking third in the CIS in terms of NRI.  It is also worth noting that Azerbaijan has been regularly in the top three among the CIS countries in the last 5 GITR rankings, which could also be considered a sign of sustainability. 

The NRI is made up of 4 sub-indices—Environment, Readiness, Usage and Impact.  The table below shows the three countries’ ranking on each of these sub-indices.

In terms of Environment created and available for ICT development, Georgia and Azerbaijan are doing much better than Armenia.  Environment subindex includes the indicators of political and regulatory environment, business and innovation environment in a country.

As far as Readiness sub-index is concerned, Azerbaijan is far ahead of its neighbors demonstrating more readiness to utilize ICT in terms of infrastructure, affordability, and skills.  These categories reflect key policy action areas enabling to measure the overall preparedness of a country to use ICT.  Thus in general this sub-index reflects the level of relevant infrastructure development, easy access as well as knowledge to utilize them.

Looking at Usage sub-index, one can see a similar picture—Azerbaijan again outperforms Armenia and Georgia.  This means that the ICT penetration and usage on individual, business, and government levels is much higher in Azerbaijan than in the other two countries.

Azerbaijan is also a leader in the Impact sub-index ranking, although here the gap is not as big as in the previous two sub-indices.  This sub-index measures the impacts of ICT on both the economy and society.  It covers a wider range of impacts and includes such areas as the environment, energy, and health.

Reviewing sub-indices and their indicators we could roughly divide them into two groups: directly related to ICT (Readiness and Usage) and indirectly related to ICT (Environment and Impact).  There is some irregularity in this division in terms of the performances the South Caucasus republics have displayed.  For instance, Azerbaijan does much better in direct sub-indices relative to Armenia and Georgia: it is 57th and 61st in Usage and Readiness sub-indices respectively.  In both indices Armenia does slightly better than Georgia, making Georgia the worst performer as far as ICT infrastructure, capacity and usage are concerned.  At the same time, Georgia slightly outperforms Azerbaijan and significantly outperforms Armenia in Environment, and ranks second after Azerbaijan according to Impact sub-index.  This could mean that Azerbaijan does much better job in ICT infrastructure development, capacity building and promoting ICT penetration, but its Achilles heel is general, and directly unrelated to ICT environment, issues, which also partly could be blamed for decreasing Impact of ICT on the economy and society.

Another important factor for understanding the role of ICT in the countries of South Caucasus is ICT Price index.  This index is calculated based on three main sub-indices: 1. Share of costs on fixed telephone services in average income per capita; 2. Share of mobile-cellular services in average income per capita; 3. Share of fixed-broadband Internet prices in average income per capita.  The maximum value is 3 with each of the sub-components making up to 1 point.

Azerbaijan ranks 53rd overall and third among the CIS countries.  Among the latter, Russia is 32nd, Kazakhstan is 50th, Ukraine—69th, Armenia—102nd and Georgia—111th.  Azerbaijan is also ahead of the broader regional leader Turkey, which ranks 80th.  It is worth noting as well that in the last ICT Price Basket Index 2010 Azerbaijan made a tremendous jump forward moving from 99th in 2009 to 53rd advancing 46th ranks.  According to this report, Azerbaijan with its 81.7% relative change leads the Top 10 countries with the highest relative change.  The closer look at the sub-indices reveals that this significant change in Azerbaijan was achieved due to dramatic price reduction in broadband services (88%) and mobile communications (21%).

This brief examination of the three related indices helped us compare performance and development of Azerbaijan, Armenia and Georgia in terms of ICT development and accessibility, which is vitally important for overall development and competitiveness of economies in the contemporary world.  Azerbaijan is an evident leader and thus gains comparative advantage.  Moreover, it is approaching ranks of more advanced and developed countries, which will put more pressure on its development capacities and abilities to catch up with the selected pace.  However, only having provided for better overall environment—political, regulatory, social and others—will Azerbaijan be able to advance further.  At the moment, all achievements in ICT are related to government infrastructure projects, and support programs and policies.  To be sustainable, however, this growth needs to be picked up by businesses, civil society and individuals.  Limits to government-led growth are evident, and there is significant room for improvement even compared to Azerbaijan’s neighbor Georgia.

* The authors would like to thank the Azerbaijan Marketing Society ICT Marketing Center for the information and research support.