Financing Digital Technologies

This blog is part of a series aimed at exploring the scalability of financing digital technology and the procurement process for digital tools in the development sector, specifically for low-and-middle-income countries (LMICs). Our aim is to better understand the drivers and market-shaping activities that attract supply options for digital that otherwise might not be available to LMICs, improving access and price.

Graphic Credit: Gavi

Can the development sector scale technology in low- and middle-income countries (LMICs) by changing its approach to funding and procurement of digital goods? This is a question that DIAL continues to investigate following an examination of Financing Digital Markets in 2018, and our more recent study into Demand Aggregation in the mobile sector. Both studies showed potentialfor innovative financing and procurement mechanisms to be deployed that address market failures and help solve some of the challenges LMICs experience in accessing digital products today.

The importance of procurement is often underestimated, although a detailed and transparent procurement exercise is how donor money makes its way into recipient countries and is a key mechanism for governments to deliver public services to their citizens. As the Centre for Global Development noted recently in their Tackling the Triple Transition in Global Health Procurement report, which examined health-related procurement processes in LMICs, “…procurement is….. central to the efforts of low- and middle-income countries to improve health, meet the Sustainable Development Goals, and achieve universal health coverage.” Buying decisions made by governments, funders and implementers in the development sector have long term impacts, and it is not only in specific sectors such as health, but also in cross-functional enablers such as technology and digital goods, that the strength of a country’s procurement function plays a decisive role in that country moving toward achievement of the SDGs.

Donors understand this dynamic and will regularly examine procurement procedures and capacity before lending or will require evidence of a procurement strategy that aligns to their programmatic funding priorities. Despite the scrutiny, funding and procurement of digital, whether commercial off-the-shelf, a public good, mobile, or software, remains a challenge. As DIAL found in the comparative study of the vaccines market and digital technology market, donors struggle to justify and afford a product with high capital expenditure for a two- to five-year project, instead incentivizing purchases of products with low capital expenditure or high operating expenditure. Governments struggle to fund recurrent high operating expenditures, which creates financial dependency on two- to five-year donor projects. This misalignment is just one factor contributing to the lack of scale of digital technologies in LMICs, but it highlights that traditional approaches need to be challenged and reassessed when it comes to digital technology.

In our ongoing research we see evidence that digital requires a new approach. The international development sector understands that traditional funding and procurement models have resulted in locking NGOs, governments and implementers into numerous, long-term contracts which are expensive, onerous to manage and don’t service evolving public service needs because the knowledge about how the system works is available only to the provider, and when new components or licenses are required only the specific supplier can deliver. Some governments have incorporated agile theories into their procurement of digital goods, others have moved to outcomes-based procurement models (UK,USA), while others have implemented centre-led whole of government digital procurement strategies (Australia), or have taken a standards based approach (EU). As we talk to these entities we see evidence of a changing landscape.  Yet despite various calls for change and recognition of the need for change by some governments and in some specific sectors, such as digital health, our review of the ecosystem still shows limited or siloed efforts to institutionalize new operating models across funding and procurement of digital for development in LMICs.

As we continue our research at DIAL, we intend to conduct a landscape analysis to examine whether alternate models for procuring and funding exist that are achieving impact and scale, what is working successfully at the moment, and in what market conditions and context could demand aggregation, as one example, be an option to scale. We will seek to better understand the drivers and market shaping activities that attract supply options for digital that otherwise might not be available to LMICs, improving access and price.

By examining and questioning the traditional business models we believe it is possible to drive change to ensure better quality of service to the underserved through technology. We plan to publish our findings in a series of blogs in the coming months. If you are interested in the concept of using innovative financing mechanisms, procurement of digital, or leveraging demand aggregation for scaling the use of technology in international development, we would like to hear from you. You can reach us at