Digital gap – how much does it

cost?

April 8, 2005, Riga

Ģirts BērziņšMember of BoardHead of Product Development and ITAS Hansabanka

Digital gap

EU

• 1 VAT e-declaration = 10 EUR savings for enterprise

• Full scope VAT e-declarations = savings 500 mio EUR annually

• Existing e-government solutions in EU = 7 mio hours savings per year for EU citizens

• Full scope e-government services = 100 mio hours per year savings for EU citizens

• Thus => it is possible to improve 14 times more!!!!

Research sponsored by European Commission

Latvia

How much does it How much does it cost in Latvia?cost in Latvia?

Latvia

• GDP 2003:– 6’322 mio LVL

• Number of employed persons 2003:– 1’007 thousand

• Number of economically active enterprises in private sector:– 44’345

Source Data from Central Statistical Bureau of Latvia

Latvia

• Product created by 1 employee:– 6’322’000/1’007=6280 LVL per year– 6280/12/20/8=3,27 LVL per hour

Calculated data

Latvia

• Proportion of “paper” payments in total payments (by no. of pmts.):– 69% (“paper” in banks + Latvian Post payments)

• For the sake of simplicity let us assume the proportion is the same in private individuals’ payments and enterprises’ payments.

Calculated data (Bank of Latvia statistics, 2004, H1)

39% 15%

16%

0%30%

"Paper" payments PC banking Internet bankingPhone banking Postal payments

Latvia

• Number of payments = 50 per month• Visits to the bank = 2 times per week + 1

time per month for statement• Preparation of 1 paper payment, printing in 2

copies, signed 2 copies, stamped = 6 minutes.– 50*6 = 300 min. or 5 hours

• Way to the bank = 15 minutes.– 15*9(per month)*2(back from the bank)=4,5

hours

• Queue 15 minutes = 3 hours• At teller 10 minutes = 2 hours

Author’s assumptions: average traditional enterprise

Total = 14,5 hours per month

Latvia

• Preparation, acceptance= 3 hours per month

Author’s assumptions: average electronised enterprise

Saved = 11,5 hours per month

Latvia

• 14,5 hours * 3,27 LVL/hour = 47 LVL per month

• 52*12 = 564 LVL/per year/1 enterprise

Author’s calculations: not produced product – traditional enterprise

Latvia

• 3 hours * 3,27 LVL/per hour = 10 LVL per month

• 10*12 = 120 LVL/per year/1 electronised enterprise

Author’s calculations: not produced product – electronised enterprises

Latvia

• If all enterprises electronised:– 44’345*120=5,3 mio LVL

• Current situation:– 44’345*564 LVL*0,69 (proportion of

“traditional”) = 17,3 mio LVL– 44’345*120*0,31=1,7 mio LVL

• Lost to the best scenario:– 13,7 mio LVL or 0,22% of GDP

Author’s calculations: not produced product in country total

Latvia

• Payments per month = 3• Bank visits = 2 times per month• Way to the bank = 15 minutes.

– 15*2(times per month)*2(back from the bank)=1 hour

• Queue + servicing =30 minutes=> 1 hour

Author’s assumptions: average traditional individual

Total = 2 hours

Latvia

• Payments per month = 3• Payments input => 0,25 hours • Visits to the bank = 0,2 times per month• Way to the bank = 15 minutes.

– 15*0,2*2=0,1 hour

Author’s assumptions: average electronised individual

Total = 0,35 hours

Latvia

– 2 hours * 3,27 LVL/per hour = 6,54 LVL per month

– 6,54*12 = 78 LVL /per year/per 1 employee

Author’s calculations: not produced product by traditional individual

Latvia

– 0,35 hours * 3,27 LVL/per hour = 1,15 LVL per month

– 1,15*12 = 14 LVL /per year/per 1 employee

Author’s calculations: not produced product by electronised individual

LatviaAuthor’s calculations: not produced product – individuals/employees• If all electronised:

– 1’007’000*14=14,1 mio LVL

• Current situation:– 1’007’000*78 LVL*0,69 (proportion of

“traditional”) = 54,2 mio LVL– 1’007’000*14*0,31= 4,4 mio LVL

• Lost to the best scenario:– 44,5 mio LVL or 0,7% of GDP

LatviaAdditional comments

• There is a possibility of mistakes – this is not scientific research but rather qualified considerations on subject.

• Enterprises are proportionally more electronised, but this makes a picture even worse.

• Situation is worse as well due to traditions in electronised enterprises due to state requirements – printing out of electronically submitted payments, stamping of them in the bank, etc.

• Calculations of agriculture farms are not made, as well will worsen the picture.

• Inefficiency in the bank – skilled people are employed just to input payments – could be deployed economically wiser.

• Efficiency is raised by usage of direct debit – less time spent.• Effect of electronisation upon unemployment is not calculated.

Thank youThank you!!

girts.berzins@hansabanka.lv

+1% GDP!!!+1% GDP!!!