Digital gap – how much does it cost? April 8, 2005, Riga Ģirts Bērziņš Member of Board Head of Product Development and IT AS 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 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)

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

Latvia Author’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

Latvia Additional 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 you! +1% GDP!!!