Protect, Promote, Secure: Maximizing the International Technology Security and Innovation Fund
To strengthen U.S. leadership and promote national security interests, Congress has approved $500 million in funding over five years through the CHIPS Act to the U.S. Department of State to tackle key issues in the information and communications technology (ICT) and semiconductor industries. This International Technology Security and Innovation (ITSI) Fund is ambitious in its targets to diversify supply chains, protect cyber networks, and provide capacity building and technical assistance in this space—all with relatively little capital. To maximize the impact of the fund, the Department of State should coordinate effectively with other U.S. departments and agencies, partners and allies, and the private sector. It also needs to focus the fund both geographically and in key activities such as enhancing project bankability, promoting workforce development, monitoring supply chains, and supporting efforts to scale up trusted, cost-effective technologies and products.
Breaking Down the ITSI Fund
The U.S. Congress and the Biden administration have made a series of legislative efforts, executive actions, and strategies (including the recently released National Cybersecurity Strategy) to promote and protect U.S. and partner capabilities in digital infrastructure, semiconductors, and other critical technologies. This is part of an attempt to compete with the People’s Republic of China (PRC), as well as bolster foreign relations with—and the international security position of—U.S. allies and partners. The Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS Act) leads the way in this strategic push by budgeting tens of billions of dollars to support these efforts, funneled mostly to the Department of Commerce, the Department of Defense, and the National Institute of Standards and Technology.
The CHIPS Act also allocates $500 million over five years to a new International Technology Security and Innovation (ITSI) Fund and calls on the Department of State to improve the diplomatic and security positioning of U.S. allies and partners. The goal of the fund is to “provide for international information and communications technology security and semiconductor supply chain activities, including to support the development and adoption of secure and trusted telecommunications technologies, secure semiconductor supply chains, and other emerging technologies.” The secretary of state has broad authority to allocate ITSI funds within the Department of State and to other implementing agencies, including the U.S. Agency for International Development (USAID), the Export-Import Bank of the United States (EXIM), and the U.S. International Development Finance Corporation (DFC). The act also requires that these U.S. agencies coordinate with allies and like-minded partners and with private sector stakeholders.
This brief examines how the ITSI Fund can be best deployed and maximized through better coordination along three vectors: among U.S. government agencies, with partners and allies, and with the private sector. The brief also considers existing U.S. government funds and programming that could complement the fund, as well as geographic areas and sectors that it should target to achieve the goals outlined in the CHIPS Act.
The CSIS Economics Program held three roundtables between September 2022 and February 2023 that explored these issues. They included U.S. government officials from the Department of State, USAID, and EXIM; representatives from the embassies, development finance institutions, and export-import banks of Australia, South Korea, and Japan, as well as the Taipei Representative Office in Washington; private sector companies and associations in the semiconductor and telecommunications sectors; and Washington-based scholars. In addition to the project team’s research, this report shares these experts’ perspectives on the challenges, opportunities, and path forward for deploying the ITSI Fund.
Basic Considerations about the Fund: Expert Views
The expert roundtables revealed a number of threshold considerations for the Department of State to consider in deploying the ITSI Fund. One concern was that the fund could be spread too thin. There is a lot of work that could and should be done across the semiconductor and ICT sectors, as well as in strategic regions and markets. Because of this, there is a significant risk of distributing the money across too many projects and countries. Many experts in the roundtables expressed the view that it would be better to focus the fund on a few pilot projects in select countries. Creating proofs of concept can lead to programming that can be scaled to have greater impact.
The ITSI Fund will have to balance expectations and reality. Congress—and the Biden administration—expect this fund to counter the PRC. U.S. national security advisor Jake Sullivan stated in September 2022 that the United States needs to lead in the semiconductor field and ensure the PRC does not end up with dual-use technology that could be used in military-related applications. In the ICT space, the PRC has invested in wireless networks, surveillance cameras, subsea cables, mobile handsets, and satellites throughout the Indo-Pacific, central Asia, Africa, and Latin America. This equipment is inexpensive compared to European, South Korean, and Japanese equipment, and the PRC has managed to get in on the ground floor in developing economies with its products, services, and built-in contracts for maintenance and upgrades. The United States will have to consider how to effectively deploy the ITSI Fund to be more competitive in strategic markets and stay ahead in the semiconductor and ICT fields.
Experts also assessed that the ITSI Fund could be more impactful by prioritizing global digital infrastructure. As discussed below, the Department of State is primarily focused on supporting the diversification of semiconductor supply; however, roundtable participants agreed that there are additional viable opportunities in the digital infrastructure space where the ITSI Fund can have significant impact. The Department of State can build on the strength of U.S. technology, as well as expertise from the private sector and the digital programming and partnerships that it and other U.S. departments and agencies already implement, to amplify the fund. Additionally, the bulk of CHIPS Act funding, including monies channeled through the Department of Commerce, is focused on strengthening semiconductor infrastructure in the United States—leaving room for the ITSI Fund to focus on the ICT space instead.
Finally, private sector participants discussed cost considerations for digital infrastructure, concluding that the ITSI Fund could be a way to bend the cost curve. Companies investing overseas are often forced to use equipment from manufacturers outside of their initial network in order to comply with regulations regarding high-risk vendors from the PRC and avert any reputational risks associated with such engagement. Products from European, South Korean, Japanese, and U.S. companies are more expensive, more intricate, and sometimes slower to deliver than PRC equipment and technology. For the United States and its partners and allies, funding and programming can potentially bend the cost curve by making financial tools more readily available and supporting the capacity to provide reliable, affordable, well-serviced, and trusted resources.
The Department of State Leading the ITSI Fund
The Department of State heads the implementation of the ITSI Fund. Decisionmaking and leadership on ITSI funding is divided among three of its offices:
- The Bureau of Cyberspace and Digital Policy (CDP), responsible for supporting secure ICT networks under the CHIPS Act
- The Bureau of Economic and Business Affairs (EB), responsible for the act’s semiconductor “promote” component
- The Bureau of International Security and Nonproliferation (ISN), responsible for the act’s semiconductor “protect” component
The department issued a fact sheet on March 14, 2023, detailing its roadmap for the ITSI Fund. Nearly 60 percent of the first year’s budget will go to support resilience and diversification in the semiconductor industry, and the rest will target ICT programming. Most of these efforts already fit into the department’s work of engaging with partners and allies on shared national security and foreign policy concerns.
- Securing Critical Material Inputs: The Department of State intends to lead, presumably through diplomatic efforts, on “friend-shoring” or nearshoring efforts with partners and allies to secure access to aluminum, arsenic, cobalt, copper, and rare-earth elements (many of which are located in South America, the Democratic Republic of Congo, and China) while promoting “more diverse and resilient mining, refining/processing, and recycling capacity online to support global chip production.” There is an emphasis on moving those components of the supply chain to the Indo-Pacific and Latin America.
- Strengthening International Policy Coordination: The Department of State intends to coordinate with the Department of Commerce, the largest recipient of CHIPS Act funding, to work with like-minded partners and allies to develop “common and complementary” industry incentives and improve coordination during supply disruptions.
- Expanding and Diversifying Downstream Capacity in the Indo-Pacific and the Americas: The department will use ITSI funding to diversify the global semiconductor supply chain in coordination with partners and allies. This includes finding ways to incentivize investments into the semiconductor supply chain, undertake workforce development and capacity building, and construct the necessary physical and human infrastructure to support this work.
- Protecting National Security: Through the ITSI Fund, the department will work with partners and allies to mitigate national security risks by developing joint policies and best practices on export controls and licensing.
To promote ICT security, the three lead bureaus within the department—working under the interagency Digital Connectivity and Cybersecurity Partnership (DCCP)—will use the ITSI Fund to support the following:
- Developing Enabling Environments for Secure ICT Ecosystems: The department will deploy capacity-building programs and provide technical assistance on training the next cohort of ICT leaders and workforce participants, ensuring telecommunications supplier diversity, and improving policy and regulatory frameworks.
- Deploying Secure ICT Infrastructure: The Department of State, along with USAID, EXIM, DFC, and the U.S. Trade and Development Agency (USTDA), will provide financing, project preparation support, and other investment de-risking tools to mobilize private sector capital investments in creating and building secure ICT networks.
- Defending against Malicious Cyber Activity: The department will engage with partners to provide cybersecurity tools and services to better manage cybersecurity threats.
The ITSI Roadmap Requires Coordination
The March 14 statement is helpful in clarifying the Department of State’s priorities and highlighting the importance of coordination with other key players in and out of government. However, the department’s vision for the $500 million ITSI Fund is ambitious. For the department to hit its targets and have maximum impact, it will need robust coordination along three vectors: among U.S. agencies and departments, with partners and allies, and with the private sector.
Vector One: Building an Interagency Ecosystem
The Department of State has a large and important task in deploying the ITSI Fund in ways that meaningfully support digital technology development in the international arena. The fund alone cannot address all these issues; the department will have to be ruthless when selecting areas where it can effectively make a difference with the budget it has while also contributing to the ITSI Fund’s goals.
Congress has stipulated in the CHIPS Act that the Department of State must collaborate and direct funding to implementing agencies working in this space. But the department can and should also utilize the programming, expertise, and budget these agencies already have. This will maximize the fund’s impact, adding much-needed coordination and building a strong pipeline in the ICT sector. U.S. departments such as those of Commerce and Defense, as well as agencies such as USAID, DFC, EXIM, and USTDA, each have authorities, budgets, and programming that address parts of what the ITSI Fund intends to accomplish—including providing capacity building and technical assistance, financing investments, and working with partners and allies on policy frameworks. It should be noted that these agencies are limited by content requirements, investment mandates, and legal frameworks that PRC state-owned banks and lenders do not face; this does not suggest a race to the bottom but a recognition that U.S. agencies have limitations.
Department of State
The Department of State has several programs that support the key goals of the ITSI Fund and could benefit from additional financing. EB works extensively on promoting ICT innovation and development and a safe, secure, and connected digital economy. The bureau engages with foreign governments, multilateral institutions, U.S. businesses, mobile network operators, and civil society to promote competitive markets and secure 5G wireless telecommunications networks with trusted suppliers. It actively works through the DCCP to provide technical assistance to government officials, emerging leaders, and other stakeholders in more than three dozen countries to promote an open, interoperable, reliable, and secure internet. The DCCP has been tapped to implement efforts in the ICT space and is already positioned to work with global telecommunications providers, network operators, and key government stakeholders.
Also under EB’s purview is the Infrastructure Transaction and Assistance Network (ITAN), which can support the ITSI Fund’s “protect” and “secure” targets. Its mission is to strengthen capacity-building programs to improve partner countries’ project evaluation processes (which can also be financially supported through the Transaction Advisory Fund, which offers legal services for contract negotiation and bid or proposal evaluation) and to coordinate U.S. support for secure ICT infrastructure, including by mobilizing private sector capital. The Transaction Advisory Fund, while small, is impactful; additional contributions from the ITSI Fund could help the ITAN tackle local capacity issues in choosing appropriate vendors and assessing proposals.
As outlined in its Digital Strategy, USAID has programming in a range of digital-related fields, including finance, inclusion, cybersecurity, geospatial technology, and strategy and research. All these initiatives are targeted at low- to lower-middle-income countries as defined by the World Bank. There are also programs, several country-specific, that offer training and capacity building—as well as government-to-government assistance in using regulatory reform and rule of law to create an enabling environment for investment and trade in these areas—that would boost work on the promote and secure pillars of the ITSI Fund.
USAID is hampered by its mandate and limited ability to spend funds, particularly on cybersecurity. It cannot provide grants or programming funds to key agencies working in this field, including military, law enforcement, and intelligence services.
Some examples of work USAID has done that model how the agency can support the ITSI Fund are the Critical Infrastructure Digitalization and Resilience (CIDR) activity—which helps countries in the Western Balkans, Black Sea region, and South Caucasus address cybersecurity vulnerabilities and the legal, workforce, and investment needs that support cybersecurity of infrastructure—and Digital Invest, which mobilizes early-stage private capital for digital connectivity infrastructure and digital financial services that strengthen open, inclusive, and secure digital ecosystems and serve traditionally excluded customers (including women, rural populations, and lower-income households) in developing countries.
EXIM’s financial tools and capabilities support the ITSI Fund’s effort to build secure ICT infrastructure. EXIM supports investments within the 5G sphere, including by helping buyers purchase technology from trusted vendors and facilitating foreign financing for foreign-headquartered entities. Through its China and Transformational Exports Program (CTEP), the bank can offer its clients reduced fees, extended loan tenors, and exceptions from other EXIM policies for eligible projects. EXIM can also provide loans, loan guarantees, and insurance for the purchase of goods and services shipped or invoiced from any country to facilitate U.S. exports for 5G-related transactions. EXIM has lowered its U.S. content threshold in this strategically important area in an attempt to meet overall U.S. policy goals, but creditworthiness of potential in-country private sector partners remains a key challenge in many instances, particularly in countering often opaque PRC lending practices.
The DFC can aid the ITSI Fund by deploying its financial tools to mobilize private sector capital in technology-related investments. The agency supports private sector investments in commercially viable, highly developmental projects that advance foreign policy and national security priorities. It offers debt and equity financing, guarantees, technical assistance (utilized to help projects become more bankable), and political risk insurance.
DFC-supported projects on critical ICT infrastructure demonstrate how it can support the ITSI Fund’s goals. For example, in 2021 the DFC committed $300 million in debt financing to help Africa Data Centres Holdings Limited acquire and expand data centers in South Africa and Kenya, as well as enter into new African markets. The project expects to address the digital infrastructure gap, create jobs, address poverty, facilitate the delivery of goods and services, and contribute directly to the African Union’s Digital Transformation Strategy.
USTDA provides training and financing for project preparation, including feasibility studies and technical assistance. Its tools go a long way in making a project commercially viable from the start and setting it up for success once it is ready for financing.
In line with the goals of the ITSI Fund, USTDA awarded a grant to NOW Telecom Company Inc. to conduct a feasibility study and pilot project to support the development of a nationwide 5G mobile and fixed-wireless network in the Philippines. NOW Telecom chose New Jersey–based Bell Labs Consulting, part of the research arm of Nokia, to conduct the study. It also awarded a grant to Malawian internet service provider Converged Technology Networks Limited (CTN) to conduct a feasibility study on expanding digital connectivity to underserved communities in the country. CTN selected California-based Connectivity Capital LLC to conduct the study.
Each of these departments and agencies have experience, funding, projects, and expertise in the ICT sector and can bring those resources to bear to amplify the ITSI Fund’s minimal pot of money. Some of the smaller programs, such as the Transaction Advisory Fund and DFC’s technical assistance program, can benefit from additional funding to do the necessary preparation to get more viable projects in its pipeline and accomplish the ITSI Fund’s mission of protecting, promoting, and securing critical technology and networks.
Vector Two: Working with Partners and Allies
Countries in the Group of Seven (G7)—as well as South Korea, Singapore, Australia, and Taiwan—share concerns regarding secure and open networks and supply chains and are active players in semiconductor manufacturing and ICT development.
In a foreign press briefing on March 15, 2023, the Department of State’s EB assistant secretary Ramin Toloui and CDP ambassador at large Nathaniel Fick outlined how the department intends to coordinate with partners and allies. For the ICT sector, the ITSI Fund will support governments in creating enabling environments for investment in secure ICT ecosystems and preparing for and defending against malicious cyber activities. The Department of State will also push for collaboration among sovereign financing agencies to provide funding and de-risking products for investments in deploying ICT systems such as Open Radio Access Networks (ORAN). The department expects to coordinate with like-minded countries on policy and regulatory frameworks that protect the entire ecosystem through export controls, licensing, and procurement procedures.
In addition to the work of DCCP, as well as ongoing diplomatic efforts between the Department of State and U.S. partners and allies, the ITSI Fund can build upon work being done in the U.S.-EU Trade and Technology Council (TTC). In December 2022, the council held its third ministerial meeting, during which members agreed (among other things) to the following:
- facilitate projects that strengthen the resilience of infrastructure such as strategic overland and subsea cables;
- connect over one thousand public schools and children’s homes in Jamaica to the internet;
- expand internet access for schools in Kenya and bridge gaps in last-mile connectivity;
- launch an early warning mechanism to address and mitigate semiconductor supply chain disruptions;
- create a transparency mechanism to share information on respective public support programs;
- further cooperate on export controls on advanced technologies against Russia, particularly with respect to information sharing; and
- promote TTC values worldwide via an open, free, global, interoperable, reliable, and secure internet.
Each of these actions align with the ITSI Fund’s mission. As a significant part of the fund is engagement with like-minded partners, the TTC and the new National Cybersecurity Strategy offer platforms that can be utilized for discussing and working on semiconductor supply chains, coordinating policy on export controls and licensing, and building and promoting safe and secure digital networks.
In terms of financing the building of digital infrastructure itself, the United States and its allies can draw upon their respective development finance institutions (DFIs) and export credit agencies, such as DFC and EXIM, the Japan Bank for International Cooperation (JBIC), the Australian Department of Foreign Affairs and Trade (DFAT), Export Finance Australia (EFA), the Export-Import Bank of Korea (KEXIM), Korea Development Bank (KDB), and the Association of European Development Finance Institutions (EDFI). Many of these institutions support international partnerships and include pillars related to digital infrastructure, such as
- the Trilateral Infrastructure Partnership (TIP) between the DFC, DFAT/EFA, and JBIC;
- the Quadrilateral Security Dialogue (Quad) between Australia, India, Japan, and the United States;
- the Partnership for Global Infrastructure and Investment (PGII) among G7 members; and
- the Indo-Pacific Economic Framework for Prosperity (IPEF) between Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, the United States, and Vietnam.
Despite the desire for partners and allies to work together, jointly financing projects is challenging. Each of these institutions has its own mandate, statutory requirements, and due diligence processes, some of which can slow project approvals and disbursement of funds. For example, the DFC cannot coinvest with state-owned enterprises (SOEs), but JBIC can. The DFC does not require a U.S. component or nexus in its investments, but its Japanese and Korean counterparts require some percentage of the investment to have Japanese or Korean content or engagement in a project.
The TIP has been in effect since 2018 but has struggled to build a strong pipeline of joint projects, both for reasons outlined above and the added challenges surrounding the Covid-19 pandemic. In its nearly five years of existence, the partnership has produced two notable projects: the Palau spur, an undersea fiber-optic cable connected to a DFC-financed undersea cable extending from Singapore to the United States; and financial support to Australian telecom giant Telstra for the acquisition of Digicel Pacific (see box). These projects showcase how partners can work together in the digital technology sphere by promoting their own products and services (especially from U.S. and Australian companies), protecting critical infrastructure against investments from high-risk vendors, and securing free and open access to the internet among local populations in the Pacific Islands.
Case Study: Digicel Pacific
On the margins of the G20 summit in November 2022, Australia, Japan, and the United States announced joint support for Australian telecommunications company Telstra’s acquisition of Digicel Pacific. This was accomplished through the TIP.
Digicel Pacific had operated in Fiji, Nauru, Papua New Guinea, Samoa, Tonga, and Vanuatu, making it the largest mobile operator in the Pacific Island region, with nearly 2.8 million subscribers. Digicel was considering selling its assets, a possibility that PRC companies looking to further Chinese presence in a strategic location found attractive. This would have put PRC enterprises right in Australia’s backyard and presented a national security threat.
Australia worked with the DFC and JBIC to support Telstra’s acquisition of Digicel, building on the partner countries’ shared values in providing a high-quality and reliable telecommunications system that could eventually upgrade the region from 2G and 3G networks to 5G networks. This also reflected the TIP’s shared commitment to addressing infrastructure gaps in the Pacific Islands and other critical regions within the Indo-Pacific.
Telstra completed the $1.6 billion acquisition in July 2022 with the aid of $1.33 billion in financing through EFA and $50 million each in credit guarantees from JBIC and the DFC.
Vector Three: Mobilizing Private Sector Capital
A key tenet of the initiatives and government-led partnerships mentioned above is that private sector financing will be “crowded in” to fill infrastructure investment gaps. The majority of private sector participants applauded the passage of the CHIPS Act, seeing it as a way to close the “delta” between where industries are and where governments want to be.
The private sector makes investments that will turn a profit. Supporting U.S. and allied foreign policy and national security goals are certainly important but not woven into a company’s bottom line. The places in which the government would like the private sector to engage are often high-risk markets or do not generate the prospective returns that investors are seeking. Government initiatives aim to encourage investment in low- and lower-middle-income countries, especially for upgrades to 5G networks or adoption of ORAN. Investors are building this infrastructure in markets where it can be absorbed, such as Europe and North America. However, low- and lower-middle-income countries’ networks are primarily 2G and 3G; these countries are not always in a position to consider upgrading to 5G. Working on the lower end of the technology spectrum is important for digital connectivity work on 5G as well.
The ITSI Fund and interagency partners can provide the necessary tools to help de-risk investments in low- and lower-middle-income projects through capacity building and technical assistance on procurement and digital policies, political risk insurance, and other financing products. Continuing to engage and reach out to the private sector on priorities and areas of need will also be important in deciding where funding could best mobilize substantial private capital to strategic markets.
The ITSI Fund can also bend cost curves for the private sector. Purchasing equipment from trusted vendors remains relatively expensive. The cheapest and quickest options for equipment maintenance or replacement are often from PRC vendors. Finding ways to use the ITSI Fund to scale the manufacturing of trusted vendors so they can deliver cost-effective products quickly will put the overseas private sector in a better position to use this technology and equipment and help push high-risk vendors out of the market.
Is ORAN Viable?
Currently, most mobile network operators purchase their inputs from one vendor instead of multiple ones. In some ways, this is easy, as it means the components of these networks can talk to one another and the operator does not have to pick and choose different equipment and operating systems on the market to run the network. Current suppliers such as Huawei and Nokia offer a single “vertical” package of equipment and services.
Several governments, particularly that of the United States and Japan, are pushing for the expansion and adoption of ORAN technology, which could be used as a tool to address national security concerns by pushing PRC vendors out of telecom markets and networks.
The Radio Access Network (RAN) provides critical technology to connect users, including mobile phones and enterprises, to the network over radio waves. It also acts as a bridge to access key web applications. Current RAN technology is offered as an integrated hardware and software platform. The vision for ORAN is to create a multi-supplier RAN solution that uses open interfaces and virtualization to allow for the separation between hardware and software, hosting software that controls and updates networks in the cloud. ORAN essentially breaks the market down into different components that can be offered by different suppliers, giving an advantage to the U.S. and allied firms that produce them. It enables operators to plug and play individual components.
For all its promise, private sector participants in CSIS roundtables noted that ORAN is not a revenue-generating initiative right now. RANs are expensive at this stage, as they are complex to build and costly to maintain and there are few equipment providers that offer this solution. Consumers expect more services at lower prices, and companies looking to pursue ORAN need to decide whether to allocate engineering resources to a business that many believe will be an eventual solution but that governments want today.
For ORAN to be implemented at scale, companies need to work on test integration and field deployment. Some providers are already providing a lab environment to test ORAN technology, but there need to be further lab and field tests for specific requirements, like spectrum, that cannot be done by the private sector alone. The ITSI Fund could be used to support testing, integration, and commercial deployments that can accelerate the use of ORAN.
ITSI funding used to address ORAN should follow a coordinated, strategic, targeted approach regarding what will move the needle and accelerate commercial development at the pace the U.S. government wants. The Department of State can also leverage the competitive advantages of the DFC, USTDA, and EXIM and its foreign partner agencies, all of which have mandates to support investment in this industry. It can also use ORAN developments to reflect the work the United States intends to showcase in PGII and IPEF. Digital connectivity and safe and secure networks are all key components of these initiatives, and advancements in ORAN could provide proof of concept for both the technology and the initiatives.
This brief presents nine recommended efforts that both match the ITSI Fund targets and maximize the relatively small fund’s impact.
- Establish clear and transparent leadership. The Department of State should create a liaison or “envoy” to lead the ITSI Fund’s efforts, bringing together several of the department’s bureaus, other U.S. government implementing agencies, the private sector, and partners and allies. The ITSI Fund will need recognized leadership and staff with experience in managing multiyear funds. The department should establish a liaison from the CDP to maintain consistent communication and serve as a clear point of contact so that outreach efforts are not divided among the three bureaus working on the fund. This liaison would know with whom to put stakeholders in touch and would have a bigger-picture view of ITSI efforts. Other major initiatives have stumbled because stakeholders have “not been able to find the front door” and identify the right person to talk to.
- Focus the fund. The Department of State should center financing on three to five countries spread across Latin America, Africa, and the Indo-Pacific that fit within a political and strategic rationale (e.g., countries that occupy a strategic location, have a large workforce, are considering upgrades to ICT networks, fit within U.S. initiatives such as PGII and IPEF, or matter to partners and allies). As one roundtable participant noted, for the ITSI fund to be effective, it must “pick winners and choose friends.”
Given their domestic capacity and ability to scale, countries such as Brazil, India, Indonesia, Kenya, Nigeria, the Philippines, and Vietnam would be good targets for pilot projects on workforce development and digital connectivity. These countries are relatively connected to the internet, but last-mile and rural (and in the case of Indonesia, archipelagic) connectivity needs to be addressed. Their young populations offer numerous opportunities for education and training in telecommunications, and they are potential strategic partners whose markets and populations matter to the United States and its allies. Implementing agencies such as the DFC, EXIM, and USTDA should be involved at all levels of discussion, including policymaking, as these agencies will provide a reality check as to whether relevant policies can be implemented effectively in the target countries.
- Engage with Congress. To ensure continued support for the ITSI Fund, the Department of State should work early and often with Congress to get support for deployment of the funds, identify potential sticking points early on, and make the legislative branch feel a part of the policy it helped create.
Vector One Recommendations: Building an Interagency Ecosystem
- Build bankable projects. For agencies such as the DFC and for the private sector, projects need to be able to deliver a return on investment or, in other words, be “bankable.” A project and its sponsors, particularly the DFC, will need to put together a proposal that meets global investment standards and U.S. law (such as the G20 Principles for Quality Infrastructure Investment, the International Finance Corporation’s Corporate Governance Development Framework, and other guidelines on infrastructure and critical minerals). The project sponsors should have experience in the industry and demonstrate that individuals involved are free from accusations or crimes related to bribery, extortion, or corruption. Finally, projects should conduct environmental and social impact studies to determine their viability.
Many ideas look good on paper, but the DFC and the private sector make investment decisions based on what can work and how the debt financing can be repaid, not just what supports foreign policy and national security priorities. To align these goals, the Department of State should do the following:
- Support implementing agencies, such as USTDA and the DFC, in developing profitable projects by financing feasibility studies and technical assistance programs.
- Through USAID, offer technical assistance to local governments on the procurement process (e.g., providing resources for legal fees and feasibility studies) and to companies looking for government financing for their projects. Developing training or capacity-building programs for local governments, particularly in procurement and policy frameworks governing digital infrastructure, is an important piece in making supply chains more resilient, fostering trusted partnerships with target markets, and helping the private sector navigate risky and opaque economies.
- Invest in workforce training and capacity building. The Department of State should use the ITSI Fund to finance education and training programs to establish the next generation of skilled ICT workers. One example of such a project is USAID’s Asia Open RAN Academy, which has trained hundreds of mobile network engineers in ORAN technology, resulting in telecom companies PLDT and Smart deploying the first ORAN proof of concept trial in the Philippines. In working with countries that have a nascent telecommunications and technology industry as well as a young labor market, launching a workforce program—preferably in partnership with a private-sector company—can have significant impact. This supports the “promote” and “secure” aspects of the ITSI Fund in that it builds partnerships and a workforce with experience in identified systems.
Vector Two Recommendations: Working with Partners and Allies
- Leverage IPEF, PGII, and TIP. The ITSI Fund shares the same vision on digital connectivity and securing supply chains, including on access to critical minerals, as other multistakeholder initiatives in which the interagency and partners and allies are involved. It could support building bankable projects by adding feasibility studies or de-risking efforts to the PGII or TIP project pipelines. This would not only help initiatives like IPEF and PGII deliver but also prove the value of the ITSI Fund.
- Monitor supply chains. The Department of State should focus on potential chokepoints and partnership opportunities abroad. Investing in a global supply chain monitoring system is a cost-effective way to accomplish this. Designating or placing a supply chain liaison at U.S. embassies around the world to engage with local governments, build on cooperative dimensions, work with the private sector, meet with interagency representatives (including from the Department of Commerce, DFC, and USTDA) in the embassy, and monitor projects and programming tied to the ITSI Fund can help protect and secure partners’ supply chains and promote safe and reliable technology. This would help governments figure out how to protect themselves and their supply chains and enhance cybersecurity.
Vector Three Recommendations: Mobilizing Private Sector Capital
- Bend the cost curve. The Department of State should use the ITSI Fund to help trusted vendors scale their business and provide developing economies with more affordable and reliable hardware and software, including by maintaining 3G and 4G building blocks where needed. This would offer alternatives to the high-risk vendor equipment these economies have been requesting. It would also assist mobile network operators in finding new partnerships with trusted vendors that are more cost-effective and do not carry reputational or security risks. The department should also engage directly with the ORAN industry and other sources of U.S. manufacturing and services strength, such as fixed-microwave technology, private networks, distributed antenna systems, and cloud services.
- Support ORAN field testing and workforce development. The Department of State should deploy the ITSI Fund to offer training opportunities and foster an ecosystem of players involved in testing and integrating their interfaces and equipment, thus ensuring the openness and interoperability of ORAN solutions from different trusted providers. This could entail funding testing and integration centers, publishing reports and hosting conferences on proofs of concept, organizing workshops to develop and exchange ideas on new technologies, and helping operators test and verify the interoperability of RAN equipment from different providers. This will be the first step in bringing down costs of implementing ORAN and helping telecom companies scale their operations in this area.
The $500 million ITSI Fund seeks to support ICT and semiconductor supply chains and sector development, contributing to building secure and trusted ICT, semiconductor, and emerging technology ecosystems. It is also meant to show and promote U.S. leadership in this area by helping build a viable and alternative infrastructure to that of the PRC.
To maximize the fund and meet expectations, its implementers at the Department of State should focus on three key vectors: building an interagency ecosystem, working with partners and allies, and mobilizing private sector capital. This way, the ITSI Fund does not have to accomplish everything on its own; instead, it can draw upon the financial and personnel resources already being used to address similar issues in the U.S. government and among allies, mitigate the possibility of overlapping on programming already underway, and provide private sector funding toward priority areas by encouraging and de-risking engagement in ICT markets and sectors.
Implementing the ITSI Fund is an important step in boosting U.S. leadership in digital connectivity and critical technologies. With the right focus, it is also an opportunity to further integrate engagement among the interagency, partners and allies, and the private sector and serve as a leading example of best practices for other ambitious initiatives.
Erin Murphy is the deputy director and senior fellow with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.
This brief is made possible through the generous support of Japan’s Ministry of Internal Affairs and Communications.