Digitalization has opened up a lot of avenues and led to unprecedented economic growth. What was previously unimaginable has been made possible due to widespread penetration of smartphones and internet connectivity. Till about a decade ago, the world’s biggest firms by market capitalization were either into oil & gas, mining or heavy manufacturing. Today, seven of the world’s top eight companies by market capitalization have a data-centric business model.
The utility of data is ubiquitous and its monitoring, storage, processing and analysis would drive innovations in 5G, Cloud, AI and IoT, all of the technologies that are bedrock of the Fourth Industrial Revolution. Data is also playing a big role in the realization of SDGs.
However, there is also the issue of the digital divide that needs to draw immediate attention. The Digital Economy Report 2019 ‘Value Creation and Capture: Implications for developing countries’ by UNCTAD ( United Nations Conference on Trade and Development) highlights the implications of digital disparity for the developing countries.
There is a widening gap between the digital capacity and usage of under-connected countries and hyper-digitalized countries — consider it the ‘Haves’ and ‘Have Nots’ in a digital context. For Instance, Latin America and Africa account for less than 5% of the world’s colocation data centers. Digitalization is about transforming value chains in a meaningful way so that individuals, organizations and countries all can reap benefits.
Though, if steps are not taken for reducing digital inequality, there would be a digital ‘periphery’ and a digital ‘center’ where all of the digital revenue would get concentrated. Countries with lower digital readiness risk losing out in terms of everything from workforce participation to share of trade. Local firms that have not adopted digital workflows would eventually get superseded by MNCs.
E-commerce is one of the main components of digital economy. As per the report the global value of e-commerce is estimated to have reached $29 trillion in 2017. However, there is a big disparity in online shopping when we compare high-income countries with low-income countries. In regions like Sub Saharan Africa mobile money is emerging as one of the ways that is increasing financial inclusion.
Value creation in a digital economy is driven mainly by platformization and monetization of data. Both of these are closely interrelated. Platform mode of service or platformization allows companies to not only provide their services efficiently but also store data that can be monetized. The interaction of platformization and data monetization has a significant impact on the capture of the value created, stresses the report. While the platform-based services are growing rapidly and had a market valuation of $7,176 billion in 2017, there is also an issue of intensifying inequality and geographic concentration. The United States alone accounts for 72 percent of the total market capitalization of platforms valued at more than $1 billion, followed by Asia (particularly China)
If the digital divide is not bridged, then it will defeat the very purpose of reducing inequality and ensuring prosperity for all. In place of old forms of inequalities there will be new forms. Skill and Knowledge gap would be profound too. And lack of access to the internet or inadequate data storage or analysis capacity would mean that the country won’t be able to move ahead in a digitalized economy.
Overcoming the barrier of inequality
When the transition towards digitalization would be complete, IoT, AI, Blockchain etc would be the dominant technologies spurring multiple sectors. And without a proper enabling framework and infrastructure, countries with low connectivity cannot hope to leverage these technologies once they are rolled out on a mass scale. This calls for national-level policies on digitalization, setting up targets and taking stock of the progress achieved so far.
There is also a need for deepening collaboration between different countries and looking for innovative ways to support countries that rank low in digitalization. For a more inclusive world where digital will bring in more possibilities for everyone irrespective of where he lives, a digital dimension should be added to international aid policies and strategies.
Strengthening public and private institutions, creating an enabling ecosystem aimed at generating value and reducing divide, and ensuring that digital regulations and laws are enforced, are some of the ways that can help countries in overcoming the barriers.
The UNCTAD report says “The evolution of digital economy calls for unconventional economic thinking and policy analysis. Policy responses need to take into account the blurring of boundaries between sectors due to servitization, as well increased difficulties of enforcing national laws and regulations with respect to cross-border trade”.
While in the age of globalization and free movement of capital, commodities and data, framing a law strictly for a regional purpose is fraught with complexities, it is advisable to explore new models and focus on value creation and structural transformation through digitalization.