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Policy choices for developing countries in the digital era © Pixabay
Tuesday, 18 September 2018 10:02

Policy choices for developing countries in the digital era

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Embracing digitalisation is not an option for countries. The digital era has arrived and its effects will increasingly be felt as time goes by. Whether the developing world will be able to grasp the unfolding opportunities and not be overwhelmed by the challenges will depend on the policies that countries formulate and the diligence with which they implement them. Left to its own devices, the digital economy will simply widen the digital divide and exacerbate countries’ economic problems.

The rapid advances that the world is seeing in the digital technology arena are not due simply to market forces, spurred on by the spirit of innovation. They are also the result of conscious policy choices aimed at building national digital capacities. Governments all over the world are recognising the importance of digital preparedness for economic competitiveness. In developing countries where the digital divide is pronounced, achieving the right policy mix and overcoming typical policy implementation hurdles are critical steps in ensuring that the digital economy can be leveraged in the fight against poverty and inequality.

Approaches to digital trade policy formation

In their scoping paper ‘Bridging the Digital Divide and Supporting Increased Digital Trade’, Shamel Azmeh and Christopher Foster discuss two general policy approaches that developing countries could adopt to prepare their societies for the rigours of digital trade: (1) enabling markets for digital trade, and (2) digital catch-up.

‘Enabling markets for digital trade’ is a market-driven approach that emphasises the creation of national conditions conducive to digital innovation and widespread application. ‘Digital catch-up’ is a more interventionist or orchestrated approach aimed at fast-tracking digital preparedness. The latter, which demands more political capital, might appear to be the best option for developing countries that have fallen behind on the ‘digital technological curve’. However, the former could also play a pivotal role in creating the type of economy that is receptive to ongoing developments in the digital arena.

The ‘enabling markets for digital trade’ policy approach has three components:

  • Regulatory shaping and infrastructure, i.e. ensuring cost-effective digital access through appropriate regulations and ICT-related infrastructure;
  • Creating digital economy ecosystems, i.e. building capabilities and empowering organisations to facilitate digital trade, especially in the financial services sector which is a key role player in e-commerce;
  • Reducing disbenefits, i.e. tackling the possible negative impact of digital innovation in terms of working conditions, remuneration or job stability.

The ‘digital catch-up’ policy approach, in turn, has three components:

  • Building the technology linkage, i.e. facilitating partnerships between national and global firms and technology transfer to accelerate innovation;
  • Promoting learning and localisation of digital technologies, i.e. achieving the right balance between supporting and protecting local industry to encourage more confident innovation and sustainable businesses;
  • Leveraging digital in the wider economy, i.e. ensuring that the benefits of digital technologies can be felt throughout the economy.

How a country chooses to blend the different approaches will depend on its economic circumstances and, of course, its politics. Some countries may be intent on bringing more MSMEs (micro, small and medium enterprises) into the mainstream of economic activity, while others may be more focused on stimulating economic growth by prioritising support for and partnerships with large firms.

Choosing a digital policy approach: The European Union and Chinese examples

In recent years the European Union and China have embarked on their own versions of digital catch-up in the face of the United States’ pre-eminence in the digital arena. The EU and Chinese experiences can provide important insights to developing countries as they proceed on their digital journey.

The European Union, faced with strong competition from US digital firms in its market, is focusing on expanding the influence of European firms by strengthening capacity through various support measures (including significant investment) and removing digital barriers between EU members. Over the years the EU Internet market has become fragmented due to language differences as well as different national rules governing Internet access and data. Thus, the European approach is primarily geared towards building a market-friendly environment that unlocks the potential of the digital economy and boosts intra-regional digital trade.

China has adopted a very different approach to digital catch-up, using policy measures that are typically applied in the case of an ‘infant industry’. This is evidenced in the country’s propensity to limit market access to foreign firms and encourage local firms to copy foreign technology. For example, China actively filters and/or blocks foreign digital services – ostensibly in the interests of national security but often with protective undertones. The blocking of foreign websites, for example, has enabled local entrepreneurs to create Chinese equivalents, boosting local industry. But the Chinese approach is not all about state intervention. For example, the government does not directly fund start-ups; instead it oversaw the establishment of a Chinese venture capital market which today is extremely influential and has helped to fuel digital expansion in the country.

Clearing the hurdles to policy implementation

Formulating an appropriate policy approach is a crucial first step up the digital transformation ladder. But implementation is crucial if policies are to have any meaning. Critically, policymakers must have sufficient knowledge to make the right decisions and to build consensus at the national level. Introducing specific ‘digital implementation units’ in government could help to remove obstacles such as conflicting vested interests in different departments. Furthermore, addressing the disruptive consequences of digital choices – particularly where jobs are concerned – is essential for securing buy-in from all affected stakeholders.