As the COVID-19 pandemic finally begins to recede, developing economies will need all worthy tools at their disposal as they move toward greater economic productivity and opportunity. The transformative powers of digital technology will be at the heart of these efforts: digital interventions can help economies address market failures, strengthen economic governance, and facilitate greater inclusion. At the same time, digitization threatens to leave behind both lower-income countries as a whole and vulnerable communities everywhere. The COVID-19 pandemic—which has pushed at least 88 million additional people into living on less than $1.90 per day, according to World Bank estimates, has only exacerbated these tensions.
What is the digital economy and how is USAID approaching it?
Valued in the trillions of dollars, the digital economy represents a growing universe of people and enterprises. The term “digital economy” refers to producers and consumers—including governments—that do business through the internet, fixed and mobile broadband infrastructure, cloud computing, digital platforms, and more. The digital economy includes well-established technology, telecoms, and media sectors, as well as newer services and activities such as e-commerce and digital banking. It also incorporates “traditional” sectors—including agriculture, manufacturing, transport, tourism, health, and education—when they use digital tools, ranging from e-mail and social media to digital design and Artificial Intelligence, and beyond.
In March 2020, the World Health Organization’s declaration of a global pandemic arrived just weeks before USAID released its Digital Strategy 2020-2024. Years in the making and yet incredibly timely, the Strategy set forth a framework for maximizing the benefits of digital transformation (such as economic empowerment and better governance) and managing its risks (including threats to internet freedom, disinformation, and new vulnerabilities to privacy and security). Published on April 15, 2020, the Strategy underscored a new urgency for engaging digital technologies to help mitigate the impact of the pandemic. Whether for educating homebound students, linking people in need of medical assistance to healthcare, or helping workers and entrepreneurs navigate disrupted lives and livelihoods, digital transformation is becoming all the more essential to helping international development organizations and companies like DT Global achieve USAID’s development and humanitarian mission.
How can digital solutions help set the stage for a sustainable, post-COVID recovery?
Although data that capture the full economic impact of the pandemic are still emerging, in macroeconomic terms, the least developed economies have suffered the most. Fallout from the crisis includes increased and more entrenched national debt burdens, diminished remittances, and, in some countries, the decimation of critical sectors such as tourism and retail.
At the same time, at DT Global we’ve seen four recent trends related to the digital economy that are worth considering as we continue to improve lives in post-pandemic societies:
1. Worldwide, enterprises are increasingly adept at identifying and applying digital solutions to external shocks. In late 2020, the World Bank published a study of more than 10,000 enterprises—among them, more than 85% micro, small, and medium-sized—in 51 emerging and developing economies. The study found that around half of private firms significantly ramped up their use of the internet to mitigate the impacts of COVID-19.
For those firms that successfully embraced digital solutions since the pandemic began, the future may hold greater productivity, a higher appetite for digital adaptation, and greater confidence in dedicating resources or taking risks on digital opportunities. Among those that did not become more digitized, their real and perceived constraints are worth unpacking: Were upgrades and innovations held back by poor access to the internet, inadequate skills, a lack of understanding of digital options, insufficient finances, or something else? Post-pandemic economic growth activities can tailor digital interventions to conditions on the ground first by tapping into existing data sets, followed by a “spot-check” (through digital surveys and other tools) of how specific private-sector stakeholders fare in the communities where they work.
2. Digital workarounds for doing business are found in most developing economies, even the most fragile states. Over the past decade, ingenuity has linked emerging technologies to traditional ways of doing business. For example, market webpages may advertise bulk foods for sale, and phone apps can summon drivers. But even with these innovations, cash often remains the preferred—or only—way to pay a delivery person or a driver. Mixing digital and analog solutions are especially prevalent in economies where digital payment systems remain fragmented or otherwise not yet the norm.
But more recently—and with COVID-19 bringing new urgency to the challenge—fintech innovations have reduced the need for cash even in the most vulnerable economies. For example, in February 2021, in an effort to formalize Somalia’s far-reaching system of digital payments, Somalia’s Central Bank issued its first formal license for mobile money services.
The Central Bank’s move speaks to the critical balance that governments must achieve between supporting mobile money options that are accessible to their most vulnerable populations, while requiring safeguards that guarantee the safety of funds and strengthen investor confidence in the economy. In the broader context, transparent, adaptable, and best-practice-driven legal and regulatory environments are key for the digital economy.
3. Digital divides between men and women remain significant but vary considerably across regions and countries. In recent years, there has been a welcome increase among donors, governments, and the private sector in the collection and dissemination of sex-disaggregated data pertaining to women in the economy. We now know that gender inequities in the commercial sphere (including the digital economy) persist everywhere and that nearly all digital gender gaps are unique.
For example, in the world’s wealthiest economies, although women’s use of the internet in some cases exceeds that of men, women remain vastly underrepresented in the technology industry, thus perpetuating certain male-centric biases in digital services and content. In Kenya, a rich experience with mobile money in recent years has led to considerably less digital disparity between the sexes than its immediate neighbors, where fintech innovations are less developed. And in certain least-developed environments—with Northern Nigeria as just one example—a majority of men have been found to actively discourage their wives’ and daughters’ use of the internet.
This range of examples shows that tackling digital gender divides must always take place with acute mindfulness of local constraints and opportunities. A variety of approaches to gender digital inclusion have been tested—at the family level, in schools, through public information campaigns, and more—and offer models for others to try. These models include increasing and “normalizing” images of women in technology, both in school settings and marketing campaigns; ensuring that digital training programs are more responsive to the needs and experiences of women; cultivating technology internships and mentorships for women; and educating technology employers in issues of unconscious bias.
4. Resolving rural-urban digital divides is more urgent than ever, including as an opportunity to assert global leadership. In contrast to the nuance underlying gender divides, the differences in internet penetration and access between rural and urban areas generally boil down to economics. Digital supply is constrained by distance, terrain, energy access, dispersed population centers, and, of course, expense, while unmet demand resides with populations that are smaller, more dispersed, and typically unable to afford the true costs.
Meanwhile, China has swiftly responded to digital divides in developing economies, both before and during the pandemic. This digital strategy vis-à-vis developing economies brings new urgency to USAID’s own efforts to serve as a pro-democracy counterpoint to China. In Southeast Asia, Africa, the Pacific Islands, and beyond, China has laid high-speed, fiber-optic cables and upgraded mobile phone spectra, significantly closing longstanding gaps. In fact, as summarized by the Brookings Institution, China “has set up a concerted country-as-a-platform strategy, aggressively exporting its digital infrastructure, playing a critical role in the development of technical standards, and developing unique points of control in the digital economy.”
Thus, for the U.S. and other democracies, the pandemic and China are forcing new thinking on the core aspects of bridging digital divides. Today, bilateral donors from the U.S., the EU, Australia, New Zealand, Japan, and other democracies are asserting leadership by (a) facilitating a range of market-based connectivity solutions and innovations, with an emphasis on “last mile” access for isolated communities; and (b) finding creative ways to finance digital transformation, in particular by mobilizing the private sector.
In the post-COVID arena, there will be a doubling-down on efforts to extend ICT infrastructure that supports access to bandwidth. A variety of technologies will support and build-out the worldwide digital economy, including long-haul fiber optic cable networks (terrestrial and submarine); 4G mobile networks; 5G innovations; and high-bandwidth local networks. Moreover, new commitments among western donors to enterprise-driven development—including USAID’s Private Sector Engagement policy—will activate new methods of financing that deepen collaboration with ICT companies of all sizes. Increasingly, developing economies will make catalytic use of available resources and mobilize private capital in a way that unlocks economic opportunity in communities and regions that need it the most.
As the world recovers from the COVID-19 pandemic, the digital reshaping of economies will only quicken, and harnessing these changes will be key to ensuring developing economies are buoyed by these changes. DT Global is committed to infusing digital best practices into current and new programs to foster the opportunities and imperatives of inclusive digital transformation.