Building capacity to help Africa trade better

New digital era must ensure prosperity for all


New digital era must ensure prosperity for all

New digital era must ensure prosperity for all
Photo credit: Simone D. McCourtie | World Bank

Digitalization is impacting every aspect of production and trade, from the largest corporations to the smallest traders, but there is a risk that it will lead to widening income inequalities, UNCTAD said on Monday in its Information Economy Report 2017: Digitalization, Trade and Development.

Information and communications technologies (ICTs), electronic commerce (e-commerce) and other digital applications are helping a growing number of small businesses and entrepreneurs in developing countries to connect with global markets and open up new ways of generating income. They are being leveraged to promote business, including the empowerment of women as entrepreneurs and traders, and to support productive activities.

The digital economy is expanding fast in the global South. Developing economies, led by China and India, accounted for nearly 90 per cent of the 750 million people that went online for the first time between 2012 and 2015 according to data from the International Telecommunication Union.

“We at UNCTAD are excited by the transformational power of digitalization, but we must recognize that the Internet is not a panacea,” UNCTAD Secretary-General Mukhisa Kituyi said.

“Effective national and international policies are needed to make sure the gains are spread evenly across as well as within countries,” Dr. Kituyi added.

The report points out that more than half of the world’s population remains offline, and the pace of growth in access and use is slowing. Specifically, in the world’s least developed countries only one in six people used the Internet in 2016.

Globally, the digitalization of economic activities has been fast-tracked thanks to expanding access to high-speed broadband and the drastic reduction of cost for ICT equipment and software. The average cost of 1 gigabyte of hard drive storage capacity, for example, fell from more than US$400,000 in 1980 to US$0.02 in 2016.

Digitalization is fuelling the rise of 3D printing, artificial intelligence, the Internet of things, cloud computing, big data and automation, including in developing countries. In Myanmar, for instance, farmers use a 3D printer to create parts for a sprinkler system and the internal mechanics for a solar pump. In the United Republic of Tanzania, recycled plastic bottles are being used as the raw material for 3D-print prosthetics.

Productivity gains from digitalization, however, may accrue mainly to a few, already wealthy and skilled individuals. Winner-takes-all dynamics are typical in Internet platform-based economies, where network effects benefit first movers and standard setters. The world’s top four companies by market capitalization are all closely linked to the digital economy: Apple, Alphabet (Google), Microsoft and Amazon.

The UNCTAD research released today comes amid rising concerns over widening income inequality. In countries of the Organization for Economic Cooperation and Development, where the digital economy has evolved the most, growing use of ICTs has been accompanied by an increasing income gap between the rich and poor.

Recommendations from UNCTAD experts include a call for countries to ensure an adequate supply of skilled workers with strong adaptive and creative skills necessary for “working with the machines”. More blue- as well as white-collar jobs may become obsolete due to automation.

“All countries will need to adjust their education and training systems to deliver the skills required in the digital economy,” the report says.

With more trade going digital, and with data flows playing a more important role for companies, closer dialogue will be needed between the trade and Internet policy communities. Data flows and the Internet of things, for instance, raise concerns related to data privacy and security.

The policy challenge depends on countries’ readiness to engage in and benefit from the digital economy, with the least developed countries the least prepared. To ensure that more people and enterprises in developing countries have the capacity to participate effectively, the international community will need to expand its support. International support and collaboration on a massive scale are needed to prevent the evolving digital economy from widening the digital divides and existing income inequalities.

Key facts about the digital economy Growth: 

  • By 2019, global Internet traffic is expected to be 66 times higher than in 2005

  • Production of ICT goods and services accounts for some 6.5 per cent of global GDP

  • Some 100 million people are now employed in the ICT services sector

  • Exports of ICT services grew by 40 per cent between 2010 and 2015

  • Shipments of 3D printers are expected to grow from 450,000 in 2016 to 6.7 million in 2020, a fifteen-fold increase in just three years

Development challenges:

  • With an estimated 16 per cent of individuals in the least developed countries using the Internet in 2016, the target of universal access to the Internet for these countries set in the Sustainable Development Goals is far off

  • Urban-rural divide: 3G networks cover 89 per cent of urban areas, but only 29 per cent of rural areas; the gap is the most pronounced in low-income countries

  • The Internet gender divide is most pronounced in developing countries

  • E-commerce use in the least developed countries is typically below 2 per cent of population, compared with more than 50 per cent in many developed countries

  • Only 4 per cent of the world’s 3D printers are used in Africa and Latin America

  • In Africa, less than 40 per cent of countries have adopted data privacy legislation, and in Oceania, only the Cook Islands has such legislation.

Geographical concentration of headquarters of digital multinational enterprises,* 2016

Fig 1

Source: M Van Alstyne, 2016. How new biz models are changing the shape of industry. Presented at 3D Experience Forum, 10 May. Available at https://www.youtube.com/watch?v=8OFRD66pI0Y

* Digital multinational enterprises with a market capitalization of more than $1 billion

Top 10 importers of cross-border online business-to-consumer purchases, 2015*

Fig 2

Source: UNCTAD calculations.
Abbreviation: B2C, business to consumer

* Estimates by UNCTAD based on official and market research information.

African countries need to strengthen their digital readiness to benefit fully from digitalization, says UNCTAD

Digitalization is impacting every aspect of production and trade, from the largest corporations to the smallest traders, but there is a risk that it will lead to widening income inequalities, UNCTAD warned on Monday in its Information Economy Report 2017.

The digital economy is evolving in Africa but at different speeds. While in Nigeria, 32 million people started to use the Internet between 2012 and 2015, in other African countries (including the Central African Republic, Eritrea and South Sudan), mobile cellular services still reach less than a third of the population.

Africa may be the region with the lowest mobile broadband penetration, but it boasts also the highest growth rate of such penetration. Climbing mobile subscriptions have been accompanied by a rise in imports of communications equipment, as shown for Rwanda and Zambia (see figure).

“Many African countries need to become better prepared to take advantage of opportunities and to avoid negative impacts of digitalization,” says Ms. Shamika Sirimanne, Director of the Division on Technology and Logistics at UNCTAD.

The UNCTAD Report shows that Africa is lagging behind the most in key aspects of e-trade readiness: connectivity, payment solutions, trade logistics, Internet security and legal frameworks. For example, less than 40% of African countries have adopted data privacy legislation.

Nonetheless, digitalization is increasingly affecting African economies in a number of ways. The use of big data, artificial intelligence (AI) and three-dimensional (3D) printing are examples. In sub-Saharan Africa, large sets of data on soil characteristics are mined to help determine fertilizer needs and increase productivity. In the United Republic of Tanzania, recycled plastic bottles are being used to 3D-print prosthetics. And IBM is using its AI solution, Watson, to address development challenges in Africa in areas such as agriculture, health care, education, energy and water through the Project Lucy initiative.

E-commerce is another area that is growing fast. The Jumia Group (formerly Africa Internet Group) founded in 2012, now has a presence throughout Africa. According to the company, half a million local African enterprises are conducting business on its portals every day. Jumia offers retail sales in 7 African countries (Cameroon, Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco and Nigeria), and its marketplace is available in 14 countries. Its growth has been strong, with an increase in its Gross Merchandise Value rising from €35 million in 2013 to about €289 million in 2015.

Preparing for the digital economy requires a concerted, holistic, cross-sectoral and multi-stakeholder approach to national policy making. Key national policy areas include ICT infrastructure, education and skills development in the labour market, competition, science, technology and innovation and fiscal issues, as well as trade and industrial policies. Most African countries also lack statistics on key aspects of the digital economy, hampering the ability to formulate evidence-based policies in this area.

“The international community needs to scale up its support to ensure that no-one is left behind in the evolving digital economy,” says Ms. Sirimanne. Despite the growing importance of the digital economy, the share of ICT in total Aid for Trade declined from 3% in 2002-2005 to only 1.2% in 2015. One way to capitalize on existing knowledge and maximize synergies with partners is to tap into the UNCTAD-led eTrade for all initiative.

Imports of communications equipment and mobile cellular subscriptions in Zambia (left) and Rwanda (right), 2000-2015


Source: UNCTAD secretariat calculations, based on UNCTADstat and ITU World Telecommunication / ICT Indicators database.


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