THE DIGITAL SPRINTERS How to Unlock a $3.4 Trillion Opportunity
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THE DIGITAL SPRINTERS How to unlock a $3.4 trillion opportunity Prepared by AlphaBeta November 2020 2 THE BENEFITS OF THE ANDROID ECOSYSTEM AND THE POTENTIAL IMPLICATIONS OF FRAGMENTATION Important Notice on Contents This report was prepared by AlphaBeta for Google. All information in this report is derived from AlphaBeta analysis using both proprietary and publicly available research, data and information. Google has not supplied any additional data, nor does it endorse any estimates made in the report. Where information has been obtained from third-party sources, this is clearly referenced in the footnotes. AlphaBeta is a strategy and economic advisory business serving clients across Asia and globally. We work with the public sector, corporations, NGOs, not-for-profits and investors to identify opportunities and develop strategies to grow, improve service delivery, support economic prosperity and generate tangible impact. SINGAPORE Level 4, 1 Upper Circular Road Singapore, 058400 Tel: +65 6443 6480 [email protected] CONTENT EXECUTIVE SUMMARY 06 1. FACING THE CHALLENGE – DIGITAL PENETRATION IS NOT TRANSITIONING 10 INTO ECONOMIC GROWTH AS EXPECTED 1.1 Digital connectivity in the Digital Sprinters has not yet translated into the expected 14 increases in economic growth 1.2 Varying degrees of digitalization by sector are one reason for limited transition of 17 digital connectivity to economic growth 2. SIZING THE PRIZE – LEVERAGING DIGITAL TECHNOLOGIES FOR 20 ECONOMIC DEVELOPMENT 2.1 Digital technologies for economic development 22 2.2 If the Digital Sprinters could fully leverage digital technologies available today, 26 this could support up to USD3.4 trillion of economic impact by 2030 3. CAPTURING THE PRIZE – INNOVATIVE POLICIES FOR REALIZING THE 34 DIGITAL OPPORTUNITY 3.1 Four strategic imperatives can help the Digital Sprinters capture the digital opportunity 36 3.2. 12 policy levers are important within these four strategic imperatives 39 3.3. Putting it all together 61 APPENDIX A – SIZING THE ECONOMIC VALUE OF DIGITAL TECHNOLOGIES 64 APPENDIX B – POLICY FRAMEWORK 81 THE DIGITAL SPRINTERS: HOW TO UNLOCK A $3.4 TRILLION OPPORTUNITY THE CHALLENGES OF TRANSITIONING DIGITAL CONNECTIVITY INTO ECONOMIC GROWTH Economic growth has not kept pace For the Digital Sprinters, increased internet Digital adoption can vary by with digital penetration. The Digital penetration has not led to dramatic MORE THAN 2X Sprinters represent approximately productivity gains. For example, across different sectors within 19% OF INTERNET USER INTERNET USER GROWTH HAS one country GROWTH BUT ONLY 7% OF OUTPACED LABOR PRODUCTIVITY GLOBAL REAL GDP GROWTH GROWTH BY 15 TIMES since 2013 since 2013 THE VALUE OF DIGITAL TECHNOLOGIES TO EMERGING ECONOMIES Digital technologies could create an Surprisingly, ANNUAL POTENTIAL 47% OF POTENTIAL BENEFITS OPPORTUNITY OF UP TO of digital technologies accrue to sectors such USD3.4 TRILLION as resources, infrastructure and agriculture – in economic impact across 16 important not services emerging economies in Latin America, Eastern Europe, Africa & the Middle East – the “Digital Sprinters”, in 2030 12 POLICY LEVERS CAN UNLOCK THE DIGITAL OPPORTUNITY FOR ECONOMIC DEVELOPMENT LEAD FROM THE TOP Coordinate across Support global 1 Steer the direction 2 3 government digital integration Drive change through Equip the private sector with the Put citizens at the center the public sector digital essentials of the digital economy Create tipping points Craft regulations for the Support those who could 7 4 through government digital, not analog era 11 be left behind by the procurement digital transformation Build future-proof digital Go 100% digital on infrastructure with Equip people with the 5 8 government services interoperability and 12 right skills to access upgrading in mind digital opportunities Crowd source 6 policy innovation Equip MSMEs with the digital 9 tools to support their growth Use co-creation, the sharing economy and new digital 10 incentives to stimulate innovation 1. The “Digital Sprinters” economies are Argentina, Brazil, Chile, Colombia, Egypt, Israel, Kenya, Mexico, Nigeria, Peru, Saudi Arabia, South Africa, Russia, Turkey, United Arab Emirates, Ukraine. EXECUTIVE SUMMARY THIS WILL REQUIRE MORE SOPHISTICATED POLICIES AROUND UTILIZING TECHNOLOGIES DIFFERENTLY AND A SHIFT IN FOCUS “ “ FROM INCREASING THE NUMBER OF INTERNET USERS TO ENABLING AN ACTIVE DIGITAL ECONOMY WITH “DIGITAL WORKERS AND INNOVATORS, DIGITAL BUSINESSES AND DIGITAL GOVERNMENT. EXECUTIVE SUMMARY 7 Digital technologies can be a powerful Emerging economies will need to go beyond catalyst for improving incomes, productivity simple digital penetration to fully integrate and economic growth. There is much and leverage available digital technologies evidence on how developed countries have to drive economic development. This will leveraged digital transformation in the require more sophisticated policies around way products and services are produced, utilizing technologies differently and a distributed and consumed. From rolling out shift in focus from increasing the number autonomous robots on factory floors, to of internet users to enabling an active purchasing groceries online, to consuming digital economy with “digital workers entertainment on mobile devices, this digital and innovators, digital businesses and transformation has increased efficiency digital government”. This report aims to across the developed world. However, understand the potential economic benefits evidence suggests that simply focusing on of unleashing the full digital technology generating access to digital technologies, benefits in a number of important such as driving internet penetration, is emerging markets and identify the policies not sufficient to leverage their benefits. to help realize that potential. 8 EXECUTIVE SUMMARY Internet penetration (as evidenced by rising internet use) This poses a particular challenge for emerging economies. has seen significant uptake globally. Yet, this increase in digital Productivity is a crucial driver of long term economic connectivity has not led to the transformation of productivity development3 and many emerging economies have focused and economic growth, and improvements in livelihoods on boosting broadband penetration, anticipating spillovers anticipated in academic literature. As Nobel laureate Robert into economic development. Despite having made significant Solow observed, “you can see the computer age everywhere progress in internet penetration, these countries’ share of global but in the productivity statistics”. This became known as growth is lagging behind their share of global internet user the “Solow Paradox”. More recently, some observers have growth. Evidently, driving penetration is not sufficient to boost argued that the same paradox exists with regard to digital economic development if unsupported by policy that enables technologies.1 While digital technologies have penetrated full utilization of digital technologies. Following the adverse most aspects of our lives, it is not yet clear how this translates impacts of COVID-19, capturing this potential digital dividend into fundamental increases in productivity. From 2013-17, becomes ever more crucial. more than one billion people have started using the internet globally, reaching 4.1 billion users according to the International The aim of this report is to understand how emerging Telecommunication Union (ITU). There is strong evidence economies can fully leverage digital technologies for economic that internet penetration is closely linked with productivity, development. This report focuses on 16 important emerging at least at the firm level.2 Yet, over the last decade, economic economies (which we dub the “Digital Sprinters”). These are productivity growth has been slower than over the previous Argentina, Brazil, Chile, Colombia, Egypt, Israel, Kenya, Mexico, decade. Global labor productivity grew at an average annual Nigeria, Peru, Russia, Saudi Arabia, South Africa, Turkey, the rate of 2.9 percent between 2000-07, compared to 2.3 percent United Arab Emirates and Ukraine. They include six of the ten between 2010-17. Many factors may have contributed to this, largest economies in both the Latin America and Middle East in particular the aftershocks of 2008’s global financial crisis & Africa regions, as well as three of the five largest non-high- resulting in persistently weak demand and uncertainty. It is income economies in Europe. Together, these “Digital Sprinters” definitely arguable that the penetration of digital technologies account for 13 percent of GDP, 16 percent of population and may have helped the world economy recover faster. However, 19 percent of internet users globally. the expected drastic transition of digital connectivity into productivity and economic growth has not occurred. The report identifies the following key messages: In the Digital Sprinters, fast growth in internet penetration has not translated into faster 1 economic growth. Historically, economic growth in the Digital Sprinters has not kept pace with internet adoption. Together, the Digital Sprinters represent approximately 19 percent of internet user growth but only 7 percent of global real GDP growth since 2013. In absolute terms, the number of internet users in the 16 economies from 2013-18 has grown annually more than 15 times faster than average labor productivity. Despite internet user growth of 9.2 percent in these markets, labor productivity increased only minimally