Digital latecomers

Digital trade is not only part of the thinking of digitally advanced nations. The impacts are potentially even more disruptive in ‘digital latecomer’ countries where digital sectors and skills are still developing.

This includes emerging and lower income countries who face potential digital disruption and might find the future international trade agreements limit the policy tools available to them.

Global digital transformation

Digital transformations is likely to have implications across the global economy, but it is still an open question how this will affect digital latecomer nations.

Key challenges that have been discussed include:

Digitalisation and automation of value chains – Technologies such as data platforms, 3D printing and robotics change the nature of global value chains and impact on how nations enable economic development.

Domestic sectors and development – By making it easier for foreign firms to operate from afar over networks, digital transformation could have a major impact on economic goals that supports domestic market to build economic sectors.

Services – Advancements in AI and new ways of delivering goods and services across borders could affect offshoring and outsourcing an area where some developing countries specialise.

While it is important to recognise the challenges, there are also new opportunities for digital latecomers:

Trade in services – Digitalisation of industries often leads to a greater ability to trade in services. Latecomers could benefit from new export opportunities.

Small enterprises – The growth in trade through digital platforms provides opportunities to micro, small and medium-sized enterprises to reach customers (MSMEs).

Policy: Market regulation

What types of national digital policy approach should be undertaken by digital latecomers, in order to maximise the benefits of the digital economy and digital transformation?

Two general policy directions have been taken: broader strategies for enabling markets for digital trade, and interventionist approaches for accelerating digital catch-up.

Digital latecomers are often still involved in defining basic regulatory rules and building infrastructure. In some lower income countries, policymakers are still grappling with major challenges of provision of digital connectivity, and inclusion in digital societies.

Initiatives to enabling markets and supporting digital ecosystem can therefore support a broad set of capabilities and organisations facilitating digital trade. For example, having functional payment infrastructure and policy are essential for the effective operation of e-commerce platforms.

Policy: Catch-up policy

Beyond market regulation and infrastructure there has also been more planned and interventionist approaches.

These have looks to accelerate technology learning and localisation. Such policy, being more interventionist, are liable to require more coherent strategies and greater political capital.

Indonesia, for example, has long implemented local content requirements in a number of industries. New rules to meet these requirements on smartphones sold in Indonesia allow firms to include seven locally-made apps or fourteen locally created games, with at least one million active users for each app/game.

The Indonesian government is also implementing data localisation regulations that require foreign firms to store data produced locally on local services.

The motivations behind this policy in Indonesia are mixed, including sovereignty and security. Economic factors play an important part with policy seen as a way to boost investments in data centres and digital infrastructure.

Threat of digital trade rules

An important consideration for digital latecomer counties is how these trends fit with current and future international trade rules.

There are also questions of how proposed digital trade agreements will interact with such existing trade agreements. Many countries suspect that digital trade rules are a way to push for complete free market access for services.

With a potential for digital latecomers to implement catch-up policy. Being involved with negotiations on new trade rules and understanding the impacts is vital for future economic directions.

Image Credit: Kofi Annan, Monhla Hlahla and Gao Xiqing – World Economic Forum on Africa 2012 – Wikimedia Commons – CC Attribution Sharealike