Emerging market trends in 2021: Digital transformation

Emerging market trends in 2021: Digital transformation

THE onset of the pandemic in 2020 gave rise to global acceleration in the uptake of digital platforms and services. This surge was consolidated in 2021, as it became clear – in emerging and developed economies alike – that digital is the new normal.

As different countries and regions went in and out of lockdown in response to successive waves of Covid-19, many businesses and institutions integrated a flexible, “blended” approach, combining online and in-person operating methods.

Digital dividends

Most developing countries have begun to adapt to this accelerated digital transition, which is already paying dividends in many cases.

In Egypt, for example, the initial shift to digital led to a surge in demand for ICT services, and highlighted the need to expand both hard and soft infrastructure.

The government has responded with a range of initiatives. The Ministry of Communications and Information Technology’s CREATIVA, a network of knowledge and innovation centres, was granted 300 million Egyptian pounds (US$19.1 million) in March to fund its second project phase, which focuses on developing an integrated system for technological innovation.

Saudi Arabia has likewise intensified its commitment to its integrated digital agenda, enshrined in the country’s development strategy, Vision 2030.

Vision 2030 has helped advance the digital transformation in all aspects of daily life, from e-government services, to digital financial solutions and work-from-home options.

Fintech and financial inclusion

Turning to Latin America, Peru is benefitting from the impact of increased digital innovation across key sectors such as mining, agriculture and financial services.

Digitalisation is also helping to expand financial inclusion in the country – an effect that is being observed in many economies around the world.

For example, in Morocco, financial technology (fintech) is advancing rapidly: the country has embraced its efficiency and low costs as a way to bolster financial inclusion, with both the government and private sector deploying fintech tools for payments.

Indeed, the development of a fully digital financial environment is an important objective in Morocco’s strategy to cement itself as a leading financial centre in the region – a transformation that has been accelerated by the pandemic.

Another emerging economy that has embraced fintech as a path to both competitive advantage and financial inclusion is Trinidad and Tobago.

The country has taken significant steps to leverage its digital economy, such as the inauguration of a dedicated Ministry for Digital Transformation in July.

Indonesia is similarly boosting its fintech ecosystem. Launched in August 2020, the Digital Finance Innovation Roadmap and Action Plan 2020-2024 aims to ensure stable digital financial services; extend financing to micro-, small and medium-sized enterprises; and enable inclusive financial services that are affordable, convenient and scalable.

E-commerce is here to stay

Closely connected to the rise in digital payment methods has been the worldwide boom experienced in e-commerce over the last two years.

This has taken place in markets where e-commerce was already established, as well as those that had previously been more hesitant.

In Latin America, for instance, prior to the outbreak of the virus, e-commerce penetration was comparatively low, with uptake hindered by the region’s substantial unbanked population, complicated logistics connections and general lack of trust in online methods.

This situation has changed drastically, with retail e-commerce in the region estimated to have grown by nearly 40 per cent in 2021.

A number of homegrown companies have capitalised on the shift in demand, chief among them the online marketplace Mercado Libre, which allows individuals and businesses to buy, sell, advertise and pay for goods on its online platform.

Another is PIX, a Brazilian digital wallet which garnered more than 110m users in its first year, after coming online in November 2020.

In Africa, Covid-19 has also given rise to a marked increase in e-commerce, notwithstanding ICT infrastructure hurdles. This is a trend that seems likely to continue: a UN Conference on Trade and Development report published in March found that more than 40 per cent of customers in four large African countries were planning to reduce their supermarket shopping in the future by purchasing food, clothing and electronics online.

Indeed, Africa’s tech start-up ecosystem is increasingly being recognised for its dynamism. Major tech clusters have emerged in Lagos, Nairobi and Cape Town, while in Algeria the recently appointed minister of the knowledge economy and start-ups is spearheading a drive to increase digital innovation.

Digital growth industries

The acceleration of digitalisation has opened up a variety of smaller potential growth industries that some emerging economies are looking to support.

One of these is the post-pandemic surge in so-called digital nomads – a term for workers who can work remotely and relocate relatively freely.

A number of emerging markets sought to capitalise on this phenomenon and attract digital nomads through a series of incentives and special visas.

For example, in October 2020 the Dubai government launched its virtual working programme. This was followed in March 2021 by a UAE-wide, one-year residence permit for remote workers.

By mid-2021 Dubai was ranked the second-most attractive destination for digital nomads in the world, after Melbourne, Australia.

Another growth area for emerging economies is cybersecurity.

In Mexico – a country that is consistently ranked as having among the most cyberattacks in Latin America – cybersecurity is an industry with considerable potential.

The growth in prominence of these and other fields is increasingly reflected in university courses, with higher education institutions moving to fill gaps in the employment market.

A good example of this is Middlesex University Dubai, which, in addition to existing courses in areas such as data science, network management and cloud computing, this year launched new courses in both electronic engineering and cybersecurity and pen testing, which trains students in the field of network security.

Closing the ICT gap

Another significant growth opportunity associated with digitalisation is related to the physical infrastructure that supports it.

Many emerging economies have inadequate ICT infrastructure, limiting their capacity to capitalise on the opportunities that are emerging from the digital transformation.

Overall global internet user penetration stands at 53.6 per cent, according to the UN’s International Telecommunication Union. In advanced economies this figure is 87 per cent but stands at 47 per cent in developing countries.

Although many low-income communities – in both rural and urban areas – lack reliable, affordable internet access, there are numerous examples of emerging markets that have successfully implemented programmes to expand internet access.

For example, Microsoft Women’s Digital Inclusion Partnership, launched at the end of last year, aims to expand the number of women with internet access around the world. The programme will invest in ICT infrastructure in rural areas in Colombia, Ghana, Guatemala, India and Kenya.

In the UAE, meanwhile, 5G connectivity is being rolled out by Abu Dhabi-based ICT giant Etisalat, in partnership with Swedish telecoms multinational Ericsson.

5G is integral to the UAE’s Industry 4.0 initiative, announced in October, which is a cornerstone of the government’s roadmap to ensure that the economy remains dynamic over the next half century.

Initiatives such as these should help to close the digital infrastructure gap and ensure that emerging markets can leverage digitalisation to enhance economic growth.

This opinion piece was produced by the Oxford Business Group.

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