January 18, 2022

What’s Really Holding Nations Back on the Digital Journey?

                   

In September, it was my privilege to participate in Huawei’s Latin America and Caribbean Innovation Day 2021. I joined a range of top-level speakers from industry, multilateral organisations, government, and academia to talk about technology and digital economic development. The annual forum is seen as one of our flagship events globally.

My role was to share for the first time the fruits of our research study titled “Digital Nations”. This study has evaluated the national digital state-of-play across 20 of the world’s most important economies (including Mexico and Brazil). It utilises a wide-range of sources on the digital economy from the likes of Boston Consultancy Group and others such as UNCTAD, the OECD, GSMA and the G20. One of the main aims of the research was to identify the individual challenges and opportunities currently faced by countries in their national digital journeys. Another was to see if we could establish commonalities across countries of successes and frustrations that we could provide as a contribution to policymakers own roadmaps for digital transformation.

Highlights of the research study for Mexico and Brazil follow.

Boston Consultancy Group have surveyed 1,775 manufacturing executives in 12 countries and saw overall increased adoption of advanced technology in manufacturing over the last decade.

But the race is competitive across countries in digital transformation – you have to keep adopting just to stand still. The good news, however, is that Brazil still remains in the top 10 countries covered by BCG but that this top-ten position will become increasingly challenging.

The BCG research also tried to ascertain what the main obstacles were to Brazil’s business community in adopting digital technologies for industry 4.0 transformations by asking those same manufacturing executives.

The most frequently mentioned obstacle – reported by 36% of businesses – expressed concerns over current gaps in skills and capabilities. In second place were obstacles from insufficient digital connectivity in terms of speed and quality.

The most frequently mentioned obstacle – reported by 36% of businesses – expressed concerns over current gaps in skills and capabilities.

The absence of suitable Internet of Things platforms to work and experiment with was ranked in third place as an obstacle. In fourth place were issues pertaining to data-security and cybersecurity awareness. And in fifth place a lack of understanding over appropriate internal governance and processes suitable for digital industrialization.

Mexico: Big Spenders

One of our main findings for Mexico is that its consumers spend on average more online than those in most other major Latin American countries. According to the OECD, its average revenue per user is ahead of everyone else in the region bar Chile. It also seems to be on a similar (higher) growth trajectory of e-commerce leaders such as China than other Latin American countries when you compare the linear relationship between average revenue per (online) user and e-commerce penetration (as a share of total retail sales).

This is despite Mexico having a lower e-commerce penetration rate as a share of overall retail sales than other countries in the region. There is upside potential here given relatively high levels of urbanization if improved digital infrastructure including both broadband connectivity and cloud-computing can lead to greater e-commerce adoption.

A more worrying development for Mexico is that its absolute increases in average revenue per user for ecommerce and its e-commerce penetration rate have increased at a smaller pace than other regional competitors in recent years.

The BCG research also highlights that while micro and small business owners have become more tech-savvy, business functions within those businesses remain mostly manual.

And while the vast majority of large businesses in Mexico are using online tools such as banking, government services and search, there is still a lot of room for improvement for small and micro businesses.

The biggest problem currently lies with e-commerce with only a quarter of large and medium sized businesses selling their products and services online (despite the allure of relatively higher spending consumers). Even fewer small and micro enterprises are taking advantage of e-commerce opportunities, which could greatly enhance their supply-chain and operational efficiencies and reach many more potential customers both domestically and overseas.

Recommendations

In summary, we established the following set of immediate priorities and recommendations for the governments of Brazil and Mexico based on our investigations.

1. Close the digital divide: support online courses to the broader population on internet safety, online banking, e-commerce, and access to digital government services. Seek out other knowledge gaps and close them.

DigiTrucks – mobile classrooms converted from shipping containers – provide training in digital skills in France (above) and Kenya (below)

2. Foster digital use among enterprises, especially SMEs. Introduce incentives for firms to use online services, for example reduced fees via e-platforms. Strengthen innovation hubs for experimentation and technological transfer to SMEs. Provide improved digital start-up schemes.

3. Push ahead with the digital transformation of the government. This can be a very useful way of directly nurturing local digital ecosystems. Promote data sharing and interoperability among public agencies.

4. Expand quality network coverage to rural and remote areas. Explore regulatory mechanisms to incentivize operators to expand coverage on a commercial and market-led basis; consider public interventions when needed especially for rural connectivity gaps.

5. Close gaps in digital human capital and skills. Increase knowledge transfer between business and academia.

6. Remove constraints caused by the limited volume of funding in digital initiatives. Strengthen opportunities for public-private partnerships to alleviate the financial burdens on the public sector.

Across the 20 countries in our research, we also recorded the frequency with which one of nine major drivers of digital economic development were acting as one of the top impediments to growth in national digital economies. We were surprised to find that three issues came out way ahead of the others.

The first related to digital infrastructure (fixed and mobile broadband). Limited infrastructure in terms of coverage, performance or affordability. The second issue related again to SME adoption, insufficient government or even private sector support for improving digital awareness and the benefits to go digital and then digitalize for all businesses, regardless of sector.

But talent remains the most common obstacle. Lack of highly productive local talents with advanced digital skills due to insufficient push in technology upgrading, education reform or incentives to retain talents.

For any government stretched as they are in 2021 for resources and competing priorities, we suggest that focusing on these three areas first can go a long way to boosting further beneficial innovation and digital national development.

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