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New digital divide threatens economic growth

by Beñat Bilbao-Osorio

Information and communications technology (ICT) — a term used for anything from high-speed broadband cables to the latest app — has revolutionized the way the economy works.

Business models have been redefined, supply chains have gone global, the workplace has been redesigned, small start-ups have grown into multibillion dollar behemoths, and profound changes have rippled through health care and education.

As well as helping to make companies and services more efficient, ICT has huge potential to increase innovation, boost economic growth and create much-needed high quality jobs.

With the developed world striving to improve competitiveness and the developing world focused on maintaining growth rates, no country can afford to ignore these opportunities.

However, as the World Economic Forum’s Global Information Technology Report 2013 shows, a new kind of digital divide is hampering this progress.

While some countries have continued to consolidate their leadership in the digital landscape, others still trail significantly behind, with little or no sign of significant progress. The Nordic countries, the Asian Tigers and several advanced economies in North America and Western Europe, such as the Netherlands and the United Kingdom, continue to lead in providing high connectivity rates, resulting in high innovation rates that help boost their competitiveness.

In these countries, some 90 percent of households have a computer and an Internet connection.

As a result, Internet usage among business and consumers is high. This knocks on to the wider economy, for example patent applications, while just defining one dimension of the multifaceted nature of innovation, are very high, reaching more than 100 ICT patents per million population in most of these countries.

In sharp contrast, several developing countries — notably in Africa, but also in Latin America and Southeast Asia — continue to show low values of connectivity with yet low level of Internet usage and limited development of e-commerce. Their struggle to upgrade digital connectivity means they are losing out on all the social and economic rewards that go along with better ICT infrastructure.

The picture is not clear cut. Several developing economies in sub-Saharan Africa, Latin America and Asia, including Rwanda, Kenya, Brazil, El Salvador, India and Bangladesh, have experienced remarkable improvements in digital telephony take-up.

Meanwhile, applications such as M-Pesa, so popular in eastern Africa, have brought wide social, not to mention economic, benefits. Nevertheless, other ICT infrastructure investments, such as broadband bandwidth or the number of Internet users and broadband subscriptions, have remained low.

Moreover and perhaps more importantly, in order to fulfil the full potential of ICT, improvements in infrastructure, technologies and skills all need to work together in a coordinated way. Innovations often come about when a skillful labor force gets to experiment with the latest technologies and new materials.

It is precisely in this area where one of the biggest difficulties lies for several developing economies — creating the right environment for innovation is costly and takes time to yield minimum results.

As the Global Information Technology Report shows, the relationship between developing a highly skilled workforce and quality ICT infrastructure on one hand, and achieving positive economic and social impacts on the other, is far from perfect or linear.

The results suggest that there may exist a minimum investment threshold in ICT and skill development that any country may need to undertake to obtain any meaningful results.

But once this threshold is achieved, the return on such investment in ICT skills and infrastructure becomes disproportionately higher as the economy transitions to higher value-added activities.

Countries should be encouraged to adopt the right policies and investment decisions to develop their ICTs, while bearing in mind that they may take time to bear fruit. A coherent framework of policies is needed to nurture the kind of innovations that could help us move beyond the economic slump.

Beñat Bilbao-Osorio is associate director and economist of the Center for Global Competitiveness and Performance, World Economic Forum.