Digitalization on Developing Economies

Digital transformations are now on top. The pandemic has accelerated digital processes and triggered an imminent necessity to make data-driven decisions. Yet, while digitalization might be the next logical step to respond to market needs in developed economies, digital transformations might represent a risky investment without certain advantages in developing countries. Why?

In the first place, internet costs and availability in developing countries do not meet digitalization needs. According to the Alliance for Affordable Internet, the price of 1GB prepaid broadband represents 17.49% of the average per capita Gross National Income in developing economies compared to 0.87% in advanced economies. Likewise, only 35% of the population in these countries has access to the internet versus the 80% in advanced economies (The World Bank). This data shows the market itself does not enable digitalization processes since it still demands services.

A clear example of this is e-commerce platforms and online banking services. Due to the limited access and availability of the internet, e-commerce in countries like Bolivia can only reach a reduced number of consumers, limiting these businesses' consolidation and organic growth. In the case of online banking services, despite banks having invested in them, they have not reduced the number of agencies or front desk services, again because many clients cannot download the app or do not have the internet to use it.

Second, digital transformation could involve significant investments that low-profit businesses cannot always cover. Although digitalization is expected to reduce costs anything 8% to 24% while increasing revenue by 23% to 34% (according to the German Logistics Association), this percentage may not be achievable in developing economies. The reason for this statement is that most companies offer products or services to cover only basic necessities at the lowest price.

Third and last, emerging economies are usually seen as risky economies due to the bureaucracy, social and political conflicts, corruption, and the lack of clear trade rules. Consequently, global companies, which are already digitalizing their processes, do not see these countries as attractive for investment.

So, even though digital transformations are trending worldwide, they may also enlarge the gap between advanced and non-advanced economies. What can we do to avoid this? While governments and professionals in developing countries believe that copying digitalization strategies from developed countries might be the solution, the truth is that they cannot be more wrong. Replicating strategies that do not meet the market requirements into environments without the conditions is anything but a failure that triggers frustration.

Developing economies should digitalize their businesses, but they need to create a market prepared to adapt and explode digital tools before this. Hence, they might start by digitalizing their education system. A positive aspect to highlight about developing countries is that the main percentage of their population is young. Thereafter, able to adapt quickly to new technology, processes, and so on. However, to digitalize education systems, it is also necessary to invest in infrastructure to enable access to the internet. Therefore, investments relating to internet access should have the same priority as investments in health, education, and basic necessities.