The Rise of Digital Economy: Silver Lining Amid COVID-19

05.05.2020 | Adam Sachs
Photo by Rodion Kutsaev on Unsplash

Just as quickly as government-issued stay-at-home orders swept across the globe, citizens realized the vital role that internet access and the digital economy play in the time of crisis. The pandemic lends itself as a wake-up call on the importance of cultivating an inclusive digital space.

E-commerce platforms and information and communications technology (ICT) tools have become vital lifelines for individuals to connect with loved ones, students to engage in e-learning, and businesses to stay operational (albeit sometimes minimally). Amidst this crisis, CIPE and its partners are also adjusting their work to leverage the internet and digital tools. In Kenya, CIPE partner Kenya Private Sector Alliance launched a digital portal for businesses and is collecting data to better understand how e-commerce contributes to the COVID-19 response.

While the current crisis boosts the use of online platforms for social interactions, it also accelerates the adoption of e-payments, as central banks or governments encourage consumers in India, Indonesia, Georgia, and several other countries to use cashless payments. Given the key role of e-payments to conduct online transactions, e-commerce and telecommunications companies are well-positioned to aide in the mass transition to digital payments. For instance, Jumia, a Nigerian-based e-commerce company operating in 11 African countries, is reducing fees for its e-payment service, JumiaPay, while also offering African governments the use of its last-mile delivery network to distribute supplies to healthcare facilities and workers.

While certain businesses can adapt their operations or support their workers online, many businesses, particularly those in the Global South, still struggle to consistently access the internet and finance-payments. Those who can make the digital transition have a better chance to survive, further accentuating digital divides globally and within countries.

As businesses strive to transform their operations, relying on low-cost and easily deployable tools to adapt to the “4.0 economy,” they face barriers – many of them tax-related and regulatory in nature – that impede their ability to successfully embrace digital transformation or implement long-term sustainability strategies beyond the current crisis. As the United Nations Conference on Trade Development (UNCTAD) warns: “Despite the rapid uptake of digital technologies, significant divides remain, both between and within countries. The least developed countries are the most vulnerable to the human and economic consequences, and they also lag behind the most in digital readiness.” Referring to UNCTAD’s eTrade Readiness Assessments, the report also highlights significant barriers, such as inadequate ICT infrastructure, low digital literacy rates, and flawed legal frameworks that limit people’s and businesses’ ability to actively partake in the digital economy.

Every nation’s economic post-pandemic resilience will in part depend on the ability of its citizens and businesses to adopt digital technologies, especially e-payments, mobile or electronic banking, and other forms of digitally enabled financial transactions.

It is important for policymakers to remember that while consumer spending on online platforms is the most recognizable form of digital commerce, it is businesses-to-business (B2B) transactions that make up the vast majority of global e-commerce today. According to the World Trade Organization, B2B transactions are six times larger than business-to-consumer transactions. Recognizing the fundamental role laws and policies serve to foster inclusive technological adoption, CIPE and New Markets Lab developed the Digital Economy Enabling Environment Guide: Key Areas of Dialogue for Business and Policymakers, an in-depth legal and advocacy guidebook covering four key digital economy topics: data privacy and protection, cybersecurity, consumer protection, and electronic transactions – e-payments and e-signatures. CIPE has worked with private sector stakeholders in countries such as Kenya, Ethiopia, and Bangladesh to deepen their engagement in public-private dialogue and the development of inclusive digital economy policy. CIPE will build upon its work to help reimagine and rebuild local communities through reforms that promote digitally enabled, resilient business eco-systems.

Adoption of inclusive digital solutions is increasingly needed to build greater resiliency in the economy, especially for small businesses and entrepreneurs. Although COVID-19 has severe negative global effects, the pandemic also presents a unique opportunity for governments to adopt a digital democratization strategy that would make benefits of ICTs and digital commerce available to all citizens —a meaningful silver lining.

Adam Sachs is an Associate Program Officer for Global Programs at CIPE.