Identifying Archetypes To Boost Digital Economies In The Middle East
You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
Across the Middle East, restrictions put in place to ease the impact of the COVID-19 pandemic have begun to ease up. Students in many countries are returning to schools, business activity is on the rise in several sectors, and several markets have officially reopened for tourism. As we gradually transition to whatever this new normal will be, one major change in our society is the pervasive acceleration of information and communications technology (ICT), especially the use of technologies such as 5G, cloud computing, and artificial intelligence.
The pandemic has brought to light just how reliant our societies are on digital infrastructure, as well as the importance of technology innovation in helping humanity progress and overcome such events. If nothing else, 2020 has presented important learnings for governments throughout the Middle East in upgrading their national digital infrastructures. There is now considerable evidence available that investment in digital infrastructure can deliver strong fiscal multipliers and provide long-term returns on investment. Accelerating the transition to a digital economy will further boost industrial productivity, improve societal well-being, and benefit consumers via cost and time savings.
The worldwide digital ecosystem is estimated to be growing three times faster than global GDP. The digital economy, per the broadest of definitions, is estimated to be US$11.5 trillion, or 15.5% of world GDP. A recent study conducted by Oxford Economics and Huawei estimates that in a high-digitalization scenario, the global digital economy could grow to account for 24.3% of global GDP by 2025, which equates to $23 trillion. In terms of specific technologies, 5G is expected to influence two billion new users to come online worldwide and result in $2-4 trillion cumulative real GDP boost by 2030. At 70% adoption rate, AI is also estimated to contribute $13 trillion to $15 trillion (cumulatively from 2020) to global GDP by 2030.
While some countries in the Middle East are increasing investment in digital infrastructure, many are not able to fully benefit from such investments, which is affecting their wealth creation and prosperity opportunities. Governments must prioritize the implementation of pragmatic policies that maximize the benefits of new technology while ensuring that the inevitable short-term disruptions are mitigated.
With that in mind, governments will need to reconsider their approach to the ICT sector, particularly its governance. Developing the very best regulatory environment will help to ensure the sector grows and thrives in a way that benefits everyone– from ICT players to corporates to users. While most countries strive to achieve robust digital economies that can supplement GDP, there is no standard model to follow when it comes to building ICT capacity. A successful digital economy requires a wide range of infrastructure and capabilities.
That said, countries often have scarce resources and finite funds. Choosing and prioritizing focus areas is therefore key. A good starting point for this is to identify a country’s ideal archetype, which will then help tailor the recommendations for digital policies to ensure they are best aligned with its needs.
An archetype approach allows a country to link ICT strategy to national development strategies, which leads to an “interaction effect”– interaction between ICT investment, infrastructure, skill levels, and policy environment. Reaching a minimum threshold allows the country to benefit sufficiently from returns to scale and investment in digital infrastructure.
To that end, seven digital economy archetypes have recently been identified in a report by Arthur D. Little and commissioned by Huawei. These include:
- The model of being an "Innovation Hub," conceptualizing and commercializing new technologies and solutions
- An "Efficient Prosumer," wherein there are niche players deploying solutions for a strong local industry
- The "Service Powerhouse," whereby a nation focuses on the development of software, content and service delivery, leveraging a surplus of skilled resources;
- A "Global Factory" of ICT manufacturing with labor surplus and low costs;
- A "Business Hub" that serves as a trading business center for the region, attracting talent and companies from different locations;
- An "ICT Patron" which is high in ICT usage/consumption but with limited contribution to ICT value creation;
- An "ICT Novice," which as its name implies, is a beginner in ICT adoption and value creation.
The archetype approach to investing in ICT infrastructure can support the Middle East’s policymakers in their decisions. Identifying a country’s strengths, core capabilities, and unique differentiators will enable a focus on those assets that can contribute most significantly towards socio-economic growth. Investment in the right areas can also help to propel the transition from one archetype to another, in which ICT supports greater value creation.
Ultimately, countries throughout the Middle East will realize greater benefits of ICT investments if they develop their strategies in alignment with their most suitable archetypes. This framework can thus empower nations to leverage their inherent strengths while weighing in on their economic and technological realities, providing a solid foundation for building a greater, more digitally-empowered society.