How emerging markets can leapfrog into the digital age

By Angel Melguizo, Vice President, External & Regulatory Affairs, AT&T VRIO Latin America; Eduardo Salido Cornejo, Public Affairs and Policy Manager Latin America, Telefónica; and J. Welby Leaman, Senior Director, Global Government Affairs, Walmart, Inc1

IPhone, Google, Facebook, Netflix, YouTube, Bitcoin, Twitter, TikTok, LinkedIn, Uber, Rappi: how many of them have you used today? And if so many of the things that impact our day-to-day lives, creating common experiences across the globe, did not exist 25 years ago (see John Erlichman’s tweet), what can an increasingly connected world create over the next 25 years? The next 60?

The transformative impact of digitalisation affects not just our personal lives but also governments, public services and businesses. For instance, Artificial Intelligence (AI) has advanced rapidly in recent years and is being applied in settings ranging from health care, to agriculture, to financial markets. Accelerated by the surge in digital services, including essential public services, during the COVID-19 crisis, AI has the potential to transform business models, government systems and policy making through greater adoption across the private and public sector. Already today, 40% of internet traffic is not human but generated by machines; an unstoppable consequence of digitalisation.

This acceleration has been underpinned by progress in global connectivity. In Africa, 72% of the population uses mobile phones regularly, with the highest number in North Africa (82%) and the lowest in Central Africa (63%); the continent operates a total of 300 million mobile money accounts, the world’s highest number. In Asia, estimates show that in just a year, from 2019 to 2020, the number of e-commerce users increased by 37 million in ASEAN, 71 million in China and 50 million in India. In Latin America, smartphone usage continues to grow rapidly with 72% of total mobile connections in 2020, expected to reach an adoption rate of 80% by 2025.

This growth represents an enormous opportunity for emerging markets. However, just as digital technologies have the power to drive greater inclusion and connectivity, they can also increase inequality and divisions: both within countries, fuelled by connectivity gaps and digital divides, and globally, with diverging regulations and barriers to trade, investment and data flows creating disconnects with the global digital economy.

Supported by productivity-based reforms, smart regulation and institutions, and investment in skills and IT, digital transformation can accelerate the economic recovery across emerging markets. However, for digital transformation to be a reality across emerging markets, countries must address significant gaps. In Africa, for example, 70% of young people live in rural areas, yet only 26% of African rural dwellers have access to the Internet. The comparable figures for the rural populations in Asia and Latin America and the Caribbean (LAC) are 35% and 40%, respectively.

An unprecedented era of low interest rates could offer the right conditions to help establish a pipeline of infrastructure development projects, at a time when emerging economies face a large ICT infrastructure financing gap, estimated at USD 161 billion up to 2025 in Latin America alone. To attract this investment, countries need to create the enabling conditions for safeguarding investment security and generating more bankable projects, prioritising those with the greatest impact. For instance, by digitalizing key regulatory systems, governments can increase trust, transparency and efficiency for bankable projects.

The OECD is supporting efforts to increase internet connectivity with its Recommendation on Broadband Connectivity, including measures to encourage investment and sectoral policies such as spectrum management. We know the difference an enabling environment can make: countries in Latin America with clear rules and trusted institutions show 64% higher investment in telecommunications.

Beyond connectivity, there is a need for coordinated inclusion strategies to overcome digital gaps. Leveraging its business models, the private sector can create inclusive on-ramps to the digital economy. One example is hybrid business models that address underserved Base of the Pyramid consumers: Walmart’s operations blend e-commerce and digitally enabled physical retail, and then leverage the business’ pre-existing, trusted relationships with underserved communities to support the transition to the digital economy. Sharing lessons from public-private and multi-stakeholder collaborations, supported by smart regulation that prioritises inclusion, are key to scaling up efforts.

While digital trade drives lower costs, faster delivery, greater choice, and enables small businesses, digital trade rules and regulations remain fragmented across borders. This can result in additional costs for firms, notably for Micro, Small and Medium Enterprises (MSMEs), the backbone of most economies but also the least able to cope with regulation patchwork. Monitoring mechanisms like the OECD Digital Services Trade Restrictiveness Index help to identify hurdles for e-commerce, connectivity and digital trade that can impede the creation of regional and global trade links.

Finally, ensuring the free flow of global information and data that drive the digital economy will be critical for emerging markets. Multi-stakeholder collaboration and sharing of experiences and best practices are crucial to define clearer public policies or international standards on data protection to cybersecurity. For instance, the Recommendation on Digital Security of Critical Activities issued in 2019 is the result of more than two years of discussions among over 18 countries, civil society and business representatives, to strengthen the security of critical economic and social activities that rely on ICT infrastructure.

These are the challenges that countries in emerging markets must address now to future proof their digital transformation. But what of the challenges to come? A transparent, consultative evidence-based approach supported by multi-sectoral engagement will be critical to future-proofing progress on digital transformation. Sixty years ago when the OECD was formed, few if any could have foreseen the shape of the world to come. Yet its multilateral efforts have seen it at the forefront of major initiatives, from AI to digital tax, seeking to address the challenges arising from digital transformation. The private sector – particularly multinationals with operations across both OECD and non-OECD countries – has a role to play in supporting the effective exchange and sharing of best practice which will be critical to keep up with the breakneck speed of change ushered by the digital era.


1.The authors are Co-Chairs of the OECD Emerging Markets Network (EMnet) Working Group on Digital Transformation in Emerging Markets.