Four Ways to Turbocharge Developing Digital EconomiesFounder and CEO of TradeUp Capital Fund
[Perspectives on Innovation is a regular monthly series featuring content from Perspectives on GE Reports.]
Digitization and e-commerce are opening new opportunities for developing countries to promote entrepreneurship, job creation and small businesses. However, the funding needs to haul developing countries over the digital chasms are gigantic.
Over three-quarters of small companies in developing countries have yet to sell online. The deck is often stacked against them—over 60 percent of these companies rate e-commerce logistics and access to finance “C-” or worse. Digital regulations or online payments don’t get much better grades either; in countries like Ghana or Bangladesh, choppy Internet connectivity holds e-commerce back.
The only way to make digital economies work for businesses in developing markets is creative partnerships among the private and public sectors. Here are four models to consider:
- Private sector seeds, public sector scales
The private sector, from global companies to small e-commerce platforms, is helping bring women, rural populations and small businesses into the stream of e-commerce. Take, for example, Pakistani logistics company TCS Holdings, which has programs to train women to become e-commerce couriers, or Burundi Shop, which digitally connects rural African businesses to regional markets.
Often these investments yield financial returns only gradually, in years rather than months, but they tend to immediately yield the social returns that governments covet to meet the UN Sustainable Development Goals, due by 2030. The public sector should help scale and replicate these solutions the private sector has identified, seeded, and already made work—and thus taken the public sector’s risk off the table.
- Spreading the risk and sharing digital dividends: social impact bonds
Another means to fund projects has already been used to cure malaria, save rhinos, and integrate inmates in societies—the social impact bond. Imagine a private business or investor who makes an initial investment in an e-commerce project, and if the program meets certain goals such as jobs created or increased wages, the investor gets compensated at a premium by the public sector, which “buys” the successful project for its social impact. This instrument is superb at incentivizing investors hungry for a financial return to deliver social and economic returns desired by the public sector.
Public and private sectors can also work together to modernize old institutions that fail to serve today’s trade.
- Shared data to break bottlenecks in e-commerce
Public and private sectors can also work together to modernize old institutions that fail to serve today’s trade. One area rife for reform is customs, the leading bottleneck in world trade. Customs are still set up to deal with big companies and large, regular containerized shipments; they struggle to swiftly screen and wave through the burgeoning volume of small parcels that are the hallmark of cross-border e-commerce. The e-commerce ecosystem has excellent data on shipments and sellers that could be packaged and anonymized to help customs perform data-driven risk-based screening and fast-track 21st century trade through customs.
- Crafting smart digital regulations for trade
Governments around the developing world fashioning digital and e-commerce regulations must be self-aware of their knee-jerk reactions to regulate for sake of regulating, and instead create regulatory frameworks with the private sector. Luckily, many already are. For example, in Turkey, public and private sectors are working together in an e-commerce policy council that is roadmapping e-commerce regulations and programs for SMEs’ participation in e-commerce. In Bangladesh, the IT association has engaged policymakers early on to understand the challenges IT firms face and fashioned proposals the government has subsequently adopted.
Technology-powered trade is changing the patterns, players, and possibilities of world trade. To realize its full potential, public- and private-sector partnerships need a major boost.
This piece first appeared in the Perspectives on GE Reports.