As more commercial transactions move online and the digital economy continues to expand into every facet of the traditional analogue economy, businesses are gaining access to new channels to reach existing clients and expand their market share with competitive digital offerings. For consumers, the digital growth promises easier access to and more information about the products and services they consume, which tends to encourage more competitive pricing. In emerging economies, the uptake of leapfrog technologies has in some cases allowed sectors to skip stages in development, moving directly to digital solutions rather than having to invest in vast networks of hard infrastructure.
While it is clear that the digital economy has opened up many growth opportunities, one of the most important barriers to surmount is the digital divide. While no country can currently offer universal coverage, the gaps in the quantity and quality of mobile network access in some emerging economies lags behind that of more advanced markets. It can be particularly challenging in countries with low rates of urbanisation or challenging terrain, which complicates the extension of physical networks.
It will be key moving forward to recognise that alongside the requisite investments in hard infrastructure, policymakers need to build the legislative and institutional frameworks necessary to sustain digital growth. Countries in the Gulf have been among the most forward-looking in this regard, as countries like the UAE have paired the digitalisation of state services with the establishment of regulatory environments favourable to digital innovation across the economy.
Building on the early success of pilot projects in Africa and elsewhere, Kenyan mobile network operator Safaricom partnered with Vodafone to bring M-Pesa to market in 2007. This service allows anyone in Kenya with a mobile phone to use it as an electronic wallet, letting users borrow and transfer money, pay utilities, and deposit and withdraw funds via agents, thereby bringing such services to large swathes of the population not served by conventional banking.
This coincided with a surge in cellular subscriptions in the country, from 30 per 100 people in 2007 to 86 in 2017, and by mid-2018 M-Pesa was processing 1.7bn transactions annually for 20m users. In late 2018 M-Pesa was preparing to enter Ethiopia, which is twice the size of Kenya and has been one of the fastest-growing economies of the past decade. This follows its successes in Tanzania, Egypt, Afghanistan, India and several markets in Eastern Europe. The M-Pesa model has spread and given rise to copycat services from traditional banks and mobile network operators alike.
In developing economies with relatively poor ICT infrastructure and a sparse network of bank branches, cellular growth has allowed financial service providers to reach more clients. Moreover, once the investment in digital has been made, the marginal cost of each new client is much smaller than that associated with physical infrastructure. Indeed, in Kenya the number of ATMs in operation has fallen by about a third, as much of the population has switched to using mobile money.
Building on the success of mobile money, a wider range of sophisticated financial services is being made available to emerging market consumers. InsurTech, for example, is becoming increasingly important in emerging insurance markets. In the second quarter of 2018 China, India, Israel and South Africa together accounted for a third of its deals globally, and its growth projections for the coming decades are highest in large, emerging markets.
While digital trends in many emerging markets trail those of their advanced peers, faster economic and demographic growth in the former group make them more likely to remain important growth drivers for years to come, particularly in transport and logistics. In some cases ride-sharing apps have filled a market gap that stems from inefficient public transport systems. In late 2018 Uber named Argentina its fastest-growing market, despite the country’s economic difficulties and the company not offering services outside Buenos Aires, citing the capital city’s lack of public transit options as the main driver of demand. Meanwhile, India has become Amazon’s fastest-growing market.
However, even as the biggest names in global tech profit from growth in emerging markets, they are not alone in capitalising, as these markets have given rise to their own competitor firms. Alibaba is the dominant player in China’s online retail market and is rapidly expanding across Asia to compete directly with Amazon. Since 2015 Alibaba’s online sales have surpassed those of Amazon, eBay and Walmart combined. While the population densities in Alibaba’s markets give it an advantage, digital firms are not relying solely on demographics to drive revenue. The Chinese ride-sharing app Didi Chuxing began an aggressive global expansion in 2018, entering Brazil, Mexico, Taiwan, Japan and Australia, where it will compete with Uber head to head.
In sub-Saharan Africa mobile subscriptions reached 75 per 100 people in 2017. That rate varied widely among countries covered by OBG, from 70 in Tanzania and 75 in Nigeria to 127 in Ghana and 131 in Côte d’Ivoire, against a global average of 104.
Even those markets with relatively developed ICT infrastructure are not resting on their laurels. In Côte d’Ivoire the National Agency for Universal Telecommunications Services is in the process of deploying a 7000-km fibre-optic network to rural areas. “Optical fibre allows more bandwidth than copper, and it is a more stable technology to use, considering Côte d’Ivoire’s climate,” Serge Kouakou, general manager of Orange Business Côte d’Ivoire, told OBG. “Service reliability should increase and rural populations will gradually access better internet and telecoms services.”
Countries in the Asia-Pacific region generally benefit from well-entrenched ICT infrastructure and high rates of mobile subscriptions. Among countries covered by OBG, that rate exceeds the regional average of 119 subscriptions per 100 people in Thailand (176), Indonesia (174), Sri Lanka (135), Malaysia (134) and Vietnam (126), while falling slightly short in the Philippines (110) and Myanmar (90).
Having opened its mobile segment to foreign investment in 2013, Myanmar is playing catch-up, though it has made great strides in recent years. “Telecommunications is a textbook example of development in Myanmar, where companies can receive their licence, connect to the network and start operations within a year,” Lin Roye, deputy managing director at Myanmar Fibre Optic Communication Network, told OBG. “It has become a little more challenging recently, since the permit system for extending the fibre-optic network has been decentralised to regional governments, which do not always understand its importance.”
Myanmar demonstrates the difficulty of extending infrastructure to remote areas and the role of new market entrants in improving services and driving down prices. For instance, a subsidiary of Vietnam’s Viettel Group became Myanmar’s fourth provider in 2018 and began offering bundled internet services. Within eight months s its market share had grown to 4%, and the firm is exploring options to offer mobile money services.
Middle East & North Africa
The MENA region, like the Asia-Pacific, enjoys a higher rate of mobile subscriptions than the world at large, with 112 cellular subscribers per 100 people. Rates are highest among members of the GCC, ranging from 122 in Saudi Arabia to 211 in the UAE, and are marginally lower in the Maghreb states, which are clustered in the low 120s.
Countries in the GCC were among the first to recognise the potential of digitalisation and the importance of designing appropriate legislation. Bahrain launched the region’s first 4G LTE network in 2013 and enacted a nationwide law on personal data protection in July 2018. In September 2018 Abu Dhabi Global Market rolled out a digital sandbox to provide an environment for financial institutions and financial technology (fintech) players to accelerate services innovation and increase financial inclusion. Several GCC states have also been at the forefront in trying to tax the digital economy.
Algeria has tried to foster ICT start-up clusters and, through the Algiers Smart City initiative, use digital solutions to lift living standards in the city. “The project has been developed as an answer to three fundamental challenges: a fairly isolated technology ecosystem, limited technology transfer and low confidence in growing tech giants,” Riad Hartani, strategic technology advisor to the Algiers Smart City project, told OBG.
Latin America & The Caribbean
Some countries in the region have mobile penetration rates on par with those of advanced economies. Among countries covered by OBG, Argentina and Trinidad & Tobago exceeded 140 in 2017, followed by Colombia (127) and Peru (121). Mexico stood at 89, below the regional average of 107. Several have led the way in experimenting with soft infrastructure and policy to foster, regulate and tax the digital economy. In 2018 Mexico became one of just a few countries worldwide to promulgate a dedicated fintech law. The new legislation regulates firms operating in the crowdfunding, online payments and cryptocurrency segments, includes measures to guard against money laundering and shortened the registration and approval process for fintech firms.
Catch-up economic growth and hard ICT infrastructure development in emerging markets should position them to drive global digital growth for years to come. While the dissemination of tools and trends from historically developed economies will continue to play a role in this growth, digital firms from emerging markets should increasingly compete with those of more advanced economies for market share, even on their own turf. Simultaneously, emerging economies have been pioneers in developing soft infrastructure in areas like digital taxation, and there is a strong incentive for these countries to further this trend.
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