Expert Speak Digital Frontiers
Published on Aug 14, 2019
The Global Digital Economy: Worsening Inequality vs. Pockets of Innovation When we talk about ‘digital divides’ or ‘digital inequality’, what we typically mean is whether or not people have access to the internet. Everyone should be able to go online, because the internet enables learning, political engagement, and entertainment access. It is good news then that the number of internet users, especially in low and middle-income countries (LMICs), has grown rapidly in recent years: approximately half the world’s population is now ‘connected.’

Economic Levelling

However, whether or not the diffusion of the internet necessarily results in a levelling of economic opportunity remains a point of contention. About twenty years ago, Thomas Friedman argued that globalisation consisted of three conjoined processes: the democratisation of technology, information, and capital. Other authors later expanded this idea, arguing that the internet would lead to the democratisation of content, business and entrepreneurship. The Economist announced the beginning of a “Cambrian Moment: thanks to digital technology, start-ups seemed to be exploding in number and kind. In our book Digital Entrepreneurship in Africa, (forthcoming, MIT Press 2020), we examine this contention with the example of digital entrepreneurship in Africa. We wanted to find a micro-level explanation for why digital economies -- despite the internet’s distance-bridging potential -- are unevenly distributed across geographies, in ways that traditional theories like agglomeration and urbanisation cannot quite explain. Africa is thinly integrated in global innovation processes. For example, one study shows that the production of digital content is even more tilted in favour of high-income countries (HICs) than the production of traditional knowledge outputs: the authors show that Sub-Saharan Africa produces 1.1% of the world’s academic articles but only 0.5% of commits on GitHub. For comparison, North America produces 27.6% of academic articles but 38.9% of GitHub commits. We wanted to understand how digital entrepreneurship may change or reaffirm the status quo of unevenness.

In a Global Digital Market Place, Incumbents Win

Through our work, we found that digital entrepreneurship is highly dependent on location. Whether an enterprise is located in Bujumbura, Nairobi, or Paris matters greatly for which strategies it can successfully implement. Yes, internet access has made the establishment and growth of many African businesses possible. However, through hundreds of conversations with African digital entrepreneurs and their supporters, we realised that these new opportunities had initially been romanticised and exaggerated. This was often because Silicon Valley tropes (what a start-up is and what it does, how quickly a product can grow, etc.) affected investors’ and supporters’ views of what African enterprises should achieve and how they should act. We also found that, paradoxically, digital entrepreneurship might be less democratic or level than traditional entrepreneurship. Starting a business is always risky, resource-intensive, and competitive. However, digital enterprises, more than analogue ones, are embedded in a global technology system. The open internet is the foundational network that other digital infrastructure (operating systems, app stores, software developer platforms, social media marketing platforms, etc.) runs on. Yet, almost all digital infrastructure products and services are offered by private global platform corporations from the US and China. Global technology giants leverage strategies like targeted customer lock-in, monopoly, and technology standards. Whenever African digital enterprises tried to own regional markets, they were outcompeted by others from the US, Europe, and Asia. Because the internet is a global infrastructure, local digital companies both compete with and rely on international digital corporations. This means that precisely those digital-based opportunities for growth that have inspired hope and hype are mostly unavailable or inaccessible for enterprises and innovators across Africa and LMICs. The only viable alternative is for African digital enterprises to become experts of localization: they must turn a competitive disadvantage in global markets into a competitive advantage in local and regional ones. A good example is the company AgroCenta. They discovered a market opportunity to conduct stock management and aggregate demand and supply of agricultural produce in the North of Ghana. At first sight, AgroCenta may seem like a market information application, but in fact, it has created an extensive analogue outreach structure to reach farmers. The founders understood that most farmers do not use phones, so they installed agents in villages who use tablets to take stock of produce. Agents also accompany shipments to make sure that no produce is lost. On the demand side, the company engages with large food producers that are unable to cost-effectively engage the downwards segments of the supply chain. Within this unique context, AgroCenta established a blended digital-analogue regional agricultural platform as a workable solution. Such a hybrid business model and process innovation is impressive, and it has a more transformative local impact than pure digital models. Yet, it is also clear that addressing a local market means that the threshold for the speed and extent of enterprise growth are tied to the local economy. This point also highlights an important contrast with digital enterprises in high-income countries (HICs): even if enterprises in HICs are unable to compete with Silicon Valley behemoths on a global scale, their domestic opportunities are much larger than for enterprises in most LMICs. Germany and the Democratic Republic of Congo have similarly large populations, but the local market for homegrown digital products is entirely different. Accordingly, until digital enterprises in LMICs are able to surpass domestic market boundaries, we are likely to see continued growth, but not enough to catch up with HICs.

Forget About Catching Up: New Pathways of Innovation

The overall conclusion is that economic digital inequality has little to do with internet penetration rates. 100 percent is by definition the maximum that any country can reach and, assuming continued decreases of cost, LMICs are bound to catch up with HICs in this particular measure. But the matter is entirely different when we consider whether people and organizations in LMICs are able to capture significant value locally through digital technologies. In international digital markets, they may continue to be unable to overcome competitive disadvantages towards incumbents in Silicon Valley, Europe, or East Asia. The reality seems to be that, in the global digital economy, the rich get richer at an astounding rate. In the end, dreams of ‘catching up’ and leapfrogging begin from a misguided premise: the assumption is that everyone is working towards the same gold standard. This understanding is misleading, and distracts from pursuing what is actually possible in a given context. By virtue of, at the same time, operating within a global competitive market place and being shaped by unique local conditions, those digital enterprises in LMICs that are most successful that are able to innovate around constraints. They are the ones that ultimately take different paths from the ones outlined in standard business literature. So far, apart from success stories like Go-Jek or MPesa, these efforts have remained local and piecemeal. Going forward, the most challenging and the most promising route for LMICs will be to build new digital infrastructures that are locally controlled and fit local conditions, but are also scalable across country borders. This formidable task will require a concerted effort by entrepreneurs, policymakers, and civil society, but it is the only way to counter sustained technological dependency and the exacerbation of digital economic inequality.
The research underlying this piece received financial support by the European Research Council, Grant Agreement 335716.
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Nicolas Friederici

Nicolas Friederici

Nicolas is a postdoctoral researcher at the Oxford Internet Institute working on the Geonet project. He studies how digital entrepreneurship works in environments that are ...

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