Emerging economies struggled to grow through the 2010s and pessimism shrouds them now. People wonder how they will pay debts rung up during the pandemic of Covid-19 and how they can grow rapidly as they did in the past – by exporting their way to prosperity – in an era of deglobalization.
The freshest of many answers to this riddle is in our opinion the fast – spreading digital revolution (4th Industrial Revolution). Emerging nations are adopting cutting – edge technology at a lower cost, which is allowing them to fuel domestic demand and overcome traditional obstacles to growth. Over the past decade, the number of smartphone owners has skyrocketed from 150 million to 4 billion worldwide. More than half the world’s population now carry the power of a supercomputer in their pockets. The world’s largest emerging market has already demonstrated the transformative effects of digital technology. As China’s old rustbelt industries slowed sharply over the past decade, and ran up debts that threatened to explode in crisis only a few years ago, the booming tech sector saved the economy.
Now, often by adopting rather than innovating, China’s emerging market peers are getting a push from the same digital engines. Since 2014, more than 10,000 tech firms have been launched in emerging markets – nearly half of them outside China. From Bangladesh to Egypt to the United Arab Emirates, it is easy to find entrepreneurs who worked for Google, Facebook or other US giants before coming home to start their own companies.
As well as the so-called Amazon of China, there are Amazons of Russia, Poland, south-east Asia and the Middle East. Local firms dominate the market for search in Russia, ride-hailing in Indonesia and the Middle East and digital payments in Kenya and India. By one key metric, the digital revolution (4IR) is already as advanced in emerging economies as developed ones. Among the top 30 nations by revenue from digital services as a share of gross domestic product (GDP), 16 are in the emerging world. Indonesia, for example, is further advanced by this measure than Finance or Canada. And since 2017, digital revenue has been growing in emerging countries at an average annual pace of 26%, compared with 11% in the developed ones.
How can it be that poorer nations are adopting common digital technologies faster than the rich?
One explanation is habit and its absence. In societies saturated with bricks – and – mortar stores and services, customers are often comfortable with and slow to abandon the providers they have. In countries where people have difficulty even finding a bank or a doctor, they will jump at the first digital option that comes along. Outsiders have a hard time grasping the impact digital services can have on under-served populations. Nations lacking in schools, hospitals and banks can quickly if not completely redress these gaps by establishing online services. Though only 5% of Kenyans carry credit cards, more than 70% already have access to digital banking.
The ”digital divide” in our opinion is narrowing in many places. Most of the big countries where internet bandwidth and mobile broadband subscriptions are growing fastest are in the emerging world. Last decade, the number of internet users doubled in the G20 nations, but the biggest gains came in emerging nations such as Brazil and India.
The digital impact on productivity, the key to sustained economic growth, is visible on the ground. Many governments including the UAE are moving services online to make them more transparent and less vulnerable to corruption, perhaps the most feared obstacle to doing business in the emerging world.
Since 2010, the cost of starting a business has held steady in developed countries while falling sharply in emerging countries, from 66% to just 27% of the average annual income. Entrepreneurs can now launch businesses affordably, organizing much of what they need on a smartphone. Lagos and Nairobi are rising as local fintech hubs, where leading executives vow to raise Africa’s “digital GDP” by widening access to internet financing.
It’s early days, too. Based on our experience we know that tech revolutions last a long time. Innovations like the car and the steam engine were still transforming economies half a century later. Now, the fading era of globalization will limit the number of emerging economies that can prosper on exports alone, but the era of rapid digitization has in our opinion only just begun. This offers many developing economies a revolutionary new path to catching up with the living standards of the developed world and Calvin • Farel aims to take part in it.