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Fast-spreading digital revolution offers a new growth path for India and other emerging nations

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, and how they can grow rapidly as they did in the past – by exporting their way to prosperity – in an era of deglobalisation.

The freshest of many answers to this riddle is the fast spreading digital revolution. Emerging nations are adopting cutting edge technology at a lower and a lower cost, which is allowing them to fuel domestic demand and overcome traditional obstacles to growth. Over the last decade the number of smartphone owners has skyrocketed from 150 million to 4 billion worldwide. More than half the world’s population now carries the power of a supercomputer in their pockets, allowing more and more residents of the emerging world to access vital consumer and professional services for the first time.

The world’s largest emerging market has already demonstrated the transformative effects of digital technology. As China’s old rust belt industries slowed sharply over the last 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. A recent report from the Boston Consulting Group shows that since 2014 more than 10,000 tech firms have been launched in emerging markets – nearly half of them outside China.

Illustration: Uday Deb

India is home to as many new technology players today as France and Germany, and its companies are growing much faster. From Bangladesh to Egypt, it is easy to find entrepreneurs who worked for Google, Facebook or other US giants before coming home to start their own companies.

There is a so-called Amazon of China, but there are now Amazons of Russia, Poland, Latin America and Southeast Asia. Local firms also dominate the market for search in Russia, ride hailing in Indonesia and digital payments in Kenya.

By one key metric, the digital revolution is already as advanced in emerging economies than developed ones and growing faster. Among the top 30 nations by revenue from digital services as a share of GDP, more than half are in the emerging world. Indonesia for example is further advanced by this measure than countries such as Sweden and Finland – Europe’s most tech savvy nations. India ranks 12th in the world with digital revenues as a share of the economy, approaching 3%.

In fact, since 2017 digital revenue has been growing in emerging countries at an annual pace of 26%, compared to 11% in the developed ones. Led by e-commerce, the pace of growth in India has been even faster with revenues growing by nearly 33% a year over the same period. The European Center for Digital Competitiveness scores G20 nations by pace of progress in digital ecosystems and “mindset”, and puts four emerging nations in the top 5: Saudi Arabia, Indonesia, China and Argentina.

How can it be that developing nations are adopting common digital technologies more quickly than the rich? One simple 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 underserved 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% have access to digital banking.

The “digital divide” 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, “narrowing the gap” in access to digital services.

The digital impact on productivity, the key to sustained economic growth, is visible on the ground. Many governments 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. This helps create a greater sense of trust and cooperation, which in turn facilitates higher economic growth.

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, organising everything 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. As scholar Carlota Perez has shown, tech revolutions last a long time. New innovations like the car and the steam engine were still transforming economies for the better half a century later. Now, the fading era of globalisation will limit the number of emerging economies that can prosper on exports alone, but the era of rapid digitisation has only just begun. This offers many developing economies a revolutionary new path to catching up with the living standards of the developed world.



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Views expressed above are the author’s own.



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