How can emerging economies invest in digital future?

With unemployment rates raised by COVID-19, the digital economy presents an opportunity to create innovative new jobs and stimulate entrepreneurialism in new subsectors of the economy, like e-commerce and fintech.

Key to these solutions will be development of digital infrastructure and empowering populations with the tools to participate in the digital economy. Access to the internet is regarded as one of these metrics. In 2020, however, only 53% of people, and 16% of the world’s poorest, had access to the internet.

Government and private sector investment in the necessary infrastructure, hardware and software to boost this interconnectivity is therefore crucial to targeting growth in new sectors in pursuit of the SDGs.

If there’s one thing that the COVID-19 pandemic has taught us, it’s that digital transformation is no longer a luxury, but a necessity for growing emerging economies. To grow the digital economy, markets must attract and facilitate the flow of foreign direct investment (FDI), which brings not only capital but also knowledge, technology and know-how.

Yet attracting “digital FDI” requires specific enabling policies and measures vis-à-vis traditional FDI because digital firms operate different business models, as delineated in the Forum’s thought-leading Digital FDI white paper, which presented the results of a global investor survey on the most important policies, regulations and measures for firms’ decision to invest in the digital economy.

4 pillars of digital FDI

Based on our previous work, we’ve learnt that policies, regulations and measures to attract and facilitate digital FDI can be thought of as falling into four pillars:

a- Those that enable investment in new digital activities (e.g. ridesharing apps)

b- Those that enable investment in the adoption of digital services by existing firms (e.g. telemedicine or mobile banking)

c- Those that enable investment in digital infrastructure, which will not only be driven by the policy and regulatory framework but also by physical considerations.

d - Outward digital FDI, which looks at the various home-country measures that can be taken to not only increase outward FDI, but also home-country benefits that help reach national development goals.

Increasing digital capacity and competitiveness and investing in digital infrastructure and digital activities are essential for all economies – and especially emerging markets – to tap into this new channel of development and not be left behind.

The Digital FDI Initiative is just the first step – this initiative opens the door for cooperation in other areas such digital payments, data policy, digital skills and international agreements.

Source: World Economic Forum