Digitalization for development: Benefits for MSMEs in developing countries

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Author:
Andre Edwards

Mr Crispin Conroy (Representative to the WTO, International Chamber of Commerce (ICC)) while discussing opportunities for SMEs in developing countries, looked at the impact of COVID-19 which resulted in the worst economic downturn since the 1930s. Digital trade ensured access to goods and services worldwide with many brick and mortar online operations. The experience, however, was not the same in all nations.

Internet growth has been higher in richer countries while, in poorer countries, many challenges inhibit businesses. In the ICC network, discussions have shown no one bridge crosses the digital divide but rather a suite of options, like open and effective payment networks, capacity building, and enabling regulations.

As for the work being done on the WTO e-commerce joint statement, the ICC has focused on four key deliverables:

  1. Market access and connectivity - common rules for access and support competition, and contributing to resilience in global supply chains
  2. Cross border data flows - permanent ban on tariffs and custom duties on digital products
  3. Trade facilitation - discipline enabling processing of low value goods and services
  4. Trust and security - commitment on cross border consumer protection and data protection framework.

The e-commerce Joint Statement Initiative (JSI) can contribute to this crucial cause for all businesses and countries.

Ms Sonal Jindal (Founder and Promoter, Medusa EXIM) compared the current digital revolution to the history of the industrial revolution. Factories were originally built on an old model powered by water and coal. Electricity was becoming available making it possible to set up factories anywhere. However, it took time before factory design changed and the breakthrough came when the mentality of the factory owners changed to fully leverage the power of the new technology that was available.

Jindal stated that this is similar for digital technology and digital transformation, bearing in mind a few key points:

  1. Understand and evaluate digital tech
  2. Know what works for you
  3. Harness big data
  4. Embrace experimentation in the digital world

Mr Torbjorn Fredriksson (Head of the ICT Analysis Section of the Division on Technology and Logistics, UNCTAD) reviewed the definition of digital trade being any goods and services ordered online or anything that is digitally enabled.

In reviewing the statistics, e-commerce has increased in rich and poor countries during the pandemic. However, cross-border e-commerce has been negatively impacted by government restrictions imposed in order to stem the growth of the virus. Digital services and products grew 66% from 2020 to 2021, even though this increase was not observed in Africa and some less developed countries.

Many smaller businesses struggled to take advantage of the demand in countries that were less developed, while third party marketplaces saw a spike in sales. Some of the factors hampering growth were limited access to finance, limited connectivity, and insufficient promotion of e-commerce by the government. Mr Nick Ashton-Hart (the Geneva Representative of the Digital Trade Network (DTN), Geneva rep for trade - Digital connectivity) joined the call for connectivity improvements highlighting the higher cost of 1mb in LDCs being almost 10% of income and almost 11 times higher than in more developed nations. Also, among the least developed countries, less than a half have adopted laws to protect consumers online.

Ms Clarisse Iribagiza (CEO and eTrade for Women Advocate for East Africa, Mobile technology company HeHe Limited) also called for greater efforts to be made in the consumer protection field. In case of her company, they grew more during the pandemic than over the previous eleven years. Since they already had certain infrastructure in place, like digital payment systems, they were able to manage the increased demand. HeHe launched a platform that allowed 6,000 farmers access to markets beyond their communities. Most of the farmers were women who would have had limited access when traditional supply chains were disrupted by the pandemic and this platform reduced the negative impact. Low consumer trust is still a challenge due to the lack of consumer protection laws and the digital divide, and greater efforts for building the trust need to be made.

High transaction costs do pose a challenge. However, since farmers have been witnessing the consistent market, over time, the trust has been built with certain costs being reduced, as well. Jindal agreed that going digital saves money and time, but stated that the logistics costs have spiked and that the government of India is addressing that problem through reducing shipping costs, as well as through working on digital wallets, documentation, etc.

Conroy stated that, though e-commerce has been operative since 1990s, new trade rules are necessary because though it is working well, it is not working well everywhere, and that’s why there is the need to look into how it can be improved. Fredriksson and Jindal chimed in that countries are at different levels of readiness and that new market players face challenges around running businesses which the WTO is making strides with. Iribagiza included that Africa has not been well represented so far, while it has a valid voice to add to these discussions. All speakers agreed that digitalisation of trade documents would be useful to SMEs in developing countries, building capacity for smaller businesses.