B3.3.1 COVID-19 Has Accelerated the Use of Digital Technologies and Home-Based Work Most among Firms in Global Innovator Services

BOX 3.3 Impact of COVID-19 on Digitalization and Remote Delivery

The COVID-19 pandemic is accelerating trends of digitalization. The World Bank’s Business Pulse Survey (BPS) data show an increased reliance on digital technologies and remote work during the COVID-19 pandemic (figure B3.3.1). These increases have been the highest in high-skill services like ICT, financial services, and education, which suggests that much of the work in these sectors that has long been conducted in person is now increasingly being delivered digitally and remotely. Digitalization is also occurring in some of the low-skill services subsectors; for example, roughly a third of the retail firms surveyed report that they have started or increased the use of digital platforms to execute transactions.

Yet the actual delivery of services, such as accommodation and food as well as passenger transportation, remain intensive in face-to-face interactions with consumers and will likely be slower to recover as people continue to exercise social-distancing precautions. In the United States, for example, most of the fall in restaurant reservations occurred before the imposition of any government-mandated closures (Maloney and Taskin 2020). Manufacturing and construction, in contrast, are likely to see workers return to their jobs more easily as lockdown restrictions ease, given the low face-to-face interactions with consumers.

FIGURE B3.3.1 COVID-19 Has Accelerated the Use of Digital Technologies and Home-Based Work Most among Firms in Global Innovator Services

Firms’ adoption of digital platforms and home-based work during the COVID-19 pandemic, by sector, 2020

60

50

Share of firms (% ) 40

30

20

10

0 ManufacturingConstructionRetail and wholesaleTransportationAccommodation Food services ICT Finance Education HealthOther services Increase in use of digital solutions More working from home

Source: World Bank COVID-19 Business Pulse Survey (BPS) and Enterprise Surveys (ES), conducted April–September 2020. Note: The data cover more than 130,000 businesses in 60 countries, primarily low- and middle-income countries (LMICs). The graph displays the predicted average changes from a regression controlling for country, size, sector, and the number of weeks following the shock. The data have been reweighted so each country has an equal weight. Error bars indicate 95 percent confidence intervals. LMICs, by World Bank income group classifications, had 1994 gross national income (GNI) of less than US$8,955. “Other services” includes other social, community, and personal services. ICT = information and communication technology. For a full description of the survey, see Apedo-Amah et al. (2020).

services by tracking shipments in real time, while improved and expanded navigation systems may help route trucks based on current road and traffic conditions (World Bank 2020).

These revenue and productivity gains from AI-related automation are unlikely to be substantial in LMICs, owing to low adoption rates. Furthermore, the potential for AI- and ML-related automation in high-income countries to challenge traditional patterns of offshoring is less relevant for these low-skill tradable services where geographic proximity between producers and consumers remains important. The export of accommodation and food services and passenger transportation services linked to tourism, for example, is tied to the exporting country’s location.

Widespread Productivity Gains from ICT-Based Automation The lack of technology adoption across general business functions such as input sourcing, inventory management, product pricing, accounting practices, marketing, and payment systems comes at a productivity cost for firms in any sector. The World Bank’s FAT survey finds that the relationship between technology use in these general business functions and labor productivity is as strong among services firms as among manufacturing firms in Brazil, Senegal, and Vietnam (Cirera et al. 2020b).28 And although the inherent role of labor remains important in most low-skill services, there is evidence of such productivity gains resulting from ICT-related automation.

In retail services, there is a positive association—beyond a threshold level—between the share of firms that used websites and labor productivity across a large cross-section of countries (figure 3.15). Similarly, informal enterprises in Senegal (the large of majority being in retail) that make greater use of basic software and other specialized apps to facilitate general business functions have higher labor productivity and total sales on average than those that do not use such software and apps (Atiyas and Dutz 2021). Similarly, Haller and Lyons (2019) use firm-level data across Ireland from 2006 to 2012 to find consistent evidence that broadband availability positively affects TFP in administrative and support service activities.

In tourism-related services, numerous studies have found that the positive relationship between ICT use and the industry’s competitiveness increased between 1995 and 2018 (Villa Espinosa, Miñana Terol, and González-Ladrón-de-Guevara 2018). Using data from the hospitality industry in South Africa, Cohen and Olsen (2013) find that higher-performing establishments have better, more integrated IT systems in place.29 The sample of responding firms was split about evenly between smaller (less than 100 rooms) and larger (over 100 rooms) establishments and between chains (60 percent) and nonchains (40 percent).

In transportation services, digital technologies have also boosted productivity by creating a single window for streamlining customs procedures. In Costa Rica, for example, a one-stop online customs system increased both exports and imports.