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1.7 Conceptual framework: From DT availability to inclusive growth
FIGURE 1.7
Conceptual framework: From DT availability to inclusive growth
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Availability Use
Availability of complementary and greener technologies Enterprises
Individuals/households
Foundations for digital/technological transformation
• Digital infrastructure • Digital skills • Digital businesses • Digital finance • Digital public platforms Government
Net reduction in costs/ frictions Effects
Jobs and labor income
Entrepreneurship and capital income
Lower prices and consumer surplus
Income transfer system
Nonmonetary gains Results: Faster and more inclusive growth, reduced poverty
Policies for affordable availability • Ensure affordable electricity access, especially in poor rural areas. • Promote universal coverage of 3G/4G supported by competition. • Activate USF (FDSUT) to leverage private investments in underserved areas. Policies for inclusive use
• Facilitate affordable devices and data services. • Support MSME technology upgrading. • Invest in ID4D, e-gov services, and e-procurement to pull demand. Policies for inclusive effects
• Expand supply and facilitate use of apps for low-income/low-skilled users. • Incentivize fintech and use of digital data for access to finance by all creditworthy firms and households. • Adopt supporting sectoral and spatial policies.
Source: World Bank. Note: Text in bold represent the focus areas of this book.
stem from demand-side factors, including the following: purchasing power and access to finance; age, gender, language, and capabilities (owners/managers having vocational training for micro-sized firms); being part of effective networks such as having friends or other firms in one’s ecosystem using DTs; and various types of risk and uncertainty. Addressing these demand-side factors may benefit from different types of usage incentives. Policies for more inclusive use include the following: facilitating affordable devices and data services, such as encouraging operators to offer zero pricing for basic messaging apps for poor people; promoting universal 3G/4G coverage; supporting technology upgrading by micro-, small-, and medium enterprises; and public investments to pull demand, including ID4D (digital identification systems to improve development outcomes), digital delivery of public services to households, and digitization of government-to-business transactions (such as access by all firms to tender for government procurement contracts). finally, as highlighted in the figure’s right column, the effects of DTs depend on how intensively people use technologies that enhance productivity. Interactions with analog technologies and other complements as well as with the prevailing business environment also affect outcomes arising from DT adoption. The framework is centered on the distinguishing characteristic of DTs: their effect on reducing different types of economic costs or business-related frictions.21 The internet is a “general purpose technology” that reduces costs across the economy and allows better data-driven
decision-making,22 which in turn can enable technological and broader economic transformation. The framework clarifies how these cost reductions have effects across five channels: jobs and labor income arising from lower costs faced by enterprises and individuals as workers; entrepreneurship and capital income earned by owners of larger firms and household enterprises; consumer surplus arising from lower prices, higher quality, and wider variety; the tax-transfer system; and nonmonetary gains.23 As costs decline, the resulting shifts in economic behavior have implications for firms, households, and government. The cost-centric framework and its components highlight how DT adoption and use increase opportunities to access local and global product, labor, land, and financial markets by enterprises and individuals, as these costs include search, job-matching, transportation, and other transaction costs—clarifying as well that it is through the reduction of various costs that DT adoption and use facilitate business continuity when face-to-face or close-contact production of goods and services would otherwise be disrupted by CovID. Policies for inclusive effects include the following: incentivizing start-up software developers’ creation and facilitating users’ uptake of easy-to-use apps that respond to the needs of low-skilled workers and low-income, excluded individuals; strengthening digital MSME scoring systems to extend e-credits based on transaction records rather than on collateral (including for informal firms); and adopting complementary sectoral and spatial policies to ensure that investments in new technologies are allocated to firms and sectors in line with national comparative advantage and in ways that support the benefits from greater small-large enterprise links, rural-urban links, and regional integration.
The book’s conceptual framework is further illuminated by a recent analysis of the mechanisms through which DTs affect poorer households’ income-earning choices (Porto 2020). Porto uses household data from Senegal (and Kenya) to investigate the implications of lower consumer prices for rice and higher producer prices and lower input prices for groundnuts enabled by the adoption of specific DTs.24 A DT upgrading that lowers consumer prices for rice benefits the average poor household twice as much as the average household, or the rural household more than the urban household, because rice is mostly consumed within the household and most rural households producing rice are net consumers. The welfare effects of a productivity improvement in groundnut production are significantly larger than those of a price increase at the farm gate (the price received by the producer from direct sales at the farm) because the productivity shock is assumed to be much larger than the price shock.25
The main chapters of this book—chapter 2, on households, and chapter 3, on enterprises—examine the extent of digital technology adoption, barriers to that adoption, and effects on outcome variables (depending on data availability), and they suggest policy options for greater inclusion supported by better jobs for more people. Chapter 2 focuses on digital infrastructure upgrading. It explores internet availability and uptake at the household level to identify its factors of adoption and effects on inclusive growth. The rest of the chapter follows this logic, looking at the main drivers (and barriers) of mobile internet adoption first, and then at its effect on welfare—including at the local level. The chapter finishes with a policy discussion that includes infrastructure-focused recommendations on broadening affordable internet access for all. Chapter 3 focuses on DTs and complementary technology upgrading by enterprises.
Its main message is that better jobs for more people require better and more firms. Better and more firms, in turn, require technology upgrading, more productive entrepreneurship, and more and better-allocated financing.
Vital aspects of digital technology adoption during the COVID-19 recovery
The relief, restructuring, and more productive recovery measures required as a response to the CovID-19 pandemic provide an opportunity to “build back better”—with digital technology adoption mattering even more than it did before. The CovID crisis has inverted the economic transformation agenda, which had been focused on generating better jobs for more people. It has refocused it over the coming months on relief measures to counter job destruction in the face of large declines in economic activity. These declines have been driven globally by disruptions in trade and value chains and reduced foreign financing flows (in the form of capital flight and lower foreign direct investment, foreign aid, remittances, and tourism revenues). locally, social distancing measures by governments and citizens’ responses have added to the reasons. In the new time of CovID-19, many of the productivity channels that were expected to be pathways to economic transformation are under threat, including financing for DT and other technology adoption, competition as a driver of sectoral reallocation, and trade and regional regulatory harmonization, better functioning supply chains, and local agglomeration economies as drivers of spatial integration. Also at threat are the reforms and investments needed for skills, infrastructure, and institutions to support inclusive productivity growth.
Moving forward, Senegal needs to adopt more radical incentive-driven reforms supported by an enhancement of capabilities to help it rebound forcefully following CovID-19. These reforms should include replacing existing rent-seeking structures and incentives with a focus on technology upgrading, entrepreneurship, and financing to build the skills and capabilities of unemployed and underemployed informal workers to engage in better work. Adoption of DTs and other complementary technologies matters even more, because it expands work and business opportunities, and together with entrepreneurship and financing support, boosts inclusive productivity growth.
Senegal needs better jobs for more people by focusing on both formal private firms and informal firms. Senegal has experienced an increase in joblessness. Its pre-CovID-19 growth acceleration (above 6 percent per year since 2014) failed to create enough jobs to meet its growing labor supply and reduce poverty sustainably. Senegal’s key poverty-reduction challenge is to create more than 320,000 jobs each year, because higher earnings through jobs is the only sustainable way to reduce poverty. Senegal is rich in young people—Senegal is adding more than 300,000 people to its labor force each year. over the current decade to 2030, Senegal will add more than 4 million people to its labor force.26 The formal sector in Senegal in 2015 employed about 318,000 people, of which only about 188,500 were in the private sector (accounting for only 5 percent of the active working-age population), so Senegal needs to create more than all its current “formal sector jobs” each year to absorb new entrants into the labor force (figure 1.8). Therefore, creating better jobs for more people needs to include (a) better and more formal