by Christina A. Wood 1. Introduction

1. Introduction

This chapter discusses key governance challenges pertinent to adoption of digital technologies for e-commerce purposes. The term “digital technologies” refers to data-driven, general-purpose technologies that significantly reduce the costs of economic and social interactions. For the purposes of this chapter, “digital technologies” comprises equipment and applications that enable connection to the Internet through high-speed fixed or mobile broadband to facilitate access to digital platforms (or apps, including payment systems) that serve as matchmakers between buyers and sellers of goods or services. In so doing, these apps allow distanced users to more easily connect with each other remotely to engage in economic transactions of goods or services (Evans and Schmalensee 2016). In this sense, digital technologies are what enable the transactional digital economy to flourish, facilitated by digital payment mechanisms that, understandably, play a central role.

The chapter is based on the analyses in Cusolito et al. (2022) that established that the socioeconomic upside impact of digital technology adoption in the Middle East and North Africa is huge for growth and job creation, when universal adoption of digital technologies is achieved. The region can obtain large economic gains from universal adoption of high-speed Internet, which will help reduce search, transaction, and intermediation costs between people engaging in economic activities.

Cusolito et al. 2022 presented evidence of the socioeconomic gains of fully digitalizing the economies of the Middle East and North Africa—the region’s gross domestic product (GDP) could increase by an estimated 46 percent, equivalent to US$1.6 trillion, and GDP per capita for middle-income countries in the region could increase by 71 percent, equivalent to US$7,000 per capita. At the firm level, manufacturing revenue per unit of factors of production could increase by 37 percent, and employment in manufacturing could rise by 7 percent (1.5 million new manufacturing jobs). Tourist arrivals could rise by 70 percent, creating jobs in the hospitality sector, and female labor force participation could double from 20 percent to 40 percent—adding 80 million women to the labor market each year.

To reap these socioeconomic gains, countries in the Middle East and North Africa must overcome challenges that result in the region’s greater use of digital technologies for social media purposes rather than for economic purposes. This characteristic of countries in the Middle East and North Africa is referred to in this report (per Cusolito et al. 2022) as the Middle East and North Africa’s digital paradox, which will be discussed further in the next section. To overcome this challenge, and bridge the gender digital divide, a big push to increase use of digital payments in the region is clearly needed; otherwise, the digital economy will remain slow-growing (relative to its potential growth), and its potential benefits will be foregone.

Increasing the use of digital payments requires strengthening the supply and demand sides of the digital payment ecosystem. On the supply side, the region must ensure a solid information and communication technology (ICT) infrastructure, specifically fixed and mobile broadband services, for coverage and quality of Internet connection services. Yet, coverage and quality are not enough on their own; telecom broadband services must also be reliable and, importantly, affordable. Ensuring quality mobile broadband is particularly important because it could enhance opportunities for countries in the Middle East and North Africa to leapfrog and catch up with economies that have higher digital payments use (e.g., Kenya). The region must also support human capital development, notably digital literacy and digital entrepreneurship to enable adaption or creation of digital payment tools and services (e.g., apps) for the context of the Middle East and North Africa region’s economies.