How to measure the Digital Transformation in the Arab Countries

Safa Mostafa, 28 Feb 2019

 

Digital transition is reshaping economies and societies. The ongoing digitalization of the economy show a lot of promise to stimulate innovation, generate efficiencies, and ameliorate services throughout the economy. It became a necessary condition for inclusive and sustainable growth and the overall well-being.[1]

 

Defining “Digital Economy” is sometimes narrowly scoped as online platforms and their inherent activities, yet, in a broad sense, all activities that use digitized data are part of the digital economy. Thus, in modern economies, the digital economy could encompass an enormous part of most economies, ranging from agriculture to R&D.[2]

 

The digital economy goes beyond the information and communication technology (ICT) industry. More countries are acknowledging its significance to boost competitiveness, economic growth and social well-being. Almost all of the OECD countries have a digital strategy- except the USA[1]; and in most of the cases these strategies are over-arching and cross sectoral.[3][4]

 

With the growing importance of the digital economy, it became essential to measure the status of advancements of the Arab countries towards such a rising phenomenon. Many measurements can be found on the international level. There is the Digital Adoption Index (2016) by the World bank, the Digital Evolution Index (DEI) (2017) by the Fletcher School at Tufts University, in partnership with Mastercard, the Digitization Index (2016) by BBVA Research, the IMD World Digital Competitiveness Ranking (2018) by IMD World Competitiveness Center, and the Enabling Digitalization Index (EDI) (2018) by Allianz and Euler Hermes.

 

Mostly these indices focus on both the demand and supply sides of the digital economy; comprising three main agents, the citizens, the government and the businesses. Institutional and regulatory elements of the digital ecosystem were also captured by these indices. But there are some nuances between these developed efforts; for instance, the DEI integrates additional indicators pertaining to innovation. On the other hand, the EDI is somehow different as it does not measure the outcome of digitalization but rather focuses on the conditions for companies to transform or thrive digitally. Also the IMD World Digital competitiveness is defined into three main factors (Knowledge, Technology & Future readiness); to measure country’s ability to adopt and explore digital technologies leading to transformation in government practices, business models and society in general.

 

At the regional level, some efforts have been made to measure digital economy. Most recently, The ESCWA has carried out a study entitled “Perspectives on the Digital Economy in the Arab Region” to measure the transition of the Arab countries towards the digital economy. The methodological approach is based on the study of six aspects (the ICT sector: innovation and finances; ICT infrastructure and affordability; Human capacity and research; ICT use by individuals, businesses and governments; Economic impact; Social impact).
 

To analyze such aspects, two indices were studied, the Networked Readiness Index (NRI) and the Global Innovation Index (GII), along with other specific indicators.
 

A similar assessment was done for some of the Arab Region countries (Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) by McKinsey through the so-called Industry Digitization Index in 2016.

 

Generically speaking all of these measurements in most of the cases yield to the same results. The following is based mainly on the analysis provided by ICANN’s report published in 2017 under the title of “Accelerating the Digital Economy in the Middle East, North Africa and Turkey” with some modifications based on the findings from other sources.  
 

The Arab region countries can be categorized into four different groups with regards to their progress towards the digital economy; despite the economic and cultural diversity. The most developed group is the high-income countries of the GCC. These states have high internet penetration, high literacy rates, and in most cases relatively low youth unemployment. The second group includes Jordan & Lebanon; with higher internet penetration due in part to their compact, urban nature. The third is the rural, lower-middle income countries of North Africa (Algeria, Egypt, Morocco & Tunisia). These countries have GDP levels similar to their cousins, but literacy rates are lower and a total of 100M citizens are unconnected. The final group includes countries affected by conflict namely Yemen, Iraq, Syria, Palestine, Sudan and Libya and least developed countries (LDCs) (Comoros, Djibouti, Mauritania and Somalia).

 

It should be noted that not all the indices rank the Arab countries in the same order or yield to the same analysis; there is of course some differences. A country like Jordan surpassed Kuwait (one of the GCC countries) in both the Digitization Index and the Enabling Digitalization Index; however, it was ranked after Tunisia and Morocco in the Digital Adoption Index. Lebanon is another example; surpassed by Morocco in the Enabling Digitalization Index and ranked at the 90th position in the Digitization Index out of 100 countries worldwide.
 

Also, there is a difference in the number of the Arab countries included in these indices. For instance, the Digital Competitiveness and Digital Evolution are the less comprehensive in terms of the number of the Arab countries included; with only 4 Arab countries in the first and 6 Arab countries in the second.

 

More in depth analysis are provided from the McKinsey Digitization Index (2016). It shows that from the demand side, citizens are leading the Middle East’s digitization. UAE, Qatar, and Bahrain are among the top countries in the world, with more than 100% smartphone penetration and more than 7% social media adoption—even higher than the United States. But the case is different with regards to businesses and governments with only 6% of the Middle Eastern public lives under a digitized smart government. Moreover, countries in the region lag far behind in business digitization, with low availability of venture capital funding for start-ups and low share of the workforce employed in digital careers and industries. Again, the GCC countries are performing better with more digitized businesses than Egypt, Jordan, and Lebanon. From the supply side and despite that other countries in the region have achieved considerable progress; they are facing implementation problems in their efforts to promote innovation and push the public sector’s adoption of digitalization to the next level. Qatar and Bahrain lead ICT supply and innovation thanks to high 3G coverage and low prices.


In conclusion, the region is a net importer and consumer of digital, rather than developing digital assets and services. However, the Arab region has the opportunity to reap the digital dividends with concerted action by companies, governments, and individuals especially with the gap between the demand from a digital savvy young population and the supply.

 

 

[1] USA adopts a decentralized market-driven approach to its Digital Strategy.

 

[1] Organization for Economic Cooperation and Development. 2017. Key issues for digital transformation in the G20. [ONLINE] Available at: https://www.oecd.org/g20/key-issues-for-digital-transformation-in-the-g20.pdf [Accessed 28 December 2018].

[2] International Monetary Fund. 2018. Measuring the Digital Economy. [ONLINE] Available at: https://www.imf.org/~/media/Files/Publications/PP/2018/022818MeasuringDigitalEconomy.ashx  [Accessed 28 December 2018].

[3] Organization for Economic Cooperation and Development. 2015. OECD Digital Economy Outlook 2015. [ONLINE] Available at: http://www.oecd.org/sti/oecd-digital-economy-outlook-2015-9789264232440-en.htm  [Accessed 28 December 2018].

[4] Organization for Economic Cooperation and Development. 2017. OECD Digital Economy Outlook 2017. [ONLINE] Available at: http://www.oecd.org/internet/oecd-digital-economy-outlook-2017-9789264276284-en.htm [Accessed 28 December 2018].

 

The views expressed here are solely those of the author in his/her private capacity and do not in any way represent the views of neither the Arab Development Portal nor the United Nations Development Programme. 

Safa Mostafa Safa Mostafa
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