Firms in developing countries hesitant to go digital

A new report by the World Bank says protection from domestic and foreign competition is the reason why firms in developing countries — particularly in the retail and wholesale trade, as well as in finance and transport sectors — are reluctant to adopt new digital technologies, even if this would boost their competitiveness.

The World Development Report 2016: Digital Dividends, due to be released in Cape Town this week, says digital technology creates opportunities to accelerate growth, but these are often overlooked because firms in sectors where technology’s impact is greatest are frequently protected from innovative competitors.

Firms that intensively use digital technologies share other high-productivity characteristics. They tend to be larger, fast-growing, skill intensive, export intensive and located in the capital city. The report says firms that face more competition use digital technology more intensively and effectively, as it enables them to reduce their costs to outperform their competitors.

“But firms in developing countries do not necessarily have the incentive to adopt new technologies to increase their cost effectiveness because they are often protected from domestic or foreign competition,” the report says.

It cites companies in the retail and wholesale trade, finance, transport, along with public utilities, saying this is where digital technology can increase productivity the most.

The goal is for firms’ Internet usage to promote competition, which encourages even more companies to use the Internet.

“But that will not happen if vested interest groups are strong enough to capture regulators and create new barriers to competition and technology adoption. A level playing field for business was always important — digital technologies have made it an imperative,” the report says

The report says more productive firms are more likely to adopt the Internet and use it more intensively. African firms using the Internet have on average 3,7 times higher labour productivity than nonusers and 35% higher total factor productivity.

The report documents examples where the Internet, cell phones and other digital technologies have delivered digital dividends by boosting growth, expanding opportunities and improving services.

It notes that governments are increasingly going digital, and more government jobs in developing countries are information communication technology intensive than in the private sector.

By 2014, all 193 United Nations member states had national Web sites; 101 enabled citizens to create personal online accounts; 73 to file income taxes; and 60 to register a business.

But the report also finds the broader benefits have fallen short and have gone disproportionately to the wealthy, skilled and powerful. The lives of the majority of people remain largely untouched by the digital revolution. Only about 15% can afford access to broadband Internet.

Cell phones, reaching almost four-fifths of the world’s people, provide the main form of Internet access in developing countries. But even then, nearly 2-billion people do not own a cell phone, and nearly 60% of the world’s population has no access to the Internet, according to the World Bank report.

By Bekezela Phakathi for

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