Here’s how emerging economies are investing in their digital future

Digital transformation is rapidly taking place, and we need the right governance frameworks to maximize its positive contribution and enable societies to prosper.

The World Economic Forum and the Digital Cooperation Organization have launched a collaboration – the Digital FDI Initiative – to identify the biggest challenges to growing the digital economy by helping implement policies and measures that will create “digital-friendly” investment climates.

Pakistan and Rwanda will be the first two countries to be supported by this new initiative to create an enabling environment for their digital future. More countries are in the pipeline to join the initiative and will be announced in the near future soon.

With unemployment rates raised by COVID-19, the digital economy presents an opportunity to create innovative new jobs and stimulate entrepreneurialism in new subsectors of the economy, like e-commerce and fintech.

Key to these solutions will be development of digital infrastructure and empowering populations with the tools to participate in the digital economy. Access to the internet is regarded as one of these metrics. In 2020, however, only 53% of people, and 16% of the world’s poorest, had access to the internet.

Government and private sector investment in the necessary infrastructure, hardware and software to boost this interconnectivity is therefore crucial to targeting growth in new sectors in pursuit of the SDGs.

If there’s one thing that the COVID-19 pandemic has taught us, it’s that digital transformation is no longer a luxury, but a necessity for growing emerging economies. To grow the digital economy, markets must attract and facilitate the flow of foreign direct investment (FDI), which brings not only capital but also knowledge, technology and know-how.

Yet attracting “digital FDI” requires specific enabling policies and measures vis-à-vis traditional FDI because digital firms operate different business models, as delineated in the Forum’s thought-leading Digital FDI white paper, which presented the results of a global investor survey on the most important policies, regulations and measures for firms’ decision to invest in the digital economy (Figure 1).

Based on our previous work, we’ve learnt that policies, regulations and measures to attract and facilitate digital FDI can be thought of as falling into four pillars (Figure 2): (a) those that enable investment in new digital activities (e.g. ridesharing apps); (b) those that enable investment in the adoption of digital services by existing firms (e.g. telemedicine or mobile banking); (c) those that enable investment in digital infrastructure, which will not only be driven by the policy and regulatory framework but also by physical considerations; and finally (d), outward digital FDI, which looks at the various home-country measures that can be taken to not only increase outward FDI, but also home-country benefits that help reach national development goals.

Increasing digital capacity and competitiveness and investing in digital infrastructure and digital activities are essential for all economies – and especially emerging markets – to tap into this new channel of development and not be left behind. As a result, we came together to launch the Digital FDI Initiative at the 2022 Annual Meeting, bringing together government and business to create ‘digital friendly’ investment climates across various countries.

Now, at the 2023 Annual Meeting, we are pleased to announce the progress made and the next steps in this collaboration between DCO and the Forum. Together, we will collaborate to deliver country projects in a number of emerging markets, leveraging public-private cooperation between digital investors, governments and other stakeholders.

Which is why we are proud to unveil the first two projects that will take place in Pakistan and Rwanda, with more country projects to be announced soon. This is tangible progress towards the possibility – and realization – of cooperation in a fragmented world.

The projects will be based on public-private cooperation and participation of foreign and domestic investors as well as technology startups, innovators and civil society. This multi-stakeholder approach ensures that the voices of those on the ground will help us identify the challenges and solutions to create enabling environments.

Once priority reform recommendations are identified, we will work hand-in-hand with the government to help support their implementation and provide the technical assistance needed to achieve tangible results that will create “digital-friendly” investment environments. This will help achieve development goals by transforming economies into digitally dynamic markets.

The Digital FDI Initiative is just the first step – this initiative opens the door for cooperation in other areas such digital payments, data policy, digital skills and international agreements.

Together, we can work towards a world in which every country, business and person has the opportunity to prosper in the digital economy.