A new digital divide threatens growth

Information and communications technology (ICT) – a term used for anything from high-speed broadband cables to the latest app – has revolutionized the way the economy works. Business models have been redefined, supply chains have gone global, the workplace has been redesigned, small start-ups have grown into multibillion dollar behemoths, and profound changes have rippled through healthcare and education.

As well as helping to make companies and services more efficient, ICT has huge potential to increase innovation, boost economic growth and create much needed high-quality jobs. With the developed world striving to improve competitiveness and the developing world focused on maintaining growth rates, no country can afford to ignore these opportunities. However, as the World Economic Forum’s Global Information Technology Report 2013 shows, a new kind of digital divide is hampering this progress.

While some countries have continued to consolidate their leadership in the digital landscape, others still trail significantly behind, with little or no sign of significant progress. The Nordic countries, the Asian Tigers and several advanced economies in North America and Western Europe, such as the Netherlands and the United Kingdom, continue to lead in providing high connectivity rates, resulting in high innovation rates that help boost their competitiveness. In these countries, some 90% of households have a computer and an Internet connection.

In sharp contrast, several developing countries – notably in Africa, but also in Latin America and South-East Asia – continue to show low values of connectivity with low level of Internet usage and limited development of e-commerce. Their struggle to upgrade digital connectivity means they are losing out on all the social and economic rewards that go along with better ICT infrastructure.

In the case of the Russian Federation, the country has benefited from a growing number of Internet users and the number of mobile broadband subscriptions has multiplied exponentially in the last years. However, e-business development still remains low and weaknesses in the political and regulatory framework and a poor business and innovation environment affects its capacity to further leverage ICT to boost its innovation performance and the associated potential economic returns.

For the Russian Federation, as for other countries, in order to fulfil the full potential of ICT, improvements in infrastructure, technologies and skills all need to work together in a coordinated way. Innovations often come about when a skilful labour force gets to experiment with the latest technologies and new materials. It is precisely in this area where one of the biggest difficulties lies for several developing economies – creating the right environment for innovation is costly and takes significant time to yield any minimum results.

As the Global Information Technology Report shows, the relationship between developing a highly skilled workforce and quality ICT infrastructure on one hand, and achieving positive economic and social impacts on the other, is far from perfect or linear. The results suggest that there may exist a minimum investment threshold in ICT and skill development that any country may need to undertake to obtain any meaningful results. But once this threshold is achieved, the return on such investment in ICT skills and infrastructure becomes disproportionately higher as the economy transitions to higher value-added activities.

Countries should be encouraged to adopt the right policies and investment decisions to develop their ICTs, while bearing in mind that they may take time to bear fruit. A coherent framework of policies is needed to nurture the kind of innovations that could help us move beyond the economic slump.

Author: Beñat Bilbao-Osorio is Associate Director and Senior Economist of the Global Competitiveness and Benchmarking Network at the World Economic Forum.

Image: A technician looks at a mobile phone in a test room in an information and communication technologies surveillance laboratory in Turkey REUTERS/Umit Bektas