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4 Ways To Turbocharge Developing Digital Economies

From GE Reports, 5 July 2017

Digitization and e-commerce are opening new opportunities for developing countries to promote entrepreneurship, job-creation and small businesses. However, the funding needs to haul developing countries over the digital chasms are gigantic.

Over three-quarters of small developing country companies have yet to sell online. The deck is often stacked against them – over 60 percent of small developing country companies rate e-commerce logistics and access to finance “C-“ or worse, according to a survey by Nextrade. Digital regulations or online payments don’t get much better grades either; in countries like Ghana or Bangladesh, choppy Internet connectivity holds e-commerce back.

The only way to make digital economies work for businesses in developing markets is creative partnerships among the private and public sectors. Here are four models industry should consider:

1. Private sector seeds, public sector scales

The private sector, from global companies to small e-commerce platforms, is helping bring women, rural populations and small businesses into the stream of e-commerce. Take, for example, Pakistani logistics company TCS Holdings that has programs to train women to become e-commerce couriers, or Burundi Shop that digitally connects rural African businesses to regional markets.

Often these investments yield financial returns only gradually, in years rather than months, but tend to immediately yield the social returns that governments covet to meet the UN Sustainable Development Goals due 2030. The public sector should help scale and replicate these solutions the private sector has identified, seeded, and already made work – and thus taken the public sector’s risk off the table.

2. Spreading the risk and sharing digital dividends: social impact bonds

Another means to fund projects has already been used to cure malaria, save rhinos, and integrate inmates in societies—the social impact bond. Imagine a private business or investor who makes an initial investment in an e-commerce project, and if the program meets certain goals like jobs created or increased wages, the investors get compensated at a premium by the public sector that “buys” the successful project for its social impact. This instrument is superb at incentivizing investors hungry for a financial return to deliver social and economic returns desired by the public sector.

3. Shared data to break bottlenecks in e-commerce

Public and private sectors can also work together to modernize old institutions that fail to serve today’s trade. One area rife for reform is customs, the leading bottleneck in world trade. Customs are still set up to deal with big companies and large, regular containerized shipments, and struggle to screen and wave through swiftly the burgeoning volumes of small parcels that are the hallmark of cross-border e-commerce. The e-commerce ecosystem has excellent data on shipments and sellers that could be packaged and anonymized to help customs perform data-driven risk-based screening and fast-track 21st century trade through customs.

4. Crafting smart digital regulations for trade

Governments around the developing world fashioning digital and e-commerce regulations must be self-aware of their knee-jerk reactions to regulate for sake of regulating, and create regulatory frameworks with the private sector. Luckily, many already are. For example, in Turkey, public and private sectors are working together in an e-commerce policy council that is roadmapping e-commerce regulations and programs for SMEs’ participation in e-commerce. In Bangladesh, the IT association has early on engaged policymakers to understand the challenges IT firms face and fashioned proposals the government has subsequently adopted.

Technology-powered trade is changing the patterns players, and possibilities of world trade. To realize its full potential, public and private sector partnerships need a major boost.

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