BY FRANK QINGYU TAO
Frank Qingyu Tao is a first-year MAIR student from Hangzhou, China. His research interests are international political economy and Chinese politics.
Emerging technologies such as automation, robotics, and artificial intelligence are drastically reshaping the way goods and services are produced and consumed. The potential dividends include more productive businesses,[1] new employment opportunities, and better government services.
However, developing countries trying to reap these dividends also face uncertainties due to their structural and policy weaknesses and the disruptive effects of digital technologies. The labor-saving and skill-biased natures of digital technologies have caused relocations or automation of some of the existing jobs.[2] The new job opportunities are likely to require higher education and better skills compared with the older ones.[3] Unequal access to and use of digital technologies can exacerbate economic and social inequalities without policy adaptations and regulatory reforms. The poverty reduction effect of growths from digitalization weakens if high inequality persists.
Digitalization has helped mitigate immediate disruptions caused by the COVID-19 pandemic. When businesses shut down, schools switched online, work became remote, and governments imposed stringent lockdowns, countries with more widespread access to and usage of digital technologies can better weather the storm.[4] As countries continue to address the pandemic’s remaining effects and prepare for future outbreaks, pursuing digitalization becomes even more important.
In the Middle East and North Africa (MENA) region, most countries have experienced low growth and rising youth unemployment since the Arab Spring uprisings. The pandemic has reinforced the region’s poor performance.[5] Due to two massive and reinforcing shocks, trade and financial flows fell sharply, manufacturing and service sectors took a hard hit, and oil prices plunged. The after-effects of the pandemic, the future uncertainties about vaccine rollouts, and the resurgence of the virus constitute major downside risks.
Given Arab countries’ strong investment capabilities and North Africa’s better connectivity relative to Africa’s other subregions,[6] can they harness the power of digital transformation? What complementary policies can enable the unstoppable digital revolution to accelerate recovery and create inclusive growth?
Egypt and Morocco are interesting cases to study because while they have educated youth, many cannot find full-time employment. Pursuing digitalization should be appealing since the two countries’ geographic advantage puts them in a great position to become connectivity hubs.
As the trade and service sectors in Egypt and Morocco have been hard hit during the pandemic,[7] accelerating digital transformation becomes more necessary to withstand future shocks. Successfully addressing the challenges in reaping digital dividends will benefit the millions of people living in the two countries. Table 1 shows selected key indicators for Morocco, Egypt, and developing countries.[8]
Source: Author’s compilation using data from the United Nations Development Programme, “Poverty and Shared Prosperity 2020: Reversals of Fortune”, Lakner and Milanovic 2015, and the World Development Indicators.
Notes: Data from the nearest years are used when missing values.
Egypt, in many ways, is the forerunner and the leader in pursuing digitalization in the region. Egypt’s sizable information and communication technology (ICT) sector makes it one of the few developing nations outside East Asia that produces ICT equipment.[9] The Egyptian government’s continued support of innovation and entrepreneurship helped Cairo become the largest start-up ecosystem in North Africa in 2019.[10] Cairo hosts over 400 active domestic start-ups such as the e-payment platform Fawry and the venture capital firm Flat6Labs. Telemedicine and digital learning platforms also provide free and quality services to the public.
Earlier waves of digitalization have created a substantial number of jobs in the telecommunications and ICT manufacturing industries. More recent waves of digitalization have enabled dozens of innovative start-ups and new modes of business with increased productivities and greater potential to generate high-quality jobs.
However, dividends from the digital revolution have not translated into significant improvements in the standard of living. From 2010 to 2018, Egypt had an average unemployment rate of 12.1% and a youth unemployment rate of 30.8% (see Table 1).[11] While Egypt’s human development index (HDI) has steadily risen, the number for 2019 shrinks by 29.7% when adjusted for inequality.[12]
Several infrastructure and regulatory challenges have inhibited digitalization from promoting inclusive growth in Egypt. As Figure 1 shows,[13] Egypt has lower percentages of internet access, 4G coverage, and mobile phone penetration compared with its regional peers. Egypt’s internet users remain below 50% of the population, potentially due to its high pricing of internet and mobile data.[14]
Figure 1. Access to Digital Technologies in North Africa (percentage of population, 2018)
Source: African Union Commission and OECD 2021
Shortcomings in infrastructure development are closely related to incomplete regulatory reforms. The monopolistic position of Egypt’s state-owned enterprise (SOE), Telecom Egypt, along with the absence of a truly independent regulator have prevented sufficient investment and competition in the ICT sector.
As most firms in Egypt report very low usage of technology, the gains in productivity are limited.[15] Because Egypt’s private sector is dominated by microenterprises concentrated in low-skilled industries, it cannot provide sufficient high-quality jobs.[16] Additionally, the share of private investment in Egypt is considerably lower than that in peer countries,[17] making it more difficult for firms to grow and adopt digital technologies.
Briefly examining Morocco’s situation reveals its strengths and weaknesses. In Morocco, digital tools are widely used for economic and financial purposes.[18] Morocco leads North Africa in the proportion of businesses with a website and the number of fintech start-ups. Unlike in Egypt, digital infrastructures are relatively well developed in Morocco. However, Morocco also suffers from high youth unemployment rates and high levels of inequality (see Table 1).
Relatively low levels of human capital seem to be preventing Morocco from reaping consummate dividends. In 2019, Morocco’s mean years of schooling is 5.6, even falling behind Egypt and the developing world average (see Table 1). Additionally, only 4.2 percent of male and 3.3 percent of female students enrolled in engineering, manufacturing, and construction programs.[19]
Moving forward, countries should adopt policy actions that address binding constraints to digital-enabled growth. Egypt should prioritize increasing connectivity and developing technologically advanced, open, and competitive digital infrastructures.[20] Specifically, Egypt needs to strengthen the powers of the independent regulator and shift the role of the state in the ICT sector. Providing open access to Telecom Egypt’s fiber network and liberalizing the licensing of infrastructure will allow other operators to invest in the sector. Morocco should continue to promote quality education, reskilling of the workforce, and enrollment in programs for science, technology, engineering, and mathematics. Digitalization has great potential to accelerate post-COVID recovery, drive long-term growth, and build resilience against future outbreaks.
Photo Credit: by NASA's Marshall Space Flight Center, licensed under CC BY-NC 2.0.
References
[1]. World Bank. 2016. World Development Report 2016: Digital Dividends. Washington, DC: World Bank. doi:10.1596/978-1-4648-0671-1. License: Creative Commons Attribution CC BY 3.0 IGO
[2]. Ibid.
[3]. Organization for Economic Cooperation and Development. “Achieving Inclusive Growth in the Face of Digital Transformation and the Future of Work.” March 19, 2018. https://www.oecd.org/g20/OECD_Achieving%20inclusive%20growth%20in%20the%20face%20of%20FoW.pdf.
[4]. Garatti, Alexis, Georges Dib, and Louis Adjiman. “Digital-Enabling Countries Proved More Resilient to the COVID-19 Economic Shock.” Euler Hermes and Allianz. February 17, 2021. https://www.eulerhermes.com/content/dam/onemarketing/ehndbx/eulerhermes_com/en_gl/erd/publications/the-watch/2021_02_17_Digitalresilience.pdf
[5]. Fardoust, Shahrokh. “How Can the Biden Administration Help Improve MENA’s Economic Prospects?” Economic Research Forum (ERF). January 21, 2021. https://theforum.erf.org.eg/2021/01/21/can-biden-administration-help-improve-menas-economic-prospects/.
[6]. African Union Commission and Organization for Economic Cooperation and Development. 2021. “Africa’s Development Dynamics 2021: Digital Transformation for Quality Jobs.” Addis Ababa: AUC; Paris: OECD Publishing. https://doi.org/10.1787/0a5c9314-en.
[7]. World Bank. “Macro Poverty Outlook: Middle East and North Africa.” April 21, 2021. Washington, DC: World Bank Group. https://pubdocs.worldbank.org/en/747731554825511209/mpo-mena.pdf.
[8]. United Nations Development Programme. “Human Development Reports.” Accessed October 16, 2021. http://hdr.undp.org/en/indicators/103006; World Bank. 2020. “Poverty and Shared Prosperity 2020: Reversals of Fortune” Washington, DC: World Bank Group; Lakner, Christoph and Branko Milanovic. 2015. “Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession.” The World Bank Economic Review, 1–30. https://doi.org/10.1093/wber/lhv039; World Bank. “World Development Indicators.” Accessed October 16, 2021. https://databank.worldbank.org/source/world-development-indicators.
[9]. World Bank. 2020. “Creating Markets in Egypt.” Washington, DC: World Bank Group. http://documents1.worldbank.org/curated/en/288811613142382664/pdf/Creating-Markets-in-Egypt-Realizing-the-Full-Potential-of-a-Productive-Private-Sector.pdf.
[10]. African Union Commission and Organization for Economic Cooperation and Development. “Africa’s Development Dynamics 2021.”
[11]. Ibid.
[12]. United Nations Development Programme. 2020. “Human Development Report 2020: Egypt.” http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/EGY.pdf.
[13]. African Union Commission and Organization for Economic Cooperation and Development. “Africa’s Development Dynamics 2021.”
[14]. World Bank. “Creating Markets in Egypt.”
[15]. World Bank. “Egypt Economic Monitor.” November 2020. Washington, DC: World Bank Group. http://documents1.worldbank.org/curated/en/256581604587810889/pdf/Egypt-Economic-Monitor-From-Crisis-to-Economic-Transformation-Unlocking-Egypt-s-Productivity-and-Job-Creation-Potential.pdf.
[16]. Lukonga, Inutu. “Harnessing Digital Technologies to Promote SMEs and Inclusive Growth in the MENAP Region.” IMF Working Paper. July 24, 2020.
[17]. World Bank. “Egypt Economic Monitor.”
[18]. African Union Commission and Organization for Economic Cooperation and Development. “Africa’s Development Dynamics 2021.”
[19]. African Union Commission and Organization for Economic Cooperation and Development. “Africa’s Development Dynamics 2021.”
[20]. World Bank. “Creating Markets in Egypt.”