Digital Economy

Challenges and Opportunities of the Digital Economy in Indonesia

This article was originally published in Medium.

Indonesia aims to become the biggest digital economy nation in ASEAN by aiming to reach 130 million US$ of e-commerce transaction in 2020. This may sound ambitious, but the fact that a majority of Indonesians are digitally oriented makes the government strongly believe that the target can be achieved. The latest data from Asosiasi Penyedia Jasa Internet Indonesia (APJII) and We Are Social revealed that there are 143,26 million internet users in Indonesia in 2017, and a majority of them use mobile devices to access the internet. Moreover, the total number of mobile connection has exceeded the Indonesian populations, with each citizen have approximately 2 to 3 SIM cards.

What are the underlying factors that drive this enormous growth? I would argue that there are at least four factors:

  1. Technological advancement particularly in the telecommunication sector. Initially, we can only use a mobile phone for voice call and SMS. These days, both services are not popular anymore as people prefer to use instant messaging and Voice over Internet Protocol (VoIP). This also applies for the handset that we use today, as it becomes smarter and capable of doing a wide range of tasks compared to a classical feature phone.
  2. Increase coverage of a mobile network. There is a fierce competition among operators to become the best in the country through massive infrastructure deployment. As a result, more and more people now have an access to the internet.
  3. Price of ICT is getting cheaper. There is a price war between each operator by lowering the price of internet services in order to maximize network utilization. Also, we can easily find a high-quality smartphone with an affordable price. As a result, telecommunication is not a luxury good anymore.
  4. Social media and instant messaging as “killer apps”. The introduction of Blackberry Messenger (BBM), Facebook and Twitter in Indonesia played a key role in boosting data penetration in the country.

Despite the growing trends of digital in Indonesia, we still face a significant challenge in narrowing the digital divide. Around 77 per cent of internet users are centred in Java and Sumatra, and less than half of citizens in eastern part of the country do not have access to the internet. As a result, Indonesia still lags behind our neighbour countries like Thailand and Malaysia when it comes to global indexes such as Networked Readiness Index (NRI) or GSMA Mobile Connectivity Index.

The digital divide in Indonesia (Source: Open Signal)

The development impact of the digital economy

The aforementioned infrastructure challenges apparently do not hamper the promising growth of the digital economy in Indonesia. At the time of writing, Indonesia has nearly 2,000 start-ups and only behind USA, India, UK and Canada. Interestingly, the majority of those start-ups are led by “millennials” that are passionate to create social impact by harnessing the power of digital technologies. This can be seen from how Nadiem Makarim is successfully growing Go-Jek to empower not only “ojek” drivers but also SMEs and consumers. Go-Pay, mobile wallet system developed by Go-Jek, even contributes in promoting financial inclusion in Indonesia. Another example is evident from how William Tanuwijaya initiates Tokopedia as a platform to enables everyone in starting their own business for free. Both Go-Jek and Tokopedia, together with Traveloka and Bukalapak, are known as start-up unicorn in Indonesia.

So, how does the digital economy contribute to economic growth?

Admittedly, the contribution of the ICT sector to GDP in Indonesia is still not significant with only 7.2 per cent. However, the GDP growth from this sector is the highest compared to other sectors with 10 per cent of GDP growth. In fact, this number is much higher than average GDP growth of Indonesia that only reached 5 per cent.

In other report published by Oxford Economics (2016) revealed that by 2020 every one per cent increase in mobile penetration can contribute in creating additional 640 million US$ to Indonesia’s GDP as well as opening up 10,700 additional job opportunities. Hence, it is no surprise that the government has put significant attention to the digital economy sector.

Speaking of the digital economy, there are at least three emerging trends that are currently happening: on-demand services, financial technology, and e-commerce.

  1. On-demand services. It is impossible to talk about this sector without mentioning Go-Jek, one of the most influential tech start-up in Indonesia. They not only managed to revolutionalize “ojek”, but they also successfully influence behavioural change in our society. Essentially, they facilitate almost everything on-demand, from logistics, food delivery, car wash, and even beauty services. They are now in the process of preparing their own streaming service, which could cement Go-Jek’s position in providing anything that Indonesians need.
  2. Financial technology. There is a clear challenge in bringing financial services to everyone in Indonesia. Only about one in three adults in Indonesia have access to financial services. In this regard, Financial Technology (Fintech) played an important role not only as an enabler for the digital economy but also promoting financial inclusion through technology. This is evident particularly within the case of a peer-to-peer lending platform that enables small business to get access to financial capital. Another example is how the mobile payment serves as a mean to promote a cashless society in Indonesia.
  3. E-commerce. More than 8 million Indonesians loved to shop online, and the numbers are expected to increase in the near future. This is driven by both consumptive and online behaviour of Indonesians as well as the increasing market reach thanks to social media and technology. As a result, many stores are now trying to sell their products through both online and offline channel. People can now buy almost anything easily through their smartphone without having to go to the actual stores, and we can receive our products within hours with the help of instant courier. In the future, we can expect further innovation such as an unmanned store that will transform the way we shop.

Conclusion

Indonesia has a great potential to become the biggest digital economy nation in ASEAN, even in the world. But, achieving this target requires various stakeholders involved to overcome the following challenges:

  1. Narrowing the digital divide. Infrastructure is an important enabler in maximizing the benefit of the digital economy, so the government must ensure that everyone can have an equal access to technology. Palapa Ring project is a great starting point, and the quality of our infrastructure will surely get better by the time the project is finished in 2019. But the infrastructure deployment cannot stop there and should focus on providing access to rural areas in Indonesia.
  2. Digital talent. There is still a mismatch between the supply of university graduates and the demand from tech start-up. This leads to talent war, in which many start-ups have to compete in securing high-quality talents that are lacking in the market. Hence, a collaboration between industry and academia is important to ensure the production of high-quality digital talent that meets the needs of the digital industry.
  3. Regulations. It is no secret that regulations are always behind technological advancement, as can we see from the case of Go-Jek and Grab. What we need is a guiding principle in designing regulations for those emerging technology. It should be designed in such a way that it will not hamper creativity and innovation in tackling societal challenges. Several cybersecurity issues should be taken into account, particularly about consumer protection of personal data.
Digital Economy

Policy to Support Digital Trade & the Digital Economy

This post is written by Christopher Foster and Shamel Azmeh (University of Manchester). It was originally posted on the GEG Africa blog

The global economy is experiencing important technological shifts with the rise of digital technology a key driver. These changes are likely to intensify in the coming years with new technologies that are emerging such as artificial intelligence, cloud computing, and autonomous vehicles.

For developing and emerging economies, the digital economy provides an opportunity to achieve economic and technological catching-up through using digital technologies and building capacities. But, technological shifts may also widen the technological divide with advanced economies weakening the position of developing economies in global value chains and making ongoing catching-up efforts ineffective.

To explore these issues further, we have recently be undertaking research which aims to offer direction in terms of constructing overall policy strategy in developing and emerging economies, in partnership with the Global Economic Governance Africa project, focussing on South Africa.

Policy models for digital

Drawing on our analysis of digital policy, we highlight two important directions that countries have taken around digital policies. This model extends a previous working papers by Bukht & Heeks produced as part of the DIODE project.

Broader liberal strategies for enabling markets for digital trade highlight the importance of developing the national regulation and conditions to maximise diffusion and impacts of digital products and services into the country. This includes, for instance, creating conditions to attract foreign digital firms and ensuring that benefits are evenly distributed by increasing the digital participation of marginalised groups.

On their own, however, market enabling policies might not necessarily produce the desired economic objectives in terms of technology learning and localization. As such, we also consider a more selective approach which we refer to as digital catch-up policy. This second approach is more interventionist and strategic in nature and it requires higher political capital and knowledge in the policy-making process.

As shown below, the two directions are not mutually exclusive and potentially can be complementary.

framework2
Key approaches to digital policy (include specific areas of policy instrument).

The cases of Brazil and Indonesia

To expand and think about implications of such a policy model, we undertook two case studies of Brazil and Indonesia. These studies provide insights for how policy makers can regulate and deal with the challenges of the emerging digital economy.

Overall, directions of digital policy in these two countries have lots in common. Both countries already have core digital regulation and infrastructure in place and policy makers are working to refine policy to ensure that it fits with the rapidly evolving needs of the digital economy and digitalisation.

Moving beyond solely market enabling policies, we see that both countries focus on a number of strategic areas through interventionist policies. Not all of these initiatives have been effective and some carry costs, but in certain areas they have been associated with more vibrant local sectors that are helping build capacities and increase local economic value-added.

The two tables below expand on our findings, highlighting the broad range of instruments being used in the areas of the policy model (click for more details)

Implications for policy makers

South Africa  (and other emerging and developing countries) faces similar challenges in trying to bridge the technological and industrial gap with more advanced economies in a rapidly changing landscape.  At the same time there is a need to ensure that digital policy is inclusive to achieve broader societal outcomes.

A number of policy lessons can be learnt for South Africa from the cases of Brazil and Indonesia. Policies to enable growth in digital trade are important to provide the framework for the expansion of the digital economy. Underlying this, there must be substantive investments in broadband infrastructure and appropriate regulation. An emphasis on inclusion policies will lead to more broad-based benefits from the digital economy.

To support local firms, digital ecosystem policy is a crucial consideration in grounding the benefits of the digital economy. This includes policies to support the growth and scaling-up of start-ups, and the higher participation of MSMEs in digital trade. Furthermore, encouraging global digital firms to localize some of their activities and to build domestic linkages is an important policy objective. As the ‘disbenefits’ of the digital economy become clear, policy makers need to legislate to reduce challenges in areas such as tax, data protection and the platform economy. Reflecting the importance of scale, regional integration is crucial in terms of digital policy. Broader markets, interoperability and national-regional strategic alignments are key to expanding markets, attracting foreign firms, and potentially increasing their commitment to a region.

Digital catch-up policy provides an important direction for supporting digital growth. Our work reveals a broad range of potential catch-up policy instruments in the digital economy (e.g localisation, incentives, and national digital projects). Future examination should explore the specific catch-up policies that could be fruitful in the case of South Africa.

Two GEG policy papers will be released in Novermber 2018 providing further details on the policy model and the cases of Brazil & Indonesia

Digital Economy

Impediments in Building the Digital Economy: Case of the National Optical Fibre Network Plan of India

Context

It is generally accepted that broadband plays a key role in the world, impacting the economy, productivity, employment and other spheres of society. The national governments in both developing and developed world are either contemplating or are already executing broadband access plans. India is no different. The Broadband Policy of India aims at enhancing quality of life through societal applications including tele-education, tele-medicine, e-governance, entertainment as well as employment generation by way of high speed access to information and web-based communication.

By 2010, only 0.53% of India’s broadband connections were working on optical fibre. On 25 October 2011 the Government of India approved the setting up of National Optical Fiber Network (NOFN) which will be connecting all 250,000 gram panchayats (GPs) (group of three or four villages make GPs). In Jan 2012, the government had formed a special purpose vehicle for the same, called Bharat Broadband Network Limited (BBNL). It was estimated that additional optical fibre cable (OFC) deployment of 301,000 route kilometres mainly from blocks to villages to cover the 250,000 GPs as part of the backhaul network is needed. The final deployment plan is based on utilizing the existing optical fibre network of BSNL, POWERGRID and RAILTEL. The NOFN is to be rolled out in a phased manner at a cost of 4 billion USD and was slated for completion in December 2012. The funding for the project shall be from Universal Service Obligation Fund (USOF) collected from the telecom service providers. Upon the completion of the NOFN roll out, GPs were expected to get broadband connectivity with speeds of up to 100 megabits per second.

In the BharatNet plan, optical fibre is being laid till the GPs’ office. The onus of taking Internet from that point of contact to the end users is left to the service providers. The service providers can be private, public, NGOs and semi-governmental organizations. Private entrepreneurs in GPs have a greater role to play in taking broadband to the households and individuals through BharatNet. The other important players in the village ecosystem are NGOs, political activists and semi-governmental organizational personnel. Either they provide information to the needy or deliver services to the GPs by making use of BharatNet or serve as a bridge between service providers and the people; and they can also be called infomediaries.

The most celebrated case of M-Pesa in Kenya in addressing financial exclusion problem through mobile phones is great example of institutional users playing a major role as infomediaries in scaling up the innovation (Foster & Heeks, 2013). M-Pesa grew because of small agents and distributors who introduced new mechanisms to serve the customers, which later were adapted by Vodafone, the telecom service provider. As the institutional users are closer to the rural populace, they would be able to adapt or customize BharatNet for wider use and diffusion. The diffusion or uptake of BharatNet is dependent on the institutional users in rural India who double up as infomediaries in rural India.

In the case of broadband, the absorptive capacity of the stakeholders or the infomediaries is important to fully realize the benefits of the infrastructure. The future potential service providers are expected to have capacity to understand, learn and garner the benefits. Once the optical fiber is laid, the absorptive capacity of the institutional users will determine the level of reach of broadband to the rural households. Though the optical fiber is laid by the government, scaling is possible only by the multiple sets of institutional users.

BBNL embarked upon pilot projects in three blocks covering 58 Gram Panchayats in three different states and completed by 2012. Given that pilot GPs had received BharatNet in 2012 and other GPs are in the process of receiving the same, there is need for an empirical study in the mid-term that helps the implementation process. Some of the findings are reported here.

Method

24 Gram Panchayats were selected using systematic random sampling in Arian (16) and Paravda, Vizag (8). Computer assisted in-depth interviews were conducted in person with 1,329 respondents from state government, central government, private and non-governmental and semi-governmental organizations in 2016.

In the sample of institutional users or respondents, 77% of respondents are males. 37% of sample fell in the range of 26-35 years and 34% in 36-50 years. Only quarter of sample had education below 9 years of schooling. Almost all of the respondents had a photo id card, aadhaar card and bank account in own name. Two thirds of them know how to send SMS, half of the know how to use search engine, and use email. One tenth of them can troubleshoot hardware and minor software related problems.

68% are from private organizations, 23% from state, 2% from central and 7% semi government organizations. Among the private organizations, 59% are petty traders. Overall, half of the sampled organizations have been started seven or more years. Of the customers served by them, 68% come from the same locality. Half of the sample is receiving electricity for more than 10-12 hours and 35% for 7-9 hours during 0600-1800 Hrs.

Key Findings

The key findings of the study are:

 Poor awareness about BharatNet / NOFN

  • In overall, 30% of the respondents claimed that they are aware of the BharatNet / NOFN of which 8% claimed to know it very well.
  • Awareness about ICT related programmes appears to be poor: 83% did not know about optic fibre, 76% about Digilocker and 68% about Digital India.
  • “Newspapers” at 39%, “Friends and Family” at 37% and “Televisions” at 30% are top three sources of information about BharatNet / NOFN.
  • Half of the sample incorrectly assumed that BharatNet / NOFN provides free Internet to people.
  • Slightly less than half felt that poor electricity supply will affect BharatNet /NOFN.
  • Among the Internet users, the top reasons for not using BharatNet / NOFN are: ‘Equipment breaking down’ (54%), ‘Slow Internet connectivity’ (53%), and ‘Already having internet’ (54%).
  • The respondents are optimistic about the potential uses of BharatNet / NOFN. Following are some of them: ‘Learn new skills for personal use’ (65%), ‘Access to better hospitals’ (66%), ‘Finding new business opportunities’ (63%), ‘Access Internet banking’’ (70%), ‘Finding new job opportunities’ (66%), ‘Getting information about Government Schemes’ (76%), ‘Learning new things through online videos’ (78%), ‘Learning new skills for employment’ (68%) and ‘Receiving required latest information’ (67%).

ICT ownership, access & use

  • Out of 1329 contacted, only 32 institutional users access BharatNet.
  • 65% organizations do not use Internet from any source.
  • 62% of the institutional users do not use Internet at the personal level as well.
  • Among non-users, intention to use Internet in future is about only 16%. Half of them do not intend to use Internet.
  • One third of organizations reported that they are computerized. Inter-office connectivity is better among public organizations.
  • In nearly 2/3 of the organizations, the respondents do not have additional personnel to handle the ICT related infrastructure.
  • The Internet is used 3-5 hours per day by the organizations.
  • The top three activities done at the personal level are: Reading information online, listening to music/radio online, and video.
  • Among Internet users, interaction with suppliers (33%), contacting potential customers (33%) and interaction with customers (26%) are done ‘somewhat frequently’ or more.
  • Only 8% of users are open to provide Internet as product or services to external people, if permitted.
  • The top three triggers for Internet use are: ‘to get instant information access’ (69%), ‘can do many things at once using Internet’ (58%) and ‘everyone around is using Internet’ (51%).
  • The top three barriers are: ‘can continue work without Internet’ (75%), ‘do not have required devices to access the Internet’ (73%), ‘no prior experience of using the Internet’ (52%).

 Policy Suggestions

  • There is a need for public information campaigns among the institutional users and other stakeholders, as extant awareness about BharatNet is poor. A demonstration of benefits and opportunities available is likely to result in better adoption.
  • Trade associations should conduct activities to spur entrepreneurship in the rural digital entrepreneurship space. Innovation hackathons may be one of the activities.
  • NGOs can work with private firms to deliver ICT based goods and services in rural India, by utilizing the corporate social responsibility funds to be spent as per government regulations.
  • Local private entrepreneurs should be encouraged to explore new businesses on the basis of BharatNet. Contact center for e-health, online education, skills training, and business process outsourcing is a possibility.
  • The post implementation scenario can be handled in three major models: government-led, private-led, and shared model.

Other suggestions regarding private player participation, and other details of the study are available at:

http://lirneasia.net/wp-content/uploads/2017/08/BharatNet_Report-with-Que_July-2017.pdf

We would like to thank Ford Foundation, New Delhi for funding the study. However they are not responsible for the contents in this report.

 

Digital Economy, Digital Labour

Early regulatory reforms can benefit developing countries in the digital economy

Over the last few years, the use of digital technologies has grown rapidly. The Internet has played a key role in driving this digital growth. However, whilst these new developments have created many advantages and brought varying degrees of development and ‘inclusivity’ in developing economies, issues of governance and policy are growing almost simultaneously with every new innovation and development in digital technologies. While a clear majority of these are issues of infrastructure (technical), online security and privacy (ethical), there are also other emerging aspects which require immediate policy reviews.

Take for example bike-sharing platforms. Cities in the UK have recently seen a splurge of hi-tech rental bikes on its streets. These ‘dockless’ hire systems allow users to pick up and leave the bike anywhere for just £1 an hour, locking and unlocking them with a simple smartphone app. The flexibility of use of these station-less smart bikes (unlike the Transport for London’s Boris/Santander bikes that need docking at specific docking stations) has popularised use of oBike (a Singapore start-up) and moBike (a Chinese start-up).

While this new pollution-free, high-tech bike-sharing transport system has provided many, especially those without the potential of owning a personal bike, an opportunity to travel around the city quickly and at minimal costs, this newly introduced digital economy business model has raised new regulatory issues.

The bikes are not quite as nature-friendly when they are left at any nook and corner.  In London, the masses of bikes created a huge hindrance for pedestrians, wheelchair users and those with buggies, as they began cluttering the streets and blocking paths. In Manchester, newly launched Mobikes were reported being sabotaged, stolen or dumped in canals and bins.

Such outcomes highlight emerging tensions for policymakers as they seek to encourage innovation and business start-ups, and promote sustainability.

The above refers to incidences in a developed country with supposedly advanced transport systems and planning regulations. If the same approach were to be applied in developing economies, leaving these dockless bikes lying around in the streets that are already overwhelmed with traffic, vendors and pedestrians can lead to even more drastic consequences, not ruling out the added possibility of these bikes being pilfered. Already, in China, where this business model was initially carried out, piles of these hire bikes were found dumped on the streets of Shenzhen. While the idea of introducing these bikes in China was for a sustainable cause – to help lower congestion and air pollution – it led to further unnecessary congestion and pile-ups.

Other parallels can be drawn with similar business models and platform companies, such as the food delivery courier Deliveroo, the car-hailing platform Uber, and the home-sharing app, Airbnb, where governance is a growing issue.

The recent legal actions against Deliveroo and Uber highlight the issues around  self-employed contractors without access to benefits such as sick pay, paid holiday, pensions, and protection afforded by the minimum wage.

Deliveroo claimed that the current law does not cater to the flexible working system where the company pays its workers by the job and not by the hour, and even called for a change in UK law to be able to give its workers more rights. Uber too maintained that its drivers are self-employed contractors rather than permanent employees and are not entitled to such benefits.

Despite these persistent claims, Deliveroo was forced to remove a controversial clause in its agreement which restricted couriers’ ability to challenge their self-employed status at an employment tribunal and work for other companies. Deliveroo was also made to remove a clause that obliged riders to give two weeks’ notice to terminate their agreement with Deliveroo. Uber on the other hand lost a court case when the employment tribunal ruled in favour of cab drivers and ordered Uber to pay drivers national living wage and holiday pay (though Uber is appealing the decision).

In a similar incident in 2012, an MTurk[1] worker filed an employment lawsuit in California against CrowdFlower, an intermediary firm between the MTurk platform and several end-clients. The microworkers claimed they were misclassified as independent contractors and paid less than the legal minimum wage. The suit obtained class action status and was settled in 2014 for $585,000 in favour of MTurk workers who had done more than a minimal amount of work for CrowdFlower.

While the above cases show a positive outcome to cases against gig economy operators in developed economies, where ministers can order a crackdown on these firms, such sophisticated and organised systems are often absent or lacking in developing economies with similar problems. Lawsuits can be highly unaffordable for those in developing countries, not forgetting that these gig economy workers may also be illiterate (e.g. cab drivers, courier personnel etc.) and unaware of their legal rights. Corruption within the legal system may also hinder gig workers in these economies from filing cases, where companies are powerful and able sometimes to bribe their way out of such sticky situations. These drawbacks open the door for greater exploitation of workers within developing economies.

Laws need updating to cater to the new business models of the digital economy. However, with innovation moving faster than regulation being brought in, legislation is rarely achieved quickly. What little legislation exists only serves narrow interests and provides minimal protection for workers and users. So what are the implications for developing countries? And how can developed economies lead the process for change to benefit developing countries?

For one, developed economies are leaders in setting standards and perhaps need to do more in terms of ensuring that these high standards are met not only within its own jurisdictions but also across borders where such international companies operate. Governments in developing economies also need to be more proactive in understanding and regulating new models of work as well as working with platform firms to curtail exploitation. The weak labour laws and governance in developing countries can sometimes be an attraction for companies in the West keen to penetrate markets in developing countries. This often leaves workers in developing economies open to exploitation and at a severe disadvantage as their governments are more interested in attracting new business investments and businesses in gaining entry to new markets. It is common knowledge that online microworkers in developing economies are paid less than their counterparts in developed economies for the same work. It highlights the need to reform existing regulatory frameworks.

Further, with relatively weak institutions and capacity for implementing policy in developing countries, the issues can be even more detrimental. Shocking stories of rapes by Uber and Ola cab drivers have been a regular headline in the news in India, and growing. This resulted in a temporary ban on these services in New Delhi, as it was discovered that Uber had not carried out proper verification checks on drivers. But little has been done in terms of legislation to avoid these incidents in future. Such negative occurrences can be a hindrance to the growth of the digital economy in developing economies that can otherwise benefit from the use of digital technologies.

It is also well-known that there is a massive digital divide between developed and developing countries, urban and rural regions, when it comes to anything digital. Within developing economies, rural areas and women and girls are often found to be excluded from participation in the digital economy due to various infrastructural and cultural issues.  Thus, new business and employment models are not quite accessible to these women or to those at the bottom of the pyramid who live below the poverty line and struggle to buy a meal a day, let alone have the income to pay for bike hire. There is a danger that such business models, while bringing new benefits, can also create a wider divide among urban-and-rural regions, and consequently between developed-and-developing economies.

As new business models of the digital economy make their way to the Global South, the importance of developing sound digital economy policies in developing/emerging countries must be emphasised. Emerging/developing markets are the engines of global growth and generate some of the most attractive investment opportunities globally. The IMF have projected that emerging/developing economies will grow by 4.5% in 2017, versus just 2% in developed economies. If governments in such emerging and developing economies want to entice and sustain foreign investors and innovators, they would need to focus on serious legislative strategies early on, that would not only benefit businesses but also citizens. While developing countries can ‘learn’ from some of the experiences of developed countries, they would still need to design policies that meet their own needs and which fit their local setting. For instance, policies in developing countries need greater focus on regional and gender inclusivity and other technical and social issues to reduce inequality and enable participation of the underprivileged in the digital economy. Regulatory reforms are also needed that ensure platform operators’ responsibility when it comes to protection of users against exploitation and hazards.

It is evident that the challenges of regulation exist not only within developed economies but also in developing economies, when it comes to digital platforms. New legislation needs to be put in place as developments in digital technologies grow. While one may insist that it’s “a grey area”, reform in existing regulatory frameworks is paramount and urgent, especially in developing countries with weak institutional settings, inadequate education systems and large pools of labour. It will ensure that such aspects as the sharing/gig economy will serve as an opportunity rather than be used as a tool for exploitation.

[1] MTurk or Mechanical Turk: The oldest and most well-known microwork platform owned by Amazon

Digital Economy, Digital Enterprise, DIODE General

Open data platforms and development in Latin America

There is increasing excitement about the developmental effects that data released in open format could bring to the global south. The so called open data—data released in digital format, publicly available for anyone to use—promise to contribute to key development goals, such as economic growth, job creation, inclusion and access to public services. To illustrate the economic potential, McKinsey estimated in 2013 that the economic value of open data could reach between $1 and $3 trillion per year. Although these figures remain highly speculative, the rationale is that by using or re-using open data, new products and business can be created, innovation can be spurred, and productive processes can be optimised to achieve gains in productivity. That includes governments and public organisations. Open data can help improving the delivery and quality of public services and can contribute to the efficiency of internal operations. Equally important, open data is seen as central means to increase transparency, fight corruption, as well as promote inclusion and civic participation. The latter has been particularly acknowledged in the commitments that governments endorse when joining the global Open Government Partnership.

Open data in Latin America

As a region, Latin America has moved comparatively quickly in embracing open data initiatives. Mexico, Uruguay and Brazil lead the table among the developing world and are amongst the top 18 best performing countries in the 2016 Open Data Barometer, a global ranking led by the World Wide Web Foundation that ranks countries according to the publication and readiness of key government datasets and evidence of its impact. In addition, the region has now five countries within the top 20 of the 2017 Open Data Index—a survey coordinated by the Open Knowledge Foundation that measures the state of open government data around the world.

The commercial, for profit approach of open data has yet to take off in Latin America. More often, what is found in the region is a growing open data ecosystem that is moving forward an agenda of accountability, innovation and participation. The region holds its own Open Data Conference (AbreLatam/ConDatos) annually since 2013. The annual meet up has strengthened regional communities that use open data to offer tangible solutions in areas of public health, government transparency, transportation and urban planning. A self-reported survey gathered in Abrelatam reveals 196 projects from 135 organisations in these areas.

The ecosystem in Latin America means that different actors have contributed to unlock the value of open data in the region. Governments are important ones—they build open data platforms that form the supply side of the data value chain. But the realisation of the value of these platforms lie on the applications and services that are built on top of the data. The city of Buenos Aires, for example, used hackathons and apps competitions to engage developers and start-ups to co-create new services. In Montevideo, the municipality partnered with the civil society organisation DATA to run a platform called Por Mi Barrio, developed based on the UK’s FixMyStreet initiative. Por Mi Barrio helps people to report street problems like broken street lights or potholes and link it to the municipality to fix them. NGOs and local activist are, thus, another crucial actor in the ecosystem. Ciudadano Inteligente in Chile and SocialTIC in Mexico, both promote transparency, inclusion and citizen participation through open data and the use of new informational technologies. Journalists also contribute to open up government data for accountability purposes. Argentine newspaper La Nación and its data division LNData won the Data Journalism Award for their work on opening up unstructured, closed and opaque data from Argentina’s Senate expenses in times of no freedom of information laws and controversies surrounding media access to government information. In Peru, the organization Convoca opened up public data to help users understand the behaviour of extractive industries in Peru and its impact on people’s lives. The project, called Excesos sin Castigo (“Excesses Unpunished”) won the Data Journalism Award in 2016.

Research into open data platforms and their ecosystem

Despite the anecdotal evidence, the mechanisms through which open data can scale and harness developmental goals have not yet been clearly established. My current programme of research examines how open government data fosters innovation and enables economic and social development in Latin America. One of my ongoing projects, jointly with my colleague Ben Eaton, studies empirically how engagement with open government data platforms unfolds in Buenos Aires, Mexico City and Montevideo. In specific terms, we ask how the installed base (the actors in the ecosystem) is mobilised in open data platforms. Drawing from literature on digital platforms, we aim to understand the context, formation, grow and functioning of the installed base, and to offer insights on the ways actors interact to use and generate value from these platforms. The results of this work will be ready in 2018, so watch this space for research insights and policy implications.

Digital Economy

Defining, Conceptualising and Measuring the Digital Economy

It is generally understood that the digital economy in developing countries is growing, and growing fast.  But what is the digital economy, and how large is it?

A newly-released working paper from the University of Manchester’s Centre for Development Informatics – “Defining, Conceptualising and Measuring the Digital Economy” – addresses this question.  It was developed as part of the DIODE strategic network, which is funded by the UK’s Economic and Social Research Council as part of the Global Challenges Research Fund initiative.

“Digital economy” is typically dated back to Don Tapscott’s 1996 book of the same name.  It has been in fairly continuous use since, with a particular growth in interest in the past two-three years linked to resurgence of “digital” as a terminology.

Looking across the definitions, one can identify three scopes of definition as summarised in the figure below:

  • The core of the digital economy is the “digital sector”: more often called the “IT sector” or “ICT sector”, and based on the OECD definition of specific ICT-related manufacturing and services sub-sectors.
  • The “digital economy” as we define it is “that part of economic output derived solely or primarily from digital technologies with a business model based on digital goods or services”. It means the digital sector plus ICT-enabled business that extends the boundaries of economic activity.  The latter covers new digital business models such as platform-based firms.
  • A much wider scope encompasses all economic activity based on digital technologies; thus also including application of ICTs to intensify existing economic activity in manufacturing, services and primary production. We refer to this as the “digitalised economy”.

Digital Economy Three Scopes

Measuring the digital economy faces challenges of fuzzy boundaries, poor data quality, pricing problems, and invisibility of much digital activity.  But, reviewing the measures that are available, we estimate the digital economy as defined here to constitute around 5% of global GDP and 3% of global employment.

There is significant unevenness between and within regions.  For example, the digital economy likely constitutes a two-to-three times higher share of GDP in the global North than the global South.  Conversely, digital economy growth rates in the global South are estimated to be twice as fast as those in the global North.

Combined with higher-than-average wage and productivity levels, this points to the growing importance of the digital economy in developing countries.  Yet growth is constrained by a set of serious barriers and a lack of knowledge including policy guidance.  All this supports DIODE’s goal of strengthening the research base on digital economies in the global South.

Digital Enterprise

How Context Impacts Developing Country Digital Start-Ups

As the digital economy grows in developing countries, is it part of a “weightless economy” that floats free from the local context?  Or is it still heavily embedded within that context?

Recent research from Manchester’s Centre for Development Informatics investigates this. The paper, “Digital Start-Ups in the Global South: Embeddedness, Digitality and Peripherality in Latin America” looks at the experience of digital start-ups in the four largest economies of Latin America: Argentina, Brazil, Colombia and Mexico.  It does so through the lens of the Triple Embeddedness Framework (see below).

Geels TEF

The Triple Embeddedness Framework

Far from being free-floating, these young enterprises are strongly-rooted in local supply chains, social institutions, and policy environments.  But they also experience “hybrid embeddedness”, meaning they lie at the intersection of different domains:

  1. Product/Digital Hybridity. Digital start-ups are shaped by their product sector: the sector of the goods or services they sell – the financial services sector for an online investment start-up; the recruitment sector for a web-based employment exchange. But – unlike traditional enterprises – they are also embedded in an emergent digital sector.  Where their level of embeddedness in each sector is “just right” – what we called “Goldilocks embeddedness” – they can cross-fertilise ideas between the sectors, draw finance and staff from both sectors, and are not so heavily-embedded that their investment in the status quo constrains innovation.
  2. Local/Global Hybridity. Digital start-ups are also hybridly-embedded in both a local and a global industry regime. Local laws and social networks and capabilities are an essential part of these digital enterprises’ operations.  But they also take business models, start-up methodologies, social norms and policy priorities from the global North; primarily from Silicon Valley in the US.  Their position on the relative periphery of the global economy also seems helpful: it allows these ideas and other resources to flow in from the US but offers some relative protection from external competition.

Governments and firms in the global South need to recognise this pattern of embeddedness:

  • Governments must do more to build up local digital sector institutions which act as key intermediaries both within the local digital economy and between local and global digital economies.
  • Digital start-ups must self-analyse the constraints and freedoms imposed by their embeddedness. And they must customise models and methods from the global North; for example, rescoping the Lean Start-Up methodology to take a broader bi-sectoral and socio-political remit.

In research terms, we need to understand more about how the digitality and peripherality of these start-ups affects their development trajectories.  This and other items will form part of the DIODE Network discussions on future research agendas around development implications of digital economies.