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A Review of World Development Report 2016: Digital Dividends

Nagy K. Hanna
LINK Visiting Associate Professor

Blog post, 26 February 2016

The World Bank has launched its World Development Report 2016: Digital Dividends (WDR 2016). WDR 2016 sums up a great deal of empirical evidence on the conditions under which ICT investments can provide the “digital dividends” referred to in the Report's title.

What are the key messages of WDR 2016?
Digital technologies have spread rapidly to much of the world. In many cases, they have boosted growth, expanded opportunities, and improved service delivery. But the broader development benefits from using these technologies have lagged behind. The impact of the Internet is unevenly distributed, contributing to rising inequality. For digital technology to have broad benefits requires closing the Internet access divide. But greater access to the Internet is not enough. Countries need to work on the analogue complements — strengthening regulation to ensure competition, strengthening human capital, and strengthening accountability and governance of institutions to deliver services. These remain the usual foundations of economic development policy.

Digital technologies amplify the impact and raise the opportunity cost of not undertaking the necessary reforms. The stakes have risen for developing countries, which have more to gain or lose than high-income countries. Also, digital technologies can be an enabler and perhaps an accelerator by augmenting the quality of the complements, for example, by easing market entry via online business registration, and by upgrading skills via online training.

The Report examines the many ways the Internet promotes development. By overcoming information barriers, augmenting capital and labour, and reducing transaction costs to almost zero, digital technologies can make development more inclusive, efficient, and innovative. While not conclusive about how to resolve the risks arising from the Internet, the Report points to the risks involved when digital technologies are introduced without the important complements. For example, when governments remain unaccountable, the outcome of information availability will be greater control rather than greater empowerment and inclusion. 

Making the Internet universal, affordable, open, and safe requires both supply- and demand-side policies. First-generation, supply-side Internet policies involving market competition, private participation, and light-touch regulation have led to near-universal access and affordability of mobile technology, but have so far been less successful in spreading Internet services. The next-generation Internet policy issues are focused on online privacy, cybersecurity, censorship, and Internet governance.

Three policy objectives aim to strengthen the analogue complements: a business environment where firms can leverage ICT to compete and innovate; workers, entrepreneurs, and public servants who have the right skills to adapt and take advantage of the digital opportunities; and an accountable government that effectively uses the Internet to empower its citizens and deliver services.

What are the Report’s strengths and limitations?
The key strength of the Report is to move the debate about the role of ICT in development beyond anecdotes and hype, and towards economy-wide policies that address the analogue foundation of the digital revolution. Technology needs to be complemented by improvements in factors that determine whether firms, individuals, and governments can make effective use of the new digital tools.

But there are limitations to this major Report, which will bedevil its translation into development practice.

First, digital transformation demands substantial investment in intangible organisational capabilities, process innovation, and institutional learning, way beyond the Report’s focus on digital access and macro complements. As a general purpose technology, ICT is fueling a technological revolution, demanding deep changes in the policy, social, economic, and institutional adjustments and business practices perhaps similar in magnitude to the industrial revolution (Perez, 2002). Attention to this technological and institutional learning and capability-building are sorely lacking among governments and aid agencies.

Second, digital technologies, infrastructures, platforms and core applications are highly interdependent and should be treated as a dynamic ecosystem (Hanna, 2016). This ecosystem can be conceived to include: information and communication infrastructure (connectivity), local ICT services sector, technical ICT skills and leadership, content and media industries, digital applications (such as e-government, e-business, e-education), enabling cyber policies, and ICT sector management and regulatory institutions. Maximising digital dividends requires nurturing this ecosystem and tapping into its synergies.

As a new sector, ICT lacks strong institutions and the necessary partnerships to nurture and coordinate the various elements of this ecosystem. Yet the Report treats the Internet as if it were the whole ICT sector or ecosystem, thus reinforcing the common neglect of other elements of the ecosystem and the interactions among them.

Third, capabilities to plan and implement national digital transformation strategies are increasingly important to: engender shared vision and mobilise long-term commitment to digital transformation; integrate ICT opportunities and investments into national and sectoral development strategies; invest in broadband infrastructure; reform complementary policies, engage stakeholders; pursue partnerships with private sector and civil society; secure wide diffusion and inclusion; and enable local initiative, adaptation, and learning.

The Report hardly covers the critical role and challenges of national digital transformation strategies. It acknowledges that when countries take a conscious decision to develop a national broadband plan, they are rewarded with higher rates of take-up. The Report prescribes generic policy priorities for emerging, transitioning, and transforming countries. This is an oversimplification for what is needed: building capabilities and institutions at the national and local levels to lead the process of digital transformation.

The challenges of planning and capturing the interdependence between technology and complements are likely to be complex, demanding substantial interactions across stakeholders and sectors. Governments are typically not well organised to deal with this dynamic sector and its demand for collaboration and learning. Without a powerful leading agency and coordinating institutions, digital silos will replicate the ministerial silos, and pilots and digital platforms will proliferate without sharing. Fortunately, lessons of experience are emerging from transforming countries about how they learn to plan, and plan to learn; such lessons should be captured, shared and practised. These lessons are the focus of my recently published book: Mastering Digital Transformation: Towards a Smarter Society, Economy, City and Nation.

A challenge to global development institutions
The ongoing technological revolution poses significant challenges to development finance agencies: to prioritise development assistance for digital transformation, leverage ICT as a common platform and enabler that cuts across sectoral silos, consider the opportunities and risks of the digital revolution in their development thinking and practice, and update and adapt their skills and practices to use 21st century tools for development. The continuing fast pace of the digital revolution raises the opportunity cost of not undertaking the necessary learning and reforms by aid agencies and developing countries. The stakes are high.