Policy Research Reports
Growth, Employment, Poverty, Inequality, and Digital Transformation in the Arab Region: How Can the Digital Economy Benefit Everyone?
No.
PRR 45
Publisher
ERF
Date
October, 2022
This report provides a policy-relevant summary of the main findings of a 2020–21 research project by the United Nations Development Programme (UNDP) and the Economic Research Forum (ERF) on digitalization, growth, employment, and inequality in the Arab region. Building on the key findings of in-depth thematic studies and eight country case studies, the report assesses the actual and potential benefits and risks of digitalizing the economy.
It examines the channels of impact and reflects on how they could be improved. The report provides a consolidated overview of key regional trends, elicited primarily from case studies of eight countries (Algeria, Egypt, Jordan, Lebanon, Morocco, Oman, Saudi Arabia, and Tunisia). The case studies take stock of research on the extent of progress of digitalization and affiliated new technologies, including automation, robotics, artificial intelligence (AI), cloud computing, and blockchain; examine their economic and social impacts; identify the policy challenges each country faces; and propose sets of policies customized for countries that share similar challenges.
The findings and policy lessons of this report are also based on a number of thematic background papers prepared for this project. The report summarizes the state of knowledge as well as major global and regional trends in digitalization. The report assesses the implications for the Arab region of the links between digitalization and each of the themes covered by the research program (globalization, inequality, e-commerce, fintech, and the repercussions of the COVID-19 pandemic and the early global effects of the Russian invasion of Ukraine).
Digitalization is the foundation of the ongoing digital transformation of the global economy. New technologies are bringing about massive shifts in both the sectoral and geographical composition of global output, trade, and employment. The structural transformations are fueled by globalization and technological change, which is underpinned by the spread of information and communication technology (ICT) and the rapid expansion of the Internet since the late 1990s. The ICT revolution has evolved into digitalization, which has led to the ability to read, collect, use, and analyze massive amounts of digital data (machine readable). Digitalization has led to the digital transformation of both advanced and developing economies, as well as to their global and regional economic and financial linkages. These processes have in turn affected both globalization and the nature of global and regional value chains.
Seven policy areas are critical for harnessing the potential of digitalization. The first four issues are particularly important in Arab countries:
- Revamp education and training programs to meet the requirements of the digital age, and encourage the acquisition of skills that complement the new technologies by both young and older workers, with an emphasis on women and disadvantaged groups.
- Strengthen trust and confidence in digital technologies by improving cybersecurity and adopting and enforcing appropriate rules and regulations.
- Improve the investment climate:
- Adjust taxation, so that it does not penalize or create unfair advantages for certain operators.
- Simply procedures for creating and expanding businesses, with a focus on facilitating the use of digital services and technologies.
- Increase access to finance by businesses.
- Make the business environment more competitive, in order to allow innovation to prosper and avoid market concentration and dominance.
- Engage at the international level to address the cross-border dimensions of digitalization and competitiveness. Arab countries need to be more active in participating in international efforts to identify and adopt good regulatory practices and facilitate digital trade and e-commerce through cooperation with trading partners. They need to engage in international efforts to define rules and procedures that enable firms and consumers to engage in digital transactions across borders, both within and outside the World Trade Organization.
- Increase investment in digital infrastructure, to make it more affordable for all segments of the population, in order to narrow digital divides. These efforts should go hand in hand with efforts to address digital divides caused by skills deficiencies.
- Increase support to (i) spur the adoption of digital technology, including by easing access to intangibles, especially by small and low-productivity firms, and (ii) eliminate skills shortages, which would boost aggregate growth while reducing the wide dispersion across firms and workers in productivity and wage levels. Support for patent systems and research and development is needed to spur innovation and technological advances, the benefits of which should be broadly shared.
- Strengthen social protection systems and align them with the rapidly changing economy, the nature of work that could result from digitalization of the economy and widening skill gaps.
Senior Associates
Shahrokh Fardoust
Research Professor, Global Research Institute, College of...
Senior Associates
Mustapha Nabli
North Africa Bureau of Economic Studies (NABES)