Widening digital divide will foster inequality in developing economies, says UNCTAD

The US and China account for nearly three quarters of the world’s cloud computing industry and blockchain patents

Internet data traffic is expected to grow 41 per cent annually in the next three years in Middle East and Africa region. AFP

Most of the wealth in the digital economy is “highly” concentrated in the world’s two biggest economies - the US and China - with the rest of the world “trailing considerably far behind”, according to a new UN report.

This divide threatens to leave developing nations, especially less well-developed countries in Africa and Latin America, even further behind in the coming years, the United Nations Conference on Trade and Development said in its report.

It said that under current policies and regulations, the digital wealth gap would continue to widen.

“We must work to close the digital divide, where more than half the world has limited or no access to the internet,” said UN secretary-general Antonio Guterres, commenting on the report.

The US and China are home to some of the world’s top digital platforms - 90 per cent of the market capitalisation of the world's 70 biggest digital platforms comes from companies based in either of the two countries.

Seven 'super platforms' - Microsoft, Apple, Amazon, Google, Facebook, Tencent and Alibaba - account for two thirds of the total market value of the top 70 platforms.
UNCTAD's report emphasised the importance of digital data and digital platforms, two main drivers of value creation in the digital economy.

“Developing countries need to take part in the new digital world, not just as consumers, but also as producers, exporters and innovators,” the report said.

Countries with limited capabilities to turn digital data into business opportunities are at a clear disadvantage when it comes to value creation and governments have a critical role in shaping the digital economy by defining the rules of the game, it added.

“A smart embrace of new technologies, enhanced partnerships and greater intellectual leadership are needed to redefine digital development strategies and the future contours of globalisation,” said Mukhisa Kituyi, secretary-general of UNCTAD.

UNCTAD’s report said global businesses that build digital platforms have a major advantage in the data-driven economy. Nearly 40 per cent of the world’s 20 largest companies by market capitalisation have a digital platform-based business model.

UNCTAD expressed concern over the dominance of US and China-based global digital platforms. It warned that developing countries risk becoming “mere providers of raw data”, while having to pay for the digital intelligence generated using their data.

“Their [global platforms’]  control of data and capacity to create and capture the ensuing value, accentuates concentration and consolidation rather than reducing inequalities between and within countries,” said UNCTAD.

If left unaddressed, the “yawning gap between the under-connected and the hyper-digitalised countries will widen, and inequalities will be exacerbated,” it added.

The availability of huge data is facilitating the growth of digital economy. Flows of data surged to more than 45,000 gigabytes per second in 2017 from 100GB per day in 1992. They are expected to reach 150,700GB per second by 2022.

An entirely new “data value chain” has evolved, comprising firms that support data collection, production of insights from data, data storage, analysis and modelling, said UNCTAD.

Data traffic is highly concentrated in Asia Pacific and North America regions that are expected to account for about 70 per cent of all traffic over the period of 2017-2022. However, the highest growth is forecast to occur in the Middle East and Africa, at 41 per cent annually, against a global annual growth trend projected at 26 per cent.

The surge in data traffic reflects growth in the number of internet users and the uptake of technologies such as blockchain, data analytics, artificial intelligence, IoT, robotics and cloud computing - other areas in which the US and China also dominate.

The report found that nearly half of the global spending on the Internet of Things - crucial for the success of 5G the network - emanated from the US and China, as well as nearly three-quarters of the world’s cloud computing industry. About 75 per cent of patents related to blockchain technologies are also filed by companies from the two nations.

Blockchain technologies are a form of distributed ledgers that allow multiple parties to engage in secure, trusted transactions without any intermediary.

The MEA, which has seen global cloud providers like AWS, Oracle, Microsoft and Alibaba setting up data centres in the region in the past, is also predicted to experience the fastest annual growth rate in cloud traffic, at 35 per cent, in the next couple of years.