Can developing nations compete in a digital world?

20 March 2019

People want in on e-commerce for simple reasons - choice, ease, speed, cost, convenience. Yet not everyone benefits equally, especially in least developed countries.

Life can be better when online business – and the digital platforms they operate on – efficiently deliver goods and services to happy customers.

Families have access to more and better products at lower prices, and businesses can sell to new consumers in far-away markets.

The gains can be meaningful and ultimately transformative. But there are risks – and perhaps none as high as those for developing countries, where local businesses are often left playing catch-up.

A new policy brief from UNCTAD, launched ahead of its global eCommerce Week 2019, maps out the new opportunities and growing concerns around making digital platforms work for development at a time when they, and the businesses on them, are consolidating.

Digital Platforms

“For developing countries, digital platforms generate opportunities to trade and develop. The gains aren’t automatic though,” UNCTAD’s technology and logistics director, Shamika N. Sirimanne says.

“To maximize development gains from digital platforms, adequate connectivity needs to be there. Also, policies and regulations need to address the many challenges.”  

Digital gains

Digital platforms reduce transaction and search costs and help e-commerce businesses connect customers and consumers more easily.

E-commerce means shorter shipping times, flexible payment options, relevant products and local language interfaces. It connects local industries and reduces reliance on imports.

This can help developing countries in several ways. Developing world e-commerce businesses can market and sell their goods and services to potential buyers both in their own country and in foreign markets.

They may also find untapped niches, giving an edge to smaller firms competing in well-defined market segments. These include niche trading in tourism and value-added food products, the policy brief says.  

Finding a platform

The policy brief also found that developing countries could benefit from starting up their own online marketplaces. But that the costs are high.

In some developing countries, the absence of global platform providers creates scope for local players, it argues. But many domestic platforms may be unable to compete with international players ­— and those that can often become targets for acquisition.

Major online marketplaces such as Amazon, Alibaba Group and Facebook have already captured significant parts of the overall market, benefiting from massive economies of scale and network effects.

In the case where local platforms do exist, they’re unlikely to become profitable until they reach a critical mass.

“If only 2 to 3% of consumers in a country buy online, it may not be worthwhile to invest in digital platforms, until the market exhibits some growth,” the brief outlines.

Still, platforms such as Jumia in Africa, Flipkart, Lazada and Souq in Asia,  and MercadoLibre in Latin America have emerged in developing economies indicating there is both scope and potential scale in these marketplaces.

Jumia just filed for a $100 million initial public offering (IPO) on the New York Stock Exchange in March 2019.

Growing Pains

There are no guarantees when it comes to gains, especially for least developed countries. 

“There are serious concerns over the rising market power of certain platforms and the need for better competition, consumer, data and privacy protection, taxation, and employment, and decent working conditions,” Ms. Sirimanne says.

These concerns affect not only developing countries but the entire global digital economy, she adds.

Developing countries are constrained, the brief says, and often lack the coordinating and legislative capacities to manage the complex and fast-moving technology ecosystem, and so can be more disproportionately affected.

Data protection is a big challenge, the brief warns, saying that many developing countries still lack relevant national policy and legislation.

On the tax front, developing economies are less able to extract taxes from non-resident e-commerce businesses. This means fewer domestic resources for development.  

Policy prerogative

Other challenges persist and the solution, according to the research, needs to include improved policy and more dialogue.

“UNCTAD is helping the least prepared for the digital era by facilitating policy dialogue and capacity-building in three key areas,” Ms. Sirimanne says.

“We organise the UNCTAD’s eCommerce Week, a forum to discuss the development challenges and opportunities brought about by the digital economy.

“Our e-Trade Readiness Assessments provide a diagnostic of the current e-commerce situation in a country – and identify opportunities and barriers.

“And our Cyberlaw Reform Programme helps build the capacity of countries to design appropriate laws and regulations to facilitate e-commerce in a safe environment.”

“Digital platforms are changing the world, but we must ensure they contribute to sustainable development and leave no-one behind,” she adds says.

UNCTAD’s eCommerce Week 2019 takes place from 1-5 April at the United Nations in Geneva, Switzerland.  The annual gathering of development and digitization policymakers and ecommerce entrepreneurs from around the globe began in 2016.

In December 2018, UNCTAD organized the debut regional edition, Africa eCommerce Week, in Nairobi, Kenya.