Originally published in OECD-Development Matters on 5 February 2020
Least developed countries are in uncharted territory when it comes to the rapid emergence of new technologies. Find out more about the risks and opportunities, and how countries can capitalise and forge their own paths.
The fourth industrial revolution is charting a new and uncertain course for the world economy. Least developed countries must prepare for the opportunities and risks that it brings. It is characterised by the confluence of new technologies, fusing the digital, physical and biological spheres.
Rapid technological change is expected to have a profound impact on economic and social development in countries at all levels of income. Opportunities include harnessing the possibilities of digitalisation for sustainable development and social empowerment. Risks involve marginalisation and a widening chasm between poor nations and their emerging and industrialised partners.
Can countries in the early stages of development reap the benefits and become authors of their technological revolution?
Adapting to new trade and development trends
Digital technologies are affecting trade patterns and the conditions for structural transformation. They enable a proliferating network of connected devices to generate ever-expanding volumes of data, feeding innovations like artificial intelligence and robotics. Digital trade and the cross-border flow of data—both a means of production and a traded asset—are growing exponentially.
The determinants of competitiveness in manufacturing and services are evolving, raising questions as to how traditional paths for job creation and poverty reduction will apply in the near future. At the same time, new technologies can help resolve bottlenecks to industrialisation in poor countries and enable novel ways of organising production.
Opportunities will arise to supply tasks in services that become tradeable. In agriculture, which accounts for two-thirds of employment in least developed countries, digital technologies can help boost productivity and improve rural livelihoods.
There are instances of least developed countries participating in the fourth industrial revolution. Innovations in banking, education and health are transforming communities. And the services exports of least developed countries increased by 16 percent in 2018—with countries like Bangladesh taking advantage of the growing global market for digital outsourcing.
Bridging the digital divide: opportunities in infrastructure, education and governance
There are three key areas for least developed countries to tap into the opportunities of the fourth industrial revolution.
First, proper attention must be paid to the digital divide and assuring infrastructure for connectivity. This includes broadband penetration and reliable access to electricity. Soft infrastructure like digital payment protocols is also important. Least developed countries have invested in solutions adapted to local circumstances. Off-grid solar in Africa provides electricity to millions of households. Seventy percent of the population in least developed countries is covered by a mobile broadband signal, although the cost of access is often too high with an internet usage of 20 percent. There is also a growing digital gender gap that needs to be remedied (see figure).
An expanded domestic tax base and aid for trade can provide catalytic funds for projects geared towards enhancing infrastructure for connectivity. But public resources will not suffice in an environment where private investment inflows across least developed countries have declined. Blended finance instruments can help de-risk investments and mobilise funds. However, there needs to be a better understanding of the difficulties related to blending, for poor countries to beneficially access these facilities.
Internet penetration rate for men and women, 2019
Second, the fourth industrial revolution complicates the challenge least developed countries face to equip their young populations with the skills to participate in the global workforce. Upgrading education systems and boosting employability are a priority. Data on youth and adults with ICT skills show vast inequalities between countries at different levels of development, not least in basic digital skills essential for participation in the information economy.
However, there are tremendous possibilities to cater to underserved markets and access knowledge to take advantage of opportunities. Examples include artificial intelligence courses providing scholarships in Nepal. In Malawi, solar-powered projectors are being rolled out to teach the fundamentals of literacy and numeracy.
The third area concerns governance. This involves the business environment and policies designed to enhance digital systems and the adoption of technologies: trade and investment rules, competition policy, fiscal policy, consumer and data protection regulations, etc. Least developed countries need to better formulate their policies for national digital strategies. Diagnostic studies that help identify the necessary building blocks can be part of this effort. Bangladesh provides a story of comparative success with the implementation of a framework that has enabled the country to become a sizeable exporter of ICT products and services.
Clearly articulated domestic policies will also help least developed countries engage in international rule making. One area is competition policy where poor countries do not have the capacity of major economies to implement antitrust regulations that seek to secure a fair digital ecosystem for users. Recent OECD proposals for fairer taxing rights provide another avenue for multilateral policy coordination.
Capitalising on opportunities for innovation through partnerships
Opportunities for innovation warrant special attention in the fourth industrial revolution. The ratio of expenditure on R&D to GDP in least developed countries is estimated at 0.2 percent compared with 2.4 percent for OECD countries. This low level of investment is an obstacle to the long-term capacity of poor countries to apply emerging technologies and calls for strong support. Improved access to technologies protected by intellectual property, through import and licensing for example, will facilitate this process.
Innovation does not happen in a vacuum. North-South and South-South partnerships geared towards collaboration between scientific bodies, development partners and the private sector can provide mechanisms to boost research and the dissemination of technologies. As an illustration, the Enhanced Integrated Framework is supporting a project to identify agritech innovations taking place in Kenya and map how these technologies can be transferred to least developed countries in the region like Burundi, Rwanda, Tanzania and Uganda.
In conclusion, the fourth industrial revolution stimulates both hyperbole and scepticism regarding the developmental benefits it can bring to underprivileged populations. Should least developed countries fail to plan for these evolutions, however, they will be unlikely to reap the benefits. They would also remain exposed to vulnerabilities such as entrenched exclusion and inequalities.
National and globally focused multi-stakeholder discussions on the implications of rapid technological change for trade and sustainable development in least developed countries should be encouraged. What are the policy frameworks to better align digitalisation and development in least developed countries? How can aid for trade accompany these countries given the evolving parameters of global competitiveness? Can the international community work towards rules on competition, digital trade, intellectual property and taxation that help deliver shared benefits from the digitalisation of the economy?
Considering these questions will help least developed countries to identify and own pathways for development and prosperity in the fourth industrial revolution.