Closing the Gap
How did the pandemic facilitate cross-border trade?
It certainly helped move things along more efficiently in two ways, Nextrade Group founder and CEO Kati Suominen says during a livestream conversation on closing the global digital gap hosted by GZERO in partnership with Visa.
First, customs agencies in many countries (finally!) went paperless — a huge help for small businesses. Second, COVID accelerated the move toward logistics tech innovations like data-driven route optimization or drone delivery that make it easier and faster to deliver stuff.
Suominen hopes that governments continue the trend and that "we continue plowing forward" on digital cross-border trade.
Is there any downside to going cashless?
Not really, but there are challenges, Usman Ahmed, head of Global Public Affairs and Strategic Research at PayPal, says during a livestream conversation on closing the global digital gap hosted by GZERO in partnership with Visa.
On the one hand, digitizing payment allows the creation of other financial services around it — mainly access to finance for the unbanked. On the other, there are privacy and security concerns, although these also exist with cash.
Overall, though, Ahmed believes that going digital is something that nobody will solve on their own. Governments and the private sector need to work together, and digital access is useless without digital literacy.
Dilip Ratha knows how hard it is to work abroad and send money home. Why? Because he had to go through the same hoops when he was a migrant.
It's the inconvenience and the cost, the World Bank's head of KNOMAD and lead economist says during a livestream conversation on closing the global digital gap hosted by GZERO in partnership with Visa.
Still, Ratha points out, these flows are a lifeline for millions of poor families around the world. And they keep the lights on in remittance-dependent economies like El Salvador or Lebanon.
With an average 6% commission, the amount lost each year is double all the aid that the US gives to the entire world or what sub-Saharan Africa gets.
What happens when 1.4 billion people are cut off from the global economy because they don't have a bank account at a time of mounting crises?
"The geopolitical ramifications are potentially huge," Ali Wyne, senior analyst for Global Macro-Geopolitics at Eurasia Group, says during a livestream conversation on closing the global digital gap hosted by GZERO in partnership with Visa.
First, it was COVID. Then came the twin blows of the food and energy crises, aggravated by Russia's war in Ukraine. When people are struggling, Wyne adds, they'll look to their governments for solutions.
"And if they feel that they're not getting satisfactory answers," he warns, "we can't understate the potential for significant political unrest."
In the next decade, 70% of new value in the global economy will come from digital businesses. But more than 3.5 billion people without internet access will be cut off, and not all of them will live in the developing world.
“This is very much a global challenge,” Eurasia Group senior analyst Ali Wyne says in a livestream conversation hosted by GZERO in partnership with Visa.
Much of the developing world went digital during the pandemic. We see this, for instance: in Nepal, where it pushed people to go cashless and women in rural areas to embrace digital banking. Yet many remain unbanked, and that means they struggle to create wealth because they only deal in cash, according to Visa's Rubén Salazar. Having no bank account also makes it harder to send remittances, as we learn from a Mexican recipient and from the World Bank's Dilip Ratha.
There is hope, though. For Nextrade's Kati Suominen, digital payments are helping small businesses around the world reach new markets. The global move toward online shopping is a huge opportunity to scale, adds PayPal's Usman Ahmed.
In short, digital adoption faces many challenges but also huge opportunities to make things better for those who have the least.
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One of the most important changes happening in the global economy today is invisible. It’s the accelerating move from hard currencies and brick-and-mortar banks to digital and mobile-based platforms for commerce, payments, and banking.
This shift, which got a boost from the COVID pandemic, will transform the global economy from the ground up: broadening households’ and entrepreneurs’ access to the financial tools they need to thrive and grow, which strengthens national and regional economies, ultimately spurring more global economic growth. The annual value of the digital economy is already valued at $14.5 trillion. And through the next decade, it will account for nearly three-quarters of global GDP expansion.
At the same time, the move to digital brings with it fresh challenges. The most basic one is access. Even as you comfortably read this on a device screen, more than 40% of the world’s population still is not using mobile internet. The so-called “digital divide” between the digital haves and have-nots is most acute for the global poor, women – particularly in traditional societies – and people in rural communities. Even in the largest economy in human history, nearly a tenth of Americans – mostly outside of big cities – lack reliable internet access.
There are also big regulatory challenges when it comes to the digital economy. If an artisan in Ukraine sells something to a buyer in Japan using a payment system located in the UK, whose laws govern the privacy of the associated data flows and the commercial and tax terms of the transaction? If a US tech firm sells digital services to a French company, which local privacy laws does it have to follow? Elaborating on these rules of the road for the digital economy remains a major challenge.
Lastly, there is the security problem. Mobile banking and digital payment systems are doubtless more efficient than clawing cash out of your mattress and handing it over in wads. On the other hand, the digital alternative is potentially vulnerable to millions of hackers or data thieves all working hard to fleece the world’s digital mattresses. Digital platforms expand opportunities not only for business entrepreneurs but for criminal ones as well. Keeping financial and data flows safe and private in a digital world is an immense challenge.
What’s 1 + 0? In sum, the promise of a digitalized global economy is immense, but businesses and policymakers will need to work together to ensure that the new economy doesn’t replicate, or accentuate, the inequalities of the old one.
More tha 3 billion people are still not operating within the digital economy, thus widening global inequality. We look at three issues the world’s grappling with to bring them on board.
Why internet access is everything
Scan any UN report’s “development goals” and the importance of expanding global internet access becomes obvious. To end poverty, boost healthcare, improve the quality of education, reduce all forms of inequality of opportunity, create jobs, power innovation, and enhance life in the world’s cities, more human beings need reliable access to the internet. That’s why it’s disappointing that half the world’s countries remain slow to introduce information and communications technologies (ICT) in schools and that too many poor countries still lack the mobile broadband needed to connect. The pandemic has been a good-news, bad-news story here. The virus has forced greater investment in ICT and provided people everywhere with obvious incentives to learn how to use it. But a difference in means ensures the gap between rich and poor countries has grown wider. The solution to these problems depends, as ever, on greater international investment. This isn’t charity, and it isn’t simply a matter of “fairness.” All countries need a stronger, more resilient, and more sustainable global economy. Shared prosperity depends now more than ever on access to the internet for everyone.
Start young to address gender digital divide
Tech advances have been a game-changer for millions of women previously excluded from participating in the digital economy. Still, research suggests that the gender digital divide is significant for women in emerging market economies, where around 41% of adult women use the internet compared to 53% of men. Indeed, research suggests that around 393 million women in developing countries do not even own a mobile phone. For women living in or around urban areas, in particular, this results in exclusion from large parts of the gig economy, the economic engine of bustling cities like New Delhi and Dhaka. Moreover, surveys show that even when women across South Asia or Africa do have mobile phone access, they often own less sophisticated “talk and text” devices. Consider that in India, for instance, 57% of the male population has used the internet compared to just 33% of females (based on 2019-2021 data), a dynamic reflected in Indian women’s low participation in the workforce. So what’s the solution? Start young. In partnership with the African Union, UN Women pioneered a program in 2018 to boost digital literacy among young girls throughout the continent, including teaching them to code. Still, in a continent where the median age is 18, this is just the tip of the iceberg.
Putting trust in the digital economy
Digital advancements like artificial intelligence, cryptocurrency, and blockchain have revolutionized the way people deal with their finances. In 2021, blockchain technologies – the financial services platform used to trade cryptocurrencies – reached $6.6 billion and are projected to reach a whopping $19 billion by 2024. The financial sector accounts for almost one third of blockchain’s total value, meaning there is plenty of potential for it to still penetrate other sectors. But scarce digital trust has caused some societies to keep the fintech world at arm’s length. In Japan, for instance, more than 90% of those surveyed say cash is their primary payment method, according to Statista, with many citing security and privacy concerns as the reason for their preference. And the Japanese might have a point: the World Bank estimates that while the digital economy was valued at a whopping $14.5 trillion in 2021, efforts to contain cybercrime cost 41% of that. Private companies and governments have introduced stopgaps to limit identity theft, and some experts have proposed a digital identity system that would both reduce instances of cybercrime and boost users’ trust.