Overline: Coronavirus

Headline: Will the pandemic widen the global digital divide?

Many countries are riding a wave of digitalization in the wake of the coronavirus pandemic, with office staff working from home, friends meeting on video conferencing platforms, online trade booming and governments rolling out tracing apps to track infection chains. However, developing and emerging countries could suffer setbacks in their efforts to strengthen their economies and societies through the adoption of digital technologies. Now more than ever, states must double down on efforts to ensure a globally just digital transition.

Many developing and emerging countries have made significant advances in recent decades to reduce poverty, expand health care, secure access to water and electricity and strengthen their economies. As the coronavirus pandemic gains pace, Achim Steiner, who leads the United Nations Development Program (UNDP), has warned that a decade of development progress could be wiped out in some countries.

There is also a risk that the economic and technological divides between the industrialized, emerging and developing countries could widen further – in particular in areas relating to the digital transition. Over the past two decades, many countries in the Global South have made increased efforts to improve the opportunities and abilities of citizens to participate in the digital transition, to bolster the uptake of digital technologies in business and administration, and to promote tech entrepreneurship. The impacts of the coronavirus pandemic could jeopardize these achievements and constrain efforts in many countries to reach digital development goals within the foreseeable future.

Lack of investment slows digital development

This global health crisis poses a major threat to the finances of many countries in the Global South, which may likelyhave to grapple with a severe economic downturn and new debt crises. This development could reduce investments in infrastructure and the education sector. Efforts to establish a regulatory environment conducive to digital transformations in the economy and society are also likely to stall. The 20 largest industrialized and emerging economies (G20) and numerous private lenders recently agreed that the poorest countries can suspend debt service payments until the end of the year. The World Bank has also announced that it will provide up to US$ 160 billion to help developing and newly emerging countries cope with the economic impacts of the pandemic. However, there is widespread criticism that these measures do not go far enough and will in fact require countries to take on new debts. 

In the Global South many startups and companies in the digital economy will face significant challenges in attracting investors and sourcing financial aid. In March this year, more capital was withdrawn from countries in the Global South than during the 2008 financial crisis. The crisis has also impacted negatively on the general economic environment – quite apart from the fact that companies and their employees are also directly affected by stay-at-home orders and other restrictions as well as the risk of infection.

Crisis exacerbates global inequalities

Against this background, it is becoming increasingly difficult for many countries in the Global South to reap the rewards of the "digital dividend" in the form of economic growth, jobs and improved services – a dividend that has to date been meagre for these countries in any case. On top of this, imbalances in the global digital economy could well tip the balance further in favour of the “big players”. Even before the coronavirus pandemic, the dominance of US and Chinese digital companies was widely criticized by government, private sector and civil society actors in the Global North and South. It is becoming clear that platform companies like Amazon, Google, Facebook and Netflix could be among the winners of the coronavirus pandemic as consumers take their business online. It can be assumed that smaller, decentralized online businesses will find it even more difficult to stake their claim in the market.

Furthermore, this development could strengthen the position of the European Union, the United States and other countries that hope to establish a liberal international trade regime for digital goods. This touches on a long-standing dispute between these and several other members of the World Trade Organization (WTO) – in particular India and South Africa – which advocate for the regulation of global digital trade, including the ability to place tariffs on digital products and better protection of domestic digital economies. The next WTO Ministerial Conference was set to debate the future of a moratorium on customs duties on electronic transmissions that has existed since 1998. However, the meeting, originally scheduled for June 2020, has been postponed until further notice due to the pandemic. The moratorium's future is uncertain, but observers expect that it will be extended. And while the debate over the future of e-commerce does not reflect the classic North-South divide, there is a lot at stake for many developing countries: In a study last year, the United Nations Conference on Trade and Development (UNCTAD) calculated that the existing moratorium would cost developing countries between US$ 5 billion and US$ 10 billion annually in foregone revenue, depending on the scenario.

A juster digital transition is possible

Two measures are needed to ensure that the digital divide between the industrialized, emerging and developing countries does not widen further in the wake of the corona pandemic: Firstly, the countries of the Global South will need substantial financial support in order to deal with the acute health crisis caused by SARS-CoV2 and its economic fallout. It is important that this support also targets projects aimed at expanding infrastructure and promoting digital capacity-building in education and business. Crucially, these projects should be aligned with the Sustainable Development Goals of the United Nations. At the same time, however, fair rules for the digital economy and global e-commerce are needed. The interests and concerns of developing countries must be taken into account here so that these countries can share fairly in the benefits and opportunities of the digital transition over the long term.