1. Digital drivers of inclusive growth in Africa and Latin America and the Caribbean

Bakary Traoré
OECD Development Centre
Jose René Orozco
OECD Development Centre
Juan Velandia
OECD Development Centre

The authors would like to thank Federico Bonaglia, Sebastian Nieto Parra, Arthur Minsat and Juan Vazquez Zamora for their guidance and feedback, and Mariana Lopes for her help on the revision.

  • In 2019, about 58% of the population of Africa lived in an area covered by 4G networks, compared to just 23% in 2015. The number of African tech start-ups receiving backing grew six times faster than the global average between 2015 and 2019.

  • In Latin America and the Caribbean, digital transformation can help countries overcome long-term challenges such as low productivity growth. 70% of the population uses the Internet regularly – almost twice the share as in 2010.

  • In both regions, the real potential for large-scale job creation lies in the diffusion of digital innovations from large, digitally focused firms to the rest of the economy.

  • Development co-operation on the digital agenda should help close spatial, social and productivity gaps. Stronger regional co-ordination in digital services, data regulation, security and trade remains key for boosting economic growth.

Digital transformation offers many opportunities to overcome structural challenges to development and support a more inclusive and productive society. It can help improve governance, enhance access to key public services, expand the way individuals collaborate, and enable people to benefit from both access to global markets and a greater diversity and choice of products. However, there are disparities within and across countries in terms of progress, access to and uptake in Africa and the Latin America and Caribbean (LAC) region.

While Africa’s digital economy is expanding, technology needs to be diffused more widely to tackle the jobs crisis and translate into inclusive growth. Core digital sectors, while growing, will not be enough to provide job opportunities for the several million graduates entering the job market each year. The spillover effects of digital transformation into other sectors of the economy can help grow market opportunities, businesses and employment. But African countries will have to overcome gaps in access, notably for rural communities, the poor, women and other vulnerable populations.

In the LAC region, the rapid economic development that countries enjoyed at the beginning of this century has dissipated amid pernicious structural challenges. This setback to the region’s middle-class ambitions dealt a blow both to economic progress and to trust in public authorities. To regain the lost momentum, LAC countries will have to address access as well as skills gaps so that technology gains translate into productivity gains; allow national economies to participate at higher levels of global value chains; and let more communities and sectors partake in the progress and benefits of digitalisation.

In both regions, the COVID-19 pandemic was the impetus to expand digital innovation through new ways of doing business and delivering public services. This highlighted what can be achieved in a relatively short time. It also exposed the risks of doing so inequitably and thus magnifying rather than solving existing problems. As digitalisation creates both opportunities and challenges that transcend borders, international co-operation and co-ordination and new partnerships are key to making the most of digital transformation at local, national and international levels.

Drawing on Africa’s Development Dynamics 2021 (AUC/OECD, 2021[1]), published by the African Union Commission (AUC) and the OECD, and the Latin American Economic Outlook 2020: Digital Transformation for Building Back Better (OECD et al., 2020[2]), this chapter outlines policy and operational gaps, traps and priorities to ensure digitalisation delivers inclusive growth in both regions.

Prior to the COVID-19 crisis, digitalisation was well underway in Africa, with several headline successes and dynamic ecosystems. To date, over 640 tech hubs are active across the continent, and 4 African cities rank among the top 100 cities worldwide for technology-enabled innovation in financial services (FinTech) ecosystems: Johannesburg and Cape Town in South Africa, Nairobi in Kenya, and Lagos in Nigeria (Findexable, 2019[3]). To trigger large-scale job creation and boost inclusive growth, however, policies need to bring digital solutions to the non-digital economy. This section outlines four policy areas at national, regional and continental levels to ensure digitalisation delivers inclusive growth in Africa.

The quality of communication infrastructure networks has improved markedly over the past decade, and the outlook remains positive:

  • In 2018, total financing for communication infrastructure networks in Africa was USD 7 billion, 80% of which came from private investors (Infrastructure Consortium for Africa, 2018[4]).

In 2019, about 58% of the population lived in an area covered by 4G networks, compared to just 23% in 2015 (Figure 1.1, Panel A). Capital expenditure by local telecom companies doubled between 2009 and 2019, and the returns on investments are solid (Figure 1.1, Panel B).

  • Africa’s fibre optic network extended from 278 056 km in 2009 to 1.02 million km in June 2019. The continent’s total inbound international Internet bandwidth capacity increased by more than 50 times to reach 15.1 terabytes per second (Tbps) in December 2019, up from only 0.3 Tbps in 2009 (Hamilton Research, 2020[5]).

  • New projects are expanding Africa’s broadband capacity. In May 2020, for example, Facebook and a group of telecom companies – including China Mobile International, MTN GlobalConnect, Orange and Vodafone – began deploying 37 000 km of new subsea cables in the 2Africa project (AUC/OECD, 2021[1]). By 2024, this new broadband network alone should deliver more than the total combined Internet traffic capacity of all 26 subsea cables serving Africa today. In another project, Google announced in October 2021 that it will invest USD 1 billion in Africa over the next five years to ensure access to fast and cheaper Internet and support the continent’s digital transformation, with a new subsea cable along Africa’s Atlantic Ocean coastline, Equiano, to be completed by 2025.

These developments reflect growing demand for telecom and Internet services in almost all African countries. Annual revenues of Africa’s telecom companies increased from USD 29 billion in 2007 to USD 55 billion in 2019. The introduction of competition in the mobile telecom services and other major regulatory reforms during the 2000s made this sub-sector attractive to new operators and improved the quality of service supplied (AUC/OECD, 2021[1]).

Increased connectivity and use of digital technology have started to transform Africa’s job markets, modernise banking, expand financial services to underserved populations, and unlock innovative business models for local small and medium‐sized enterprises (SMEs). In 2019, 643 innovation hubs and incubators were active across the continent (AfriLabs and Briter Bridges, 2019[7]), driving a new generation of African entrepreneurs who are applying digital technologies to fast-growing business models. An example is Kobo360, a Nigerian start-up founded in 2017 that aims to revolutionise the country’s domestic transport and logistics sector and link Nigeria’s farmers with buyers all over the world. In August 2019, the company raised USD 30 million. Several other tech-enabled start-ups are improving the transport of goods in Africa, among them Lori Systems in Kenya, an all-in-one logistics platform, and AgroCenta in Ghana, which provides a supply chain platform facilitating small-scale farmers’ access to large markets as well as a financial inclusion platform.

Nevertheless, the core digital sectors should not be expected to provide enough direct jobs for all young Africans in the near future. Telecom companies in 43 African countries, for example, accounted for just 270 000 full-time workers in 2019, and 20 leading start-ups had fewer than 20 000 employees in total (AUC/OECD, 2021[1]). Given that 29 million youth will reach working age every year between now and 2030, the real potential for large-scale job creation in Africa lies in the diffusion of digital innovations from the lead firms to the rest of the economy.

Given that 29 million youth will reach working age every year between now and 2030, the real potential for large-scale job creation in Africa lies in the diffusion of digital innovations from the lead firms to the rest of the economy.  
        

Data on more than 30 000 firms from 38 developing countries, including 9 countries in Africa, show that a 10% increase in email use by firms in a given geographic area raises their total annual sales by 37-38%, their sales per worker by 22-23% and the number of full-time workers by 12-14% (Cariolle, Le Goff and Santoni, 2018[8]). In 2007, Safaricom Company introduced the first mobile banking technology in Africa, M-PESA, using mobile phones to supplement Kenya’s insufficient banking infrastructure, especially in underserved areas and at significantly reduced transaction fees. This innovation enabled 185 000 women to switch their main occupation from subsistence agriculture to small businesses or retail between 2008 and 2014 and diffusion of this innovation through other sectors helped Kenya raise at least 194 000 households out of extreme poverty over the same period (Suri and Jack, 2016[9]).

In 2020, nearly half of the 1.2 billion mobile money account users worldwide – 562 million – were in Africa. More than 500 companies now provide technology-enabled innovation in financial services. These FinTech companies provide a wide range of digital financial products to customers (e.g. deposits, savings accounts, domestic and international transfers, and mobile payment systems). Some of them are now among the big providers of financial services in Africa. For example, in November 2019, Interswitch, which that year had more than 1 000 employees and estimated annual revenue of more than USD 76 million, became Africa’s first start-up company valued at more than USD 1 billion (AUC/OECD, 2021[1]). In February 2020, the South African FinTech start-up JUMO raised USD 55 million to expand to Bangladesh, Côte d’Ivoire, India and Nigeria.

From the onset of the pandemic, policy makers, mobile money providers and start-ups acted to mitigate the damage to citizens and businesses in sectors such as finance, education and health. Most African central banks encouraged people to use digital payments. The value of mobile money transactions across Africa increased by 23% to USD 495 billion in 2020 (GSMA, 2021[10]). Acting swiftly, Ministries of Education in 27 African countries had provided e-learning platforms by May 2020 (UNESCO, 2020[11]). The Africa Centres for Disease Control and Prevention, in collaboration with 20 international partners and foundations, also launched an e-platform to help governments procure diagnostic tests and medical equipment from certified suppliers on the global market (AUC/OECD, 2021[1]). To reduce the burden on fragile health systems, start-ups and entrepreneurs developed more than 120 e-health technology innovations based on information and communications technology (ICT), 3D printing, or robotics (WHO Africa, 2020[12]; Zeufack et al., 2021[13]).

The number of technology start-ups in Africa also grew in 2020, with the number of start-ups securing funding increasing by 44% between 2019 and 2020; over the five-year period of 2015-19, the number of African tech start-ups receiving backing grew six times faster than the global average (Maher et al., 2021[14]). By August 2021, funding for African tech start-ups had increased 69% from the previous year’s inflows (Jackson, 2021[15]).

Despite the expansion of Africa’s digital economy and the promising new investments to further increase connectivity, digital access, uptake and affordability vary widely. The use of Internet services remains highly unequal across employment status, location, gender and education (Figure 1.2). Data services on the African continent are the most expensive in the world, and only 17% of Africa’s population can afford 1 gigabyte of data. The AUC and the OECD, in a recent study, calculate that in 38 African countries (out of 44 for which data are available), the prices of data services would have to be halved from their current levels to be affordable for 75% of their populations (AUC/OECD, 2021[1]).

As outlined in the AUC and OECD report, Africa’s Development Dynamics 2021 (AUC/OECD, 2021[1]), inclusive digital transformation in Africa requires policies that target these inequalities. The report identifies four pillars to guide policy makers. These address the main constraints on Africa’s digital transformation by bridging spatial, social and productivity gaps, and improving digital integration.

About 73% of Africans will live in intermediary cities and rural areas by 2040. Yet only 35% of intermediary cities are connected to fibre optic networks, despite significant progress on infrastructure development. The European Satellite operator S.E.S. (Société Européenne des Satellites) estimates that, from a technical point of view, terrestrial fibre optic networks may never be able to reach about 30% of Africa’s rural population in a cost-effective way (AU-EU Digital Economy Task Force, 2019[17]). Spectrum allocation policies thus should facilitate licensing procedures for telecom service providers aiming to cover such underserved geographic areas. For example, allowing small operators to use virtual or mobile network facilities can improve product diversity and market competition.

Public-private alliances also offer cost-effective solutions to connect rural areas. In Algeria, Ghana, Kenya and Nigeria, the public sector partnered with mobile telecom companies and telecommunications equipment providers to bring mobile broadband to rural populations. Benin, Ghana and Rwanda focus their universal service and access funds on skills acquisition programmes for women entrepreneurs. However, these funds appear to be underutilised. While 37 African countries have created universal service and access funds, 46% of the funds collected, or USD 408 million, were still unspent at the end of 2016 (Thakur, 2018[18]).

For the vast majority of Africa’s working-age population, including young graduates with secondary or tertiary education, the main gateway to job markets remains own-account work, most often in the informal sector. By 2040, if current trends are maintained, own-account and family workers will represent 65% of employment. If they are to take advantage of evolving work opportunities in the digital economy, they will need to develop relevant skills.

New public-private alliances (including tech hubs, incubators and tech companies) can help informal workers transition to more formal work. Google’s Africa Investment Fund has announced plans to invest USD 50 million in African start-ups and to give them access to Google employees and its network and technologies (Reuters, 2021[19]). While new forms of own-account work via e-platforms and digital applications may widen opportunities, it is important to develop regulatory frameworks and social protections to prevent precarious working conditions. Setting international standards and promoting certification for responsible business conduct for lead platform companies could also help eliminate unfair practices and hold platforms accountable without putting the livelihood of local workers at risk (AUC/OECD, 2021[1]). Moreover, authorities should ensure competition among telecommunication providers to foster diversity and affordability of last-mile services.

SMEs need support to adopt appropriate digital tools for innovation and trade and take advantage of the growing use of digital technologies. A website can boost a firm’s exports, for example: It is associated with a 5.5% increase in the share of direct exports in firms’ sales (AUC/OECD, 2021[1]). But only 31% of firms in Africa’s formal sector have a website, compared to 39% in Asia and 48% in the LAC region. Enticing African firms to scale up is critical if they are to survive and create jobs. Digital tools and skills, alongside financing, can enable entrepreneurs to avoid weak transport and logistics infrastructure.

Policy makers can support SMEs with agile regulation for digital trade, facilitating intellectual property protection, and services and public goods to SME clusters. For example, paperless procedures and smart clearance technologies increase the transparency, predictability and efficiency of customs procedures at borders and facilitate trade (see Chapter 15). The East African Community is introducing the Regional Electronic Cargo and Driver Tracking System, which will facilitate the issuance of COVID-19 certificates that are recognised by the partner states and reduce delays at border points (UNECA, 2021[20]). Such procedures can also match buyers and suppliers and reduce the risk of petty corruption.

Only one in five African countries has a legal framework for cybersecurity and just 11 have adopted substantive laws on cybercrime. And yet, the cost of cybercrime in Africa is increasing and Africa’s online ecosystem is one of the most vulnerable in the world. Serianu Limited has estimated the cost of cybercrime in Africa to be about USD 3.5 billion in 2017, with Kenya and Nigeria alone suffering losses of USD 210 million and USD 649 million, respectively (Serianu Limited, 2017[21]). Given the international nature of cybercrime, it also crucial to accelerate co-operation on digital security.

In 2014, African Union heads of state and governments adopted a Convention on Cybersecurity and Personal Data Protection as a first step towards continental co-operation. As of June 2020, only 14 African Union member states had signed it and only 5 had ratified it (Ghana, Guinea, Mauritius, Namibia and Senegal). Fifteen ratifications are required for the Convention to enter into force.

Broadly speaking, the LAC region faces many of the same digital transformation challenges as Africa. Regional policy makers in Latin America and the Caribbean need to be more proactive in designing policies that harness the benefits of digital transformation, mitigate risks and ensure that national strategies for post-COVID recovery integrate the digital agenda, as noted in the Latin American Economic Outlook 2020: Digital Transformation for Building Back Better (OECD et al., 2020[2]).

The pandemic hit the region at a time of economic stagnation. Economic growth and socio-economic advancements had slowed since 2011, halting the progress the region experienced earlier in the century. The pandemic also affected digital transformation across countries, accentuating existing structural development traps (OECD et al., 2019[22]). Low labour productivity, growing middle-class aspirations, and the social and economic impact of the COVID-19 pandemic signal an evolving situation in the region.

Nonetheless, the COVID-19 crisis has spurred the development and adoption of digital technologies, particularly in the business and education sectors where telework and online learning became mainstays during lockdowns. There is great scope to expand the benefits of digital transformation, especially for the micro, small and medium-sized enterprises (MSMEs) that represent nearly two-thirds of all employment across the LAC region. But to maintain that momentum and fully seize opportunities to address long-standing productivity and other gaps, LAC countries need to scale up investment in infrastructure and skills; strengthen co-operation and collaboration domestically and internationally; and rethink how policy is developed and implemented (OECD et al., 2020[2]).

There is great scope to expand the benefits of digital transformation, especially for the micro, small and medium-sized enterprises (MSMEs) that represent nearly two-thirds of all employment across the LAC  
        

Digital transformation in LAC closely tracks the degree of adoption of ICTs, access to broadband and Internet use. In 2019, approximately 70% of the population used the Internet regularly – almost twice the share in 2010 but behind the 2019 OECD average of nearly 85%. Ensuring all people can access, use and benefit from new technologies requires a comprehensive, innovative and co-ordinated policy effort. Public policy co-ordination demands strategic planning: comprehensive frameworks provided in national development plans aligned with specific digital agendas (OECD et al., 2020[2]).

Uptake of digital technologies varies by the size of firms in the region, with larger firms using digital tools far more frequently like websites and email. In some LAC countries, the gap between small and large companies that own their own website is more than 30 percentage points. Gaps are evident as well in how firms use digital tools in some countries: among companies that use email, small firms are half as likely to use it to interact with customers or suppliers than medium-sized and large firms.

Nonetheless, the potential of the digital revolution should not be underestimated, especially for MSMEs, given their important role in the region’s formal economy. MSMEs represent 99.5% of all firms and 61.2% of employment in the LAC region, though only 24.6% of production in the region (Dini and Stumpo, 2018[23]). In Chile, for instance, the Digitalise Your SME programme provides a diagnostic test to determine a firm’s level of digital maturity and makes recommendations based on the firm’s digitalisation needs. For instance, retail companies are encouraged to take part in e-commerce as this can have an impact on sales (Chilean Ministry of Economy, Development and Tourism, 2021[24]).

There is potential as well to promote research and development, new business models, and productive chain adjustments. An analysis of 11 categories of initiatives promoted by governments – on a scale of increasing complexity from creating an ecosystem for the adoption of digital technologies to transforming technological and strategic capabilities of firms – finds that most of these have not been implemented. Despite efforts to encourage MSME adoption of digital technologies, further work must be done to link these efforts with national strategies for productive transformation and not simply focus on enablers and policies to develop capabilities (OECD et al., 2019[22]). Thus, the challenge for the LAC region is to transition from policies that promote the adoption of digital technologies for the industrial sector to a complete transformation of the production process supported by new technologies (Heredia, 2020[25]).

[Thus] the challenge for the LAC region is to transition from policies that promote the adoption of digital technologies for the industrial sector to a complete transformation of the production process supported by new technologies (Heredia, 2020[25]).  
        

Digital transformation in the labour market brings both challenges and opportunities. Two of ten jobs are at risk of automation in the LAC region and four in ten jobs might substantially change in terms of tasks, with variation in the region (OECD et al., 2020[2]). In the Plurinational State of Bolivia, only 5% of jobs are at high risk of automation, while in Uruguay this figure rises to 29% (ECLAC, 2019[26]). The proportion of jobs in low productivity sectors, which ranges from 30% in Chile to more than 70% in other countries, is a primary factor in the risk of automation (Weller, Gontero and Campbell, 2019[27]). As digital technologies also create new job opportunities, policies to support the transition of workers in declining industries are crucial (OECD et al., 2020[2]). Colombia’s 2018-22 ICT Plan noted the importance of encouraging workers to build digital skills, proposing that at least 10 000 facilitators be deployed to strengthen the business environment of firms and provide training for employees (Colombian Ministry of Information and Communication Technologies, 2018[28]).

The socio-economic impacts of COVID-19 in the LAC region were dramatic. The region ended 2020 in the worst economic downturn of the last 200 years, with annualised gross domestic product (GDP) growth slightly below -7.0% (OECD et al., 2021[29]). After strong performance in the early 2000s, economic growth and socio-economic advancement in the LAC region began to slow in 2011. Between 2014 and 2019, the region had its weakest growth since the 1950s. The protests that erupted in 2019 confirmed that poverty, inequality and social vulnerability remain concerns (OECD, 2020[30]).

Against the backdrop of this stagnation across the region, the COVID-19 crisis increased momentum to undertake reforms necessary to ensure the benefits of the digital transformation for all (OECD et al., 2020[2]). More people and businesses adopted telework and online study during confinement, and digital technologies and greater use of the Internet were critical to keep businesses and education running. In countries with a strong communication infrastructure, the government was able to provide real-time updates regarding the pandemic and track ongoing cases to inform policy decisions. The challenge now is to ensure that digitalisation realises its potential to be an engine for renewed economic growth and help address the region’s development gaps and traps.

Digital transformation can help LAC economies address development traps that emerge when countries with long-standing weaknesses confront new problems. Digital technologies can increase productivity by helping firms access new markets, create new goods and services, and produce in a more efficient and productive manner. They can create new jobs and make public services more accessible, mitigating social vulnerability. Digitalisation can help governments become more reliable, effective, open and innovative. This can help to rebuild the trust between governments and citizens. Finally, it can help create green and sustainable growth (see Chapter 19). Alongside these opportunities, there are risks that need to be managed.

Aggregate labour productivity in the LAC region has declined or shown little persistent growth since 1950. The region’s productivity has decreased compared with the rest of the world since the 1960s, and GDP growth in the region can be attributed more to labour force expansion than to productivity increases (OECD et al., 2020, p. 52[2]). The low participation of LAC in global value chains exacerbates its concentration of exports in primary and extractive sectors. This, in turn, is associated with low levels of technology adoption and few incentives to invest in productive capacity. In all, competitiveness remains low, making it difficult to move towards higher added value segments of global value chains. This fuels a vicious circle that negatively affects productivity (OECD et al., 2019[22]).

Widely varying levels of adoption of digital technologies across industries and firms can explain the productivity paradox, where higher availability of technology does not reflect higher productivity at a national level. The rate of adoption among different industries varies significantly in low digital-intensity industries such as agriculture, mining and real estate versus high digital-intensity sectors such as telecom and information technology services. Similarly, not all sectors are involved in all aspects of the digital transformation; some only use a part of different technologies, creating another layer of heterogeneity across sectors (OECD, 2019[32]). Even among firms in ICT-intensive sectors, there is a strong heterogeneity of digital adoption.

While the LAC region is still in a transition phase, already the digital transformation allows for development of new goods and services and access to new markets for producers and individuals. In addition, it can help redefine production processes and relationships between industries and increase overall efficiency in businesses (Katz, 2015[33]). If the region were to close the productivity gap with the OECD in 2030, this would provide 0.48 additional percentage points to the region’s multifactor productivity growth (Katz, Jung and Callorda, 2020[34]). To achieve this, major investment by the private and public sectors is needed to close infrastructure gaps, especially in rural areas, and to satisfy growing demand for connectivity (OECD, 2019[32]).

The social progress that the region experienced earlier in the decade slowed and, in some countries, reversed due to the economic slowdown and impact of the pandemic, particularly on the most vulnerable. Protecting vulnerable informal workers with no social safety net and avoiding widespread poverty are now particular challenges (OECD, 2020[30]). It is estimated that in 2020, the poverty rate in LAC climbed to 37.3% of the population (OECD et al., 2021[29]; ECLAC, 2020[35]), a level not seen for the past 12 years (OECD et al., 2021[29]).

Despite progress in recent years, there remain wide gaps between socio-economic groups in digital skills and access to and use of digital technologies. During the pandemic, these disparities widened, creating winners and losers. For instance, fewer than half of the LAC population had enough experience using digital tools to carry out basic professional tasks, meaning they were effectively excluded from remote activities (OECD et al., 2020[2]).

Providing both access to and ICT learning are important to promote the digital transformation. Schools in LAC countries promote equity in access to and use of ICT in countries where household connectivity is not universal. In 2018, fewer than 14% of poor students in primary education had a computer connected to the Internet at home, compared to more than 80% of affluent students with the same education level. Moreover, more than 5% of students had Internet and other digital technology access only through school. Before the pandemic, few schools in the LAC region were sufficiently prepared for digital learning. Among 15-year-olds, 58% attend schools whose principals considered that teachers had the necessary technical and pedagogical skills to integrate digital devices into the curricula (OECD et al., 2020[2]). These figures highlight the vast training needs of education systems in the region and the significant discrepancy in digital teaching capacity between socio-economically advantaged and disadvantaged schools (OECD et al., 2020[2]).

Governments face new regulatory challenges to both manage issues that arise from the digital transformation and ensure that it benefits all (OECD, 2019[36]). They also must grapple with their own digitalisation.

LAC country governments are at different stages of digital transformation. They fall into two groups in the United Nations E-Government Development Index. Argentina, Brazil, Chile and Uruguay are among the top 50 performers of the 193 countries surveyed in the 2018 edition. Belize, Cuba, Haiti and Nicaragua are among the worst performers (UN, 2019[37]). The greatest challenges for LAC countries are in communications infrastructure and human capital.

Digital transformation can help governments be more innovative in policy design, delivery and evaluation, improving the policy-making process. Technology and the digitalisation of societies and governments are generating massive amounts of data, which can be assets to spur innovation and develop better-informed and targeted public policies and services. Many countries used smartphone-generated geolocated and proximity data to map the geographical distribution and evolution of COVID-19 or to monitor compliance with lockdown measures. Making the most of the digital transformation requires a change within public administration from an information-centred to a data-driven approach that includes digital technologies and data in public policy design from the outset.

The environmental trap is linked to the productive structure of most LAC economies, which are built around activities that are highly material-intensive and natural resource-intensive. This concentration may lead these countries towards an environmentally and economically unsustainable dynamic. There are two reasons for this. First, concentration on a high-carbon growth path is difficult, and costly, to abandon. Second, the natural resources upon which the model relies are becoming depleted. These two challenges have also gained importance in recent years with stronger commitment to global efforts to fight climate change (OECD et al., 2019[22]). Digital technologies offer opportunities to mitigate the risks of the environmental trap. Technologies can help countries decarbonise their economies by creating services or products that are less demanding on the environment, increasing production efficiency and reducing waste across industries and production processes. New technologies can also increase efficiency in the production and consumption of energy and improve transport efficiency.

In both Africa and the LAC region, many of the opportunities and challenges of digital transformation transcend country boundaries, whether they relate to taxation and trade, cross-border flows of data, digital security and data protection, or investment to build digital infrastructure and skills that benefit everyone. Greater supranational co-operation and harmonised action on data regulatory frameworks are crucial. Harmonised action can stimulate sustainable economic growth.

Regional and continent-wide co-operation would support the ambition of African leaders to create a single digital market across Africa (see Chapter 15). A continental data regulatory framework, for instance, could establish a set of principles and guidelines for companies doing business in any African country, much as the European Union has done with its General Data Protection Regulation (see Chapter 29). Digital data value chains are international in scope, and there is evidence that most African countries are already paying a high price for weak intra-African co-operation in terms of associated potential threats and losses (AUC/OECD, 2021, p. 60[1]).

Strong and agile data regulatory frameworks, harmonised across countries, also are crucial to enable digital content creation. However, only 28 countries in Africa have comprehensive personal data protection legislation in place. Likewise, interoperability and regional co-operation for affordable roaming services would support Africa’s regional integration. However, evidence from 64 countries over 2006-16 shows that the isolated attempts to restrict the cross-border movement of data or to require local storage of data had the effect of inhibiting trade services and reducing the productivity of local firms. To help African countries navigate these issues, the African Union is leading 15 initiatives in various areas of digitalisation. The AUC’s Digital Transformation Strategy for Africa and other projects developed in conjunction with international partners aim to achieve a digital single market by 2030 and strengthen Africa’s role in the global digital economy. Among these are the Policy and Regulatory Initiative for Digital Africa, the 2020-30 Digital Economy for Africa initiative, and the establishment of a Pan-African Payment and Settlement System.

Similarly, regional integration could help realise the digital potential of Latin American and the Caribbean. The region’s digital regulatory frameworks and regional and sub-regional co-operation efforts are not harmonised in many cases. A regional digital market could advance development by helping countries enhance communications infrastructure and expand trade, which was severely affected by the COVID-19 crisis. Regional co-operation initiatives, such as the Economic Commission for Latin America and the Caribbean’s Digital Agenda for Latin America and the Caribbean 2020 could also prove useful for multiple stakeholders and countries to articulate frameworks and levels of digital development, exchange experiences, and set up policy dialogues (ECLAC, 2018[38]).

COVID-19 accentuated the importance of international co-operation and digital tools. It is also essential to co-ordinate policies at the international level to promote inclusive digitalisation, such as policies to create a digital single market. Triangular co-operation initiatives, such as the Environmental Technology Centre in Peru, can co-ordinate environmental policies with new tools to help build capacities against development challenges (OECD et al., 2020[2]).

Given the highly transversal impact of digital tools, renewed co-operation could support countries in the LAC region to overcome development traps and to build domestic capacities through an extended network of partners including the private sector and civil society. International co-operation can help them navigate the global context by contributing to productivity, social cohesion, better institutions and green economies, thus adopting a human-centred approach – as exemplified in the European Union’s Digital Strategy – to the design and implementation of technology that prioritises citizens’ needs and rights (OECD et al., 2020[2]).

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