Category Archives: policymakers

Overcoming digital divide – analysis (India)

India FlagIndia’s policies towards digital regulation are inadequate. Future policy-making must be based on economic considerations and evidence, not on myopic political considerations

In 2014, the Narendra Modi-led Government came to power with an objective of ‘minimum Government, maximum governance, aimed at showcasing the country as an investment-friendly destination. Thereafter, on various occasions, the Government announced measures to boost private sector investment in the country. To its credit, several high-level policy decisions, like the Goods and Services Tax (GST) and Insolvency and Bankruptcy Code were enacted to improve the business and investment environment. However, the major test for the Modi-led Government is yet to come.

India is on the cusp of laying the foundation stone for the next digital revolution (Industry 4.0). Industry 4.0, synonymous with the digital economy, is expected to contribute one trillion dollar to national output by 2022-23. Given the undeniable potential of the digital economy to contribute outsize growth, it is incumbent on the Government to adopt a delicate, evidence-based approach to put in place an appropriate regulatory architecture that ensures the country reaps full dividends from Industry 4.0.

However, emergent policy recommendations in the past few weeks indicate that the Government is handling the nascent digital economy with a 20th century mindset. These include recommendations of the Committee of Experts, led by Justice (retd) BN Srikrishna, the draft e-commerce ‘policy’ and the draft report of the Working Group on Cloud Computing — the latter two, as reported by the media, amply illustrate the perils of a dated mindset.

For starters, the decision-making process of all the three have remained opaque and had negligible representation from private organisation, let alone investors. Therefore, the final outcome of these groups has been skewed towards one direction, while ignoring the consideration of other stakeholders, in particular investors. For instance, despite highlighting the economic cost and concomitant adverse impact on the start-up ecosystem associated with data localisation in a white paper, the final recommendation of the BN Srikrishna committee endorses the same. Similar provisions for localisation have found their way in Cloud computing recommendations as well as the draft e-commerce policy. It is important to note that storage of data in India would not mean access to that data by local entities. Additionally, such measures can exacerbate cyber-security risks by compelling enterprises to invest in increasing data storage capacity, while apportioning fewer resources to ensure adequate security controls.

Furthermore, voices for protectionism, which are reminiscent of the discourse during the 1991 reforms, are getting louder. Particularly with respect to the draft e-commerce policy, a document, which besides guiding India’s position at the international trade fora, is aimed at promoting the domestic e-commerce ecosystem. This policy will implicate all aspects of the digital economy, and have a key role to play in India’s preparation for the emergent digital revolution.

However, protectionist voices have argued that the Government should formulate different rules for foreign and domestic companies, citing that availability of abundant capital with foreign companies could kill domestic entrepreneurship.

India has come a long way from considering investments as a bail out to solve external payment crises, to recognising that investments bring with them growth and employment, and consequently make a significant contribution to the economy at large. Constant liberalisation of the foreign investment regime in the country is an example of this approach.

Nonetheless, while dealing with digital economy, a constant international best practice which is cited by protectionist voices is that of China. The question to ask is: Can India afford to adopt the Chinese approach? Currently, India’s share in global value chains (GVC) is estimated to be less than two per cent, while China’s share is in double digits. Importantly, China’s peculiar political and economic outlook makes its policies inimitable. For instance, most Chinese players in the digital economy have been supported by state-led investments.

Unlike China, India neither has the economic footprint to deter other countries from taking restrictive reciprocal measures, nor are our entrepreneurs and businesses supported by public sector finance. On the contrary, foreign capital has played a vital role in providing India’s home-grown digital companies like, Ola and Paytm, a global stage. Introducing onerous regulatory conditions and uncertainty could impact the trust of the investors in India as a promising and stable digital market, consequently damaging the image of the country as an investment-friendly destination.

Therefore, it is important that future policy-making is based on economic considerations and on evidence rather than myopic political considerations. Additionally, the need of the hour is to take a nuanced approach with respect to policies which are expected to impact India’s economic aspirations in the coming decade. Given that the 2019 Lok Sabha election are around the corner, the Modi Government will be under pressure to succumb to various protectionist demands. It should take care to avoid such pitfalls if it is to reap economic dividends in its second-term in power which it projects to win.

source: www.dailypioneer.com

GSMA: Free Flow of Data across Borders Essential for Asia’s Digital Economies

GSMAGovernments in Asia can expand the region’s digital economy and unlock further socio-economic benefits for their citizens by removing unnecessary restrictions on the movement of data internationally, according to a new report released by the GSMA today at the Mobile 360 – Digital Societies conference in Bangkok. The study, ‘Regional Privacy Frameworks and Cross-Border Data Flows’, reveals that striking the right balance in the region’s data privacy regulations could significantly enhance economic activity and future innovation in 5G, the Internet of Things (IoT) and artificial intelligence (AI).

Over the past decade, international data flows have increased global GDP by 10.1 per cent, and their annual contribution to global GDP has already surpassed US $2.8 trillion1 – a larger share than the global trade in goods. The ability to transfer, store and process data enables commerce, spurs innovation, and drives the development of new technologies, platforms, services and infrastructure.

Although the Asia Pacific region has made good progress in the development of data privacy frameworks that protect consumers while also allowing data to flow across borders, the report highlights that variances in data privacy laws across countries is holding back trade and innovation. The report also calls for better links at a regional level between Asia’s two main privacy frameworks – the ASEAN Framework on Personal Data Protection and the APEC Privacy Framework – to enable cross-border data flows.

“The immense economic opportunities arising from the digital economy and data flows are indisputable,” said Boris Wojtan, Director of Privacy, GSMA. “Working towards a pan-Asian approach to data privacy is critical to protecting the rights of individuals and unlocking this economic potential, not only in Asia, but around the world. Regulating people’s personal information by a patchwork of geographically bound privacy laws will only restrict how Asian companies can innovate and bring better products and services to consumers in the future. Now is an important time for all countries to take actions to bridge the differences in their privacy regulation and achieve greater alignment.”

The study evaluated various regional data privacy frameworks and their key principles, while diving down into individual countries to identify national approaches to privacy regulation. It highlights specific steps that all countries, including less developed states, can take to support greater alignment across Asia. Some of the key recommendations included in the report are:

  • APEC and ASEAN governments should consider the options outlined in the study to bridge the differences between their respective privacy frameworks and seek interoperability with other regional frameworks;
  • Countries should advance the alignment of national-level privacy regimes by conducting a landscape analysis to see where they stand in terms of data privacy and reviewing the experience of other governments in the region to understand common paths forward;
  • Policymakers in government and privacy enforcement authorities should support deeper collaboration and cross-learning across the region; and
  • Governments should also draw on non-government privacy experts in the private sector and academia to inform their approaches.

The GSMA also today released its report, ‘Cross-Border Data Flows: Realising Benefits and Removing Barriers’, which describes the benefits of global data flows for individuals, businesses and governments, and explores the damaging impact of increased data localisation measures, which can either require companies to store data locally, or even prohibit companies from transferring personal data altogether. The report calls for governments globally to commit to removing unnecessary localisation measures and enable data to flow cross-border through improved approaches to protecting people’s data.

The ‘Regional Privacy Frameworks and Cross-Border Data Flows’ report is available here in English.

The ‘Cross-Border Data Flows: Realising Benefits and Removing Barriers’ report is available here in English.

source: https://business.financialpost.com

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How cybersecurity and data storage laws could pull the plug on Southeast Asia’s digital economy

southeast-asiaJeff Paine says governments in Southeast Asia are keen to capitalise on the opportunity presented by the digital economy, but their rush to regulate data flows and storage will hit start-ups and small local firms hard.

Southeast Asia is one of the most diverse regions in the world, a handful of countries with thousands of languages and cultures, yet all having one thing in common – bold ambitions for their digital economies.

From the establishment of digital agencies like Malaysia Digital Economy Corporation in Malaysia and the Digital Economy and Promotion Agency in Thailand, to charting impressive road maps such as Thailand 4.0 and Making Indonesia 4.0, many governments in the region are prioritising capturing as much of the region’s US$200 billion digital economy opportunity as possible.

What isn’t clear is how these bold aspirations will be achieved.

Despite the inherent benefits of digital technologies and the internet, many governments are pursuing policies that will limit the use of these technologies. Driven by pressure to address specific and immediate challenges including cybersecurity, data protection, privacy and misinformation, governments fail to consider the long-term impact of these laws on economic growth, jobs and investment.

Vietnam’s recent Law on Cybersecurity and Indonesia’s Government Regulation 82 are examples of this, with provisions including restrictions on data flow and content, requirements for foreign companies to set up local offices and local data storage requirements. Meanwhile, proposed rules in Thailand subject over-the-top (OTT) service providers to tax, security and content regulations.

The impact of these regulations goes far beyond the information and communications technology industry, given that virtually every business today uses the internet and digital technology.

For foreign businesses, restrictive, too broad and unclear regulations create uncertainty and an unfriendly investment climate. Multinational companies unable to make long-term financial decisions are likely to shift their investments to countries with more flexible regulatory environments that support the development of a digital ecosystem.

Local businesses, like small and medium-sized enterprises and entrepreneurs that comprise 95 per cent of Southeast Asia’s economy, will bear the brunt of poor policies. Restrictions on cross-border data flows, digital tax and local data storage, will prove difficult to comply with.

Many small businesses depend on digital services and platforms such as cloud for data storage and collaboration, online marketplaces for e-commerce, social media for communication and marketing, and OTT platforms to reach customers at scale. Such laws will increase the cost of doing business, create barriers for expansion beyond borders and are likely to block small players from competing in the global marketplace.

For example, if a neighbouring country enacted similar provisions to Vietnam’s cybersecurity law, a Vietnamese software start-up would be unlikely to be able to afford data storage facilities and local offices in locations outside Vietnam – curbing regional or global expansion plans.

With significant economic prospects at stake, and the challenges of security, privacy, data and misinformation in mind, governments must find better ways to manage risk without hampering growth.

Southeast Asian governments can learn from how larger, developed economies manage emerging technology. For example, Thailand has looked towards the European Union’s implementation of the General Data Protection Regulation as a basis for their data protection laws.

On taxation, intergovernmental organisations such as the Organisation for Economic Co-operation and Development provide useful guidance in key areas such as the need to create consistency between countries on cross-border digital taxes. Unilateral moves like Australia’s goods and services taxin July 2018 on low-value imported goods is likely to pose compliance challenges and higher costs for small businesses in the long run.

Instead, a cross-sectoral range of agencies, ministries and industry players could together craft comprehensive policies that manage risk and promote growth. A good example of this is Singapore’s approach to digital taxation and preventing misinformation.

The digital economy is uncharted territory for most. There is a small window of opportunity now to ensure smart regulations and policies are in place to secure future growth. Technology companies and industry groups can work with governments, ensuring that the opportunities and benefits of the digital economy are realised and not wasted.

source: www.scmp.com

Benin is the latest African nation taxing the internet

taxationBenin has joined a growing list of African states imposing levies for using the internet.

The government passed a decree in late August taxing its citizens for accessing the internet and social-media apps. The directive, first proposed in July, institutes a fee (link in French) of 5 CFA francs ($0.008) per megabyte consumed through services like Facebook, WhatsApp, and Twitter. It also introduces a 5% fee, on top of taxes, on texting and calls, according to advocacy group Internet Sans Frontières (ISF).

The new law has been denounced, with citizens and advocates using the hashtag #Taxepamesmo (“Don’t tax my megabytes”) to call on officials to cancel the levy. The increased fees will not only burden the poorest consumers and widen the digital divide, but they will also be “disastrous” for the nation’s nascent digital economy, says ISF’s executive director Julie Owono. A petition against the levy on Change.org has garnered nearly 7,000 signatures since it was created five days ago.

The West African nation joins an increasing number of African countries that have introduced new fees for accessing digital spaces. Last month, Zambia approved a tax on internet calls in order to protect large telcos at the expense of already squeezed citizens. In July, Uganda also introduced a tax for accessing 60 websites and social-media apps, including WhatsApp and Twitter, from mobile phones. Officials in Kampala also increased excise duty fees on mobile-money transactions from 10% to 15%, in a bid to reduce capital flight and improve the country’s tax-to-GDP ratio.

Digital-rights advocates say these measures are part of wider moves to silence critics and the vibrant socio-political, cultural, and economic conversations taking place online. The adoptions of these taxes, they say, could have a costly impact not just on democracy and social cohesion, but on economic growth, innovation, and net neutrality. Paradigm Initiative, a Nigerian company that works to advance digital rights, has said it was worried Nigeria would follow Uganda’s and Zambia’s footsteps and start levying over-the-top media services like Facebook and Telegram that deliver content on the internet.

But taxing the digital sector might have a negative impact in the long run. Research has already shown that Uganda’s ad hoc fees could cost its economy $750 million in revenue this year alone. “These governments are killing the goose that lays the golden egg,” Owono said.

source: www.qz.com

Irish education system needs ‘profound changes’ to secure digital future

The managing director of Accenture Ireland has warned that Ireland needs to make “profound” changes to its education system to ensure the country is equipped to secure the next wave of jobs in the digital economy.

Alastair Blair, who is also chair of Ibec’s digital economy policy committee, says the advent of artificial intelligence, virtual reality and augmented reality may require a move to a more modular education system to ensure the future workforce has the necessary depth and breadth of skills.

“Traditionally, Ireland has had access to deep skills and the availability of a young and educated workforce,” said Blair, who believes the protection of digital jobs requires a long-term commitment from government, academia and industry working together.

“There is a real opportunity for Ireland to position itself well. However, there is a need for a profound change to our education system to take advantage of the next wave of jobs,” he said.

Blair said Accenture, which acquired Irish creative agency Rothco for a reported €20m this year, is targeting further acquisitions as it is set to mark 50 years in Ireland.

source: www.independent.ie

Nigeria – the Federal Government to achieve growth with digital economy

NigeriaNigeria.

The Federal Government has announced plans to achieve an all-inclusive economy by prioritising developmental efforts in the digital economy.

Minister of Communication Adebayo Shittu said in Lagos at the weekend that the move by the Federal Government was to ensure that Nigerians had equal access to government services by using digitalisation.

He said plans were on to establish a Nigeria Postal Services (NIPOST) banking, real estate and insurance company to get Nigerians into a financial inclusive economy.

Shittu, who spoke at a stakeholders’ conference on digital addressing system and address verification system, organised by NIPOST, said: ”We are looking at establishing a NIPOST property and development company to make use of NIPOST underutilised facilities wasting away. It is our plan as part of the general reform to ensure that most of the vacant and unused land are leased out to the public to establish property development. Some of the land will be available to build estates, event centres, garages and others to earn revenue for the Federal Government.”

He said in two years, NIPOST would be the leading Federal Government agency in terms of its influence on the life of every Nigerian, adding that courtesy of its upgraded processes, it would help in bringing in the largest amount of money into the Federal Government’s coffers.

”There are communities, which are about 200 to 300 kilometres away from the state capital. With the help of these offices, people can access government services from their communities. By the time we conclude in establishing these companies, there will be no one who will not be affected positively by NIPOST multifaceted companies,” the minister said.

source: http://thenationonlineng.net

Competition challenges in the digital economy

Competition21-750x400Slow productivity growth and rising income inequality have shaped the world economy in a time of rapid technological change. A variety of explanations have emerged to help us understand these related trends, but one overarching theme is the decline in competition.

The combination of increasingly concentrated markets, rising market power of large firms, and slowing business dynamism suggest that competition among firms is weakening. The concern is that the rise of dominant firms will hinder the diffusion of technology and exacerbate income inequality.

Adding to these concerns are two key features of the digital economy—the potential for scale with digital platforms and the growing importance of intangible capital—that, by their very nature, lend themselves to bigger and more dominant firms.

These characteristics of the digital economy present challenges on how we think about and implement competition policy. Policies aimed at ensuring a level playing field and fostering a dynamic and inclusive economy will therefore need to adjust to better reflect a growing reality.

POTENTIAL FOR SCALE WITH DIGITAL PLATFORMS

First, market concentration is especially high in markets with large returns to scale and network effects. Going digital can come with high capital expenditures, like setting up data centers and other digital infrastructure. But it also comes with the ability to reproduce digital offerings instantly and at low or zero marginal cost, implying large returns to scale and lower prices for consumers. When network effects are involved, the potential returns to scale are even greater.

The argument for bigger firms in these markets is that consumers are the biggest winners. Free digital services and a plethora of user data used to customize and cross-sell products help raise consumer welfare and offer greater choice. (In some cases, firms controlling “big data” can extract more consumer surplus through sophisticated algorithmic pricing and customization of offerings.)

Small businesses and entrepreneurs also benefit, the argument goes. Digital giants like Amazon, Google, and Microsoft, among others, reduce startup costs for small firms by offering cloud services and open-source software, make it easier to reach distant markets through their platforms, and offer venture funding and financing.

Due in part to the potential to scale up quickly, the threat of disruption is higher in the digital economy than in the past. Many argue that this threat strengthens competition among big firms as well as smaller firms who can unseat the giants (see herehere, and here).

However, it is not so clear that these arguments for bigger firms always hold. Less than one percent of startups end up as $1 billion companies and are often acquired or imitated by the giants along the way. In addition, industry lines are increasingly blurred as big firms leverage their user’s data to offer a broader range of goods and services, providing more valuable data on spending habits, and, ultimately, reinforcing the competitive advantage of big firms across industries.

A challenge for policymakers and regulators comes when assessing who indeed the biggest beneficiaries are. Diane Coyle of the University of Manchester points out that although the network effects of digital platforms produce real economic welfare gains, it is unclear how big those gains are or who captures them. Advertisers also place great value on free services and, as Luigi Zingales and Guy Rolnik of the University of Chicago notes, users do pay for these services in the form of very valuable information.

More economic tools are needed to quantify consumer benefits in such markets where traditional pricing does not provide the same kind of signals on market power as in other industries. Such assessments would better help policymakers and regulators ensure a level playing field and better distinguish between competitive and anti-competitive behaviors.

GROWING IMPORTANCE OF INTANGIBLE CAPITAL

A second feature of the digital economy that advantages larger firms is the growing importance of intangible capital.

Unlike tangible capital like buildings and equipment, intangible capital is not physical. It consists of ideas, branding, business processes, software, supplier relationships, licensing agreements, and other immaterial assets that generate value for a firm.

As digitization changes business models, firms are placing greater emphasis on intangibles. In the U.S., U.K., and some European economies, intangible investment already exceeds investment in tangibles.

As Jonathan Haskel and Stian Westlake describe in their book Capitalism Without Capital, there are four key economic properties of intangible assets that differentiate them from tangibles. Those properties are “scalability” (multiple people can use them simultaneously), “sunkenness” (the cost of producing them is mostly sunk), “spillovers” (easy for others to appropriate), and “synergies” (can be combined effectively).

With these properties, firms can achieve much larger scale, go to great lengths to prevent spillovers to competitors who can appropriate their sunk investments, and acquire other firms with intangible assets that offer synergies (like human capital or branding). Haskel and Westlake argue that these properties help explain the rise of superstar firms, more mergers and acquisitions, and higher market concentration in industries with a larger share of intangible investment.

In industries with greater intangible investment, small firms may have a harder time finding financing to invest and boost productivity. Small firms typically rely on bank lending that often require collateral from borrowers. But intangibles cannot offer physical collateral, are hard to measure, and, in the case of investments in knowledge and research and development, can easily be appropriated by others. These characteristics of intangibles make private equity financing more attractive for intangible-heavy firms, not only to undertake investments in assets where the cost is mostly sunk, but also to have an easier time protecting intellectual property when privately held.

In addition, private equity financing and venture capital for small firms can be difficult to scale up. These difficulties are partly due to the importance of social relationships and the large role of public subsidies in supporting a vibrant venture capital industry, which takes a long time to develop.

Large firms, on the other hand, can use their economies of scale (and buying power to acquire firms) to capture spillovers and exploit synergies. They also more easily attract capital.

LOOKING AHEAD

Are we headed into an economy dominated by big firms? Even techno-optimists, who believe that it is only a matter of time before the potential for today’s technological advances drive faster growth, are pessimistic on the implications for distribution. Concentrated markets may become the new normal. Policies would need to adjust to ensure level playing fields. In addition, better intellectual property protections, broad and inclusive financing ecosystems, new measurement standards, and greater investment in skills are examples of policies better suited for an intangible economy that is dynamic and inclusive. The possibilities are limitless, but the promise won’t realize itself.

source: www.brookings.edu