Industry Thought Leadership

As policy makers consider different options and practices aimed at maximizing benefits from the digital economy, they need to recognize that “one size does not fit all” when it comes to digital policies

Digital transformation can result in long-lasting benefits for economies
Transitioning to digital economies can enable countries to boost industry growth and productivity, improve societal well-being and benefit consumers via cost or time savings. Digitalization will help bring about new opportunities for businesses and/ or improve productivity in industries such as manufacturing, agriculture and energy & utilities. It provides new tools for tackling persistent development and social challenges and improving access to healthcare, education and other public services. Consumers also benefit through faster access to better products and services at lower costs. Consequently, the transition to a digital economy is a major policy priority for all countries.

All of the Gulf Arab countries possess digital transformation agendas – a political and financial commitment to create knowledge-based economies. Many contain the right ingredients, combining boldness and long-term vision, while giving attention to quick win short term initiatives. However, there is now a need to accelerate implementation to realize the benefits in a much-changed world.

Identifying digital economy archetypes for Middle East countries
Depending on a country’s level of digital evolution and economic advancement, there are different drivers that are primarily responsible for digital momentum. This has different implications for what advanced economies and developing economies ought to prioritize: innovation for the former and institutions for the latter. The least digitally advanced countries must allocate limited resources wisely.

Based on an analysis of the digital value chain that includes detailed benchmarking of beneficial policies and capabilities in 20+ countries, discussions with experts in national digital transformation, and a literature review and leveraging Arthur D. Little’s project repository of national digital strategies and industry experience, seven digital economy archetypes were identified. This enables nations to take a tailored and independent approach to aligning their digital economy policies and objectives

The seven digital economy archetypes are: Innovation Hubs (IH), Efficient Prosumers (EP), Service Powerhouses (SP), Global Factories (GF), Business Hubs (BH), Digital Patrons (DP), and Digital Novices (DN). The archetypes differ in their presence or dominance in the digital value-chain step, as illustrated in Figure 1. However, archetypes are not limited to specific steps in the value chain – instead, their position marks the focal domain in the overall value chain. They can be further differentiated through other underlying characteristics, such as economic status, population size, political stability, geographical advantage and technology penetration. In addition, country archetypes guide policy priorities.

Figure 1: Digital economy archetypes with country examples

Source: Arthur D. Little analysis
Note * Digital Patrons can produce and consume as well
1) Value captured as a share of total value created across the value chain

From the digital perspective, the majority of the Middle East countries are Digital Novices or Digital Patrons, apart from the United Arab Emirates which is a Business Hub and aspires to become an Innovation Hub.

Afghanistan, Iraq, Jordan, Lebanon, Pakistan, Syria and Yemen are classified as Digital Novice economies, as they have limited core nationwide infrastructure to provide secure, continuous and widespread telecommunications, resulting in limited digital adoption and consequently limited value creation and jobs from a nascent digital economy. These countries have the most to gain as digital infrastructure/ technologies is an enabler for economic development.

Bahrain, Kuwait, Oman, Saudi Arabia and Qatar are classified in a second group, Digital Patrons. Endowed with natural resources, primarily oil based, these countries have supported economic development with exports of energy resources, consuming a high level of digital infrastructure, technology and services. However, there is limited value creation from digital use and consumption.

The United Arab Emirates is classified as a Business Hub, attracting talent and companies from different regions, generating competitive advantages in core areas, such as finance, accounting and administration of regional head offices for many global corporates.

Tailoring digital strategy and public policy
Policy makers need to formulate policies, laws and regulations across four interrelated policy dimensions – technology, capabilities, ecosystem and industry – as these are the driving forces underpinning digital transformation. The criticality of policies, laws and regulations within the dimensions varies depending on the country’s archetype,

- Technology
All countries need better connectivity as connectivity is a critical determinant of every country's future growth and prosperity. Irrespective of the national archetype, governments must address policy and regulatory issues relating to broadband, spectrum, cybersecurity, data protection & privacy, and cloud computing. Hence all countries in the Middle East should emphasize on these further.

A best-practice 5G strategy is essential to support the introduction of new applications and services that need higher communication speeds and lower latencies. This is critical for all archetypes except for Digital Novices, whose primary focus should be on deploying mature communication infrastructure. Similarly, national AI policies, emerging technology development policies, IP rights regimes, science and technology policies focused on cutting-edge technologies, and IP generation and commercialization are all critical for Innovation Hubs.

- Ecosystem
Digital business funding support policies and ease-of-doing-business (EoDB) reforms and emerging technology regulation are critical to attract private sector investments, particularly in domains that support their archetype strategies and offer conducive environments for digital businesses to test new technologies and innovate. Many countries in the Middle East have liberalized telecommunications industries in recent years and adopted business friendly policies, but more should be done to support vibrant start-ups and SME businesses that are the engine of growth in digital economies. Opening up to international players can also be a source of much needed private sector investment in infrastructure and can be a valuable source of talent.

- Capability
Improving capabilities is the first critical challenge to be addressed if the potential of the digital economy is to be realized by economies in the region.

Policies for developing digital foundational skills, digital higher education, digital workforce education and specialized skills are important for the region as a whole. Digital Novices must first focus their resources on improving digital awareness among both individuals and businesses to meet basic requirements to uplift the digital economy. Priorities should include improving literacy, establishing digital courses within universities and improving access to established technologies. For Digital Patrons, the focus should be on developing the digital skills and capabilities of graduates and employees of businesses to monetize more of the value from the digital economy, whether through digital start-ups, SMEs or established large enterprises.

- Industry
Digital Patrons have used e-government strategies to kick-start digital capability building and increase awareness and digitalization in other industry sectors. E-government is also critical for Digital Novices to stimulate digital services demand in the economy by familiarizing society with digital tools and content. Sectoral digitalization policies are important to industry competitiveness and should focus on respective dominant industries.

Conclusion
The importance of digital economy policies vary fundamentally between archetypes. Different combinations of policies should be considered for different countries based on their archetype. This does not mean countries should disregard other policies, but instead they should ensure that policies critical to their archetypes are given due resources, budget and attention first. Tailored “recipes for success” should shape the strategy each country deploys to maximise the value creation from its own digital economy.

In summary, the incentive for digital transformation is clear – and the need to embrace change has never been greater. However, nations will only realize the full benefits of this transformation if their digital strategies are built on their own strengths, and their digital policies are prioritized and focused.