Industry Thought Leadership

The Digital Transformation – Driving the Engine of Economic Growth

May, 2017
Charles Yang

Huawei Middle East

As the digital economy continues to burgeon, nations with access to advanced ICT are innovating new business models and prospering. Staying competitive is paramount. This is particularly relevant to oil-producing countries such as those in the Middle East, at a time of challenging economic growth. While International Monetary Fund projections put global economic growth at 3.5% this year, the forecast for the seven oil-exporting countries is nearer to 1.9%.

That said, there are great opportunities ahead, as some of the leading economies look to ICT infrastructural investments as the most significant driver of their GDP growth. The most digitally-developed economies around the globe are progressing the fastest, because of the level of their ICT investments.

In economic terms, a nation that increases its ICT infrastructure investment by 10% annually from 2017 to 2025 can expect to benefit from what we term as the multiplier effect. Every additional US$1 of ICT infrastructure investment brings a current return of US$3 in GDP. By 2020, the return is forecast to increase to US$3.70, rising further to US$5 in 2025.

On a global scale, the same 10% annual investment increase is expected to boost an estimated US$17.6 trillion in GDP to the global economy as a whole by 2025. In real terms, this potential impact is equal to the size of the European Union’s GDP in 2016. This doesn’t even take into account the huge benefits to social development.

The Global Connectivity Index
We forecast these figures based on an extensive study Huawei has produced over the past four years titled the Global Connectivity Index (GCI). The study shows how 50 different countries are progressing with digital transformation based on five technology enablers: broadband, data centers, the cloud, big data and the Internet of Things (IoT). The 50 countries comprise around 90% of global GDP and 78% of the world’s population.

The GCI 2017, which we recently launched at the SAMENA Telecom Leaders’ Summit, shows that of the 50 countries analyzed, 16 are considered ‘frontrunners’ (those with an average GDP per capita of US$50,000). The next 21 are ‘adopters’, with an average GDP per capita of US$15,000. The remaining 13 are ‘starters’, with an average GDP per capita of US$3,000.

To bring these classifications into a practical perspective, frontrunners are mostly developed economies. They continually boost the digital user experience, and use big data and IoT to develop smarter, more efficient societies. Adopters are focused on increasing ICT demand to facilitate industry digitization and high-quality economic growth. Starters are in the early stage of ICT infrastructure build-out, and focus on increasing ICT supply to give more people access to the digital world.

The GCC’s positioning
Returning now to the Middle East eco-nomic context, three countries in particular fell into the GCI 2017’s adopters cluster. All three of them have predominantly oil and gas based economies. Equally, each of them is proactively looking towards strengthening their ICT infrastructure. Ranking second in the adopters cluster and 18th overall is the UAE. Qatar ranks 22nd overall and Saudi Arabia 29th.

Each of these countries understands one very crucial principle – that in order to stay competitive, nations at an early stage of digital transformation need to prioritise ICT infrastructure development (especially broadband connectivity and cloud adoption) to reach sustainable growth.

An interesting point to note is that it is the adopters that experience the highest GDP growth from their ICT infrastructure. Much in the same way as the growth of the GCC countries has been so rapid and dynamic over past years. The overall GCI score for the UAE, Qatar and Saudi Arabia has increased in the past year due to the roll-out of various national ICT initiatives. However, Qatar and Saudi Arabia have both dropped two places in the GCI ranking among the 50 countries.

It is essential that as adopters, the GCC countries must invest to enhance their broadband infrastructure. It is equally crucial that policymakers should not underestimate the important benefits of embracing the cloud. It is through the cloud that they will effectively deliver big data and IoT capabilities and the resulting benefits. By leveraging the multiplier effect of the cloud, companies and society as a whole can innovate and transform into the knowledge-based economy.

By reaching a threshold of 35% fixed broadband subscriptions and 70% 4G coverage, UAE, Qatar and Saudi Arabia falling in the adopters category, will move forward to compete with the frontrunners’ cloud adoption rate.

The cloud remains a key component in furthering the digital transformation. Cloud services incur much lower levels of investment, while being more versatile and secure in their application. Cloud capabilities can be accessed without the need to set up local datacenter facilities. Software and services can be purchased on a pay-as-you-use basis.

Employing cloud services will open the way for adopters, such as the GCC states, to transform their economies. In will provide the means to innovate, develop new business models and deliver higher-level products and services to global markets.

Next steps
So, what are the imperatives for digital transformation planning moving forward? First, policymakers should be focusing on ICT policies as part of a nation’s economic development strategy to encourage and incentivize the digital transformation.

To illustrate the point, broadband is not just for fast internet access. Ultimately, its role is to enable cloud services and the software that runs on the cloud – namely big data and IoT. This includes building a public-private partnership approach for long-term planning, and pairing ICT initiatives together with new civil works – for example deploying broadband connections over electricity networks.

From a business perspective, policymakers can consider more industry-friendly policies to help promote the digital transformation. Nations that have developed an advance ICT infrastructure have been able to transform their industry-base from low-value manufacturing to higher-value information services.

Drilling further down to a people perspective, policymakers can collaborate with educational institutions, ministries, labor departments and technology enablers. In this way, they can ensure that education for building digital access and skills is universally accessible, targeted and fully utilized. This includes improving digital literacy in schools and universities, deploying labour upskilling initiatives, and job matching to secure inclusive employment.

Once countries create the balance to energise their industries, companies and people towards a digital transformation paradigm, they have the basis for driving their GDP growth through a digital economy.