If Covid-19 has exposed the fault lines of inequalities around the world, chief among them is the gaping digital divide between the developed world and the Global South. The pandemic has been particularly unkind to developing countries in Africa and elsewhere, where stay-at-home restrictions in the absence of strong internet infrastructure have ended up causing a severe toll on livelihoods. Some developing countries that had imposed serious social distancing laws were forced to backtrack, in part because they lacked the digital connectivity to support teleworking and e-commerce.
Less than 39% of Africans have internet access due to a combination of supply and demand side constraints. A larger share of the population lives in rural areas that are expensive to connect using current cable or satellite technologies. As a result, fewer jobs can be done from home, while the scope for using virtual education during the period of lockdown becomes minimal.
A recent World Bank survey that tracks the effects of Covid-19 has revealed that only one-third of Nigeria’s primary and secondary school students were able to engage in any form of virtual education during the lockdown.
Among them, only 7% used mobile-based applications, compared to 20% that used radio and 17% that used TV programmes. The loss of human capital as a result of the interruption in schooling in the absence of virtual education will hence be severe in developing countries such as Nigeria.
At the same time, this connectivity gap represents a vast untapped growth potential for technology firms. Tech giants like Facebook and Google are searching for cost-effective ways to extend internet connectivity to rural areas through radical innovations, including the use of high-altitude, solar-powered weather balloons and drones for transmitting internet signals.
Facebook is making progress in its plan to install a 37,000km-long subsea cable around Africa in collaboration with local telecom service providers. Loon, a recent spin off from Google, has fast-tracked its testing of weather balloons in response to the Covid-19 outbreak. On 7 July, it launched its first-ever commercial deployment of the technology by providing 4G LTE connectivity to tens of thousands of users in remote areas of Kenya.
No development without internet
Perhaps one of the major policy implications of Covid-19 is that universal connectivity is indispensable for economic resilience, and perhaps too important to be left to private businesses alone. It is, however, unclear how governments can help extend connectivity, an area that requires significant technological advances.
Capable emerging economies with sizeable rural populations could do well by investing in innovations that lower the cost or increase the reach of internet connections, either independently or through partnerships with technology firms. At the very minimum they will have to simplify the regulatory burden for disruptive innovations that aim to extend connectivity, and defy the impulse to ban them in response to pressure from established telecom operators that stand to lose from these innovations.
More broadly, Covid-19 will perhaps bring salience to the view that internet connectivity is a basic human need or even a right, a view long advocated by Facebook co-founder and CEO Mark Zuckerberg. Development practitioners will also have to emphasise the public good aspects of internet connectivity, and grant the desired kind of policy support for initiatives that seek to narrow the digital divide.
Improving payment services
Next to poor infrastructure, limited access to digital payment systems is perhaps the most binding constraint for e-commerce in the developing world. Cash is used in almost 90% of retail transactions in Africa, forcing digital businesses like Uber to resort to its use. Since digital transactions underpin all e-commerce ecosystems, their poor development will cripple entrepreneurship in all domains.
Less than 10% of the adult population has access to credit cards in most African countries. By comparison more than 60% of adults in emerging economies like Brazil and China have access to credit cards. Many African countries, however, have high usage of mobile money payment systems like M-Pesa, which do not require internet connectivity. IMF data shows that more than 60% of adults are active users of mobile money in countries like Botswana, Kenya, Namibia, Tanzania, Uganda, and Zambia.
Most successful digital payment services – such as WeChat Pay and Alipay in China, Apple Pay and Google Pay in the West – were developed by internet platforms. Platforms are well positioned to launch successful digital payment services due to their network advantage, which offers a large pool of potential users who can be easily integrated within the existing platforms.
Facebook, for example, expects to launch Libra, a blockchain-based digital currency, by the end of this year, potentially extending the ability to make digital payments to its 3bn users, most of whom live in the developing world.
For developing countries, this creates the risk of over-dependence on quasi-monopolistic foreign firms for a privacy-sensitive service with high public interest. But attempting to create domestic innovations in this high-tech field might not be feasible, and could continue enfeebling the e-commerce ecosystem. The best call for these countries seems to be to apply strong regulatory oversight and attract a handful of global payment services to improve competition.
India, for instance, has achieved a highly competitive payment system that now includes Google, Walmart and Facebook. Facebook’s new partnership with Reliance, an Indian telecom giant, is expected to upgrade WhatsApp into a payment platform, potentially extending payment to over 400m users. This service, called WhatsApp Pay, is soon expected to be introduced in Brazil and Indonesia.
The bottom line
Covid-19 has brought to the limelight the vast digital divide between the developed world and the Global South. As the developed world becomes even more interconnected with the rolling out of 5G networks, there is a risk that the developing world will be left farther behind.
Bridging the digital divide by improving infrastructure and facilitating digital payment will go a long way towards improving economic growth and resilience. It could hasten modernisation of the informal economy, and spur a gig economy that can offer income sources to millions of citizens. It will also make our world better prepared to cope with the next pandemic.
Addisu Lashitew is a David Rubenstein research fellow at the Global Development and Economy programme of the Brookings Institution. He can be reached at [email protected]