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World Bank envisions digital miracle for MENA

by Thomas Schellen

A new report on the digital upside of MENA countries states that over the long run of more than the coming 20 years, “the socioeconomic upside of digitalizing the economy of countries in the Middle East and North Africa (and other low- and middle-income economies) is probably huge.

GDP per capita could rise by more than 40 percent, manufacturing revenues per unit of factors of production could rise by 37 percent, employment in manufacturing could rise by 7 percent, and tourist arrivals could rise by 70 percent, creating jobs in the hospitality sector. Long-term unemployment rates could fall to negligible levels, and female labor force participation could double to more than 40 percent (emphases added).”

Christina Wood is a senior economist in the World Bank’s Office of the Chief Economist for the Middle East and North Africa. As one of the report’s authors, she agreed to answer our questions in an electronically conducted interview.

In you research of the digital upside in MENA countries, you have diagnosed what you called a digital paradox that consists of a relative to GDP per capita, high usage of social media accounts versus a low use of digital tools to conduct payments. As you flagged this significant regional gap between usage of social media and reliance on digital payments, can you give us an idea about the size of this digital paradox in Lebanon specifically?

I can give you the data for internet use in Lebanon and also for digital payments use. The share of the population using the internet is 78 percent for Lebanon and by way of comparison, the non-high income MENA country average is 52 percent. Lebanon is clearly over performing when compared to the MENA region’s non-high income countries. As far as digital payments is concerned, Lebanon’s percentage is 33, [meaning] 33 percent of the population over 15 years are using digital payments. That compares with the non-GCC average of 32 [percent]. So, Lebanon is about average with developing MENA in terms of digital payments and is using [the] internet more for social media than developing MENA countries. The data that I cited is publicly available, and I am confident that the population numbers used as the denominator are acceptable numbers.  

You say in your report that the obstacles on the road to a flourishing digital economy in MENA appear to be more analog than digital. What do you mean by this?

As you are aware from [our report], adopting digital technologies has a huge payoff for the MENA region, and this will be when universal adoption is achieved. What we mean by “analog” is that investing in digital technologies [and] ICT infrastructure is not enough. Also, the supply side of the technology is not enough. What is important is that people use this technology, and use it for digital payments purposes. The demand side of the equation needs to be emphasized and people need to have trust in financial and government institutions, to make payments and be sure that their information is secure. The regulations regarding e-commerce, regarding data protection, [and] consumer protection are important, as well as the skills of the population in using digital payments to find it comfortable shifting from cash to using digital technology. So, what we mean is that it is not just a question of investing in infrastructure but you also have to make sure that people have trust in using digital payments and have the ability and skills to operate in the digital sphere.

You referred to three basic pillars in you report, namely one, the telecommunications infrastructure, then the trust in banks and digital payment systems, and the regulatory environment as the third. In recent reports on Lebanon, by comparison huge dimension of the economic crisis in the country is strongly noted, but the Lebanese scenario also is one where distrust in the government is depicted as exceptionally high and the distrust in the banking sector has been racing to levels that rival or surpass the distrust in the government. With these levels of distance between the people and the banks and government in mind, can Lebanon be part of the MENA digital transformation hopefuls or must it be considered a downward outlier in the foreseeable future?

In our report, we emphasize priority areas of reform that address the issue of trust or distrust and make the population more comfortable with using digital payments. I already mentioned the regulatory framework for e-commerce transactions, to make them more secure, and then consumer and privacy protections. The other thing that the government can do to help increase the use of payments is to expand government services in the way of [digitizing] them. One example I often use are cash transfer payments. If the government is able to pay them digitally into e-wallets or mobile wallets, this will make the population more familiar with using digital payments and [rendering them] more comfortable in using them. The other priority area of reform is with respect to the telecommunications sector, where Lebanon faces some challenges relating to this overall governance [issue]. With regard to the telecommunications sector, we emphasize that there should be competition in the telecommunications markets and there should be an independent regulatory authority. I was very happy to see that [very recently] the Lebanese parliament was able to approve a competition policy, and not only that, that this policy would cover private sector activities as well as state-owned enterprises.

And you see this as having a positive impact on the competition environment it the telecommunications sector in Lebanon?

Right. Our research has shown that when you have both the independent regulatory authority and competition in the telecom markets at the same time, it will greatly facilitate rapid technological progress [in the telecommunications sector in general] and particularly in mobile broadband. Telecom companies will move much faster from offering lower technologies like 2G to invest and offer 3G, 4G, and then 5G. What this means is that you can [offer] greater coverage with mobile broadband services to the population, higher quality, and, as more people use mobile broadband, the cost will go down. I think that Lebanon has moved in the right direction. Of course, it is one thing to have the laws, and one must now look to the implementation. What is also important with respect to mobile money, through mobile broadband, is that it allows people to sidestep some of the constraints involved in using the traditional banking sector. There may be constraints in using the banking system as there is low trust in it. Being able to use mobile money will allow [for] greater increase in use of digital payments without the constraints that are posed by the traditional financial [systems].

There are elements of finance who are widely used in Lebanon today but do not constitute digital payments per se. One is the cash remittances to family members via money transfer companies and the other is increased incidence of cash disbursements to beneficiaries by international NGOs. According to what Western Union’s main local partner company OMT told us, some 220,000 Lebanese households per month received inbound money transfers in 2021, albeit mostly in cash and not at this time through digital wallets. Would you see this incidence of inbound transfers from family members or INGOs, which have been increasing at least in in terms of recipient numbers if not amounts, as something that will enhance trust in digital systems or would this be a neutral factor in your opinion?

The more the population uses digital means, the more familiar and comfortable they become in using digital payments. Digital payments provide the population with a level of security in being able to receive those remittances. If those remittances would have to make their way to the households physically [by being carried across the border in cash], the digital way is definitely a convenience for the population and much more secure. It is a step in the right direction.

Your numbers on the projected upside of digital on the regional level sound very enthusiastic, almost sensational, as far as predicting additional GDP growth, increases in total factor productivity, and tourism arrivals all going up significantly between now and 2045 and female labor force participation rates more than doubling by virtue of digital economic transformation. Is it correct to assume that these numbers are predictions based on general trends and regional averages rather than being added up country per country?

There are global estimates that we make use of but those estimates are calibrated to MENA country-by-country specifics and then aggregated. Also, yes, those numbers look impressive. You have to recognize that you will get those huge gains if you imagine that you [achieve] universal adoption. Why are the gains so large for the developing MENA region? It is because there is a wider gap between the share of the population that uses digital right now, to where it could be, to 100 percent [universal usage]. If you look at the GCC countries, they have a much narrower gap and moving from where they are to universal offers not much more gains for them.

Talking about universal coverage still sounds a bit utopian even for some economies in the G7 club. Given overall developments and the latest political, cultural and military disruptions of the bad kind in global markets, how much do you today see it as realistic timeframe, as your study did, to achieve universal digital usage over the period between 2017 and 2045?

There is no doubt that reforms take time and that it would be challenging to get to universal adoption. But what we like to emphasize is that unless you take steps now, you will not have a chance of getting there. It is realistic to know that reforms are challenging and difficult to achieve; [in the case of Lebanon] take Lebanon’s competition policy. I understand that it has been in the making for over a decade. And reforms take time even in the most advanced countries. So, we know that reforms take time but [what] we are emphasizing is that it is important not just to take steps towards reform but also to ensure that you are focusing on the priority areas that will help make a difference, faster. That is why we focus on the telecom markets and the regulatory environment to be able to increase the use of mobile broadband in particular. Continue to cover [the country] with fixed broadband but ensure that you are prioritizing coverage with mobile broadband because this will allow you to reap benefits much quicker and to overcome the challenges of traditional ways of doing things through the financial sector where there is a lot of distrust, and so on, and so forth.

Would integration of regulatory environments on the regional level and increasing integration of the GAFTA (Greater Arab Free Trade Area) help with achieving targets such as universal digital transformation better and faster or will it make no difference if countries take this road all individually?

Taking advantage of regional integration solutions is important where it is feasible. I think that this objective should remain on the table and be pursued to the extent feasible, given the context of the region and geopolitics, conflicts, etcetera. Why is regional important? You have to imagine the size of the market. Digital technologies that are general purpose technologies have greater benefits the wider they are used, and have benefits across all activities in the economy. So, the wider one is able to increase the market, the greater the gains that can be achieved. And being faster in achieving universal adoption [means that] the cost of providing those services to the population will go down, the greater the numbers that are accessing the technology.

How much would factors such as increased tourism inflows and improved total factor productivity in industry work in favor of Lebanon when comparing the small tourism market and industrial sector to the much larger markets and sectors in the North African countries that are part of developing MENA?

For the moment, we have focused on the regional averages on the full MENA level as well as the developing MENA. We have not focused on country specific improvements, though we can obtain those numbers by using our methodologies [in the future]. I cannot make comparisons, I can just make general statements which is that the greater the gap between the current level and the 100 percent [universal digital usage], the greater the gains from digitizing for the country. I am comfortable to make this general statement.

Could rivalries among Arab countries impede the regional digital integration and transformation to digital economies?

One thing I can say in that regard is that the Maghreb countries are actively pursuing regional options in ICT. It is not going to be easy [given that] countries have national regulations and that the competition is at the national level. However, those Maghreb countries recognize the benefit of regional solutions and are actively engaging in dialogue at the telecom sector level to see how to move the regional agenda forward, so that they can take advantage of a wider market that would be more efficient for the telecom companies to invest in technologies to roll out services to the broader population, services that are of higher quality, reliable, and ultimately will be more affordable for the populations to use. The Mashreq region should keep regional integration on the agenda. It is a different sub-region [of MENA] with different challenges, and more challenges, but that does not mean that the priority of reforms should not remain on the table as something to pursue when the conditions allow.

What are your future plans at the World Bank on the regional level as far as accompanying MENA countries into the digital future? Are you providing specific technical advisory services, World Bank Group project funding, or going to issue further reports like the one we now discussed, on a periodic timetable?

We have very strong teams in the Bank that are very experienced in digital transformation aspects from the infrastructure to the data side, to the consumer side, with ensuring communication among all stakeholders. I am not on the side that does technical assistance. [In the department where I work] we are doing the analytical work; we are planning to present our reports in the region at country level and to engage in dialogues.

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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