UNCTAD
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Inequalities threaten wider divide as digital economy data flows surge

Large power imbalances stalk the growing digital economy as major platforms reinforce their positions in the global data value chain.

 

The data-driven digital economy is surging. Recent estimates show that global internet protocol (IP) traffic – a proxy for data flows – will more than triple between 2017 and 2022, according to UNCTAD’s Digital Economy Report 2021 released on 29 September.

The COVID-19 pandemic has markedly increased internet traffic, as many activities have moved online. Global internet bandwidth rose by 35% in 2020, compared with 26% the previous year, the report says.

A growing part of data flows is related to mobile networks. With the increasing number of mobile devices and internet-connected devices, data traffic by mobile broadband is expected to account for almost one third of the total data volume in 2026, the report states.

“But the data-driven digital economy is characterized by large imbalances and divides,” said UNCTAD’s director of technology and logistics, Shamika N. Sirimanne. “As the digital economy grows, a data-related divide is compounding the digital divide.”

Developing countries in subordinate positions

In this new configuration, developing countries risk becoming mere providers of raw data to global digital platforms, while having to pay for the digital intelligence obtained from their data, the report warns.

Only 20% of people in least developed countries (LDCs) use the internet, and when they do, it’s typically at relatively low download speeds and with a relatively high price tag attached, the report says.

Also, the average mobile broadband speed is about three times higher in developed countries than in LDCs. And while up to eight out of 10 internet users shop online in several developed countries, only less than one out of 10 do so in many LDCs.

International bandwidth use is geographically concentrated along two main routes: North America – Europe and North America – China.

Digital giants reinforce their dominance

The largest digital platforms – Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Tencent and Alibaba – are increasingly investing in all parts of the global data value chain, the report says.

They are investing in data collection through user-facing platform services; data transmissions through submarine cables and satellites; data storage (data centres); and data analysis, processing and use, for instance through artificial intelligence (AI).

The sizes, profits, market values and dominant positions of the platforms have further strengthened during the pandemic as digitalization has accelerated.

Thanks to privileged access to data, network effects and economies of scale and scope, these platforms have become global digital corporations with planetary reach; huge financial, market and technology power; and control over large swathes of data about their users.

According to the report, Amazon has invested some $10 billion in satellite broadband.

Amazon, Apple, Facebook, Google and Microsoft were the top acquirers of AI startups between 2016 and 2020.

Four major platforms (Alibaba, Amazon, Google and Microsoft) accounted for 67% of global cloud infrastructure services revenues in the last quarter of 2020.

By 2022, the share of global digital advertising spending by five major digital platforms – Alibaba, Amazon, Facebook, Google and Tencent – is expected to exceed 73%, up from 50% in 2015.

New global data governance approach needed

As cross-border data flows become increasingly prominent in the digital economy, UNCTAD has called for a new approach to properly regulate them at the international level.

Currently, entities that can extract or collect data are in a privileged position to appropriate most of the value.

“A new international system to regulate data flows is needed so that associated benefits can be more equitably distributed,” said Sirimanne.

She said the world should pay adequate attention to the current divides that characterize the global digital economy not only between countries, but also between states and enterprises.

Torbjörn Fredriksson, who leads UNCTAD’s e-commerce and digital economy branch says that “the shortage of appropriate skill sets in governments can result in insufficient representation of technical and analytical expertise in legislative and regulatory framework development processes”.

This he says in turn hampers the ability of governments to identify opportunities that could be afforded by digital technologies and potential risks and threats that could emerge, as well as ways to regulate them.

According to the report, less-developed countries also suffer from losing their top talent to developed countries and have smaller representation in setting up the global policy discussion – contributing further to the growing global inequality.

While all countries will need to allocate more domestic resources to the development of their capacities to create and capture the value of data domestically, the report says, many developing countries may need international support due to their limited financial, technical and other resources.

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WBG

In a world where access to financial services and high-speed broadband internet is not universal or affordable, fintech can democratize access to finance and the world can move closer to achieving financial inclusion. 

At the World Bank Group (WBG), we look at financial inclusion across three dimensions – ‘Access, Usage, and Quality’ of financial services.  Fintech has the potential to lower costs, while increasing speed and accessibility, allowing for more tailored financial services that can scale. Over the last decade, 1.2 billion previously unbanked adults gained access to financial services, and the unbanked population fell by 35%, primarily boosted by the increase in mobile money accounts.  While globally 1.7 billion adults remain unbanked, fintech is helping make financial services more accessible to an increasing number of people.

Beyond mobile money, fintech has also shown promise in areas such as Government to Person payments and cross-border remittances. Our paper on Digital Financial Services explains how this potential has been apparent during the COVID-19 crisis, when digital delivery channels have helped governments quickly and securely reach vulnerable consumers with cash transfers and emergency liquidity – allowing the transfer of funds with limited physical contact.

Global remittances in particular may see a complete transformation through the use of technology. Cross-border remittances account for $600bn in value and often exceed official developmental aid figures. The average global cost to send these funds in the form of cash is 6.8 percent, while a fully digital transaction drops the cost to 3.3 percent and reduces issues of liquidity.

Digital disruption, however, is not new, and we have long been able to summon movies, food and transportation at the touch of a button. Yet, the impact on the financial sector is different, primarily due to a) the impact it can have on financial integrity and stability b) new entrants with unconventional business models that don’t fit neatly into existing legal frameworks and are difficult to monitor and c) the bearing on consumer protection.

This has led to a dilemma for policymakers worldwide when trying to achieve the right balance between enabling innovative fintech and safeguarding the financial system. They have taken different approaches- such as the use of regulatory sandboxes to direct regulatory amendments, which we highlight in our paper on Evaluating different fintech approaches.

Despite their utility, innovative technologies do have inherent risk. Fraud, issues of competition, data leakage, and unprotected consumer funds number among them. Responsible financial innovation requires balancing opportunity and innovation with safeguards to protect consumers. Our forthcoming paper on Consumer Risks in Fintech provides an overview new manifestation of risks to consumers and emerging approaches that can help mitigate such risks.

At the WBG, we support digital transformation in our client countries by:

  • Building the financial infrastructure and foundational building blocks including the regulatory and policy frameworks, digitally-enabled identity, and robust payment and credit infrastructures for sustainable, technology-led financial economies.
  • Boosting the capacity of governments to harness fintech, data, and expertise while responding proactively to changing regulatory and supervisory requirements.
  • Brokering collaboration between different players- both public and private- in the financial ecosystem to bring about symbiotic positive change.

One specific area where the WBG has been focusing its efforts is on the gender lens and the plight of micro, small, and medium enterprises (MSMEs). For instance, in India and in Ethiopia we are supporting women-led MSMEs – mostly vendors, seamstresses or marginal farmers – in using digital platforms. Working closely with the governments and fintechs on the ground, we are developing an application to support digital literacy while delivering targeted business insights and advice. Moreover, this data along with other alternative data such as repayment of store credit and collaborative behaviors will contribute to a credit score providing a route for access to finance to those without formal credit histories. The use of alternative data is gaining popularity in a number of other countries from Chile to Sierra Leone where  innovative solutions harness the value of transaction data from ecommerce and payment platforms, mobile phones, or even social networks as alternative sources of information to assess creditworthiness. This is financial empowerment in action—especially when combined with measures to protect consumers and financial education to prevent over-indebtedness.

Another important technology that is being tested for its role in developing markets and inclusion is distributed ledger technology (DLT). The WBG is working with the government of Haiti to export their high quality mangoes and avocados using DLT. This supports the supply chain and maintains symmetry of information hence de-risking the investment of third parties that conduct the quality control while allowing the farmer to keep ownership until the final sale to the consumer.

Financial inclusion, however, is not only a goal in itself, but also a means to an end as an enabler and accelerator of economic growth.  It has a multiplier effect, contributes to the economic development and stability of a country, and aids the achievement of the UN Sustainable Development Goals. Through our work, we aim to give the 1.7 billion remaining unbanked —mostly poor, mostly women—access to basic financial services, and we are using fintech to help us. We take a minute to pause and to learn from our experiences, build on the progress made so far, and look into the future—to the next 20 years—as our journey continues.

This article was first published in the Fintech times- Edition 39’.

In a world where access to financial services and high-speed broadband internet is not universal or affordable, fintech can democratize access to finance and the world can move closer to...

WCO

In many countries, statistics show a strong uptake of online sales and a big increase in the market share of online as opposed to offline retail since the start of the pandemic. In COVID-19 and e-commerce: a global review, the United Nations Conference on Trade and Development reported that Latin America’s online marketplace Mercado Libre, for example, sold twice as many items per day in the second quarter of 2020 as during the same period in the previous year; African e-commerce platform Jumia reported a 50% jump in transactions during the first six months of 2020.

The three members of the Global Express Association (DHL, FedEx and UPS) have also seen a massive increase in the volumes of non-document shipments they carry.  During the first wave of the pandemic – February to June 2020 – their volumes grew by 50%. Part of this increase was medical equipment (PPEs, masks, etc.), but a substantial proportion was made up of other types of items.

Consumers went online – many millions of them for the first time – because they could not go out to the shop round the corner. Some observers believe that many will return to the shops when they re-open, but many will continue to shop online. In other words, the volumes of shipments of goods purchased online will stay strong during the recovery from the pandemic.

It is more difficult to find data on international online sales, but here as well, volumes are reported to be increasing. When the COVID-19 outbreak became global early in 2020, initial uncertainty and transport disruption caused a dip in international online sales, but according to cross-border e-commerce solution provider eShopWorld, they rebounded in April 2020 and then rose to unprecedented levels throughout the course of 2020.

It has in fact been pointed out that facilitating cross-border e-commerce could help with the economic recovery, provided there is due emphasis on the need to ensure that the smallest traders can avail themselves of the export opportunities this brings.

Many countries have established thresholds below which no duties and taxes are levied and only minimal information is required to be provided when a consignment enters a country. While the value of this threshold varies a lot, in most countries the exponential increase in the sale of physical products online translates into an increasing number of “low-value” shipments crossing a border. Controlling this particular flow of goods to prevent the movement of prohibited and restricted goods, and identify consignments which have been split and/or undervalued to evade duties and taxes, presents a number of challenges.

The pressing issue is how to manage this time-sensitive flow of goods without placing a strain on control operations and on the capacity of logistics service providers, and without creating complex procedures and a heavy workload for small businesses and individuals who have limited capacity to meet complex trade regulations.

WCO STANDARDS AND GUIDANCE MATERIAL

To address this issue, WCO Members have been working through a multi-stakeholder Working Group on E-Commerce (WGEC)[1] on the development of international norms and guidance material, which have been brought together in an E-Commerce Package including not only a Framework of Standards on cross-border e-commerce (E-Commerce FoS), but also many tools to support its implementation.

The Framework provides 15 baseline global standards with a focus on the exchange of advance electronic data (AED) for effective risk management. It also encourages the use of the Authorized Economic Operator (AEO) concept, non-intrusive inspection (NII) equipment, data analytics, and other cutting-edge technologies to support safe, secure and sustainable cross-border e-commerce.

Now is the time for implementation, and a broad capacity building action plan which will guide the WCO Secretariat’s activities in the coming months has recently been added to the Package, along with key performance indicators (KPIs) which will make it possible to monitor the implementation of the WCO standards and identify capacity building needs.

In January 2021, the Secretariat started rolling out regional workshops to ensure that all WCO Members had a good knowledge of the Package; these workshops included representatives of the Universal Postal Union (UPU), the Organisation for Economic Co-operation and Development (OECD), the Global Express Association (GEA) and e-commerce stakeholders.

As a next step, in 2022 national workshops will be planned for administrations that have notified their intention to implement the E-Commerce FoS, completed an assessment using the WCO KPIs and made an official request to the Secretariat. The Secretariat has already accredited 11 Technical and Operational Advisers on E-Commerce so it can respond positively to such requests for assistance.

MAIN CHALLENGES AND TOPICS DISCUSSED

Areas posing specific challenges were identified during the regional workshops. They include the collection of electronic advance information on e-commerce shipments, the improvement of compliance and data quality, the simplification of duty and tax payment procedures which are often too complex, and the strengthening of risk analysis capacities. The topics discussed included expanding the concept of Authorized Economic Operator (AEO) to include e-commerce stakeholders, the use of advanced technologies, and cooperation with stakeholders such as marketplaces, fulfilment centers and free zones/warehouses.

GOVERNMENTS AND BUSINESS NEED TO MEET THIS CHALLENGE TOGETHER

In the same spirit as the regional workshops, on 28 and 29 June 2021 the Secretariat held its Second Global Conference on Cross-Border E-Commerce, thanks to the financial support of the Customs Cooperation Fund of Japan. Some speakers highlighted the tremendous degree of dynamism and also the variety observed in countries nowadays in the area of cross-border e-commerce approaches, legislation and capacity; for example, the ability to analyse data for risk assessment purposes varies a lot between national agencies and countries. Moreover, while the underlying technology enabling data exchange may be similar in terms of its fundamental logic, the requirements differ from one administration to another.

One of the objectives of the workshops and the Conferences has been to enable Customs to share processes and procedures, as well as to better understand the e-commerce “ecosystem” and its business models. Other forums also exist at the national level, with more and more Customs administrations creating working groups with e-commerce stakeholders as they review their legal and operational frameworks. At a higher level, companies have started building their own cooperation frameworks with some governments in order to explore new policies and rules in support of trade.

DOSSIER CONTENTS

For the “Dossier” in this Edition, we have invited several administrations to share information on the initiatives they are taking to enhance their capacity to control the compliance of “low value” shipments.

We start with an article by Argentina Customs, explaining how the Administration is reviewing its legal, policy and operational framework to ensure it is aligned with the WCO E-Commerce FoS and other WCO guidance material. The article does not describe the procedures in place to process the flows of goods generated by online sales in Argentina, but interested readers can consult the WCO Compendium of Case Studies on E-Commerce to which Argentina Customs contributed. Instead, the article focuses on the various steps of the review process.

This is followed by an article by United States Customs and Border Protection about two test programmes it recently conducted to assess the possibility of collecting certain advance data related to shipments potentially eligible for release under its de minimis entry process, and to implement a new entry process for such shipments.

Next, the use of three types of technology to enhance targeting capacities is described in an article by the Korea Customs Service. These technologies are blockchain, artificial intelligence and big data. The Administration also shares some interesting lessons, highlighting the fact that successful technology-focused projects aim to find solutions to actual issues faced by operational officers, and that teamwork between ICT and Customs experts is critical.

The last article introduces Peru Customs’ new clearance process for express shipments, as well as the web platform and mobile application it has developed to enable importers to track the status of their shipments and pay duties and taxes at authorized banking institutions. Not only has the new process enabled the Administration to improve its risk management procedures, it has also significantly reduced the time required for the release of goods.

Even if every country’s situation is unique, I believe that it is still important to ensure experiences are shared and initiatives explained. More and more Customs administrations are looking at how to review or enhance their legal and operational frameworks in line with WCO standards and guidance tools. I warmly encourage them to contact us should they wish to communicate on their eff

[1] The Working Group comprised representatives from governments, the private sector, international organizations, E-Commerce stakeholders, and academia.

In many countries, statistics show a strong uptake of online sales and a big increase in the market share of online as opposed to offline retail since the start of the pandemic. In COVID-19 and e-commerce:...

WBG

The World Bank approved a $150 million grant from the International Development Association (IDA) in support of the Government of Mozambique’s Digital Governance and  Economy Project (EDGE), which focuses on increasing access to civil identification, digital public services and improving digital business opportunities.

“Sixty percent of the Mozambican population lacks official civil identification.This leads to disenfranchisement and leaves large portions of the population, a majority of whom are women, without legal identity, preventing them from accessing schooling, and later in life financial services, pensions, formal jobs, entitlement claims and property transactions,” noted Idah Z. Pswarayi-Riddihough, World Bank Country Director for Mozambique, Madagascar, Comoros, Mauritius and Seychelles.

The EDGE project comprises investment and technical assistance activities, and is structured around four mutually reinforcing components as follows:

  • Component 1 will focus on two critical aspects of digital transformation: institutional capacity and government connectivity. The objectives of this component are to strengthen the government’s capacity to leverage technologies for improved service delivery, while increasing public sector connectivity across the country.
  • Component 2 will facilitate access to legal identification for all citizens, while supporting the development of digital government services. The main beneficiaries of this component will be citizens who lack legal identification, public service users, as well as public and private organizations relying on identity credentials for the provision of services.
  • Component 3 will support the growth of the digital private sector by supporting digital SMEs to take advantage of business opportunities created through digitalization efforts in the public sector. Activities under this component, in collaboration with the private sector, will also seek to reduce the gender gap in the technology sector.
  • Finally, Component 4 will support effective project implementation, and ensure that the necessary coordination and change-management processes are carried out in a timely manner.

“Leveraging technology for service delivery requires putting users first, combined with strong institutional capacity to design, implement, procure and coordinate digital efforts across government. This is one important challenge this project has set out to address to achieve services that are faster, cheaper, and better,” added Tiago Peixoto, Senior Public Sector Specialist and the project’s lead.

“The project will support the development of Mozambique’s digital business ecosystem in order to take advantage of business opportunities that digitalization efforts will create. It will also promote local digital start-ups and SMEs, which have the potential to grow and spur job creation,” concluded Eva Clemente Miranda, Private Sector Specialist and the project’s co-lead.

The project will leverage an existing coordination mechanism within the Ministry of Science and Technology. This project is in line with the country’s priorities outlined in its five-year plan and the World Bank’s partnership framework with Mozambique for FY 2017-22.

* The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 75 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.5 billion people who live in IDA countries. Since 1960, IDA has supported development work in 113 countries. Annual commitments have averaged about $18 billion over the last three years, with about 54 percent going to Africa.

The World Bank approved a $150 million grant from the International Development Association (IDA) in support of the Government of Mozambique’s Digital Governance and  Economy Project (EDGE), which focuses on increasing access to civil identification,...

DiPLO

Trade Ministers of the G7 – a group of wealthy nations composed by the United States, Japan, Germany, Britain, France, Italy, and Canada – agreed on principles to govern digital trade. The principles covered the issues of open digital markets; cross border data flows; safeguards for workers, consumers, and businesses; digital trading systems; and fair and inclusive global governance. With regards to data flows, G7 Members expressed concern with growing data localization measures, and reinforced their support to the principle of “data free flow with trust” (DFFT). This principle had been enshrined before in the G20 Osaka Leaders Declaration from 2019. On that occasion, the ‘Osaka Track’ was launched, a process that aims to intensify efforts on international rule-making on the digital economy, especially on data flows and e-commerce. Three G20 members, India, Indonesia and South Africa, opted out of the Osaka Track.

The recently agreed G7 principles expressed indirect support to ongoing negotiations taking place at the WTO’s e-commerce Joint Statement Initiative (JSI), among a subset of the WTO membership. The WTO is mentioned as the organization where ‘common rules for digital trade should be agreed and upheld’. The G7 also expressed support for rendering the WTO Moratorium on Customs Duties on Electronic Transmissions permanent, an issue that will be discussed in the next WTO Ministerial Conference (MC-12), scheduled to take place from 30 November to 3 December in Geneva.

The G7 principles have significant political importance, as they show the will to overcome differences between the US and the EU when it comes to regulating data flows, in particular different approaches to personal data. The principles could serve as a first step towards a common rulebook of digital trade among Members. The G7 also sends a message to third parties, as they express their ‘opposition to digital protectionism and digital authoritarianism’. The principles were called a ‘genuine breakthrough’ by British officials. The UK holds the Presidency of the G7 in 2021.

Trade Ministers of the G7 – a group of wealthy nations composed by the United States, Japan, Germany, Britain, France, Italy, and Canada – agreed on principles to govern digital trade. The...

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