Digital divide adds to multi-speed recovery from coronavirus finds EBRD

Digital divide adds to multi-speed recovery from coronavirus finds EBRD
By Clare Nuttall in Glasgow November 13, 2021

The coronavirus (COVID-19) lockdowns achieved what tech companies and some government had been aiming at for years: they suddenly forced people to go online for services from food delivery to education. However, the provision of such services and people’s ability to access them varied widely across and within countries. As a result, says the latest Transition Report from the European Bank for Reconstruction and Development (EBRD), there is a widening gap between economies that have stepped up their use of online and digital services and those that have fallen further behind.

The report, 'Transition Report 2021-22 ‒ System Upgrade: Delivering the Digital Dividend’, details the growing gaps in the use of online services and digital skills since the start of the pandemic in 2020 across the EBRD’s 38 countries of operations in emerging Europe and the Mediterranean. 

In response to the need for economies to embrace rapid technological change and overcome the challenges exposed by the pandemic, the EBRD adopted its digital approach to advancing transition on November 10. This sets out a framework on how the bank will use investment, policy engagement and advisory services to support the digital transition. 

“Making a success of the shift to digital will be vital if we are to achieve the world’s sustainable development goals. This is true of our economies, society as a whole and the environment,” said EBRD president Odile Renaud-Basso in an online event presenting the report. 

“COVID-19 has only underlined how digital can benefit the ‘3Ps’ of people, the planet and prosperity. Now we moving beyond the period of response to the pandemic, such technologies have enormous potential to ensue that the recovery from it is strong and inclusive as well as sustainable and resilient.  

“We all need to keep up with the radical changes brought about by digital technologies, not least because alongside the many benefits they bring they also confront us with challenges. Businesses and those working for them have to adapt, and we have to bridge the digital divide to avoid social exclusion. Many EBRD countries risk failing to make the most of digital and [are] therefore falling further behind more advanced economies. This is one of the reasons we have made digital a strategic priority over the next few years.” 

“[S]ince the start of the pandemic, people who are wealthier, living in cities and more advanced economies are better able to order goods and services online, do their banking through the internet and work from home. Elsewhere, large parts of the population remain excluded from these opportunities and are more at risk of losing their jobs as digital technology becomes more widely used,” says the EBRD in a press release setting out its key findings. 

“In many countries, large parts of the economy, as well as schools and universities, went online in a matter of days when the COVID-19 pandemic hit. The digitalisation process is destined to continue and will remain one of the key forces shaping our world,” commented EBRD chief economist Beata Javorcik. 

"Yet there are large digital divides between the EBRD regions and the advanced economies, between the various economies in the EBRD regions and within individual economies. Addressing these divisions is vital to their success.”

There was strong progress in the provision and use of digital and online services since the initial spring 2020 lockdowns, which followed 15 years of increased accessibility of fixed broadband and mobile internet. Again, however, this varied across the region, as countries with higher GDP per capita and greater population density had better mobile internet coverage, and many economies in the EBRD regions still lag behind their West European peers. In the area of e-commerce, for example, more than two-thirds of people between the ages of 55 and 74 in Western Europe bought something online in 2020, compared with less than a third in EU member states in the EBRD regions and only around 15% in the Western Balkans. 

Mapping the digital transformation

The EBRD has developed a new index of digital transformation, which shows that among its 38 countries of operation only Estonia performs better than more developed economies.

The index, based on 22 measures of the availability and use of digital technologies, gives Estonia a score of 92.2. Other strong performers are Lithuania and Slovenia.

Speaking at the online launch of the report on November 10, former Estonian president Toomas Hendrik Ilves said the country’s success is down to political will. “You have to have a government committed to this [digital transformation] and ready to go ahead and do it. We had a series of governments from different parties but all committed to this idea,” he said. 

At the other extreme, the authoritarian Central Asian country of Turkmenistan’s score is the lowest at just 16.1, followed by fellow Central Asian nation Tajikistan and Gaza and the West Bank.

The EBRD identified insufficient skills as the top constraint on digital development. "There is evidence that more educated people in the EBRD regions have been improving their digital skills, catching up with the most developed nations. However, older people and those with lower levels of education and income are increasingly being left behind,” said the development bank.

“This is having an increasing impact as digital technologies are used more widely in all industries. Occupations that are more exposed to automation through the use of artificial intelligence have seen more job losses. Workers with fewer digital skills find it harder to adapt to new roles that become available.”

Ukraine’s Deputy Minister of Digital Transformation Oleksandr Bornyakov told the launch event that in Ukraine the problem is lack of skills rather than lack of access. He talked of the “bold steps” taken by Ukraine in the area of digitalisation; the country was the first in the world to issue digital passports. However, he added, “in Ukraine the older population are not able to use this, they don’t feel included. Sometimes this is a matter of infrastructure, but in most cases they just don’t know how to operate [technologies].” This is despite efforts by the ministry to teach digital skills to 2mn people. 

The level of digital skills also has a knock-on effect on other areas of the digital transition. For example, returns on digital-intensive capital were found to be significantly higher in economies with stronger digital skills.

Another area where digitalisation can create haves and have nots is automation. “Digitalisation is affecting the world of labour across the EBRD regions. While the effect is limited, occupations that are more exposed to automation through the use of artificial intelligence have seen more job losses,” said the report. “Consequently, upskilling to support workers’ transition to higher-skill, less automatable occupations remains a key policy challenge.”

Economist Daron Acemoğlu warned of the need to be circumspect. “Inequality is a huge problem in every advanced economy … middle-class jobs are disappearing and low education workers are suffering in most western countries. These are not separable from digital technologies. I think there are several aspects of digital technologies that are creating an environment in which only some segments of society are benefitting, and my concern is that the future is going to deepen these divides. This is definitely true for robotics and office-based software automation."

On top of this, many economies in the EBRD regions are experiencing a brain drain, losing people with strong digital skills to emigration. 

The pandemic led to a shift in the way we work, as companies and employers embraced remote working. However, this has resulted in conflict, as while many employees are keen to continue working from home, many employers are unwilling to allow this. For remote working to be effective, again higher levels of digital skills are required, especially among older workers.

“That digital transformation has taken a leap forward during the pandemic, as COVID-19 has accelerated the adoption of digital tools, especially for people working from home. In the EBRD regions, young people and women are more likely to have “teleworkable” occupations than older cohorts and men. What is more, people with a tertiary qualification are up to three times more likely to have a teleworkable occupation than those with lower levels of education,” according to the report. 

Financial services are another area where technological disruption has taken place, leading to the emergence of several smaller countries Armenia, the Baltic states, Georgia and Moldova as global leaders. “However,” noted the report, “progress has been concentrated in specific areas, such as peer-to-peer lending platforms, while equity-based models (such as equity-based crowdfunding) have remained virtually non-existent. Thus the advent of alternative finance has exacerbated emerging Europe’s heavy dependence on debt instruments and has not contributed to the much-needed rebalancing of financial systems.”