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Toward Excellence in the Digital Economy

A head shot of Safder Nazir, Huawei's Senior Vice President for Digital Industries.

Safder Nazir

2021-12-17 12
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Over the last two decades, digital technologies have transformed society at an unprecedented scale, changing the ways we live, work and interact. Indeed, today, digital technology has the potential to make widespread social and economic advances. The COVID-19 pandemic has only reminded us of this fact, teaching the world that it must build digital resiliency to prepare itself to better handle unforeseen, disruptive events. Going further, to prosper in the new world we find ourselves in, it has become critical for nations to understand and cater to the digital-based economic construct that we refer to as the digital economy. Overall, the digital economy as a share of the total economy has, in general, been growing and those countries with larger digital economies, relative to the whole, have proven to be more resilient.

Defining the Digital Economy and Key Trends

According to the Organisation for Economic Co-operation and Development (OECD), the digital economy encompasses all economic activities reliant on, or significantly enhanced by, digital inputs, including digital technologies, digital infrastructure, digital services, and data.1 This can be taken as a broad definition. As such, the emergence and evolution of this digital economy is characterized by three key trends.

The Dominance of Digital Business Models: The digital economy is often called the platform economy due to the dominance of digital business models and the digital platforms that enable them. Key examples include the dominance of digital-native players — think Careem and Noon in transportation and retail — as well as the shift to apps and the closure of bank branches.

The Shift from Providing Services to Creating Experiences: In the digital economy, organizations differentiate themselves by creating digital experiences for customers. For example, the public sector is actively pursuing a whole-of-government approach, breaking institutional silos to provide a seamless digital experience to citizens through initiatives such as national government service portals, customer journeys, national digital identities, and more.

The Rise of Industry Ecosystems: In the digital economy, traditional and linear value chains, with limited partner engagement, have given way to scaled-up, integrated ecosystems that use software platforms to deliver value. For example, leading banks are engaging with Financial Technology (FinTech) pioneers to enhance services and innovate rapidly within the financial services industry.

The Importance of the Digital Economy in the Post-Pandemic World

Today, the impact of digital is visible everywhere, from accessing essential services and purchasing products through digital platforms, to the shift to virtual methods of learning and working. The digital economy is of particular importance to national leadership because of its impact in three key areas.

Economic Growth: As we've already touched on, digital economies have become significant contributors to Gross Domestic Product (GDP). China's digital economy, for example, was valued at US$5.4 trillion in 2020, contributing to 40% of the country's total GDP. Significantly, it helped the country overcome the challenges posed by the COVID-19 pandemic, contributing to an overall growth in GDP of 9.6%.2

Employment Creation: The fundamental shift in the ways work is done in the digital economy creates new opportunities for job creation. The sharing economy model, for example, is already providing millions with viable livelihoods. China's own sharing economy grew 1.3% year-on-year in 2020 and presently has an estimated labor pool of 6.31 million people.3

Reaching the Underserved: Rapid economic growth and urbanization have created economic divides within national boundaries. However, the rise of the digital economy has revitalized efforts to bridge the gap. For example, Huawei's TECH4ALL digital inclusion initiative aims to improve levels of education, environmental protection, and healthcare, as well as promote more balanced development, through clear actions: making digital technologies more affordable, improving wider society's digital skillset, and creating digital ecosystems that help developers build applications for different communities.

The Implications for the Middle East

The Middle East has made significant progress in the adoption of digital technologies over the last decade. Mobile broadband penetration across Gulf Cooperation Council (GCC) countries is now at 100%4 and more than 50% of consumers in the region already shop online. In the UAE, 80% of digital payments are contactless.5 With respect to the prevalence of digital skills among the population, GCC countries are ranked on par with major global players such as Hong Kong, Germany, South Korea, and Ireland.6

Changing consumer characteristics have also changed the nature of businesses in the region. Government-to-consumer interactions in the UAE, for example, are now predominantly digital and there are plans in place to close half of the existing government service centers by the end of 2022.7 Indeed, the number of bank branches in the country has already fallen, by 34% between 2016 and 2020, coinciding with the launch of several digital banks, such as Liv., E20., NEO, NEOBiz, and CBD Now.

Today, every GCC country has a national vision focusing on the development of non-oil sectors for economic growth, local value and employment creation, and social development. National leaders have recognized the importance of the digital economy in achieving such visions. For example, Saudi Arabia has launched a Digital Economy Policy that aims to have the digital economy's GDP share on par with other leading global economies.8 A little further east, the UAE plans to double the size of its digital economy in just 10 years.9 Indeed, all of the countries of the region have undertaken initiatives to realize ambitious policy goals, focusing on data, Artificial Intelligence (AI), cloud, and 5G-enabled services.

The Future of the Digital Economy

Digital technologies are proliferating and touching more and more aspects of the economy, particularly in terms of the ways products and services are consumed and delivered, the way transactions are conducted, and how operations are performed. It's predicted that, by 2022, more than half of the global economy will be based on or influenced by digital.10

The Future of Services and Commerce: Organizations today are taking a digital-by-default approach to services and commerce. The Saudi Arabian government, for example, has introduced a digital-by-default and mobile-first approach to public services as part of its Smart Government Strategy 2020–2024.11 And e-commerce already accounts for 17% of all retail business in GCC, compared to the 3% share it enjoyed just five years ago.12

The Future of Operations and Work: Digital is also changing how work is conducted, with increasingly automated operations and location-agnostic working cultures. It is predicted that, by 2025, the manufacturing sector will have 103 robots for every 10,000 employees.13 At the same time, working culture has experienced a dramatic shift since 2019. The hybrid work model of the future will not be constrained by the location of employees, offices, or other resources. By 2023, 70% of G2000 organizations are expected to have deployed remote or hybrid-first work models that redefine work processes.14

The Future of Consumers and Living: Just as in the workplace, digital technologies have a significant impact on homes. The number of intelligent devices in homes has increased exponentially: by 2025, 90% of people will use personal assistants on their smart devices.15 Intelligent devices also play a role in the ways consumers interact with enterprises. It is estimated that, during the pandemic, customers spent 25% more time with those companies whose digital transformation plans enabled them to quickly and easily adapt to the realities of the crisis.16

Thriving in the Digital Economy

To thrive in a digital-first world, organizations need to transition into digital enterprises. Fueled by data, a digital enterprise provides personalized experiences to customers through digital platforms, backed by constantly evolving and expanding digital infrastructure. However, 62% of enterprises in the Middle East are yet to reach sufficient digital transformation maturity to take advantage of the digital economy.17 To get there, they must re-invent business models, create new customer experiences, reimagine work models, and innovate with partners. Such efforts often face significant internal challenges, which organizations must overcome through well-executed change management.

Data Use and AI-Infused Analytics: The success of any organization in the new economic paradigm will depend on its capacity to collect, synthesize, and analyze data, as well as its ability to apply resulting insights at scale. However, most organizations struggle to achieve such success due to the large volume and variety of available data. AI-based automation can enhance each step in the business intelligence and analytics process, from finding and preparing to exploring, analyzing, and acting on data. Such solutions can also help businesses re-architect into data-native enterprises, creating superior customer experiences and making more informed decisions.

Skills Availability and Process Automation: In the digital economy, organizations grapple with skills issues as digital technologies in work environments become rapidly widespread. To tackle the skills issue and improve organizational agility, digital enterprises are increasingly investing in technologies such as Robotic Process Automation (RPA), AI, and Machine Learning (ML). Organizations that effectively use AI-augmented automation to boost efficiency and contain costs will gain a significant competitive advantage as the digital economy evolves.

Infrastructure Buildouts and the Cloud: Organizations seeking to transform into digital enterprises, master data, and use intelligent automation often face challenges with their existing, legacy Information Technology (IT) environments. Most have multiple, disconnected IT systems that hinder organization-wide change. A digital enterprise's capacity to generate revenue depends on the responsiveness, scalability, and resiliency of its infrastructure, applications, and data resources. Cloud-centric digital infrastructure and applications are essential for any organization's transition into a digital enterprise. Many features needed for the digital economy are now only available in cloud-based applications, requiring organizations to rapidly modernize legacy applications into cloud-native versions, to support new customer and operational use cases.

Embrace the Future

Today, a nation's future heavily depends on advancements in science, knowledge, innovation, and technology. Many countries in the Middle East are nurturing such advancements by developing foundational elements — such as infrastructure, data, and skills — through investments in critical technology enablers like 5G, the cloud, and AI. For digitally determined enterprises in the region that have embarked on their digital journey, leveraging these foundational elements and technology enablers will reveal significant opportunities to thrive in the new world.

1.https://www.oecd.org/going-digital/topics/measurement/
2.White Paper on China's Digital Economy Development 2021 by China Academy of Information and Communications Technology (CAICT).
3.Report on the development of China’s sharing economy in 2021 Ministry of Industry and Information Technology.
4.International Telecommunications Union (ITU) 2019 Statistics.
5.https://www.khaleejtimes.com/news/uae-is-committed-to-double-the-size-of-digital-economy-in-10-years-top-official-says
6.World Economic Forum (WEF) Global Competitiveness Report, 2019.
7.https://www.khaleejtimes.com/news/government/making-government-future-ready-is-a-priority-says-sheikh-mohammed
8.https://www.mcit.gov.sa/sites/default/files/digitaleconomypolicy_en.pdf
9.https://www.khaleejtimes.com/uae/uae-is-committed-to-double-the-size-of-digital-economy-in-10-years-top-official-says
10.IDC's Worldwide Digital Transformation 2022 Predictions
11.https://www.my.gov.sa/wps/portal/snp/aboutksa/smartstrategy
12.https://www.middle-east.kearney.com/consumer-retail/article/?/a/gcc-e-commerce-unleashed-a-path-to-retail-revival-or-a-fleeting-mirage
13.Huawei Global Industry Vision (GIV) 2025
14.IDC's Worldwide Future of Work 2022 Predictions
15.Huawei Global Industry Vision (GIV) 2025
16.IDC's Worldwide Future of Customer and Consumer 2021 Predictions
17.IDC CIO Survey 2020 — Middle East.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy, position, products, and technologies of Huawei Technologies Co., Ltd. If you need to learn more about the products and technologies of Huawei Technologies Co., Ltd., please visit our website at e.huawei.com or contact us.

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