How to make digitalisation an equaliser rather than a contributor to inequality


Global Europe

Picture of Torbjörn Fredriksson
Torbjörn Fredriksson

Head of E-commerce and Digital Economy Branch at the United Nations Conference on Trade and Development (UNCTAD)

The world is rapidly transforming due to digitalisation, creating new opportunities as well as challenges. The COVID-19 pandemic boosted digital transformations, as people and businesses went digital to keep activities going. There is now much greater awareness of the value of digital solutions. But digitalisation does not automatically result in inclusive and sustainable development outcomes. In fact, early assessments suggest that inequalities have deepened during the pandemic. Changing this trajectory will require collaborative policy action at multiple levels and involve a wide range of skills.

Digital readiness is highly uneven. According to International Telecommunication Union (ITU) data, in 2021, 90% of people in developed countries used the internet, compared to only 32% in Africa. Internet users in Africa typically have to pay relatively more for relatively low connectivity speed.

Beyond the traditional connectivity divide, a data divide is rapidly evolving. The handling of digital data greatly affects the ability to harness data for social and private value creation. Data-induced value creation is concentrated in two economies: the United States and China, which account for 90% of the market capitalisation of the world’s largest digital platforms; 70% of the global top talents on artificial intelligence (AI); and as much as 94% of all AI start-up funding, according to UNCTAD. Scientific developments linked to data and AI are also highly concentrated. For example, among the top 25 institutions producing AI-related research papers, 18 are in the US and notably led by Google, while the remaining 7 are located in China, the United Kingdom, Switzerland and  South Korea. No institution from the European Union features on this list.

From a global perspective, the current path is not sustainable. It is up to governments, in dialogue with other stakeholders, to shape the digital economy by defining the rules of the game

Such high levels of concentration have worldwide implications, especially in Europe and Asia. Many low-income countries are particularly concerned about the risk of becoming mere providers of raw data that can be harnessed by global players, while having to pay for the digital intelligence produced from their data.

Countries that were most digitally prepared when the pandemic hit displayed greater resilience during the crisis, as they could leverage e-commerce, digital trade, telework and remote education. The pandemic also saw a further increase in the concentration of power and value creation, with the leading digital platforms reinforcing their positions throughout the entire global data value chain.

From a global perspective, the current path is not sustainable. It is up to governments, in dialogue with other stakeholders, to shape the digital economy by defining the rules of the game. The fundamental changes induced by digital transformation against the backdrop of wide digital divides call for unconventional economic thinking and policy responses.

While the EU is not prominently positioned in terms of harnessing data for value creation compared to the US or China, it is a frontrunner in terms of creating new policy responses to digital transformation. Recent examples include the 2018 General Data Protection Regulation (GDPR); the GAIA-X initiative; the Data Governance Act, which will create a mechanism for safe reuse of certain public sector data; and the Digital Services Act and the Digital Markets Act. The latter aim to create a safer digital space that protects the rights of users while establishing a level playing field for businesses.

The magnitude and complexity of the policy challenge suggest that countries should look for ways to work together in search of solutions

Important policy developments are also witnessed around Asia. For example, the 2019 Personal Data Protection Bill and the Draft National E-Commerce Policy outline India’s ambition to build its digital sector by capitalising on the data of Indian people through various measures. Additionally, the Association of Southeast Asian Nations (ASEAN) has adopted the common Data Management Framework and the Cross Border Data Flows Mechanism.

Most of these initiatives are recent and not yet tried and tested, so assessing their impact would be premature. Nevertheless, they reflect the growing awareness among governments of the need for novel approaches to deal with the rapid digitalisation of economies and societies.

The magnitude and complexity of the policy challenge suggest that countries should look for ways to work together in search of solutions. There should be ample opportunity for countries in Europe and Asia to find common ground and learn from each other. Even more important is that the world as a whole comes together to explore effective responses.

Finding adequate responses to the cross-cutting nature of digital transformation will not be easy, and there may not be applicable one-size-fits-all models. Moreover, many governments find it hard to recruit key human resources to design, implement and monitor digital and data policies, due to competition with better-paying employers in the private sector. Special public initiatives may be warranted to lure more skilled data scientists to engage in policy analysis and formulation.

Finally, the development community will need to explore more comprehensive ways to support countries that are trailing behind in the digital economy. Development partners in Europe and Asia should integrate and strengthen the digital dimension in their aid policies and strategies. If left unaddressed, the yawning gap between the under-connected and the hyper-digitalised countries will widen further and existing inequalities will be exacerbated.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.

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