Info Service on WTO and Trade Issues (Apr19/11)
Geneva, 3 Apr (Kanaga Raja) – Capacity-building efforts are needed to reduce the digital and data divides between and within countries, particularly those relating to youth, the rural economy, micro-enterprises and small and medium-sized enterprises, and gender, according to the United Nations Conference on Trade and Development (UNCTAD).
This is one of the main conclusions highlighted by UNCTAD in its Secretariat Note titled “The value and role of data in electronic commerce and the digital economy and its implications for inclusive trade and development.”
The Note was presented at the third session of the Intergovernmental Group of Experts on E-commerce and the Digital Economy, which began its three-day meeting on 3 April.
The session is being held during UNCTAD’s eCommerce Week which began on 1 April.
The Secretariat Note addresses the increasing role of data in electronic commerce and the digital economy, in the context of digital and data divides within and between countries.
According to UNCTAD, the role of official development assistance in terms of international policy on capacity- building requires to be addressed.
Aid in support of productive capacity development in the context of digitalization is critical, particularly for the least developed countries, which are lagging behind in digital readiness.
Current levels of official development assistance are inadequate. For example, only 1 per cent of all Aid for Trade funding is currently devoted to information and communications technology (ICT).
Similarly, multilateral development banks invest only 1 per cent of their total commitments in ICT projects and, of this, only 4 per cent goes towards policy development.
“Given the speed at which the digital economy is evolving and given the major digital divides that exist in many areas, it is important for the donor community to increase attention regarding the digital dimension of official development assistance strategies,” said UNCTAD.
It noted that owning vast amounts of data can only be of value when there is analytical capacity to convert them to information and knowledge. Countries in which the capacity to transform data into business intelligence is limited are constrained in their potential to capture the economic value of data.
To prevent dependence on certain countries in the context of a data-driven digital economy, development strategies need to include the objective of digital upgrading (value addition) in a data value chain, to enhance domestic capacities to move from data as a raw material, to processed digital data and artificial intelligence.
Beyond having access to adequate connectivity and competitive prices, the right skills are needed to be able to derive development benefits from mining big data.
There is a need for more advanced digital/information and communications technology (ICT) user skills for more complex operations using basic software packages and more advanced packages (e.g. sector-specific packages for data treatment and analysis, design, architecture and accounting).
Analysts of all kinds of data need to learn about new data sources, new ways of collecting data, how regulations concerning data affect what can be collected and analysed and what technologies to adopt for secure data storage and use.
Beyond foundational skills, a higher level of skills is required to build, supply, deploy and manage digital tools and services.
Specialist skills needed range from those required to roll out, upgrade and repair physical ICT infrastructure (e.g. cables and hardware such as computers, routers and servers), to those possessed by software engineers, applications developers, systems architects and data scientists, said UNCTAD.
The growth of the Internet of things, for example, increases the demand for people with skills related to data analytics, business management, hardware and systems design and security.
As the Internet of things and big data become more widely used, data scientists and analysts become more central and strategic in the operations of many firms.
The ability to determine what to do with increasing amounts of data and identifying what is valuable and what creates new business opportunities will be key. These roles, in turn, will require broader skill sets, combining analytical, software and architecture skills with business acumen and communications skills.
According to the UNCTAD Secretariat Note, the evolving digital economy is characterized by the emergence of a platform-based ecosystem of digital pro ducts and services that are developing through a combination of widespread and continuous measurement and data collection by the Internet of things, data flowing from user’s data as well as from sensor-laden factory automation sy stems and ubiquitous, Internet-connected user devices.
This is generating “big data” pools that can be mined and analysed for patterns and correlations that would otherwise remain hidden. The results can be fed into systems where artificial intelligence, machine learning and automated decision-making are used to upgrade system elements and even an entire system.
Platforms hosted by players such as Alibaba, Amazon, Apple, Facebook, Google, Microsoft, SAP, Tencent and others already have big data at the centre of their business models.
Data obtained from the use of digital technologies can provide new sources of knowledge, innovation and profits, if analysed effectively and transformed into intelligence. For example, detailed data collected from the behaviour of platform users and online consumers can allow platform owners to innovate and offer new, better and/or more customized products and services that can be monetized.
Data analytics can also be used to support progress towards the 2030 Agenda for Sustainable Development.
The gains, however, are not automatic, and there are various concerns related to data-driven developments, UNCTAD underlined.
Watchdogs, regulators and consumers are increasingly expressing concerns about the implications for security, privacy and ownership and of the use of personal data. Moreover, growing reliance on data, combined with strong network effects, can give companies that control the data considerable market power, raising the risk of market dominance and anti-competitive behaviour.
UNCTAD noted that as trade is increasingly becoming digitalized, cross-border data flows are becoming more important for international transactions.
Activities affected by digitalization go beyond online trading and supply chain coordination, to using information and communications technologies (ICTs) for the integration of a wider range of activities into single systems, thus ma king value chains increasingly data driven, said UNCTAD.
INCREASING ROLE OF DATA IN DIGITAL ECONOMY
UNCTAD noted that the Global Internet Protocol traffic, a proxy for data flows, has grown dramatically in the past two decades. In 1992, global Internet networks carried approximately 100 gigabytes (GB) of traffic per day. Ten years late r, global Internet traffic amounted to 100 GB per second.
By 2017, global Internet Protocol traffic had surged to more than 45,000 GB per second, due to both qualitative and quantitative changes in the content of Internet traffic. By 2022, at 150,700 GB per second, global Internet Protocol traffic is expected to be 75 times the volume it was in 2007.
A novel aspect of the digital economy is the aggregation of large amounts of data in the “cloud.” Digitalization allows data to flow from all corners of industry and society, not only from sensors built into production lines, but also from electric meters, security cameras, customer service call logs, online clicks, point- of-sale registers, status updates on social media and post reactions (such as “likes”).
Access to and analyses of data are becoming crucial for the competitiveness and expansion of companies across sectors.
The shift towards cloud computing can be seen as a step change in the relationship between telecommunications, businesses and society as a result of massively enhanced processing power, data storage and higher transmission speeds, accompanied by sharp price reductions.
For example, the average cost of 1 GB storage capacity fell from more than $400,000 in 1980, to $0.02 in 2016. Users can access a scalable and elastic pool of data storage and computing resources as and when required.
The externalization and aggregation of computing resources and data storage in the cloud allow data to be pooled and analysed in vast quantities. It also reduces the costs for small businesses of accessing information-technology hardware and software and does not require developing information-technology skills in-house.
The Internet of things concerns the extension of connectivity beyond people and organizations to objects and devices. Sensors are currently embedded at low cost in robots and production equipment, as well as in operator wearable devices , industrial vehicles, buildings, pipelines and household appliances.
Since data are collected continuously in real time, from multiple sources and at multiple points in a system, vast amounts of data can be accumulated. In this context, the main characteristics of big data are volume, velocity and variety.
Internet of things devices send information to be stored and processed in the cloud and streamline processes and information flows. According to one estimate, approximately 500 billion Internet of things devices will be deployed by 20 30.
UNCTAD said that the increasing importance of data in the economy raises various questions related to the implications for inclusive trade and development of digital and data divides.
THE DIGITAL AND DATA DIVIDE
UNCTAD pointed out that the ability of actors in developing countries to benefit from increasingly data-driven e-commerce and digital economy is affected by their capacity to access and use ICTs in an affordable manner. Significant gaps persist in these areas, both between and within countries.
According to the International Telecommunication Union, 51.2 per cent of the global population were using the Internet at the end of 2018. Thus, slightly less than half of the world population remains offline. In the least developed countries, less than 20 per cent of persons were using the Internet, compared to more than 80 per cent in developed countries.
The digital economy can allow micro-enterprises and small and medium-sized enterprises to increase their access to markets and productivity.
However, many micro-enterprises and small and medium-sized enterprises, especially in rural and remote areas, are ill prepared to engage in and benefit from e-commerce and the digital economy, including data collection and analysis.
They face barriers such as limited access to affordable digital and data infrastructure, payment solutions, trade logistics, skills, consumer and data protection and financing of digital entrepreneurship. Another aspect of the digital divide is that most data centres are located in developed countries.
The evolving digital landscape offers women entrepreneurs new opportunities to strengthen their businesses and become more effective.
At the same time, there is evidence of a “gender digital divide” that excludes women entrepreneurs from the opportunities and benefits of a data-driven economy, due to lack of literacy, skills, access, resources and other factors.
The gender gap is more pronounced in developing countries, particularly in the least developed countries. In 2017, the proportion of women using the Inter net worldwide was 12 per cent lower than that of men, while in the least develo ped countries, only one in seven women was using the Internet compared with one in five men.
According to UNCTAD, digital divides are due to factors such as insufficient access and affordability, lack of technical and digital skills, including o n data analytics, absence of relevant content or local language content and safety concerns.
One of the great challenges of digitalization is therefore to achieve inclusion so that no one is left behind, it said.
Addressing these divides is important to attain inclusive trade and development objectives. Unless properly tackled, digital and data-related divides between and within countries will widen, exacerbating existing inequalities.
This will require significant capacity-building efforts, including skills development, at the national, regional and international levels, said UNCTAD.
THE VALUE OF DIGITAL DATA
UNCTAD said that digital data are becoming an essential input in decision-making, production processes, transactions and relationship management across an ever-increasing swath of the agricultural, manufacturing and services sectors.
As the digital economy evolves further, data will become even more inextricably interwoven with all aspects of the world economy, including the functioning of the Internet, global value chains and international trade.
Big data are opening doors for analysis, value creation and the application of artificial intelligence. Big data can be “mined” for insights that enable data-driven decision-making by businesses, government agencies and persons or organizat ions with access to the data and the means to carry out further analysis.
The value of digital data arises once data are transformed into “digital intelligence”. Under new business models that have emerged, global digital platforms create value by aggregating and analysing data.
This value can then be monetized in various ways: (a) Platform user data ca n be leveraged to provide targeted advertising services (e.g. Google, Facebook); (b) Data from the Internet of things and sensors can be used to support innovation and to make supply chains more efficient (e.g. Caterpillar, Rolls Royce); (c) E-commerce platforms can use data collected from sellers and buyers on thei r platforms to offer better services or to raise fees for using the platforms (e.g. eBay, Jumia, Amazon); (d) Companies can sell or rent out, as a service, the infrastructure or software needed to operate in a data-driven economy (e.g. Amazon Web Services).
Although some digital platforms may provide many services and products free of charge, consumers and users end up paying in the form of giving firms and application developers detailed information, sometimes unknowingly, about their location, preferences, relationships and personal habits. It is this knowledge that can be monetized.
Data are invaluable in terms of gaining a competitive advantage. This is why platform providers are often happy to provide services in return for data rather than money. In the digital economy, there is also a centralizing flow of data.
According to UNCTAD, a global value chain for data is emerging, but, unless appropriate policies are put in place, many economies may find themselves in the low-value part of this chain and increasingly dependent on core platform owners.
Data monetization by global companies can have implications for developing countries in terms of lost and untaxed revenues, the increased market power of global platforms, potential for misuse of personal data, under-development of hosting within a country, data centres, cloud services, advertising markets and the like, it said.
Data collection and analysis can help to manage or resolve critical global issues, assist in the creation of new scientific breakthroughs, advance human health, provide real-time streams of information (e.g. on disease outbreaks or traffic conditions), monitor natural systems, improve the efficiency of resource use, and support decision-making by business people, policymakers and civil society.
There are different ways in which big data can support sustainable development, especially when combined with mobile technologies. In sub-Saharan Africa, for instance, large sets of data on soil characteristics are mined to help determine fertilizer needs and increase productivity.
Data gathering and analysis are becoming more affordable with the availability cloud-based (on-demand) services. Small companies are able to rent cloud-based, pay-per-use data services, rather than buying expensive hardware and software systems and hiring in-house data analysts.
CHALLENGES ARISING OUT OF DATA-DRIVEN ECONOMY
According to the Note, creating trust online is critically important to seize opportunities from e-commerce and the digital economy. The handling of data is a central component of this. In the current digital world, personal data are a resource that drives much commercial activity online.
How these data are used can raise concerns regarding privacy and the security of information. Recent high- profile cases with political implications helped to fuel those concerns in 2018.
A 2018 survey on Internet security and trust conducted by the Centre for International Governance Innovation and Ipsos, in collaboration with UNCTAD and the Internet Society, shows growing concerns about data privacy and online security. More than half of respondents in 25 economies were more concerned about their privacy online than they had been a year earlier.
In the Middle East and Africa, the share of those feeling “more concerned” rose from 55 to 61 per cent. Nearly half of Internet users in North America were more concerned with their online privacy than they were the previous year, while 79 per cent said that Internet companies were the primary source of their heighten ed anxiety.
Different notions of privacy and a variety of different stakeholder interests create tensions. Individuals are concerned about their right to privacy and being able to safely and confidently use online services; Governments are concerned about national security and safety; and businesses are concerned about compliance burdens and regulations that may hamper innovation and trade.
Concern about data privacy will also grow in developing countries, where the use of social media and other digital platforms is expanding rapidly, said UNCTAD.
As more economic activities are digitalized, companies, organizations, Governments and individuals need to pay more attention to how they protect their online data and devices.
Connecting private communications networks, industrial systems and public infrastructure to the Internet makes them vulnerable to hacking, identity theft or theft of other personal and financial information, larceny or even industrial espionage and sabotage. Finding adequate measures to protect against these threats requires shared responsibility among all stakeholders.
Digital platforms are mainly characterized by their reliance on data. Part of their market power stems from their ability to collect, process and analyse data and convert that data into digital intelligence for use in economic activities. Thus, they have the capacity to increase their competitive position.
This digital intelligence represents a key asset for controlling large parts of the value of the digital economy. Whoever controls a digital platform also controls the distribution channel, and this can give the owner of the dominant platform (and data) superior information and thereby considerable market power.
The winner-takes-all dynamics seen in platform-based industries (e.g. Amazon, Alibaba, Google, Uber, Facebook, WeChat), where network effects accrue to first movers and standard setters, can accentuate polarization in the industrial base.
Moreover, a greater ability to exploit new technologies (e.g. collecting and analysing data and turning them into business opportunities) relative to that of others with access to the same resources and technologies will increasingly drive competitiveness and the benefits accruing from the digital economy.
The use of artificial intelligence can be expected to accentuate the strong market position of the few companies already in a position to leverage access to data, said UNCTAD.
Digital platform companies can also increase their market position by acquiring competitors or innovative firms offering complementary technologies and services. In the case of Google, the company has made more than 230 acquisitions, at times at a rate of one per week.
For consumers, there are also risks to consider. For example, big data, algorithms and artificial intelligence can enable instantaneous and/or individualized price discrimination, where prices are adjusted in real time based on a consumer’s behaviour, perceived need for the product or service, and willingness to pay.
Analyses of shopping and purchasing histories, in the context of millions of prior purchases from shoppers with similar habits, can give firms a very high level of detailed information that could weaken consumers’ bargaining power.
The current regulatory environment for protection of data is highly fragmented, said UNCTAD, adding that legal frameworks that protect data are often outdated or incompatible. In some cases, various pieces of legislation are introduced that are incompatible with each other.
Increased reliance on cloud-computing solutions also raises questions about what jurisdictions apply in specific cases. This lack of clarity creates uncertainty for consumers and businesses, limits the scope for cross-border exchange and growth.
In both developing and developed countries, enforcement of privacy and security obligations is often inadequate, as authorities seek to catch up with the latest technological advances.
Moreover, many developing countries still lack data protection and privacy legislation altogether. In Africa, for example, less than 45 per cent of countries have adopted such legislation, and in Oceania, no economy has data privacy legislation in place.
UNCTAD said that it has estimated that more than 400 million Facebook users reside in countries with no data protection legislation.
“Coherent and internationally compatible national data protection regimes to facilitate cross-border trade will be ever-more important in the face of new technologies. More dialogue between all stakeholders is needed to achieve adequate protection.”
The digital economy relies increasingly on cross-border data flows. A deep understanding among Governments and stakeholders of the role of data flows is therefore becoming increasingly important.
For international trade, it is also important that national regimes on regulating cross-border data flows are compatible across countries so as not to inhibit the adoption and proliferation of emerging technologies, with adverse effects on societal benefits, said UNCTAD.
When considering what may be an appropriate regulatory framework, policymakers also need to factor in various concerns of Governments, consumers/users and firms over national security, privacy, movement and ownership of data, as well as economic development.
Whether cross-border data flows should be regulated in trade agreements, as a trade matter, or discussed and regulated at other forums or organizations is still under debate. As more trade is affected by digitalization and conducted over the Internet, it becomes increasingly important for trade policymakers to factor in how the Internet itself is governed and operated.
Given the importance of forces pushing towards market concentration in the digital economy dynamics, competition policy has an important role to play.
The potential for anti-competitive practices and abuse of dominant positions of digital platforms may require adaptation of approaches to competition policy frameworks and enforcement, said UNCTAD.
Against this background, UNCTAD posed the following guiding questions for the discussion among experts at this third session:
* What are the role and value of data in e-commerce and the digital economy in the context of inclusive trade and development?
* What are the key opportunities and challenges associated with managing and regulating data and data flows?
* What are the public policies, regulations and institutional arrangements in different countries and regions for harnessing and protecting data related to e-commerce and the digital economy, and bridging the digital divides including between and within countries and relating to youth, rural economy, micro-enterprises and small and medium-sized enterprises and gender?
* How could developing countries build capacities, including skills, to use new and emerging technologies such as big data analytics and artificial intelligence?