15. ssrn-3540027

Development Implications of
Digital Economies
Paper No. 6
Digital Economy Policy in

Developing Countries
RUMANA BUKHT & RICHARD HEEKS
2018
Developed as part of DIODE: the “Development

Implications of Digital Economies” strategic
research network, funded by the UK’s Economic and
Social Research Council as part of the Global
Challenges Research Fund initiative
Published Centre for Development Informatics

by: Global Development Institute, SEED
University of Manchester, Arthur Lewis Building, Manchester, M13 9PL, UK
Email: cdi@manchester.ac.uk Web: http://www.cdi.manchester.ac.uk
View/Download from: https://diode.network/publications/
Electronic copy available at: https://ssrn.com/abstract=3540027

Table of Contents
ABSTRACT .................................................................................................................................. 1
1. THE DIGITAL ECONOMY OPPORTUNITY ......................................................................... 2

2. DIGITAL ECONOMY CHALLENGES AND THE NEED FOR POLICY........................................ 3
2.1 DIGITAL INFRASTRUCTURE CHALLENGES ..................................................................................... 3
Technical Infrastructure Challenges ................................................................................... 4
Cost .................................................................................................................................... 5
Hardware/Software Challenges ......................................................................................... 5
Digital Content ................................................................................................................... 6
2.2 DIGITAL ECONOMY ECOSYSTEM: HUMAN AND INSTITUTIONAL INFRASTRUCTURE CHALLENGES ............. 7
Digital Capability Barriers .................................................................................................. 7
Weak Financial Institutions ................................................................................................ 8
Challenging Governance and Business Ecosystems ........................................................... 9
2.3 DIGITAL ECONOMY DISBENEFITS............................................................................................. 10
Digital Exclusion ............................................................................................................... 10
Digital Inequality and Adverse Incorporation .................................................................. 11
Other Digital Harms ......................................................................................................... 12
3. OVERVIEW OF DIGITAL ECONOMY POLICY................................................................... 13
3.1 DIGITAL INFRASTRUCTURE POLICY ........................................................................................... 13
3.2 DIGITAL ECONOMY ECOSYSTEMS POLICY .................................................................................. 14
3.3 DIGITAL ECONOMY DISBENEFITS POLICY .................................................................................. 16
3.4 GOVERNANCE OF DIGITAL ECONOMY POLICY ............................................................................ 18
Discussion ......................................................................................................................... 19
REFERENCES ............................................................................................................................. 23

Digital Economy Policy in Developing Countries
Rumana Bukht & Richard Heeks
Centre for Development Informatics, University of Manchester, UK
2018
Abstract
The digital economy – that part of economic output derived solely or primarily from digital
technologies with a business model based on digital goods or services – is of increasing
importance to developing countries. Yet digital economy reality is undershooting its
potential in these countries, due to a series of challenges. Digital infrastructure is in part
incomplete, costly and poorly-performing. The wider digital ecosystem suffers a shortfall in
human capabilities, weak financing, and poor governance. Growth in the digital economy is
exacerbating digital exclusion, inequality, adverse incorporation and other digital harms.
Alongside explaining these challenges, this paper overviews the policy objectives and
measures, and processes and structures necessary to enhance digital economy growth and
its contribution to socio-economic development.

1. The Digital Economy Opportunity
Digital technologies are spreading throughout the world at a faster pace than previous
waves of technological innovation, and are re-shaping business models and sectors
(Dahlman et al. 2016). This transformation includes emergence of the digital economy.
Defined as “that part of economic output derived solely or primarily from digital
technologies with a business model based on digital goods or services”, the digital economy
is estimated to make up around 5% of global GDP and 3% of global employment (Bukht &
Heeks 2017).
The digital economy has enabled fast revenue growth for many firms; encouraged the shift
from tangible flows of physical goods to intangible flows of data and information; enabled
firms in developing economies to connect across borders; and has thus facilitated a surge in
cross-border data flows. Digital economy firms have disrupted incumbents across a wide
range of sectors, with platform-centred business models that have proven highly successful
(see Figure 1; Manyika et al. 2016a). Disruptions have occurred in information search and
sharing (e.g. Google, Facebook, Twitter, Pinterest), personal services (e.g. Uber, Airbnb),
entertainment online (e.g. Netflix, YouTube, iTunes), and shopping (e.g. Amazon, eBay,
Alibaba) among many others. Various labour market platforms have emerged that have
enabled clients to find services, and workers to find jobs across different countries (e.g.
Monster, LinkedIn) or to engage in gig work (e.g. Upwork, Samasource, Freelancer,
TaskRabbit).
Figure 1: Active users on digital platforms
The visibility of this promise and opportunity has encouraged many developing countries to
hold high aspirations for the future role of their digital economies in delivering economic
growth and other development goals. Yet – as discussed in greater detail in the sections
that follow – this potential is constrained by a number of challenges. The digital economy of
course relies heavily on the state of a country’s – and its trading partners’ – digital
infrastructure; but these are often lagging behind global standards in developing countries.
The digital economy ecosystem requires an infrastructure well beyond just the technical.
This includes a strong stock of human capital, and a set of diverse and capable institutions.

Once again, though, developing countries find themselves well behind the curve on these
other elements of infrastructure.
Institutional infrastructure will include digital economy policy but both content and
governance of such policy is typically lacking in countries of the global South (Marcus et al.
2015). This includes policy to deal with the final set of challenges – more socio-political in
nature – such as the digital exclusion that exists between and within countries (Dahlman et
al. 2016); fuelling inequality by preventing individuals, groups, regions, etc from
participating in the digital economy (OECD 2015). This also encompasses the disbenefits
that emerge from engagement with the digital economy: inequalities deriving from being
adversely incorporated into such economies; and other digital harms such as those relating
to breaches of security and privacy.
Given the centrality of policy in addressing these digital economy challenges, there is an
urgent need for developing country policy-makers to take action. But what policy response
is required? This paper seeks to provide an answer. Section 2 reviews some of the policy
challenges in more detail, while Section 3 summarises some of the policy prescriptions that
will need to be followed.
2. Digital Economy Challenges and the Need for Policy

According to the World Bank (2016, p.x), a whole set of challenges are “preventing the
digital revolution from fulfilling its transformative potential” in developing countries;
including the potential outlined for digital economies. These create the backdrop of
problems to which policy solutions are required; and they will here be categorised in terms
of digital infrastructural challenges, digital ecosystem challenges (human, institutional) and
digital economy disbenefits.
2.1 Digital Infrastructure Challenges
Digital infrastructure has not been able to keep pace with the fast-growing demand for
digital services and there is a severe lack of infrastructure for digital access and connectivity
in many developing economies. For example, infrastructural weaknesses are identified as a
major barrier to digital entrepreneurship in the global South (Quinones et al. 2015; see also
Damarillo 2011), and as a major differentiator of digital economies in developed and
developing economies. These must be overcome in order for the promise of digital
economies to be fully realised and to avoid the current situation of what Wentrup et al.
(2016) call “black holes of information capitalism”. This becomes all the more imperative
due to other trends; for example, the growing urbanisation of developing country
populations (it is anticipated that by 2030 urban populations will have grown to around five
billion people (Marcus et al. 2015)); and the increasing data-intensity of economic processes
alongside the affordances of cloud computing and the Internet of Things (Greengard 2010,
Hilbert 2016).

We can understand this in terms of the model shown in Figure 2 (adapted from Heeks
2018a).
ICT User
Communication & Processing
Data
Software
Hardware
Infrastructure
Figure 2: Foundations of digital infrastructure
Technical Infrastructure Challenges

Lack of cost-effective, available, and reliable electricity is a major obstacle to digital
economy development (Kuek et al. 2015). Without electricity, of course, there can be no
digital economy. For example, Nigeria’s energy production meets only 10% of its daily
power requirements with only 40% of Nigerians connected to the national grid (GSMA
2011). Where this infrastructure is present, it still acts as a constraint. For example, in
many developing countries, the unreliable and fluctuating local power supplies hinder the
ability to connect to local data centres and lead to data loss (Greengard 2010). Mobile
phone companies have to install their own power supply using diesel generators to keep
base stations/mobile towers operational. The operation of these generators – two are
typically needed per cell tower – comes at a significant cost to the industry (GSMA 2011).
In terms of telecommunications infrastructure, while there has been tremendous progress
in closing the digital divide when it comes to basic (2G) mobile cellular signal availability (e.g.
in rural areas), there is still a considerable gap between developed and developing countries
in terms of 3G and 4G cellular coverage (ITU 2014a). In many – especially rural – areas of
developing countries, 4G and even 3G are still inaccessible (Okeleke & Stryjak 2015). The
shift to higher network connectivity is costly to implement for operators that have little
incentive to expand network coverage in areas with low population densities, electrical
supply issues, fragile security situations and thus limited return on investment (Manyika et
al. 2016b). More generally, there are quality and capacity issues for telecommunications
infrastructure reflected in dropped calls, delays in text messaging, weak signals, and
network overload (World Bank 2013).
As discussion of the importance of 3G and 4G indicates, Internet access is a critical
underpinning to digital economy development but faces two major issues: building network
capacity and expanding network reach (Marcus et al. 2015). For example, it is predicted

that the global Sustainable Development Goal target of providing affordable Internet to the
Least Developed Countries by 2020 is unlikely to be achieved; instead, being predicted for
2042 at the earliest (Alliance for Affordable Internet 2015; Alliance for Affordable Internet
2017). Instead, by 2020, only 53% of the world and only 16% of the world’s poorest will
have access to the Internet. These overall figures also hide serious national differences. For
example, some African countries such as the Seychelles and South Africa have over 50%
Internet penetration, while for others such as Niger, Chad and the Democratic Republic of
the Congo the figure is less than 4% (Wentrup et al. 2016). The same picture pertains for
broadband more specifically: it is broadband access that is especially required for those
wishing to participate in the digital economy, and its absence prevents them from so doing
(Kuek et al. 2015).
Cost
As well as issues of availability and accessibility, affordability is also an important challenge.
In developing countries, for instance, the average monthly fixed broadband prices are three
times higher than in developed countries, and mobile broadband prices are twice as
expensive (ITU 2015). But in terms relative to local incomes, bandwidth costs in low-income
economies can be up to 100 times higher than those in the global North (WTO 2013). Such
problems are exacerbated by tariff and tax policies that have seen ICT-related items as a
reliable source of government income, leading to higher costs than in the industrialised
world (Meltzer 2014). Given the basic laws of supply and demand, higher costs lead to
lower diffusion of ICT infrastructure and devices, with evidence of usage being restricted
e.g. in Ghana (Taylor 2015). This not only hampers the general spread of the digital
economy via individual users but specifically causes problems for digital enterprises (eBay
2013).
Hardware/Software Challenges
Even where infrastructural challenges can be overcome, users must have the appropriate
devices and applications with which to engage with or build local digital economies. Yet this
is often not the case. Many mobile devices, for example, are still only compatible with 2G
network functionality, which provides little more than basic voice and text messaging
services (Okeleke & Stryjak 2015). Access to mobile Internet and to digital economy services
requires 3G- and 4G-compatible devices; in particular, it requires widespread diffusion of
smartphones. Yet, for example, only three per cent of the Indian population was found to
have access to a smartphone (Johns 2015). This figure is growing all the time but it once
again presents a serious barrier to particular regions and groups, particularly given that the
majority of global content is focused on data-intensive websites or smartphone apps
(Okeleke & Stryjak 2015).
Affordability is again an issue. Smartphones are quite outside the reach of poorer
populations. Even a simple mobile phone costing just US$20 may lie outside the disposable-
income reach of those earning less than US$1.25 per day, as hundreds of millions of the
world’s population do (World Bank 2016). Figure 3 (Strategy& 2012) gives further insights
into the costs of extending digital infrastructure to the poorest of the world’s population.

Figure 3: Costs of digitising the base-of-the-pyramid
Digital Content
Language is a barrier. For example, Asia Pacific is lagging behind in the use of ICTs not only
because of the unavailability of affordable hardware and connectivity, but also because
much digital content is still primarily in non-Asian languages (Hussain & Mohan 2008). The
skew can be seen overall in Figure 4 (InternetWorldStats 2017): of the world’s
approximately 6,000 languages (UNESCO 2015), the top ten reflect 77% of users.
Figure 4: Top 10 languages in the Internet in millions of users

Taking more specific examples, in sub-Saharan Africa, only 2.8% of the web pages that are
aimed at the African population use indigenous African languages (Nyirenda-Jere and Biru
2015). Much of the content is in English or French, yet these are spoken by less than 10% of
the population even in the countries where they may be the official languages (Hussain and
Mohan 2008). In Nigeria, though the official language is English, there are more than 500
indigenous languages, including Hausa, Yoruba, Igbo, Fulani, that are also spoken but not
available online in any significant mass (Nottebohm et al. 2012). Even China reflects the
issue: 17% of the world’s population is Chinese and yet only 3% of the world’s websites are
written in Chinese (Okeleke & Stryjak 2015).
English is still the primary language of the Internet. Policies are needed to encourage
content developers to consider content for non-English speakers but, beyond language, the
lack of availability of relevant digital content and services discourages individuals from going
online and from fully participating in the digital economy (Dutta et al. 2015; UNESCO 2015).
2.2 Digital Economy Ecosystem: Human and Institutional Infrastructure

Challenges
Digital Capability Barriers
On the digital economy demand side, in order for people to become active users, they
would need to have three layers of literary: (i) basic literacy – so they can use the
technology and platforms; (ii) English literacy – because so much online content is in English;
(iii) digital literacy – which will allow them to use devices as well as develop an
understanding and awareness of the Internet’s value for their daily lives (Marcus et al.
2015). In many developing economies these capabilities are often absent (Alyoubi 2015): at
the most basic level, for example, over 1 billion people in developing countries cannot read
or write (Marcus et al. 2015), and lack of ICT skills are a key factor explaining slow adoption
of the Internet (ibid.) and slow uptake of digital technology more generally (KPMG 2017).
The same approach can also be applied to the supply side; i.e. to those who work in the
digital economy, with a model as summarised in Figure 5 (Nyirenda-Jere and Biru 2015).
Figure 5: ICT capability development levels

The shift to the digital economy demands new digital skills for future employment and
economic prosperity. Yet such skills are lacking. Thus, despite high unemployment rates,
many highly skilled positions in developing economies are difficult to fill because of the lack
of specialist, technical skills (Chang 2015; European Commission 2015; House of Commons:
Science and Technology Select Committee 2016). This is hampered further by out-migration
of skilled IT professionals seeking better pay and work opportunities overseas (Mutula and
van Brakel 2007). Business and policy leaders have encouraged at least some investment in
the diffusion of digital technologies, but they have neglected to invest equivalently in a
labour force for the future (Knickrehm et al. 2016). Thus, while many developing countries’
national ICT policies and strategies mention capacity building as a priority, there is a lag in
most countries when it comes to actually implementing this strategy and in terms of the
type of skills that are the focus (Nyirenda-Jere and Biru 2015).
Any review of digital economy activity can identify areas where skills are, and will be
needed. In Africa, there is an acute shortage of ICT skills in developing and managing
distributed data networks which is hindering digital trade (Yonazi et al. 2012). Robotics and
machine learning could be either a threat or opportunity for developing country jobs; but
one thing is certain – best use will not be made of them unless appropriate and
complementary human skills are developed (Schwab 2016). Big data and data analytics are
a vital part of all economic sectors in the global South but there is a significant shortage of
data skills in developing countries (ITU 2014a). Cybercrime is growing hand-in-hand with
expansion of the digital economy, yet cybersecurity professionals are thin on the ground in
the developing world (NISC 2013).
Weak Financial Institutions
Lack of financial capital for businesses is a major issue for the growth of the digital economy
in developing countries. Various types of capital are required by companies depending on
their stage of business development. For companies that are starting out, lack of seed
funding can be a critical bottleneck as capital is required to build a product prototype to test
the commercial and technological feasibility of the business idea (AlphaBeta 2017). Growth
funding is needed for companies that want to scale their business. However, venture capital
financing activities have been evolving on only a limited scale in developing economies.
Most developing countries lack domestic venture capital and foreign investors are usually
wary of investing in small, unproven business models (Nottebohm et al. 2012), with only a
small (but growing) number of foreign venture capital firms pioneering the effort (Meng and
Li 2002).
Those most affected by this lack of funding are small and medium enterprises (SMEs). Large
companies typically have the required capital, global networks, and economies of scale to
enter and compete in local and global markets (ADB 2015). But small businesses in
developing countries are often squeezed out as they lack access to capital and are therefore
unable to pay the large upfront costs associated with exporting (ibid.).
There is also a particular challenge in securing finance for capital-heavy infrastructure such
as broadband networks, or international connectivity that requires large up-front
investment which the private sector is often unable to take on (Yonazi et al. 2012). One
result is that many developing economies lack the high-speed Internet backbones and
international bandwidth capacity that are critical for digital economy growth (ITU/UNESCO
2011). One problem is that funding for such investment must compete with funding for

what are sometimes argued to be more pressing development needs (WTO 2013).
Developing countries are also burdened with high levels of debt and long pay-back periods
due to weak or insufficient “nascent demand conditions” in these markets (Fong 2009).
Challenging Governance and Business Ecosystems
In direct terms, financial problems relate to lack of availability of capital but that availability
in turn may be restricted by problems in the wider governance and business ecosystem.
Policies, for example, are often outdated: unable to accommodate the emerging trends of
new technologies and services offered through the digital economy (Van Welsum 2016).
New platforms have disrupted traditional models but are often assisted because they lack
the regulation that governs those traditional models: avoiding health and safety regulations,
or avoiding tax which was providing much-needed revenue via the traditional businesses
(Zervas et al. 2015; House of Commons 2016). The same is true of tax more broadly:
international tax laws designed in the pre-digital age are not appropriate to capture a fair
level of taxation from the digital economy (European Commission 2013). Likewise more
generally for legislation around digital labour, with existing laws not able to keep pace with
changes in the gig economy (Heeks 2017).
Rather than being outdated, appropriate policies may simply be absent. For example, an
estimated 73% of economies in the Asia-Pacific region have adopted e-transaction laws,
however, only 38% have adopted laws on consumer protection and 29% on privacy
(UNCTAD 2015). Similarly, cybercrime laws are in place in only 56% of developing
economies as against the 90+% adoption rate in developed economies (ADB 2015).
Where policy is present and even up-to-date, there are still debates on whether or not it is
the right type of policy to help the digital economy develop. This often comes down to a
matter of perspective. For example, those with a more neo-liberal focus would tend to
argue for more “business-friendly” policies that impose less regulation and lower taxes on
digital businesses (Dahlman et al. 2016). But there tends to be general agreement over
some other aspects of policy; for example that poor intellectual property protection hinders
digital economy investment (Cowhey and Kleeman 2013). For example, one evaluation on
the political and regulatory environment of countries around the world – based on factors
such as: the efficacy of law-making bodies, ICT-related laws, and the speed and process of
enforcing contracts – found that two-thirds of African countries were in the bottom quartile
(GSMA 2011). This hampers investment given ICT firms’ investment decisions are found to
be shaped by transparency and quality of the regulatory regime (ibid.).1
Wider institutional forces also play a role here, and relate not to content of policy so much
as its governance, and even the governance of the wider business ecosystem. Examples
found likely to restrict digital economy growth include high levels of corruption2, undue
influence of elite groups on the government and other public institutions, and autocratic
and ineffective management cultures in key institutions (Meng and Li 2002; Lazovic and
Kovacevic 2010; Schwab 2016). This notion of wider institutional barriers can spread even
further. For example, some developing country governments have restricted access to the
1
A specific example cited is inefficiency and ineffectiveness in distribution of universal service funds, with one
survey claiming 74% of funds were not distributed (GSMA 2011).
2
For example in Kenya, companies had to pay bribes in order to expedite landline connections or otherwise
wait 100 days to obtain landline service (Aker and Mbiti 2011, p.212).

Internet due to concerns that it badly affects some religious, cultural (Lazovic and Tamara
2014) or political beliefs (as in China, North Korea and Thailand) (Lui 2017). Language
barriers – discussed earlier – are a further examples of an institutional challenge facing
digital economy growth in developing countries.
Governance and business ecosystem challenges are especially seen to constrain the growth
of digital trade. The “borderless” and thus multi-jurisdictional nature of that trade, and its
relatively invisibility, make issues of claims, contract enforcement and litigation unclear
(World Bank 2016). This is exacerbated by the lack of international bodies with explicit
responsibility and/or explicit guidance in relation to digital trade (Lund and Manyika 2016),
and the related absence of cost-effective and timely dispute settlement systems, financial
payment mechanisms, and consumer and data protection laws (Meltzer 2016).
2.3 Digital Economy Disbenefits

The challenges listed above are constraints that hold digital economies in the global South
back from developing to their full potential. But, alongside these problems are others which
emerge as digital economies develop.
Digital Exclusion
The digital divide looms large over the digital economy in developing countries. Those on
the wrong side of the divide are excluded from the possibility of engaging with or in the
digital economy. While this is a constraint to digital economy development, it may also be
seen as a disbenefit inherent to that development. The divide is more properly understood
as a series of divides: “differences in resources and capabilities to access and effectively
utilize ICT for development that exist within and between countries, regions, sectors and
socio-economic groups” (UNDAW 2005, p.2). There is a divide of availability (e.g. for those
living outside the footprint of mobile signal coverage), a divide of affordability (e.g. for those
who have insufficient money to afford a smartphone), and a divide of applicability (e.g. for
those who lack the capabilities to use particular apps or to undertake particular types of
digital work) (Heeks 2018a).
While originally and still to some extent thought of as division between countries, digital
divides are today more often understood as existing within countries. Specifically, there are
intersectional exclusions: those that arise due to multiple dimensions of inequality within
countries, and which may cause some to endure aggregated exclusion. Of these
dimensions, those relating to gender (which themselves in large part derive from
institutional forces) are perhaps best known. For example, it is estimated that poor urban
women are 50% less likely to be connected to the Internet than men despite similar levels of
education and household income (World Wide Web Foundation 2015). Chang (2015)
similarly reports more general data that women are 23% less likely than men to have access
to the Internet, while Dutta et al. (2015) note generally that fewer women and girls than
men and boys have access to mobile phones and the Internet. Another key dimension of
exclusion is income. For example, micro- and small businesses lack the funds to be able to
fully engage with the digital economy: in India, 68% of such businesses are fully offline and
only 2% actively promote themselves online (KPMG 2017). Finally (though income is a
strong part of this and also education), those in rural areas are far more likely to be
10

excluded from digital economies than those in urban areas (ITU 2014a). Of those – roughly
half the planet’s population – who are not connected to the Internet, there is thus
disproportionate representation from the world’s female, poor, and rural citizens (Alliance
for Affordable Internet 2017).
Digital Inequality and Adverse Incorporation
As the section above indicates, there are still many “have nots” blocked from the benefits of
engagement with developing countries’ digital economies. But far more now fall into a
“have less” category; having some level of incorporation into the digital economy but on
adverse terms such that they benefit less than others, and thus such that digitally-related
inequalities are reproduced or strengthened. For example, gender disparities are replicated
on digital labour platforms, with women in Asia earning around 20% less than men with
equivalent skills (Dubey et al. 2017). Similarly, workers based in the global North are 30%
more likely to be hired than a counterpart in the global South, and will also be paid more
due to the “liability of foreignness” (Lehdonvirta et al. 2014, p.6).
This reflects a more general reinforcement of inequalities as the digital economy has
progressed; now particularly seen in the platform economy which, as noted above, has so
far kept relatively free of the regulatory constraints that “civilise” the traditional economy.
The pattern has been a strong asymmetry of power between labour and capital; to the
significant disadvantage of labour. One result has been specific problems for platform
workers in developing countries of under-payment, non-payment, arbitrary removal from
platforms, unsocial and over-long hours, lack of redress for problems, loading of risk and
cost onto workers, unsafe work, lack of employment rights or guarantees, etc.; and a more
general outcome that this work leads to chronic precarity within a context of structural
inequality (Heeks 2017). Workers in developing countries often compare this work not to
the high benchmark of secure, unionised employment seen in the post-War period in the
global North but, more favourably, to local benchmarks of insecure, informal employment
(Heeks 2018b). Nonetheless, they participate in a highly-unequal part of the digital
economy in which platforms capture the majority of value, and they generally do not have
recourse to the legal infrastructure which, in some developed countries, has allowed
workers to challenge the behaviour of platforms (Graham & Shaw 2017). With algorithmic
and robotic automation on the rise, there seem few opportunities for capital—labour
asymmetries to reverse themselves within the digital economy unless serious action is
taken. Again, impacts are likely to be worse in developing countries where labour is in
general terms less organised and less capable than in the global North.
Smaller enterprises, too, may also suffer adverse incorporation. Study of the impact of
digital engagement by African micro-, small and medium enterprises found ICTs to reinforce
the marginalisation of those enterprises (Murphy & Carmody 2015). While enterprises only
saw incremental improvements to their bottom line, most high-value activity remained
overseas: a type of “ICT-enabled extraversion” that saw African markets orienting to the
needs and to the benefit of external actors, while local enterprises were forced into a milieu
of hypercompetition for which they were ill-prepared and ill-suited.
Finally, we can also look at the flipside: at the “advantageous incorporation” of large digital
firms into the digital economies of developing countries. This type of incorporation has
often been associated with oligopoly or even monopoly. In the 20th century, the concern
was mainly with this phenomenon in the telecommunications sector, where monopoly was
11

enabled by legislation and protectionism and the impact was high cost and low quality
(Wentrup et al. 2016). In the 21st century, the concern has been more with the platform
economy, where monopoly is enabled by markets and network effects. Problems include
the impacts on labour discussed above, user lock-in and exclusion of competitors even if
providing a cheaper or better service, and leveraging that uses monopoly in one digital
market to facilitate monopoly in other digital markets (Fuchs 2017; Graham et al. 2017).
Digital monopoly can and does bring network effect benefits to consumers, but the history
of the digital economy to date has been more marked by the consumer benefits of
competition in reducing costs and driving quality and innovation (e.g. Fong 2009;
ITU/UNESCO 2011; Dutta et al. 2015).
Other Digital Harms
Other disbenefits associated with the spread of the digital economy can be seen relating to
security and privacy. They impact consumers, workers, and enterprises and could be seen
as part of adverse incorporation into digital markets, with growing vulnerability as the
digital economy grows, leading to ever-more incidents of security breaches targeting
corporate interests, national governments, and consumers (Nyirenda-Jere and Biru 2015).
Most vulnerable to such attacks are developing countries, which are seen as an “ideal
testing ground” by hackers for most dangerous attacks (Frenkel 2017). Due to developing
countries’ weak security infrastructure, hackers are able to evade detection and use the
vulnerabilities to test their malware before deploying it against more sophisticated
defences. Examples include defrauding of US$4m from financial accounts in Zambia (Shiloh
& Fassassi 2016) or hackers stealing US$81m from the Bangladesh Bank (Zetter 2016). As a
broader example, it is estimated that cybercrime costs the Nigerian economy US$500m per
year (Shiloh & Fassassi 2016).
Growth of the digital economy is also allowing companies, governments and others to
collect, retain and use increasing amounts of personal data for their own commercial or
political purposes. Hence, there are growing concerns about loss of data privacy in
developing countries (Heeks & Renken 2017); both what might be called “legitimate losses”
such as those arising from the typical data gathering of large digital economy multinationals
such as Facebook, Twitter and Amazon; “quasi-legitimate losses” to government
surveillance; and “illegitimate losses” to hacking and the like (World Bank 2016). Combined
concerns about security and privacy are seen to artificially suppress involvement of
enterprises and consumers with the digital economy, owing to lack of trust (ibid.). This also
feeds the “extraversion” noted above: for example, 90% of purchases made online by
Cameroonian consumers were made on overseas websites (Etoundi et al. 2016).
These issues are sharpening with growth of cloud computing in developing countries. Cloud
will be an important pillar of digital economy growth in these countries, alongside the
efficiency and flexibility it can bring to the rest of the economy (UNCTAD 2013). But its
typical model of cross-border data flows raises serious concerns about security and privacy,
leading some governments – such as India, Indonesia and Zambia – to restrict usage, at least
of overseas cloud services (Cowhey & Kleeman 2013). Such data localisation policies are
claimed to slow expansion of the economy – including the digital economy – but may be
seen as necessary in order to balance out this set of potential digital harms (Bauer et al.
2014).
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3. Overview of Digital Economy Policy
Government needs to respond to the challenges identified in Section 2. The summary tables
below present an overview of the policy issues and outcomes, and a selection of
recommended policy instruments, following a template from Heeks (2016). These are
organised in terms of the three challenge domains above – infrastructure, ecosystem and
disbenefits – plus a more detailed discussion of governance processes and structures for
digital economy policy.
3.1 Digital Infrastructure Policy

Digital Infrastructure Policy Objective: to ensure a pervasive and effective infrastructure for the
digital economy
Policy Issue Desired Recommended Policy Instruments
Outcome
Unreliable / Improve  Invest directly in power infrastructure
unavailable electrical  Encourage private sector investment in
supply of infrastructure telecommunications infrastructure, including micro-scale
electrical  Encourage ‘smart grid’ innovation
power
Inadequate Establish a  Invest directly in telecommunications infrastructure
supply of pervasive, high-  Encourage private sector and international finance
technical capacity, institution investment in telecommunications
infrastructure interoperable infrastructure
technical  Ensure independent regulation of telecommunications
infrastructure infrastructure
 Address technical monopolies through competition policy
reform
 Establish clear guidelines (including competition vs. return-
on-investment) for spectrum and other infrastructure
planning, licensing and pricing
 Regulate cost-based interconnection between networks,
and infrastructure sharing
 Review cost-benefit of taxation, pricing or other barriers
that restrict access to infrastructure, networks and devices
 Develop specific plans and incentives for (mobile)
broadband
 Develop country-level Internet Exchange Points
 Set minimum, universal access speed and quality
requirements
Insufficient Create a  Promote or mandate use of interoperable data standards
data pervasive, high-  Invest in capacity for data capture, analytics and
infrastructure quality, visualisation
interoperable  Introduce regulations on data integrity, retention, consent,
data usage and administration
infrastructure  Incentivise development of local data / server / cloud
computing centres
13

3.2 Digital Economy Ecosystems Policy
Digital Ecosystem Policy Objective: to ensure an effective digital ecosystem and an open, stable
and enabling environment for the digital economy.
Outcome
Lack of digital A pervasive,  Embed ICT-related curricula into primary, secondary and
economy full-spectrum tertiary education including higher-level entrepreneur and
capabilities set of digital innovator competencies
economy  Audit specific, local digital economy capability requirements
production  Provide specific support for building higher-level capacities
capabilities among digital entrepreneurs
 Provide subsidies or tax breaks for in-service digital economy
training
 Encourage return of digitally-trained citizens resident
overseas
 Review immigration policy impact on in-flow of digital
economy workers and entrepreneurs
Limited access A high-  Steer development financing, including crowd-funding, into
to finance performance digital economy investments
and  Provide direct (public) funding for digital economy
attractive investments
investment  Support digital economy innovation through direct funding,
environment subsidy and tax breaks
 Encourage private sector funding of the digital economy
including use of public-private partnerships and investment
by foreign entrepreneurs and companies
 Establish mechanisms conducive to venture capital funding
 Make available specific financial support for digital start-ups
and SMEs
 Make available risk capital including consideration of scaling
and growth capital and foreign direct investment
 Support digital economy enterprises through other
investments and incentives e.g. around R&D
Low levels of Build digital  Support general programmes to improve basic, English and
digital economy digital literacy
economy consumption  Support interventions to promote ICT application in all
demand development sectors (health, education, agriculture, small
enterprise, public administration, etc)
 Run hackathons, competitions, etc for development of apps
relevant to local development needs
Absent and The  Analyse and legislate for the specific requirements arising
outdated necessary from digital platforms
digital legal  Update taxation policy to address emerging digital economy
economy framework to  Update labour policy to address emerging digital economy
policies enable the  Promote legal recognition for digital signatures, identities,
digital contracts and transactions
economy
14

Poor A supportive  Identify and develop localised digital economy champions
institutional institutional  Raise understanding and awareness of digital economy
infrastructure infrastructure impacts
for the digital for the digital  Develop effective public-private partnerships across digital
economy economy economy financing, innovation, capacity-building, etc
 Support for other bipartite (NGO-private; community-private)
digital economy partnerships
 Review and streamline digital economy regulations including
digital enterprise start-up, operation, closure
Lack of specific Targeted  Provide business development services specifically for digital
support for digital economy enterprises
digital economy  Incentive-based mechanisms to encourage digital economy
economy start- support start-up and growth
ups and SMEs  Create hubs, incubators and accelerators that support and
boost digital entrepreneurship
 Develop digital economy techno-parks that foster enterprise
clustering
15

3.3 Digital Economy Disbenefits Policy
Digital Economy Disbenefits Policy Objective: to reduce the emergent disbenefits/harms
associated with the digital economy
Outcome
Limited Targeted  Develop universal service funds (USFs) or obligations for
infrastructure financing for mobile, Internet and other ICT infrastructure
in peripheral inclusive  Develop USFs or obligations for power infrastructure
regions digital  Consider potential for other public funding or subsidy for
infrastructure remotest regions
initiatives
Poor Maximised  Set clear goals, targets, timelines and processes for collection
performance USF and distribution of USFs
of universal effectiveness  Review USFs and remove or revise if original goals achieved
service funds  Ensure open distribution of funds via transparent and
consultative process with key stakeholders
 Prioritise funding of least-cost technologies, and shared-
access infrastructure
Absence of Development  Support local data content generation by capacity-building of
inclusive of inclusive data producer roles
digital content local content  Facilitate collaborative development of data content between
local developers and broader actors including content
distributors
Lack of ICT Effective  Embed ICTs into government and NGO information and
access in uptake of ICTs service delivery programmes
marginalised by  Establish competition policies to mandate operators to
groups marginalised expand coverage into marginalised (low-income / rural)
groups regions
 Provide financial support (subsidy, tax exemption, etc.) for ICT
goods and services to help accelerate access and affordability
 Encourage inclusive innovation of low-cost devices and
services for low-income users
 Provide ICT capacity-building programmes and financial
support for marginalised groups
Lack of digital Inclusive  Financial support for ICT incubators / hubs / clusters in
economy participation marginalised communities
participation in digital  Promote role models of digital entrepreneurship from
by economy marginalised groups (women, youth, disabled, etc)
marginalised  Target digital economy capability-building for marginalised
groups groups
 Support grassroots / marginalised digital entrepreneur links to
formal sector (e.g. network events, fairs, competitions /
awards, innovation databases, reports to amplify awareness
of grassroots digital enterprise, marketing assistance, quality
assurance, government procurement)
16

Adverse Fair  Fair / decent work standards for digital labour and other work
incorporation incorporation in the digital economy
into digital into digital  Regulatory and policy audit to ensure level playing field for
economy economy smaller-scale and other more peripheral actors in the digital
economy
Threats of Reduced  Develop cyber security practices and regulations
malicious levels of  Legislate to criminalise hacking
software, cybercrime  Raise awareness of cybercrime and cybersecurity through
spam, engagement programmes
phishing,  Train and enhance practising cybersecurity professionals
identity theft,  Create cybersecurity agencies and capabilities
piracy, etc  Extend conventional crime legislation to cover online activity
Vulnerable A secure  Establish state-of-the-art secure digital infrastructure
digital digital  Strengthen defences in cyberspace and improve ability to
infrastructure environment detect threats in cyberspace
 Create appropriate anti-cyberterrorist and anti-cyberwarfare
agencies and capacity at national and international level
 Improve the structural arrangements for digital forensics, as
well as the sophistication of the systems to monitor the
Internet and detect cyber-attacks
 Introduce measures for sharing and reporting information
related to cyber attacks
Lack of Protected  Legislate right to online privacy as part of data protection
protection for digital rights  Create reporting instruments within ombuds, agencies and
data and associations to easily monitor and report activities
privacy  Balance cross-border vs. localisation concerns in relation to
data flow and cloud legislation
 Develop “loose and limited IPR” legislation, balancing rights of
digital economy producers and consumers
 Extend labour legislation to cover the online domain
 Commit to abide by UNESCO Code of Ethics for the
Information Society (UNESCO 2011)
Emergence of Reduce the  Ensure anti-trust, anti-monopoly regulation and other
digital disbenefits of competition law covers online and digital economy activity
economy info-  Enable effective and developmental competition in digital
monopolies monopolies economy sectors
 Clarify application of taxation rules for online digital economy
activities
 Improve monitoring of digital financial flows
17

3.4 Governance of Digital Economy Policy
Governance of Digital Economy Policy Objective: to maximise effectiveness of digital economy
policy structures and processes
Outcome
Problems with Strengthen  Identify clear digital economy leadership
capacity, policy governance of  Conduct overall audit of all legislation and regulations
structures, digital economy relating to digital economy
policy-making policy  Conduct Digital Economy Readiness appraisal
and  Implement a strong but agile governance structure to
implementation ensure accountability
processes  Implement capacity-building on digital economy within the
public service
 Develop digital economy strategy through multi-
stakeholder collaboratory approach
 Utilise digital politics platforms for policy-making
 Strengthen and broaden gathering of digital economy
statistics
 Develop metrics for policy evaluation, building on existing
initiatives
 Incorporate strong programme accountability and progress
monitoring
 Develop multi-country cooperation and best practices
Corruption Reduce  Establish automated corruption reporting system
corruption in  Adopt open procurement procedures for digital economy
digital policy policy contracting
implementation  Adopt open government data policy for all digital
economy-linked processes
Government Reduce  Simplify customs regulations for digital goods
bureaucracy bureaucratic  Simplify digital trade regulations
overhead  Implement broader “regulatory simplification” and
institutional reforms for digital economy policy
 Adopt agility as criterion for design of digital economy
policy structures
18

Discussion
As explained for digital development policy more broadly (Heeks 2016)3, for digital economy
development to be encouraged, more than new policy content is needed. Policy makers
must also consider both the processes and structures through which digital economy policy
is made, implemented and maintained.
Policy Lifecycle Processes
The various components of the policy-making process are discussed below, but one
overarching requirement will be for policy leadership. Whether such leadership is emergent
or can be created is a matter for debate (e.g. Renken & Heeks 2014). However, policy
leadership – which typically comes from within national governments – is consistently
recognised as a critical success factor in ICT-related policy (e.g. Heeks et al 2010, Biggs &
Polomska 2013):
“At the heart of e-development are e-leaders and e-leadership institutions—
individuals, networks, and institutions that develop a vision of a knowledge society,
set policies and priorities, forge national consensus on reforms, and coordinate and
create synergies among the elements of e-development” (Hanna 2008, p.2)
Analysis: Policy objectives and goals must be specific to each individual context, and
evidence-based. The foundation for policy must therefore be a specific analysis of current
actors and relations, strengths and weaknesses including indicators and causes of failures to
achieve digital economy development. This could be seen as a digital economy audit or
simply a SWOT analysis. Given that readiness surveys can also provide insight into the steps
that policy needs to concentrate on, these might be usefully applied via a Digital Economy
Readiness appraisal.
Planning and formulation: Given the range of actors within the digital economy ecosystem
and the expectations of many about their relative autonomy in the digital realm (Thompson
2008), planning processes can benefit from incorporating more participatory components in
order to better understand policy needs, content and impacts. This might particularly focus
on understanding the digital economy constraints and disbenefits that have been outlined
previously. However, given limited levels of knowledge about many digital economy issues,
there may need to be concerted awareness-raising, teaching and even capacity-building
activities before a more participatory approach to policy is feasible (CIPESA 2014). It would
be appropriate for policy-making to make use of new digital politics platforms.
Implementation: There is evidence that digital economy policies can often be dissipated,
avoided or appropriated, rendering policy instruments that seem useful less powerful or
even powerless on the ground (Foster & Heeks 2013). It is therefore important to take a
localised, ‘front-line’ perspective on digital economy policy. This should clearly define the
institutions that will be implementing policy, ensure they have sufficient human and
technical capacities to implement, and also identify the incentives that will align local
behaviour with policy intentions.
Monitoring and evaluation: Tracking and understanding the progress of digital economy
policies requires metrics for evaluation of success/failure. Development of such metrics can
3
Text is this section is a modified version of that presented in the Heeks (2016) paper.
19

build on existing multi-stakeholder initiatives such as the Partnership on Measuring ICT for
Development (e.g. ITU 2014b) and on other work on measuring the digital economy (e.g.
OECD 2013a). Both these and any related audit or readiness measurement could focus on
the three areas of: Infrastructure, Ecosystem, Disbenefits. Because policy for the digital
economy may move governments into uncertain territory, it is also important there be
mechanisms to enable learning and incremental adjustment to policy.
Policy Structure
As the digital economy grows, it touches on the responsibilities of increasing numbers of

stakeholders, which could extend as far as those shown in Table 1 (adapted from Heeks
2016).
Policy Actors Policy Responsibilities
Core Digital Economy Policy (e.g. Technical and social elements of policy shown
Ministry of ICT) above: infrastructure, ecosystem and disbenefits
Core ICT Policy (e.g. Ministry of Technical and data elements of digital infrastructure,
ICT) ecosystem and disbenefits policies
Contextual Policy (e.g. Ministries Broader aspects of digital ecosystem and digital
of Finance, Enterprise, Trade & disbenefits policies: finance, capabilities, digital
Industry, Education, Science & processes, business development, innovation
Technology)
Specific Policy Particular aspects of particular policies e.g. digital
infrastructure (Ministry of Telecommunications;
Ministry of Power); digital ecosystem (Ministry of
Education; Ministry of Trade & Industry); digital
disbenefits (Ministry of Community Development;
Ministry of Information and Media; Ministry of Trade
& Industry)
Sectoral Policy (e.g. Ministries of Sectoral aspects of digital economy policy that touch
Agriculture, Health, Education, on other sectors of the economy
Finance, Enterprise, Public
Administration, National Security,
etc)
International Policy (e.g. UN and Cross-national aspects to digital economy policies
other supranational bodies)
Business Strategy (e.g. leading, Recognition that business strategies of key digital
transnational digital corporations) corporations form part of the digital economy policy
system
Table 1: Digital economy policy responsibilities
However, there are several dangers in this profusion of potential digital economy policy
stakeholders (Heeks 2010). These include a lack of adequate understanding of digital
economy issues within mainstream Ministries, and fragmentation and incoherence of digital
economy policy. Because it is so cross-cutting and potentially transformative, expansion of
the digital economy will be a significant challenge to governments because of their relatively
20

silo-type structures. A cross-cutting structure may need to be created which also reflects
the moves towards more networked models of governance.
This will be something like a “Digital Economy Policy Collaboratory”, summarised graphically
in Figure 6. This will perform a dual bridging role, drawing in horizontally policy actors from
both ICT and development / context; and drawing in vertically those connected with both
government and other sectors:
“Experiences with various types of ICT policy suggest the value of autonomous and
capable state agencies, combined with strong representative bodies for both the
private sector and civil society and a mechanism for robust interaction between
these three groups” (Heeks 2009, p.26).
The issue of who participates is particularly sensitive since the goals and interests will differ
from actor to actor; but the nature of policy will be determined by who is allowed to
participate in policy making.
Digital Economy Policy Collaboratories should also adopt an experimental and iterative
approach to policy, allowing the incremental learning and policy revision point noted above.
Monitor Analyse
Government
Context Specific
Digital Collaboratory Development

Stakeholders
ICT Sectoral
Non-Govt
Implement Plan
Figure 6: Digital economy policy collaboratory
21

A Policy Collaboratory approach is also important because of increasing recognition of the
need for policy coherence and, conversely, of the damage of incoherent, inconsistent or
conflicting policies (OECD 2013b). Indeed, the principles of policy coherence reflect the
guidance offered above (ibid., p.2):
 “ensuring that the interactions among various policies in the economic, social,
environmental, legal and political domains support countries on their pathway towards
inclusive sustainable growth;
 putting in place institutional mechanisms, processes, and tools to produce effective,
efficient, sustainable and coherent policies in all sectors;
 developing evidence-based analysis, sound data and reliable indicators to inform
decision making and help translate political commitments into practice; and
 fostering multi-stakeholder policy dialogue to identify the barriers to, and the catalysts
for, change”.
22

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Development Implications of

Digital Economy Policy in

Developed as part of DIODE: the “Development

Published Centre for Development Informatics

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1. THE DIGITAL ECONOMY OPPORTUNITY ......................................................................... 2

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Figure 1: Active users on digital platforms

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2. Digital Economy Challenges and the Need for Policy

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Communication & Processing

Figure 2: Foundations of digital infrastructure

Technical Infrastructure Challenges

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Figure 4: Top 10 languages in the Internet in millions of users

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2.2 Digital Economy Ecosystem: Human and Institutional Infrastructure

Figure 5: ICT capability development levels

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2.3 Digital Economy Disbenefits

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3.1 Digital Infrastructure Policy

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As the digital economy grows, it touches on the responsibilities of increasing numbers of

Table 1: Digital economy policy responsibilities

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Digital Collaboratory Development

Figure 6: Digital economy policy collaboratory

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