Economies in the Middle East and North Africa can achieve 46 per cent growth in per capita gross domestic product over the next 30 years, or a long-term gain of at least $1.6 trillion, by fully adopting digital technology, according to the World Bank.
The benefits of digital adoption, spurred by the Covid-19 pandemic, will amount to “hundreds of billions of dollars each year and a surge in new jobs“, the lender said in a report on Wednesday.
During the first year, the GDP per capita gain for the region would be almost $300 billion, with the increase “more marked“ in lower-income Mena countries.
“A digital transformation would provide jobs in a region where unemployment is unacceptably high, particularly among the youth and women. With concerted effort, this narrative can change,” Ferid Belhaj, World Bank’s vice president for Mena, said.
“The gains from shifting to a more digital economy are exponential and governments should do everything they can to remove barriers preventing such a transition. The sooner and faster the push, the bigger the gains.”
The Covid-19 pandemic, which led to lockdowns around the world, accelerated the move to digital services as consumers switched to cashless payments and online shopping. More people use online banking services now to transfer money and pay for e-commerce transactions.
Globally, digital payments are expected to grow to $8.26 trillion by 2024, from $4.4tn in 2020, according to Statista.
Banking apps too recorded a surge in downloads, with account owners expecting a seamless, digital financial experience. Digital banking app downloads soared 45 per cent globally, while traditional banks recorded a 22 per cent increase in installations between the last quarter of 2020 and the first quarter of 2021, according to AppsFlyer.
Nearly 77 per cent of those surveyed in Saudi Arabia and 61 per cent in the UAE – the Arab world’s biggest economies – said they choose to do their banking online in some form, technology company Entrust reported last week.
“The case for digitalising economies has never been stronger … the Covid-19 pandemic has made the benefits of conducting contactless transactions starkly clear,” the report said.
Digital technologies aim to reduce “informational costs” that constrain economic transactions. Informational costs are the expenses of time and money that are required to obtain certain data and information.
Adoption of digital technologies would also reduce frictional unemployment from 10 per cent to 7 per cent of the labour force over a six-year period, from 12 million to eight million unemployed, and to zero frictional unemployment within 16 years, the report said.
Frictional unemployment is the time incurred by workers searching for new jobs or voluntarily moving jobs.
“The time taken to match job seekers to openings is substantially reduced through digital technologies such as email, internet-based job search platforms or networking platforms,” the report said.
Digitalisation can also double the female labour force participation rate in the Mena region by about 20 percentage points over a 30-year period, from 40 million to 80 million, according to World Bank estimates.
Employment by manufacturing firms would increase by at least 5 per cent over 30 years, equivalent to at least 1.5 million jobs and an average of 50,000 more jobs a year, it said.
Tourist arrivals could rise by 70 per cent, creating new jobs in the hospitality sector.
The lender said, however, that the massive amount of data being generated due to digital adoption also poses risks on how it is accessed, safeguarded, processed and deployed.
“Use of digital data can be guided by an effective data governance framework that instills trust in digital information flows and mitigates the risks,” it said.
Trust in using digital payments can be boosted by implementing e-government mechanisms, it added.
E-government options – such as digital cash transfers, digitised payment mechanisms for public services and shifts to e-procurement – hold great promise for facilitating the rapid expansion in use of digital money.
While Mena countries have embraced social media use, the populations’ usage of the internet and digital tools like mobile money to pay for services is lower than expected.
For example, nearly 66 per cent in the Mena region use the internet compared to 61 per cent in Latin America and the Caribbean. But the use of digital payment in developing Mena countries (non-GCC nations) is 32 per cent compared with 43 per cent in LAC.
One likely reason for this reticence could be “cumbersome regulations” that make digital transformation difficult. The World Bank also urged for action to strengthen the enabling regulatory framework for e-commerce transactions, including e-signatures, data privacy protections and cyber security.
“Prioritising reforms needed to increase the use of digital payments is essential to accelerate the digital economy transformation,” the report said.