South Asia’s Digital Opportunity Accelerating Growth, Transforming Lives South Asia’s Digital Opportunity Accelerating Growth, Transforming Lives © 2022 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org SOME RIGHTS RESERVED This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the gov- ernments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution - Please cite the work as follows: World Bank. 2022. South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives”.” World Bank, Washington, DC. All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover image: © Anton Balazh | Shutterstock Acknowledgements This regional synthesis South Asia’s Digital Opportunity: who first envisioned this report and the country level Accelerating Growth, Transforming Lives was prepared and assessments. managed by (in alphabetical order): Sajitha Bashir (Advisor), The team is grateful to the peer reviewers who provided Bertram Boie (Senior Digital Development Specialist), valuable comments: Vivien Foster (Chief Economist, Suhail Kassim (Senior Private Sector Specialist), Jonathan Infrastructure), Mary C. Hallward-Driemeier (Senior Marskell (Senior Program Officer), Aminata Ndiaye (Senior Economic Advisor, ETI), Douglas Pearce (Practice Manager, Economist), Siddhartha Raja (Senior Digital Development FCI Africa), Tim Kelly (Lead Digital Development Specialist), Specialist), Sharada Srinivasan (Digital Development Liane Asta Lohde (Principal Economist, IFC), and Gladys Specialist), and Lara Srivastava (Consultant). Individual chap- Lopez-Acevedo (Lead Economist). ters were authored by: As a regional summary report, this report draws heavily on » Digital Infrastructure: Sharada Srinivasan, Peter Silarsky national level digital economy assessments that were carried (Senior Digital Development Specialist), Siddhartha Raja, out in each country in the region, involving a large group of James L. Neumann (Senior Counsel) colleagues and experts. These included, in addition to the » Digital Public Platforms: Jonathan Marskell, Anna Zita above mentioned, Sadia Afrin, Mohammad Sulaiman Akbari, Metz (Program Officer) T. M. Asaduzzaman, Natasha Beschorner, Amila Dahanayake, » Digital Financial Services: Harish Natarajan (Lead Financial Ahmed Faragallah, Amer Hasan, Serene Ho, Karol Karpinski, Sector Specialist), Nilima Ramteke (Senior Financial Rafay Khan, Tatsiana Kliatskova, Siou Chew Kuek, Saidel Sector Specialist), Suhail Kassim, Margarete Biallas Mayar, Shiro Nakata, Junko Narimatsu, Ashim Nepal, (Senior Operations Officer) Matiullah Noori, Andrej Popovic, Suparna Ray, Shan Rehman, David Satola, Sarmad Shaikh, Maya Sherpa, Sabin Shrestha, » Digital Businesses: Toni Kristian Eliasz (Senior Digital Rajendra Singh, and Namoos Zaheer. Development Specialist), Ana Cristina Alonso Soria (Extended Term Consultant), Andrew Beath (Senior The national level work was supported by World Bank Group Economist), Ami Dalal (Senior Investment Officer, IFC); staff from the country teams and offices across South Asia, Edoardo Totolo (Operations Officer, IFC) and by technical experts from Ernst & Young’s New Delhi, Islamabad, and Colombo offices. The team acknowledges the » Digital Skills: Shobhana Sosale (Senior Education government officials, representatives from regulatory entities, Specialist), Amer Hasan (Senior Economist), Sajitha private sector representatives, think tanks, and civil society Bashir leaders who generously shared their time and insights during » Trust Environment: Sharada Srinivasan, James Neuman, the preparation of this report. Hagai Mei Zahav (Extended Term Consultant) Funding for this report was provided by the Digital The report was prepared under the guidance and supervi- Development Partnership (DDP) Multi-Donor Trust Fund, sion of Cecile Fruman (Director, Regional Integration South which is gratefully acknowledged. Asia), Vyjayanti Desai (Practice Manager, South Asia Digital The preparation of this report took place during COVID-19 Development and ID4D/G2Px), Nicole Klingen (former pandemic mandated travel prohibitions, lockdowns, and stay- Practice Manager, South Asia Digital Development), Gabi at-home orders. Despite the challenges, close collaboration Afram (Practice Manager, FCI South Asia), and Cristian Aedo by a range of experts across the WBG, largely in virtual mode, (Practice Manager, Education South Asia). Many thanks to facilitated the preparation of the report. Boutheina Guermazi (former Director, Digital Development) Foreword The South Asia Region, home to eight diverse countries and capital to close gaps for digital inclusion while also creating close to two billion people, has made great strides in digital safeguards against exclusion, cyberthreats and other risks. development over the last 10 years. Mobile subscriptions Governments and the private sector need to build deeper have increased to provide internet access to millions of South partnerships to create trusted environments for digital trans- Asians, as faster wireless broadband networks now cover actions while ensuring that personal data and cybersecurity most of the region. Use of digital payments is increasing, are protected. And public institutions need to work together to enabling secure transactions for consumers and businesses realize the efficiencies of digitization and ensure that eco- alike. Digital ID systems, such as in India and Pakistan, have nomic costs and returns are shared equitably. helped improve the delivery of public, financial, and other The report presents both the opportunities of and the bot- services for billions of people. Some countries in the region tlenecks for furthering the digital agenda. It emphasizes that such as Bangladesh, India, Pakistan and Sri Lanka have the first step is to get the basics right. This includes enabling strong IT industries that have created hundreds of thousands access to and adoption of high-quality affordable broadband, of jobs and added value to the economy. A range of innovative initiating a paradigm shift in building digital public platforms private sector firms--including those offering ecommerce, and accelerating digital financial services. Part of this includes ride sharing, and tutoring service--illustrate the potential for integrating digital ID, digital payments, and data sharing digital innovation and entrepreneurship in the region. The platforms so they can become ‘digital stacks’ that allow COVID-19 pandemic has further accelerated the use of digital service providers to build and innovate their own platforms technologies across South Asia, helping many businesses and and systems on top. Supporting digital businesses, fostering households to cope with the resulting disruptions. digital skills, and creating the necessary trust environment are Now, the region is at an inflection point for greater digital also critical to the digital agenda. Further, a successful digital transformation. It has an opportunity to recover from the severe agenda at country levels would benefit from regional integra- impacts of the COVID-19 pandemic and restore its economic tion that entails cross-border connectivity, data infrastructure, growth trajectory by embarking on a journey of green, resilient, and payment systems. and inclusive development. In this journey, digital technologies South Asian countries need to focus on digital inclusion while can further transform how people, businesses, governments, promoting trust—to ensure that everyone can benefit from and markets interact, transact, work, learn, and function. And digital opportunities and that data, systems, and users are this technological shift can help ensure growth is sustainable protected. Through all of this, countries will need to invest in and inclusive. However, the digital divide remains a challenge. institutions, so that innovation continues, and creativity does Urgent action is needed in this regard, where women, persons not get mired in red tape. Each South Asian country is unique, with disabilities, those in urban areas who cannot afford ser- and its digital economy transformation trajectory will be vices, and people and businesses in rural areas can benefit from different. The report calls for action at both the national and digital opportunities in earning and in learning. regional levels that can spark a digital revolution benefiting The path to this digital future needs a ‘whole of country’ two billion people. approach. Countries need public policies that mobilize private Hartwig Schafer Riccardo Puliti VICE PRESIDENT SOUTH ASIA VICE PRESIDENT INFRASTRUCTURE  Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Capitalizing on Inclusive Digital Transformation in South Asia to Build Back Better. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 About the Digital Economy Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Digital Economy in South Asian Countries: Prospects and Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Digital Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Digital Public Platforms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Digital Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Digital Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Digital Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Trust Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Towards a Regional Digital Economy Agenda: Opportunities for South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Context and Rationale for a Regional Agenda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Priority Areas: Cross-border Connectivity, Data Infrastructure, Payment Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 1) Cross-border Connectivity and Data Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 2) An Enabling Environment for Cross-border Data Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 3) Integrated Cross-Border Payment Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Key themes: Stronger Institutions, Inclusion and Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Towards a Digital South Asia: National and Regional Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Annex Executive Summaries of Country Assessment Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Afghanistan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Bangladesh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Bhutan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Maldives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Nepal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Pakistan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Sri Lanka. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 1 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Executive Summary 2 Executive Summary Digital technologies are transforming how people, businesses, people living within range of a mobile network but not using governments, and markets interact, transact, work, learn, and the internet) remains the region’s biggest challenge, and is function. The shift to digital has significant potential to reduce driven by gaps in digital literacy, gaps in affordability for the transaction costs, create jobs, enable innovation in products poorest quintiles, and a lack of relevant content and applica- and processes, and expand access to services and markets. tions. While there is significant diversity across South Asia, South Asian countries have already started to benefit from the countries in the region might consider adopting a twin-track digitalization of their economies, societies, and governments. approach as follows: a) implement policies to enhance com- However, in many respects, the full game-changing potential petition and attract private sector investment for the upgrade of digitalization in the region remains untapped. South Asian and roll out digital infrastructure, especially for fixed fiber countries could embrace digitization more fundamentally and networks that connect users over the middle and last miles, more strategically, and embark on a journey of green, resilient, and b) invest heavily in demand-side policies and programs to and inclusive development (GRID). enhance digital skills and increase affordability, especially for the poorest in the region. Getting the basics right will enable South Asian countries to unlock more of the benefits of digital economy development Digital public platforms consist of the government’s front- while mitigating its risks. To start with, people and businesses and back-end systems and interfaces that facilitate public need access to affordable, fast, and reliable internet. Digital sector service delivery and operations. Digital identification skills, for both basic and advanced users, are a pre-condition systems, data sharing and exchange layers, and digital govern- for the use, and innovation, of digital technologies. Digital ment service platforms are often the vital ‘rails’ that underpin financial services enable commercial transactions and other digital transactions (especially when they are interoperable economic activities to be conducted online. New digital busi- as ‘digital stacks’), and on top of which public and private nesses in the region stand ready to tap into the opportunities sector service providers can build innovative applications and and transform the economic landscape but require the right software. Digitalization of governments in South Asia has enabling environment to flourish. At the same time, given that been progressing steadily with significant political support the proliferation of digital technologies creates an entirely new and bold visions from the highest levels of government. set of risks, appropriate safeguards are needed to create a safe However, Sri Lanka (85th) and India (100th) were the only and secure digital space that is trusted by both people and countries in the region to place in the top 100 of the UN businesses. E-Government Development Survey of 2020, meaning there is much more work to be done. Lack of coordination, lim- This report provides a region-wide analysis on the status of ited whole-of-government implementation, and insufficient the digital economy in South Asia. It identifies opportunities data protection and governance frameworks is undermining and challenges for national and regional action to realize the progress in this area. Only Bhutan has fully operationalized transformational potential of digitalizing economies, societies, data sharing and interoperability across government at the and governments. The report synthesizes and builds upon national level. Bangladesh, India and Sri Lanka are making country assessments produced for Afghanistan, Bangladesh, some progress in this regard. This should be made a priority Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. It for all countries if they are to unlock the full potential of secure follows the World Bank’s digital economy assessment frame- data use and re-use for digital government and the digital work, covering different dimensions of the digital economy economy as a whole. One important asset, that could be built from digital infrastructure and public platforms to digital on, is the relatively strong identification systems that exist financial services, skills, and the trust environment. It also dis- in all countries (except for Nepal’s system, which is currently cusses the opportunities and benefits of collaboration between in a pilot phase). India’s Aadhaar system, for example, which countries in the region. carries some exemplary features such as universal access and First and foremost, enabling access to high-quality affordable data minimization, has accelerated financial inclusion and the broadband, and increasing its adoption, will yield substantial shift to digital social protection delivery and government more social and economic benefits. These benefits include better broadly. Most notably, however, no country has a fully func- access to information, education, and training, greater admin- tional digital identification system for people and businesses istrative efficiency in public services, and improved economic to carry out trusted and secure transactions online, with both growth and productivity. There are currently significant gaps the public and private sectors. Addressing this gap, as well as in connectivity access and usage within and across South gender and other disparities in the coverage of existing iden- Asian countries. While most countries have closed the gaps in tification systems, will be vital for realizing the full benefits of mobile network coverage, fixed broadband coverage remains these systems. a challenge. The usage gap (represented by the number of 3 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Digital Financial Services (DFS) include a broad range an environment conducive to business, with the removal of of financial services accessed and delivered through digital remaining bottlenecks. In order to develop and grow, digital channels, such as payments, credit, savings, remittances, businesses require quality digital connectivity, accessible investments, and insurance. The maturity of DFS varies financial services (supported in particular by venture capital across countries in South Asia. While many common ele- (VC) and private equity (PE) funds), a skilled workforce, and ments exist between countries, so do important differences, responsive e-government systems. The country diagnostics and this provides opportunities for bridging gaps in DFS evidenced that more institutional capacity is necessary to innovation, provision, and adoption. What requires the most develop and implement legal and regulatory frameworks to attention is the network of financial access points (ATMs, promote innovation and competition. Across South Asia, the agents, retail merchants, etc.) and gaps in core payment competition authorities of India and Pakistan have the highest systems and ICT infrastructure, which are less than adequate levels of capacity relative to other authorities in the region. in many countries in the region. However, gender and cultural Improving opportunities for female entrepreneurs, including norms also play a role in limiting uptake of digital payments, through improved access to finance, is particularly needed in particularly among women. Finally, issues around trust, and the South Asia region. More broadly, the adoption of digital digital and financial literacy, are also common. Fintech start- tools and technology by SMEs can also be facilitated through ups have begun to take off across the region, but are hampered various mechanisms. To achieve informed, empowered, and by the lack of funding, unfavorable market dynamics, dif- equitable digitalization, governments could provide relevant ferential policies for different players, insufficient incubator incentives such as training and funding of MSMEs, and partic- and accelerator programs, and the shortage of a fintech and ularly women owned MSMEs. A key target of these incentives entrepreneurship talent pool. could be digital solution providers, so that they may design The countries covered in this regional review show diverse fit-for-purpose solutions for local MSMEs. Finally, a robust levels of digital business ecosystem maturity. According to network of intermediary support organizations and the pro- the Digital Entrepreneurship Index1, Bangladesh and Nepal motion of linkages with local incubators, hubs, and universities are at the bottom of the list of South Asian countries in the can serve to create a favorable and enabling digital ecosystem. Index, while India and Sri Lanka have the most developed Digital skills are critical for access to technology-driven devel- digital entrepreneurship ecosystems in the region. opment benefits, making them an essential component of the In the region’s largest countries, e-commerce platforms provide digital economy. Relevant frameworks classify skills into two significant opportunity for growth, due to large, underserved categories: skills for a digitally competent workforce, such markets that could rapidly expand operations, and benefit as ICT professionals, and those for digitally literate citizens. both formal and informal firms. In order to fully tap into these Although digital skilling is increasingly recognized as a key opportunities, however, more attention is needed to create foundation of the digital economy, there is a dearth of data on the level of digital skills available in South Asian countries, FIGURE 1. Digital Entrepreneurship Index (2019) Scores for and most countries in the region currently lack a coordinated South Asian Countries (0-100) and structured digital skills framework. Developing a more structured approach could start with incorporating digital 23.8 skills in national strategies, followed by the creation of a system, and commensurate capacity, to train a digitally savvy 18.2 workforce aligned with the requirements of the digital indus- try. Broad digital skills and training could be fully incorporated 14 into the education system, with schools connected to the inter- 11.6 11.2 net and equipped with digital technology and devices. Specific training for women, as well as training related to specific use cases, technologies, or advanced IT skills sets, would also be beneficial across the region. Harnessing the potential of digital transformation requires India Sri Lanka Pakistan Nepal Bangladesh creating the necessary trust environment for people, 1 Measuring digital entrepreneurship ecosystems: The Digital Entrepreneurship Index - https://thegedi.org/wp-content/uploads/2020/04/ Digital_Entrepreneurship_Index_report_v0.pdf 4 businesses, and government agencies to use digital technolo- an appropriate enabling environment for cross-border data gies. A rights-based approach to data protection, that regulates flows. Data (both public and private) has the potential to create (or enables and limits) data collection, processing, and use by socio-economic value for all countries in the region when it third parties, is critical. Improving cybersecurity and curtailing flows based on common frameworks and standards. At pres- cybercrime will also serve to increase trust in cyberspace. The ent, while no South Asian country has enacted overarching lacunae in safeguards stand out when examining the robust- directives restricting cross-border data flows, restrictions on ness of key protections in the processing of personal data. No data localization have been discussed and introduced in draft in-scope South Asian country currently subjects the collection bills in India, Pakistan, and Sri Lanka. Restrictions already or processing of data to a “necessary and proportionate” test exist to some extent on the sectoral level. Legal frameworks to determine if it is justified (although there are some notable in other South Asian countries, surveyed as part of the Global exceptions in India). While the current status quo on safeguards Data Regulation Diagnostic, appear largely silent in this regard. is weak, some South Asian countries are making progress on Third, the number of cross-border payments (including laying down the foundations of a legal framework. A greater remittances and trade transactions) are on the rise between focus on, and investment in, cybersecurity is necessary. In countries in South Asia. One of the most important enablers most countries, vital operational response such as computer of cross-border payments are the appropriate legal and emergence response teams (CERTs) have been formed to help regulatory frameworks. Though these are largely consistent protect the cyberspace and national infrastructure across the across the region, some aspects, such as the degree of harmo- region, but more is needed to ensure operational adequacy and nization of Anti Money Laundering (AML) and Combating efficiency to effectively counter threats. the Financing of Terrorism (CFT) procedures and policies In South Asia, most reform efforts and investments in the related to the participation of foreign financial institutions, digital space currently take place at the national level with need further consideration. In addition to legal and regulatory few multi-country initiatives. While regional integration challenges, the second major barrier to cross-border pay- dynamics are generally weak in the region, there is added ments in the region is the compatibility of payment system value in coordinating or developing collaborative arrange- infrastructures. Countries in the region have all implemented ments between countries on different aspects of the regional traditional payment systems covering large value (Real-Time agenda. To help maximize the potential of the region to Gross Settlement or RTGS) and bulk payments (Automated leverage the digital economy, three priority areas stand out in Clearing House or ACH). They have also established dedicated the short- to medium-term, namely connectivity, data flows, domestic card payment infrastructures, national switches and payment systems. (except Nepal and Maldives), and Fast Payment Systems (FPS) (except Afghanistan and Bangladesh). However, several First, in terms of connectivity, regional cooperation can help countries suffer from an inadequate network of financial improve access to international capacity and connect cur- access points, such as ATMs, agents, and retail merchants, rently disadvantaged landlocked countries. Countries with thereby limiting coverage and hindering uptake. limited cross-border links are on the edge of global connec- tivity networks, placing them at a significant disadvantage in In sum, the pace of digitization of the economy has been accel- the market in terms of supply as well as cost (as price-takers erating rapidly across the South Asian region, as more people for connectivity). Regional efforts can focus on increasing the get online and transformational innovations in public service number of cross-border links with coastal and inland neigh- delivery and business models alter the socio-economic land- bors to interlink with key international connectivity routes. scape. The shock brought about by the COVID-19 pandemic, Beyond access to cross-border digital connectivity, access to together with the increasingly visible consequences of climate infrastructure for the storage, analysis, and transmission of change, have exposed the real cost of digital divides. New data is key to the growth of South Asia’s digital economy. This approaches are needed to position South Asia towards green, requires Internet Exchange Points to facilitate domestic data resilient, and inclusive development. This report has identified flows, the ability to store data within data centers, and access various public policies and measures that could help South to cloud computing services that enable users to leverage Asian countries benefit from accelerated digital development capabilities, such as machine learning, over vast data sets for while managing and mitigating the risks. A significant devel- greater value creation. opment potential lies ahead for the region through increased access, use and innovation of digital technologies, both on the Second, investing in connectivity and data infrastructure national level and – where possible – through regionally coor- would lead to greater benefits when this is combined with dinated and collaborative approaches. 5 Introduction 6 Capitalizing on Inclusive Digital Transformation in South Asia to Build Back Better Digital technologies are changing how people, businesses, to empower women through better access to government governments, and markets interact, transact, work, learn, and financial services. India has become a global informa- and function. The COVID-19 pandemic has—by necessity— tion technology services powerhouse and a pioneer of ‘digital accelerated the digital transformation that underpins these stacks’ that bring together digital payments and identification shifts, as people, businesses, schools, and governments have services, among others, and upon which innovators can build had to rapidly adopt digital channels to maintain continuity additional services and applications. Digitization can also amid lockdowns, quarantines, and social distancing guide- stimulate innovative country approaches to the delivery of lines. Governments can become more efficient and effective health, education, and social protection, as was seen in many by streamlining their work and making smarter use of their South Asian countries that leveraged digital technologies resources, particularly when it comes to vital services such as during the pandemic.3 healthcare, education, and social protection. Before COVID-19, However, in many respects, the full game-changing potential countries in South Asia were already making substantial prog- of digitalization in South Asia remains untapped. In most ress across various aspects of the digital economy. Digitization countries, only about a third of the population subscribes to would also support a longer-term shift towards services-led mobile internet services, except in Maldives (57 percent) and development in South Asia, building on earlier positive develop- ments.2 Hence, by adopting appropriate policies and investing strategically, the region now has the opportunity to capitalize on its inclusive digital transformation to build back better. BOX 1. Development-enhancing Effects of ICT Adoption* Going digital has the potential to reduce transaction costs, Vast literature exists evidencing the development-enhancing effects create jobs, and enable innovation in products and processes, of ICT adoption. A new, 2021 summary article by Estefania Vergara- Cobos and Eduardo A. Malásquez offers a fresh, systematic revision as well as expand access to services and markets. Some 70 per- of the literature covering the multiple dimensions across agents and cent of new value addition in the global economy over the next channels such as economic transformation and growth (country level), decade is expected to derive from digitally enabled platform productivity (firm level), welfare and labor (individual level). Overall, it business models. As discussed in the 2021 World Development finds that technologies such as the internet, mobile services, and AI Report, data collected for one particular use has the potential to have positive spill-over effects such as: generate economic and social value in use cases beyond those • A 10 percent increase in mobile broadband (MBB) networks originally anticipated. This data, especially in high volumes, adoption (percentage of total connections) causes a 0.14 percent is an essential input to the success of disruptive technologies increase in GDP for non-OECD countries. • A 10 percentage-point increase in adoption of cloud computing such as the Internet of Things (IoT), Artificial Intelligence (AI) services increases a firm’s productivity level by 3.5 percent. These and machine learning, among others. productivity gains are more than doubled for high productivity firms South Asian countries are already benefitting from the digita- in comparison to low productivity firms. • A 1 percent increase in mobile phone penetration leads to a 0.12 lization of their economies, societies, and governments. Most percent increase in human development index in South Asia. of the region’s inhabitants live in areas covered by 4G mobile The magnitudes of the effects may vary by country of analysis, year, and broadband networks, forming a large consumer base with technology. Some differentiation is needed depending on the level of access to information, services, and markets. Some countries, development, country situation, type of technology, and other factors. like Bhutan and Sri Lanka, have jumped significantly in UN E-Government Development Survey rankings in the last * Estefania Vergara-Cobos and Eduardo A. Malásquez: Digital Technology Adoption and the Jobs and Economic Transformation Agenda: A Survey decade. In Bangladesh, digital technologies have been used 2 See https://www.worldbank.org/en/region/sar/publication/shifting-gears-south-asia-economic-focus-fall-2021 3 See https://openknowledge.worldbank.org/bitstream/handle/10986/36156/9781464817199.pdf 7 Sri Lanka (50 percent). This is a key barrier for access to the fit-for-purpose in the digital age. These weaknesses were laid digital economy and digital government services. Moreover, bare during the COVID-19 pandemic, when many children an important gender divide persists, with women owning were left disconnected from remote learning,6 and many small fewer mobile devices and using the internet less than men. businesses struggled to pivot to e-commerce channels.7 For example, women in Bangladesh are 55 percent less likely Digitalization can also lead to greater risks – such as secu- to use the internet than men. As many households remain rity breaches, data misuse, vendor and technology lock-in, unconnected across the region, 88 per cent of school-age and social exclusion – which all need to be comprehensively children4 (449 million) do not have access to internet at home, understood and proactively mitigated. Such risks, if not and among the poorest 20 percent of the population, that addressed, will serve to undermine the ability of countries to proportion is just 2 percent.5 reap the benefits of digitalization, whilst creating a slew of new Most countries in the region have a long way to go in imple- problems, such as widened digital divides, and reduced public menting comprehensive digital government transformation trust and confidence in the digital economy. The starting point and building digital public platforms to enhance service for addressing these risks is the establishment of a strong delivery and promote private sector innovation. Apart from institutional and legal framework that promotes measures for realizing a whole-of-government approach to digital gov- transparency and accountability as well as safeguards against ernment and data, there is also an opportunity to shift the function creep and misuse of systems and data (e.g., data mindset from simply digitizing what exists to re-imagining protection). The necessary capabilities to monitor and defend how systems and processes work, enabled by digital technol- against cybersecurity threats and vulnerabilities, especially ogies. For example, there is a significant difference between for critical infrastructures, need to be developed. Moreover, making forms available for download from a website but still the rapid shift to digital delivery without maintaining ana- requiring them to be printed, signed, and submitted in-per- logue back-ups and alternatives can shut out whole segments son or by post with attached certified copies of supporting of the population (those with limited or no digital access and documents, and allowing people and businesses to carry out a literacy), while also creating single points of failure when (not government transaction end-to-end through a website or app, if) operations are interrupted. Prioritizing technology and with data supporting the process re-used and pre-filled from vendor neutrality, through, for instance, the adoption of open existing authoritative databases. Facilitating this are digital standards and careful procurement processes, promotes full public platforms such as identification systems, data sharing country ownership of systems and data, and ensures greater and exchange layers, and other common platforms for trans- flexibility and sustainability. The risks of digitalization can be actions such as e-signatures, payments, and communications. mitigated, but only if this is done deliberately as an inherent If the private sector can also build their systems on top of such part of the digital transformation process, through proper open platforms (with necessary safeguards against misuse) engagement with beneficiaries, a thorough analysis of threats for when people access their services, this can unlock exciting and vulnerabilities, and adequate back-up and business conti- innovative applications, especially for e-commerce and digital nuity measures. financial services. As South Asian countries embrace digitization more widely Capitalizing on the expansion of digital financial services and and more strategically, they can embark on a journey to green, e-commerce is often impeded by barriers to innovation and resilient, and inclusive development (GRID). With the world new business models, as well as weak or non-existent fast facing unprecedented challenges related to climate change, payment systems, credit, and data infrastructure. Weak con- while at the same time coping with a dramatic global health sumer protection, low online trust, inadequate data protection pandemic, digital technologies provide South Asian countries and insufficient cybersecurity are important constraints. At with the opportunity to make a strategic choice, and to switch the heart of many of these challenges lies the lack of coordi- to a development path that prioritizes digital technologies nation among public bodies and with the private sector, as for lowering carbon footprints, increasing resilience against well as antiquated policies, laws and regulations that are not external shocks, and creating more inclusive development 4 Between 3 and 17 years old. 5 UNICEF, 2020. 6 https://www.unicef.org/rosa/stories/keeping-all-children-learning-during-pandemic 7 Brucal, Arlan; Grover, Arti; Reyes Ortega, Santiago. 2021. Damaged by the Disaster: The Impact of COVID-19 on Firms in South Asia. Policy Research Working Paper No. 9604. World Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/35357; pp. 10-12 8 outcomes, while mitigating the risks. Such opportunities can • Digitalization is central to creating resilient social be realized in several different ways, including the following: safety nets and healthcare systems that can respond • Digital technologies support green growth through to sudden shocks. Countries with a mix of good innovations such as smart and digitally enabled digital identification, digital payment, and data energy grids, transport networks, agricultural management systems in place were better able practices, and cities built on digital enablers for to expand existing programs and introduce new green development can facilitate a more efficient cash assistance during the pandemic, especially to use of resources through traceability, predictabil- cover informal workers who were not part of any ity, and flexibility. Remote sensing technology, and existing social assistance and insurance programs. satellite imagery, as well as big data analytics and Similarly, governments and businesses that were machine learning can go a long way in helping fight more digitalized, and countries with better digital against climate change and boosting the resilience of infrastructure, showed more resilience to maintain societies. For South Asia, this includes monitoring business continuity by shifting systems, transactions, the Himalayan ecosystem and its glaciers; about 1.5 and operations online. billion people benefit from the water of Himalayan • Digitalization can foster inclusive economies by rivers, while risks relating to floods during the rainy removing physical, cost-based, and other barriers season, and lower water flow during the dry season, to economic and service opportunities—for both have been exacerbated by retreating glaciers.9,8 people and businesses. Greater inclusion will benefit 9 women and girls, in particular, who are vastly under- on manufacturing export markets, towards the export of busi- represented in government offices and traditional ness process outsourcing and management services, thereby business structures. There are important benefits in capitalizing on their comparative advantages. Considering being able to transact directly with governments and the massive population in South Asia, e-commerce (and businesses. The opportunities presented by digital especially regional e-commerce) could create opportunities financial services and digital entrepreneurship are for many small and medium sized enterprises in the region.10 also manifold, particularly for promoting e-com- Furthermore, the growing fields of IoT and big data analytics merce and financial inclusion. (and corresponding developments in climate-smart agricul- ture, smart water management, and smart grids), can help The COVID-19 pandemic has demonstrated the vital role that pave the way for a resilient and sustainable recovery in the digital technologies can play in a rapid, resilient and inclusive region. In combination, these innovations can help countries response to crisis. The World Bank Macro Poverty Outlook8 explore greener, more resilient and inclusive economic devel- estimates that the ongoing pandemic has led to 78 million new opment models, as well as greater economic diversification. poor9 in South Asia. The response to the COVID-19 pandemic fast-tracked the use and growth of digital business platforms, The beginnings of a new era driven by digital development can thereby accelerating technology deployment, digitalization, already be felt across South Asia today, but the first step is for and adoption of new practices in logistics, health, educa- countries to get the basics right, and proactively mitigate risks. tion, agriculture, and e-commerce. Pakistan’s government People and businesses need access to affordable, fast, and and private sector collaborated in using their foundational reliable internet. Digital skills are a pre-condition to use digital identification system, digital payments, and the social registry, technologies. Digital financial services are indispensable for to quickly rollout the Ehsaas Emergency Cash program to economic activity leveraging the cyber space. Entrepreneurs protect the livelihoods of 12 million families. South Asia could stand ready to develop new businesses and opportunities and further optimize its use of digital technologies to turn the transform the economic landscape but require a conducive COVID-19 crisis into an opportunity to address some of the enabling environment. With a well-thought-out and deliberate region’s most pressing challenges and promote inclusive and approach to digital transformation, strong policy and institu- services-led growth. tional frameworks, and the necessary investments in markets and ecosystems, South Asian countries have the opportunity In so doing, the South Asian region could respond quickly to to reap the benefits of a dynamic digital economy and signifi- global challenges and trends. By way of example, countries in cantly improve socio-economic outcomes in the region. the region could consider pivoting away from an overt focus 8 The World Bank, 2020a 9 People living under US$1.90-a-day. 10 See, for example, Kathuria, Sanjay; Grover, Arti; Perego, Viviana Maria Eugenia; Mattoo, Aaditya; Banerjee, Pritam. 2020. Unleashing E-Commerce for South Asian Integration. International Development in Focus. Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/32718 10 About the Digital Economy Assessments The present report provides a region-wide analysis on the In line with its two-fold objective, the present report is made progress of the digital economy in South Asia. It identifies up of two main sections: opportunities and challenges for national and regional action • The next section summarizes key trends in digital to realize the transformational potential of digitalizing econ- economy development across the region. Building on omies, societies, and governments. The report synthesizes the assessments in eight country-specific reports, it and builds upon the country assessment reports produced discusses the digital opportunities and bottlenecks for Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, emerging in South Asian countries, across the main Pakistan, and Sri Lanka. The country reports follow the World dimensions of the digital economy, namely digital Bank’s digital economy assessment framework and provide infrastructure, digital public platforms, digital finan- an analytical overview of digital developments in the various cial services, digital businesses, digital skills, and the countries, from digital infrastructure and public platforms trust environment. This section demonstrates that, to digital financial services, skills and the trust environment. despite differences in the level of uptake of digital They also provide insight into new opportunities for regional technologies and advancement in infrastructure, cooperation in South Asia. countries in the region share a lot of commonalities The regional and country reports are intended to present to in terms of digital opportunities, interests, bottle- governments, businesses, people, and other stakeholders in necks and barriers. South Asia how a cohesive approach across the six digital • Afterwards, the report discusses opportunities economy pillars will unlock benefits that are much greater for regional cooperation. This section, in line with than the sum of their parts and will have spillover benefits South Asia’s regional cooperation strategy, provides for the region’s 1.8 billion people. The reports also provide insights into potential regional collaboration that insights into a collaborative regional reform agenda. The first could accelerate digital transformation in the region. part of the report provides a chapeau over the national level It points to various collaboration opportunities that work, synthesizing the findings on the national level (across exist in South Asia across a range of sectors, partic- 8 countries). The second part of the report adopts a regional ularly in education and finance, which could serve to cooperation perspective and discusses the horizontal enablers achieve concrete development outcomes. It suggests that need to be considered to enable the digital economy that progress could be made by linking the regional across the region. digital infrastructure that connects countries to each Data collection, analysis and preparation of the country other. It also underscores the importance of inte- reports took place from spring 2020 to summer 2021, that is, grated payment systems within the region. Finally, it during the global COVID-19 pandemic. Work started with a identifies cross-border data flows as the engine of the literature review and benefitted from close collaboration with digital economy and an important pre-requisite for colleagues in the country offices, as well as the network of the digital agenda to take off across the region. local contacts that the team could mobilize to explore different A conclusion of the report follows. The executive summaries aspects of the country-level analysis. Stakeholder interviews of all individual country reports are contained in the Annex. were carried out on the national level, both in form of formal conference calls and through informal background conversa- tions. All collaboration took place in virtual format, including country level workshops. 11 The Digital Economy in South Asian Countries: Prospects and Challenges 12 Digital transformation holds great promise for South Asia. accountability of various payment streams, including Countries in the region recognize the important role that the disbursement of social transfers and receipt of digital technologies play in promoting inclusion, improving tax payments. Digital payments are often the entry public service delivery, creating jobs, and stimulating the point for digital financial services and provide the economy. Digital agenda strategies are generally centralized, infrastructure or “rails” through which additional endorsed by the highest levels of government and have gained products and use-cases can be developed. traction in most countries. Examples include the Digital India • Digital Businesses. The use of digital technologies Programme (ongoing since 2006), the Digital Pakistan Policy and associated business models to unlock economic of 2018 and 2021, the 2019 Digital Nepal Framework, and opportunities and enhance private sector compet- Bhutan’s Digital Drukyul initiative (approved in 2019). itiveness lies at the heart of any strategy for job This section discusses six different dimensions of the digital creation, increased productivity, higher growth and economy in South Asian countries as follows: improved living standards. Digital businesses can • Digital Infrastructure. Digital infrastructure paves be classified into two categories, each with their the way for people, businesses, and governments own distinct characteristics: 1) digital start-ups or to get online and link with local and global digital early-stage ventures that create new digital solutions services, thereby connecting them to the global or business models as part of their core products digital economy. Broadly speaking, digital infrastruc- or services, and 2) established digital businesses or ture consists of connectivity (high-speed internet large platform-based and data-driven firms that have and related technologies), internet of things (mobile passed the initial start-up stage, and have already devices, appliances, computers, sensors, geospatial acquired suppliers, contractors, and consumers. instruments, machine to machine communications, Digital businesses represent a unique opportunity for etc.), and data repositories (such as data centers and South Asian economies to nurture and scale Micro, cloud technology). Small and Medium Enterprises (MSMEs), promote innovation and entrepreneurship, foster economic • Digital Public Platforms. Digital public platforms integration, integrate lagging populations and consist of a government’s systems and interfaces that regions, increase efficiency, and generate more (and facilitate public sector service delivery and operations. better) jobs. These are developed for the public sector, or as a public good by government, sometimes in partnership • Digital Skills: Digitally competent workers, with the with the private sector (or through a hybrid model). right digital skills, form the foundations of vibrant When digital public platforms are designed based on a digital economies. Digital skills refer to a contin- “whole-of-government” and “user-centric” approach, uum of skills that can be fostered through formal they can significantly improve operational and eco- education and training as well as informal learning. nomic efficiency, boost service quality and innovation, Improving the digital skills for ICT professionals and and ensure accountability. They can also increase technical workers, which serve to bolster the devel- channels for public engagement and feedback, opment and uptake of digital technologies, requires increase transparency, and reduce opportunities for specialized education and training. On the other corruption. Moreover, digital public platforms have hand, digital literacy refers to more general skills/ the potential to generate important network effects, competences required for all citizens and workers whereby additional users (and the data they generate) that are not in ICT (Information and Communication create an exponential increase in value. Technology) occupations. Digitally literate citizens can reap the benefits of a digital society more easily • Digital Financial Services. Digital financial ser- by gaining access to safer and higher-quality informa- vices (DFS) provide individuals and households with tion and engaging with the wider community. convenient and affordable channels by which to pay, save and borrow. Firms can utilize DFS to transact • Trust Environment: Digital technologies expose with their customers and suppliers more easily, societies to risks of data misuse, cybersecurity build digital credit histories and seek financing. DFS threats, and cybercrimes. If not addressed, these can help governments increase the efficiency and risks undermine the ability to realize the benefits of 13 FIGURE 2. World Bank Group Digital Economy Framework KEY CHALLENGES INTERVENTIONS OUTCOMES HIGH LEVEL GOALS DIGITAL Increased access, quality, and • Lack of access to INFRASTRUCTURE a ordable digital connectivity Enable every Faster growth quality and individual, More jobs a ordable digital Increase availability and business and Better services connectivity adoption of secured and government to • Ine cient DIGITAL PUBLIC interoperable digital participate in the government core PLATFORMS platforms for public and digital economy functions and private services that services address each of businesses and citizens life events • Market ine ciency DIGITAL FINANCIAL Increased access and usage • Lack of funding for SERVICES of financial services innovation and entrepreneurship Increased number of digital • Lack of skills to DIGITAL BUSINESSES solutions firms and firms using compete in the digital technologies or digital global digital business models economy Increased availability of digitally DIGITAL SKILLS competent workforce and digitally literate citizens Increased trust in the digital environment through TRUST rules-based data use and more resilient digital systems Source: World Bank visualization on the Global Digital Economy Framework digitalization and can create new problems - wid- require specific treatment. Effective and resilient ening digital divides and reducing public trust and institutions are also critical to the effective imple- confidence in digital services and transactions. mentation of the legal and regulatory framework in Building an enabling legal and regulatory framework order to address these risks and build trust.  is the first step to reduce these risks and should address: data protection and privacy (ensuring To fully realize the benefits of a digital economy, South Asian personal data handling engenders trust); consumer countries should consider adopting a cohesive approach protection (protecting individuals from harm and across the pillars discussed above. Based on the analysis con- unfair practices caused by online activities); and tained in the country reports, as well as the present regional cybersecurity (ensuring minimal levels of cybercrime report, the following cross-cutting areas for action emerge as and accountability for cybercrimes). These areas particularly relevant: are in addition to more thematic digitalization areas » Focusing on inclusion: First and foremost, any of law and regulation such as digital equivalence of digitalization efforts would need to be made for documents, digital payments and digital delivery of all. Efforts and initiatives should bridge, rather financial and other products and services. Many of than exacerbate, digital divides that already exist the harms caused by online activities can also happen in the region. Digitalization needs to serve as a in real life (e.g., theft, deceptive conduct and fraud). tool for the innovation and expansion of service However, there are some unique factors about the delivery, particularly in areas such as social pro- online environment that can vastly exacerbate the tection, healthcare, education, agriculture, and risks of these and other harms, and which therefore financial services. Broadband access and devices 14 The Digital Economy in South Asian Countries: Prospects and Challenges BOX 2. Gender Equality and the Digital Economy in South Asia Closing gender gaps in access to and use of technology is central to end- access to digital financial services, design choices that include tailored ing extreme poverty and boosting shared prosperity.1 From an early stage, products and services, increase women’s digital financial capability and ensuring that girls and boys have an equal opportunity to build digital consider social norms are central to women’s economic empowerment.7 literacy and digital skills is critical for their human capital development. For women entrepreneurs, evidence from other regions demonstrates that Although comprehensive data are lacking, available data highlight gender socio-emotional training, cash grants, and mobile savings can improve the gaps in basic digital literacy.2 For example, in India, 20 percent of women performance of women-owned firms.8 Incorporating a gender lens and versus 9 percent of men report that they do not know how to access the tackling gender gaps across the various pillars of the digital economy are internet on a mobile device.3 In Bangladesh, these figures stand at 32 indispensable for building back better digitally in South Asia. Despite the percent for women and 26 percent for men.4 As women transition to the challenges, there are immense opportunities for the South Asia region labor market, digital technologies can serve as a pathway to economic to leverage technology as an enabler of gender equality—and, in many opportunities, particularly through online work that provides added flexi- cases, we already know what works.9 For example, ensuring that girls and bility and moderates mobility constraints. However, to effectively leverage boys have equal opportunities to develop digital skills is key. For girls in the digital economy, women need intermediate and advanced tech skills. particular, hands-on training can help build girls’ interest and confidence. These skills can also help address occupational sex segregation through Female role models are also critical.10 To support women’s access to women’s increased participation in male-dominated (and often high- digital financial services, design choices that include tailored products er-paying) fields. and services, increase women’s digital financial capability and consider social norms are central to women’s economic empowerment.11 For Despite the challenges, there are immense opportunities for the South women entrepreneurs, evidence from other regions demonstrates that Asia region to leverage technology as an enabler of gender equality—and, socio-emotional training, cash grants, and mobile savings can improve the in many cases, we already know what works.5 For example, ensuring that performance of women-owned firms.12 Incorporating a gender lens and girls and boys have equal opportunities to develop digital skills is key. tackling gender gaps across the various pillars of the digital economy are For girls in particular, hands-on training can help build girls’ interest and indispensable for building back better digitally in South Asia. confidence. Female role models are also critical.6 To support women’s 1 Klingen et al. 2021 : “Putting women and girls at the center of digital development”: https://blogs.worldbank.org/digital-development/putting-women-and-girls-center-digital-development 2 GSMA 2021. The Mobile Gender Gap Report 2021. https://www.gsma.com/r/gender-gap/ 3 Indicator: Percentage of mobile users who are aware of mobile internet but do not use it, and who identified the following as a main barrier to using mobile internet: GSMA 2021. The Mobile Gender Gap Report 2021. https://www.gsma.com/r/gender-gap/ 4 Indicator: Percentage of mobile users who are aware of mobile internet but do not use it, and who identified the following as a main barrier to using mobile internet: GSMA 2021. The Mobile Gender Gap Report 2021. https://www.gsma.com/r/gender-gap/ 5 Klingen et al. 2021 : “Putting women and girls at the center of digital development” : https://blogs.worldbank.org/digital-development/putting-women-and-girls-center-digital-development 6 Hammond, Alicia; Rubiano Matulevich, Eliana; Beegle, Kathleen; Kumaraswamy, Sai Krishna. 2020. The Equality Equation : Advancing the Participation of Women and Girls in STEM. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/34317 License: CC BY 3.0 IGO 7 https://www.povertyactionlab.org/policy-insight/designing-financial-services-and-social-protection-programs-enhance-womens-economic 8 World Bank Group. 2019. Profiting from Parity : Unlocking the Potential of Women’s Business in Africa. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/ handle/10986/31421 License: CC BY 3.0 IGO 9 Klingen et al. 2021 : “Putting women and girls at the center of digital development” : https://blogs.worldbank.org/digital-development/putting-women-and-girls-center-digital-development 10 Hammond, Alicia; Rubiano Matulevich, Eliana; Beegle, Kathleen; Kumaraswamy, Sai Krishna. 2020. The Equality Equation : Advancing the Participation of Women and Girls in STEM. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/34317 License: CC BY 3.0 IGO 11 https://www.povertyactionlab.org/policy-insight/designing-financial-services-and-social-protection-programs-enhance-womens-economic 12 World Bank Group. 2019. Profiting from Parity : Unlocking the Potential of Women’s Business in Africa. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/ handle/10986/31421 License: CC BY 3.0 IGO could be made more affordable, and public and » Strengthening institutions: Countries in the private sector services more accessible, espe- region could review and rethink the regulations cially for women, persons with disabilities, and and institutions that could unlock the digital minorities. South Asian countries should inten- economy. To make it easier for businesses to tionally design their policies and programs in digitalize, innovate, and invest, countries could ways that leave no one behind. Countries in the consider reducing the regulatory risks facing region could also scale up efforts to understand private and foreign investment in connectivity or the demand for digital skills, and strengthen their e-commerce. To enable a new services economy, supply, while at the same time equipping SMEs rules could be put into place to lower barriers to with the right incentives and tools to digitalize. entry and promote innovation and disruption in stagnant markets. To achieve this, regulatory 15 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives institutions would likely need to improve frameworks with both enablers and safeguards to capacity, competence, and creativity, and better promote trust in the digital realm. Enablers give coordinate government systems and interfaces. legal validity and equivalence for electronic and Overarching bodies, with clear mandates and digital identification, authentication, transactions, the necessary authority to make and enforce signatures, and contracts. Safeguards protect policies, standards, and strategies, will be needed people, businesses, and governments against the to improve the efficiency of digital government risks and misuses of digitalization, such as cyber programs and deliver enhanced and integrated threats and data breaches. In general, South services to people and businesses. Digital iden- Asian countries have put into place stronger tification, digital payments, and trusted data enablers than safeguards. There is therefore a could be designed coherently as ‘digital stacks’, need to accelerate efforts to develop data protec- whereby open interfaces and standards create tion and cybersecurity frameworks to address effective linkages between platforms. Digital this gap, along with appropriate oversight and stacks could provide the necessary ‘rails’ for the accountability mechanisms. Apart from preserv- digital economy, by enabling and combining ing the gains of digitalization, safeguards become presence-less, cash-less, paper-less, and data-em- increasingly important when it comes to digital powered transactions in both the public and trade (e.g., data protection adequacy determina- private sectors. The use of regulatory sandboxes tions to enable data flows with other regions such to test FinTech services and innovations could as the European Union). Furthermore, greater also be considered. public-private and regional dialogue through available forums will promote trust among » Building trust: As South Asia undergoes a dig- countries and stakeholders, helping to develop ital transformation, governments in the region densified broadband networks, integrated pay- will benefit from building the necessary legal ments systems, and cross-border data flows. 16 The Digital Economy in South Asian Countries: Prospects and Challenges Digital Infrastructure High-quality broadband access, its widespread use, and On average, the region has reduced the share of the population improved affordability, can yield substantial social and out of reach of a mobile network signal to 8 percent, down economic benefits, including better access to information, from 30 percent in 2014. Pakistan and Bangladesh, in particu- education and training, greater administrative efficiency in lar, have had impressive coverage expansion. public services, and improved economic growth and produc- tivity. Internet connectivity has been shown to be positively 2. However, progress on coverage masks the significant correlated with increased labor force participation and house- challenges that exist in the region in the upstream digi- hold consumption,11 employment mobility,12 new job creation tal infrastructure supply chain. and job growth,13 and better re-employment probabilities.14 Most countries connect to the global internet via an interconti- Internet access also increases economic and social resilience nental network of submarine cables, and landlocked countries during adverse shocks such as COVID-19 by enabling remote purchase access via their sea-bounded neighbors. Access to work, and providing alternative channels to access knowledge, this international internet bandwidth via submarine cables markets, and services.15 (first-mile) has increased steadily over the last However, there are significant gaps in broadband access and use within and across South Asian countries. While most FIGURE 3. Percentage of population covered by 4G networks, countries have closed mobile network coverage gaps, fixed 2016-2021 broadband coverage remains a challenge. There is a signif- 100% icant usage gap (the number of people living in range of a mobile network but not using the internet), which is driven by 90% gaps in digital literacy, the lack of data and device affordabil- 80% ity for the poorest quintiles, and the lack of relevant content 70% and applications. Despite the diversity that exists across the region, governments in the region may benefit from adopting 60% a two-pronged approach to: a) implement public policies to 50% enhance competition and attract private sector investments for the upgrade and rollout of digital infrastructure, especially 40% fixed fiber networks to connect users over the middle and last 30% mile and b) invest in demand-side policies and programs to 20% enhance digital skills and increase affordability, especially for the poorest in the region. 10% 0% Key Findings 2016 2017 2018 2019 2020 2021 1. South Asia has seen remarkable growth in 4G coverage Afghanistan Bhutan India Nepal over the last five years, with Afghanistan and Nepal Bangladesh Pakistan Maldives Sri Lanka being exceptions. 11 Bahia, Castells, Cruz, Pedros, Rodriguez Castelan, and Winkler, The Welfare Effects of Mobile Broadband Internet: Evidence from Nigeria. (2020) 12 Stevenson, The Impact of the Internet on Worker Flows (2006) 13 Bahia, Castells, Cruz, Masaki, Castelan and Sanfelice, Mobile Broadband Internet, Poverty and Labor Outcomes in Tanzania (2021) 14 Gurtzgen, Nolte, Pohlan and van den Berg, Does the Internet Help Unemployed Job Seekers Find a Job? Evidence from the Broadband Internet Expansion in Germany (2018) 15 Özden, Who on Earth Can Work from Home, World Bank Working Paper (2020) 17 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives decade in South Asia, with the largest increases seen in India, to poor competition among service providers at international Pakistan, and Bangladesh (see Figure 3). However, while the borders, low levels of data infrastructure maturity in smaller costs of international bandwidth have decreased over time, countries within the region, and the reluctance of govern- landlocked countries still pay exorbitantly high prices for ments and national backbone providers to enter cost-efficient international links with poor resilience. The costs of transit long-term leasing arrangements. This cost is even higher in in Afghanistan are over US$ 1016, compared to the average countries with poor domestic competition. In Afghanistan, cost of international transit17 in India and Pakistan (US$4.93 for instance, due to the near monopoly of Afghan Telecom in and US$6.62 respectively). When compared to neighboring providing international bandwidth to retail providers, costs Southeast Asian countries such as Malaysia (US$2.71) and for bandwidth in the capital Kabul are over five times what Singapore (US$0.73), the costs paid by all South Asian coun- it costs at the border. In addition to high costs, the resilience tries are higher, despite steady drops in the cost of submarine of international links remains a concern. In May 2020, for connectivity in India and Pakistan over the last five years. example, Bhutan’s internet was significantly affected by the The high costs paid by landlocked countries are attributable Amphan cyclone, as both international links to the country passed through the narrow Siliguri corridor from Kolkata. The absence of cable landing stations in the north-east coast FIGURE 4. International Internet Bandwidth (Gbps) over Time of India is particularly challenging for Nepal and Bhutan, as 35,000 international bandwidth they procure needs to be routed over 2200 km to the border. 30,000 Within countries, middle mile networks deliver connectivity 25,000 to proximate locations for further downstream distribution to 20,000 local communities. Gaps in middle-mile infrastructure (national 15,000 fiber-optic and microwave backbone networks) were found in all South Asian countries, albeit with significant variances. 10,000 Investments in the middle-mile networks, especially wire- 5,000 line networks built with fiber optic cables, are essential to 0 improving end-user internet connections, as their demand 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 for data has increased, requiring higher capacities upstream. Over the last five years, the highest growth in the length of the Afghanistan Bhutan India Nepal fixed transmission network took place in Sri Lanka, and the Bangladesh Pakistan Maldives Sri Lanka lowest growth in Afghanistan (Figure 4). Across the region, Source: Authors’ calculations using data from Telegeography (as of Q2 2021) the share of the population living at 10, 25, and 50 km from a TABLE 1. International Internet Bandwidth (Gbps) over Time Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Afghanistan 3 5 14 26 38 61 85 112 146 167 Bangladesh 22 38 76 141 240 442 692 1,186 1,842 2,786 Bhutan 1 1 5 6 8 12 24 37 50 53 India 917 1,207 1,652 2,469 4,082 8,462 11,526 13,833 18,161 22,933 Maldives 1 1 1 2 3 4 12 30 46 90 Nepal 8 12 19 63 107 153 228 317 389 498 Pakistan 137 195 303 485 645 892 1,162 1,982 2,817 3,905 Sri Lanka 33 53 80 114 155 219 316 452 562 744 Source: Authors’ calculations using data from Telegeography (as of Q2 2021) 16 As of Q2 2020; through interviews with internet service providers 17 10 GigE weighted median cost, Q2 2021 18 The Digital Economy in South Asian Countries: Prospects and Challenges transmission link varies: Sri Lanka and Bangladesh have the additional barrier, leading to less frequent and less cost-effec- highest share of population less than 10 km from a transmis- tive use of existing infrastructure. sion link (with their entire population less than 50 km from a Access to high quality and affordable last mile connectivity transmission link). Despite having the longest network length (for end-users) is highly uneven within and across South (in kilometers), India has the highest share of population Asian countries. Fixed broadband (critical for stable, high-ca- (more than 82.5%) that are more than 10 kilometers away pacity data transactions such as online education, video from a transmission link, highlighting the need for greater streaming, and enterprise use) is particularly limited, and investments in the country’s middle mile. When existing fixed where available, of poor quality. Closing the fixed broadband transmission links are overlaid on a map of population density coverage gap in South Asian countries will be vital to the in India (Figure 5), it is easily observable that areas with lower region’s development. Research conducted for the World density (rural communities) are significantly lagging. Outer Development Report 2021 estimates that 660 MB of data atolls in Maldives and rural areas of Afghanistan lag the most, per user per month is needed to carry out basic online activ- with over 30% and 20% of the population living more than 50 ities such as learning, online shopping, and accessing public km from a fixed transmission link. The absence of good infra- services, health services, and news. When the list of online structure sharing practices across South Asian countries is an FIGURE 5. Fixed Transmission Networks: Length and Growth (2015-2020) 80 2,500,000 70 2,000,000 60 50 1,500,000 40 30 1,000,000 20 500,000 10 0 0 India Pakistan Bangladesh Sri Lanka Nepal Afghanistan Bhutan Maldives % growth in route lenght (2015–2020) Lenght of transmission networks in kms (2020) Length of transmission networks in kilometers, 2015-2020 Country 2015 2016 2017 2018 2019 2020 India 1389463 1478397 1505897 1729549 1871993 2075796 Pakistan 54990 54990 54990 54990 94990 100684 Bangladesh 24472 44452 49136 58636 58636 67236 Sri Lanka 14656 28128 28128 28128 48128 53128 Nepal 1572 1723 1723 4986 4986 4986 Afghanistan 3862 3862 3862 3862 3862 4700 Bhutan 926 926 926 926 926 3243 Maldives 1253 1253 2453 2453 2453 2453 Source: Authors’ calculations using ITU World Transmission Maps 19 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives FIGURE 6. Transmission Links, IXPs and Submarine Cables Overlaid on a Map of Population Density, South Asia Source: ITU World Transmission Maps 20 The Digital Economy in South Asian Countries: Prospects and Challenges activities is expanded to include access to social media and FIGURE 7. Share of Population less than 10, 25 and 50 km from video streaming, the estimated minimum amount of data a Transmission Network needed is around 6 GB per month per user18. Beyond sup- porting the increased volume of data transactions, last-mile India fixed broadband networks also support stable, high-quality Afghanistan connections with greater speeds, enhancing the overall end- user experience. South Asian countries have a long way to go Bhutan in this regard: while the island nation of Maldives leads with Maldives 10 percent fixed broadband subscriptions, all other countries have single digit subscription rates (Figure 7). Quality is of Nepal equal concern, with Afghanistan scoring the poorest in terms Pakistan of fixed network quality (ranked last in Ookla’s Speedtest Global Internet Index with an average fixed broadband Bangladesh download speed of 1.7 Mbps). Afghanistan is followed by Sri Lanka Pakistan and Bhutan, both of whom have median speeds less than 10 Mbps over their fixed networks. 0 20 40 60 80 100 3. Importantly, a significant usage gap persists in the < 10 km < 25 km < 50 km > 50 km South Asia region. Compared to other regions in the Source: Authors’ calculations using ITU World Transmission Maps world, the region has the highest percentage (61%) of people living within the range of a telecommunications network, but not using the internet. This has remained FIGURE 8. Fixed Broadband Subscriptions per 100 Inhabitants, unchanged since 2017. 2019 The large usage gap is driven by low adoption across the most populous countries in the region —Bangladesh, India, 12 and Pakistan (Figure 8) — as well as limited adoption by low-income groups and women. Reducing gaps in coverage 10 requires not only network investments but also enabling regulatory policies relating to spectrum allocation and management. Reducing gaps in usage, on the other hand, 8 require a deeper enquiry into the drivers of poor internet adoption across different demographics. For example, whilst 6 the mobile ownership gap in the region has dropped from 26 to 19 percent, and the mobile internet usage gap from 67 to 4 36 percent, South Asia continues to have the widest mobile gender gaps globally. Women in the region are 36 percent less likely to use mobile internet than men, and early research 2 during the COVID-19 pandemic suggests that these gaps 0 Maldives Sri Lanka Bangladesh Nepal India Bhutan Pakistan Afghanistan Source: TU World Telecommunications Indicators Database 2020 18 Chen, 2021 21 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives have been widening.19 Nationally representative After Access FIGURE 9. Coverage Gaps and Usage Gaps by Country, Surveys also show significant rural-urban gaps, with India and South Asia Bangladesh showing the widest gaps among those countries surveyed (Figure 9). 100 4. There are three primary reasons for the usage gap in 80 South Asia: digital literacy, affordability, and relevance. Digital literacy was identified as the main barrier to usage 60 in nationally representative surveys across Nepal, India, Bangladesh, Pakistan, and Sri Lanka. The second most 40 important barrier overall is affordability. The only exception is Sri Lanka, where relevance (such as the lack of availability of 20 local language content, native apps) played a more central role than affordability. 0 Afghanistan Nepal Pakistan Bhutan Sri Lanka Bangladesh India Maldives Affordability is a nuanced, multi-dimensional problem in South Asia, but one that must be addressed if the region is to reap the benefits of a digital economy. Greater affordability is positively correlated to higher internet usage. The demand Connected Usage Gap Coverage Gap for data for the purpose of work, learning, health, and enter- tainment, particularly during the COVID-19 pandemic, has Source: Authors’ calculations using ITU and GSMA data increased to an estimated 6 GB per user per month. This rise in demand, along with the continuing development of more and more data-hungry content and applications, will have FIGURE 10. Rural-Urban Gaps in Internet Use implications on end-user data spending. Unless data affordabil- 60 ity is successfully promoted, the affordability gap will further exacerbate existing digital divides. 50 Currently, fixed broadband packages are unaffordable for most end users in South Asia. The UN Broadband Commission rec- 40 ommends a threshold of 2% average GNI per capita for 5GB of 30 fixed broadband data. Sri Lanka and Nepal are the only coun- tries in the South Asia region that provide fixed broadband at, 20 or below, this recommended threshold; even in those cases, higher speed connectivity—at speeds considered as entry-level 10 in other parts of the world—is typically unaffordable.20 Across all South Asian countries, the cost of a 5GB broadband pack- 0 age is unaffordable for the bottom 40% of the population, with India Bangladesh Nepal Sri Lanka Pakistan the average cost particularly high in Afghanistan and Pakistan (Figure 13). The price of 1.5 GB of mobile broadband data in the region is Urban Rural Gap relatively more affordable than fixed broadband, at an average Source: After Access Surveys (2017-18) of 2.2% of monthly GNI per capita. While the average cost of mobile broadband in the region is close to the UN Broadband Commission benchmark of 2% of GNI per capita, it hides some critical differences: whilst the per capita use of mobile 19 Mobile Gender Gap Report 2021, GSMA. 20 For example, a 30 Mbps fixed broadband connection in Sri Lanka could cost LKR 10450 (about US$50); this is equal to 15 percent of GNI per capita on an annualized basis. European Union member states define 30 Mbps as basic broadband, with current targets to deliver 100 Mbps to all households across that region. See https://digital-strategy.ec.europa.eu/en/library/connectivity-european-gigabit-society-brochure 22 The Digital Economy in South Asian Countries: Prospects and Challenges FIGURE 11. Reasons for not using the Internet FIGURE 12. Data Use vs. Data Costs, India (2014-2018) 10 $5 100 $4.41 8 7.7 80 $3.53 $4 60 6 $3 4.1 40 4 $2 20 $1.12 2 $1 1.2 $0.30 $0.17 0 0.3 0.4 Sri Lanka 0 $ Bangladesh Pakistan Nepal India 2014 2015 2016 2017 2018 Average data usage per data subscriber (GB per month) Digital literacy A ordability Relevance Other Average data revenue (US$ per GB) Source: After Access Surveys 2017-18 Source: Authors’ Calculations using Data from the World Development Report 2021 FIGURE 13. Cost of 5GB Fixed Broadband in South Asia (PPP$ FIGURE 14. Average cost of data-only Mobile Broadband (1.5 and % of GNI per capita) GB) as a % of GNI per capita (2019) 16 60 10 25 14 50 8 20 12 40 10 6 15 8 30 4 10 6 20 4 2 5 10 2 0 0 0 0 Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Afghanistan Maldives India Nepal Fixed-broadband Internet 5GB, as a % of GNI pc Data-only mobile broadband 1.5GB; as a % of GNI pc Fixed-broadband Internet 5GB; PPP$ Data-only mobile broadband 1.5 GB, PPP$ Source: ITU World Telecommunications Indicators Database 2020 Source: ITU World Telecommunications Indicators Database 2020 23 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives FIGURE 15:.Cost of Data (1GB, 2GB, 5GB Packages) in South Asia (2020) 12% 10% 8% 6% 4% 2% 0% Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Cost of 1GB of mobile broadband Cost of 2GB of mobile broadband Cost of 5GB of mobile broadband data as a % of GNI per capita data as a % of GNI per capita data as a % of GNI per capita Source: A4AI and ITU, 2020 FIGURE 16. Expenditure on Mobile Phone Voice and Data Expenditures, between the Bottom 40% of Income Distribution and Others 0 1 0 1 0 1 0 1 0 1 Bangladesh India Nepal Pakistan Sri Lanka Mean of dataexp Mean of mobexp Source: After Access Surveys 2017-18 broadband may be increasing, costs have almost doubled in For example, in Bangladesh, for the bottom 40%, the cheapest landlocked countries such as Afghanistan and Nepal. 30-day data package (with at least 660MB) costs about 2.6% GNI per capita and the cheapest 30-day data package (with The poor are the most affected by these high prices. at least 6GB) costs about 5.6% of GNI per capita. Both these Nationally representative surveys in South Asia conducted in rates are higher than the 2% threshold defined by the A4AI. 2017-18 show significant differences between the expenditure on mobile phone data by the bottom 40% of income distribu- tion and others. 24 The Digital Economy in South Asian Countries: Prospects and Challenges 5. Device affordability is yet another challenge for the FIGURE 17. Smartphone Price as a % of GNI per Capita South Asia region. The costs of devices vary across countries in the region, Bangladesh with Maldives having the highest costs, followed by Pakistan and India. Low-cost smartphones make a range of activities possible—including access to video learning, telemedicine, and Sri Lanka ecommerce—in a way that basic phones cannot. Nationally representative surveys show that the proportion of smart- Bhutan phone and feature phone users is especially low in India and Pakistan where the cost of smartphones is higher, compared India to Bangladesh and Sri Lanka, where the cost of a smartphone as a percentage of average GNI per capita is comparatively lower. These higher prices are often due to taxes and duties Pakistan imposed on these devices, which are sometimes perceived as luxuries. Local manufacturing capacity is emerging in some Maldives countries, which could help alleviate this challenge, but might need improved regional approaches to ensure that all of South 0 20 40 60 80 100 Asia can benefit from such developments.21 Source: A4AI Smartphone Affordability Database 2021 If South Asia is to capitalize on the benefits of the digital economy, these gaps in affordability would need to figure prominently in policy and regulatory debates and actions. FIGURE 18. Proportion of Smartphone, Feature Phone, and Basic Phone Users in select South Asian countries Research suggests that individuals are 5% less likely to use the mobile internet if the average cost per 1 GB of mobile data is more than 2% of an individual’s monthly income. Further, Nepal individuals are 4% less likely to adopt the mobile internet if the average cost of an internet-enabled phone (smartphone or Bangladesh feature phone) is more than an individual’s monthly income. Recommendations India Pakistan • Ensure adequate and cost-efficient international redundancy for landlocked countries. This is critical in the context of increased risk of natural disasters Sri Lanka and socio-political instability in neighboring regions. 0 20 40 60 80 100 Access to private sector owned and operated terrestrial fiber links, as well as an open and fair access regime for Smartphone Feature phone Basic phone international gateways, is equally important. Currently, Source: After Access (2017-18) South Asian landlocked economies are dependent on costly but low-capacity international links with low redundancy. For greater resilience, governments could diversify access to international fiber optic connec- tions and liberalize access to international gateways by curbing monopolistic pricing (such as what exists in Afghanistan). In the short run, existing regional and sub-regional bodies could also provide platforms for dialogue and coordination to improve international 21 https://www.canalys.com/insights/The-driving-forces-behind-the-high-growth-South-Asian-smartphone-markets 25 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives connectivity in the short run. This will also help that could be taken to improve affordability vary across increase the use of international and domestic internet South Asian countries. However, generally speaking, bandwidth by neighboring countries like Pakistan, the review, removal, or reduction of sector-specific India, and Bangladesh. taxes would greatly improve affordability and access, and stimulate demand. Sector-specific taxes include • Bridge critical gaps in the middle and last mile by taxes on voice and data, import duties (Afghanistan), promoting investments in these segments, rolling and retail taxes on digital devices up to specific thresh- out new networks, and upgrading older infrastruc- olds (India, Maldives). Programs for device and service ture to be energy-efficient and climate-responsive. affordability should be targeted and sustainable. A Those investments that have been concentrated focus on the last two quintiles of the income distribu- primarily in urban areas and towns (in Pakistan, tion would be particularly impactful. Device access for Bangladesh, Nepal, and parts of India), could be the poor through poverty alleviation programs in other extended to reach lower-tier cities and districts. The regions suggest positive effects of device distribution, rollout of fiber, rather than existing microwave connec- especially for women and female-headed households.22 tions, could be prioritized where feasible, with a view to securing high bandwidth and throughput between • Ensure the effective utilization of Universal Service locations. Even in countries with high last-mile cover- and Access Funds to boost adoption. These are age, unconnected communities are often marginalized presently deployed in a non-transparent manner along other dimensions of exclusion (scheduled tribes, with varying success across the region. Improving minorities, and the poor) and thus, closing remaining transparency of universal service funds to ensure that such critical gaps remains a priority. the funds collected are spent on connectivity projects in a timely manner would be a step in the right direction. • Facilitate cross-sectoral, passive, and active infra- This can be achieved through the effective tracking and structure sharing for greater cost efficiency in monitoring of the Funds. Data on fund contributions, infrastructure deployment, through appropriate disbursements, and projects under design and imple- policies, regulations and enforcement. The potential mentation could also be made publicly available in an for infrastructure sharing is still untapped across the open data format, with disaggregation by gender and South Asia region. To remedy this, governments may other factors (e.g., age, location, income). Governments consider developing and actively enforcing policies for can also use funds more effectively to provide public greater sharing of mobile network towers (for example access spaces, public Wi-Fi spots or zones, subsidized in Afghanistan, Nepal, Bangladesh, and Sri Lanka), as devices for households, as well as digital skills training. well as the sharing of utility poles, dark fiber owned by utilities, ducts on highways, and metro area networks. • Enhance the public-private dialogue to identify Governments could adopt policies to ensure open how existing legal and regulatory frameworks access to the backbone network. They could require all can be updated to reflect recent innovations in major infrastructure programs (such as roads, railways, technology and business models and respond to pipelines, and energy distribution) to provide for a fiber the emerging global and regional opportunities of link, in line with “dig once” policies. Moreover, harmo- the digital economy. Pockets of isolated excellence nizing rights-of-way regulations could enable operators in regulatory reform and innovative financing exist to deploy infrastructure without having to navigate across several key reform areas in South Asia. Greater needlessly protracted government processes. regulatory coordination and stakeholder engagement can serve to identify policy levers to rapidly bridge • Address the usage gap by increasing affordability both market and access gaps, and foster digital inclu- through innovative pricing, lower sector-specific sion across the region. costs, and partnerships for device affordability. Usage gaps do not only stem from low purchasing power for devices and data, but also from the lack of digital skills and awareness. The specific measures 22 Mid-line evaluation, World Bank’s GEWEL Project in Zambia (2020). 26 The Digital Economy in South Asian Countries: Prospects and Challenges Digital Public Platforms Digital public platforms consist of the government’s front- simply as digitizing existing manual and paper-based systems, and back-end systems and the interfaces that facilitate public processes, and information (i.e., the traditional ‘e-government’ sector service delivery and operations. Digital identification paradigm), but instead as an opportunity to re-imagine how systems, data sharing and exchange layers, and digital gov- services and operations function (i.e., the ‘digital transfor- ernment service platforms are the vital ‘rails’ that underpin mation’ paradigm). In other words, digital public platforms digital transactions and connections for people, businesses and are just as much about business systems and processes as governments. Public and private sector service providers can technological systems and processes. Furthermore, digital build their own systems on top of common or shared public public platforms are an opportunity to unleash the benefits platforms (‘soft’ infrastructure), thereby enabling economies of using and re-using information while also safeguarding of scale, agility, integration and interoperability for the delivery against misuse, as envisioned in the recommendations of the of increasingly responsive and sophisticated services. When 2021 World Data Report on Data for Better Lives (in particular rolling out social assistance or cash transfer programs, for the ‘new social contract for data’). Some examples impacts of instance, a government agency could do this more quickly digital public platforms, from inside and outside of the region, and easily by building their registration process on top of a are captured in Box 3. digital identification system (to verify the applicants) and their Designing digital public platform ecosystems as ‘stacks’ eligibility determination process on a data exchange layer (to characterized by open standards, open interfaces, data cross-check relevant databases for inclusion and exclusion interoperability and complementary functionalities can unlock criteria). When COVID-19 hit, countries that had whole-of-gov- exponential value for people, businesses, and governments. ernment digital public platforms in place (such as Singapore Stacks are a common concept in software development and and South Korea), were in a much better position to rapidly roll consist of a set of components working together seamlessly out expanded social protection programs and maintain conti- to execute an application. The concept can also be relevant to nuity of services through digital and online channels. data flows. Thus, applying stacks to digital public platforms Well-designed and well-implemented digital public plat- means that digital platforms (including those in the private forms can make government and private sector services and sector) can be built on top of each other easily, providing the operations more inclusive, accessible, efficient, and effective, benefits of economies of scale and creating opportunities for positioning governments as enablers for thriving digital econo- innovation. The ‘India Stack’ is a world-leading example of mies and societies. Key to achieving these outcomes are strong this concept in action, with application programming inter- analogue foundations such as clear institutional arrangements faces (API) enabling government agencies and businesses to and whole-of-government approaches (to coordinate policies, consume digital identification, digital payments, electronic resources, and initiatives), comprehensive legal frameworks signatures, and personal data empowerment services—and and enforcement (to provide certainty, accountability, trans- the combination thereof—to build presence-less, cashless, parency, promote trust and other safeguards), application paperless, and consent-based transactions. The process for of human-centered design and stakeholder engagement (to opening a bank account, for instance, was reduced from days ensure inclusion and responsiveness), and strong data gover- to minutes as a result. The Singapore National Digital Identity nance (to promote the interoperability, portability conditions (NDI) stack is another good example, with APIs allowing and security that allows the use, re-use and protection of anyone to build applications based on trusted data, identity, data). Crucially, digital public platforms should not be seen access, and services. 27 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives BOX 3. Examples of impacts of digital public platforms in South Asia and beyond • Bangladesh – preventing child marriage: The Certification vaccination centers. By October 2021, India had crossed 1 Before Marriage Registration to Stop Child Marriage Project billion vaccinations managed on CoWIN. has developed an Unstructured Supplementary Service Data (USSD)-based application that allows marriage regis- • India – reduced workfare costs: In a study of the national trars to cross-check the age of individuals seeking marriage rollout of an electronic program management platform against birth registration records, as well as allowing the called the Central Planning Scheme Monitoring System community to report cases of suspected child marriage (CPSMS), expenditures in workfare programs fell by 24 by Short Messaging Service (SMS). The 2017 pilot of this percent, without any statistically significant loss in the application identified 3,750 underage individuals among number of workdays or workers hired.2 The study actually 50,000 requests. found that employment increased in some districts owing to increased participation, and the wealth of program offi- • Estonia – online government services: In Estonia, more than cials was reduced by around 10 percent, implying that the 99 percent of government services can be fully transacted rollout also contributed to reducing corruption. online, without the need to visit an office nor sign and submit physical documents, saving the average citizen or • Nepal – tax collection: Since the introduction of the resident five days per year in reduced bureaucracy. This is Integrated Tax System, which facilitates registration for enabled by the national digital ID, which allows citizens and various taxation services, online payments, and interop- residents to not only prove who they are online with high erability with other taxation and financial management levels of assurance but also digitally-sign documents, as systems, 100 percent of value added tax (VAT) returns have well as X-tee, the national data exchange layer that allows been filed online through this system, easing the process information systems in nearly 700 authorized government for taxpayers and authorities, while also increasing overall and private sector institutions to share trusted information revenue. in a seamless fashion. As of December 2021, X-tee had • Pakistan – COVID-19 social protection response: The Ehsaas facilitated nearly 10 billion transactions. Emergency Cash program was launched in April 2020 to • India – digital ID and financial inclusion: Since its introduc- reduce the economic burden on 12 million poor families tion in 2009, India’s foundational identification system, caused by the pandemic. 4.5 million existing beneficiaries Aadhaar, has contributed to rapidly increasing financial of the Benazir Income Support Program (BISP) received a inclusion from 35% in 2011 to 80% in 20171, with the top-up to their usual payments, and the Government used most significant increases seen among women and the a USSD registration process, integrated with the national ID poor. Aadhaar enabled simplification and digitalization of system and the National Socio-Economy Registry (NSER), account opening processes through its electronic Know to cover an addition 7.5 million families. The rapid and Your Customer (e-KYC) functionality and this, combined successful rollout of Ehsaas was enabled by having the with expansion and digital delivery of Direct Benefits national ID system and NSER database in place. 3 Transfer (DBT) programs addressed supply- and demand- • Thailand – COVID-19 social protection response: In a matter side constraints for accessing financial services. of days, the Ministry of Finance developed a website that • India – COVID-19 vaccination delivery: To streamline regis- allowed more than 14 million informal workers affected tration, appointments, management, and certification of by lockdowns to apply online for emergency cash assis- COVID-19 vaccinations, the Ministry of Health and Family tance. The website integrated with the national ID system Welfare rolled out the Covid Vaccine Intelligence Network to immediately verify the identity of applicant, after which (CoWIN) in January 2021. CoWIN has been integrated with the national ID was used to cross-check if the applicant Aadhaar and allows other identification to be provided was indeed eligible or already receiving benefits being for registration, which reduces data entry at vaccination provided to formal workers and farmers. Payments were centers and allows provision of paper certificates at the made, also in a matter of days, to the bank account that the beneficiary had linked to their national ID as part of the PromptPay real-time retail payments system. 1 Global Findex Surveys. 2 Banerjee, et al., “E-governance, Accountability, and Leakage in Public Programs: Experimental Evidence from a Financial Management Reform in India,” American Economic Journal: Applied Economics, October 2020. 3 https://thedocs.worldbank.org/en/doc/760541593464535534-0090022020/original/WorldBankG2PxCOVID19PakistanBrief.pdf 28 The Digital Economy in South Asian Countries: Prospects and Challenges FIGURE 19. India Stack Key Findings 1. Foundational identification systems in South Asia can provide a platform for the digital economy through the BOX 4. Best Practices for Digital Identification Systems creation of ‘digital stacks’– but gaps in inclusion and Identification systems can enable and boost service digitalization, trust remain important challenges in the region. innovation and expansion. However, they can be difficult to implement Identification systems can facilitate and improve access and because they inherently interface with a range of political, social, legal, delivery of services across both the public and private sectors. and cultural dimensions. Moreover, if not well-designed, identification systems can increase risks related to data protection and socio-eco- Enabling online transactions with the same levels of trust nomic exclusion. To help countries to navigate these opportunities and security as face-to-face interactions can unlock enor- and risks, thirty international, regional, private sector, and academic mous opportunities for digital government, digital services organizations have endorsed the ten Principles on Identification for and innovation as a whole. However, it is vital that the design Sustainable Development as a guiding framework across three dimen- and implementation of identification systems are in line with sions of inclusion, design, and governance. international good practices, in particular with respect to fos- Pillar 1: Inclusion tering inclusion and trust (see Box 4). 1. Ensure universal access for individuals, free from discrimination. 2. Remove barriers to access and use. South Asian countries have made significant progress Pillar 2: Design introducing foundational identification systems and, in some 1. Establish a trusted—unique, secure, and accurate—identity. cases, strengthening accessibility, design, and governance, 2. Create a responsive and interoperable platform. in line with the ten Principles on Identification for Sustainable 3. Use open standards and prevent vendor and technology lock-in. Development, as mentioned above. India, Pakistan and Sri 4. Protect privacy and agency through system design. Lanka stand out for having re-positioned their identification 5. Plan for financial and operational sustainability. systems from systems intended merely for card registration Pillar 3: Governance and distribution, to key components and foundations of 1. Protect personal data, maintain cyber security, and safeguard broader ‘stacks’ for service delivery and data empowerment people’s rights through a comprehensive legal and regulatory for individuals. This re-positioning was likely supported by framework. the institutional arrangements in these countries. In India, the 2. Establish clear institutional mandates and accountability 3. Enforce legal and trust frameworks through independent oversight entity responsible for identification sits under the Ministry and adjudication of grievances. of ICT (Unique Identification Authority of India or UIDAI) Source: www.idprinciples.org/ and in Pakistan, it is semi-autonomous (Pakistan’s National Database and Registration Authority or NADRA). In Sri 29 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Lanka, a new identification system is being developed by the gaps still persist (Table 2), coverage of the national identity Information and Communication Technology Agency (ICTA). card reached 86.5% as of 2017, a significant accomplishment While other foundational identification systems in South Asia considering the country’s geographic and security challenges. have had some success, they have not been strategically repo- The coverage of Sri Lanka’s national ID system (managed sitioned in this manner. by the Department for Registration of Persons) is also high, with over 93% of the population having a national ID card. India’s Aadhaar system is noteworthy in terms of scale and Once again, however, a significant gender divide remains (see the use of pioneering features such as the minimal number of Table 2). In 2003, Sri Lanka reformed its nationality law to demographic data fields collected, separation of legal status provide nationality and identification to 90,000 Hill Country from unique identification, reduced emphasis on a physical Tamils, thereby resolving their statelessness. card for authentication, and a registration approach that relies on an ecosystem of authorized agencies and registrars. Both Pakistan and Sri Lanka are developing innovative In 2017, 97% of Indian residents aged 15 and over had an solutions in this regard. NADRA launched several innovative Aadhaar number, which is a significant feat considering that projects in 2021 such as a smartphone app with self-biomet- the system was only launched in 2010. Aadhar is also part of ric enrollment and a shift to decentralized identity wallets. the JAM trinity including Jan Dhan bank accounts and mobile Spearheaded by ICTA, Sri Lanka’s Unique Digital Identity phones as well as direct benefit transfer schemes. As such, (SL-UDI) program is a new digital authentication layer that Aadhar contributed to a massive increase in financial inclu- will exist on top of the existing national ID system, and will sion across the country, from 35% in 2011 to 80% in 2017, be designed as the foundation for the national data exchange with the most significant gains among women and people (NDX) and the broader ’stack’ that ICTA is envisioning. living in remote areas. Bangladesh’s national ID system, which emerged from a voter Aadhaar has served as a core enabler for digital public plat- registration system (originally supported by UNDP and then forms: it was the springboard for several other successful by the World Bank between 2011-2018) now covers 89% of Digital India initiatives such as the India Stack and individual adults. However, the system has not been as effectively used layers including UPI, eSign, DigiLocker, data protection and for service delivery and digital transactions as was the case in empowerment architecture (DEPA), as well as more recently, India and Pakistan. the CoWIN platform to support India’s COVID-19 vaccina- Bhutan has a well-established national ID system managed by tion delivery and certification program. Furthermore, it has the Ministry of Home Affairs and has begun piloting a digital scaled innovative privacy-by-design features such as tokeni- identification system for online transactions, implemented zation through the concept of a Virtual ID. A virtual ID is a by the Department of Information Technology and Telecom. temporary, revocable 16-digit random number, mapped to the For its part, Afghanistan has been simultaneously expanding Aadhaar number, that can be used whenever Aadhar-based coverage of its existing paper-based foundational identifica- authentication or e-KYC services are carried out, with a view tion system and is rapidly rolling out a digitalized equivalent to minimizing potential privacy risks associated with the dis- (2020-21). Nepal launched a pilot for a new foundational closure of the original number. However, Aadhaar has already identification system in 2015, with the initial target of enroll- been operational for a number of years without an enabling ing 100,000 people. However, the project has struggled to legislative framework and, as a result, has been subject to scale up since then, and this has constrained improvements in constitutional challenges. The courts ultimately upheld the social protection and government service delivery. system but the case provided the impetus for several positive legal and regulatory reforms. A number of key challenges remain across the region, particu- larly in terms of gender gaps. There is also significantly lower Pakistan and Sri Lanka have also made concerted efforts coverage of youth in Bangladesh, Pakistan and to a lesser to increase the accessibility of foundational identification extent in Sri Lanka. These disparities need to be addressed systems for vulnerable populations, with the intention to pro- through the identification and removal of supply-side issues, mote broader inclusion for digital public platforms. Pakistan’s e.g., by bringing registration opportunities closer to people National Database and Registration Authority (NADRA) has and streamlining the administrative process for enrollment. made important outreach efforts to close coverage gaps and Demand-side initiatives are also critical, such as providing promote inclusion, and introduced innovative practices, such information about the importance of obtaining an ID and as all-female registration centers. As a result, although gender creating appropriate incentives for registration. Flexibility 30 The Digital Economy in South Asian Countries: Prospects and Challenges TABLE 2. Foundational ID System Coverage and Digital Capabilities in South Asia Authentication Authentication ID coverage (adults) Digitized ID services provided services provided Country database for face-to-face for online Total Women Men transactions transactions Afghanistan 71.40 percent 48.40 percent 94.20 percent Yes No No Bangladesh 88.70 percent 87.80 percent 89.50 percent Yes Yes No 1 Bhutan No Findex data Yes No Public sector only India 96.80 percent 96.70 percent 96.80 percent Yes Yes Public sector only 2 Maldives No Findex data Yes Yes Public sector only 3 Nepal No data / NID in pilot stage Pilot Pilot No Pakistan 86.50 percent 77.50 percent 95.10 percent Yes Yes No Sri Lanka 93.50 percent 91.60 percent 95.80 percent Yes No No 2017 ID4D-Findex Survey; 2018 ID4D Global Dataset, 2021 World Development Report; original research Source: World Bank 2017a, 2018, 2021; original research. 1. UNICEF data on under-five birth registration rate indicates 100 percent coverage for Bhutan as of 2010. Although an imperfect proxy, this suggest that foundational ID coverage among adults is also likely to be high. 2. UNICEF data on under-five birth registration rate indicates 99 percent coverage for Maldives as of 2016–2017. Although an imperfect proxy, this suggest that foundational ID coverage among adults is also likely to be high. 3. Estimates by the Forum for Women, Law & Development from 2015 suggest that the coverage of citizenship certificates, which are commonly used for identification purposes, was about 77 percent as of 2014, with a projected decline to 74 percent by 2021. See Shrestha, Mulmi, and Dangol 2015. and choice in identification requirements when it comes to as well as digital service access across borders, just as the accessing basic services should also be retained. Access to eIDAS regulation does within the European Union. Current basic services should not exclusively require a specific form systems in South Asia are predominately designed for face- of identification (such as a national identity card or number), to-face transactions. Bhutan and Maldives have introduced as this would create barriers to access and further exacerbate digital identification in the form of single sign-on solutions, existing divides. In countries where ID systems and civil regis- exclusively for accessing government services. However, this tration systems are distinct (Bangladesh, India, Pakistan, and restricts any broader benefits, such as remote and online Sri Lanka), fostering interoperability between both systems bank account openings, loan applications, and secure remote will be crucial to ensuring access to identification and accu- onboarding for private sector jobs and service delivery rate, trusted records from birth to death. platforms. India’s Aadhaar supports some online use cases through SMS-based One Time Passwords, for instance, but Currently, only Bangladesh, India, and Pakistan offer identity this does not provide the highest levels of assurance according verification services to third parties for face-to-face trans- to international standards (e.g., through cryptographic secu- actions. Other countries in the region depend on manual rity and binding of digital identity with the natural person). inspection of physical cards to verify identity, which is an Pakistan (NADRA) and Sri Lanka (ICTA) are also currently in inefficient process and increases the risk of fraud. Automated the discovery phase of creating digital identification solutions demographic, biometric, cryptographic, or one-time password for online transactions. With increasing smartphone own- verification for higher risk transactions (such as bank account ership, there is a significant opportunity to develop digital opening, government-to-person payments, passport, and identification systems to accelerate digital transformation. license applications) can provide added assurance and facili- This could include adopting digital public platforms in the tates process automation. form of digital authentication apps (similar to a number of Finally, no country in South Asia has a fully functional digital European and East Asian countries), implementing non-cen- identification system that enables people to prove their tralized models such as identity federations (where there is an identity for trusted and secure online transactions across ecosystem of regulated third party digital identification provid- both public and private sector services. A fully functional ers) and introducing decentralized identity wallets. system could be used to facilitate electronic signatures, 31 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives 2. There is an important gap in data policies and interop- strengthening data governance and interoperability in the erability in most countries in the region health sector through the new Health ID launched in 2021 by The responsible and effective use and re-use of data man- the Ayushman Bharat Digital Mission. In Sri Lanka, ICTA is aged by government, especially personal data, is essential working on a national data exchange (NDX) that would draw for digital public platforms, as well as for most aspects of the on aspects of X-Road (a data exchange platform developed by digital economy. This does not only apply to public sector Estonia, which is effectively a distributed service bus) and the services and operations. Government databases are often data protection and empowerment architecture pioneered in the main authoritative source for certain kinds of informa- the India Stack. tion, such as those related to basic identity attributes and Maldives and Pakistan do not currently have data governance licenses, and these databases thus play a critical role in the and interoperability frameworks or infrastructure. Afghanistan delivery of private sector services. Getting data governance and Nepal have developed e-Government Interoperability and interoperability right, particularly the legal and regulatory Frameworks, but these have not yet been implemented. environment for data protection, is a pre-requisite for any kind Across the region, there are important gaps in data gover- of personal data empowerment framework, which would allow nance when it comes to legal and regulatory frameworks as data subjects to consent to the sharing and re-use of their data well as institutions responsible for setting rules for data pro- in a safe and dynamic way. Institutions also need to be estab- cessing and ensuring sufficient oversight. Data protection, lished and empowered to monitor and enforce data protection cybersecurity, e-transactions and associated frameworks rules effectively. are still emerging in South Asia. Often, they are not backed Data governance frameworks comprise policies and rules that up by institutions that are empowered and competent to define, among other things, what data may be collected, for enforce them. what purpose, who may control or process what data, how An important use case for data interoperability and gov- data is stored and secured, and who may access data, under ernance is to make better use of data for social protection what conditions and for what purpose. Interoperability refers targeting. One anomaly in the region is that although some to the ability of information to be exchanged, and commonly countries have strong foundational identification systems and understood, by different systems. It is facilitated by standards large social protection programs, none have a dynamic social and infrastructure such as APIs, webservices, and service registry at the national level. There are, however, examples of buses. Data governance and interoperability frameworks are information systems that support individual or multiple social intrinsically linked and could even be developed and imple- protection programs, as well as static social registries (such as mented in combination. These frameworks are extremely Pakistan’s National Economic and Social Registry). Social reg- difficult to retroactively implement, however, as data control- istries are information systems that support outreach, intake, lers may be reluctant to change standards, ‘open’, update or registration, and determination of potential eligibility for one share their data. An additional challenge for countries with or more social programs. Being dynamic and up to date in federal structures, such as India and Pakistan, is the coordina- real time, or at least periodically, is important for achieving tion and coherence between central and state/provincial levels adaptive social protection and being able to respond effec- of government. Only Bhutan seems to have operationalized its tively and efficiently to crises, e.g., quickly identifying informal data governance and interoperability framework, through its workers affected by the COVID-19 pandemic. It is important Government Enterprise Architecture (GEA) launched in 2012. to note that there does not always need to be a single registry Bhutan’s smaller size and less complex government structure database —a federation of multiple registries that can commu- may have contributed to its success on this front. nicate easily (often called a virtual social registry) could also be Bangladesh and India have developed and begun imple- used, such as what exists in Chile and Turkey. menting e-Government Interoperability Frameworks and government data standards, with India being more advanced 3. The overall digitalization of government services has in this area. India has shown stronger progress at the sectoral progressed steadily, with Sri Lanka and India perform- level, rather than the whole-of-government level, with the data ing the best and Bhutan making the most significant protection and empowerment architecture layer of the India improvements relative to other countries. However, Stack currently focused on portability and consent-based inclusion and accessibility remain a challenge. data sharing in the financial sector. Furthermore, India is 32 The Digital Economy in South Asian Countries: Prospects and Challenges Given that digital public platforms are intended to support out but Bangladesh, Bhutan, Pakistan, and Sri Lanka have government service delivery more broadly, the overall dig- also shown significant improvement. Notably, the regional italization of governments can be used as a relatively good average score surpassed the global average score for the first proxy indicator for quality and performance of digital public time in 2018 and stayed there in 2020. This indicates that platforms. Although there is no perfect indicator or set of indi- South Asian countries are taking advantage of increasing cators to measure the progress and effective implementation digital access to build digital public platforms that offer online of digital public platforms specifically, the UN E-Government transactional and informational services. Survey23 offers a helpful point of reference and comparison. However, the UN e-government survey focuses on the sup- The average ranking of South Asian countries in this regard ply-side (i.e., the existence of platforms and services) rather has steadily increased between 2010 and 2020 (Figure 20). than on demand-side accessibility and usage. Across all coun- However, according to the 2020 Survey, only Sri Lanka try reports, access was highlighted as a key challenge for both (85th) and India (100th) ranked in the top 100 countries for government-to-person and government-to-business digital e-government development. Bhutan had the most significant public platforms. The barriers identified include reliability improvement in the last decade, jumping 49 places between and affordability of broadband internet access, affordability 2010 and 2020, followed by Sri Lanka (26 places) and Nepal of devices, and digital literacy (of people, entrepreneurs and (21 places). Maldives has seen the biggest decrease in rankings employees). Barriers for accessing and using identification during the same period, falling 13 places (and from the top (foundational ID or other digital identification systems) are 100) to 103 in 2020. Pakistan also saw a decrease in its rank- prevalent, particularly for members of vulnerable groups. ing by 7 places to 153 and Afghanistan has barely moved (168 Gender gaps in accessing and using digital public platforms in 2010 to 169 in 2020). have also been observed in some countries. From the digital public platforms perspective, the Online When large groups of people are excluded from accessing Service Index (OSI)—one of the three main components of and using digital public platforms, their development impact the UN E-government Survey—is likely the most relevant. remains unrealized. With greater inclusion comes greater The evolution of the OSI for South Asia between 2010-2020 accountability, improved communication, control over data, shows good progress for all countries (Figure 21). India stands FIGURE 20. UN E-Government Development Index Rankings FIGURE 21. UN E-Government Online Services Index Scores for for South Asian countries, 2010—2020 South Asian countries, 2010—2020 60 1 80 0.9 0.8 100 0.7 120 0.6 0.5 140 0.4 160 0.3 0.2 180 0.1 200 0 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 Afghanistan Bangladesh Bhutan Afghanistan Bangladesh Bhutan India Maldives Nepal India Maldives Nepal Pakistan Sri Lanka Regional Average Pakistan Sri Lanka Regional Average Source: Ibid Global Average 23 The E-Government Development Index based on the UN E-Government Survey measures: i) the scope and quality of online services quantified as the Online Service Index (OSI); (ii) the status of the development of telecommunication infrastructure or the Telecommunication Infrastructure Index (TII); and (iii) the inherent human capital or the Human Capital Index (HCI). 33 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives new opportunities for entrepreneurship, better and faster There has been some progress in enacting legal frameworks, service delivery, and so on. In parallel, there is an import- such as for electronic transactions, and in establishing ant demand-side challenge to be noted: without people and relevant agencies and mandates. Legal frameworks provide businesses ready to embrace digital transactions, there is certainty and confidence that digital and online transactions limited incentive for governments to invest in the platforms have the necessary legal equivalence to physical and manual enabling them. The COVID-19 pandemic has underscored the processes. Only Maldives has not yet enacted an electronic challenges and opportunities that have been lost due to such transaction law, but has a draft in advanced stages. digital divides. Even as platforms for online learning and tele- The situation in the region in terms of ‘safeguarding’ personal medicine were scaled up, millions of children and adults in the data is still of concern. While some countries have legal frame- region were still unable to take full advantage of them. works that cover data protection and privacy issues in specific One notable good practice has been the establishment of phys- sectoral contexts, only Bhutan and Nepal currently have ical service centers where people—especially those without an omnibus personal data protection law. India, Maldives, internet access and digital skills—are able to access digital Pakistan and Sri Lanka have bills at various stages of the leg- services with assistance. For example, India had 360,873 islative process. The absence of general data protection laws common service centers at the end of the 2019-2020 finan- and data protection authorities with the mandate to enforce cial year. Bangladesh brings digital government services to its these laws leads to considerable uncertainty as well as legal people through its nearly 6,000 Union Digital Centers (UDCs) and operational risks with respect to collecting, processing, and 64 District e-Service Centers (DESC), which serve as one sharing, using, and re-using personal data, which are all core stop shops for such services. UDCs have significantly reduced functions of public digital platforms. and optimized service processing times in Bangladesh: for A ‘whole-of-government’ approach to digital public platforms example, obtaining a birth registration, which previously took and digital transformation more broadly—characterized by seven to eight days, can now be done in at a UDC in less than coordination in common standards and infrastructure—is eight hours. Similarly, death registration certificates can now being realized in Bhutan, India, Maldives, and Sri Lanka. be obtained within 5 hours instead of nearly two days. These also happen to be the countries with the highest 4. Strong political recognition, policies and legal rankings in the 2020 UN E-Government Survey. A com- enablers exist in the region—but limited coordination, mon theme across these four countries is that there is an whole-of-government implementation, and data pro- agency (or in the case of India, a body) with a clear mandate tection frameworks undermine progress. for policymaking and coordination, including enforcement, namely Bhutan’s Department of Information Technology and All South Asian countries have policies and/or strategies Telecom (DITT), India’s Digital India management struc- promoting the development of digital public platforms across ture, Maldives’ National Centre for Information Technology government. Digital Bangladesh (2008), Digital India (2015), (NCIT), and Sri Lanka’s Information and Communication Digital Drukyul (2019) in Bhutan, and Digital Pakistan (2019) Technology Agency (ICTA). In principle, such a body does not are excellent examples of high-profile initiatives with head necessarily need to be at the apex of government. Bhutan’s of government leadership that include the digitalization of DITT and Maldives’ NCIT are attached to Ministries, while government services, not just to improve service delivery Sri Lanka’s ICTA is housed in the Ministry of Technology. to people and businesses, but also as enablers for the digital Digital India’s management structure is headed by the economy. Sri Lanka, too, has laid out a strong vision for its Prime Minister while coordination and implementation are government’s digital transformation (Vision 2024), but it supported by the Ministry of Electronic and Information remains anchored within a specific agency rather than being Technology (MeitY). The institutional arrangements in the a whole-of-government approach. Maldives has included other countries are not as clear. In Pakistan, for example, digital public platforms across its development strategies but while the Pakistan Computer Bureau (PCB) and Electronic has not yet developed a comprehensive standalone strategy. Government Directorate (EGD) were merged to form the Afghanistan has multiple overlapping strategies (e.g., Digital National Information Technology Board (NITB) under the Foundation Strategy for Afghanistan 2019-2021, Digital Ministry of Information Technology and Telecommunications Afghanistan Strategy 2020-2025, and Afghanistan Digital (MoIT), the NITB only has limited enforcement power. Economy Strategic Plan 2019-2023. Although reporting to the head of government directly is help- ful for inter-agency coordination, what is even more important 34 The Digital Economy in South Asian Countries: Prospects and Challenges FIGURE 22. Electronic Transactions and Data Protection laws in South Asian Countries Country Digital Public Platforms Electronic Transactions law Personal Data Protection law Vision Document Electronic Transactions and Electronic Afghanistan Several - Signatures Act, 2020 Information and Communication Bangladesh Digital Bangladesh (2008) - Technology Act, 2006 Digital Drukyul (2019) and Bhutan Information Communications Bhutan Information Communications Bhutan e-Governance Master Plan (2014) and Media Act, 2018 and Media Act, 2018 India Digital India (2015) Information Technology Act, 2000 Draft bill Maldives National Strategic Action Plans Draft bill Draft bill Nepal - Electronic Transactions Act, 2008 Privacy Act, 2018 Pakistan Digital Pakistan (2019) Electronic Transactions Ordinance, 2002 Draft bill Sri Lanka Vision 2024 for ICTA (2020) Electronic Transactions Act, No 19 of 2006 Draft bill is the clarity of roles and responsibilities of key stakeholders. functions as possible. The more power they have, the In some countries, for instance, central digital government more effective they can be. In some cases, difficult deci- organizations or bodies have decision-making power over bud- sions may need to be taken, including consolidation of gets and procurements, especially to enforce standards and agencies and mandates. India and Sri Lanka offer good adoption of common infrastructure. In others, coordination practice examples in this regard, including by having related to digital public platforms is a big challenge, including bodies and organizations with the authority and capac- in Afghanistan (which had an apex body in the National ICT ity to develop and enforce common policies, platforms Council of Afghanistan chaired by the President) as well as in and standards, and by establishing clear roles and Bangladesh and Pakistan (which do not have central coordi- responsibilities among actors. It will also be important nation organizations or bodies). In Bangladesh and Pakistan, to develop the skills and capabilities of civil servants there is considerable duplication of software and hardware so that they are able to conceptualize, design, manage, investments. This does not need to be the case, especially and operate digital public platforms. This may include given the existence of common infrastructure such as national centralizing some implementation functions into a data centers. digital government organization. Sri Lanka’s ICTA, for instance, develops software on behalf of line ministries. Recommendations Beyond the South Asia region, there are useful digital government institutional models in Australia, Brazil, • Support whole-of-government approaches to digital UK and Singapore, that could be adapted to the region. government through institutional and regulatory • Prioritize data protection and cybersecurity to reforms and the development of relevant technical boost trust in digital government services. Bhutan capacity in the civil service. Clarifying institutional and Nepal have already enacted data protection laws, arrangements means defining actors responsible whereas India, Maldives, Pakistan, and Sri Lanka are for policy, strategy, planning, funding, procurement, at advanced stages of introducing general personal delivery, and operations. Ideally, a single body or orga- data protection laws. It is crucial to accelerate these nization should be responsible for as many of these processes and ensure that they align with relevant good 35 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives practices. It is also important to adopt a ‘privacy-by-de- consider prioritizing efforts towards developing digital sign’ approach for digital public platforms from the public platforms that will reach the maximum number get-go, to reduce the risk of data breaches and misuse. of beneficiaries and have the maximum developmental This techno-legal approach will help provide the nec- benefits. With people being the greatest asset of South essary safeguards, certainty, and accountability around Asian countries, developing digital public platforms the collection and use of personal data. that build, protect, deploy, utilize, and empower human capital is the most logical priority.24 An example of such • Strengthen data governance and interoperability a use case is dynamic social registries, a basic infra- frameworks to support better service delivery and structure for the delivery of social protection, which realize the full value of using and re-using data. With could accelerate poverty alleviation by enabling better strong data protection frameworks in place, countries targeting of social assistance and insurance. Thus far, can move to designing and implementing whole-of-gov- no country in the region has dynamic social registries ernment data governance and interoperability at the national level. Similarly, deepening access to frameworks, accompanied by enforcement of relevant financial services will also equip people and businesses standards. As part of these efforts, countries may with the ability to participate more meaningfully in consider the suitability of federated and decentralized the digital economy. An initial focus on a smaller set protocols for data sharing and verification, such as the of priority and high impact use cases could create a Verifiable Credentials standard. This will support use demonstration effect across all sectors. cases such as integrated service delivery, social protec- tion targeting, and digitalized healthcare and education. • Close digital divides and empower women and girls It will also incentivize the private sector to develop by being deliberate about inclusion and human innovative services based on government-managed centered design. Digital public platforms are an (and trusted) data. excellent opportunity for South Asian countries to make progress in closing gender and other divides by • Strengthen digital identification, digital payments, equalizing access to government services. For women and data platforms—and design them as ‘digital and girls, digital platforms provide greater agency stacks’ to enable strategic linkages between them. and opportunities for economic empowerment, such Countries in the region could use their identification as skilling and employment, property purchase and systems as a basis for their own digital stacks to unlock transfer, business applications, social assistance, and presence-less, cashless, paperless, and consent-based social insurance. Deliberate efforts are needed to transactions. Such stacks would use not only a prioritize those services that are especially beneficial whole-of-government but a whole-of-country approach. for women and girls. A greater focus on human-cen- The India Stack and Singapore NDI Stack offer useful tered design is also required, whereby digital public examples. Existing foundational identification systems platforms are developed with empathy for the people would either need to be improved or used as a basis they are being designed for, including an understand- upon which to build additional services, so that digital ing of their specific problems and needs, and how/ identification credentials can be issued, with higher lev- if a proposed solution would address these needs. els of assurance, for trusted remote online transactions This ‘bottom up’ approach contrasts with traditional with both the public and private sectors. Current gaps ‘top down’ approaches that dominate digital public in the access and use of identification systems should platforms in South Asia today. Instilling a culture of also be addressed. human-centered design will ultimately lead to digital • Support high impact and catalytic use cases, such as public platforms and services that are more inclusive healthcare, education, jobs, and financial services. and responsive to the needs of people and businesses, With limited resources, countries in the region could and have greater positive impact. 24 World Bank, 2021. The Converging Technology Revolution and Human Capital: Potential Implications for South Asia. Available at: https://openknowledge. worldbank.org/bitstream/handle/10986/36156/9781464817199.pdf 36 The Digital Economy in South Asian Countries: Prospects and Challenges Digital Financial Services Digital Financial Services (DFS) refer to a broad range of business models have resulted in the rise of DFS, a well-func- financial services such as payments, credit, savings, remit- tioning DFS ecosystem requires the following elements: (i) tances, investments, and insurance, accessed and delivered conducive legal and regulatory frameworks, (ii) enabling through digital channels. They involve new operating models financial and digital infrastructure (payment systems, credit and a wide range of actors in the financial services value chain. infrastructure, and digital connectivity infrastructure), and (iii) DFS increase the speed, transparency, security, cost and ancillary government support systems (data platforms, digital availability of more tailored financial services that can serve ID, and financial management platforms). the poor at scale. Although innovations in technology and FIGURE 23. DFS Maturity in SAR Countries Most SAR Countries STAGE IV FULLY in Early Stages of Widespread adoption DIGITAL Digital Financial STAGE III and usage of DFS by individuals and MSMEs Systems Maturity Moving beyond payments to other DFS products STAGE II (e.g., credit, insurance) More intensive usage of transaction accounts STAGE I for digital payments PREDOMINANTLY Basic access to CASH BASED transaction accounts I N C RE ASE D P E N E T R ATI O N AN D USAG E O F D I G I TAL F I N AN C I AL S E RVI C E S Ancillary • Enhance financial • Establish and expand • Enable automated access Government management system to coverage of Digital ID to digitized Government support systems support Intensive shift of data platforms G2P payments to digital SCOPE TO • Allow Non-bank • Adopt Payment Systems • Establish • Adopt legal measures to ADOPT issuance of e-money law comprehensive enable Open banking KEY POLICY Conducive legal • Implement Simplified • Enable non-banks access Regulatory framework and regulatory CDD to payment systems for DFS providers ACTIONS, ENABLERS TO frameworks • Enable development • Robust consumer • Adopt comprehensive of widespread agent protection framework in legal measure for DEVELOP DFS network place data protection & MATURITY • Develop and implement privacy competition policy Enabling financial • Foster good • Well functioning • Establish credit • Support universal and digital penetration of Payment systems and Infrastructure and Broadband connectivity infrastructures Mobile phones enabling interoperability enhance coverage of • High penetration of and connectivity credit relevant data. Smartphones Source: Adapted from Figure 3, “Digital Financial Services”, World Bank Group, April 2020 37 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Key Findings to a several factors, including the number of financial access points, payment infrastructure, and gender norms. These are As depicted in Figure 23, the maturity of DFS varies across discussed further below. countries in South Asia. While many common elements exist between countries, so do important differences, and this 2. The network of financial access points (ATMs, agents, provides timely opportunities for bridging gaps in DFS inno- retail merchants, etc.) is less than adequate in many vation, provision, and adoption. countries in the region. In this regard, greater private sector investment will depend 1. Bolstered by recent reforms and investments across on agent fees and commissions, agent capacity, and gov- South Asian countries, DFS is showing early promise ernment incentives to expand to underserved areas where in bridging the financial inclusion gap and motivating the business case is less strong. There is significant room to hundreds of millions to formally participate in the facilitate mobile money account ownership, for example in financial system. Afghanistan, both in terms of the process (streamlining KYC South Asia accounts for over 20 percent of all unbanked requirements and account activation) and the costs. This adults in the world. Nevertheless, there is notable improve- needs a robust network of cash-in and cash-out points. In ment in key DFS metrics in the region. For example, in 2019, for instance, there were 3.3 registered mobile money Pakistan, mobile money has grown fourfold since 2015, agent outlets per 1,000 km2 in Afghanistan, compared driven by the high penetration of mobile services (84 per- with 567.1 in Pakistan. Mobile money providers still charge cent), high coverage of the national identification system, and registration fees at account opening and/or maintenance fees identity authentication systems available at the retail level. In that are relatively high compared with informal and cash- Maldives, concerted efforts have been made by the Maldives based solutions such as hawalas. 3G infrastructure is absent Monetary Authority (MMA) to digitalize financial services outside major urban centers in Pakistan and this contributes and expand financial inclusion, and as a result, mobile money to a lower penetration of access points. In Bhutan, difficult penetration has shown a marked increase since the onset of terrain makes it challenging for financial service providers COVID-19. Still, critical gaps in growth and scale persist due to offer services to remote populations in a cost-efficient and TABLE 3. Select DFS Indicators in South Asian Countries (Global Findex)  (All figures in % of adult population) Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Financial institution account 15% 41% 34% 80% NA 45% 18% 74% Used the internet to pay bills or to buy something 1% 4% 1% 4% NA 2% 8% 6% online in the past year Sent or received domestic remittances: through a 0% 19% 0% 1% NA 1% 5% 0% mobile phone Sent or received domestic remittances: through a 2% 0% 3% 1% NA 5% 1% 2% money transfer service Used a debit or credit card to make a purchase in NA NA 10% 12% NA NA NA 17% the past year Used a mobile phone or the internet to access 1% 22% 5% NA 4% 8% 8% an account Made or received digital payments in the past 11% 34% 17% 29% NA 16% 18% 47% year Mobile money account 1% 21% NA 2% NA NA 7% 2% 38 The Digital Economy in South Asian Countries: Prospects and Challenges sustainable manner, and as such, DFS (especially through scoring processes and provide need-based credit products microfinance institutions) becomes even more critical. In and services. Bhutan has a robust payment infrastructure Pakistan, more than 40 percent of accounts are currently which supports different modes of digital payments and inactive, and branchless banking is concentrated in two tel- provides interoperability between banks. The COVID-19 co-owned banks (JazzCash and Easypaisa). Further, Pakistan pandemic boosted digital payments, as they became more has one of the least accessible banking networks in the South widely accepted, and saw the growth of transaction values Asia region. Banking infrastructure has developed at a slow and volumes of various contactless payment services (such pace in the country, with ATMs increasing at around 12 per- as QR codes and digital wallets). In Maldives, the MMA is cent per annum and POS machines at just 4 percent. Agent in the process of implementing a fast payment system that onboarding procedures for branchless banking networks also will enable real-time, 24x7 transfers and payments amongst remain cumbersome. The Nepal Rastra Bank has been grad- and between bank and mobile money accounts. In Nepal, ually creating financial access points through bank branches contactless payment services, like QR code payments, were but has not been able to cover all local government levels due increasingly used during the pandemic. A national QR initia- to Nepal’s difficult terrain and high operating costs. The dis- tive was launched in October 2020, but most QR set-ups are tribution of ATMs and POS has increased over the years, but closed loop and not interoperable. concentrated deployment and sub-optimal usage have led to inadequate coverage and higher operational costs. 4. Gender and cultural norms are leading to a low uptake of digital payments among women. 3. Countries in the region are actively addressing gaps in Generally speaking, this gender gap is common across the core payment systems and ICT infrastructure. region. Policies to change cultural norms are therefore essen- Countries in the region have implemented traditional pay- tial (e.g., expanding the female agent network). In Afghanistan, ment systems covering large value and bulk payments (RTGS access to formal financial services is much lower for women (7 and ACH respectively), established dedicated domestic card percent in 2017) than men (23 percent). The NFIS (National payment infrastructures or national switches (except Nepal Financial Inclusion Strategy) aims to increase the number and Maldives), and set up fast payment systems (except of women owning a transaction account in the country to 12 Afghanistan and Bangladesh). Payments, credit infrastructure percent by 2024. In Bangladesh, where the financial inclu- and interoperability are improving in the region but there are sion gap is one of the widest globally (at 29 percent in 2017), substantial variations across countries. In Afghanistan, a wide adoption of digital financial instruments remains low among range of low-cost digital payment options (e.g., AfPay domes- women despite an increase in mobile phone ownership. This tic card scheme or QR-code standards) have been developed. is driven by various factors, including lower ID coverage Adoption of digital payments by Afghan youth is slow and and digital literacy, less confidence in using mobiles, limited below the national average. Most digital platforms do not offer knowledge of English, patriarchal household dynamics, and e-payment solutions due to lack of demand from customers the fact that nearly 99 percent of digital finance agents in based on limited trust, awareness, digital and financial literacy Bangladesh are men. In Nepal, only 3 percent of women have levels. For e-commerce payments, commercial payment gate- used the internet or a mobile phone to access bank accounts, ways available on the market are expensive and inefficient, while only 13 percent have made or received digital payments. imposing high fixed costs and transaction fees. However, these In Sri Lanka, access to mobile money accounts is evident have been integrated with international payment processors to among young adults, but low digital skills, awareness, and incentivize Afghan diaspora to export to their host countries trust remains a hurdle. In Maldives, innovative DFS products, and to purchase within the country (for family or friends). many developed by banks, have played a noteworthy role in In Bangladesh, the country’s robust payment infrastructure circumventing geographic barriers. However, there are limited supports different modes of digital payments; but full interop- DFS products tailored for specific audiences like women erability between bank accounts, mobile wallets, and other entrepreneurs. In Pakistan, there is evidence of greater payment instruments is yet to be implemented. Acceptance of adoption of national IDs by women after G2P social safety net digital payments, especially among SMEs, needs to be better payments were associated with their national ID. A simi- promoted in the country. The credit infrastructure is evolving lar approach could be taken with respect to mobile wallets. but needs to be further strengthened through digital technol- Concurrently with such initiatives, it is important to accelerate ogies, in order to implement alternate creditworthiness and financial literacy programs for the target population. 39 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives 5. To a large extent, issues related to trust and financial/dig- and dispute resolution mechanisms. The degree of harmoni- ital literacy are common across countries in the region, zation of AML/CFT (Anti-Money Laundering and Combatting and are widening the gap between access and use. the Financing of Terrorism) procedures, policies related to Cash is generally preferred to card or mobile money, and foreign participation in financial infrastructure, and cross-bor- cash-on-delivery across South Asia remains dominant. This der aspects pertaining to data protection and privacy also increases the gap between DFS access and DFS usage. In need further refinement. In Afghanistan, consumer protection Afghanistan, even after the onset of COVID-19, the uptake policies do not currently cover online transactions, a key chal- of digital payments was constrained by the predominance of lenge to the growth of e-commerce. Regulatory provisions to cash-on-delivery. In Bangladesh, which has a large unbanked establish trust in the e-commerce and e-payments ecosystems population, account usage and penetration of digital financial could be strengthened in the country. In Maldives, there is the products and services is low, with distribution skewed towards risk of data and information misuse due to underdeveloped urban areas. This situation is exacerbated by low levels of consumer protection and cyber security legislations. In Sri digital financial literacy and a lack of trust in formal and digital Lanka, consumer protection is currently inadequate, and the financial services. In Pakistan, which is primarily a cash-based wider adoption in digital services, such as online and mobile economy, digital payments account for just 0.2 percent of total banking, have led to increased risks of fraud, data privacy vio- transactions (compared to 1.5 percent to 7 percent in peer lations, and security breaches. This comes with related service countries), and most digital transactions are bank transfers unavailability and poor customer recourse mechanisms. The or Over the Counter (OTC) payments. Cash-in-circulation recent establishment in Sri Lanka of the Financial Consumer represents 17 percent of GDP in Pakistan compared to 12 Relations Department of the Central Bank, and the expected percent in India and 5 percent in developed countries. The enactment of the Data Protection Bill, will address some of dominance of biometrically-authenticated agent-facilitated these concerns. It is important to note that the onset of the non-account-based transactions have hampered the growth of COVID-19 pandemic saw a surge in unregulated online lend- account-based transactions. ers targeting struggling borrowers, including those with low credit scores, who were unable to provide authenticated docu- 6. Further improvements in the institutional, legal, mentation and became saddled with huge debt repayments.  and regulatory framework for consumer protection, including data protection and cybersecurity, will be 7. The level of innovation in the DFS space varies across vital to creating a resilient and trusted environment countries in the region, with India—a global leader in that enables digital payments and the digital economy the space—being an outlier. as a whole. In terms of government payments, all governments in Recently, and in recognition of the role of non-banks in DFS, the region have increased their usage of digital payments, there have been some positive developments in the regula- although the degree of adoption varies. The process began tory framework for digital payments across the region. India, with the digitization of civil service salary payments across the Maldives, Nepal, Pakistan, and Sri Lanka now have separate whole region (except for Afghanistan, where this has not yet payment system statutes. Afghanistan and Bhutan have also been completed), followed by the broader push to modernize issued relevant regulations under their central bank statutes. all government-to-person (G2P) payments, including pensions Bangladesh is in the process of enacting a National Payment and social safety net benefits. With respect to the latter, India’s Systems Act to address some critical gaps.25 However, the Direct Benefit Transfer (DBT) program has been particularly Global Financial Inclusion and Consumer Protection (FICP) successful, with almost three billion transactions processed Survey shows that the South Asia region has the lowest prev- per year. This success was driven by the integration of domes- alence of stand-alone units within financial sector authorities tic payment infrastructures, which provided recipients with that are dedicated to financial consumer protection. There a meaningful choice of payment service providers. Subsidies are also several loopholes in the legal mandate for financial were also offered to the financial sector that encouraged, consumer protection in the region: the regulatory framework rather than crowded-out, private investment. Some of the is not well-adapted for new and enhanced risks arising from measures taken by RBI that enabled the growth of the DFS DFS and there are weaknesses in market conduct supervision space is presented in Box 5. Other countries in the region have followed suit, although the digitization of their G2P payments 25 Legal certainty around operational aspects such as netting, collateral protection, irrevocability and settlement finality. 40 The Digital Economy in South Asian Countries: Prospects and Challenges BOX 5. India’s Approach to Digital Payments Over the years, the RBI has encouraged greater use of e-payments to The RBI permitted authorized non-bank Payment System Providers achieve a “less-cash” society. Affordability, interoperability, customer (PSPs), viz. PPI issuers, card networks and White Label ATM operators to awareness and protection have been the focus areas. The regulatory participate in the CPS as direct members from July 28, 2021. Access to frameworks instituted by the RBI enabled non-banks, including Fintechs, CPS brings additional advantages to non-banks like reduction in cost of Techfins and Bigtechs, to enter the payments space which was earlier the payments, minimizing dependence on banks, reducing the time taken monopoly of banks. These entities are cooperating as well as competing for completing payments, and eliminating the uncertainty in finality of the with banks, either as technology service providers or as direct providers of payments as the settlement is carried out in central bank money. digital payment services. To support the acceptance of digital payments, The RBI has setup a dedicated Fintech Department. The RBI has also set the RBI introduced the Payments Infrastructure Development Fund Scheme up Reserve Bank Innovation Hub (RBIH), a wholly-owned subsidiary to pro- that intends to subsidize deployment of payment acceptance infrastructure mote innovation across the financial sector by leveraging technology and in smaller cities with a special focus on north-eastern states. The scheme creating a facilitating environment. The RBIH aims to bring convergence was operationalized on January 01, 2021 for three years, and in August among various stakeholders (viz., banking and financial sector, start-up 2021 was expanded to include beneficiaries of the Prime Minister’s Street ecosystem, regulators, and academia) in the financial innovation space, Vendor’s AtmaNirbhar Nidhi (PM SVANidhi Scheme) in larger cities. develop the required internal infrastructure to promote Fintech research, The pandemic accelerated the adoption of retail digital payments. Further, and facilitate continuous engagement with innovators and start-ups. the 24x7x365 availability of Centralized Payment Systems (CPS) i.e., National Source: Report on Trend and Progress of Banking in India Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS), 2020-21 https://rbidocs.rbi.org.in/rdocs/Publications/ reduced risks and enhanced efficiencies across the payments ecosystem. PDFs/0RTP2020CF9C9E7D1DE44B1686906D7E3EF36F13.PDF The UPI, the FPS, provided the contactless payment option for face-to-face payments in addition to remote and online payments. The UPI provides Fintech providers access to its system as third party service provider. FIGURE 24. India’s Holistic Approach and Success Story Source: World Bank (based on information on RBI website) 41 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives is progressing in a more piecemeal fashion. In Bangladesh, initiative, a regulatory sandbox has been established to for example, recipients of various social safety benefits can develop innovative products and services, such as digital receive payments in their mobile wallets. To facilitate this, lending and digital KYC. In Pakistan, the availability of digital mobile financial service (MFS) providers have integrated their microlending or micro-saving products is very limited, but systems, to a limited extent, with the Bangladesh Automated the State Bank of Pakistan is developing an innovation office Clearinghouse (BACH). In many cases, the COVID-19 crisis to promote innovative solutions among entrepreneurs. In Sri motivated governments to experiment with digital payments Lanka, where digital wallets are gaining popularity, the Central delivery. The Ehsaas Emergency Cash Program in Pakistan Bank is exploring a regulatory sandbox for fintech innovation, employed the branchless (agent) banking networks of two open banking, and e-KYC initiatives. It is also expected to partner banks to disburse cash assistance to poor families. introduce Supervisory Technology (SupTech) and Regulatory Due to legal and logistical constraints, however, recipients Technology (RegTech) solutions that utilize AI. In India, the were not provided with full-fledged transaction accounts, Reserve Bank Innovation Hub (RBIH) has been established, but rather with “Limited Mandate Accounts” (LMA) with together with a regulatory sandbox, in August 2019, with restricted functionality. Similar challenges were observed the following themes: (I) spur innovation in digital payments elsewhere in the region. Even where recipients were provided and help the unserved and underserved population access with fully functional financial accounts, the lack of acceptance payment services27, (ii) cross-border payments, (iii) MSME of digital payments among merchants, lack of trust in the lending, and (iv) prevention and mitigation of financial fraud. system, limited cash-out facilities, and low levels of financial literacy all resulted in upholding the dominance of cash and 9. Fintech start-ups are beginning to take off in the slowing down digitalization. In India, beneficiaries of the region but are hampered by lack of funding, unfa- PMGKY program were not always aware that payments had vorable market dynamics, differential policies for been delivered into their accounts.26 More recently, govern- different players, insufficient incubator and accel- ments across the region have embarked on the digitization of erator programs, and the shortage of a fintech and other payment streams, such as P2G or person-to-government entrepreneurship talent pool. (e.g. taxes, tolls or utility bills) and B2G or business-to-govern- India is a notable exception in this regard, as it is home to the ment. Bangladesh, for example, launched ekPay (a centralized third largest start-up movement globally, propelled by rapid billing portal for public sector entities), while India developed technology growth and innovation. The Startup India and the National Common Mobility Card (a specification for an Digital India campaigns have created a large support net- interoperable tap-and-go card for public transportation). work for around 57,000+ start-ups in the country, through However, such initiatives are relatively new, and many govern- 520 incubators, 850 co-working space providers, and 59 ment payments streams across the region still rely on manual accelerators that currently provide business programs, processes with a cumbersome user experience. coaching, mentorship, and workspaces. By way of contrast, Afghanistan’s fintech startup ecosystem (of VCs, incubators, 8. Some regulators in the South Asia region are estab- and accelerators) is almost non-existent. In Nepal, there are lishing innovation facilitators to ensure new digital approximately 56 fintech start-ups providing products and products and services find their way to market. services related to internet or mobile banking, digital wallets, In Bangladesh, for example, where mobile financial ser- agent-banking, bill payments, remittances, crowdfunding vices are already very successful, the Regulatory FinTech platforms and loan lifecycle management. In Bhutan, incu- Facilitation Office (RTFO) is a central bank-based one- bators and accelerator programs such as Startup Center and stop-shop for fintechs and other financial innovators, iHub have been established to boost fintech startups. In the where dedicated staff assist with license applications and Maldives, an accelerator program ‘NIRU’ was introduced other regulatory enquiries. In Bhutan, the Royal Monetary in 2018 but there are currently no incubator programs, and Authority (RMA) launched the FinTechBhutan initiative to angel investor networks are poor. Most fintech startups are support innovations that will improve the quality, efficiency, therefore boot strapped. There is also no market leverage for and accessibility of financial services. Under the Bhutanese the establishment of a sandbox. Though there is evidence 26 Gelb, Alan; Giri, Anurodh; Mukherjee, Anit; Shukla, Kritika; Thapliyal, Mitul; Webster, Brian. 2021. “Social Assistance and Information in the Initial Phase of the COVID-19 Crisis: Lessons from a Household Survey in India.” CGD Policy Paper 217. Washington, DC: Center for Global Development. https://www. cgdev.org/publication/socialassistance-and-information-initial-phase-covid-19-crisis-lessons-household-survey 27 https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48550 42 The Digital Economy in South Asian Countries: Prospects and Challenges FIGURE 25. Number of Technology Hubs Digital Entrepreneurship Ecosystem Indicator Pakistan India Nepal Sri Lanka Bangladesh Number of technology hubs 35 >250 12 15 15 Source: Invest2innovate of growing activity in the fintech startup space in Pakistan, The subsequent recommendations are aimed at mitigating incubators see very few entrepreneurs in financial services the challenges arising from this analysis, and cover ancil- because of the perceived regulatory complexity and lack of lary government support systems, conducive legal and collaboration platforms where fintechs and incumbents can regulatory frameworks, and enabling financial and digital work together. There are more than 40 prominent fintechs in infrastructures.28 the country, including both licensed and unlicensed players. In • Encourage adoption of digital payments wherever Sri Lanka, existing regulations oblige fintechs to partner with feasible and address coverage of recipients who financial institutions to offer products, services, and solutions. lack access. A consistent and long-term approach HatchX, Sri Lanka’s first Fintech accelerator, recently sup- could be adopted by governments to encourage the ported seven fintech startups. In Bangladesh, as of 2021, there private sector to freely develop the digital ecosystem were 112 fintech startups. in multiple areas, riding on the back of the digitiza- tion of G2P programs. Payment delivery processes Recommendations could be integrated across government programs and ministries. IDs, social registries, financial manage- Despite an increase in entrepreneurial activities in the field, ment and payment systems would best be integrated important gaps in financial access still persist. This is due not into provide common platforms. All contract pay- only to gaps in connectivity but to social and cultural norms, ments above certain thresholds—whether G2B or particularly with respect to women’s financial empowerment. B2B—could gradually be shifted to a digital mode. Moreover, many people do not have the financial/digital For example, India might consider expanding their literacy or awareness of DFS to use them with any confidence. Direct Benefit Transfer (DBT) program to remaining Others might simply not have the incentive to shift away from state-level benefit programs. The government could a dependence on cash or traditional financial services. As a also continue to evaluate the economic model for result, while DFS might promote inclusion, there are barriers DBT incentives, with the view to expand the choice to use by those who might benefit the most: people who are of providers available for recipients and aiming poorer, older, or live in remote areas of South Asia. subsidies where most needed. Bangladesh, Bhutan, More could be done to improve trust in DFS, by addressing Nepal, Maldives, and Pakistan may consider enacting the continuing use of traditional systems as the need for data similar policies, leveraging the full range of provid- protection and cybersecurity. An important set of constraints ers and interoperable payments infrastructures to arise from inadequate regulatory frameworks and institutional facilitate digital, account-based payments with a view capacities that might hold back innovation or ability to man- to advancing financial inclusion through government age risks in various financial services markets. As countries payments. Any subsidy or incentive arrangements aim to balance innovation with risk management, updates to for payment service providers should be negotiated legal and regulatory frameworks are needed, together with on a whole-of-government basis including (where institutional capacity development and coordination between applicable) subnational authorities. With respect the public-private sectors, incumbents and innovators. to implementation, all South Asian countries could Furthermore, efforts to boost interoperability will pay off in consider developing centralized portals or gateways terms of increasing competition among service providers and for government collections (as already planned in business models, and expanding access. Bangladesh through the ekPay portal), to improve 28 Refer Figure 4, “Digital Financial Services”, World Bank Group, April 2020. 43 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives user experience, strengthen security, and negotiate taken) to be impactful and leverage existing govern- better contract terms with payment service provid- ment programs for widespread adoption at scale. ers or card networks. In addition, they may consider Special attention should be given to underserved establishing a dedicated platform, or working group, populations such as women, senior citizens, youth, to exchange regional experiences and best practices rural and displaced populations. for digitization of government payments. • Proactively adopt regulations and establish • Address gaps in financial infrastructure and innovation facilitators to expand the DFS market, modernize credit reporting systems to integrate encourage new entrants and develop avant-garde alternative data and establish a roadmap for business models. Governments and regulators developing the payments and data exchange com- should consider a proactive review of existing legal ponents of the digital stack. Measures could include and regulatory frameworks and address gaps and accelerating the implementation of fast payment ambiguities that discourage market entry and the systems in Bangladesh and integrating financial development of new business models. Bangladesh, infrastructures with government and business Bhutan, and Pakistan have recently launched ini- payments in Pakistan. In Nepal, Bhutan, Sri Lanka, tiatives in this direction that they should consider and Maldives, digital capabilities could be improved. expanding. There are, however, no such initiatives Standardized QR codes could also be adopted all in Sri Lanka, Nepal, Maldives, or Afghanistan. On South Asian countries, following the examples of the implementation front, except for India (which is India and Pakistan. The digital capabilities of existing an outlier), all South Asian countries would benefit credit reporting systems need to integrate alternative from more innovation facilitators such as incubators, data and MSME data. As the government data plat- accelerators, angel investor networks, and (at the forms develop further, the focus should be to move minimum) innovation hubs. The use of alternative towards a data exchange platform that financial data, e-KYC, cloud services, API-based data exchange institutions can access, based on the consent of the and platform-based models are particularly relevant respective data subject. in the South Asian context. Countries that already have innovation office and sandbox regulatory • Foster trust and promote literacy (digital and approaches could channel the insights gleaned from financial) by strengthening the institutional and them to inform review and updates of regulatory regulatory environment. Authorities in South Asia frameworks. could strengthen the institutional, legal, regulatory, and supervisory processes to ensure robust cyber • Support policies and implementation reforms security, data privacy and protection, and consumer that facilitate cross-border payment services, protection, which in turn will help build broad-based through Payment Services Providers (PSPs). trust in DFS. For example, legal and regulatory In the South Asian context, for example, this frameworks should be adapted to address new and could mean State Bank of India’s operations in heightened risks arising from DFS, such as those Bangladesh could facilitate acceptance of RuPay related to outsourcing, cloud computing, use of cards issued in India, under a partnership with alternative data, algorithmic scoring, use of digital State Bank of India. Another example could be channels, and gaps in the regulatory perimeter. With for Sonali Bank operations in India and PayTM respect to implementation, literacy initiatives should to accept Bangladeshi bKash in India under their convey targeted messages (highlighting the many respective acquiring licenses in the country. benefits of DFS and the risk mitigation measures 44 The Digital Economy in South Asian Countries: Prospects and Challenges Digital Businesses Digital businesses can be classified, according to their level sub-indices of Digital Infrastructure Governance, Digital of maturity, into digital startups, on the one hand, and User Citizenship, Digital Multi-sided Platforms, and Digital established digital businesses, on the other. Digital start-ups Technology Entrepreneurship. Bangladesh and Nepal are at are early-stage ventures that create new digital solutions or the bottom of the list of South Asian countries in the Index, business models as part of their core products or services, while India and Sri Lanka have the most developed digi- and established digital businesses are platform-based and tal entrepreneurship ecosystems in the region (Figure 26). data-driven firms that have passed the initial start-up stage. India’s digital economy is set to reach a value of US$800 The growth and sustainability of digital businesses require billion by 2030.29 In contrast, Afghanistan’s ecosystem is in a a well-functioning entrepreneurship ecosystem and venture very early stage, with only a handful of small digital start-ups capital financing. As ecosystems mature, the policy focus operating in the country. needs to shift towards the creation of a contestable market where all new digital businesses have a fair chance to enter, 2. The level of dynamism of digital businesses depends compete and scale. Digital entrepreneurship is best supported in part on the performance of the remaining digital by a well-developed ecosystem of private sector led incuba- economy pillars, that is digital infrastructure, digital tors and accelerators that naturally connect to mentorship financial services, digital skills, and digital platforms. and capital networks, innovative debt and equity financial In other words, in order to develop and grow, digital busi- mechanisms, entrepreneur, university and industry networks, nesses require quality digital connectivity, accessible financial international business linkages, as well as enabling regulatory services (supported in particular by venture capital (VC) and and legal policy. private equity (PE) funds), a skilled workforce, and respon- sive e-government systems. They also need robust legal and Key Findings regulatory frameworks in areas such as e-transactions and taxation, data privacy and consumer protection, supplier 1. The digital business ecosystems in South Asian coun- protection, e-signatures and e-documentation, intellectual tries show diverse levels of maturity. property protection, cybercrime, and competition policy. To support the growth and proliferation of digital businesses, gov- The Digital Entrepreneurship Index ranks the relative ernments could consider having a basic enabling regulatory strengths of digital entrepreneurship ecosystems across the environment in place, while keeping in mind that distortions may arise, requiring review, as the adoption of digital busi- FIGURE 26. Digital Entrepreneurship Index (2019) Scores for nesses increases. South Asian Countries (0-100) 23.8 3. E-commerce platforms in the region’s largest countries have taken advantage of large, underserved markets to rapidly expand their operations. 18.2 In India, the e-retail market is expected to grow at a rate of 14 25 to 30 percent per year over the next five years, reaching a 11.6 11.2 value of US$120-140 billion by FY26.30 Examples of e-com- merce platforms in the country include CARS24, a used car e-commerce platform that recently raised US $450 million in funding, Bikai, a mobile commerce enabler, and ElasticRun, a commerce platform run by Kirana with a footprint of 28 states in India. Digital businesses also play a key role31 in India Sri Lanka Pakistan Nepal Bangladesh closing service access gaps among underserved populations, 29 E-commerce in India: Industry Overview, Market Size & Growth| IBEF 30 Bain & Company in association with Flipkart (2021). ‘How India Shops Online 2021’. 31 E-commerce in India: Industry Overview, Market Size & Growth| IBEF. 45 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives FIGURE 27. The Digital Economy Hardware manufacture; Information services; C ORE: D IGITA L IT / IC T SEC TOR Software & IT consulting; Telecommunications that produces foundational digital goods and services NA RROW SC OP E: D IGITA L EC ONOM Y the part of economic output Sharing Economy derived solely or primarily Digital Services from digital technologies with Gig Economy Platform Economy a business model based on digital goods or services B ROA D SC OP E: D IGITA L IZED EC ONOM Y Algorithmic economy use of ICTs in all e-Commerce Precision Agriculture economic fields Industry 4.0 e-Business as they can offer innovative solutions to pressing development South Asian firms connected to e-commerce platforms vary problems. Examples in the region include successful business widely in terms of size, degree of formalization, and other char- in India such as Byjus (a multinational educational technology acteristics, but they tend to be owned and managed by more company), BharatPE (a fintech startup catering to small mer- educated and younger individuals than the average firm.33 chants and store owners), and Blackbuck (a logistics platform Informal firms reported an increased incentive to register their improving the efficiency of goods transport). business. This highlights the potential of the digital economy to shift formalization incentives and to positively affect informal 4. Both formal and informal firms in South Asia have firms, more specifically through four main benefits: good man- benefited from the presence of e-commerce platforms. agement practices, greater access to markets, reduced capital A recent World Bank survey of South Asian firms selling on inputs, and lower matching and verification costs.34 e-commerce platforms Chaldal and Daraz showed that the primary reason for joining the platforms was to access more 5. Disparities in the maturity of digital business ecosys- customers. Most of the sellers reported a business expan- tems are partly explained by the quality of government sion after joining the platforms.32 The benefits go beyond an support initiatives and the robustness of a country’s increase in sales: firms also reported the adoption of new or networks of intermediary support organizations. improved business practices and technologies, better access to The government has an important role in supporting the finance, and greater work-life balance. The survey also found development of digital business ecosystems through facilitat- that firms that had been using e-commerce platforms for ing entrepreneurship and engaging the private sector while longer periods of time experienced greater positive outcomes. making sure not to appear to be picking winners. Creating an 32 Bussolo, Maurizio; Golla, Anne; Kotia, Ananya; Lee, Jean N.; Narasimhan, Prema; Sharma, Siddharth. 2021. How Selling Online is Affecting Informal Firms in South Asia. World Bank. Forthcoming. 33 Ibid. 34 Ibid. 46 The Digital Economy in South Asian Countries: Prospects and Challenges BOX 6. Digital Platforms and Competition Digital businesses can spur innovation, generate new products, reduce Across South Asia, the competition authorities of India and Pakistan have transaction costs, and enhance market intermediation, but they can also the highest levels of capacity relative to other authorities in the region.  bring new challenges for policymakers seeking to protect consumer The Competition Commission of Pakistan (CCP) announced in April 2020 welfare. Due to network effects, economies of scale and scope, multisided that it was developing rules and regulations for digital platforms in order to markets, nominally-free products, and the high value of proprietary data on protect data transactions and personal data (https://profit.pakistantoday. consumer behavior, markets dominated by digital businesses – particularly com.pk/2020/04/22/ccp-to-prepare-rules-for-online-businesses/).  To digital platforms – tend towards a decreasing level of competition (“win- date, the Competition Commission of India (CCI) is alone in the region in ner-takes-most”) and therefore, over the long-term, potentially threaten finalizing digital antitrust cases.  The $20 million fine levied by CCI in 2018 welfare of consumers and suppliers who connect to these businesses.  To in Google for abusing its position of dominance by advantaging its flight unit mitigate this risk, policymakers are developing new approaches to compe- in search engine results is among the highest imposed by a middle-income tition policy. Considerations include: country.  The CCI has also pursued abuse of dominance cases against MakeMyTrip, an Indian online travel company; Flipkart, an Indian e-com- • Multisided markets and the value of control over data complicate the merce company later acquired by Walmart; Ola Cabs, an Indian ridesharing definition of markets as well as the assessment of market shares, mar- company; Uber; and Matriomy.com.  The building of capacity of competition ket power, and the impacts of anti-competitive behavior. As a result, it authorities across South Asia – as well as encouraging harmonization and is important for policymakers to actively monitor market concentrations coordination between authorities – should be a priority given the increased and firm practices, as well as to consider ex-ante pro-competitive pol- importance of digital markets in the post-COVID era. icies to counter market-distorting conglomeration, rather than relying solely on ex-post competition policies. India was also among the first middle income countries to have its • Mergers between digital firms can harm consumer welfare through the competition authority publish a market study on competition in the centralization of control over data and intellectual property, rather than e-commerce sector. The CCI found that e-commerce platforms had several by affecting traditional measures of market share. Traditional thresholds pro-competitive effects (such as increasing price transparency), but they for merger review by competition authorities may not be relevant for also encouraged platforms to put in place more competition safeguards digital firms given that such firms typically do not have sufficient tangible including transparency in their search rankings and review mechanisms, assets or revenues. clear data policies, and fair terms and conditions for their merchants. • While the potential for mergers and acquisitions provides startups with India has also begun imposing some ex-ante regulations on e-commerce incentives to innovate, competition authorities must be alert to the platforms. For example, new e-commerce rules that prohibit foreign firms potential for “killer” or “zombie” acquisitions (whereby a firm acquires from selling their own products on their platforms are intended to protect a smaller potential competitor and discontinues its innovations) and domestic retailers against risks of exclusion. However, the fact that these vertical mergers to inhibit competition and harm consumer welfare.  To regulations target only foreign firms and are not predicated on the firm balance the protection of incentives for innovation with the protection holding a dominant position may mean that such regulations could create of competition in digital markets where firms hold fewer tangible an unlevel playing field and go beyond what is needed to prevent adverse assets, competition authorities may make increased use of behavioral outcomes. This underlines the need to ensure that ex ante regulations to remedies based on a thorough understanding of new business models. boost competition in digital markets should be based on a case-by-case economic analysis and should be designed to avoid stifling firm incentives to invest and innovate. enabling environment by removing obstacles to growth such just the last five years. Importantly, many of these programs as anti-competitive regulations in key industries, taxation are connected to global industry leaders such as Microsoft, on small firms, inefficient “red tape,” difficulty of firms to Google, and Tata; industry associations such as Nasscom; and transact with global markets while attracting and encouraging top universities such as the Indian Institutes of Technology, local domiciling of investment capital are key. The exem- whose graduates are digital economy leaders. Even govern- plary growth of India’s start-up ecosystem is largely due to ment-linked incubators and accelerators bring a private sector the success of formative technology businesses that created partnership. For instance, accelerators such as Start-up Oasis positive spillover across the economy, skilled human capital are supported by the Government of India but are managed in key sectors of the economy, and a conducive environment and run by IIM Ahmedabad’s CIIE.CO program. In Sri Lanka, for digital businesses and equity investment. Notably, the the government has developed technology clusters in Galle, country has the 3rd largest number of incubators and accel- Kandy, Nuwara Eliya and Kurunegala, incorporating universi- erators in the world with over 520 active tech incubators ties, technology institutes, and private companies. Bangladesh and 59 accelerators, 42 percent of which have been set up in is providing seed and growth stage funding through Startup 47 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Bangladesh as well as supporting investment in critical digital Protection Act and the Electronic Transaction Bill (debated in infrastructure such as data centers. In recent years, Pakistan’s Parliament in mid-2021) represent important steps towards universities, city governments, and the government’s infor- completing a robust framework, but key areas remain to be mation and communication technology (ICT) fund have legislated, most notably personal data protection. In Bhutan, expanded support network for start-ups. As of 2021, Pakistan the absence of policies to address payment systems, data had 16 incubators and four accelerators providing business privacy, and consumer protection creates an environment programs, coaches, mentors, and co-working spaces. However, fraught with risks for new ventures. In Sri Lanka, a weak the business-enabling environment and investment fund regu- competition regime is having an impact on both digital and lations in Pakistan continues to create obstacles in the growth non-digital businesses. In particular, the Consumer Affairs of digital businesses. Authority (CAA) has failed to provide for the regulation of mergers and monopolies, leaving a significant gap in the 6. While digital businesses and the adoption of digital legislation governing anti-competitive practices. In addition, technologies could promote gender inclusion by open- several key pieces of legislation, such as the Personal Data ing markets and job opportunities to women, there Protection Bill and Cybersecurity Bill are only in a draft stage is still an important gender participation gap in the (as of April 2021), creating significant uncertainty for busi- digital economy. nesses. In some cases, the lack of sectoral regulations tailored The extent of female participation in the digital ecosystem as to digital businesses is a problem. For instance, online phar- digital business entrepreneurs, digital platform sellers, or as macies, who are required to register with the National Medical employees of digital businesses, remains limited. Only about Regulatory Authority (NMRA), noted that the regulator did 13 percent of enterprises in India, for example, are owned by not have a licensing/regulatory process in place for them at the women.35 In Bangladesh, labor force participation amongst time of their inception. women remains low, with dismal representation in digital and ICT sectors. In fact, women comprise only 16 percent of the 8. Digital businesses face many of the hurdles common to total ICT workforce in the country.36 In Nepal, the number of all entrepreneurs in the region, especially with respect new female business owners, and new sole female proprietors to access to finance. doubled from 2014 to 2018, but primarily in non-digital sec- This is due to the regulatory hurdles that exist for the type tors.37 Increased investment in digital skilling, and ecosystem of local capital formation best suited to digital businesses support services, targeted towards women will unlock greater and startups. With the exception of India—which has seen business creation and growth. Examples include mentorship a surge in Private Equity (PE) and Venture Capital (VC) and coaching, access to relevant networks, incentives, and funding for new enterprises over the last decade—access to accelerator-led investment in women-owned businesses. early-stage financing in the region is a challenge. There is a lack of understanding of digital among local financial institu- 7. There is a need for greater coordination between tions and private investors, exacerbating the gap that already policymakers, regulators, and private sector actors to exists in MSME and trade finance for local entrepreneurs. create a conducive regulatory and policy framework For instance, in Nepal, under the Foreign Investment and for digital business development and investment. Technology Transfer Act (FITTA), VC/PE firms are restricted In Nepal, passing the e-commerce bill and providing a con- in how they can enter the market, the types of instruments sistent set of rules, will provide greater certainty for digital they can use, and the amount of funds they can deploy. In businesses. In Pakistan, the government has taken important Pakistan, access to finance for emerging businesses is diffi- steps to create an enabling environment for digital businesses, cult, as both VC/PE availability and formal sources of finance but investment is being held back by a lack of consumer are constrained. In Sri Lanka, according to the Council of protection mechanisms, inadequate enforcement of intellec- Startups, less than US$2 million in VC funding was invested tual property rights, inconsistent tax regimes, and absence in the market in 2020, amounting to just 0.002 percent of of investor protections. In the Maldives, the 2020 Consumer GDP (200 times lower than the corresponding ratio in India). 35 Bain & Company and Google (2019). Powering the Economy with Her. Women Entrepreneurship in India. 36 Survey on ICT Job Market in Bangladesh, Daffodil International University, 2019 37 Doing Business Dataset, World Bank, Accessed on August 4th, 2020 48 The Digital Economy in South Asian Countries: Prospects and Challenges FIGURE 28. Framework to identify gaps in the regulatory framework for the digital economy A D OPT KF MEWOR OR A THRIV Y FRA ING Basic regulations and licenses R ATO DIG to allow digital businesses to L IT GU operate. E.g., e-transactions Provide tailored digital AL laws that recognize the legal RE solutions that help traditional EC validity of online transactions, ON firms to digitalize sectoral regulations and OM licenses for shared economy Y E QUI T Y business models (e.g., ride- or accommodation-sharing), Digital businesses Digitalized businesses Regulations to ensure a level policies on cross-border data playing field (between data-driven firms and traditional firms that adopt flows to enable new online/o ine players, large/small online platforms that and apply digital technologies data-driven businesses. firms, foreign/domestic firms). E.g. provide digital (e.g., for Industry 4.0, smart competition law, data portability products and services agriculture, etc.) requirements, taxation on digital SCA L E activities, FDI thresholds, etc. Regulation to enable trust and Increase demand for digital drive mass digital uptake by technologies, spurring growth users. E.g., online consumer and in digital solutions markets supplier protection, cybersecurity and cybercrime law, personal data protection as well as other broader regulations on intellectual property, public procurement rules Source: Digital Markets & New Business Models: Database and Regulations (P172856). Recommendations and licenses). After setting up basic e-transactions regulations, governments in the region could then • Build institutional capacity for the development consider enacting regulations that help businesses and implementation of legal and regulatory scale, such as improving local capital formation for frameworks to promote innovation and compe- early-stage, venture, and growth capital. Importantly, tition. The growth of the digital economy requires they could foster trust in digital commerce through an assessment of guidelines, laws and regulations the enactment consumer and supplier protection, as they relate to, inter alia, business formation and cybersecurity, data protection, and intellectual prop- dissolution, access to capital (in the form of working erty legislation. The adoption of market-efficient capital, trade finance, and business loans through investment structuring policies, together with the digital channels), foreign direct investment flows clarification of laws relating to bankruptcy, taxation, (as risk capital in the form of equity investment, and repatriation of funds, can serve to crowd-in contestability with traditional business models, capital. In any market, but especially in more mature and cross-border dynamism in the movement of ones, regulators should consider adequate com- goods, data, capital and people. The adoption of petition policy and advocacy measures that could a three-tiered framework can help policy makers guarantee fair competition between online and prioritize legislation and regulations and adapt them offline players, large and small firms, and foreign to the level of maturity of the digital ecosystem and local firms. They could also support integration (Figure 28). In particular, countries at early stages into increasingly digital regional trade, commerce, of digital ecosystem development could benefit and value chains through regional interoperabil- from enacting e-transaction laws to ensure the ity for digital payments and services, trusted data basic legal legitimacy of online transactions (such as sharing and digital ID and authentication. A com- electronic contracts and digital signatures), enable prehensive mapping of digital market regulations cross-border data flows, and facilitate registration in each country would help identify roadmaps for for digital businesses (including sectoral permits the implementation of international good practices 49 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives along each of the areas recommended above (Fig. X). providing relevant incentives such as training and Finally, beyond regulatory and policy reforms, super- funding of MSMEs, and particularly women owned visory capacity also needs enhanced to effectively MSMEs. A key target of these incentives could be monitor new technologies, providers and products, digital solution providers, so that they may design fit- and to ensure that new regulations are followed. for-purpose solutions for local MSMEs. • Accelerate the growth of early-stage and growth • Improve opportunities for female entrepreneurs, financing through government fiscal incentives, in including through improved access to finance. To addition to the creation of an enabling regulatory increase the number of women entrepreneurs having environment. Governments may consider structur- access to finance and increase the rate of lending to ing supportive tax regimes to incentivize early-stage women-owned SMEs, performance-based incentives capital providers, such as angel investors (including for financial institutions (in collaboration with private those of the diaspora) and seed, venture, and growth investors) could be considered. Financial institutions funds. Government fiscal incentives could be used may use their own balance sheets to finance the to encourage healthy and growth-oriented capital growth of a particular woman-led portfolio. These flows into the country, rather than capital inflows performance incentives can also be provided in that engage in hostile market consolidation and risk-sharing facilities. In addition, specific programs stifle competition. The government could explore to improve the gender imbalance could be considered, options in consultation with the private sector, such e.g. coaching and mentoring programs for women as innovative financing methods (e.g., peer-to-peer entrepreneurs on access to markets and networks, platforms), the use of government funds through targeted skills, personal initiative training, invest- risk-sharing facilities and other matching initiatives ment-readiness training, and business model support. to enable capital to reach scale. • Facilitate and support the development of a robust • Facilitate adoption of digital tools and technology network of private sector intermediary support by SMEs. The COVID-19 pandemic has accelerated organizations, incubators and accelerators and the digitization of MSMEs across South Asia. This promote linkages to employers, investors, trade has increased opportunities for technology enabled associations, and universities. It is important to FinTechs, SaaS, communications, commerce, and develop approaches that adapt best practices and logistics companies, while connecting MSMEs in building networks from successful entrepreneurial new and inclusive ways to financial services, sup- hubs in large cities to secondary and tertiary cities. pliers, and customers. Efficiency gains have also The government should seek to facilitate the devel- been made through the digitization of activities like opment of business and entrepreneurial networks at bookkeeping and order management. To achieve the local, national and international level by focusing informed, empowered and equitable digitalization, on providing assistance to link firms to customers, governments could further support this trend by suppliers and other key stakeholders. 50 The Digital Economy in South Asian Countries: Prospects and Challenges Digital Skills Digital skills are critical for access to technology-driven adaptability, facilitate resilience, and fetch dividends for development benefits and are an essential component of the countries. A proposed framework for skilling is provided in digital economy. Digital skills can be defined as an individual’s Figure 29, in which the Accumulation-Aggregation Model capacity to access, manage, understand, integrate, communi- applies the principles of a dynamic calculus that factors in cate, evaluate, and create information safely and appropriately. the following elements: (a) the intertemporal accumulation of Although in South Asia no context-specific digital skills or skills, (b) the layered nature of skills acquisition, (c) a life-cycle competencies framework has yet been developed, different approach to skilling, and (d) moving the production possibility digital competence frameworks such as the EU’s Digital frontier (PPF) over time. Competencies framework 2.1 (DigComp2.1) and the EU A 2021 World Bank South Asia Regional Report38 analyzes e-Competency Framework 3.0 (e-CF 3.0) can provide guid- trends in the region and the imperative for digital skills, ance and be adapted to country-specific contexts. Generally offering a comprehensive agenda to exploit the opportunities speaking, relevant frameworks classify skills into two catego- offered by converging technologies while minimizing the ries: skills for a digitally competent workforce, such as ICT risks to vulnerable populations. The proposed strategies in professionals, and skills for digitally literate citizens. the Report lend credence for building public sector capacity In a post-COVID-19 economy, a people-centered approach is and promoting data and technology governance frameworks needed to support a green, resilient and inclusive recovery. in a rapidly evolving technology landscape. The Report offers In this context, timely action is required to reimagine service recommendations on how the South Asia Region can capital- delivery across all sectors of the economy and for all segments ize on converging technologies to accelerate its development of society, particularly women and vulnerable populations. of human capital, promote adaptability and resilience to Skilling, upskilling, reskilling, and lifelong learning will foster future shocks. BOX 7. Digital Skills Pyramid Digital skills exist on a spectrum from basic to advanced levels of complex- Electronic Business (e-business) skills (or electronic leadership ity (based on various frameworks from the World Bank Group (WBG), (e-leadership) skills), defined as a mix of more complex digital and United Nations Educational, Scientific and Cultural Organization (UNESCO) entrepreneurial skills (including abilities to apply, create, and invent new and European Union (EU)): business models, products, and services using digital technologies). Basic Digital Skills (Information and Communication Technologies Thus, digital competencies represent an individual’s ability to use his or (ICT) user) refer to basic functional skills that enable a safe use of digital her knowledge, skills (know-how) and attitudes (life skills) in relation to the devices and online and software applications (including word processing, three spheres of technological, social and cognitive competencies in order spreadsheets, internet searches, etc.) and are widely considered a critical to use new or existing ICTs to: component of a new set of literacy skills in the digital era (jointly with a. analyze, select, and critically evaluate digital information; traditional reading, writing, and numeracy skills); b. solve problems; Intermediate and advanced Digital Skills (ICT practitioner) refer to c. develop a collaborative knowledge base while engaging in organiza- more sophisticated digital skills of ICT professionals (ability to design, tional practices. develop, and maintain digital tools, carrying out tasks such as web design, programming, coding, and managing ICT systems); 38 Bashir, Sajitha; Dahlman, Carl J.; Kanehira, Naoto; Tilmes, Klaus. 2021c. The Converging Technology Revolution and Human Capital: Potential and Implications for South Asia. South Asia Development Forum. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/han- dle/10986/36156 License: CC BY 3.0 IGO. 51 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives FIGURE 29. A Life Cycle Approach to Skilling for Lifelong Learning BOX 8. Capitalizing on Converging Technologies to Accelerate Human Capital Development in SAR Research notes that the convergence of technological breakthroughs effectiveness of services, inequality of opportunities, and the increasing spanning biotechnology, nanotechnology, information technology, and vulnerability of South Asian countries to a spectrum of shocks and risks. cognitive science is driven by artificial intelligence, data flows, com- To understand the relationship between human capital and technology puting power, and connectivity. The convergence of different groups of in general and converging technologies in particular, the Report outlines technologies is unleashing technological advances at an unprecedented among others, some key components that could be adopted to assess speed. These advances in technology can be used to improve access to the needs for digital skills in the digital economy for South Asia (DE4SA): (1) and the quality-of-service delivery, prepare the workforce for techno- analyses of digitization and the services-led economy, the technology land- logical changes in the workplace, encourage innovation for human scape in South Asia for service delivery in the human development sectors, development, and empower marginalized segments of the population. the deployment of converging technologies in employment and innovation, Framing the relationship between human development and technology, and the safeguards and protections for the use of converging technologies the findings of the Report address the nexus between nurturing, utilizing, in relation to human capital development; (2) a systematic examination of empowering and investing for recovery and resilience in the midst of the the technology infrastructure, applications, and digital skills required in COVID-19 pandemic. South Asia; and (3) exploring viable alternative futures for human capital outcomes in the region, taking into account broad technology metatrends The Report espouses an enhanced framework of the World Bank’s Human and the critical uncertainties expected to influence outcomes. The low Capital Project and the analysis of the South Asia Human Capital Plan levels of human capital in the South Asia Region brings some risks and developed by the World Bank’s South Asia Region unit. The Plan identifies opportunities for the digital economy. three drivers that limit human capital outcomes: the poor quality and 52 The Digital Economy in South Asian Countries: Prospects and Challenges response programs are fragmented. While some discussion of Key Findings these matters has been noted in government circles, in most countries, there is no clarity on the type of digital skills that 1. Harnessing the power of digitalization and digital are needed, who needs them, what exactly is required and for skills offer new avenues to promote service delivery whom. The discussion generally seems to take place at the two and benefit from new services. Skilling, upskilling, ends of the spectrum: very high-end ICT skills, or very basic reskilling, and facilitating lifelong learning will foster rudimentary skills, such as how to use a mobile phone. adaptability, facilitate resilience, and gain dividends for a country. In some countries, including Afghanistan and Bangladesh, no comprehensive national digital skills policy / strategy / Post-COVID-19 recovery necessitates reimagining service framework could be identified, and there does not seem to be delivery across all sectors in the economy and for all segments any clear institutional anchoring of the digital skills agenda. of society especially for the vulnerable and for women. Due In Nepal and Sri Lanka, digital skills are a high priority and attention should be given to making programs work better for a range of skills initiatives and programs exist. Still, a more the vulnerable, especially women. The low uptake of digital structured framework to strategically build domestic digital payments among women is due in part to gender and cultural skills and capabilities is needed. In Bhutan, digital skills have norms. Women face specific challenges in accessing digital just become front and center in the country’s new develop- payments, mainly arising from difficulties they face in access- ment vision. In Pakistan, the Digital Pakistan Policy 2018 ing quality education and training, entering the labor market, recognizes the importance of digital skills among the ICT and staying employed. These aspects are often overlooked or workforce as well as digital literacy among citizens. Many insufficiently addressed in development projects. Areas that activities are ongoing in this regard, but the agenda remains could be further explored include operational features, eco- fragmented between national and state levels, and there is nomic constraints, and strategies that focus on information, a lack of clarity on resource implications. In India, the 2015 aspirations, and norms. National Policy on Skill Development and Entrepreneurship 2. Although digital skilling is increasingly recognized as a (NPSDE) mentions ICT enablement as one of the core key foundation of the digital economy, there is a dearth enablers to achieve the vision of Skill India. The policy under- of data on the level of digital skills available in South scores the use of modern technology and tools to make skilling Asian countries. accessible and aspirational amongst the masses. Several large- scale programs are driving the transition to digital skills. There are few shared competencies between different govern- ment entities in charge of the agenda. However, there is little 4. Digital skills build on key foundations of literacy and clarity on interventions and possible improvements in digital numeracy. skills levels over time and across various strata of populations The biggest challenges for digital skills in all South Asian (e.g., white, grey, and blue color workers) to foster inclusive, countries are low levels of literacy in the region and poor per- green, and resilient development. Factors at play include formance in human capital indicators, combined with capacity variations in country size, level of human capital development, and gender gaps. The human capacity gap is the main reason digital readiness, as well as overall digital awareness, accessi- for the drastically low broadband usage gap in the region bility, and skill levels. (at 64 percent). For instance, in Afghanistan, only about 6 3. The development of digital skills frameworks, digital percent of citizens can use a computer, and only about 9.4 skilling for schools and initiatives to address training percent are social media platform users. In Bangladesh, only quality are all underway in most South Asian coun- about 8 percent of the population uses computers or similar tries, but there is a wide range, and most countries devices, and only a quarter of them can perform tasks on basic in the region still lack a coordinated and structured dig- office software (e.g., spreadsheet, presentations). The situa- ital skills framework. tion is similar in Pakistan, with about 8 percent of individuals (10 years and older) reporting the use of computer / laptop / A structured skills framework requires assessments (of skill tablet in the last three months. In India, the National Family types, demand, and supply), feasibility studies, and analyt- Health Survey (NFHS-5) indicates that only 42.6 percent of ically rigorous economic and financial analyses. Currently, women have ever used the internet (compared to 62.2 percent there are virtually no digital skills assessments or demand of men). It also reports a strong rural-urban divide: only 56.8 assessments completed in South Asian countries, and 53 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives percent of urban women, and an even lower 33.9 percent National Research and Education Network (NREN). In Nepal, of rural women, report using the internet, compared to 73.8 only about 6 percent of primary schools and 24 percent of percent and 55.6 percent of men, respectively. secondary schools have access to basic electricity, and only 1 percent of primary schools and 3 percent of secondary schools In light of these challenges, especially those relating to literacy, have internet connectivity. In Pakistan, 44 percent of govern- usage gaps need to be addressed holistically, with local sup- ment high schools and 38 percent of private high schools have port programs and multi-modal approaches, e.g., integrated computer labs in rural areas (with internet connectivity at 33 ways to access broadband, relevant content for synchronous/ percent and 35 percent respectively), while in urban areas, asynchronous access, digital skills training through blended the proportion is 85 percent and 80 percent respectively. learning such as augmented reality/virtual reality (AR/VR), In Sri Lanka, computer facilities in schools are limited and adaptable learning and other modes. Other examples of ini- vary across districts. In 2017, only 55 percent of government tiatives that can promote digital skills include public service schools had computer facilities. delivery centers, Wi-Fi-supported schools, local trainings, green-for-clean access using solar/point-to-point access, 6. Many countries in South Asia have realized the poten- development of relevant content, and knowledge support for tial of their emerging digital and IT firms and aim farmers and communities. Relational content that links visu- to support such firms through increased training of als with text could also help promote adult literacy. technical experts in fields such as computer science or electrical engineering. 5. To make the digital economy inclusive in South Asia, mass digital upskilling of the population would be However, the quality of training and technical expertise needed. remains low in many countries. To increase the level of flow and stock of highly skilled professionals, and foster resilience, Based on a review of current government strategies, there are a focus is needed on tertiary level training institutions, and no clear plans for digital upskilling in the region. Countries partnerships with the private sector and international univer- have formulated visions of becoming “smart nations”, as sities. This will create synergies, heighten awareness, deepen in the case of Sri Lanka, or have introduced digital compe- understanding, create expertise, and provide new directions tencies from a broad perspective without clear-cut targets. for digital skills development. Job readiness skills and cre- From an infrastructure perspective, in some countries, dentials are important elements for under-represented youth. challenges begin at the school level, where broadband and The private sector is finding new ways to help under-rep- digital devices are lacking. In other countries (that have some resented youth become job ready and build careers in the level of coverage), curricula could be updated to introduce the digital industry. It is well-known that the role of the private practical aspects of digital literacy at the basic education level. sector in employment is crucial. The COVID-19 pandemic has Curricula and teaching methods across South Asia tend to be required training institutions to pivot and operate remotely. theoretical, outdated and not aligned with the requirements In Pakistan, good opportunities exist to leverage the IT sector of a digital economy. India’s school education ecosystem is as a field for economic growth and job creation. However, large, diverse, and complex with 250 million students and IT firms consider the shortage in appropriate skills as an 9 million teachers, in more than 1.5 million schools spread important obstacle for their businesses. Prevailing course over 60 educational boards. In 2019-20, around 38.5 percent offerings and curricula at universities and schools of higher of Indian schools had computers, and of this percentage, education struggle to fill the demand at the required levels. around 22 percent had internet access. In Afghanistan, only In Nepal, around 12 percent of university graduates have about 40 percent of public schools own at least one computer. completed STEM education programs. Of these, only 7,500 And of these, only 5 percent are connected to the internet. students are graduating annually from engineering and ICT- In Bangladesh, where 82.2 percent of schools have com- related courses, including about 3,000 ICT-only graduates. puter facilities and 72.98 percent of schools have an internet In Bhutan, only around 1 percent of employed persons are connection, updates to existing curricula are sorely needed. In engaged in the information and communication technology Bhutan, ICT infrastructure to access the internet and com- (ICT) sector. Almost half (41 percent) of the private firms in puters is low for primary schools (45.5 percent) compared to Bhutan consider the non-availability of a skilled workforce as secondary schools (96.6 percent). In the Maldives, all primary an important barrier to their operations. The country’s poten- and secondary schools had electricity and internet connec- tial role as host to data centers and cloud infrastructure would tivity by the end of 2014, but the country is yet to establish a benefit from a wider pool of technical experts. 54 The Digital Economy in South Asian Countries: Prospects and Challenges As a powerful means to include more people in the digital that were taken up across the world during the COVID-19 economy, as both users and producers, improving digital pandemic served to demonstrate the power of technolo- skills has a significant positive spillover effect on the overall gy-based connectivity and infrastructure. However, they also development of the digital economy. However, there is also the highlighted the need for access to quality learning and skills, risk of market failure in terms of private sector (firm) invest- and the perils of non-inclusion. It is time to harness the con- ments in digital skills. Broader digital literacy can help reduce vergence of human capital and technology and capitalize on gaps in the adoption and use of digital technologies. However, the production potential in the South Asia region, to generate the region’s approach in this regard remains unstructured and aggregative economic growth. Some specific recommenda- uncoordinated, with limited data available on both demand tions for digital skills development, in the short and medium and supply. This can negatively affect the inclusion targets, term, are set out below. particularly of specific social groups such as women, per- • Explicitly incorporate digital skills in national sons with disabilities, or social minorities, in terms of their strategies. The elaboration of Digital Skills ability to access and use digital services. Improving coordi- Development Plans (DSDPs) can promote good nation between government programs and the private sector practices at central (federal) and decentralized levels. (including links between education and employment, and They can help countries develop national level strate- awareness-raising initiatives) will likely increase the ability of gies and action plans, facilitate the assessment of the more people to access and use various digital services. digital skills landscape, develop dedicated programs to build understanding of digital skills, and create 7. Generalized knowledge, specialized knowledge, and mechanisms for the evaluation of skills. specific skills will be necessary to carry out climate and disaster risk screening. • Develop the necessary capacity, and create an The basis for resilience consists of the right knowledge, the efficient system, to train a digitally savvy work- ability to adapt to situations and adopt new ways of doing force that is aligned with the requirements of the things, and the capacity to innovate in the face of crises, e.g., digital industry. This includes the development of a COVID-19 pandemic and natural disasters. Climate change skills framework that builds in continuous training in assessments are becoming increasingly digitized, whether relevant digital skills for all professionals, as well as these are climate and disaster risk screening, climate co-ben- placement strategies and programs. A useful starting efits tracking, greenhouse gas accounting, and/or calculations point would be to conduct a comprehensive digital of the shadow price of carbon. Similarly, payment systems skills assessment to understand both the supply and ICT infrastructure can best yield fruit if the flow and stock of digital skills (available human capacity), and the of digitally savvy professionals and citizens are prioritized. demand in priority sectors of the economy. To bridge the skills gaps identified by such assessments, the participation of the private sector, both established Recommendations companies and startups, will be indispensable. Digital skills can be better developed through a deeper inte- Carrying out skills assessments periodically through gration of digital technologies in society. In this regard, the partnerships between the public sector, the private education sector is a natural and leading promoter of skills sector and academia, will help maintain a dynamic transformation. In a well-developed digital economy, there will approach to digital skills development. At the same be significant demand for skilled workers, which can be met time, training efforts could be scaled up to help through training programs for advanced digital skills. Since people adapt to the changing nature of work, and most countries in the South Asia Region have some form of groom digital leaders who might establish or pilot policy or strategy for digital access, standardized e-Learning disruptive technology start-ups. Investments in the platforms could help them create a foundation for custom- establishment of training centers and Industrial izing, adapting, and facilitating skilling based on specific Training Institutes to provide higher-level IT skills country circumstances. Measures to boost the availability of training could also be considered. Incentives in the digital skills will need to be combined with a broader improve- form of ratings on parameters that signal the quality ment in digital infrastructure (including connectivity to homes of training centers and accreditation could facilitate and educational institutions) and in data infrastructure to target allocations and rebates. support learning and teaching. The hybrid modes of work 55 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives • Ensure the rapid and dynamic adaptation of the programs and candidate employment. Furthermore, workforce in response to fast-changing expec- developing dedicated ToT programs for higher-level tations and working methods within the IT and job roles could help create a corpus of master trainers. digital industry. Broad digital skills and training • Make available refresher courses for trainers, should be incorporated into the education system. including domain skilling components with close This will require a focus on ensuring skills access linkages to industry. This could be followed by pos- and quality for all, improving the digital skills and sible on-the-job training with industry. A dedicated readiness of trainers/teachers/tutors, and investing academy for trainers and assessors in digital skill in much-needed digital infrastructure. Examples domains can be developed around existing training include the creation of eLearning Platforms (for institutions. Digital technology can be taught to blended learning, skilling, upskilling, and reskill- help trainers better plan for teaching and learning, ing), the scale-up of existing courses with digital improve assessments, and provide better feedback to skills modules (e.g. existing government MOOCs or students. Massive Open Online Courses), the development of local language and gender-neutral digital content, • Incorporate special learning modules to enhance the availability of appropriately-priced devices for the work readiness of women in the IT fields. parents, students, academics, and administrators, Digitalization affords the opportunity to introduce and the establishment of standardized competencies gender-neutrality in the technology and digital indus- across digital learning domains. In order to facilitate try. At the same time, hiring women managers would intra-national, intra-regional, and international labor help level the filtration process. Fostering equality competitiveness, a system of smartcards (or Digital in education, skilling, visibility, pay, and promo- Skill Passports) could also be considered as evidence tion helps to curb bias. Such measures would also of internationally acceptable digital skills. Finally, improve the chances of female candidates to thrive in mandating digital skills training or certification as a the IT industry and in new areas of self-employment key employment criterion (or value add) would serve (e.g., through home-based work). In order to achieve to encourage both skilling and re-skilling. this, TVET programs should include modules to pre- pare women for the world of work, and include topics • Establish trainers’ academies to foster the use such as negotiating with employers/peers/seniors, of digital resources for trainers in skills training voicing their opinions, collaborating with confidence, across all sectors. This approach is in line with ILO and managing and leading teams. Research from 2020 in establishing a relationship between the availability of initial and continual digital • Harness technology to green the globe. The use education for teachers, and the capacity of the TVET of renewable resources such as solar and wind tech- (Technical and Vocational Education and Training) nologies have demonstrated the need for digitally systems for innovation.39 In this context, it is worth driven analysts, monitors, assessors, and managers. considering a 360-degree industry involvement in These new jobs will require a new workforce to the TVET ecosystem, starting from course selection marshal innovation, well trained in digital options and content curation, to Training-of-trainers (ToT) and digital modelling. 39 The Digitization of TVET and Skills Systems, 2020 (ILO). 56 The Digital Economy in South Asian Countries: Prospects and Challenges Trust Environment This section discusses the importance of creating a trust envi- enable a trust environment must be appropriate to the specific ronment which could enable users to interact and transact in country context. At the same time, to achieve many of the a digitally safe manner. While legal and regulatory framework benefits canvassed in this report, a degree of harmonization is the backbone of such a trust environment, there are other and interoperability is crucial. Striking this balance can be areas which bolt into the trust framework – e.g., digital equiv- achieved by: alence (i.e., legal recognizance of documents, signatures and • Mapping the specific opportunities and risks in transactions submitted digitally), and transactional security a country and evaluating their impacts on the of payments facilitated or executed through digital financial community. services. While data flows increase access to date and encour- age the growth of digital economy, harnessing the potential of • Implementing a base line of core legal and regula- digital transformation requires the creation of an environment tory requirements and practical initiatives that can where users can trust the digital platforms they rely on, and support multiple areas. Data protection is a good trust their counterparties, while sharing their personal data example of this, as are areas that already have strong and information and conducting transactions. transnational alignment such as anti-money launder- ing and cyber security. Creating a trust environment revolves around understanding a number of expectations from users. For example, they may • Prioritizing the more specific rules for particular ask the following questions when deciding whether or not to aspects of the digital economy based on the opportu- participate in a digital economy: nity and risk assessment. This requires policymakers and regulators to have a realistic view on what risks • Knowledge: Where do I find good quality informa- are intolerable now or which opportunities will be tion about engaging with the digital economy? lost without action, with other areas on a roadmap to • Service providers/data collectors: Are my digi- be subsequently addressed. tal service providers and data collectors (and their • Taking a risk-based, iterative and scaling approach respective service providers) trustworthy? as the digital economy evolves. This involves a • Security risks: Can I trust that my transactions or dynamic and regular evaluation of emerging risks, data transfers will be safe and not subject to inappro- thereby building a strong book of digital economy priate use, fraud or other crimes? principles over time, which can specifically address emerging risks in each local market and operating • Efficiency and reliability: Will I be able to access environment. what I need, when I need it? What is the likelihood of delay or interruption? As the World Development Report 2021 notes, effectively • Remedy: What happens if something goes wrong? leveraging data for societal transformation requires countries Is there any recourse reasonably accessible to me? to forge a new model of data usage and safeguarding—that is Can I trust the adjudicating organizations if I have a ensuring equitable access to data, and at the same time, foster- complaint about what I purchased or accessed, how it ing trust by safeguarding users against data misuse.40 As such, was delivered and the use of my data? a trusted data ecosystem requires: (i) responsible data sharing; (ii) accountability-based personal data regimes; and (iii) It is also important to recognize the importance of context. additional controls when data is shared across geographies, The precise regulatory architecture for the digital economy entities and sectors. However, creating a trust environment is—and naturally will continue to be—different for each for the digital economy goes beyond data protection; improv- country, and as a result the laws and regulations created to ing cybersecurity and curtailing cybercrimes also serves to 40 https://www.worldbank.org/en/publication/wdr2021 57 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives increase trust in the digital economy and digital transactions. FIGURE 30. Overview of Countries’ Safeguards and Enablers, Building a trust environment establishes legal and regulatory GDRD 2021 frameworks which aim to protect users from harm and risks involved when engaging in online activities on digital plat- forms. This section discusses: Nepal • the findings on the current situations of critical safe- Global Data Regulation Survey 2020 guards in the South Asia region; and Sri Lanka • recommendations and discussions on emerging regulatory trends. Afghanistan Key Findings India 1. Lack of data safeguards, while enabling data flows. Pakistan Countries in South Asia are at different stages in their development of a trust environment, but they often lack Bangladesh data protection measures at a sufficiently high level as against emerging global best practices. Also, the majority of 0 20 40 60 80 100 the countries allow and facilitate data sharing and data use without establishing safeguards for data transactions. While Safeguards Enablers all countries fell short of the global average safeguards score (58), Bangladesh, Pakistan, India and Sri Lanka outperformed the global average enablers score (48). Afghanistan performed the worst of all countries surveyed from South Asia, with the lowest score on both safeguards and enablers of data transactions. TABLE 4. Limitations on personal data collection and processing in South Asian countries Country Does the relevant law/ Are these exceptions Does any law or Does any law or Does any law or regulation provide subject to a “necessary regulation require that regulation require that regulation require that exceptions to limitations and proportionate” test the collection and use of the collection and use personal data not be kept on the collection or to determine whether the personal data be made of personal data be longer than is necessary processing of data by exception is legitimately for a stated purpose (or proportionate, relevant, for the purposes for government? applied? similar standard)? adequate, and limited which it is processed (or to what is necessary in similar standard)? relation to the purpose for which it is processed (or similar standard)? Afghanistan No No Yes No No Bangladesh No No No No No India No No Yes Yes Yes Nepal Yes No Yes No No Pakistan No No No No No Sri Lanka No No No No No 58 The Digital Economy in South Asian Countries: Prospects and Challenges 2. The lacunae in safeguards stand out due to the lack of Afghanistan, Bangladesh, and Pakistan have sector-specific protections with respect to the processing of personal laws that have some clauses pertaining to the collection and data. processing of personal data. None of the in-scope countries currently subjects the collec- 4. As a region, South Asia performs well in its efforts to tion or processing of data to a “necessary and proportionate” enable the use of public-intent data, scoring on par test to determine if it is justified. Only India, through its 2011 with upper-middle income countries. IT Rules, requires that the collection and use of personal data be proportionate, relevant, adequate, and necessary in relation All South Asian countries in the data regulation survey have to the purpose for which it was collected, and requires that a Right to Information Act, and all but Afghanistan have an data not be kept longer than necessary after processing. Open Data Policy. In addition, India, Bangladesh, and Sri Lanka have adopted an open licensing regime to facilitate 3. While the current status quo on safeguards is weak, the sharing of public intent data. In India, although there some South Asian countries are making progress on is no mandatory open banking regime, policy measures to laying down the foundations of a legal framework. encourage data sharing have been introduced. These include Of the countries studied as part of the Global Data Regulation safeguards such as the creation of “account aggregators” to Survey, only Nepal had a general-purpose law on the books ensure that individuals consent to the use of their financial pertaining to personal data. In addition, research has found data and that data are not used beyond the agreed terms. that Bhutan, too, has a law in the books on the protection of 5. The region could do more to improve its enabling envi- personal data. Sri Lanka, Bangladesh, and India all have draft ronment to support cross-border data flows. data protection and privacy bills that are in various stages of consideration by their respective legislatures. Further, India, The region remains deeply fragmented in terms of cross border digital trade and performs worse along that dimension FIGURE 31. Average scores on different data governance than the average low-income country. India has restrictions dimensions by income group/region on cross border dataflows and requires that all data relating to the payments system be localized whilst adopting an ade- quacy approach towards cross-border transfers of other types E-commerce/transactions of personal data. All other surveyed countries had no legal 90 80 or regulatory framework in place in relation to cross-border Cross border data 70 data flows. The Data Protection Bill currently under consider- 60 transactions/flows 50 Enabling use of ation in Pakistan would imposes a series of data localization 40 public intent data requirements and enact additional restrictions on the 30 20 cross-border transfer of data. 10 0 6. South Asian countries perform well in terms of having measures to prevent cybercrime in their legal Cybersecurity Enabling use framework. and cybercrime of private intent data India and Pakistan have these measures articulated through a single law (the IT Act and Rules and Prevention of Electronic Crimes Act, respectively). Nepal41 and Sri Lanka42 have fol- Non-personal Personal data protection data protection lowed a somewhat fragmented approach and have multiple laws containing chapters relevant to cybercrime. While the High income Low income robustness of the legal framework can be heartening, little data exists about the total number of adjudicated court cases Upper middle income South Asia or decisions that have been passed regarding these cybercrime Lower middle income measures, making it hard to validate their effectiveness. Source: The Global Data Regulation Survey 2020 41 https://www.coe.int/en/web/octopus/country-wiki-ap/-/asset_publisher/CmDb7M4RGb4Z/content/nepal pop_up?_101_INSTANCE_CmDb7M4RGb4Z_viewMode=print&_101_INSTANCE_CmDb7M4RGb4Z_languageId=en_GB 42 https://www.coe.int/en/web/octopus/country-wiki-ap/-/asset_publisher/CmDb7M4RGb4Z/content/ sri-lanka?_101_INSTANCE_CmDb7M4RGb4Z_viewMode=view/ 59 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives 7. South Asian countries perform well in terms of at the country level showed wide gaps in the capacity of having measures to prevent cybercrime in their legal these agencies to detect, warn, and respond to cyberthreats. framework. Even in countries with cybersecurity agencies, these agen- India and Pakistan have these measures articulated through a cies are nascent in and lack basic technical human resources single law (the IT Act and Rules and Prevention of Electronic (Afghanistan and Pakistan). Crimes Act, respectively). Nepal43 and Sri Lanka44 have 9. Beyond laws and regulations, institutions with key followed a somewhat fragmented approach and have multi- data governance functions are lacking in most coun- ple laws containing chapters relevant to cybercrime. While tries in South Asia, and where they do exist, their the legal framework is robust, little data exists about the total capacity remains poor. number of adjudicated court cases or decisions that have been passed regarding these cybercrime measures, making it hard As Figure 32 shows, more than half of the countries in the to validate the effectiveness of the legal framework. region lack a data governance institution. Where they exist (like in India, Bangladesh, Nepal), these institutions are 8. Two South Asian countries perform poorly in terms of subsumed under another government ministry, department, adopting and enforcing cybersecurity protections or agency. Even in contexts where a data protection authority According to the Global Cybersecurity Index 2020, the exists, such as in the case of Bhutan’s Infocomm and Media performance of the South Asian countries varies. In particu- Authority, it is only a partly independent body with limited lar, Maldives and Afghanistan were the worst performers in authority, and therefore ill-equipped to deal with the complexi- the region, while other countries lie on a wide spectrum, as ties of data flows in the digital economy. demonstrated in the table below.45 While seven of the eight countries have a cybersecurity agency, research conducted FIGURE 32. Prevalence of Key Data Governance Institutions in South Asia Country Rank in the Global Cybersecurity Index 2020 (among 182 Cybersecurity participant jurisdictions) Agency Maldives 177 Data Protection Afghanistan 171 Agency Bhutan 134 Data Governance Nepal 94 Institution Sri Lanka 83 0 2 4 6 8 Pakistan 79 None In progress/planned Established Bangladesh 53 India 10 43 https://www.coe.int/en/web/octopus/country-wiki-ap/-/asset_publisher/CmDb7M4RGb4Z/content/nepal/ pop_up?_101_INSTANCE_CmDb7M4RGb4Z_viewMode=print&_101_INSTANCE_CmDb7M4RGb4Z_languageId=en_GB 44 https://www.coe.int/en/web/octopus/country-wiki-ap/-/asset_publisher/CmDb7M4RGb4Z/content/ sri-lanka?_101_INSTANCE_CmDb7M4RGb4Z_viewMode=view/ 45 https://www.itu.int/dms_pub/itu-d/opb/str/D-STR-GCI.01-2021-PDF-E.pdf 60 The Digital Economy in South Asian Countries: Prospects and Challenges Recommendations • All South Asian countries could work towards economy. The table below covers the best practices adopting and effectively enforcing a robust legal and emerging practices which seeks to create a and regulatory framework, developed according to trust environment, at the same time, maintaining a rule of law principles, in an inclusive multi-stake- proportionate and balanced business environment holder manner and fit-for-purpose for the digital to facilitate data flows. Key aim Best practice Emerging areas of practice Legal protection and scope of Legal definition of “personal data” – broadly defining the concept Data portability – a right that allows data subjects to request protection of “personal data” that includes data that could be used, on its own their data be transferred from one data controller to another or in conjunction with other data to identify a person directly or in certain circumstances, thereby providing data subjects indirectly. greater access to and control over their data to improve their Data controllers and processers –applying obligations to those who ability to compare and switch between products and services. control and handle personal data. Some extraterritorial application – protection is expanded by General principles – robust data protection regimes generally cover: having laws that apply to all corporations conducting business with residents / citizens of the jurisdiction, regardless of where Lawful and transparent collection and processing –personal the corporation resides. This ensures full protection and data is only permitted to be collected and processed for lawful, encourages citizens to carry out cross-border transactions, specified, explicit and legitimate purposes that are transparently trusting that their data will be protected. communicated to the data subject. Use – personal data is not permitted to be used, transferred and or shared in a manner that is incompatible with the original collection unless with the consent of the data subject. Data minimisation – only the minimum amount of personal data required to achieve a specified purpose is permitted to be collected and used for that purpose. Accountability – data users are required to demonstrate compliance with laws through extensive record keeping.  Accuracy – data controllers are obliged to ensure data is accurate and up to date. Limited retention – data is permitted to be retained only for as long as is necessary to achieve its purpose. Security – data is required to be kept securely and protected from unauthorised or unlawful access or use. This overlaps with the regulation of cybersecurity. Controls by individuals Controls - giving data subjects the power to know how their data is Right to be forgotten–allowing data subjects to request data Giving data subjects controls being used, by whom and why and, as against private enterprises at controllers erase data about them, cease further use of that over their personal data least, to have a choice over those matters. data and prevent third party access to it. Consent – implementing consents for vulnerable groups Consent – avoiding “consent fatigue” by adopting opt-in (particularly minors). regime where a consent is informed and given freely (that is, Rights in relation to direct marketing – laws may require special there is a choice element, express and not implied by action forms of consent for direct marketing communications. or omission and subject to a right to withdraw the consent). Sensitive data and vulnerable Sensitive personal data – imposing prohibitions, stricter rules or groups consent mechanism in processing sensitive data in recognition that Providing a higher level of it requires a higher level of protection. Some common examples of protection for sensitive data sensitive data are: race, religious or philosophical beliefs, political sets and vulnerable groups affiliations, social welfare needs, health and sexual orientation etc. 61 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Key aim Best practice Emerging areas of practice Safeguarding against harms Preventing harm - Preventing personal data being used in a way Automated decision-making – introducing rules to ensure that causes harm to the data subjects – e.g., by preventing identity protection from potential harms caused by artificial theft, unwanted marketing and bias profiling intelligence. Some of the principles are as follows: Fairness and ethics – protecting against harm that can arise from bias and profiling; governance and accountability – requiring institutions to proactively and holistically manage and monitor the use of artificial intelligence; transparency – setting a minimum standard to disclose the application of artificial intelligence in services and/or products; and resilience – protecting against cyberattacks and third party risks through continuity requirements and contingency planning. Proportionate and balanced Exemptions – personal data is permitted to be collected, accessed exemptions and used without the data subject’s knowledge or consent in certain Achieving the right balance circumstances such as protecting the data subject or others from between individual data harm, for scientific or statistical purposes and for the detection and privacy rights and: prevention of crime. the rights of the government to surveil its citizens; and corporate interests in the use of data Enforcement Independent regulator with appropriate powers to enforce the framework—a government body is responsible for driving data privacy best practice, consumer education, supervising collection and use of personal data and bringing enforcement action where breaches arise. Rights of redress—data subjects have a right to redress including a right to complain to a government enforcement agency. • To encourage the use of digital economy, all South » prevent virtual world crimes. Crimes that only Asian countries could implement legal and regulatory occur in the virtual world – e.g., violent crimes framework which seeks to eliminate cybercrimes. In where the victims are physically unharmed but particular, cybercrime laws seek to: psychologically harmed due to the extent of real- time interaction and deep immersion into virtual » prevent cyber-enabled crimes. Crimes that environments. take place online or are substantially facilitated with tools such as online messaging systems – » better enable attribution of criminality to e.g., data theft, fraud and money laundering. identify the real-world person behind an online identity. This requires addressing » prevent cyber-dependent crimes. Crimes jurisdictional issues such appropriate forum and that can only be committed using computers, cross-border cooperation. computer networks or other forms of commu- nications technology – e.g., hacking, viruses, ransomware, theft of property. 62 The Digital Economy in South Asian Countries: Prospects and Challenges The table below covers the best practices for cybercrime laws. Theme Best practice Substantive law Criminalization of acts. Imposing criminal liability on corporate entities for aiding, abetting and attempting cybercrimes. Procedural law Powers of investigation, prosecution, compulsion, production, collection, interception and preservation of content data, traffic data or stored data, and computer systems. Electronic evidence Protecting electronic data from manipulation or tampering. Ensuring rules on the collection, use and admissibility of electronic evidence. Ensuring power to request multinational service providers for information or evidence. Establishing operating procedures that allow for the identification, collection and analysis of electronic evidence in a manner that maintains the chain of custody and can withstand trial. Safeguards Complimenting criminal laws with safeguards regarding data protection and consumer protection. Appropriate criminalization Creating new and emerging types of offences or alternative options (e.g., administrative measures or civil sanctions.46 Independent regulator Establishing a dedicated government institution for preventing and combatting cybercrime, specialized law with appropriate powers to enforcement, prosecution and court structures and personnel, resources, capabilities and technology training for enforce the framework cybercrime. Active and informal Public-private partnerships – facilitating information and expertise sharing and intelligence analysis cooperation Cross-border cooperation Establishing formal and informal mechanisms of international cooperation, knowledge exchange, centralized information and coordination hubs for cross-border enforcement operations against cybercrimes Establish cooperation framework which contributes to a 24/7 network for points of contact for urgent assistance 46 https://www.combattingcybercrime.org/ 63 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Towards a Regional Digital Economy Agenda: Opportunities for South Asia 64 Towards a Regional Digital Economy Agenda: Opportunities for South Asia Context and Rationale for a Regional Agenda The digital economy, through its scale and network effects the integration of digital technologies by businesses and public can enable greater access to inputs and markets, improve service providers, the European Commission has developed the exchange of knowledge, capital, and innovation, and help tools to set targets and monitor progress members states are countries achieve national socio-economic development making over time.47 goals. Economies of scale create dynamics through which all In Africa, the “digital economy” has over the last years been economies can benefit, through larger markets, higher trade an agenda that has injected a lot of positive energy into the volumes, and more data. There are benefits to coordination continent’s development ambitions. The African Union, of policies between countries or country groups in the digital the continents overall integration body, has shown the way era that could otherwise be lost without regional or global forward with issuing a 2020-2030 digital transformation approaches. After all, the success of the internet itself is the strategy48. At the heart of this strategy is the plan to create a outcome of voluntary global adoption of IP-based technologies “secured Digital Single Market in Africa by 2030 where free and other networking protocols and standards. movement of persons, services and capital is ensured and Regional strategies for digital economy development have individuals and businesses can seamlessly access and engage already emerged in Europe, Africa, and East Asia, as coun- in online activities”.49 In line with the continent’s integration tries around the world recognize the effectiveness of regional and cooperation process, elements and objectives of this efforts over purely domestic initiatives. Multilateral and strategy are cascading down into regional plans, policies regional coordination have taken over from ‘race to the and strategies in African sub-regions, such as in the East bottom’ approaches to digital economy regulations, in light of African Community (EAC) or the Economic Community of the risks of regulatory arbitrage and those of an increasingly West African States (ECOWAS). Some of the specific targets borderless digital world. and work programs include digital connectivity (expressed as a target to ensure that every Africa citizen has access to In the European Union, a complex set of policies, rules, and internet at a certain speed and price point), regional e-com- initiatives governs the digital economy and advances the merce, and standards on data exchange, e-transactions, and regional digital economy space. In matters where member consumer protection. states have transferred powers to the regional level, the European Commission, based on its treaty powers, executes In East Asia, a large and diverse region, countries are dis- and governs the regional market. This includes, inter alia, cussing and aligning their national digital economy policies policies on telecoms, policies on competition policy including through different partnerships, initiatives, and bilateral the digital economy space, and – maybe most well-known agreements. Under the Asia-Pacific Economic Cooperation internationally – advanced regulations on data protection. (APEC), countries are working together to “realize the poten- The General Data Protection Regulation (GDPR) is one of tial of the internet and digital economy”. An APEC Internet the world’s most advanced and most comprehensive legal and Digital Economy Roadmap (AIDER) was established in frameworks for data governance and a reference point for 2017 and a dedicated working group is today functioning as a international discussions on data regulation. In areas where forum for discussion. It is developing guidance on “key areas member states advance the digital economy through policies and actions to facilitate technological and policy exchanges and initiatives on the national level – such as in matters of among member economies.” 50 In addition, countries advance human capital / education policies, broadband connectivity, their bilateral cooperation on matters pertaining to the digital 47 https://ec.europa.eu/commission/presscorner/detail/en/ip_21_5481 48 https://au.int/sites/default/files/documents/38507-doc-dts-english.pdf 49 Ibid. 50 https://www.apec.org/groups/committee-on-trade-and-investment/digital-economy-steering-group 65 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives economy through deep trade agreements, including advanced interoperability between country payment systems will provisions on a range of digital economy matters such as create a frictionless experience for such remittances, cross-border exchange of data. further driving economic growth and welfare gains. Facilitated cross-border financial flows will provide The mentioned examples of digital strategies and policies on firms in South Asia the opportunity to expand mar- regional levels in Europe, Africa, and East Asia highlight that kets, building on existing cultural and regional ties. there is no one-size-fits-all model for regional approaches to Border markets, such as those between Bangladesh the digital economy agenda. A wide range of options exists, and India and Myanmar and India have been success- from soft forms of cooperation, to deep, regional integration ful, particularly for MSMEs. Additionally, small online mechanisms. They have in common the ambition to allow for sellers have identified cross-border logistics, customs a wider pool of inputs for the benefit of the domestic digital clearance for low-value shipments, and lack of clarity economies, which in turn fuels the growth of a regional digital on customs rules for such shipments, as the top three economy. They also share the attention to three core enablers challenges to cross-border e-commerce. Regional coor- of the digital economy, i.e., areas of policy coordination that dination in this regard would significantly lower the are pre-conditions for any success on the digital economy cost and complexity of doing business, facilitate market beyond national borders: i) cross-border connectivity and data expansion, and fuel MSME growth. infrastructure, ii) an enabling environment for cross-border data flows, and iii) integrated cross-border payment systems. • In the finance sector, digital financial services (DFS) hold great potential for financial inclusion, social inclu- Once a sufficient level of coordination is reached, benefits for sion, and poverty reduction, as well as socio-economic all include increased intra-regional trade, interregional e-com- development more generally. They make international merce, and regional digital financial services. In addition, transfers cheaper and more accessible, of particular sector transformations such as in education, healthcare, and importance in a region where personal remittances social insurance are in reach. account for almost 4 percent of the regional GDP • Intra-regional trade is currently underdeveloped in (2019).44 However, the development of DFS will South Asia, despite its large population density and require appropriate legal and regulatory frameworks to potential for trade flows: the gap between actual and ensure that data is protected, and fraud is minimized. potential intra-regional trade was estimated at US$44 In this context, South Asian countries can work col- billion in 2015, up from US$7 billion in 2001.31 The laboratively to further boost what has become a world region only trades 5% of its total trade volume within hub for FinTech enterprises (with India being home the region, as compared to 22% in Sub-Saharan Africa, to 7 unicorn start-ups in the space). The region stands and 50% in East Asia and the Pacific. A more robust to benefit considerably from a coordinated regional regional digital economy can address some roadblocks approach to growth and inclusive development to intraregional trade and foreign direct investment through the promotion of DFS. in the region. For example, greater digital integration of systems in key areas such as customs and trade Regional cooperation in South Asia today mostly takes place facilitation (including cross-border logistics) will lower on bilateral level, or through sub-regional groupings and ini- non-tariff barriers to intra-regional trade. Digitization tiatives. These often involve Bangladesh-Bhutan-Nepal-India of customs and trade systems at borders will signifi- (BBIN); Afghanistan-Pakistan-Central Asia; or India- cantly facilitate cross-border trade by reducing cost and Maldives-Sri Lanka. They can also exceed South Asia and shortening clearance and transit times. The increased involve cooperation with East Asian neighboring countries scale, scope, and speed of trade can be particularly such as Myanmar, or central Asian countries. For some of the beneficial for SMEs looking to expand their markets by smaller South Asian economies, the need to integrate in, or targeting customers in neighboring countries seek alignment with, some of the neighboring, larger econo- mies is critical. However, to allow for digital marketplaces to • New opportunities for interregional e-commerce can operate across the border, alignment in matters of regulation create markets and facilitate the increased movement of the digital economy, including e-payments, digital transac- of human resources for business, trade, labor, and tions, data protection, etc., is needed. tourism, which can have cascading effects on remit- tance transfers between countries. Coordination and 66 Towards a Regional Digital Economy Agenda: Opportunities for South Asia Priority Areas: Cross-border Connectivity, Data Infrastructure, Payment Systems To build a thriving regional digital economy and reap its reliant on coastal countries for access to global network benefits, South Asian countries could consider greater infrastructure, they pay higher prices, have lower bandwidth regional coordination in the above-mentioned, three priority capacity, and experience poorer service quality. areas. i) cross-border connectivity and data infrastructure, Regional cooperation can help improve access to international ii) an enabling environment for cross-border data flows, and capacity and connect currently disadvantaged landlocked iii) integrated cross-border payment systems. These are a countries. Countries with limited cross-border links are on pre-condition for a larger, regional or sub-regional digital the edge of global connectivity networks, and at a significant economy space. disadvantage in the market in terms of both supply and cost (as price-takers for connectivity). For example, Afghanistan 1) Cross-border Connectivity and Data has historically received much of its international bandwidth Infrastructure via Pakistan, while Nepal and Bhutan are almost exclusively dependent upon cross-border links to India. This increases Countries connect to the global internet via submarine cable the risk of networks having “single points of failure” and systems and, in the case of land-locked countries, cross-border negatively affects the affordability and quality of services terrestrial links. South Asia is served by more than a dozen downstream, a phenomenon exacerbated in Afghanistan by interregional submarine fiber optic cable systems connect- the lack of competitive pricing and regulations in the national ing the region to East Asia, Southeast Asia, the Middle East, backbone, and resulting in much higher end-user prices. The Africa, and Europe. In addition, at least a half-dozen credible region’s limited and fragmented cross-border connectivity also interregional submarine cable projects are under development negatively impacts coastal countries; for example, domestic and expected to enter service by 2025. These cables serve connectivity to the North Eastern Region of india passes as South Asia’s primary digital paths to the world, providing through the narrow geographic gateway of Siliguri, which is abundant, affordable, considered to be a potential network “choke point,” an obstacle reliable international which could be addressed by improving direct access to neigh- bandwidth to the boring countries’ international bandwidth infrastructure. region’s coastal and island countries, Regional efforts can focus on increasing the number of particularly India, cross-border links with coastal and inland neighbors to create Pakistan, Bangladesh, coherent pan-regional network infrastructure. For example, and Sri Lanka. Bhutan’s efforts to diversify its access to international connec- Terrestrial fiber optic tivity via Bangladesh, in addition to its existing arrangements cables transport with India, are designed to reduce distance to the nearest this capacity to the cable landing station and improve resilience. At present, Nepal region’s landlocked and Bhutan connect to cross-border links in India, which countries; however, transports international connectivity from the cable landing as noted in Section B, stations in Tuticorin and Chennai on India’s east coast, nearly because the land- 2200 miles away from the borders of Nepal and Bhutan. locked countries Improving the capacity and quality of key fixed network trans- —Afghanistan, Nepal, mission routes within India that transport this bandwidth, in and Bhutan—are addition to expanding access to international connectivity via 67 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Bangladesh, can prove to be regionally beneficial—enhancing a share of lucrative Europe-Southeast Asia transit demand, within-country capacity in India, and improving access to currently valued in the tens of millions of dollars annually. greater international capacity for Nepal and Bhutan. In addition to cross-border digital connectivity, access to Improved cross-border connectivity in South Asia, if linked infrastructure for the storage, analysis, and transmission of to Central Asia and the Caucasus region, could provide an data is key to the growth of South Asia’s digital economy. This important alternative corridor for South Asia’s intercontinen- requires Internet Exchange Points to facilitate domestic data tal demand as well as for lucrative transit demand between flows, the ability to store data within data centers, and access Europe and Southeast Asia.  Almost all of South Asia’s to cloud computing services that enable users to leverage bandwidth to and from Europe is routed via submarine cables capabilities such as machine learning over vast data sets for such as the Sea-Me-We cables, which pass through narrow value creation. Data infrastructure remains highly uneven geographic corridors that are considered to be network “choke across countries in the region, with India having access to 112 points,” and which follow relatively circuitous paths that colocation facilities and 24 cloud on-ramps, while Sri Lanka increase network latency.  These same cables carry much of has neither. Maldives performs most poorly on access to data the traffic between Europe and Southeast Asia.  Consequently, infrastructure, despite having nearly 100 percent coverage of many Europe-to-Asia bandwidth customers seek alternative 4G networks, as it does not have access to local data centers routes offering reduced risk and greater efficiency.  Integrated or a local cloud services market, showing great potential for terrestrial connectivity in South Asia and Central Asia, par- improvement of such infrastructure to support the creation ticularly along direct, protected linear infrastructure such as and reuse of data for economic development. energy networks, could offer low-latency paths via the Caspian Countries in the region can benefit from being proactive in Sea and the Caucasus region to major bandwidth hubs in investing in carrier-neutral colocation data centers, internet Europe.  These routes could not only improve and diversify exchange points, and access to cloud services providers via South Asia’s own connectivity to Europe, but also capture cloud on-ramps. For instance, Bhutan, owing to its location, 68 Towards a Regional Digital Economy Agenda: Opportunities for South Asia cooler weather, and access to cheap, renewable sources of energy, is particularly well-positioned to develop a robust data 2) An Enabling Environment for Cross- center market. Other landlocked countries can also do more to border Data Flows enhance their local data center markets (Nepal) and improve Investing in connectivity and data infrastructure can lead to the functioning of Internet Exchange Points (Afghanistan). greater benefits when combined with an appropriate enabling Despite access to excellent submarine cable connectivity, data environment for cross-border data flows. Data (both public infrastructure in Sri Lanka and Maldives is still under-de- and private) has the potential to create socio-economic value veloped, and so there is significant scope for private sector for all countries in the region when it flows based on common investments in future. Larger markets, such as India and frameworks and standards. Advanced technologies such as Pakistan, can also leverage their existing data infrastructure artificial intelligence and machine learning increasingly use to regionally aggregate demand. This could in turn incentivize cloud computing and rely on the ease of cross-border data large global content providers to co-locate their content in flows. Cross-border data flows can also facilitate greater regional hubs, with benefits in terms of faster, more reliable choice of competitive online services for end users and enable access for end-users. Given the importance of network effects economically efficient choices to store and process data for and economies of scale in the digital economy, a regional businesses. Regulation of these cross-border data flows lies approach to data infrastructure, with the right enabling envi- at the heart of ongoing discussions of international trade gov- ronment (as described in the next section), can help stimulate ernance, owing to its knock-on effects on digital trade. A legal greater cross-border data flows, benefiting both big and small and regulatory framework that upholds privacy, security, and economies in the region. consumer protection is critical to supporting digital transac- tions, especially across borders. Also, complementarities exist to improve connectivity as part of larger reform endeavors involving transport, trade, Requirements to localize data and limit data transfer can or electricity transmission network upgrades. In the area of directly affect countries’ economic competitiveness. The high transport and trade, a Multi-Phase Programmatic Approach cost of investing in the infrastructure to localize data can dis- (MPA) is under consideration in the BBIN sub-region. Such incentivize foreign investments and prevent local technology program would comprise of a series of linked transport and startups to thrive. For instance, regulations on the cross-bor- trade facilitation projects in Bangladesh, Bhutan, India, and der transfer and use of data can impose substantial costs on Nepal (BBIN) contributing to the same regional connectivity micro, small, and medium enterprises (MSMEs), stymying objective of reducing trade and transport cost. Digital infra- their growth. Research suggests that data localization require- structure is an important enabler for efficient trade between ments and restrictions on cross-border data flows, including these countries and could be built on the transport networks for outward transfers, adversely affect the set-up and opera- and help facilitate trade exchange. tion of firms’ global production networks51. Electricity transmission grids of BBIN countries are already At present, while no South Asian country has enacted connected with each other and further strengthening of this overarching directives restricting cross-border data flows, regional connectivity is in progress. PGCB (Bangladesh), BPC restrictions on data localization have been discussed and (Bhutan); PGCIL (India), and NEA and PTCN (Nepal) already introduced in draft bills in India, Pakistan, and Sri Lanka. have Optical Ground Wire (OPGW) installed along these On average, South Asian countries rank lower than average cross-border electricity links. PGCB, BPC, and PGCIL are low-income countries in terms of the enabling environment already in possession of telecom licenses for domestic optical for cross-border data flows, as noted in Section B. In India, fiber connectivity in their respective countries. Respective several restrictions on data localization have now been regulators and government in these countries could consider enacted through sectoral policies and rules in banking, insur- issuing international telecom connectivity licenses to these ance, and health care. However, while these legal restrictions utility companies, so that existing and planned OPGW may be exist, the institutions to enable harmonized processing of used to strengthen regional connectivity. decisions and regulatory enforcement on data flows is absent (Table 5). Legal frameworks in other South Asian countries surveyed, as part of the Global Data Regulation Diagnostic, are largely silent on this point. 51 “Daza Jaller, Lillyana; Gaillard, Simon; Molinuevo, Martín. 2020. The Regulation of Digital Trade: Key Policies and International Trends. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/33164.” 69 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives TABLE 5. Legal and Institutional Environment for Cross-Border Data Flows in South Asia Do any laws, regulations or Do any laws, regulations or Is there a “One Stop Shop” Agency” (e.g. policies require personal policies restrict the transfer Data Protection Agency) to harmonize Country data to be stored within the of personal data outside the processing of decisions and regulatory country? country? enforcement? Afghanistan No No No Bangladesh No No No India Yes Yes No Nepal No No No Pakistan No No No Sri Lanka No No No Furthermore, the growth of digital platforms in the region can requirements in draft legislation in the region. The World benefit from facilitated cross-border data flows. As discussed Development Report 2021 recommends the promotion of above, the larger markets in South Asia—India, Pakistan, and international standards for cross-border data sharing and Bangladesh—already have flourishing digital businesses. A digital transactions, including technical standards for data legal and regulatory framework facilitating cross-border data protection and to ensure interoperability and alignment with flows can enable these platforms to reach the regional market, global trade rules on data flows. In South America, where capitalizing on the commonalities in end-user preferences for several countries have chosen to harmonize their frameworks goods and services. For smaller markets in the region, this will for data governance in alignment with the European General lead to fair, interoperable, predictable, and trustworthy digital Data Protection Regulation (GDPR), the region is better trade, and in larger markets, competition and user-choice will placed to capitalize on the economic benefits of cross-bor- also be improved. In addition, newer data-driven business der data flows. This has included efforts on the regulation of can flourish, easing processes in the flow of goods within the online consumer protection, electronic payments, and inter- region. For instance, freight tracking on sub-regional transport mediary liability rules. While political economy constraints corridors can benefit from the use of data-driven approaches. differ across the region, both public and private sectors in IoT-based digital platforms can be better leveraged for South Asian countries can benefit from common standards, intra-regional trade with a common and well-articulated coordinated approaches, and evidence-based policies on the approach to data sharing across South Asian countries, reduc- regulation of data flows. This can help the region unlock its ing border delays and easing customs procedures. vast potential for electronic commerce and digital trade, pro- moting the region’s economic transformation. In the medium-term, there is an opportunity to facilitate mutual recognition of digital IDs to allow people and busi- nesses to do transactions and access services across borders. 3) Integrated Cross-Border Payment This includes the ability to exercise consent and control over Systems data, such as a person giving permission for their financial The number of cross-border payments (including remit- service provider to share data with another. The European tances and trade transactions) are on the rise between South Union regulation on electronic identification and trust Asian countries. Regional cooperation in matters of pay- services for electronic transactions in the European Single ment systems can generate welfare gains and benefits such Market (eIDAS), which came into force in 2014, offers a useful as (a) reliable and cost-efficient payments (b) better dispute example of how such governance and technical arrangements management and faster resolution of complaints with more can be designed. Such an effort in South Asia would depend standardized rules and regulations, and (c) faster processing on identifying compelling use cases, which are more likely to of transactions and settlements (due to the avoidance of time emerge as data and payment flows are unlocked in the region. zone differences resulting from settlement of transactions in An enabling environment for cross-border data flows can books of correspondent banks USA or Europe). benefit from regional coordination. Early evidence from South Most countries in the South Asia region, apart from Nepal Asia suggests greater need for such coordination, given the and Maldives, have functioning domestic payment card proliferation of inward-looking data policies and localization 70 Towards a Regional Digital Economy Agenda: Opportunities for South Asia BOX 9. Examples of Regional Regulation on Cross Border Data Flows and Payments Integration Cross-border data flows have become an integral part of the global whereby the operators of the domestic infrastructures would hold economy. Made possible by digital innovation over the last years, including accounts at a “hub entity” under a hub and spoke arrangement. Two broadband networks, datacenters, and cloud infrastructure, cross-border examples of multilateral platforms are provided below. data flows allow for digital businesses to carry out their activities and offer SADC-RTGS: SADC-RTGS (formerly known as SIRESS) is a regional cross-bor- their services across different countries. der RTGS system in the Southern African Development Community (SADC) Research undertaken for the World Development Report 2021 has mapped region.2 The SADC-RTGS payment platform went live on 22 July 2013 with current approaches around the world, categorizing regulations for high-value payments. It is an automated interbank settlement system oper- cross-border data exchange as (i) open transfer; (ii) conditional transfer; ated by the South African Reserve Bank (SARB), as appointed by the SADC and (iii) limited transfer.1 participating member central banks. Participants include central banks and financial institutions that are authorized by the central bank in their country The regulation of cross border data flows is an area of important of origin to participate in that country’s settlement system. The ownership international debate and rapid evolution of new, national, regional, and matters and decision-making processes of SADC-RTGS fall under the international standards. Rules anchored at the World Trade Organization governance structures of the Committee of Central Bank Governors (CCBG). (WTO) provide for regimes on trade in services and work is underway to SADC-RTGS is a single-currency payment system that settles in the South better capture the cross-border exchange of data. Currently, most innova- African rand (ZAR). There are considerations to include additional currencies tion is captured in preferential trade agreement between regional blocks on the system in the near future. SADC-RTGS’s legal arrangements are or groups of trading partners. In the European Union, a deeply integrated set out in multilateral agreements aimed at providing legal certainty in the region, has developed a comprehensive framework on the use of personal absence of an appropriate SADC-wide legal and regulatory framework for data under its General Data Protection Regulation (GDPR), which has since payment, clearing and settlement systems. 2016 become a reference point for discussions on data regulation in many parts of the world. In East Asia, an ASEAN Framework on Digital Data Buna: Buna Payment System (Buna) is a regional payment infrastructure Governance is under development to create harmonized standards for with participants from the 22 Arab Monetary Fund (AMF) states. Buna is data management and cross border data flows within ASEAN. a fully owned subsidiary of the Arab Monetary Fund (AMF). The platform became fully operational in December 2020. The project’s motivation Cross-border interlinking of payment systems could be via: (i) single is rooted in the challenges faced by banks to complete cross-border access point and direct link models or (ii) spokes and linkages of a hub and payments in the Arab region. Buna is a multi-currency settlement system in spoke model. In a centralized network arrangement, participants from multi- four Arab currencies3 as well as USD and EUR. Buna allows participants to ple jurisdictions may be brought together onto a centralized system where connect directly or through central banks. they have accounts at a common shared payment system. Alternatively, they may rely on their respective domestic infrastructures for connectivity, 1 https://wdr2021.worldbank.org/stories/crossing-borders/ 2 In 1992, Member States signed the SADC Treaty committing the regional group to work together in order to: achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the people of Southern Africa, and support the socially disadvantaged through regional integration. SADC membership comprises 16 countries namely, Angola, Botswana, Comoros, Democratic Republic of Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia and Zimbabwe. 3 Jordanian Dinar, Egyptian Pound, UAE Dirham and Saudi Riyal. Other Arab currencies would be added in the future subject to meeting criteria for settlement currencies. infrastructure. These systems have been leveraged to establish In addition, the Bhutan Financial Switch (BFS) and India’s bilateral linkages between countries for seamless cross-border National Financial Switch (NFS) were also interlinked in payments. However, no dedicated regional payments arrange- 2019. This means that Indian travelers can seamlessly use ment currently exists. Bilateral agreements include those their domestic RuPay-branded cards at ATMs and point-of- between India and Nepal and between India and Bhutan. As sale (POS) terminals in Bhutan, and similarly, Bhutanese a result of such arrangements, since 2008, there is a one-way travelers can make use of ATMs and PoS terminals in India.52 remittance scheme from India to Nepal using the Reserve One of the most important enablers of cross-border pay- Bank of India’s National Electronic Fund Transfer (NEFT) ments are legal and regulatory frameworks.53 Though these system (the scheme’s upper limit was raised in August 2021). are largely consistent across the region, the following aspects 52 https://www.rma.org.bt/RMA%20Publication/DPSS/Q2,%202021%20Report.pdf 53 The legal provisions for payment system cover (i) recognition of electronic payment, (ii) irrevocability, (iii) recognizing bilateral and multilateral netting, (iv) settlement finality, (vi) collateral protection, (vii) powers to adopt international standards and best practices, (viii) powers to enter into MOU with foreign regulators/ authorities, (ix) cross-border cooperation for oversight (including information sharing, if required), etc. 71 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives may require further consideration: a) the degree of harmoni- infrastructure of a particular country, or through the inter- zation of Anti Money Laundering (AML) and Combating the linking of existing country-level infrastructures, and (iv) Financing of Terrorism (CFT) procedures, b) policies related establishment of a new common infrastructure across the to foreign financial institution’s participation in financial region. The use of existing infrastructure has the advantage infrastructure, and c) cross-border issues pertaining to data being easier to implement and more cost-effective. New protection and privacy. infrastructure would have the advantage of being seen as a collective regional effort and could provide more flexibility in In addition to legal and regulatory challenges, the second responding to the specificities of the regional context. A robust major barrier to cross-border payments in the region is the cost-benefit analysis would be required to identify the most compatibility of payment system infrastructures. Countries adequate model. A practical way forward might be to expand in the region have all implemented traditional payment existing cross-border bilateral models, while in parallel pursu- systems covering large value (Real-Time Gross Settlement ing multilateral arrangements. or RTGS) and bulk payments (Automated Clearing House or ACH). They have also established dedicated domestic card These models could be based on traditional approaches or payment infrastructures, national switches (except Nepal entirely new approaches using innovative, disruptive digital and Maldives), and Fast Payment Systems (FPS) (except technologies such as Central Bank Digital Currency (CBDC) Afghanistan and Bangladesh). Still, several countries suffer and/or Distributed Ledger Technologies (DLT). However, from an inadequate network of financial access points, such as global discussions on these technologies are still at a nascent ATMs, agents, retail merchants and so on. stage and much remains unclear. For regional cooperation and cross-border provision of Box 10 sets out examples of existing country-level payment payment systems, the following models could be considered: systems infrastructure that could be leveraged for facilitating (i) a partnership model, (ii) a bilateral integration model, cross-border payments. (iii) a multilateral arrangement, using the existing financial 72 Towards a Regional Digital Economy Agenda: Opportunities for South Asia BOX 10. Existing Payment Systems Infrastructure that could be leveraged to facilitate Cross-Border Payments RTGS (Real-Time Gross Settlement): The RTGS system in operation in Online Payment Gateways: Online payment gateways in the region facili- Bangladesh, India, and Nepal has a multi-currency option. These systems tate the repatriation of remittances against small value service exports in support the settlement of foreign exchange transactions. As such, they non-physical form, e.g., data entry/data process, off-shore IT services, or could be utilized for the settlement of payment transactions between business process outsourcing. Regulators in the regions could establish these countries. Additionally, the Indian system could support both Bhutan a collaborative dialogue with online gateway providers to examine how and Nepal, as their currencies are pegged to the Indian rupee. services between countries may be provided at low cost. FPS (Fast Payment Systems): Linking Fast Payment Systems for cross Connectivity between domestic settlement networks: Most countries in border payments is an option that could be explored in the region. A good South Asia have already established national switches for the domestic example is India’s BHIM (Bharat Interface for Money), whose UPI (United clearing and settlement of all payment card transactions. This domes- Payment Interface) has gone live in Singapore, demonstrating the use of tic arrangement could be leveraged to enable cross-border payments UPI for making payments internationally. The connectIPS system in Nepal through card transactions between countries in the region, without also has functionalities similar to UPI. In Bhutan, the Bhutan Immediate impacting existing arrangements for domestic transactions. The settle- Payment Service (BIPS) and Payment Gateway (PG) could also be used to ment for such cross-border transactions could be managed by identified facilitate cross-border payments. Linking FPS for cross border payments, commercial banks, with risk mitigation measures put into place by the using the Project Nexus framework proposed by the Innovation Hub of the respective regulators. Bank of International Settlements (BIS) could also be considered. 73 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Conclusion 74 Conclusion The pace of digitization in the South Asian region has been Compared to past crises, countries today are in a better accelerating rapidly, as connectivity improves, more people position to tackle the formidable challenges they confront get online, and transformational innovations in public ser- through the use of digital technologies. Digitalization has vice delivery and business models alter the socio-economic gained a prominent role in the daily lives of people in the landscape. The shock imposed by the COVID-19 pandemic, region, and its impact on society will only grow in the coming together with the increasingly visible consequences of climate years. This report has identified important public policy change, have exposed the real cost of digital divides. New reforms that would enable South Asian countries to benefit approaches to development are sorely needed. from accelerated digital development while at the same time ensuring risk mitigation. Key themes: Stronger Institutions, Inclusion and Trust A carefully considered combination of public policies that needed to create a safe and secure digital space that is trusted boost inclusion, overcome constraints in institutional capacity, by both people and businesses. competence, and coordination, and improve confidence and By enhancing inclusion, countries can ensure that digitali- trust in the digital economy, will help South Asian countries zation benefits accrue to all and that no one is left behind. realize the benefits of the digital revolution. Strengthening institutions and regulations will unlock the Getting the basics right will enable South Asian countries to gains of the digital economy while mitigating the risks that unlock more of the benefits of digital economy development could emerge. Finally, providing legal validity and equivalence while mitigating its risks. To start with, people and businesses for electronic/digital identification, authentication, transac- need access to affordable, fast, and reliable internet. Digital tions, signatures, and contracts while ensuring safeguards skills, for both basic and advanced users, are a pre-condition for people, businesses, and governments against the risks for the use, and innovation, of digital technologies. In addi- and misuse of digitalization will serve to increase trust in the tion, digital financial services are indispensable for economic digital economy, and encourage further uptake and innova- activity to successfully leverage the benefits of the cyberspace. tion. Moreover, greater public-private and regional dialogue, New digital businesses in the region stand ready to tap into through available forums, will also promote collaboration the opportunities and transform the economic landscape but and trust among countries and relevant stakeholders. This is require the right enabling environment to flourish. At the essential to the development of the densified broadband net- same time, given that the proliferation of digital technologies works, integrated payments systems, and cross-border data creates an entirely new set of risks, appropriate safeguards are flows, necessary for a thriving regional economy. 75 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Towards a Digital South Asia: National and Regional Recommendations To truly realize the benefits of a digital economy, South Asian Services, (4) digital businesses, (5) digital skills, and (6) trust countries need to take a cohesive and deliberate approach environment. The main recommendations emerging from across all six pillars of the digital economy, namely (1) digital the present regional synthesis, and the various country-level infrastructure, (2) digital public platforms, (3) digital financial analyses, are set out below. Pillar Key Recommendations • Ensure adequate and cost-efficient international redundancy for landlocked countries. • Bridge critical gaps in the middle-mile and last-mile by improving investments in the backbone, both by upgrading older infrastructure to be energy- efficient and climate-responsive, and by rolling out new networks. • Facilitate cross-sectoral, passive, and active infrastructure sharing for greater cost efficiency in infrastructure deployment through relevant policies, Infrastructure regulations, and active enforcement. • Increase adoption, and address the usage gap, by promoting service affordability through innovative pricing and lower sector-specific costs, and device affordability through strategic partnerships. • Boost adoption through the effective utilization of Universal Service and Access Funds, which are presently deployed in a non-transparent manner and with varying success across countries in the region. • Enhance public-private dialogue to identify how existing legal and regulatory frameworks can be updated to reflect recent innovations in technology and business models and respond to the emerging global and regional opportunities of the digital economy. • Accelerate efforts to drive demand for the adoption and use of broadband services. • Support whole-of-government approaches to digital government through institutional and regulatory reforms and the development of relevant technical capacity in the civil service. Public platforms • Promote data protection and cybersecurity to improve trust in digital government services. • Strengthen data governance and interoperability frameworks to support better service delivery and tap into the full value of data use and re-use. • Strengthen digital identification, digital payments, and data platforms—and design them as ‘digital stacks’ that enable cross-linkages. • Support high impact and catalytic use cases, such as healthcare, education, jobs, and financial services. • Bridge digital divides and empower women and girls, in particular, by being deliberate about inclusion and human-centered design. • Encourage adoption of digital payments by governments wherever feasible and widen coverage of recipients who lack access to financial services. Financial services • Address gaps in financial infrastructure and modernize credit reporting systems to integrate alternative data and establish a clear roadmap for developing the payments and data exchange components of the digital stack. • Foster trust and financial/digital literacy through strengthened institutional and regulatory environments. • Establish innovation facilitators that enable the development of new business models, promote the participation of new market entrants, and expand the DFS market. • Proactively adopt regulations that encourage innovative and avant-garde business models. 76 Conclusion Pillar Key Recommendations • Build adequate institutional capacity for the development and implementation of legal and regulatory frameworks to promote innovation and competition. In particular, Competition Commissions throughout the region could consider developing rules and regulations for digital platforms in order to protect data transactions and personal data. Businesses • Accelerate the growth of early-stage and growth financing through government fiscal incentives, and an enabling regulatory environment. • Facilitate the adoption of digital tools and technology by SMEs. • Improve opportunities for female entrepreneurs, including through improved access to finance. • Support the development of a robust network of intermediary support organizations and promote linkages with local incubators, hubs, and universities. • Incorporate the digital skills agenda in national strategies. • Develop the necessary capacity, and create an efficient system, to train a digitally savvy workforce that is aligned with the requirements of the digital industry. • Respond to rapidly changing expectations and working methods within the IT and digital industry through a rapid and dynamic adaptation of the workforce. Skills • Establish trainers’ academies to encourage trainers to use digital resources in skills training across all sectors. • Promote the availability of refresher courses for trainers, including a domain skilling component with close linkages to industry, followed by possible on-the-job training within industry. • Incorporate special learning modules to enhance the work readiness of women in the IT fields. • Harness technology to green the globe. • Adopt and effectively enforce a robust legal and regulatory framework, developed according to rule of law principles, in an inclusive multi- Trust environment stakeholder manner and fit-for-purpose for the digital economy. • Invest in independent, well-resourced, and competent institutions to enforce the legal and regulatory frameworks that safeguard the data rights and interests of all stakeholders. The broad findings above are complemented by country-spe- the internet. At the same time, the establishment of shared cific recommendations—fit to each country’s status quo and legal and regulatory frameworks that allow agile data flows specific circumstances—to unlock digital opportunities while would create appropriate foundations for a flourishing digital mitigating the risks of an increasingly digital economy. The regional ecosystem. Furthermore, systems and processes for Annex that follows provides additional, country-specific anal- the adoption and use of digital financial services would boost yses and policy options for countries to consider as they seek cross-border economic exchange. to translate these themes and ideas into specific policies and With these strategies in place, countries in the region will initiatives. be in a strong position to build back better after the current From a regional perspective, the realization of a more inte- crisis, particularly through a mix of public investments and grated digital network between and within countries is an private capital mobilization. By optimizing the use of digital important first step towards reaching inclusive access and technologies, building on the strengths of the private sector, meaningful connectivity. An integrated regional network can and leveraging the growing capacities and ideas of its people, help overcome the inherent challenges of landlocked and the South Asia region can truly realize the benefits a green, island states in the region. Such integration would reduce data resilient, and inclusive digital economy. prices, improve affordability, and increase overall access to 77 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Annex Executive Summaries of Country Assessment Reports 78 Annex Executive Summaries of Country Assessment Reports Afghanistan The country assessment for Afghanistan is based on the data collected and stakeholder consultations held prior to the political transition in Afghanistan in August 2021. No additional data was collected since the transition. The analysis, therefore, does not reflect the most recent economic, political, and policy developments. In the face of considerable challenges and crises, Afghanistan businesses to benefit from the digital economy through digital has made important progress over the last decades in build- literacy and skills development, capacity-building for public ing the key foundations of its digital economy. In 2002, there officials, and a coordinated effort to integrate digital tools was just one telephone for every 540 people, with almost no across the economy. sign of the internet. Today, Afghanistan has 62 national and international internet service providers with nearly 5.23 mil- Key Findings lion subscriptions. The government has put into place several strategic ICT programs, including the e-Government program, DIGITAL INFRASTRUCTURE with a view to improving transparency and efficiency, and Afghanistan’s digital connectivity has improved significantly enabling the delivery of key public services. The introduction over the past decade, with mobile penetration reaching above in 2013 of 3G mobile broadband services, and in 2017 of 4G 90 percent by mid-2020. The private sector has taken a rollouts, are slowly increasing overall broadband internet pen- leading role in building mobile networks. The introduction etration in the country. in 2013 of 3G mobile and in 2017 of 4G mobile is slowly The Afghanistan government considers the development of the increasing overall broadband internet penetration in the digital economy as an important part of longer-term economic country. However, gaps remain in terms of the deployment development. The Ministry of Communication and IT (MCIT) of next generation broadband networks. Only 0.4 percent of is the primary government body responsible for the IT industry the country’s population is covered by 4G/LTE, and while 3G and the supervision and oversight of digital planning. Its Vision population coverage has reportedly increased to 90 percent, 2022 seeks to grow the ICT sector as a whole by improving uptake remains low. Close to 70 percent of the population, ICT usage in the country, expanding telecommunications/IT mostly in rural areas, still use legacy 2G networks. Fixed infrastructure and services, and ensuring universal ICT access broadband subscriptions are also limited: regional bench- for all citizens.54 Despite the sector’s rapid development, high- marking of fixed broadband household penetration shows speed internet remains costly for both individuals and small that household penetration stood at 0.4 percent in mid-2019, businesses. Afghanistan has a Digital Adoption Score of 0.43 which is low compared to peers in the region and peers in and sits among the lowest-ranked countries (169th out of 193) the same GDP per capita decile. Difficult terrain and sparsely in the United Nations global eGovernment Development Index populated areas, coupled with security issues, have restricted or eGDI. It is clear that much remains to be done to complete the geographic reach of connectivity in more remote areas. the foundations of the country’s digital economy. Security is a critical issue and affects day-to-day operations: Afghanistan would need to address some cross-cutting in 2020 alone, nearly 1200 mobile towers were damaged in bottlenecks that are hindering the development of its digital security-related incidents. Security problems also delay or economy. In particular, the government should take action hinder the deployment of new telecommunications infra- to (i) ensure that the digital economy is inclusive of (and structure. High costs associated with regulatory barriers and accessible to) all people regardless of age, gender, socio-de- limited competitive pressure contribute to high prices and mographic status, and geography, (ii) build a trusted digital lower adoption. For example, an entry-level mobile broadband ecosystem through regulatory frameworks for data protection, package is equivalent to about 7.1% of GNI per capita, far privacy protection and cybersecurity, (iii) enable coordinated greater than the 2 percent threshold for affordability recom- institutional strategies to define forward-looking achievable mended by the Broadband Commission (of the International targets across agencies and levels of government in order Telecommunication Union and UNESCO). The retail price of to maximize the impact of efforts to digitize public services, fixed line internet services is equivalent to US$26 (per Mbps, and (iv) improve the capacity of government, individuals, and per month), and therefore unaffordable for the average citizen. 54 ICT Policy (2019-2023): MCIT, Afghanistan Government 79 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives In addition, high costs for spectrum, import duties, fines, cluster), which is at the lower end of the scale compared with permits, as well as other types of fees and taxes specific to the other countries in the South Asian region. It also lags all other sector pose significant challenges to sector development. The South Asian countries in the 2020 United Nations e-Gov- quality of broadband services is also poor: mobile broadband ernment Development Index (EGDI), ranking 169th out of speeds in Afghanistan are less than half the global average. 193 countries. This is primarily due to the limited amount of currently One of the key challenges in the implementation of e-gover- allocated radio spectrum and the significant delays in the nance in Afghanistan remains the connectivity gap. The lack allocation of additional spectrum. Moreover, even though the of connectivity limits the extent to which people and busi- wireless market in Afghanistan is somewhat competitive, the nesses can engage with the government and use its services. state-owned Afghan Telecom is not appropriately positioned Still, there has been some progress. The Government is using as a wholesale provider to other operators, and infrastructure digital technology to simplify administrative procedures and sharing is not actively encouraged. Such actions would be in to reduce the exposure to corruption. Systems that have been line with the government’s open access policy (OAP) approved recently computerized include the following: human resources in October 2016. Nonetheless, investments to date have information system (in all ministries), employee attendance been limited. Finally, as a landlocked country, Afghanistan’s system, revenue collection system, tax payment system, bank- international connectivity is generally slower and costlier than ing affairs, most public office correspondence, and electronic its regional peers, although some neighboring countries have passport distribution. At the national level, several new initia- reported higher wholesale IP transit rates. tives are underway to accelerate the digitization of essential Significant challenges remain for Afghanistan in its efforts governmental services and operations. to create an enabling environment for private sector invest- The Digital Foundation Strategy for Afghanistan (2019- ment. A few high-priority measures could help accelerate 2021) sets out a vision for building the country’s key digital digital connectivity development, mobilize private capital foundations. The Digital Afghanistan Strategy (2020-2025) and increase competitive pressure on the market to deliver and the Afghanistan Digital Economy Strategic Plan (2019- better outcomes. First of all, non-discriminatory access to, 2023) recognize the importance of digital transformation and and transparent pricing for, infrastructure owned by the e-government and were launched to support the economic, incumbent Afghan Telecom would position it as a wholesale social and governance needs of the country. Some of the basic provider to other operators. Second, implementing infrastruc- elements for public service delivery have already been created ture sharing would accelerate broadband development in rural but require more comprehensive implementation. The gov- areas, by limiting duplication of infrastructure and redirecting ernment has established a national data center housed at the resources to underserved communities. Third, improving the Ministry of Information and Communication Technologies management of Quality of Service (QoS) and radio spectrum (MCIT), as well as data centers for the healthcare sector would enhance affordability and service quality. Fourth, and for environmental data collection. The e-Government rapidly deploying resources from the Telecommunication Interoperability Framework (e-GIF) was prepared by MCIT Development Fund (TDF) would accelerate infrastructure to promote the interoperability of government systems. This development in underserved areas and fund programs to should now have been fully implemented. Similarly, plans are build demand-side capacity for greater uptake. Finally, the in place to expand the use of a critical identification system for government should consider how it might reduce the impact the population; at present, Afghanistan has the second highest of taxes and duties on telecommunication equipment, adopt percentage of population without an ID in South Asia, with a more efficient procedures for their import, and promote the third of its population unregistered. The introduction of e-Taz- affordability of broadband-enabled devices. kera, a digital identification system, has long been planned, but the timeline for rollout is still unclear. And despite consid- DIGITAL PUBLIC PLATFORMS erable progress over the years, essential digital services such Afghanistan should consider leveraging the wider use of as shared data repositories (for instance for land or property) digital technology in public service delivery to strengthen its are not in place. Though well-intentioned and proactive in its fight against corruption and improve the effectiveness of citi- efforts, the government seems to have adopted a piecemeal zen services. The country scores 0.56 (on a scale of 0 to 1) in approach, launching many fragmented (and often peripheral) the World Bank’s 2016 Digital Adoption index (Government projects with uncertain outcome and value. 80 Annex Executive Summaries of Country Assessment Reports Low literacy levels and the limited capacity of average Afghani digital financial services to support this outcome. Mobile citizens to adopt and use digital channels poses another chal- money was introduced in Afghanistan in 2008. Regulations lenge to the development of the digital economy. Gender gaps for money services providers and payment system opera- are stark, with many women lacking access to digital devices tors were introduced in 2016, formalizing the role of mobile and services, including basic identification. There is no struc- money companies as Electronic Money Institutions (EMI) ture for the effective coordination and sharing of data among and encouraging the market entry of non-banking players. different organizations and the legal and regulatory environ- The four largest mobile operators acquired EMI licenses by ment for data protection is weak, with provisions for online setting up separate independent entities. The DAB’s first privacy contained only in the cyber-crime code. This under- National Financial Inclusion Strategy (NFIS) for Afghanistan mines overall public trust in digital transactions. The situation (2020–2024), launched in September 2019, aims to expand is further exacerbated by the absence of clear institutional and diversify access points, enhance access to formal financial leadership. Multiple agencies are involved in the digital agenda services for both men and women, empower consumers, and (e.g., the communications ministry, statistical agency, and increase access to finance for Micro-, Small and Medium- telecommunications regulatory agency), often with unclear Sized Enterprises (MSMEs) and the agriculture sector. The mandates. Afghanistan ranks 126 of 175 countries in the ITU’s strategy is also intended to promote access to Digital Financial Global Cybersecurity Index (2018), suggesting significant Services (DFS). Afghanistan is working towards bringing room for improvement. about increased efficiency in the financial system through the establishment of a consolidated payment system (Afghan There are three key measures that could be taken to boost Payment System) and the transition towards a DFS-based digital government and service delivery. First, a Digital ID civil servant salary payment system. 97 percent of the police program could be set up as an autonomous, self-governed force have now been registered in the system and more entity with a foundational role to improve public and private than 73 percent of the government’s total 800,000 military service delivery more broadly. This ID program could be and civilian employees receive their salaries electronically. designed to link with a variety of different services, such as Innovation is also happening in the fintech space, for instance financial services, healthcare, and voting access. Throughout, through the launch of online payment solutions. Even though a clear focus on gender and social inclusion, including these developments hold promise, basic infrastructure is still protecting privacy and data security, should be maintained. missing and there is limited support for digital transactions. Second, the government could pursue its digital transforma- Afghanistan’s ATM network has less than 500 ATMs across tion agenda in a more integrated and coordinated manner. the country and only some 2,000 credit cards were in circula- In order to achieve this, the government would require a tion in 2018. Awareness of, and trust in, the formal financial single enterprise/service architecture, which would prioritize system is limited; at the same time, the informal “hawala” and consolidate service delivery from multiple citizen-facing system still operates on an honor basis. A mere 15 percent of applications. This common shared infrastructure would con- adults in Afghanistan had transaction accounts with finan- centrate on service availability and ensure disaster recovery cial institutions in 2017 (for storing value or for payment) back-up. In parallel, leadership for the digital agenda, as well and only 0.3 percent of adults used mobile phones to access as the various institutional roles, need to be clarified. Third, these accounts. Further, the agent network for mobile money trust in digital services could be fostered through better faces liquidity problems. Other obstacles to the adoption of cybersecurity for digital public platforms and better data DFS include limited digital access, security concerns, reli- protection mechanisms, including the establishment of an gious and cultural beliefs, and low rates of financial literacy. effective Data Protection Authority (DPA). Given the coun- Moreover, Afghanistan operates in an overall weak cyberse- try’s low literacy and limited internet adoption rates, together curity environment, with no cybersecurity framework for the with the risk of further exclusion through digital transfor- banking sector, and an incredibly nascent Government Cyber mation, e-government services should be backed by physical Emergency Response Team (CERT) that is both understaffed facilitation mechanisms that work in conjunction with, not in and weakly prepared to address cyberthreats. parallel to, digital service delivery. A number of high-priority measures could be taken to boost the use of digital financial services. Financial literacy and DIGITAL FINANCIAL SERVICES inclusion programs could be put into place to educate people The central bank, Da Afghanistan Bank (DAB), considers on DFS, including women and poorer households. Efforts financial inclusion as a key strategic pillar and has enabled 81 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives towards promoting government-to-citizen payments should be biggest impediments to the development of a self-sustaining expanded to a wider range of products such as microlending digital ecosystem. or micro-saving products. This could include favoring digital Whilst the foundational elements of a digital economy exist wallets over agent-dependent OTC (over the counter) transac- in Afghanistan, the government could do more to promote tions, in order to encourage consumers to spend cash digitally. the development of nascent digital businesses. First, the Regulatory sandbox initiatives to promote innovation and government should establish clear guidelines on technology regulatory compliance could boost local fintech innovation and procurement on an open-access, competitive, and non-discrim- support the development of disruptive ideas in areas such as inatory basis, in order to address the current standstill on ICT digital remittances, peer-to-peer lending, and retail payments. contract outsourcing to the private sector. Second, the govern- In addition, interoperability initiatives and efforts could target ment should address the current delays for business license both digital and analogue channels—in other words, agent-level renewals by linking renewals to tax returns. Third, the gov- interoperability could be used to promote branchless banking. ernment should undertake a regulatory review of the private equity and venture capital ecosystem and consider incentives DIGITAL BUSINESSES to attract private sector investments for start-ups. Finally, With limited digital access and adoption, Afghanistan lags in the government should continue to improve credit-related many of the key measures of business digitization and digital infrastructure to ease SME access to financing. It should also innovation. Even so, there is a small and active community continue its efforts to nurture start-up communities by conven- of digital innovators in the country. Enhancing digitalization ing all key stakeholders (start-ups, mentors, trainers, investors) efforts can help increase the quantity and quality of jobs, in a cohesive environment to promote growth and innovation. especially given that the labor force participation rate was 54.2 per cent and the employment-to-population ratio was 49.5 per DIGITAL SKILLS cent (in 20xx). These rates are significantly lower for women, Digital skills have generally been classified into two main and strategies are sorely needed to ensure that more women types: broader digital literacy skills for a digitally empowered enter the workforce with the necessary skills to participate. population, and more advanced skills for a digitally ready On the business side, the emergence of networking platforms workforce. Afghanistan lags the region in both cases, with for digital businesses is a positive development as they can act low levels of digital literacy among its population and a rather as important breeding grounds for new ideas, collaborative small, albeit growing, digital workforce. There are very few discussions and private sector activity. Incubators have been reliable statistics about broad digital literacy in the country, supported mainly through development partner projects, even as the government is looking to build skills as part of its which to a limited extent, have included financing. Venture digital agenda. For example, the Digital Foundation strategy capital activity is currently very low in the country, due mainly for Afghanistan seeks to build capacity and digital literacy to to perceptions of high-risk. A significant number of Afghan “create an employment-ready workforce by bringing together IT graduates who studied outside the country (mainly in a research driven culture to create a knowledge sharing econ- India and European countries) have since returned homw. omy.” The policy also seeks to empower civil servants through These individuals could be the future of the country’s ICT digital literacy, improve digital literacy among the general pop- sector, but only if the right conditions for entrepreneurship ulation, leverage e-learning opportunities to narrow the digital and absorption into the labor force are in place. There is much skills gap, and promote digital innovation through research demand for IT services among larger firms; in Kabul, most and development. Given the limited access to digital tools and medium and large companies already use IT for advertising, services, it is vital to build the necessary infrastructure, pro- accounting, and HR management. Indeed, Kabul hosts the mote access to it and create relevant content. The readiness vast majority of the 600 or so IT firms active in Afghanistan, of teachers to train students must also be made an important with other pockets of activity in Herat and Mazar-i-Sharif. priority. Indeed, considering that an additional 10 million There are still many challenges for the industry to overcome or so children have had their normal schooling interrupted if it is to reach its full potential, such as low productivity, due to the COVID-19 pandemic, there is an opportunity to difficult business environment, skills and higher input costs use educational technology to reverse the negative impact (e.g., price of imported equipment, energy, and cost of capital). on educational levels. In the context of limited infrastruc- Incubation and sector collaboration and advocacy efforts ture, widespread poverty, weak security, and social attitudes are still nascent. Security issues, unreliable connectivity and towards the education of girls, e-learning can provide better power, and the lack of advanced ICT labor skills remain the and more flexible access to education for excluded populations 82 Annex Executive Summaries of Country Assessment Reports such as young wives, working children, displaced peoples. The the telecommunications sector is the major employer of current legislative framework for education does not recog- ICT-skilled workers, employing nearly directly or indirectly nize online, remote, or distantly-earned degrees, certifications 300,000 employees in telecom infrastructure, telecommu- and diplomas, even though e-learning is now being blended nication, and mobile banking. A study by the World Bank with more traditional learning modes. For example, during (supported by the ICT Sector Development Project) estimates COVID-19, the Ministry of Higher Education made digitized that the demand for ICT professionals in the country was educational content available to students through the Higher around 350,000 in 2015, a figure that has only increased over Education Learning Management System (HELMS), hosted time. through Amazon Web Services. In addition, the Government In general, digital skills can be further developed through has been developing educational content in collaboration with a better integration of digital technologies in society and six leading universities on the global ed-tech platform EdX, daily life. In this respect, the education sector could act as an known as AfghanX. AfghanX is supported by the Central important catalyst for this transformation. A digital economy e-Learning committee of the Ministry of Higher Education, will also create demand for skilled workers, which can be met which provides academic and administration support to through training programs for advanced digital skills. High- higher education institutions. To facilitate and foster digital priority areas for government should therefore include the learning, the legislative framework could benefit from some creation of e-learning platforms and capacities to enhance improvements, including additional control and quality con- education access and quality, teacher training, development of siderations, drawing upon the best practices of peer countries. locally relevant content, and improved school infrastructure. An important goal in this regard should be the development In parallel, focused training programs to improve the skills of a transparent set of standards to measure the quality of and employability of recent graduates—from universities and education being delivered, regardless of the type of institution from TVET institutions—should help close the gap in the sup- or the location of learning (e-learning vs. traditional). However, ply of trained and digitally ready workers, which will in turn achieving consensus on what those standards should be is support innovation and the development of digital businesses no easy task. Another important aspect of the legislative in the country. framework should be to create mechanisms for software and technology companies, curriculum development ventures, and EdTech, to work with government to develop and deliver Policy Recommendations online programs over different platforms. Furthermore, Based on the analysis above, the following table sets out ensuring the availability of skilled workers will serve to expand several high priority policy recommendations for the develop- the ICT sector and its ICT-enabled businesses. Currently, ment of the digital economy in Afghanistan. PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Implement (planned) transparent pricing and non-discriminatory access to Afghan • Develop a long-term plan for radio spectrum allocation and management Telecom’s infrastructure, positioning it as a wholesale provider to other operators • Consider reducing the impact of taxes and duties on telecommunication • Implement cross-sector infrastructure sharing, especially for energy infrastructure equipment to promote affordability of broadband-enabled devices • Define standards for quality of service (QoS) and collaborative methods with • Increase the competitive allocation of Telecommunication Development Fund network operators for QoS measurement and maintenance (TDF) resources to accelerate infrastructure development in underserved areas Platforms • Organize the digital transformation effort through a single enterprise/service • Expand the Digital ID program with a foundational role to improve public and architecture, and a common shared infrastructure private service delivery, including a focus on gender and social inclusion • Complement digital services with front-end physical facilitation mechanisms to bridge digital divides Financial • Roll out financial literacy and inclusion programs to educate and motivate users, • Consider regulatory sandboxes to promote innovation and regulatory compliance services including women and poor households • Expand efforts on G2P to a wider range of products such as microlending or • Promote digital wallets to encourage consumers to spend cash digitally micro-saving • Boost interoperability through a combination of digital and analogue efforts, e.g., agent-level interoperability for the promotion of branchless banking Businesses • Design enabling policies that nurture digital businesses • Nurture start-up communities and incentivize private sector investments in • Boost domestic e-commerce through accelerating the development of the start-ups Digital Addressing System and strengthening consumer protection in the digital environment Skills • Launch ‘Bridging programs’ to boost the employability of graduates • Integrate digital tools into the education system, prioritize teacher training and the creation of relevant content Trust • Strengthen data protection laws • Establish a Data Protection Authority (DPA), and enhance the cybersecurity of digital public platforms 83 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Bangladesh The government of Bangladesh is currently working towards there are around 650,000 registered freelancers in the transforming the country into a digitally developed nation. country, making USD 100 million annually (according to the The Digital Bangladesh Vision, adopted in 2008, aims to government’s ICT Division). The BASIS report notes that promote a growing IT industry, a digital government, human Bangladesh has earned about USD 800 million by exporting resource development, and connected citizens. These goals ICT products and services to over 50 countries in 2017. The were defined by the election manifesto. The government has business process outsourcing (BPO) industry in Bangladesh implemented a large number of projects relating to digital currently employs 40,000 employees and is expanding rap- technologies and a number of these are already underway. idly due to the increase in the number of offerings in Robotics The 2009 National ICT policy was developed in line with Process Automation (RPA), big data analytics, Internet of the country’s goal to achieve middle–income status by 2021 Things (IoT), and 3D imaging, among others. and developed status by 2041. Digital Bangladesh has been Nonetheless, Bangladesh will need to take steps to address supported by several initiatives, including the Leveraging some cross-cutting bottlenecks hampering the development Information and Communications Technology (LICT) proj- of its digital economy. Recommended actions include the ect, the Access to Information (a2i) project, and many other following: (i) ensure that the digital economy is inclusive for government and multi-donor funded programs. Furthermore, all, through access to tools and services, regardless of age, in adopting a whole-of-government and whole-of-society gender, socio-demographic status, and geography, (ii) develop approach to digitization, Bangladesh recently launched its institutional strategies and coordination that define ambitious ‘Post-COVID-19 National ICT Roadmap FY 2021-2025’ yet achievable targets across the different arms of government in aiming for widespread digitalization. The five-year plan out- order to optimize the digitalization of public services; (iii) develop lines actions to be taken in areas such as ICT and emerging digital capacities to ensure that leaders and citizens have the technologies, healthcare, literacy, financial services, start-ups basic digital vision, championship, skills and literacy, needed and entrepreneurship. The roadmap is the eighth of its kind for digital innovation and entrepreneurship to thrive across and highlights the role of the digital economy in accelerating the economy, whilst mitigating associated risks; and (iv) build economic growth. A revised National ICT Policy is currently a stronger trust ecosystem through the establishment and in preparation and is intended to focus on the following implementation of appropriate cybersecurity, data protection areas: digital government, digital security, social equity, and privacy regulatory frameworks across government and universal access to education, research and innovation, skills the private sector. development and employment generation. The policy aims to strengthen domestic capacity to cope with the changes brought about by emerging technologies. Key Findings The first phase of the digital revolution in Bangladesh has DIGITAL INFRASTRUCTURE yielded commendable results, but there is still much more to There is good nationwide coverage of mobile services in be done. According to the World Bank Digital Adoption Index, Bangladesh. The Bangladesh Telecommunication Regulation Bangladesh has improved its ranking from 132nd in 2014 Commission (BTRC) estimates that mobile internet pene- to 125th in 2016, out of 183 countries. This reflects a wider tration (subscriptions) is more than 50 percent, and overall adoption of technology by citizens, businesses, and govern- internet usage is 57.2 percent. On the other hand, fixed ment. However, Bangladesh lags other countries in South broadband penetration has remained low, dropping from Asia (except for Nepal and Afghanistan) in embracing digital 6.3 percent in 2018 to 4.9 percent in 2019. With a view to technologies more fully. There are several bright spots indicat- increasing both broadband access and uptake, the National ing the potential for further advances. First, mobile telephone Telecommunication Policy was adopted in 2018. Currently, penetration was at 101.5% in 2019. Second, according to the the government’s Access to Information (a2i) program is Oxford Internet Institute (OII), Bangladesh has become the preparing a new national broadband roadmap and strategy second largest country in the world supplying online labor; 84 Annex Executive Summaries of Country Assessment Reports to make affordable internet a reality for all. One of the major infrastructure, (iii) improvement of the consultative process objectives will be to strengthen each element of the broad- to define a legal and regulatory framework to boost investor band value chain. International connectivity in Bangladesh confidence, (iv) collection of gender-disaggregated data to is supported by two submarine cables, with a third expected analyze the digital uptake and usage patterns of women, and shortly. In addition, regional projects like the South Asia (v) simplification and unification of the licensing regime, Sub-regional Economic Cooperation (SASEC) Program are in order to introduce real competition in the middle mile, expected to further enhance international connectivity. There reduce barriers to market entry and promote service innova- is now greater competition in this area as reflected by the drop tion. Underpinning these reforms is a need for transparent in bandwidth price from BDT 28,000 to BDT 625 per Mbps engagement and consultations between the policymaker, the over a span of five years. The cost of internet in Bangladesh regulator (BTRC), and telecommunications services providers. could be reduced further by focusing on the middle mile. At This is vital to the development of an enabling environment present, services between cities and in metropolitan areas that incentivizes investment and promotes service innovation. are provided by two private sector operators. Competitive pressures in the market can be increased through the entry of DIGITAL PUBLIC PLATFORMS new operators and the use of alternative infrastructures, e.g., existing fiber optic capacity embedded in railway and power Bangladesh has made good strides of late in the development transmission lines. The introduction of 4G (LTE), operator of digital public platforms. For its digital agenda to become demand for 5G, together with higher fixed broadband usage by reality, however, the government will benefit from substan- people and businesses across the country, is rapidly increas- tially improved coordination across its various arms through a ing the need for nationwide backhaul transmission capacity, whole-of-government approach. ‘Digital Bangladesh’, launched which the middle mile is not yet equipped to deliver. It is also in 2009, was the first big agenda of its kind in the region important to address last mile connectivity in commercially adopting a bold holistic approach for the transition to a digital nonviable areas. Priority should be given to connectivity for economy, society, and government. In line with this, there hospitals, clinics, schools, and local government offices, partic- have been some notable successes such as the establishment ularly in light of the country’s ongoing response to COVID-19. of 5,000 Union Digital Centers (UDCs) across the country, Continued investments are needed in digital infrastructure making digital services more accessible. Many hundreds of and platforms to enable key developments such as IoT and services have also been simplified, particularly through the AI-as-a-service, with which academia, entrepreneurs, and efforts of the Access to Information (a2i) programme. While businesses can pilot new products and services. It is encourag- these deserve credit, government investments in technol- ing that the government plans to provide national 5G coverage ogy have typically been siloed and duplicative. Various plans by 2026. However, the regulatory approach towards mobile and frameworks have been developed over time and the operators could be taken keeping in mind the digital dividend. Bangladesh Computer Council has built some common infra- In order to steer Bangladesh’s digital connectivity efforts structure, such as a national data centre, e-GOV Computer into the future, a better understanding of 5G technology and Incident Response Team (CIRT), and national enterprise architecture is required, together with an understanding of key architecture (with support from the World Bank’s Leveraging challenges and global best practice, Finally, it will be critical for ICT project). However, adoption by government agencies Bangladesh to boost its efforts to increase the proportion of still needs to be mainstreamed across all agencies. Over the women participating in the digital economy. The gender gap in last decade, Bangladesh improved its ranking in the United the country is stark, with women being 55 percent less likely Nations eGovernment Development Index (EGDI) from 134th to use the internet than men. This is due in part to the lack of in 2010 to 119th in 2020 out of 193 countries, but there is still gender-friendly public access points, but also more generally room for improvement. to the existence of pervasive cultural barriers. Bangladesh’s national identification system has a relatively Potential areas of focus for Bangladesh to boost access and high rate of coverage: 88.7% of persons aged 18 and above use of digital connectivity include the following: (i) issuance have a national ID according to the 2017 ID4D-Findex survey. of legislative, regulatory, and licensing guidelines for 5G and Deliberate efforts to close the gender gap in registration have related spectrum management issues, (ii) optimization of paid off, with 87.8% of adult women having a national iden- infrastructure sharing —especially in the middle-mile seg- tity card compared to 89.5% of men. The system does not yet ment—to increase the availability and use of fiber optic cable cover non-nationals (such as refugees) nor anyone younger than 18. It is also not linked to the civil registration system 85 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives for births, deaths and other vital events, which, despite recent protection agencies are also in place to help them identify ben- improvements, remains underdeveloped. A case in point is eficiaries for their respective programs. At the same time, BBS that only 37% of children under five have a birth certificate. has recently announced plans to introduce a biometric-based Since its modernization in 2016, the national identification National Population Register that could overlap with both system has been linked to a large number of services, includ- the national identification system and NHD. This duplication ing biometric verification for SIM registration and bank highlights the need for coordination across government. account openings. However, it has not yet led to the same kind There is significant potential for digital public platforms to of service innovation and transformation as what has been take government service delivery and operations to the next witnessed in India and Pakistan. One structural challenge may level, but this will require a number of reforms and policy be that the system is housed at the Electoral Commission - as actions. First, institutional arrangements and mandates need such it may be difficult to view it as anything more than a to be revised in order to foster a genuine whole-of-government database, let alone a service delivery platform in its own right. approach with a more effective use of scarce resources. A clear For instance, Bhutan, India, Maldives, Pakistan and Sri Lanka and dedicated apex body or agency should be established at have dedicated agencies for managing foundational identifi- the highest levels of government, to set and enforce policy. cation systems. It may have been in full awareness of these Policy implementation can be decentralized at the agency shortcomings that the ICT Division developed the Porichoy level. One of the priorities of such a body should be to ensure platform. Porichoy can be used by government agencies and that the BNDA is fit-for-purpose and adequately enforced. businesses to integrate identity verification into their pro- Second, Bangladesh should continue to focus on inclusion cesses, drawing on the national identification system and and ensure that the transition to digital government services other databases. The platform is fairly new and results are yet does not leave anyone behind e.g., by building on efforts such to be seen. The use of electronic signatures in Bangladesh is as Union Digital Centers. Third, the national identification limited, but the Controller of Certificate Authorities, which system needs to be repositioned as a service delivery platform operates a national public key infrastructure, has already at the heart of a wider identification ecosystem (requiring licensed six Certificate Authorities. coordination between the national identification system, Data sharing and interoperability across government has civil registration, and other initiatives such as the National been weak but the Bangladesh National Digital Architecture Household Database and National Population Registry). (BNDA) launched in 2019 is a key effort to improve this. It Fourth, if the government is to prioritize safeguards and legal has not yet been adopted and implemented. With common certainty for the collection, sharing, use, and re-use of personal standards for data and the national enterprise architecture bus data, it should urgently enact a general data protection law. to facilitate communication between government information systems, the technological enabling environment is largely in DIGITAL FINANCIAL SERVICES place for better data sharing and interoperability. However, government agencies will need to make their data available. At present, only 35% of Bangladesh adults are digitally Of equal importance is cybersecurity and data protection. The included, through a registered mobile money account and/ CIRT will go a long way to help address security challenges, or a bank or NBFI account offering digital access. Nearly half but capacity needs to be built across government agencies and of Bangladesh adults reported never having made a digital civil employees. Bangladesh joins Afghanistan as the only two payment or transfer. The share of adults with a mobile money countries in SAR without an omnibus data protection law in account has risen significantly from 3% in 2014 to 28% in place or even a bill at advanced stage. Without any clear and 2019. Mobile money transfers were the most popular digital generally-applicable legal enablers and safeguards, there is financial service (DFS) activity in 2019: 78% of adults who significant uncertainty with respect to the collection and use had used a digital payment or transfer used a mobile money of data in Bangladesh. transfer. Bill pay was the second most prevalent digital financial activity, mainly among bank users. Beyond these The health, education, and social protection sectors would applications, however, DFS is limited. Not many citizens greatly benefit from smarter use and re-use of data. The hold digital accounts and interaction among banks, financial Bangladesh Bureau of Statistics’ (BBS) National Household institutions, and digital financial services platforms is largely Database (NHD) is an important support for government inadequate. This hinders the availability of digital public agencies as they assess the needs of citizens seeking access services and, in times of crisis, prevents under-served citizens to government benefits. Data-sharing agreements with social from availing themselves of vital government support. There 86 Annex Executive Summaries of Country Assessment Reports are certain challenges that need to be addressed in order for programs could improve awareness and increase adoption. Bangladesh to reap the benefits of financial inclusion. The After being deployed as pilots, such programs could then be usage of ICT and other digital tools in the country remains scaled up based on lessons learnt. Third, a comprehensive low, and this affects the uptake of DFS. 50% of the popula- regulatory framework will need to be developed to set security tion has account access but the population with debit cards is standards for the electronic payment system and to promote only at 11.2%. Banked citizens prefer bank tellers over ATMs system interoperability. Finally, Bangladesh will need to take to withdraw funds: only 7.5% of the banked population uses steps to enhance the cybersecurity of financial systems to ATMs as the main mode of withdrawal compared with 78% foster trust in these services. using bank tellers. Gender inclusion is also problematic, mainly due to the significant mobile gender gap. Bangladesh’s DIGITAL BUSINESSES financial inclusion gender gap grew from 9 percent in 2014 to 29 percent in 2017, making it one of the widest gender The digital start-up ecosystem in Bangladesh has had a late gaps in the world. Only 10 percent of women in the country start compared to its regional peers. Growth is supported have a mobile money account compared to 32 percent of by various business-friendly regulations along with multiple men. Bangladesh has adopted FinTech solutions and innova- start-up ecosystem enablers like co-working spaces, commu- tions to address the needs of its large unbanked population. nity events, local and global incubator/accelerator programs These are gaining momentum have boosted levels of financial as well as active interest from government and development inclusion in the country. In 2018, 50 percent of the popula- partners. For example, government policies and projects tion had access to formal financial services, an increase of 57 from ICT ministries support the local start-up ecosystem, for percent since 2013. The government is also hoping to leverage instance though the establishment of more than 28 Hi-Tech FinTech to expand digital financial inclusion. A good example Parks for technology companies. The government has also is the establishment of the Digital Financial Services (DFS) initiated the Start-up Bangladesh Fund with a view to cata- Lab, a joint initiative by Bangladesh Bank and a2i working lyzing investments. The results so far are promising - there towards creating citizen-centered product and service inno- are 683 tech start-ups in Dhaka alone. However, programs vations to facilitate rural e-commerce and increase financial to support venture capital firms and private equity in digital literacy. Clearly, the national regulatory framework needs to technology are lacking. In 2018, Bangladeshi start-ups raised respond to the dynamics of a rapidly evolving FinTech land- around US$27 million while those in Thailand and Vietnam scape. In light of this, a Regulatory FinTech Facilitation Office raised US$50 million and US$246 million respectively in the (RFFO) was established in October 2019. RFFO assists inter- first quarter of 2019. In addition, Bangladesh performs poorly ested parties with their applications to launch pilot projects in terms of VC availability compared to South Asian peers and provide regulatory assistance. The pandemic, too, has led (like India, Pakistan, Nepal and Bhutan), ranking 112th out to an increase in internet banking: banking service providers of 141 economies. Still, exports of digital goods and services reported more usage of their digital apps during the crisis. One are on the rise and the country’s ICT sector has seen strong of the reasons behind this surge may be that salary payments growth overall during the past decade. At present, there are were increasingly being done online. over 4,500 IT/software companies functioning in Bangladesh with a market value of over US$400 million. In the fiscal Greater innovation and adoption of DFS in Bangladesh is year 2016-17, the ICT sector registered export earnings achievable but needs a multi-level approach. To begin with, worth US$0.8 billion from the global market and US$1.54 broader issues such as affordable access to broadband and billion from the domestic market—equivalent to a one percent availability of local-language content will need to be addressed. contribution to GDP. Even so, Bangladesh ICT sector exports Second, given that only 29% of people in Bangladesh were have been erratic, falling by 22% from 2017 to 2018, contrib- considered to be financially literate in 2018, efforts will be uting 17.60% in 2016 and 13.59% in 2017 to the total service needed to improve financial literacy together with a focus on exports of the country. Digitization of firms is limited but on a basic digital literacy. Promoting the engagement of women growth trajectory. E-commerce in Bangladesh has increased, with these services will be critical to ensure inclusion. In with the country ranking just behind India according the 2019 addition, poor awareness of grievance and redress mecha- B2C E-commerce Index and ahead of its other South Asian nisms means that users are apprehensive when using mobile counterparts (Nepal, Bhutan, and Sri Lanka). Use of digital or digital financial services unaided, for fear of losing their technologies by traditional firms, however, remains limited. money. The use of digital financial services in social safety net Reasons for this include low levels of digital literacy, lack of 87 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives internet access, and high costs. Larger firms are using digital to increased demand, these organizations need to recruit technology more actively for basic business purposes, like additional IT consultants, app developers, backend develop- communication with customers—nonetheless, more advanced ers, front end developers and technical support engineers. use of digital technologies and services remain limited. Low Many companies are investing in improving their processes penetration of digital technologies is symptomatic of the over- and pushing towards the digitalization as many transitions to all lack of innovation capacity among Bangladeshi firms. The teleworking environments. This could generate over 10,000 country’s innovation capacity scores lower than most com- additional jobs in IT and related industries. Developing parable economies according to the 2019 Global Innovation advanced skills in the workforce will be critical to maintain- Index. Barriers to digital innovation include the shortage of ing this growth momentum. Bangladesh has adopted several qualified developers and software engineers, limited access to initiatives across multiple sectors with a view to developing modern technology and equipment and limited collaboration a talent pool that is skilled, equipped, and digital-ready. The with public research and education institutions. education system produces over 0.5 million university grad- uates every year. It has introduced various dedicated training A number of measures could be taken to stimulate innovation programs to train graduates to deliver value on a global scale. and accelerate the digitization of businesses in Bangladesh. Over 65,000 IT and ITES professionals were trained in Promoting research and innovation, enabling linkages 2018. According to the Oxford Internet Institute, Bangladesh between academia and the private sector, and investing in dig- has the second largest pool of online workers in the world. ital skills are important first steps. The growth of digital firms To strengthen digital skills further, the country established is also hindered by a difficult business environment, lack of specialized labs in all of its 130 universities and is currently early-stage and late-stage financing, and limited market oppor- investing in Frontier Technology Centers of Excellence with tunities outside of Dhaka and Chattogram. The infrastructure global tech partners like IBM. Bangladesh is also training pro- and support system for innovation are rapidly expanding, but fessionals on emerging technologies like big data, blockchain, they remain concentrated in a few big cities. The government IoT, artificial intelligence and data analytics. The government could also develop policies to stimulate investment in the dig- is strengthening digital skills based on the foundations laid out ital industry, including through venture capital. Transparent in its Digital Bangladesh policy. However, digital skills may not and competitive processes are required, as is the simplifica- reach target levels unless a holistic approach to human capital tion of bureaucratic practices. Specific attention should be and workers is taken, ranging from childhood nutrition to paid to female entrepreneurship through specialized initiatives adult education. and services, e.g., increased focus on financial inclusion and access to finance through special training programs for female Skills development could thus be intensified to continually entrepreneurs. To further support digital start-ups and inves- re-skill, and up-skill the digital competencies of Bangladesh’s tors, effective regulations should be put into place to protect workforce. Harnessing digital technologies will not be suc- intellectual property rights and detect, prevent, and punish cessful without a strong pool of digital talent. To capitalize cybercrime. on Bangladesh’s demographic dividend, the skills mismatch needs to be addressed through reforming the curriculum with a focus on digital skills and reducing the digital divide DIGITAL SKILLS of the rural population (where most of the youth population The number of IT professionals currently employed in lives). Skills development could be pursued through a skills Bangladesh is approximately 0.22 million. Demand for human framework approach with continuous training and placement capital is expected to double by 2025. There is a lack of highly efforts in relevant digital economy skills for all professionals. skilled information technology specialists, with supply at a At the same time, it is important to scale training efforts to mere 40 percent of the projected demand. Similarly, only groom digital leaders competent to lead in disruptive technol- about 50% of current demand can be fulfilled by the current ogy start-ups, and to help employees adapt to the changing supply of graphic designers and mid-level project and product nature of work. In addition, broader digital skills and train- management professionals. In this post-COVID pandemic ing should be incorporated into general education. This will period, the expectation is that new jobs in sectors like phar- require better digital infrastructure for education, digital skills maceuticals, health services, agro-food, creative media, ICT and readiness training for teachers, and development of local and e-commerce will emerge with the acceleration in digitiza- language content. Finally, education and training programs tion across the economy. In Bangladesh, there are over 1,500 have been slow to establish successful collaborations with firms engaged in software development and IT services. Due 88 Annex Executive Summaries of Country Assessment Reports industry. Industry collaboration in skills development will be will cause labor-intensive export-led manufacturing to be less vital to ensure that students are provided with relevant quality feasible, with the potential of limiting further job growth. experience and training that keeps up with the latest tech- nologies being used in industry. Broader digital literacy will Policy Recommendations continue to be critical given the country’s high dependence on low-skilled labor and remittances. This is particularly the case Based on the analysis above, the following table sets out as the digital disruption of traditional sectors and occupations several high priority policy recommendations for the develop- ment of the digital economy in Bangladesh. PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Allow the entry of alternative providers across sectors through • Develop legislative, regulatory, and licensing guidelines for 5G and infrastructure sharing—especially in the middle-mile segment— related spectrum management in order to increase availability and use of fiber optic cable • Develop mechanisms to close last-mile connectivity gaps in infrastructure commercially nonviable areas, with priority given to hospitals/ • Enhance the consultative process for defining of the legal and clinics, schools, local government offices, etc. regulatory framework to boost investor confidence • Collect gender-disaggregated data to analyze the uptake and • Simplify and unify the licensing regime, and unleash real usage patterns among women and develop responsive digital competition in the middle-mile by reducing barriers to market entry inclusion programs and promoting service innovation Platforms • Permit greater use of, and secure access to, the national ID • Build the institutional capacity of government offices, on the database and integrate it with other governmental applications and one hand, and people, on the other, to develop and use digital systems platforms • Fully adopt a ‘Whole of Government’ (WOG) approach, including through the development of WOG platforms for use across public sector agencies Financial services • Support financial literacy programs with a focus on digital • Support the development of user-friendly products, content and awareness and increasing the engagement of women applications in the local language • Develop the regulatory framework to set security standards for • Introduce DFS for social safety net programs the electronic payment system and to promote interoperability of systems Businesses • Stimulate investment in start-ups and fast-growing SMEs by • Improve integration into the regional economy, mobility of capital, engaging with local and regional venture capital and private equity and ease of investment. Support female entrepreneurship through firms and identifying barriers to entry (or scale-up) a focus on skills development and access to finance • Broaden the reach and availability of digital skills training, and • Ensure a level playing field as more firms focused on ed-tech, innovation-support facilities and services health-tech, ag-tech enter the market 89 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Skills • Conduct a comprehensive digital skills assessment by bridging • Develop a skills framework approach with continuous training, the skills gap and bringing together private sector (companies apprentice and placement efforts in key technology skills for and start-ups), academia and the public sector (policy-makers) to improving human capital and the workforce. identify specific digital skills gaps and how these gaps might be • Scale-up the training of digital leaders addressed • Address skills mismatch by reforming the curriculum with a focus on employment-oriented digital skills • Establish collaboration with industry for the skills development system to provide students with quality and relevant learning experience • Support broader digital literacy programs for people and workers across the economy • Develop the underlying infrastructure of the education system, improving digital skills and readiness of teachers, and fostering local language content • Prepare a dedicated digital skills competency framework or standard—a key infrastructure need given the increase in digital skill requirements during COVID-19 Trust • Develop a consent framework with emphasis on privacy and • Address data privacy, data protection and cybersecurity concerns protection of personal data through an enhanced legal and regulatory framework and its • Boost the cybersecurity of financial systems appropriate enforcement • Build awareness about grievance redressal mechanisms for digital • Develop effective regulations for the prevention, detection, and transactions punishment of cybercrimes and for the protection of intellectual property rights that in turn will serve to promote digital start-ups and incentivize investors 90 Annex Executive Summaries of Country Assessment Reports Bhutan Bhutan is currently well-placed to leverage its digital econ- with adequate cybersecurity measures, (iii) developing the omy for both economic growth and social inclusion. Internet necessary institutional framework to implement efforts and and mobile penetration levels stand at 90 and 98 percent, initiatives to digitize public services, and (iv) increasing the respectively. Most Bhutanese comfortably use social media digital capabilities of people, businesses, and the public sector platforms and messaging apps. The government established to take full advantage of the digital transformation. an online portal for services as it seeks to promote digital government and innovation. To support the business needs Key Findings of ICT and knowledge-based start-ups, the Thimphu Tech Park was opened in 2012. While digital adoption and usage DIGITAL INFRASTRUCTURE in Bhutan have increased over time (as indicated by the Bhutan has made major strides in connectivity and access World Bank’s Digital Adoption Index), Bhutan lags far behind and some 90 percent of its population now has access to Bangladesh, India and Pakistan in embracing digital technol- the internet. Fiber optic cables link all 20 districts and 201 ogies. There is still a long way to go to ensure an inclusive and gewogs (supra-municipal) administrations. The government productive digital economy. Optimizing e-government ser- has adopted the Bhutan Telecommunications and Broadband vices, boosting public sector connectivity and online service Policy, with a view to improving public services (health and delivery, and fostering digital literacy, are some of the ele- education), promoting local content development and access, ments that could accelerate Bhutan’s digital transformation. and enhancing global integration. Its aim is for 80 percent of The Government of Bhutan is keen on developing its digital the country’s residents to have access to entry-level broadband economy. The government has embarked on a program of services (beyond the basic internet services currently avail- initiatives, known collectively as Digital Drukyul, aiming to able). For areas that are not economically viable, support from harness the power of ICT to transform Bhutan into a smart universal service funds will be considered. and inclusive society. The program includes the creation of Bhutan’s regulator has also laid out a roadmap for 5G, with integrated end-to-end online citizen services, integrated online deployments expected to begin in 2022, promising to encour- business licensing schemes and single online customs-trade age innovation in the market. To this end, it has granted approvals. The program aims to provide all schools with permits for operators to conduct 5G trials in the 2600MHz, usable connectivity, and to empower teachers to use digital 3.5GHz and 26GHz bands without incurring license or content for learning outcomes in digital schools across the spectrum fees. The regulator has also made spectrum in country. Digital Drukyul also intends to create a digital identity the 3.5GHz band available for the commercial launch of 5G system, as well as improve the quality of healthcare through services in early 2022. Despite such developments, household an electronic patient information system for hospitals. These and business connectivity remains limited. Most households programs will create some of the foundations of a digital have basic mobile and internet coverage but fixed broadband economy in Bhutan. However, more can be done to accelerate connections are enjoyed by a mere 2 percent of the popula- the process of “building back better” after the COVID-19 pan- tion. With a near duopoly in the internet services market and demic, including preparing the country for future shocks. a heavy reliance on Indian telecommunications operators for Bhutan needs to address some important cross-cutting international connectivity, Bhutan faces some competitive and bottlenecks to develop its digital economy further. In this market structure constraints in the development of afford- context, the government could consider taking the following able and high-speed internet services, leading to low average steps: (i) ensuring that the digital economy is inclusive for all speeds (only 4 percent users in the coutnry experience regardless of age, gender, and socio-demographic status, (ii) internet speeds above 10 Mbps). Connecting Bhutan to a third building a trusted digital ecosystem, with a population that has international Internet link via Bangladesh would increase basic digital literacy skills to take advantage of digital ser- capacity, reliability, and competition. This has been identified vices and a regulatory framework to protect data and privacy as a priority in Bhutan’s 12th Five-Year Plan (2018-2023) and 91 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives discussions are underway with officials in both Bangladesh been achieved through a well-organized approach and clear and India to make this happen. Connecting rural areas has leadership for the digitalization of government under the also proved to be a challenge. In this context, the Universal Department of Information Technology and Telecom. The Service Fund (USF) could be used to close infrastructure 2012 Government Enterprise Architecture (GEA) and 2014 gaps as well as connect schools and health centers. Given E-Government Masterplan have been effective frameworks the country’s challenging terrain and small market size, it for rolling out digital public platforms and shared infrastruc- will be critical to increase co-ordination between infrastruc- ture initiatives such as the Government Data Hub (GDH) for ture providers, notably through infrastructure sharing and data sharing (which has surpassed its targets in terms of the national roaming agreements. Investments should also be number of systems integrated) and the Government Data made efficiently. Low adoption has been compounded by Center. related challenges such as a low literacy rates, limited digital Notwithstanding these results, a large number of govern- public service delivery, and high broadband service costs. An ment services are not yet fully digitalized and often require entry-level broadband package is about a quarter of per capita some manual or physical step in the process, e.g., payment income at the international poverty line. There is also a contin- services. Demand for digital services from the public is also ued need for robust gender-disaggregated data, and a rigorous relatively weak, likely owing to the lower level of digital skills. analysis of the ground-level situation, to validate assumptions The limited amount of resources poses yet another chal- and enable evidence-based decision making. lenge, particularly at the local level. For example, Bhutan Bhutan’s digital infrastructure development can be acceler- has 200 Gewog Community information centers (CICs); ated with a mix of policy measures and targeted investment however, these centers are unable to deliver public services programs that could mobilize private capital. A critical first effectively due to a lack of equipment, the limited number of step will be to implement various regulatory measures to trained operators, and service glitches. Another example is boost competition especially in the international connectivity the national identification system which, although well-es- segment of the broadband value chain and reduce the costs tablished with good coverage, is in need of modernization if of rolling out broadband networks.55 The latter would also it is to become a platform for delivering key services such as faciltate last-mile fiber optic deployment using existing and identify verification. planned fiber networks, high speed Fixed Wireless Access The Digital Drukyul initiative and e-Government Policy (FWA), and satellite technology in a sustainable way, for maxi- of 2019 set out ambitious agendas to take digital public mum reaxch quality. Third, regulatory mechanisms should be platforms to the next level. To successfully build on these established to monitor the quality of service, including spec- foundations, Bhutan should seize on a number of important trum monitoring for the avoidance interference. To ensure opportunities. First, it should focus on the implementation that digital growth in Bhutan does not leave women behind, of Digital Drukyul and in particular on the full digitalization concerted efforts should be made to enhance digital literacy and integration of services through process re-engineering. It and create service and content designs that promote inclusive- should also introduce a digital identification system that would ness for individuals with lower literacy levels. Finally, Bhutan allow secure identity verification for both in-person and online should define and implement targeted universal service transactions. Second, in order to create opportunities for programs to close access gaps for connectivity, particularly in e-commerce and innovation in digital government services, commercially unviable areas. the government should consider developing a ‘digital stack’ that would enable the new digital identity system to interface DIGITAL PUBLIC PLATFORMS with future digital payments and data ecosystems. Finally, to Bhutan has made good progress on digital public plat- sustain the progress made, and increase the creation, adoption forms, jumping from 152th in the 2010 UN e-Government and usage of digital public platforms, Bhutan should invest Development Survey rankings to 103rd in 2020. This has further in the ICT capabilities of civil servants and the digital skills of the population. 55 This includes addressing legal bottlenecks for infrastructure sharing by implementing national guidelines for obtaining approvals, having a one-stop approval process, mapping of telecommunications-ready infrastructure, and development of in-building telecommunications standards. Competition regulations should be developed further to promote sharing of infrastructure, ensure sustainable tariffs, and be applicable to the telecoms sector and to the mobile opera- tors regardless of being private or State-owned. 92 Annex Executive Summaries of Country Assessment Reports DIGITAL FINANCIAL SERVICES (e.g., salary, payments, tax, fines, and so on). It should also establish customer protections guideline and dispute redressal There is tremendous scope for using digital financial services mechanisms specifically related to electronic commerce and (DFS) to close gaps in access and inclusion in Bhutan. Only online payments. Second, financial services should be inte- 41 percent of Bhutanese adults use banking services. The grated with e-services more generally. For example, banking usage is higher among urban adults (66 percent) than among systems could be integrated with civil registration ID data- rural adults (30 percent). Almost half of all adult males (49 bases in real time to simplify and facilitate electronic customer percent) use banking services compared to 45 percent of identification and onboarding. E-commerce transactions adult females. 63 percent of the rural adult population are could be facilitated through the acceptance of international financially excluded, with 94 percent of the rural population card payments over payment gateways. Third, the govern- engaged in informal financial services and private money ment should facilitate the interoperability of systems and lending practices. In rural areas, 81 percent of banked adults services e.g., interoperable QR code payments and relevant require more than one hour to reach their bank, whereas in upgrades of IT systems in government agencies. Currently, urban areas 35 percent require more than an hour. Current for instance, the DRC (Department of Revenue and Customs) financial products and services cater to the general population cannot automate online tax payments and collections using and may not serve the unique needs of rural customers. 36 the existing RMA Payment Gateway. Finally, the government percent of the adult Bhutanese population remains unbanked could consider prioritizing training and education, so that peo- or financially excluded in terms of savings account ownership. ple have the necessary digital financial knowledge and skills There are some common barriers and challenges for DFS to adopt DFS. A special effort should be made to promote the adoption. Demand-side barriers can arise for various reasons, inclusion of women and women entrepreneurs. such as irregular income, lack of employment, low literacy levels and financial capability. Supply-side barriers stem from a lack of digital technology in the delivery of financial services, DIGITAL BUSINESSES combined with the long distances to financial access points Low penetration of advanced technology is symptomatic (especially given Bhutan’s tough, mountainous terrain). A of the overall lack of innovation capacity among Bhutanese major challenge for accelerating financial inclusion is accessi- firms. According to the World Bank Bhutan Development bility to formal services and the lack of appropriate financial Report 2019,56 ICT contributes to only 3.5% of the coun- products and services in terms of access, infrastructure, and try’s labor force and 3.7% of its GDP. Bhutan ranked 105th affordability. Traditional collateral-based financial products out of 139 economies in the 2016 WEF Global Information and services typically have strict KYC requirements, hinder- Technology Report, and 117th among 175 countries in the ing access, suitability, and inclusiveness. Other important 2016 ICT development index. So while Bhutan has made challenges relate to the lack of financial literacy particularly in significant progress in the ICT sector over the last few years, remote areas. Women in Bhutan have lower levels of economic growth has been slow in comparison to the rest of the world. participation in the Bhutanese economy and thus, lower This is evident with the decline in Bhutan’s ranking on the incomes. Indeed, according to a 2013 World Bank survey, ICT Development Index. ICT infrastructure needs to be women in Bhutan prefer to save at home; they find it difficult strengthened to attract investments from budding sectors. to make small, regular deposits given the disproportionate As noted by the Annual Education Statistics, internet and travel effort involved, especially in remote areas. In this regard, electricity connectivity in public primary schools is inadequate digital and mobile finance becomes increasingly important as it and basic computer education is limited. There is also a low reduces the physical operational costs and enables providers to level of innovation and expenditure on research and develop- service last-mile and low-income customers. ment (R&D) activities; only 7.3 percent of Bhutanese firms There are a number of actions that should be taken in Bhutan spend on R&D, lower than firms in Nepal, Bangladesh, India, to boost the adoption of DFS. In addition to improving con- Pakistan and Afghanistan. Other barriers to digital innovation nectivity and the trust ecosystem (security of transactions include the shortage of qualified developers and engineers, and protection of personal data), these fall into four main limited access to modern technology and equipment, and areas. First, the government should promote of DFS services limited collaboration with public research and education through the digitization of government payments via GIFT institutions. That being said, as a late starter in the technology 56 http://documents1.worldbank.org/curated/en/259671548449315325/pdf/134060-WP-PUBLIC-25-1-2019-13-34-54-BDRJanuary.pdf 93 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives space, Bhutan could capitalize on its lack of legacy systems, DIGITAL SKILLS access to cost-effective technologies, and relatively manage- Based on the research conducted by the ITU/IMPACT expert, able amounts of data. it seems that there is a relatively small pool of highly skilled Bhutan has already been able to attract a handful of foreign ICT personnel in Bhutan. In general, the private sector lacks ICT companies, especially in the Thimphu Tech Park, and sufficient technical and managerial skills to stimulate ICT there has been a certain level of domestic and public invest- business innovation and growth. The development of skills, ment. The Thimphu Tech Park provides an influx of skills in particular digital skills, has been a challenge in Bhutan and knowledge for start-ups, but has not yet reached its for three main reasons. First, Bhutan has a low gross ter- potential to meet the demands of citizens and businesses. tiary enrollment rate compared to its neighboring countries. The absence of digital ecosystem policies, on matters ranging Second, there are both skills shortages and a skills mismatch. from payment systems and data privacy to complaint and For instance, only 366 of about 3000 graduates in 2019 had redress mechanisms, limits sector growth and keeps inves- an engineering degree. Private sector employers report that tors at bay. Foreign direct investment (FDI) is restricted by a workers lack the necessary skills in ICT, teamwork, leader- tightly controlled system and inadequate policies related to ship, and problem-solving. There is also a gap in advanced industrial licensing, trade, work and finance. The shortage of digital skills. It would seem that the country has placed a skilled labor impedes entrepreneurship and innovation in the greater emphasis on improving basic digital literacy and ICT digital sectors. Furthermore, as per the World Bank Enterprise education, with much less focus on policies and initiatives Survey, 23 percent of firms surveyed consider access to to promote high-end or advanced digital skills, including in finance as a key bottleneck to growth and sustainability. TVET (Technical and Vocational Education and Training); Women face even greater barriers in digital entrepreneurship the country only produces some 100 IT graduates per year. due to lower enrolment levels in tertiary-level STEM educa- With respect to the empowerment of women, although overall tion. 2019 data from the Department of Higher Education female enrolment rates in education have been increasing, reveals that female students comprised only 28 percent of there continues to be low female uptake of STEM subjects. engineering graduates and 42 percent of ICT graduates in the It has been recognized that there is also a strong need for country. The regulatory framework governing firm regis- training IT/network experts in the field of cybersecurity. tration is also comparatively complex; for example, limited Cybersecurity awareness and literacy across society is fairly liability companies (LLCs) are required to register with the low, inadequate to compete with, or complement, the interna- Registrar of Companies. tional cybersecurity ecosystem. There is currently no national level awareness campaign, with the exception of some ad-hoc Given its nascent digital business ecosystem, Bhutan should initiatives seeking to raise cybersecurity awareness among focus on creating an enabling environment for digital busi- the general population. Cybersecurity education in Bhutan nesses to grow. Creating a consultative process for businesses is limited to seminars, workshops and regional conferences. to engage with the government to develop appropriate regu- Adequate cybersecurity courses/subjects are not offered latory frameworks will be an important first step. In this way, at national universities. Not surprisingly, there is a lack of regulations can be developed to promote innovation, improve trained and qualified personnel that could implement counter overall standards and quality, and foster firm competitiveness. measures and respond effectively in the event of a critical Clear and transparent regulations will reduce the legal uncer- cyber incident. As of 2018, Bhutan was ranked 125th out of tainty currently felt by many entrepreneurs, lower the cost of 175 countries in the ITU’s Global Cybersecurity Index, along- doing business, and simplify the establishment and opera- side Fiji and Afghanistan. The government has now begun tion of privately-owned small businesses. This will stimulate developing a national cybersecurity strategy, and has created MSME sector growth in Bhutan. Other areas of focus should a cyber incident response team. However, it is vital for human include the revision of licensing and incorporation proce- capacity in this space to be developed, together with the adop- dures, the provision of training on taxation and accounting tion of relevant measures across businesses and governments. standards, and the harmonization of government databases to increase tax compliance and reduce regulatory burdens. Measures to boost the availability of digital skills in Bhutan The promotion of digital financial services, improvements in will need to be underpinned with broader improvements in connectivity, and the availability of skilled workforce will also digital infrastructure, including connectivity to homes and support digital innovation. educational institutions to better support both learning and teaching. Engagement with the local and international private 94 Annex Executive Summaries of Country Assessment Reports sectors will be necessary to identify and close gaps between establishing equivalency between the various types of educa- those skills developed in the education system and those in tional qualifications. demand by the private sector. Programs to increase overall female enrolment rates in STEM subjects are sorely needed, Policy Recommendations but so too are broader public campaigns aimed at families and communities. Finally, the government should put into Based on the analysis above, the following table sets out place a standardized system for recognizing, evaluating, and several high priority policy recommendations for the develop- ment of the digital economy in Bhutan. Pillar SHORT-TERM Medium- to long-term Infrastructure • Reduce the costs of rolling out broadband networks (particularly • Set up mechanisms to monitor spectrum and quality of service last mile fiber optic networks), through cross-sector infrastructure • Define targeted universal service programs to close access gaps, sharing or Fixed Wireless Access (FWA) technologies including gaps in USF funding • Set up a third international gateway to improve the affordability and • Add missing optical fiber loops to improve overall network reliability reliability of internet connectivity Platforms • Implement a national foundational digital identification system, • Re-engineer processes and services and boost the capabilities of which is integrated with both public and private service providers public organizations to take advantage of the digital opportunity for • Develop the shared systems and platforms that could form the service delivery, including through digital financial services backbone of service delivery in the country, operating in a secure, • Explore the possibility of private sector investment in cloud unified, and interoperable manner computing data centers, and in so doing, consider the availability of low cost green hydro power and favorable climatic conditions Financial services • Digitize government payments through GIFT (e.g., salary, payments, • Integrate financial services with e-services, including integrating tax, fines, etc.) banking systems with civil registration ID databases • Enable e-commerce transactions through the acceptance of • Educate people on digital financial services (knowledge and skills), international card payments via payment gateways with a special focus on ensuring the inclusion of women and women • Increase the interoperability of systems and services entrepreneurs Businesses • Create a conducive environment for digital businesses to grow • Promote digital financial services, improvements in connectivity, through the use of a consultative process for businesses to engage and availability of a skilled workforce, in order to support digital with government in the development of regulatory frameworks innovation • Revise licensing and incorporation procedures, provide training on taxation and accounting standards, and harmonize government databases to increase tax compliance and reduce regulatory burdens Skills • Improve engagement with the local and international private sector • Adopt measures to broadly improve digital infrastructure, including to identify and close gaps between the skills imparted by the connectivity to homes and educational institutions, and improve the education system and those in demand by the private sector data infrastructure that supports learning and teaching • Develop systems to recognize and standardize diverse types of • Launch broad-based initiatives to promote high-end and advanced qualifications digital skills in education as well as the TVET sector, including programs to increase overall female enrolment rates in STEM subjects Trust • Establish customer protection guidelines and dispute redressal • Continue improvements in connectivity and the trust ecosystem— mechanisms specifically targeting electronic commerce and online ensuring secure transactions with appropriate protection of payments personal data—to boost use of financial services, and online • Develop a robust personal data protection law government services • Increase knowledge and awareness among individuals, businesses, and the public sector on cybersecurity risks and response measures 95 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives India Digital technologies are reshaping our global economy, per- have already been implemented successfully and several other meating every sector and aspect of daily life. Its impact can be digital public platforms are being planned. seen in how we learn and work, our social and economic inter- Private enterprises and start-ups have also brought in new actions, and how people, businesses, and governments access and innovative digital solutions which are now part of every- and provide information, services, and markets. In 2016, the day economic activities in the country. For instance, India’s global digital economy was worth approximately US$11.5 e-Commerce sector is already sized at USD 46 billion in 2020 trillion; this was equivalent to 15.5 percent of global GDP. It is and is expected to grow to USD 111 billion by 2025. India has expected to increase to 25 percent in less than a decade, been a dominant player in the global IT—ITeS sector with outpacing the overall economy’s growth. The COVID-19 revenues of USD 191 billion in 2019-20, accounting for ~ 55% pandemic and its related restrictions on mobility and social of the global service sourcing market59. India has the third interactions have underscored how digital technologies can highest numbers of unicorns, 72, behind only US and China60, support learning, business and trade, government operations and provides a fertile ground for many more digital startups. continuity, and citizen service delivery. Strategic use of digital technologies, especially for emerging countries like India, can not only expedite the economic recovery post the pandemic, DIGITAL ECONOMY OPPORTUNITIES FOR INDIA but also make the economy more resilient and buoyant in the The GoI published a report in 2019 highlighting the poten- longer term. tial for economic value addition of USD 1 Trillion through concerted digital interventions across sectors and recently INDIA’S GROWING DIGITAL PROFILE chalked out a 1,000-day plan to realize this potential61. The initiative focusses on bringing coherence into digital gov- The digital ecosystem in India has grown significantly over ernance, simplify rules and regulations for technology led the last few years. Internet users in the country have grown innovation, and focus on building India’s high-tech prow- 260 percent to 833 million in June 2021, from 319 million in ess. New age technologies like AI, Cyber Security, Super June 201557. Easy and affordable access to internet covering Computing, Semiconductor designing, Blockchain, and the majority of the population, coupled with concerted initia- Quantum Computing have been identified as focus areas by tives of the government and private sector has led to improved the government. digital service delivery in the country. India’s mature IT sector as well as its large youth popu- More than 4,000 e-government services across the country lation base provides India a great opportunity to address witness about 270 million e-transactions every day58. With important cross-cutting themes to accelerate its digital the success of Aadhar (digital platform for unique citizen economy. These include (a) improving socio-economic inclu- identities) and UPI (Unified Payments Interface for real time sion through digital means and addressing concerns around money transfers), there is an increased thrust by the gov- affordability, digital literacy and awareness to ensure equitable ernment to invest in sectoral platforms, strengthening G2C, access to opportunities for all; (b) bridging implementation G2B and G2G interactions. Several such platforms viz. Cowin divides across sectors and levels of government, reducing the (for COVID Vaccinations), Ayushman Bharat (healthcare), gaps in digitization across states, in key sectors such as edu- DIKSHA (for education and teacher training), GSTN (Tax), cation and healthcare and by leveraging the private sector to a GeM (public procurement), UMANG (e-Gov services), etc. greater extent, as well as building on the India Stack platform 57 TRAI Performance Indicator Reports for quarter ending June 2015 and June 2021; EY analysis 58 https://etaal.gov.in/etaal2/auth/centralchart.aspx - based on data for September 2021 59 https://timesofindia.indiatimes.com/readersblog/youth2020/how-the-it-industry-is-shaping-the-future-of-india-36519/ 60 https://www.ventureintelligence.com/Indian-Unicorn-Tracker.php as of 10th November 2021; https://www.business-standard.com/article/companies/india- added-three-unicorns-per-month-in-2021-hurun-report-121090200848_1.html 61 https://economictimes.indiatimes.com/tech/information-tech/meity-has-a-1000-day-plan-for-a-1-trillion-digital-economy/articleshow/86469206.cms 96 Annex Executive Summaries of Country Assessment Reports to further intensify the adoption and usage of digital financial time to time notified various policies to address the challenges services; and (c) updating policy and regulatory frameworks of the sector—viz. the National Digital Communications and institutional capacity to enable investment and promote Policy 2018, the National Broadband Mission, and other such innovation and to strengthen the trust environment. initiatives—on ground implementation of these policy recom- mendations have remained muted. Key findings India can boost access to affordable, inclusive, and secure broadband networks and services through a mix of measures, DIGITAL INFRASTRUCTURE including: (1) acceleration of major digital infrastructure  projects such as optical fibre connectivity to all villages and With more than 1.2 billion telecom subscribers and more than telecom towers; (2) simplification and improved coordination 830 million internet subscribers62, India hosts the second of rights-of-way and infrastructure sharing across levels of largest telecom market in the world. Between June 2015 and government; (3) defining a policy framework that streamlines June 2021, the number of internet users per 100 population institutional responsibilities, aiming to maximize private has grown 2.4 times from 25.3 to 61 (interestingly, growth investment and competition; and (4) design and implementa- in rural internet usage has been higher than in the urban tion of innovative universal service programs to bridge access, areas, as user per 100 population in rural areas grew almost affordability, and adoption gaps—with a focus on lower-income 2.9 times from 13 to 38 during this period). This growth has and rural users—drawing on international good practices and been fueled by mobile based services, whilst India’s fixed local innovation. broadband penetration remains behind its peers. As of 2020, fixed broadband subscriptions per 100 people was at 1.61 percent, lagging several lower-middle-income countries (e.g., DIGITAL PUBLIC PLATFORMS  Indonesia at 3.9, Kyrgyz Rep. at 4.2, Bangladesh at 5.8, and The Government has been focusing over the past decades on Vietnam at 17.2). Only a third of the telecom towers have an building India’s digital ecosystem—a concept known as the optical fiber backhaul, which considerably limits the capac- “India Stack”— to enable presence-less, paperless, cashless, ity to meet growing bandwidth needs of the consumers and data-driven service delivery by linking these and other and will impact India’s ability to leverage next generation platforms through open standards and open interfaces. These high bandwidth services like 5G. The National Broadband initiatives have contributed to India improving in various Mission seeks internet accessibility and overcoming low fixed global indicators and position itself as a leader in digital public broadband adoption by addressing high infrastructure deploy- platforms among developing countries and within South Asia. ment cost, lack of tower fiberization, dominance of mobile These public platforms have also helped immensely in miti- connectivity, and lack of access to broadband networks, gating the adverse impact of COVID by ensuring continued especially in rural areas. However, implementation delays in public service delivery and seamless implementation of social the execution of large initiatives (such as the BharatNet nati welfare schemes. onal fiber optic backbone) and low utilization of the universal Digital public platforms have also helped the government service fund (about half of available funds disbursed) have also increase efficiency across its processes, resulting in significant delayed improvements.   monetary gains. For instance, Direct Benefits Transfer, which A litigation-prone legal and regulatory framework has enabled direct transfer of benefits across multiple schemes remained a key concern of the industry players, hindering through digital means and addressed leakages in the systems investments to strengthen the underlying digital infrastruc- by leveraging Aadhaar, have resulted in cumulative savings of ture. High spectrum auction reserve prices, high levies and INR 1,780 billion to the public exchequer up to March 202063. taxes and complex approval processes have further con- Similarly, public procurement through GeM has enabled sav- strained the development of the sector. The institutional ings of INR 100 billion over the last five years64. framework for telecommunications can also be streamlined; With the intention of maximizing potential benefits and various agencies have responsibilities over related regulatory optimizing investment, the government aims to create more functions and programs. Whilst the government has from 62 TRAI Performance Indicator Report for quarter ending June 2021 63 https://dbtbharat.gov.in/estimatedgain 64 https://www.thehindu.com/business/centre-saved-10-in-cost-via-gem-purchase/article35825831.ece 97 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives digital public platforms addressing specific concerns of each Interface (UPI), supported by over 261 banks, with monthly of the sectors, implementing a converged digitization across transactions crossing 4 billion by volume in October various central government ministries/ departments, states, 202165 , the card scheme RuPay and the recently launched and local government bodies. This shall address existing voucher based digital payment system- e-Rupi.  challenges like duplication and ad-hoc implementations; The Government has striven to ensure basic banking for subdued adoption of government interoperability frameworks; all through initiatives such as the Jan Dhan Yojana (JDY), limited process re-engineering leading to digitization of ineffi- opening millions of new “zero-balance” bank accounts and cient manual processes; existence of multiple legacy systems; implementing direct benefit transfers to such accounts. The and limited collaboration across various government agen- Government currently channels 433 schemes from across cies. In addition, it may enable effective and responsible use 56 ministries with more than 75 million JDY accounts and re-use of data, which at present remains a key challenge, receiving such transfers.  Even so, 190 million people remain with the absence of a comprehensive data protection frame- unbanked and do not have bank accounts nor participate in work to provide safeguards and guardrails.  any formal financial institution. India’s digital public platforms and the resulting service deliv- In parallel, India’s FinTech ecosystem has seen tremendous ery can be strengthened through: (1) being intentional about growth over the last few years, making it one of the largest universal inclusion and accessibility of digital public plat- and fastest-growing FinTech markets. India has produced 16 forms, especially for the most vulnerable sections of society, FinTech start-ups as of June 2021, which rapidly reached bil- and imbibe human centered design, local language support lion-dollar valuations. FinTechs are providing digital solutions, and use emerging technologies as key principles; (2) building channels and easier onboarding processes remotely through on the India Stack as a foundation for use cases and services new forms of KYC, such as Aadhaar-enabled KYC using across all sectors and at both central and state-levels; and (3) biometrics, One-Time-Password (OTP) delivered to the promoting greater trust and secure data sharing by devel- Aadhaar-registered mobile numbers, and Video KYC across oping a comprehensive data protection and data exchange the sector including payments, banking, insurance, credit, layer, including operationalization of the Data Empowerment stock and mutual fund trading and pensions, thereby further and Protection Architecture (DEPA) layer of the India Stack, expanding the reach of digital financial services. as well as using techno-legal interventions to enable fully online digital government transactions, learning from digi- India’s digital lending market has grown tremendously in the tal government world leaders such as Australia, Denmark, past few years to serve the large financing gap across retail Estonia, South Korea, and Singapore.  and MSME. According to Experian data66, India’s retail digital lending space reached more than $150 billion in size by 2020, and it is projected to reach $350 billion by 2023. FinTech DIGITAL FINANCIAL SERVICES  players are working towards developing AI and big data based India has a dynamic and fast-paced environment and is alternate credit models to enable lending to more marginalized emerging as a hotbed of innovation for digital financial customers. In addition to that, Buy-now Pay Later is emerging services at a large scale. The COVID-19 pandemic further fast- as the fastest-growing e-commerce digital payment method in tracked digital transformation of the payment’s ecosystem India and is estimated to capture 9% of the total e-commerce in India. Overall, the total digital transactions volume in the share market by 202467. In line with open-banking principles financial year 2020-2021 stood at 43.71 billion trans- and data privacy and robust consent driven frameworks, the actions (worth more than a quadrillion Indian rupee) as Account Aggregator model is set to enable lower lending-costs opposed to 34.12 billion in 2019-20. The National Payments based on aggregation of borrower-controlled data. The Open Corporation of India (NPCI), founded as an initiative by the Credit Enablement Network (OCEN), along with the Account Reserve Bank of India and the Indian Banks’ Association, Aggregator model are set to democratize credit. The RBI has provides the crucial infrastructure for several payment initiated a digital platform- TReDS, to facilitate MSMEs by systems. Among those are the highly used Unified Payments financing their trade receivables. 65 https://www.npci.org.in/what-we-do/upi/product-statistics 66 https://static.investindia.gov.in/2021-06/Experian-Invest%20 67 Home | Global Payments Report 2021 98 Annex Executive Summaries of Country Assessment Reports Yet, India lacks the infrastructure to make the transition to abroad, several incubator and accelerator programs led a “less-cash” society. Amongst the barriers to greater pene- by investors and the private sector, and the increasing atten- tration of digital financial services, the foremost is the low tion of global investors. For instance, Accel launched Accel level of digital and financial literacy, which characterizes a Atoms to provide non-dilutive capital and 1:1 mentoring in large portion of the low-income population. Other challenges order to extend incubation support. At the same time, India’s include lack of acceptance infrastructure by vendors and entrepreneurs are still constrained by factors that have under- businesses especially in rural areas. Innovation might be held pinned the persisting digital divide in the country: a shortage back by the existence of several regulators / quasi-regulatory of skills, poor infrastructure, and low internet adoption limit- bodies governing different segments of the financial sec- ing their reach within the country.  tor, with their own policy and guidelines. With a boost, DFS However, many start-ups register abroad to avoid com- can play a significant role in promoting the “National Strategy plex regulations in the country or to benefit from market for Financial Inclusion for India 2019-2024 (NSFI)” that access; Indian digital businesses have so far been unable serves as a guide to financial inclusion initiatives in India.  to target global markets and remain focused on Indian and Apart from inclusion, another issue that will need additional South Asian markets, barring the exceptions of the IT or ITES attention is cybersecurity. India has seen cyberattacks on industry, which largely caters to global banking and finan- its financial sector, which has created substantial business cial firms. As of today, less than 10 percent of Indian MSMEs disruptions leading to reputational damage and financial have access to digital marketplaces or e-commerce plat- instability.   forms pointing towards a significant potential for these India can support more inclusive, secure, and innovative businesses to increase their customer base through online DFS through a range of measures, including: (1) increas- platforms. Uncertainties around policy and regulations for ing digital and financial literacy through awareness e-commerce, taxi-aggregators, FinTech, and other sectors campaigns targeting semi-organized / organized collectives create a difficult environment for both domestic and foreign and local-self-government organizations; (2) expanding the digital businesses.  acceptance and prevalence of digital payments, including Another factor limiting the growth of digital businesses in through the introduction of low-cost payment solutions India is the lack of trust between market actors. Digital built on the current payments stack and leveraging open businesses and transactions require a level of trust protocols to expand ecosystems; and (3) simplifying multi-reg- enabled by a transparent regulatory environment regard- ulator interfaces for DFS and FinTech innovations through ing contract enforceability, reliable legal recourse in case a single-window approach.  of fraud, e-transactions, e-signatures, taxation, among other. Additionally, India has not defined a national regula- DIGITAL BUSINESSES  tory authority for personal data protection, which limits the Digital businesses in India can be divided into two categories, trust between individuals and businesses regarding the use of each with its own distinct characteristics: (a) digital start-ups personal data. Relatedly, cybersecurity remains a concern with and (b) established digital businesses. The growth and sustain- the increasing digitization of sectors while capacity for ability of digital start-ups rely on a widespread yet closely knit securing systems, data, and networks remain limited. These entrepreneurship ecosystem and venture capital financing, enabling factors remain weak in the country. Finally, gen- which enables the entrepreneurs to turn ideas into viable new der imbalances within the venture capital and private equity businesses and scale fast. As of November 2021, there were space act as a key inhibitor for women-led technology more than 58,72668 Government-registered start-ups in India start-ups in India and perpetuates the digital gender across various sectors and 72 unicorns69.  gap. According to IFC research, women comprise only 7 per- cent of senior investment professionals across private equity India’s start-up ecosystem has benefited from a confluence and venture capital in South Asia, of which 95 percent are of factors: increasing entrepreneurial activity given a ready from India.3  pool of talent with advanced education and notable experi- ence in working at successful digital start-ups in India and India could capitalize on its visible position globally to accelerate its digital businesses while also supporting a 68 https://www.startupindia.gov.in/ 69 https://www.ventureintelligence.com/Indian-Unicorn-Tracker.php 99 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives broader-based digitization of established businesses. It could for example, to promote the connectivity of schools and to consider measures such as: (1) improving public-private boost adoption of online learning. Besides, about 30 central dialogue on regulatory changes for digital entrepreneurs and ministries, state departments, public or private institutions businesses to streamline processes across states and pro- impart short-term skilling, but there is a lack of synergy and mote trust within the ecosystem; (2) incentivising digitization convergence in these efforts and often weak links between in small and medium businesses through targeted programs; industry needs and training programs. Further, COVID-led (3) defining and implementing programs to create a condu- disruption of physical learning has created an opportunity to cive, gender-sensitive environment for women entrepreneurs; expedite digital adoption. In the short to medium term, this (4) creating an institutional mechanism to support Indian can be fostered by creating a unified, digital skilling platform entrepreneurs and business to operate across global intellec- for learners and creating a capacity to train the workforce in tual property regimes; and (5) accelerating data protection and intermediate and high-level IT skills.  cybersecurity policies, empowering institutions to build trust To boost the digital skills base broadly while increasing the in the digital economy.  talent pool available for the digital industries, India could: (1) coordinate or even unify the various platforms and DIGITAL SKILLS  programs to create a one-stop digital learning point acces- India is making progress in digital transformation across all sible for learners of all age; (2) create the capacity to train sectors, which is expected to boost the demand for digital the workforce in intermediate and advanced IT skills in line skills in the country. However, available comparators are not with market demand; and (3) invest in training-of-train- very encouraging. India ranked 59th on ‘Digital/Technological ers to enhance their digital skills.  Skills’ out of the 64 countries in IMD World Digital Competitiveness Ranking, 2021. The Network Readiness TRUST ENVIRONMENT Index (NRI) assesses how countries are ready to leverage With data becoming borderless and freely accessible, India information technologies to be future-ready. NRI ranked India is facing challenges of data privacy management and weak 56th on ICT Skills. data regulation. While the right to privacy is a fundamen- India’s future demand for skills will likely grow from 1.2-1.3 tal right under Article 21 of the Constitution of India, the million in 2020 to 3.5-3.7 million in 2024. About 77 percent Personal Data Protection Bill, which would be India’s first law of the CEOs in a CEO Survey by NASSCOM in 2019 men- on personal data protection, is still under discussion in the tioned a lack of digital capabilities and skills among the top parliament. Moreover, in the absence of a national regulatory three risks that can hinder the IT-ITES industry’s growth. authority for personal data protection, Adjudicating Officers NASSCOM estimates that more than 70 percent of the provisioned by the IT Act currently evaluate cyber incidents. talent available in IT services across the globe comes from However, when it comes to data protection, the execution of India. Hence, a significant revamp of the present digital skill this mechanism on the ground has been inadequate. supply scenario is needed to meet future demand. There is In recent times, due to a surge in digital interactions, India evidence indicating that there is a gap between education experienced an increase in the number of cyber-attacks. Lack and employment, while also pointing to gender and location of cyber awareness and gap in cyber skill-building programs divides.  along with public responsiveness are the key contributing Whilst the government provides skill training and recogni- factors. tion to about 10 million individuals annually, this covers less To combat this risk of cyber-attacks, it is required for India than 2 percent of India’s working-age population and appears to be ahead of the curve: (1) put in place robust governance inadequate in scale to meet anticipated demand. From the systems with the help of established centers such as the lens of gender inclusion, at the undergraduate level, only 32 Defence Cyber Agency, the Indian Cybercrime Coordination percent of graduates in engineering and technology sub- Centre, and the Cyber Swachhta Kendra (Botnet Cleaning jects are females. At the workplace, women comprise only and Malware Analysis Centre), which are already making one-third of the IT-ITES sector, with a heavy bias towards efforts towards India being more cyber secure. (2) Promote entry-level jobs.  the Cyber Surakshit Bharat Program to spread awareness The government has sought to enhance school and TVET about cybercrime and strengthen cyber capacity. It is the first education to include digital skills with a range of programs, 100 Annex Executive Summaries of Country Assessment Reports public-private partnership (PPP) of its kind and expected to have demonstrated the potential for good practices for overall take advantage of the IT industry’s cybersecurity expertise. service delivery. Women’s exacerbated vulnerabilities stemming from the rising OPPORTUNITIES TO EMPOWER WOMEN threat of online gender-based violence is an emerging area of The digital gender divide, broadly defined as the gender gap in concern. As per NCRB data, the number of cybercrimes against the access, use, and ownership of digital technologies, is prev- women in 2020 amounted to 10,40573, significantly increasing alent across developed and developing economies. However, from 8,379 reported in 201974. To empower the women of digi- the disparity between men and women is not limited to merely tal India: (1) There is a need to collect sex-disaggregated data of access to ICT resources. The digital gender divide extends to the beneficiaries and establish gender-specific targets. (2) There digital skills, representation of women in ICT jobs and careers, is a need for a robust legal and policy framework that evolves the share of women-owned businesses in the technology in tandem with the changes in the nature and level of threat sphere, adolescents pursuing education in STEM fields, wom- that women face online (3) Provide an impetus to the concerted en’s participation, and uptake of digital governance, and more. efforts to enhance the female entrepreneurial ecosystem, Even as India takes strides towards a digital society, internet especially in the technology space, by way of supportive policy access remains inequitable in the country. NFHS 5 (Fifth and enabling regulations, such as the National Policy on Skill National Family and Health Survey) data shows that only Development and Entrepreneurship 2015. 42.6 percent of women have ever used the internet compared to 62.16 percent of men. Examining the barriers shows that Policy recommendations  lack of technical know-how to access the internet and reading Based on the analysis, the report suggests the following or writing challenges emerge as top detriments to women’s high-priority policy recommendations for developing the digi- access to and usage of the internet. While India has closed tal economy in India. (See table on next page)  gender gaps at the primary and secondary school levels, the absence of gender-disaggregated data to analyze the uptake of science and mathematics at the secondary level is a challenge. Implementation Approach At the tertiary level, stark differences arise in technology and A tiered governance and administrative structure to ensure engineering.70 coherence and collaboration across all ministries/ depart- Nearly 78 percent of women in India are now financially ments of the Central government, various State governments included via a digitally enabled account, bringing the gender and local governing bodies is a key imperative to fast-track gap to only four percentage points71. However, only 27 percent India’s digital economy goals. Therefore, the following gover- of women used digital payments or transfers compared to 35 nance structure is proposed: percent of men in 201872. Financial autonomy and digital liter- • Digital Economy Council: The apex body under acy have emerged as the main factors impeding women from the Chairmanship of Prime Minister of India. Key using digital financial services in the country. Data also shows central ministries (represented by their ministers) that female entrepreneurial activity is on the decline in India, including Ministry of Finance (Dept. of Economic and participation remains limited to non-digital sectors. Affairs), Ministry of Electronics and IT, Ministry of Communications, Ministry of Skill Development Similarly, the Aadhaar program has been instrumental in and Entrepreneurship, Ministry of Commerce and bringing a large section of historically excluded groups, Industry, NITI Aayog and other pertinent ministries including women, under the coverage of a national identity as may be deemed necessary system. Further, while there is scope for greater inclusion of women through gender-friendly service delivery, certain • Empowered Group of Secretaries: Headed by the initiatives such as Mahila e-haat, Mobile Academy, She-Box Cabinet Secretary and represented by Secretaries from the above ministries and other secretaries to be 70 MHRD (2019), AISHE 2018-19 71 Wave 6 Report: Sixth Annual FII Tracker Survey, Intermedia & BMGF, May 2019 72 Wave 6 Report: Sixth Annual FII Tracker Survey, Intermedia & BMGF, May 2019 73 CII 2020 Volume 2.pdf (ncrb.gov.in) 74 CII 2019 Volume 2.pdf (ncrb.gov.in) 101 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives co-opted based on the relevance of the initiatives as and shall coordinate with the key stakeholders— may be planned. Eminent industry leaders may be Ministries, States and Industry invited as necessary for their inputs • A ‘Digital Economy Fund’ may be created and insti- • Nodal Institution for Monitoring: Responsible for tutionalized, which may be utilized for undertaking monitoring and enabling Digital Economy initia- specific programs designed for expediting the digital tives. May be created as an entity under Cabinet economy goals of India. Secretariat or under the aegis of NITI Aayog, PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Accelerate major digital infrastructure backbone projects such • Define a policy framework to minimize regional differences, enabling as BharatNet to enhance optical fibre connectivity across rural areas equal and timely 5G access to the consumers, through maximization and fiberisation of telecom towers of private investment and competition  • Simplify and improve coordination of rights-of-way and infrastructure • Design and implement innovative universal service programs to sharing across levels of government bridge access, affordability, and adoption gaps—with a focus on lower-income and rural users—drawing on international good practices and local innovation Public Platforms • Be intentional about universal inclusion and accessibility of digital • Promote greater trust and secure data sharing by developing a public platforms  comprehensive data protection and data exchange platform and • Build on the India Stack as a foundation for use cases and services techno-legal interventions to enable fully online digital government across all sectors transactions  Financial services • Expand the acceptance and prevalence of digital payments, • Increase digital and financial literacy through awareness campaigns including through the introduction of low-cost payment solutions targeting semi-organized / organized collectives and local-self- built on the current payments stack and leveraging open protocols government organizations  to expand ecosystems • Simplify multi-regulator interfaces for DFS and FinTech innovations through a single-window approach Businesses • Improve public-private dialogue on regulatory changes for digital • Create an institutional mechanism to support Indian entrepreneurs entrepreneurs and businesses to streamline processes across states and business to operate across global Intellectual Property regimes  and promote trust within the ecosystem • Define and implement programs to create a conducive, gender- sensitive environment for women in the field in partnership with industry and civil-society   • Enable digitization in small and medium businesses through targeted programs Skills • Create the capacity to train the workforce in intermediate and • Coordinate or even unify the various platforms and programs to advanced IT skills in line with market demand  create a one-stop-learning point accessible for learners of all age • Invest in training-of-trainers to enhance their digital skills Trust • Accelerate policy incentives and/or create platforms for improved • Accelerate data protection and cybersecurity policies and financial data sharing in a secure and protected manner regulations as they apply to businesses, and establish relevant institutions to build trust in the digital economy Gender • There is a need for increased focus on and investment in public • It is crucial to provide a preventive approach to a robust legal and education and digital literacy programs that enhance women and policy framework that explicitly identifies online gender-based girls’ mobile digital literacy and confidence. violence and its detrimental impact, including harassment that does • Collaboration with the private sector and international development not specifically have a sexual nature. Such recognition will likely community to support digital literacy training are also likely to lead allow for greater sensitization within the institutional response to women’s greater uptake of digital technologies. framework, thereby making it a more conducive environment for women. 102 Annex Executive Summaries of Country Assessment Reports Maldives The government of Maldives is looking towards digital Maldives needs to address some cross-cutting bottlenecks to transformation as an important enabler of broader economic further develop its digital economy. In particular, the govern- growth and social development. The 2019-2023 Strategic ment should consider taking action to (i) ensure that the digital Action Plan (SAP) outlines five policy priorities for the coun- economy is inclusive for all, regardless of age, geography, try’s digital transformation: (1) modernize the governance gender, and socio-demographic status, through proper access mechanism of the ICT sector to prepare for a digital economy, to digital tools and services, (ii) put into place a coordinated (2) establish digital infrastructure, platforms and ecosystems institutional strategy for digitizing public services across capable of providing ICT solutions that are more efficient, agencies and levels of government and (iii) develop digital secure and consistent, (3) modernize government services capacities, not only basic digital literacy, but also digital inno- through digitalization for data-driven policy making and vation and entrepreneurship skills, so that businesses and efficient delivery of information and services, (4) encourage individuals alike can reap the benefits of the digital economy digital innovation and create a conducive environment for while mitigating its risks. businesses to thrive in a digital economy, and (5) develop a digital-ready workforce and build human capacity in the ICT Key Findings industry. These themes cover much of the foundations for a digital economy and would set the country up for broad-based digital development. In the wake of the COVID-19 pandemic, DIGITAL INFRASTRUCTURE the updated SAP also recognizes ICT as a key enabler for Maldives is ahead of other countries in the South Asian decentralizing government, achieving economic diversification region when it comes to digital connectivity. In 2019, 63 and building resilience against future disasters. percent of the population, and 60 percent of households, used the internet. Still, large adoption and usage gaps persist The first phase of the digital revolution in Maldives has across groups, depending on location and level of education. yielded commendable results, but there is still more work Preliminary estimates from the 2019 Household Income to be done. Over 60 percent of the population now uses the and Expenditure Survey (HIES) indicate that 83 percent of internet, more and more businesses are adopting digital tech- households in Malé have access to fixed broadband services, nologies, and the deployment and use of digital government compared to 51 percent of households in the atolls. Moreover, services is on the rise. This is a remarkable improvement internet users in Malé enjoy average download speeds (for from 2006 when only a tenth of the population used the fixed broadband connections) that are twice as fast as those in internet. The COVID-19 pandemic accelerated digitalization the atolls. The uptake of fixed broadband services is relatively as people, businesses and government agencies had to switch low for the country’s income level and lower than the average to online tools and platforms. The Maldives can benefit from for upper-middle income countries. The high price of services the wider sustained use of digital technologies as it seeks to is likely a major deterrent: the price of a monthly subscription decentralize its economy, extend access to public services for an entry-level fixed broadband plan is about 3.1 percent of in the outer atolls, and diversify its economy. At present, per capita income. At the nationally defined poverty line (MVR there are still large gaps in digital technology adoption across 74), the cost of an entry level mobile broadband is about a fifth groups, based on location and level of education. For instance, of average monthly income and a similar fixed broadband con- while 83 percent of households in the capital Malé have nection costs a third of that income. Prices are especially high access to fixed broadband services, only 51 percent of house- relative to the quality of services that users receive; in January holds in the atolls have access. Fixed broadband connections 2021, the average download speed in Maldives was 24.5 in Malé are twice as fast as those in the atolls. Similarly, while megabits per second (Mbit/s), slower than both Bangladesh many larger businesses have digitized, only a few small and (33.5 Mbit/s) and India (54.7 Mbit/s). By contrast, advanced medium-sized enterprises have adopted digital technologies. economies are actively rolling out ultrafast broadband internet There is also ample room for improvement in the adoption of at speeds over 100 Mbit/s. It would seem that high-quality e-government services. internet services are still out of reach for many Maldivians. 103 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Geography is in part to blame for challenges relating to The government plans to expand the digital identity infra- affordability. The Maldives is a small island state and as such, structure to enable digital signatures in the public and private is a price-taker for international connectivity. These high sectors. The COVID-19 pandemic required the deployment prices in the upstream market segment naturally influence of various information management systems as well as an downstream retail prices. In addition, the distribution of the online education portal. The experience has been mixed and population across the atolls means that some locations are gaps were observed, for instance in healthcare worker and not commercially viable for high-capacity network connec- teacher preparedness.75. The pandemic has laid bare the need tivity, leading to higher unit prices and weakening the base to increase access to health services (for instance via tele- for advanced digital services. For instance, less than 10 of medicine services) and to improve the use of data and digital the larger islands are connected with fiber optic cable net- tools in disaster management. For these efforts to be effective, works. Even though these islands are home to a majority of digital systems and data are should be made interoperable the country’s population, gaps in infrastructure hinder the across key ministries and agencies involved in disaster risk quality of connectivity in outer islands that are already at risk management, as well as across national government and local of falling behind in access to markets, information, or ser- councils. To this end, the government plans to build a univer- vices. Moreover, gaps in the enabling regulatory environment sal technology stack and establish regional data centers in the compound the challenges related to geography. Maldives North and the South. However, international benchmarking has a duopoly of service providers and a nascent regulatory suggests that there is ample room for growth in the adoption framework that is only partially developed. For example, the of e-government services in Maldives: the UN E-Government competition policy framework is not yet fully defined. This Development Index 2020 ranks Maldives 105th among 193 does little to encourage service providers to innovate, invest, countries on e-government development, behind several or roll out inclusive services. South Asian countries (e.g. India, Bhutan). Further investment in digital infrastructure is needed to Three broad weaknesses have been identified. First, the legal ensure equitable access to affordable, secure and reliable high- and regulatory frameworks to promote digital government speed internet services. The government plays an important and e-commerce are underdeveloped. For example, there is role in creating an enabling environment that facilitates such no legislation in place for electronic transactions, privacy, data investments and stimulates competition. To this end, the protection, or cybercrime. This creates significant vulner- government should prepare and adopt a national broadband abilities to cyber-attacks. Second, leadership of the digital strategy in a consultative manner, elaborating on the themes government agenda is unclear, with multiple actors involved. contained in the Strategic Action Plan and defining specific Core infrastructures and shared services are also missing. The targets and action plans to realize affordable and universal government of the Maldives should consider a shift towards a broadband access. The Action Plan should (i) define pol- ‘whole-of-government’ approach involving all relevant stake- icy reforms and regulatory measures to foster competitive holders. The aim should be to decentralize the provision of pressure with the aim of improving the affordability, coverage key public services and government functions, while ensuring and quality of services, (ii) build the capacity of the regulatory interoperability and system integration. Third, there seems to authority to define and enforce regulations on competition and be a lack of ICT skills among public sector staff, which may be resource management (e.g., radio spectrum), and (iii) define having an impact on the usage and adoption of existing ICT competitively neutral approaches to mobilize private capital to solutions in government. This may also result in the public connect the outer islands, and boost the overall availability of sector not being digitally ready, and ultimately delay the roll- fixed broadband services. out of digital government platforms. Developing the foundations of a digital economy will require DIGITAL PLATFORMS improving public and private platforms in the country. The The government has established several digital public plat- government of Maldives should consider taking the following forms to improve access to services for citizens and residents, actions: (i) defining clear responsibilities and mandates for including an online identity management solution, a business various government agencies, preferably with an integrated, portal, a job center portal, and other government services. institutional governance framework for digital transformation, 75 Moosa S, Ibrahim A, Usman SK. Social sector experience during the COVID-19 pandemic’s lockdown in the Maldives. Maldives: The Maldives National University, 2021. 104 Annex Executive Summaries of Country Assessment Reports (ii) defining a digital government policy that outlines a clear Efforts are underway to implement a nationwide instant roadmap for the government’s digital transformation efforts, payments system, sometime in late 2021. Maldives does not (iii) strengthening the legal and regulatory framework for have a Cyber-Emergency Response Team (CERT) or a sec- public service delivery and private platforms and (iv) creating toral institution governing the country’s financial sector. This core infrastructures (e.g., national government cloud), services makes it difficult to identify sector-specific threats and for (e.g., a single and universal identification), and skills for public market players to share knowledge, experience and know-how. service delivery. The absence of national cybercrime legislation also means that cybercrime within the financial service sector cannot be easily prosecuted. Maldives was ranked last (175th) with DIGITAL FINANCIAL SERVICES a score of 0.004 in the 2018 Global Cybersecurity Index.76 Digital financial Services (DFS) have grown rapidly in This is lower than South Asian countries such as India (47th), the Maldives in recent years, with many private service Bangladesh (78th), Sri Lanka (84th), Pakistan (94th), Nepal providers—including banks and telecommunications com- (109th), Bhutan (125th) and Afghanistan (126th). Therefore, panies— introducing electronic payments and mobile money building trust in the country’s financial eco-system seems to services. According to the 2018 World Bank Findex Survey, be an uphill battle. Furthermore, an important gender gap can a quarter of adults in Maldives have a mobile money account be observed in account access and use of financial services. and 68 percent of adults reported making or receiving digital Barriers to women’s account ownership include the preva- payments. This is higher than in other South Asian econo- lence of cash, opening balance requirements, and the fact that, mies. The use of digital payments in the country is on par with traditionally, only one member of a family has an account. China and Malaysia. Mobile payment service providers now have over 700 agents and merchants in more than half of all Three high-priority measures to promote DFS could help the inhabited islands, including in over 70 islands that do not have Maldives accelerate its transition to a digital economy. First, commercial bank branches or ATMs. Public services have also the government should develop a digital finance infrastruc- embraced digital payments for the collection of various fees ture for interoperable payments and transactions, including and charges. Given Maldives’ widely dispersed population, it is for real time transactions/settlements and card payments. difficult to physically provide financial services to all residents Second, a higher level of trust in electronic transactions and DFS has therefore gone a long way in improving financial should be encouraged through better cybersecurity measures inclusion in the country. However, some important gaps and for financial systems and greater awareness among busi- challenges persist. The national payments system does not nesses and individuals. Finally, the government should test currently support instant digital payments or money transfers measures to increase financial inclusion and close gender between different entities. Key systems such as the Real Time gaps, such as digitizing G2P payments and expanding access Gross Settlement System (RTGS) and Automated Clearing to ATMs, especially in the outer islands. House (ACH) system are not fully integrated with the inter- nal core banking system of all participating banks, limiting DIGITAL BUSINESSES the number of real-time transactions. Many transactions still Maldives performs relatively well when it comes to the digi- need to be done in person, which is inadvisable during a global tization of firms. In the 2016 World Bank’s Digital Adoption pandemic. The country also lacks interoperability at various Index (DAI) for businesses, it scored higher than other points in the financial value chain, for instance at points of countries in South Asia as well as other upper-middle-income sale or ATMs. The absence of integrated and real-time pay- small-island developing states (such as Fiji and the Dominican ment settlements is a major bottleneck in the development of Republic). However, smaller businesses have not digitalized as e-commerce, fintech and other online services solutions. As a rapidly. Indeed, the relatively low number of fixed broadband result, most e-commerce activities have thus far been limited subscriptions suggests that most micro, small and medium to cash-on-delivery mode, rather than electronic payments. enterprises (MSMEs) do not use technologies such as virtual The absence of a local card payment switch also results in private networks, data hosting and cloud-based services, as transactions being sent offshore for processing, at increased they require good quality fixed broadband. Low adoption of cost. digital financial services also suggests that businesses might 76 It should be noted that this low rank is likely due to Maldives’ non-participation in the survey process. However, that might also indicate a lack of awareness or coordination within the public sector on this topic. 105 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives conduct relatively few transactions online. While there is anec- governmental intervention should also aim to promote the dotal evidence of digitization during the COVID-19 pandemic, creation and growth of firms in non-traditional sectors and overall the digitization of businesses in the country is limited. increase the level of digitization across the economy. This could stifle innovation and hinder resilience to future shocks. Larger or well-established businesses, such as those DIGITAL SKILLS in the tourism and hospitality industries, tend to have interna- tional links (e.g., through joint ventures) and are likely to use The limited availability of relevant data makes it difficult to automation and digital technologies for sales, booking, and provide a comprehensive assessment of the level of digital enterprise resource planning. By contrast, locally owned and literacy and skills in the Maldives. In the case of firms, half of operated guesthouses are less connected, due to poor internet MSMEs interviewed during a COVID-19 rapid assessment connectivity (especially in the outer islands), low digital aware- (UNDP and Ministry of Economic Development Maldives, ness, underdeveloped digital capabilities and skills, as well as 2020) did not have a single digitally-literate employee. weaknesses in the trust environment. However, no data is available on basic digital literacy in the population, nor on the overall digital skills level of students More can be done to boost the role of digital industries and (e.g., as measured by the proportion of youth that have start-ups in the economy, particularly for the purposes of job engaged in computer-based activities in the last three months). creation. For example, the ICT sector in the Maldives employs There is also no gender-disaggregated data. Measuring these just 1.8 percent of all workers and of those, only 22 percent are indicators on a regular basis would help Maldives track its women - a lower proportion than in other sectors of the econ- progress towards digital readiness. Collecting this data in a omy. Furthermore, most of these firms are relatively small transparent manner would also enhance evidence-based poli- and provide small-scale IT services. Growth is restricted as cymaking in this area. most larger businesses (in fields such as tourism or banking) in-source their technology services. The ICT sector thus con- The government recognizes the need to build the digital tributes to a very small share of the economy, accounting for literacy of the population together with advanced digital skills 3.4 percent of GDP, compared to 5.8 percent in Mauritius, for for a future-ready workforce. Digital skills have been included example. While it would be challenging for Maldives to com- in the official curriculum starting from Grade 1 and all public pete with more established countries such as India and Sri schools have access to the internet. Several higher education Lanka in exporting ICT services, more widespread adoption of institutions also offer degrees in technology-related fields. digital technologies by businesses across the economy would The erstwhile Ministry of Communications, Science and increase the domestic demand for ICT activities. A supporting Technology (MoCST) (under the Ministry of Environment, ecosystem for digital innovation and entrepreneurship is also Climate Change and Technology since May 2021) ran a required. Currently, there are very few support facilities for e-Citizen program for the purpose of building digital literacy start-ups (e.g., incubators,) and those that exist do not appear skills. Still, important gaps remain. Only around 5 percent of to be sustainable. Access to finance for start-ups is also inade- tertiary graduates pursue science, technology, engineering, quate and digital skills are underdeveloped. and mathematics (STEM) programs. Weak foundational skills, and low achievement in mathematics, may discourage youth Maldives can do more to build and develop its digital busi- from pursuing studies and careers in ICT-related fields and nesses. The government should support the digitization of STEM jobs (which tend to require a higher level of ICT skills). small businesses (especially in sectors such as tourism) while In addition, while digital skills were included in the National at the same time building a start-up ecosystem to promote Skills Qualifications Framework, the latter lacks a broader dig- digital innovation. In this regard, it will be critical to improve ital skills framework which could identify the skills necessary broadband connectivity and roll out robust digital finance to citizens at large for accessing and using everyday services. infrastructure. In addition, implementing legislation to secure electronic transactions, protect data and privacy, and Fostering digital literacy among all Maldivians is critical boost cybersecurity will help create a more secure environ- to ensuring that everyone can take advantage of new tech- ment for digital transactions, thus improving transparency nologies in an increasingly digital world. Developing more and confidence in the use of data and digital technologies. advanced digital skills would ‘futureproof’ the local work- The government should also engage with academia and the force, enabling them to leverage new opportunities created private sector to identify specific actions that could be taken by the digital economy. For the government to achieve these to boost digital innovation and entrepreneurship. Focused objectives, a multipronged approach is required including 106 Annex Executive Summaries of Country Assessment Reports (i) the collection of better data on the level of digital literacy to tackle cybersecurity threats, particularly given the increase and skills, (ii) continued support and scale up of basic digi- in such incidents since the onset of the COVID-19 pandemic. tal literacy and upskilling programs, and (iii) investment in market-driven digital economy skills that respond to rapidly Policy Recommendations evolving demands (e.g. cybersecurity). Finally, it is vital to equip the public and private sectors with the necessary tools Based on the analysis above, the following table sets out several high priority policy recommendations for the develop- ment of the digital economy in Maldives. PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Complete the development of the policy and regulatory framework • Build the capacity of the regulatory authority to define and enforce aligned with international good practices regulations including for resource management (e.g., radio • Implement ex ante competition and cross-sector infrastructure- spectrum) and for cross-sector infrastructure sharing, in order to sharing regulations to increase competitive pressure at various encourage investments and competition points of the broadband value chain, with a view to improving the • Define transparent and competitive approaches to mobilize private affordability, coverage, and quality of services capital to connect the outer islands and boost availability of fixed broadband services Platforms • Define clear responsibilities and mandates for various government • Strengthen the legal and regulatory framework to facilitate public agencies service delivery and the operation of private platforms • Define a Digital Government policy that outlines a roadmap for the • Set up core infrastructures (e.g., a national government cloud), as government’s digital transformation efforts well as shared services and platforms (e.g., a single and universal • Engage with stakeholders across public and private sectors, as well identification system) as civil society, to create an integrated institutional governance • Invest in skills for public service delivery framework for digital government Financial services • Develop an infrastructure for interoperable payments and • Test measures (such as digitizing G2P payments and expanding transactions, including for real-time transactions and settlements, access to ATMs especially in the outer islands) to increase financial and facilitate card payments inclusion and close gender gaps • Improve the cybersecurity of financial systems Businesses • Address underlying challenges for digital businesses, including those • Engage with academia and the private sector to identify steps to related to broadband connectivity and digital finance infrastructure boost digital innovation and entrepreneurship Skills • Collect better data on the level of digital literacy and skills • Invest in market-driven digital economy skills that respond to rapidly • Continue to support and scale up basic digital literacy and upskilling evolving demands (e.g. cybersecurity) programs Trust • Define and implement legislation to secure electronic transactions, • Increase awareness of businesses and individuals to ensure a higher protect data and privacy, and boost cybersecurity level of trust in electronic transactions • Equip the public and private sectors to cope with cybersecurity threats 107 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Nepal Nepal has identified the digital economy as a key driver of Nepal will need to address some cross-cutting bottlenecks growth and social inclusion in the country. Households and if it is to develop its digital economy further. The govern- businesses have reasonable access to basic connectivity—a ment should consider the following actions: (i) boost digital good starting point for digital inclusion. However, gaps in inclusion—ensuring that all individuals and businesses have access to affordable broadband remain. Some efforts towards access to affordable, high-speed connectivity and secure digitization have taken hold, but Nepal still lags in adoption digital services—which is currently held back by gaps in and use of digital services by business and government. The coverage and affordability of high-speed connectivity, (ii) UN e-government development index ranks Nepal at 132 expand service delivery, to broaden the use of digital public and of 193 countries. Digital transactions using mobile banking, private services — this is currently hampered by gaps in digital internet banking, and digital wallets all increased during the government infrastructure (e.g., limited data center capac- COVID-19 pandemic, suggesting a greater potential for digital ity), poor coordination among public agencies, institutional financial services. Gaps in access to affordable broadband capacity constraints, limited funding for digitization of public have limited the ability of many people and businesses to use services, limited human resources to support digitization digital technologies to respond to the COVID-19 pandemic, efforts in the public and private sectors, missing foundational thereby negatively affecting digital inclusion. For example, elements (e.g., a foundational ID, digital signatures) and low UNICEF has found that two-thirds of Nepal’s schoolchildren digitization of transactions due to missing digital financial were unable to access remote learning during school clo- infrastructure elements (notably, a national switch to make sures. There is also scope for improvement in the promotion digital payment systems interoperable), and (iii) promote digi- of digital innovation, the use of digital tools by business, the tal innovation by embedding digital technologies in products/ development of a digital start-up ecosystem, and the deliv- services/processes, building digital, higher-level skills and ery of public and private services. Only a few Nepalese firms management expertise among SMEs, and addressing gaps in began using, or increased the use of, digital platforms during the trust ecosystem. the pandemic (19 percent compared with 28 percent in Sri Lanka, 45 percent in Pakistan, 46 percent in Vietnam and 38 Key Findings percent in Cambodia). Nepal could also take steps to improve the trust ecosystem (it currently ranks 94th among 181 countries in the 2020 Global Cybersecurity Index), notably by DIGITAL CONNECTIVITY strengthening personal data and consumer protection. Nepal has done well in terms of ensuring access to basic con- nectivity; estimates suggest that about 75 percent of Nepal’s The Government of Nepal is keen to develop its digital econ- population uses the internet. There are about 18 million omy and reap the associated benefits. Nepal’s vision for digital mobile internet and broadband subscriptions (equivalent development is outlined in the Digital Nepal Framework to about two-thirds of the population) and around 7 million (DNF), a comprehensive digital development strategy adopted fixed broadband subscriptions. However, access to fixed line by the Government in 2019, which covers the various foun- networks and higher-speed connectivity is limited outside dations and sector use cases. The DNF aims to digitize urban areas, and mobile networks remain the primary means eight sectors (e.g., health, education, agriculture) through 80 of connectivity in Nepal. All 77 districts of the country now different initiatives. The planning commission has identified have some level of basic internet connectivity. Despite this the DNF as a game-changer program, and the government recent progress, broadband usage in Nepal remains underde- has sought implementation assistance from The World Bank. veloped with limited coverage outside large cities. Prices are The private sector and civil society also recognize the need unaffordable for many and coverage and reliability of services for inclusive digital development. There is interest from the is poor, leading to persistent gaps in adoption and use of private sector to play a more-strategic role, building on invest- services. An entry-level mobile broadband package is about ments in digital connectivity, digital financial services, and 2.75 percent of GNI per capita, which is higher than the 2 e-commerce platforms. 108 Annex Executive Summaries of Country Assessment Reports percent threshold for affordability. The cost for a fixed-broad- mountainous areas), rationalizing taxes and fees to reduce the band basket with monthly data usage of (a minimum of) 5 GB burdens on lower-income consumers, and improving access stands at 2.30 percent of GNI per capita, which is also beyond to devices for rural and low-income households and individu- the affordability threshold of 2 percent. In addition, handset als, and (4) accelerating the deployment of infrastructure and prices remain expensive, with Nepal ranked 115th out of 134 supporting ongoing rural telecommunications development countries in terms of device affordability. The high price of programs. devices (especially smartphones), high customs tariffs, and user reluctance to adopt smartphones due to lack of digital DIGITAL PUBLIC PLATFORMS literacy, contributes to these digital access gaps. The develop- ment of the broadband market in Nepal is also curtailed by the The digital delivery of public services has been improving in fact that there is limited competitive pressure on the market Nepal over the past decade, with the Government playing an to drive investment and innovation. Nepal has six national active role in designing and implementing services. However, mobile network operators. However, the lion’s share of the the quality of online services needs significant improvement. market (94.5 percent) is held by just two operators, effectively The majority of digital government platforms are infor- creating a duopoly. And while Nepal has around 40 Internet mational and offer limited interactional and transactional Service Providers (ISPs) providing internet and network services. Nepal is among the five least-developed countries in services, these are primarily focused on urban areas. This is e-governance, far behind most South Asian countries on the due to the potential of better returns in urban areas, but also e-Government Development Index (EGDI) of 2020. The lack to persistent barriers to market entry. For instance, the limited of quality online services results in low adoption of e-gover- infrastructure sharing and coordination between telecom net- nance and low public participation in e-decision making, as work providers and other linear infrastructure providers (e.g., reflected in the e-participation index. energy and transport) does not encourage new players to enter Key elements of the foundations for digital public platforms the market. Moreover, there are various regulatory and policy are still missing. Even though Nepal took its first step towards barriers, including an outdated legislative framework, weak creating a National ID in 2011, the conventional paper-based enforcement of laws and regulations, and complex licensing Citizen Certificate continues to serve as the National ID. The schemes. Various taxes, fees, and duties also increase the proposed new digitalized National ID is only in its pilot phase. costs of service provision and the price for services: there are This effects of this gap are being felt intensely across the fees for renewal of mobile licenses paid by service providers country. After the April 2015 earthquake, rescue and relief and taxes on phone calls. Nepal’s national backbone network efforts were severely hampered due to the absence of identi- and supporting infrastructure has expanded but gaps persist fication and the lack of a functional database of households with some major projects remaining incomplete. The lim- with socio-economic information. Moreover, data protection ited reach of middle mile fiber networks affects quality and and cybersecurity issues need to be addressed through an affordability of services, especially internet services. Finally, appropriate and enabling legal framework. Nepal has adopted as a landlocked country, Nepal faces some additional costs in digital signatures, but while various initiatives have been taken connecting to global telecommunications networks; prices of to promote the usage and adoption of digital signatures, it is wholesale data services are much higher than in neighboring yet to be widely adopted, owing mainly to limited infrastruc- countries. ture. Yet another challenge is that public services and systems The government of Nepal could boost access to affordable are not currently interoperable. The Government Enterprise digital connectivity by taking the following measures: (1) Architecture (GEA) was defined in 2011 but has yet to be increasing competitive pressure on the market, through the implemented. Only a handful of government departments enforcement of regulations and licensing conditions on all or public agencies host data in the Government’s data center networks including rollout obligations, and infrastructure (GIDC) rather than in their own small server environments. sharing (among networks and across sectors), (2) updating the The government has formulated its Nepal e-Government telecommunications legislative framework to align with inter- Interoperability Framework (NeGIF), but there is little aware- national good practice and to respond to emerging technology ness of the framework, and therefore, implementation has and business trends, (3) implementing measures to support been limited. digital inclusion, such as programs that de-risk private invest- There are several constraints to the development of digital ments in less commercially-viable and high-cost areas (e.g., public platforms in Nepal. First, departments work in silos 109 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives and thus the approach to digitalization has been largely with a surge in the number of users across mobile financial fragmented. Second, a lack of proper planning, implementa- services. Nepali businesses have started promoting online tion, and monitoring has led to project overruns, delays, and payment gateways and providing exclusive offers on digital slow utilization of allocated funds. Third, individual govern- payments. However, several challenges remain. At present, ment bodies develop their own independent applications more than half of Nepal’s adult population does not have a and platforms, leading to issues of data quality, security, and bank account, and a fifth are completely financially excluded redundancies. Finally, Nepal’s policy and regulatory frame- (not using either formal or informal financial services). There works are undergoing only gradual updates; a major policy is also a significant gender gap across Nepal in account cov- focus on faster implementation and adoption of e-governance erage and use: 58 percent of women, and 50 percent of men, seems to be lacking. are unbanked. This is due not only to insufficient funds, but also to the lack of trust and confidence on the part of custom- Public service delivery in Nepal could be enhanced through ers, coupled with inadequate financial and digital literacy. the following measures: (1) strengthening the legal and reg- The latter is exacerbated by difficulties in access and gaps in ulatory framework for digital development across all three coverage in remote and rural areas. In addition, the lack of tiers of the government for a deeper and wider outreach of know-your-customer (KYC) documents and largely complex digital government initiatives, (2) prioritizing the rollout of the processes make customer onboarding cumbersome. In order national ID system in line with international good practice, to enhance the use of alternate last mile delivery channels, the universal coverage and inclusion (e.g., addressing gender bar- central bank (Nepal Rastra Bank or NRB) has been gradually riers), advancing data protection, and supporting high impact moving away from a bank-only to a branchless banking (BLB) use cases such as service delivery in healthcare, education, approach. In addition, NRB is also supporting the develop- and social protection, (3) building secure and interoperable ment of the retail payment infrastructure of Nepal, building digital government platforms, encouraging a data sharing trust and enabling people to switch from paying cash to culture across government, and building government capacity paying electronically. To promote innovation and strengthen to deliver solutions (e.g., a social registry for targeted social digital payments, 38 non-bank institutions have been licensed assistance), and (4) boosting cybersecurity readiness across by the NRB to operate as Payment Service Operators (PSOs) the government and private sector. and Payment Service Provider (PSPs). Contactless payment services, like QR code payments, have seen wider adoption DIGITAL FINANCIAL SERVICES during the pandemic. Nepal is still in the process of develop- There is an important opportunity to scale up Digital ing a National Payment Switch, which would make payment Financial Services (DFS) in Nepal. The distribution of systems interoperable. It should be noted that banks and financial products and services is highly uneven and skewed financial institutions have been paying a hefty price for digital in the country, with a high concentration in urban areas and transactions through international payment gateways. Digital low concentration in rural areas. The mountainous and hilly transaction limits imposed to manage the risks of mon- terrain makes it challenging for brick-and-mortar financial ey-laundering have also been an obstacle to digital payment services deployments, mainly because of low population adoption in Nepal. In this context, plans are underway to density, poor connectivity, infrastructure-related challenges, develop an international payment gateway within the country. and the high operating costs of financial institutions that use Nepal does not yet have a Regulatory Sandbox, which would traditional products and channels. DFS can thus play a major be a critical mechanism for encouraging innovation in DFS role in implementing the Nepal Financial Inclusion Roadmap while facilitating compliance with, or flagging the need for, that serves as a guide to financial inclusion initiatives in the a change in regulations. As digital data becomes integral to country. Coverage, adoption, and usage of digital banking transactions, stakeholders have expressed concerns about instruments are also low but have witnessed some growth personal data protection as well as the weak cybersecurity of in the last three years, indicating untapped potential. There financial service providers, whose numbers are on the rise. are 7.6 million debit cards and 169 thousand credit cards in Nepal could boost adoption and use of DFS through a combi- circulation, approximately 11.7 million mobile banking users, nation of measures, including the following: (1) accelerating and 1.05 million internet banking users. In the last three the development of core digital financial services infrastruc- years, the number of mobile banking users has quintupled. ture, such as the national payment switch and international The COVID-19 crisis has revealed a willingness to embrace payment gateway, (2) boosting digital financial access and DFS. Digital transaction volumes have risen manifold, along 110 Annex Executive Summaries of Country Assessment Reports literacy, e.g., through awareness campaigns to educate and and institutional capital capacity is limited. A policy frame- build trust, and nationwide programs aimed at providing a work for supporting digital businesses and start-ups across formal banking account to the financially excluded, and (3) sectors is sorely needed, including frameworks for data pri- strengthening cybersecurity and personal data protection vacy and foreign investments, which could attract investors. policy and regulations (with implementation in the financial Without a legal framework for Alternate Investment Funds sector a priority). (AIF), PE and VC funds have to operate in quasi-corporate structures with complicated shareholding and governance structures. Put together, these factors hinder the establish- DIGITAL BUSINESSES ment and growth of digital start-ups, despite the country’s Digital businesses are a key pillar of Nepal’s digital economy proximity to two of the largest consumer markets in the world. and hold great potential for economic growth, employment, Greater coordination between regulators and government wealth creation, and improved living standards. As of August departments is also needed. 2019, there were more than 350 active start-ups in Nepal across different sectors, such as software as a service (SaaS), To build, support and grow its digital businesses, the govern- online travel, health, education, real estate technology, e-com- ment of Nepal could take the following actions: (1) create an merce, and so on. There are also a number of established inter-governmental (cross-sectoral) working group to develop digital businesses, like homegrown firm F1Soft, a fintech policies and regulations in support of digital businesses, nota- company providing transaction services to banks and financial bly with the aim of developing a single window approach, (2) institutions. Other examples include local subsidiaries of for- usher in regulatory and fiscal reforms related to local capital eign-owned firms such as LogPoint, a cybersecurity company formation that encourage investment from global and regional with a development center in Kathmandu. Nepal scores lower early-stage equity capital providers, (3) improve access to than India, Pakistan, Sri Lanka, and marginally higher than early-stage financing through passive government support Bangladesh, in the Digital Entrepreneurship Index. Digital for Seed Funds, VCs, and PE, including for example, through businesses have only recently begun emerging in the country, a fund of funds (FoF) or investment matching program to with many new technology start-ups focusing on areas like anchor and catalyze domestic and foreign flows into the education, fintech, and e-commerce. However, the growth of market, (4) develop a supportive tax regime to incentivize VCs digital start-ups is expected to accelerate in the next five years. whilst putting into place consumer safeguards and rules for Nepal’s e-commerce sector is valued at close to US$30 million investor protection, and (5) Facilitate the adoption of digital and is experiencing a growth of more than 40 percent per tools and technologies for medium-sized enterprises through year. Even so, e-commerce is still nascent, with limited retail skills development, access to finance, and advisory support. infrastructure to support digitization, and few digital payment options. There are also several barriers to the entrance of large DIGITAL SKILLS multi-national digital firms in the country, including the lack Despite the fact that internet penetration rates are on the of a large digitally skilled workforce, difficulty in establishing rise, the uptake of essential digital services is low In Nepal, operations, issues relating to remittances and international due primarily to inadequate digital literacy. There is currently payments. A good example is Airbnb, which made its online little systematic data on the demand for digital skills in the vacation marketplace available in Nepal, only to face signifi- country, but available indicators point to a low level of digital cant challenges in transferring rental income to its local hosts skills in the population. In the absence of reliable estimates, through international transactions. select employment and labor market indicators in the ICT Nepal has around 35 incubators and accelerators programs sector have been considered. Nepal ranked 105th (out of 141 along with approximately 15 co-working spaces and nine countries) in the Global Competitiveness Index (GCI) for Venture Capital and Seed Funds. However, given the lack ‘digital skills among active population’ with a score of 44.5, of venture capital firms in the country and an insignificant compared to the score of the best-performing country of 80.5. angel ecosystem, Nepal’s entrepreneurs and start-ups still face The Nepal Labour Force Survey 2017-2018 estimated that significant difficulties in accessing risk capital. The availability only 0.9 percent of employed Nepalese work in the informa- of venture capital and private equity funds is limited due to tion and communications industry. The emerging ICT sector restrictions on foreign sources of funds, but also because exit remains a crucial driver for a digitally competent workforce. options have not been made easy (including IPOs). Moreover, Nepal’s IT and IT-enabled BPO services are its fastest-grow- there is no specific legal and regulatory framework in place ing service exports, similar to the situation in neighboring 111 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives India and Bangladesh. The Investment Board reports that (2020) estimates that, due to COVID-19, nearly 8.7 million there are approximately 500 IT companies in Nepal, some students in Nepal have experienced school or university of which have more than 300 employees. With the devel- closures. A significant share of these students are likely to be opment of appropriate digital skills in the population, Nepal adversely affected; it is estimated that a mere 13 percent of could position itself as a sizable talent pool in the global digital schools are offering online classes (due primarily to limited economy. Government initiatives highlight significant interest infrastructure). As mentioned above, teachers often lack the in digital skills development across the economy. For exam- necessary skills to conduct online courses and this has further ple, under the new national curriculum (which is expected to exacerbated the problem. Only one percent of public-school be fully rolled out within 5 years of its adoption), ICT will be teachers are estimated to be running online classes. introduced as a core Science and Technology subject as early Nepal can continue to improve skill levels of its existing work- as the sixth grade. However, the lack of quality learning at force while investing in its future workforce. The government the primary level is the basis for the poor foundational digital should consider taking the following actions to boost digital literacy at the school level. Inadequate digital infrastructure skills in the country: (1) organize skilling initiatives at different and human resources further hinder digital skilling. As per the levels of the education system (from school to adult continu- 2021 Education Sector Analysis (forthcoming), only 34.7% of ing education), (2) introduce digital literacy at an early age in public schools have electricity, 28.3% have computer facilities schools, deliver necessary training for teachers and ensure a and 12.4% use computers in learning activities. There are minimum level of digital infrastructure access in schools, (3) important differences in the levels and quality of infrastruc- create a Digital Skills Development Fund to drive market-rele- ture between rural and urban areas (mainly Kathmandu). In vant digital skilling. line with the ‘Digital Nepal’ agenda, training teachers to teach digital skills will be critical. Teachers at public schools and universities have inadequate technical, content, and pedagog- Policy Recommendations ical support, combined with poor IT awareness. Indeed, the Based on the above analysis, the following table sets out advent of COVID-19 has accentuated the drawbacks of the several high priority policy recommendations for the develop- school system and made education less accessible, leading to ment of the digital economy in Nepal. an increase in the number of out-of-school children. UNESCO PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Increase competitive pressure on the market, through the • Implement measures to support digital inclusion such as programs enforcement of regulations and licensing conditions for all networks that de-risk private investments in less-commercially-viable and (including rollout obligations), and through infrastructure sharing high-cost (e.g., mountainous) areas, rationalizing taxes and fees to (among networks and across sectors) reduce the burdens on lower-income consumers in particular, and • Update the telecommunications legislative framework to align with improving access to devices for rural and low-income households international good practice and respond to emerging technology and individuals and business trends • Accelerate the deployment of infrastructure with the support of ongoing rural telecommunications development programs Platforms • Prioritize rollout of the national ID system in line with international • Strengthen the legal and regulatory framework for digital good practices, notably universal coverage and inclusion (including development across all three tiers of the government for a deeper the removal of all gender barriers), whilst ensuring data protection, and wider outreach of digital government initiatives and supporting high impact use cases (e.g., strengthening the • Build secure and interoperable digital government platforms, delivery of services such as healthcare, education, and social encourage a data-sharing culture across government, whilst building protection) government capacity to deliver solutions (such as a social registry to enhance targeting of social assistance) Financial services • Accelerate the development of core digital financial services • Boost digital financial access and literacy, including through infrastructure, such as the national payment switch and international awareness campaigns to educate and build trust payment gateway • Implement a nationwide program to provide formal banking accounts to the financially excluded population 112 Annex Executive Summaries of Country Assessment Reports PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Businesses • Create an inter-governmental working group to develop policies and • Adopt regulatory and fiscal reforms related to local capital formation regulations to support digital businesses (given their often cross- that encourage investment from global and regional early-stage sector nature) with the aim of developing a single window approach equity capital providers • Improve access to early-stage financing through passive government support for seed funds, VCs, and PE, e.g., capitalizing a fund of funds (FoF) or investment-matching program to anchor and catalyze domestic and foreign flows into the market • Develop a supportive tax regime to incentivize VCs, while ensuring consumer protection safeguards and investor protection rules • Facilitate adoption of digital tools and technologies for medium- sized enterprises through skills development, access to finance, and advisory support Skills • Introduce digital literacy at an early age in schools, while also • Organize skilling initiatives at different levels of the education ensuring the necessary training of teachers and a minimum digital system (from school to adult continuing education) infrastructure for the required outcomes • Create a Digital Skills Development Fund to drive market-relevant digital skilling Trust • Strengthen cybersecurity and personal data protection policies, • Boost cybersecurity readiness across the government and the regulations, and implementation, with the financial sector as a private sector (and across various sectors, including healthcare, priority education, utilities, and financial services) 113 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Pakistan The government of Pakistan is strengthening its digital literacy to take advantage of digital services and by develop- economy which it views as an enabler of both social inclusion ing a regulatory framework to protect data and privacy, with and economic growth. The Digital Pakistan Policy of 2018, adequate cybersecurity measures; and (iii) foster institutional and associated ‘Digital Pakistan’ program, announced by the strategy and coordination, across agencies and levels of gov- Prime Minister’s Office in 2019, is a high-level framework to ernment, to define ambitious yet practicable targets in order to improve access to the internet, digitize the government and maximize the impact of efforts to digitize public services. public services, build digital skills, and promote innovation and entrepreneurship. Two provinces have also defined digital Key Findings policies with similar themes.77 Looking to the future, Pakistan will need to further bolster each of the five digital economy foundations of infrastructure, platforms, financial services, DIGITAL INFRASTRUCTURE businesses, and skills, to achieve its goals. The country will While Pakistan’s digital infrastructure has seen impressive also have to tackle its legal and regulatory frameworks, as well growth, the country is lagging other developing countries in as the cross-cutting themes of trust, cybersecurity, inclusion terms of internet quality and adoption. Pakistan is a mobile- and women’s empowerment. Establishing the foundations of first market, with digital services being accessed primarily a digital economy will support a resilient recovery, ensure that through mobile connectivity. About 44 percent of people use benefits of digitization are available to all, and mitigate the the internet, but fixed broadband penetration remains around associated risks. 1 percent—lower than most South Asian countries—while mobile broadband penetration is reported at 43 percent. A strong digital economy would help Pakistan boost innova- There is also evidence of an internet-use divide between male tion and productivity, create employment opportunities for and female populations (21 percent vs. 12 percent); rural and youth, and generally “build back better” following the COVID- urban populations (28 vs 10 percent); and education levels (67 19 crisis. Improved broadband connectivity and access will percent of graduate-level vs 8 percent of primary-level), which give more people opportunities to learn and find jobs, and serve as a proxy for other socio-economic indicators more firms opportunities to integrate with the regional and global economy. Building on some of its existing foundations, Although Pakistan has some of the lowest mobile data rates such as a robust identification system and digitization of in the world, fixed broadband prices are significantly above public and financial services, Pakistan could overcome spatial the affordability threshold. This, along with the high cost of and demographic disparities while also improving governance internet-enabled devices (due in part to taxes), continues to and expanding access to service delivery. Legal reforms will be the biggest impediment to the digital economy, combined improve the business climate and create incentives for firms with low general and digital literacy. The quality and speed of to tap into digital opportunities to grow and innovate, which in connectivity is also poor, with Pakistan ranking 112th of out turn will boost productivity and create new jobs. 145 countries in mobile connectivity speeds, and 159th out of 175 countries in fixed connectivity speeds. Quality remains For Pakistan to fully reap the benefits and opportunities of a suboptimal due to the limited deployment of high capac- digital economy, a number of cross-cutting bottlenecks need ity (fiber optic cable) networks at the national level and in to be addressed. To do so, the government should consider downstream segments. For example, more than half of Union the following actions: (i) ensure that the digital economy is Councils (the smallest administrative unit in Pakistan) do not inclusive for all Pakistanis regardless of age, gender, socio-de- seem to be connected to fiber. Network deployment in the mographic status, and geography, in terms of having access last mile (access) networks is also uneven across the country: to digital tools and services; (ii) build a trusted digital ecosys- multiple players are deploying fiber in parallel in select areas tem, notably by ensuring that the population has basic digital of Tier 1 cities, while there is almost no deployment in Tier 2/3 77 See Khyber Pakhtunkhwa Digital policy 2018-2023 and Punjab IT policy 2018. 114 Annex Executive Summaries of Country Assessment Reports cities. There is limited sharing of infrastructure across market injected urgency, leadership, and purpose into efforts to segments, which restricts international connectivity, leads to digitalize government services. Importantly, Pakistan already high costs for network rollout, and creates barriers to entry has a relatively strong foundational identification system and for new and small network operators. Innovation in wireless the National Database and Registration Authority (NADRA) broadband is also being held back. Pakistan has one of the has ambitious plans to take the system to the next level, e.g., lowest levels worldwide of total spectrum allocations for wire- through the development of a decentralized digital identity less broadband services. License renewal disputes have also wallet. The government was also able to successfully use arisen, creating regulatory uncertainties that affect the overall digital technologies as part of the health and social protection investment climate. response to COVID-19. Pakistan should re-define bold targets for digital connectiv- These assets can serve as a launching pad for Pakistan to ity with a view to creating a solid foundation for a vibrant develop digital public platforms in ways that are integrated and inclusive digital economy. As part of its efforts to ensure and inclusive, and promote the transparency and efficiency widespread access to high-quality and affordable broadband, of government. This would then enable the public and private the government should consider the following four high-pri- sectors to innovate and build relevant services on top. In order ority reforms: (1) a more effective regulatory approach to to realize this opportunity, Pakistan could set up an apex body broadband cost reduction, including easing access to rights or organization that would develop and enforce policy and of way and promoting infrastructure sharing, (2) improved coordination for digital public platforms. Ideally, this body management of the radio spectrum, essential for better wire- should sit at the highest levels of the federal government, and less connectivity, (3) reduced tax rates on telecommunication could also be replicated at the provincial-level. Second, the services as well as import duties on smartphones and telecom- Digital Pakistan vision should be translated into detailed plans munication network elements, and (4) increased coordination and frameworks, especially coherent federal and provincial among different government departments for the purpose of enterprise architectures and e-government interoperability identifying opportunities to boost competitive pressure in the frameworks. Third, the identification ecosystem needs to be market. In parallel, the government should identify mecha- reformed to make it financially sustainable without charging nisms to overcome gaps in network deployment and digital fees to citizens and service providers. Provincial civil regis- adoption due to financial barriers. It should also consider tries should be strengthened and linked with NADRA, which using the resources of the universal service fund to address currently issues child registration certificates that are dupli- these specific market failures. cative of birth certificates. Fourth, priority should be given to enacting the country’s personal data protection law, after aligning it with international best practices, and building the DIGITAL PUBLIC PLATFORMS necessary institutional capacity for its effective supervision Digital public platforms in Pakistan are currently weak, and enforcement. Fifth, a high profile ‘Pakistan stack’ , or gov- with the country ranking 153rd in the UN e-Government ernment-wide digital integration layer, should be launched to Development Index, 2nd last in the South Asian Region integrate identification, payments, and personal data. Finally, (ahead of Afghanistan but 19 spots behind Nepal). There is all of these efforts should be designed with inclusion as a core little harmonization between agencies and systems at the philosophy to ensure that no one in the country will be left federal-level, between federal and provincial governments, and behind. between provincial governments. Very few services are fully digitalized, meaning that manual or physical intervention is required at some step in the process. Barriers for accessing DIGITAL FINANCIAL SERVICES digital government services, especially connectivity, remain The majority of Pakistanis lack access to any banking services a significant challenge, especially for poor and remote com- including formal credit options; three in four Pakistani adults munities, women and girls. Data sharing and interoperability (75 per cent) are financially excluded. The divide is even more across government has been very limited. Resources at both stark when viewed from a gender angle: men are more likely federal and provincial levels are spread too thin, with too to have a bank account compared to women. On the financial many peripheral projects of uncertain value. inclusion front, Pakistan has underperformed comparable countries in the region (the South Asian average is 68.4 Nevertheless, there is growing political will and momentum percent) and other lower middle-income countries (whose towards positive change. The Digital Pakistan program has average is 56.1 percent). The sector also faces certain inherent 115 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives operating environment obstacles such as the informality of the services are one of the fastest growing sectors in Pakistan economy, low financial literacy, and a gender gap in economic today. More than 7,000 IT companies are contributing participation. about USD 2.6 billion to the economy. IT and ITeS exports have increased to USD 1.44 billion in FY20. E-commerce Not surprisingly, digital financial services are also underde- in Pakistan is also rapidly expanding and is now a PKR 230 veloped. Digital payments only account for 0.2% of Pakistan’s billion market annually, dominated by multi-retailer platforms. ~100 billion transactions, whereas the share of digital trans- Around 720 start-ups have been established since 2010, 67 % actions in peer countries ranges from 1.5% to 7%. Merchant of which are still active. acceptance of electronic payments is not widespread (less than 5%), and e-commerce is skewed towards Cash-on- While there has been growth, it has been from a low starting Delivery (CoD). In addition, there is a near absence of other point and the country’s IT sector exports still underperform digital financial products such as insurance, savings, invest- compared to regional competitors such as India, Sri Lanka, ments and credit. or Bangladesh. Most of Pakistan’s exports are made up of low value-added software services, or services such as call A key opportunity point for the proliferation of DFS in centers in the BPO segment. 75% of start-ups target only the Pakistan is the high penetration of mobile services (84%), high local market. The government of Pakistan has taken steps to coverage of the national ID, and the biometric verification improve the enabling environment for digital businesses and services available at the retail level. Financial institutions (pro- entrepreneurs including the creation of a support network for viders of digital payment services) have difficulty connecting start-ups, 16 incubators and 4 accelerators providing business to each other due to a lack of a centralized infrastructure. The programs, coaching, mentorship, and co-working spaces. lack of a Unified Payments Interface (UPI) and high transac- The government has also built 14 software technology parks, tion costs for payments discourage the widespread adoption of providing purpose-built technology facilities on govern- digital payments. ment-owned lands. There is evidence of emerging interest in the FinTech start-up The enabling environment for digital businesses can improve space. However, incubators see very few DFS entrepreneurs further, notably through improved access to finance (including due to the perceived regulatory complexity and lack of col- the development of a digital credit scoring registry, and better laboration platforms for FinTechs and incumbents. Finally, access to VC funding). More regulatory reforms are needed to poor user experience and lack of sufficient data protection and boost digital businesses in the country, with a focus on intel- authentication mechanisms further curtail adoption. lectual property rights enforcement, inconsistent tax regimes Digital financial services can be accelerated through a mix and high import duties on IT products. Joining the WTO’s IT of regulatory measures and investments. The government Agreement (ITA) would also be helpful for the abolishment of should consider taking regulatory measures for the interoper- certain import tariffs. More innovation in cloud services and ability of payments, financial consumer protection, as well as infrastructure is also needed. In this context, it is important to transaction security, which could support a cross-cutting trust establish effective cloud policies and enabling regulations that ecosystem. Other measures to consider include the creation protect data, support infrastructure development, and do not of an innovative credit registry (such as one based on utility restrict the cross-border flow of data. To strengthen Pakistan’s bill payments for instance) that can support the development position in e-commerce, consumer protection in online of digital micro-lending. The creation of a dynamic regulatory marketplaces would need to be strengthened. The absence of regime for FinTechs (such as a sandbox) could help respond to mechanisms to return faulty products, and re-export to for- a fast changing DFS landscape. The Government might also eign marketplaces, represents a key bottleneck, together with consider expanding the National Financial Literacy Program the absence of international payment service providers on the and accelerating the digitization of government payments, as market (such as PayPal). Recent work by the government on ways to increase the adoption of digital financial services. a National Single Window for e-commerce transactions may help improve the situation. Additionally, the registration of DIGITAL BUSINESSES Pakistani sellers with Amazon has recently started and is now expanding. There are encouraging trends for Pakistan’s digital economy in some areas of private sector development. IT and ITeS 116 Annex Executive Summaries of Country Assessment Reports DIGITAL SKILLS expansion of high-speed broadband access and the country’s young population (under-35s generated 77% of the revenue Pakistan has a poor adult literacy rate (60%) and the world’s in 2019), the services of Pakistani freelancers have become second-highest number of children not attending school attractive in both domestic and international markets. (equivalent to 44% of the age group population). The World Economic Forum’s Global Competitiveness Index (GCI) for Fostering the development of skills in support of the digital 2019 ranks Pakistan 132 of 140 economies in terms of skills, economy will require a two-pronged approach. First, the behind all other South Asian countries measured. The lack of government should make basic digital skills training widely basic skills amongst citizens is impeding digital adoption and available in order to enhance the inclusion of Pakistan’s illiter- hindering the development of the digital economy. Only 8% ate or untrained population. Second, the government should of the population uses computers or computerized devices. establish concrete programs to support the country’s emerg- Half of these computer users can only perform basic func- ing IT sector. These can include on-the-job training for various tions such as sending emails, and just a quarter can perform IT skills as well as more advanced software development tasks using basic office software such as spreadsheets or skills, programming, and web applications. The government presentations. should also consider additional measures to support its digital economy, such as the provision of workspaces, faster internet Significant disparities exist in basic digital literacy, be it across at reasonable costs, and reliable electricity. rural-urban, provincial, income and gender. As the low level of education and skills in the country is a key bottleneck for economic development, recent progress in growing a domestic Policy Recommendations IT sector is widely considered to be a significant opportunity Based on the above analysis, the following sets out several for Pakistan. The emerging, export-centric, ‘virtual freelanc- high priority policy recommendations for the development of ing’ opportunity is one that Pakistan is keen to seize. Fueled the digital economy in Pakistan. by improvements in scientific and technical education, the PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Define new and bold targets for digital connectivity, in line with • Mobilize private investments for the fixed broadband backbone to global digital leaders, broken down into federal and provincial benefit 2nd and 3rd tier cities targets • Clarify policies and regulations for radio spectrum, including for 5G • Define regulations to implement broadband cost reduction, services, in order to ensure long-term investor confidence including easing access to rights of way, and promoting • Rationalize taxation on telecommunication services infrastructure sharing • Increase coordination among different government departments to identify opportunities to boost competitive pressure in the market Platforms • Consolidate government systems into a common shared • Develop a higher degree of collaboration and coordination between infrastructure (digital integration layer) with high availability and federal and provincial governments disaster recovery back-up (G-cloud) • Adopt an open data initiative • Improve interoperability of public platforms and services, including through the development of shared infrastructure (such as data centers) to support sector applications in health, education, and transport, and consider a “digital twin” approach emanating from a single enterprise architecture • Use Pakistan’s ID program to support a wider range of digital services 117 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Financial services • Take regulatory measures to ensure the interoperability of • Expand national financial literacy programs, focusing on women and payments, with a view to strengthening financial consumer social minorities protection, and developing a secure transaction framework • Accelerate the digitization of government payments • Establish an innovative credit registry (such as one based on utility bills payments, etc.) that can help in the development of digital micro-lending • Create a dynamic regulatory regime (such as a sandbox) for FinTechs to respond to the regulatory requirements of a fast- changing DFS landscape Businesses • Implement reforms on intellectual property rights enforcement, as • Enable better access for start-ups to private sector finance well as rationalize tax regimes and high import duties on various IT (including the development of a digital credit scoring registry, and products better access to VC funding) • Strengthen consumer protection and dispute resolution mechanisms for online marketplaces, and integrate an international payments platform Skills • Support a private sector led demand assessment of digital skills at • Increase the use of technology in education all levels to inform higher education and training design • Increase basic digital skills training programs for illiterate or untrained populations • Launch concrete support programs for the emerging IT sector Trust • Finalize and enact the Personal Data Protection Bill as a milestone in • Define a comprehensive mechanism for the identification of Critical data protection, after alignment with international best practices Infrastructure • Operationalize the national level CERT and ensure an effective • Enhance cybersecurity skills supply through formal and informal handling of cyber incidents education channels • Expand international partnerships, adopt internationally recognized standards (such as the Budapest Convention on Cybercrime), and seek bilateral agreements to facilitate knowledge exchange and upgrading 118 Annex Executive Summaries of Country Assessment Reports Sri Lanka By enhancing the foundations of its digital economy, Sri geography; (ii) countering the effects of market concentration Lanka could achieve its ambition of becoming a ‘technolo- through appropriate regulation in the areas of digital infra- gy-based society’ and bring about “a technological revolution structure, digital financial services (DFS), and competition across all sectors.”78 The President’s Manifesto seeks to policy; (iii) building a trusted digital ecosystem, through a develop national digital connectivity infrastructure, digitize regulatory framework for data protection and privacy coupled education and public service delivery, build digital skills, and with appropriate cybersecurity measures, but also by ensuring promote innovation and entrepreneurship. To achieve this, that the population has basic levels of digital literacy to take the government should adopt a strategic approach covering advantage of the digital services on offer; and (iv) ensuring the five key foundations of infrastructure, public platforms, institutional coordination to maximize the impact of efforts to financial services, businesses, and skills. To ensure that every- digitize public services and promote digital businesses. one can reap the benefits of the digital economy, cross-cutting aspects such as the trust environment, appropriate legal and Key Findings regulatory frameworks, and opportunities to empower women will also have to be addressed. By focusing on these key foundations, the government will be in a position to support a DIGITAL INFRASTRUCTURE resilient recovery while mitigating associated risks. Widespread access to affordable and high-quality broadband services lies at the heart of a successful digital economy. Sri Lanka can leverage its digital economy to address spatial Without it, access to online learning, e-commerce, and public disparities, reduce barriers to trade, and close gaps in service services are restricted. In Sri Lanka, internet use amongst delivery. Digital advances can help the county “build back people aged 5-69 stood at 30.3 percent in the first half of better” after a crisis. Expanding broadband connectivity can 2019; this is lower than many countries with similar levels improve inclusion of marginalized groups in the rural parts of of GNI per capita. Moreover, internet use was uneven across the country where pockets of extreme poverty persist. Digital geographies and demographic groups. Individuals in urban entrepreneurship offers growth opportunities for Sri Lanka’s areas were 23 percent more likely to be internet users than large domestic, traditional MSME sector and could help their rural counterparts in 2018. Similarly, important gender MSMEs link into export value chains beyond the shores of Sri gaps exist: men were 34 percent more likely to be internet Lanka. Finally, embracing digital technologies can help reform users than women. The adoption of broadband, be it fixed or the country’s sizeable public sector (which is mainly using mobile, is also limited. Only 28 percent of the population has traditional and legacy operating methods) towards better 4G mobile broadband connectivity (compared with 98 percent service offerings for citizens and businesses, with less bureau- in Thailand, 36 percent in Vietnam, and 51 percent in India). cracy and red tape. As the global economy recovers from the Only a third of households have fixed broadband connec- COVID-19 pandemic, these foundations will support innova- tions, compared with half in Thailand and almost two-thirds tion and new modes of service delivery by both businesses in Vietnam. And even though prices seem affordable when and government, while boosting the capacity for people to viewed in global terms, average mobile broadband services access markets and safety nets in the event of future shocks. remain unaffordable for the bottom 60 percent of the popu- To develop its digital economy further, Sri Lanka needs lation, at more than 2 percent of GNI per capita. There also to address some important cross-cutting bottlenecks. In limitations regarding the speed and quality of connections. this context, the government should consider the following Sri Lanka ranked 121st out of 141 countries in mobile broad- high-priority actions: (i) ensuring that the digital economy is band speed, and 107th out of 175 in fixed broadband speeds inclusive for all (through access to digital tools and services), (in February 2021). With an average fixed broadband speed regardless of age, gender, socio-demographic status, and of 29 Mbps, only a small share of households would be able to 78 President of Sri Lanka, Manifesto: Vistas of Prosperity and Splendour, 2019 119 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives access a mix of learning, telework, and public services online services: in 2019, only a third of adult internet users made during this and future pandemics. use of online government services such as obtaining infor- mation or performing transactions. Sri Lanka’s foundational The poor market outcomes in terms of digital infrastructure is identification system is well-established and covered 93.5% of likely due to the limited competitive pressure on the market. adults in 2017. However, the system does not offer authenti- Most market segments are dominated by the two largest cation services nor is it fully connected with the civil registry. service providers, with some programs being implemented by Furthermore, there are small disparities in coverage among the incumbent Sri Lanka Telecom without any competition at women and youth. all. The government should therefore reform the telecommu- nications regulatory framework as follows: (1) identify areas of The ICTA is spearheading two exciting projects as part of its weak competition in the value chain and define appropriate ex philosophy to embrace the ‘digital stack’. First, the Sri Lanka ante competition regulation measures, (2) implement mea- Unique Digital Identity (SL-UDI) program intends to be an sures to reduce the costs of broadband network deployment authentication and minimal data layer built on top of the exist- including through infrastructure sharing, and (3) allocate ing foundational identification system, enabling public and limited resources, such as the radio spectrum, in a competitive private sector service providers to easily integrate. The ICTA manner that also supports innovation and affordable service also plans to link SL-UDI with payment systems, similar to provision. For those areas, and for those populations, where how Aadhaar is being used as a financial address in the India market failures could result in persistent underinvestment Stack. The SL-UDI will be built on the Modular Open Source in broadband networks or limited adoption due to financial Identity Platform (MOSIP) kernel. Second, the National Data barriers, the government should evaluate options to subsidize Exchange (NDX) plans to enable secure and trusted personal access and adoption through strategic and targeted public data sharing, drawing on international experiences such as investments. Estonia’s X-Tee/X-Road and India’s Data Empowerment and Protection Architecture, as well as emerging decentralized approaches. Linking the SL-UDI and NDX will enable people DIGITAL PUBLIC PLATFORMS to consent to their data being shared, providing them with Sri Lanka leads the South Asian region in terms of digital pub- more agency over their personal data. lic platforms and has an ambitious forward-looking agenda benefiting from strong leadership and clear institutional The most important priority for Sri Lanka will be to sustain arrangements. Notably, the Information and Communications the current momentum and ensure that the ICTA is suffi- Technology Agency (ICTA), which was established in 2003 ciently resourced to spearhead the development of digital and has had its mandate strengthened in recent years, plays a public platforms and the digitalization of government services key role in coordinating activities in policy development and and operations. With the SL-UDI and NDX foundations in implementation. The ICTA has created shared infrastructure, place and designed as a digital stack, there are important such as the Lanka Government Cloud and Lanka Government opportunities to develop a dynamic social registry and support Network, which connects 800 government offices. Sri Lanka other priority use cases such as financial services, healthcare, tops the region on the UN E-Government Development Index and education. To accelerate progress, government officials (in 85thplace) and is the only South Asian country in the top and agencies should be incentivized to streamline and fully 100 globally. digitalize their processes, including becoming paperless. With the enhanced use and re-use of personal data, the government Nonetheless, there are some significant structural challenges should enact the personal data protection law as soon as pos- to be overcome if the country is to realize fully digitalized gov- sible and establish a credible supervisory regime to promote ernment services. A culture of openness among government trust in digital government services. Finally, demand for agencies is lacking, as is the will to drastically change systems digital government services should be stimulated by improv- and business processes, with many transactions still requiring ing internet access and digital skills among the population, physical documents and intervention. Sustained investments especially vulnerable groups. in technology are therefore limited, with a number of digi- tal government projects being terminated midway through implementation. The lack of internet use among the public is DIGITAL FINANCIAL SERVICES also a key constraint. Even among those who use the internet, Sri Lanka’s formal banking and insurance sector is well estab- there is limited trust in, and demand for, online government lished, with an underlying infrastructure that is fairly digitized. 120 Annex Executive Summaries of Country Assessment Reports A relatively large share of the population has a financial financial services through improved protection against fraud, account: 73.6 percent of all adults, and 73.4 percent of female data leaks, security breaches, service unavailability, and poor adults, have access to a financial account. In addition, 70.6 customer recourse mechanisms. The latter is of course an percent of adults in the bottom 40 percent of income have integral part of the cross-cutting requirements of a trusted access to financial accounts and 72.8 percent of rural resident digital ecosystem. adults have access. The payments infrastructure has digi- tized to a large extent, with the central bank taking an active DIGITAL BUSINESSES role in the process. However, usage of bank accounts and more advanced financial products remains limited. There are Sri Lanka could do more to digitize its micro-small-and-me- also considerable segments of the population that are either dium sized enterprises (MSMEs) and promote its start-ups.79 unbanked or underbanked. The uptake of Digital Financial The start-up ecosystem in the country is nascent and was Services (DFS) has been slow, due primarily to a limited valued at US$117 million in 2019. 350 start-ups were regis- reliance on traditional banking institutions. As most digital tered on the Startup SL platform, an industry-led attempt to financial services are currently offered through traditional create a centralized information hub for start-ups. Several banks, uptake is weak, as is the adoption of other non-digital incubators and accelerators have been set up with the help financial products (other than regular bank accounts). For of development partners. Yet the country performs poorly example, between 2014 and 2017, the share of adults making in terms of start-up support when compared with aspira- or receiving a digital payment, within any particular year, tional peers such as Malaysia, India, and Thailand. Access doubled to 47.2 percent. Cash has long been the most popular to finance continues to be challenge: 70 percent of start-ups payment mode for retail payments; in 2019, only 6 percent of that responded to the 2019 SLASSCOM Sri Lanka Startup adults used the internet to pay bills or to make a purchase. A Survey indicated that they had either self-funded their venture move to digital transactions could support COVID-19 limita- or relied on funds from family. Gaps in the legislation also tions on physical interactions, and would help the country play a role in holding back entrepreneurship. For example, prepare for future crises. Although a handful of new start-ups unlike countries such as India, Malaysia, and Singapore, Sri have emerged over the last few years, and solutions have been Lanka does not have a Limited Liability Partnership Act; as launched by some leading banks, the local FinTech space is such, investors are compelled to become shareholders with nascent. One bottleneck may be that FinTech companies face less flexibility in the management of partnerships, thereby the same level of regulations and restrictions as established discouraging investment. By adopting digitally-enabled busi- financial institutions, making entry into the market difficult. ness models, Sri Lanka’s MSME sector could tap more easily These include, for instance, restrictions in accepting deposits, into opportunities for rapid growth and business development restrictions on payment of interest by e-money providers, beyond its shores. The National Policy Framework for SME mandatory physical signature verification, and no paper Development (from the Ministry of Industry and Commerce) delivery. underscores the role technology can play in driving innova- tion, productivity, and service quality. Sri Lanka’s performance The government could promote the development of digi- on the World Economic Forum’s Executive Opinion suggests tal financial services in Sri Lanka by taking the following that ICTs are fairly well integrated in business. However, measures: (1) adopting an agile approach to regulating ICT usage by smaller businesses is low. Only 40 percent innovative financial services, for example, taking a ‘wait and of SMEs used the internet for business in 2018, despite see’ approach, expanding the use of regulatory sandboxes research showing that those SMEs using ICTs record 2.8 to test FinTech innovations, or easing market entry barriers times more revenue and twice the profit of SMEs that are not for smaller financial service providers while still ensuring ICT-enabled. The pandemic might have shocked some busi- financial integrity and stability, (2) promoting competition nesses into rapid digitization, as evidence from global surveys and financial inclusion through a level-playing field for digital suggest. Nonetheless, the usual mix of constraints, such as financial services in terms of access to data, technologies, limited digital skills among workers, low capacity to absorb and infrastructures, and (3) reforming legal and regulatory technology into production or distribution, gaps in access to frameworks to increase the trust of individuals in digital technology and finance, and limited use of the internet (for 79 Digital start-ups refer to early-stage ventures that create new digital solutions or business models as part of their core products or services. The growth and sustainability of these digital start-ups require a well-functioning entrepreneurship ecosystem and venture capital financing to turn ideas to viable new busi- nesses and scale fast. 121 South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives e-commerce), is likely to keep digital adoption by MSMEs addition, there is also significant brain drain from the coun- low. MSMEs should be able take advantage of e-commerce, try.80 As digitization spreads across the economy, basic digital both domestically and internationally. Given increased market skills are becoming increasingly important for workers in all concentration, local players have been calling upon the gov- sectors. It is important that individuals are able use digital ernment to create a level-playing field with international firms. technologies productively. But existing data on digital skills points to low levels of basic digital literacy amongst the pop- The government could take the following measures to support ulation, which could deter usage of digital technologies and digital start-ups and the digitization of businesses: (1) simplify expose people to digital risks such as cyberthreats or misinfor- administrative procedures and mechanisms for incubation mation. The national Computer Literacy Survey indicates that and the scale up of start-ups, (2) promote stronger business the average level of digital literacy stands at 46 percent, higher ties between Sri Lankan MSMEs and the private sector from amongst men (49%) than women (42%).81 Opportunities to outside the region, through the use of e-commerce platforms improve digital skills remain few and far between: the 2017 and partnerships across the region, (3) improve the broader school census suggested that 45 percent of schools in the business environment through legal and regulatory reforms, country had no access to computers and many instructors are including the creation of a level-playing field between domes- still not digitally capable. tic and international firms, and (4) implement a program to boost digitization of SMEs through better access to technol- Absent or weak digital skills constitute a major bottleneck for ogy, finance, and skills. the development of the digital economy in Sri Lanka. A digi- tally-competent workforce would boost the transformation of the country’s economy, as would a digitally-literate population DIGITAL SKILLS able to use digital technologies, beyond mere social exchange, The government has recognized the important role that digital to interact with government, access information, and learn. skills play in achieving the country’s digitalization targets. With the pandemic expected to increase both digitization and The development of advanced digital skills is crucial for the automation, Sri Lanka’s workers would be better equipped workforce in the digital industries, but also for businesses for a resilient recovery with the necessary digital skills. In this to compete more generally in the global value chains of the context, the government should establish a strong digital skills digital economy. The Export Development Board has identi- development program with two main objectives: (1) to fill the fied IT and business process management as one of the top gaps in basic digital literacy to advance the broad uptake of 6 strategically important industries in Sri Lanka. The ICT digital technologies across the population and (2) to develop workforce in the country was 124,873 strong in 201 and the specialized workforce-training programs with the private government has pledged to increase this number to 200,000 sector that strengthen foundational skills (e.g. analytical skills, by 2022. In 2018, the ICT workforce consisted primarily communication) while also training people with in-demand of graduates, with 74 percent having a bachelor’s degree at technical skills. Specific attention should be given to skills minimum. The demand for these advanced skills remains development for women and their placement in high-produc- strong. SLASSCOM, Sri Lanka’s export-oriented ICT industry tivity jobs in digital industries. body, estimates that the annual demand for graduates in 2020 was 21,000, compared to a market supply of 9,000 (repre- senting a demand/supply gap of 12,000). The supply of skills Policy Recommendations is limited in part due to a small pipeline of students: 11,166 Based on the analysis above, the following table sets out undergraduates were enrolled in computer science courses several high priority policy recommendations for the develop- in universities and higher education institutions in 2018. In ment of the digital economy in Sri Lanka. 80 http://www.ft.lk/columns/Educated-youth-leaving-the-shores-of-Sri-Lanka-Is-it-brain-drain-or-brain-gain/4-678025 81 Digital literacy (defined as the ability ‘use a computer, laptop, tablet or smartphone on his/her own’) 122 Annex Executive Summaries of Country Assessment Reports PILLAR SHORT-TERM MEDIUM- TO LONG-TERM Infrastructure • Define appropriate ex ante competition regulation measures • Evaluate options to subsidize access and adoption through strategic • Implement measures to reduce the costs of broadband network and targeted public investments deployment • Allocate limited resources (e.g., radio spectrum) in a competitive manner that supports innovation and affordable service provision Platforms • Complete the development of foundational platforms needed for • Accelerate the ongoing implementation of a “whole of government” integrated services approach to digitization • Accelerate reforms of the management of government data and systems to promote interoperability and data sharing Financial services • Promote competition and financial inclusion through a level- • Adopt an agile approach to regulating innovative financial services playing field for digital financial services in terms of access to data, • Adopt reforms to increase the trust of individuals in digital financial technologies, and infrastructures services through improved protection against fraud, data leaks, security breaches, service unavailability, and poor customer recourse mechanisms Businesses • Simplify administrative procedures, including those for incubation • Promote stronger business ties between Sri Lankan MSMEs and the and scale up of start-ups private sector from outside of the region • Improve the broader business environment through legal and regulatory updates • Boost digitization of SMEs through access to technology, finance, and skills Skills • Design and implement, together with the private sector, specialized • Invest in filling the gaps in basic digital literacy to increase the workforce training programs that strengthen foundational skills (e.g. uptake of digital technologies more widely across the population analytical skills, communication) but also in-demand technical skills Trust • Update and strengthen key legal instruments relating to • Develop the capacity and skills of public sector employees cybersecurity and personal data protection, in order to boost trust in and institutions to adopt digital technologies, whilst ensuring government services and in private transactions cybersecurity and personal data protection 123 References Anderson, B. J., & O’Connor, A. C. (2020). Economic impact of 2Africa. RTI International. Asian Development Bank, “Projected Impacts of Climate Change”, 2010 Asia-Pacific Economic Cooperation (APEC), “APEC Privacy Framework”, 2017. ATAF, “Domestic Resource Mobilization (Digital Services Taxation in Africa)”, 2020. Azam et al., “Review of the status and mass changes of Himalayan-Karakoram glaciers”, Cambridge University Press, 2018. Bauer, Matthias, Michal Krol, Hosuk Lee-Makiyama, and Bert Verschelde. “THE COSTS OF DATA LOCALISATION: FRIENDLY FIRE ON ECONOMIC RECOVERY”, ECIPE Occasional Paper, 2014. Bronza, B., “AUSTRIAN TRADE TOWARDS THE OTTOMAN EMPIRE AND ASIA DURING THE 18th CENTURY”, ISTRAŽIVANJA Јournal of Historical Researches, 2016. BRICS Competition Innovation Law & Policy Centre, “Digital Era Competition BRICS Report”, 2019 Brynjolfsson E., Collis A. How should we measure the digital economy? Harv. Bus. Rev. 2019;97(6):140–146 Brynjolfsson, Erik, Lorin M. Hitt, and Heekyung Hellen Kim. 2011. “Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?” SSRN Scholarly Paper ID 1819486, Social Science Research Network, Rochester, NY. doi.org/10.2139/ssrn.1819486. Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), 2018. Ferracane, M., and E. Van der Marel, “Do data policy restrictions inhibit trade in services?”, 2019 Gately, D., “Sharing the Gains from Regional Cooperation: A Game Theoretic Application to Planning Investment in Electric Power”, Department of Economics Research Report, Western University, 1972. Gomber P., Kauffman R.J., Parker C., Weber B.W. “On the fintech revolution: interpreting the forces of innovation, disruption and transformation in financial services”, 2018. Hasnat et al., “Major Environmental Issues and Problems of South Asia, Particularly Bangladesh”, Handbook of Environmental Materials Management (pp.1-40), 2018. Mackay, A., “Climate change 2007: Impacts, adaptation and vulnerability”. Contribution of Working Group II to the fourth assessment report of the Intergovernmental Panel on Climate Change. J. Environ. Qual. 2008, 37, 2407. Meltzer, P., and P. Lovelock, “REGULATING FOR A DIGITAL ECONOMY UNDERSTANDING THE IMPORTANCE OF CROSS-BORDER DATA FLOWS IN ASIA”, Global Economy and Development Brookings Working Paper, 2018 Schneider, C., “The Political Economy of Regional Integration”, Annual Review of Political ScienceVol. 20:229-248, 2017. Soni et al., “Investigation of potential source regions of atmospheric Black Carbon in the data deficit region of the western Himalayas and its foothills”, Atmospheric Pollution Research Volume 10, Issue 6, November 2019, Pages 1832-1842. The World Bank, “A SINGLE DIGITAL MARKET FOR EAST AFRICA”, 2018a. The World Bank, “A Glass Half Full: The Promise of Regional Trade in South Asia”, 2018b. The World Bank, “The Digital Economy in Southeast Asia : Strengthening the Foundations for Future Growth”, 2019. The World Bank, “Building Back Better: Pursuing a Greener, More Inclusive, and Resilient Recovery”, 2020a. The World Bank, “Macro Poverty Outlook”, 2020b. The World Bank, ““DEEP TRADE AGREEMENTS (DTAs): Data, Tools and Analysis.” About Dataset and Reference Paper. 2020c. The World Bank, “Approach to South Asia Regional Integration, Cooperation and Engagement (SA RICE)”, 2020d. The World Bank, “Digital Financial Services”, 2020e. The World Bank, “World Development Report: Data for Better Lives”, 2021a. The World Bank, “Education Technology in South Asia. Recent Trends, Future Prospects and Issues”. Background note as part of the World Bank study on “Technology for Accelerating Human Capital Outcomes in South Asia”, 2021b. The World Bank, “Technology to Accelerate Human Capital Outcomes in South Asia”, 2021b. WHO South-East Asia Journal of Public Health, “Harnessing the potential of digital health in the WHO South-East Asia Region: sustaining what works, accelerating scale-up and innovating frontier technologies”, 2019. UNCTAD, Digital Economy Report, 2019. UNICEF, “How many children and young people have internet access at home?”, 2020. United States-Mexico-Canada Agreement (USMCA), 2019. Vamvakidis, A., The World Bank Economic Review, Volume 12, Issue 2, May 1998, Pages 251–270, https://doi.org/10.1093/wber/12.2.251 World Bank Group. 2016. World Development Report 2016 : Digital Dividends. Washington, DC: World Bank. © World Bank. https://openknowl- edge.worldbank.org/handle/10986/23347 License: CC BY 3.0 IGO World Bank. 2021. Global Economic Prospects, January 2021. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1612-3. License: Creative Commons Attribution CC BY 3.0 IGO. South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives 126