*This article is from Volume 19-3 (Jul/Sep 2024)
Abstract
(The digital revolution is reshaping the world economy, creating new opportunities for sustainable development and inclusive growth. Digital technologies can enhance productivity, innovation, and connectivity, as well as support green development and social inclusion. However, harnessing the potential of digital transformation requires a strategic vision, a long-term policy framework, and coordinated implementation across sectors and stakeholders. Without these elements, digital transformation can also create new challenges and inequalities. Could digital transformation be the route for Pakistan to achieve leapfrogging growth? We could draw on the experiences of several countries in the Asia and Pacific region that have successfully implemented digital policies and achieved digital development. It is also relevant to examine the hypothesis that the government and the state, both key actors in the growth and progress of a country, may have different roles and incentives in committing to long-term journeys such as digital transformation that span multiple governance regimes. The article is structured as follows. First, we discuss the concept and importance of long-term planning, especially in the post-COVID era, and the main components of a comprehensive policy framework for digital transformation. Second, we present some country examples of successful digitalization and identify cases of leapfrogging growth. Third, we analyze the role of the government and the state in pursuing and sustaining digital policies. Finally, we conclude with some implications and recommendations for Pakistan, a developing country with immense potential to benefit from digital transformation. – Author)
Introduction
Digital technology innovation is transforming economies and investments in sustainable development are likely to be the leading drivers of growth for the coming years. With digital developments spurred on by COVID, a number of governments invested in making the changeover to digital processes and services; the internet, communication and digital technology have shaped development. Dynamic economies of our time are moving from old growth drivers based on low-cost manufacturing or services to new growth drivers that are enabled by technology, new materials and value-added manufacturing and services.
Technology enabled industrial capacity and supply chain, together with innovation, is driving up the value of exports for countries like South Korea and Vietnam. There is also evidence that digitally evolved societies are more inclusive, particularly pertaining to women labor force participation. In a post Chat GPT world, Artificial Intelligence presents vast potential to enhance capacity and productivity and bring innovation to public sector service delivery. Different approaches and policy actions have resulted in various country trajectories; while the paths taken may have been different, there appears to be a sustained state commitment to the digital agenda in nearly all success stories. In some cases, there is clear evidence of a relationship between long-term public policy frameworks and the digital transformation of a country.
Can Pakistan’s digital transformation contribute to the much needed growth? Can the nation leapfrog and transition to achieve an accelarated economic growth through inclusive digital transformation? Pakistan is the third largest wheat producer in Asia and ranks among the top 10 for other agricultural products, with exports surpassing $6 billion. In South Korea, the manufacturing sector accounts for 12.5% of their $1.7 trillion GDP. India’s technology exports are approaching $200 billion, growing at an annual rate of 8.3%, contributing roughly $16 billion in 2022. In comparison, Saudi Arabia’s crude oil exports were valued at $224.8 billion in 2022. IT and Business process outsourcing (BPO) sectors form the largest portion (over 60%) of India’s service exports (EY India 2023). This has driven the growth of total services exports at a compound annual growth rate of 14% in dollar terms over the past twenty years.
We can learn from the journeys taken by other developing countries in the Asia and Pacific region; however, such a digital transformation would require a long-term public policy commitment that can lead to digital evolution of the government and society.
1. DIGITAL IS THE NEXT FRONTIER
Innovation in digital technology is revolutionizing economies, with sustainable development investments driving growth for the next decade and beyond. Digital transformation impacts various aspects of the economy and society in complex ways, making trade-offs between policy goals challenging. It also necessitates considering cross-cutting policy issues like skills, digital government, and data governance (OECD, 2021). The adoption and mainstreaming of digital technologies, however, requires an inspired vision, a strategic long-term view and investment in public policy frameworks.
Emerging technologies such as artificial intelligence (AI), the Internet of Things (IoT), blockchain, and 5G networks have the potential to transform industries and create new opportunities for businesses and individuals. Additionally, digital technologies support green development by enabling resource efficiency and reducing emissions by promoting telecommuting and supporting sustainable supply chains and data driven decisions.
Digital transformation cuts across traditional sectoral boundaries necessitating a whole-of-government approach to realize its potential and to manage trade-offs across policy areas (OECD 2021). In the digital age, technology is essential to daily life, and nations are adopting digital transformation to enhance economic growth and competitiveness. However, this transformation requires an ongoing vision and commitment from leaders and institutions (Ma 2021).
Digital technologies can enhance productivity, innovation, and connectivity, as well as support green development and social inclusion. However, harnessing the potential of digital transformation requires a strategic vision, a long-term policy framework, and coordinated implementation across sectors and stakeholders. Without these elements, digital transformation can also create new challenges and inequalities.
Could digital transformation be the route for Pakistan to achieve leapfrogging growth? We could draw on the experiences of several countries in the Asia and Pacific region that have successfully implemented digital policies and achieved digital development. It is also relevant to examine the hypothesis that the government and the state, both key actors in the growth and progress of a country, may have different roles and incentives in committing to long-term journeys such as digital transformation that span multiple governance regimes.
This article is structured as follows: first, we discuss the concept and importance of long-term planning, especially in the post-COVID era, and the main components of a comprehensive policy framework for digital transformation; second, we present some country examples of successful digitalization and identify cases of leapfrogging growth; third, we analyze the role of the government and the state in pursuing and sustaining digital policies; and finally, we conclude with some implications and recommendations for Pakistan, a developing country with immense potential to benefit from digital transformation.
2. THE ROLE OF LONG-TERM POLICY PLANNING
The degree of priority accorded to the digital sector can be evident from the government policies that play a significant role in promoting digital development. A core factor in rebooting a sluggish economy, the digital economy presents a range of dynamic growth and investment opportunities (Wu 2022). In recent years, a number of countries have been prioritizing investments in digital technologies in an effort to boost their growth and competitiveness. We also see an enhanced level of discussions in Pakistan on the use of technology for citizen engagement.
The advantage of digital innovation is evident in certain areas, notably fintech, internet and cloud computing. In addition, there is an increasing focus on big data and Artificial Intelligence and their potential contributions to economy and growth. As a general trend, digitalization of public services and private sector businesses has accelerated in the post pandemic period.
2.1. The need for comprehensive policy frameworks
The digital evolution of societies around the world has been dependent on the interplay of economic, political, social and cultural factors which vary from country to country. As postulated by OECD (2020), public governance framework refers to the formulation, implementation, communication, and evaluation of government policies and how governments can shape policymaking at different stages of the policy cycle through the strategic use of policy instruments and management tools. A comprehensive policy framework is typically an aggregate of multiple interconnected policies that are expected to pursue a common goal; this points to the desirability of a more holistic approach, especially in challenging and complex sectors like climate change and digitalization. A clear framework that will ensure effective policy development and prioritization in planning and management of government response is needed.
Governments are encouraged to follow the creation of a digital governance framework, the use of business cases, project management frameworks, guidelines or criteria for ICT commissioning and investment thresholds (OECD 2020). The development of digital business should be accompanied by coordinated actions of the interested state and commercial structures and be consistent with the efforts of the international community (Nosova, et al. 2020). Policy work in Pakistan tends to be fragmented and receives priority based on short term considerations.
The Digital Impact Alliance (DIAL) has developed a simple 5 Ps framework which considers various interrelated areas, each important to building the right digital system, and can help actors identify and co-ordinate around manageable problem sets (OECD 2021).
3. REGULATIONS TILT THE BALANCE TOWARDS INNOVATION
Regulations are the operative side of policies as they are the detailed rules and requirements that are legally binding and enforceable. The legal and regulatory framework for digital government and ICTs is an inevitable component of adjusting governance to the digital age (OECD 2020). Regulations change the structure of incentives by imposing constraints on the behavior of market participants (OECD, 2018[11]). Through penalties or legal consequences, wherever noncompliance is involved, the government works with players in the sector to make way for positive and forward-looking adjustments. There is a need to develop regulatory frameworks that provide the essential regulatory goals without discouraging innovation. This challenge is exacerbated by the fast pace of digital transformation, which makes market developments and future public policy concerns difficult to predict (Angela Attrey 2020).
3.1. Long Termism and Sustainability
Technology and renewable energy are expected to be the leading sectors that will drive growth in the next decade. No matter what challenges need to be addressed in the short-term, government policies and actions should take into account the need for sustainability in the long-term. Thus, high priority should be given to policy options that enhance long-term social, economic, and environmental benefits that, in turn, lay the basis for long term resilience and build the capacity to deal with future challenges (Rasul 2020). Early evidence suggests that countries with superior digital foundations were able to respond more effectively to the COVID-19 crisis (Ma 2021). This highlights the key importance of policy sustainability, not just maintained by successive governments, but also through incremental improvements based on informed evaluations.
Where will the growth come from? The world Bank in its report titled, “Pakistan@100: Shaping the Future” (World Bank 2019), articulates the reforms that are necessary for Pakistan to accelerate and sustain growth and achieve a middle-income country status by the time it turns 100 on 14 August 2047.
In the following examples, we highlight the strategic role that was played by the state in various countries over a comparatively longer period of policy implementation to make progress on the digital agenda.
4. INSIGHTS FROM COUNTRY VIGNETTES
Countries around the world have tried to integrate digital technologies into various aspects of society and economy, looking for gains in efficiency, productivity, citizen trust and engagement targeting long term growth.
Among leading examples in promoting and diffusing digital transformation are Singapore, South Korea, Finland, Sweden, Israel, Estonia, and China. There is historical evidence that these governments have broadened and deepened their entrepreneurial and innovation roles, harnessing successive strategies and patient investments to build a dynamic digital transformation ecosystem, ubiquitous Internet access, digital platforms, digital literacy, digital leadership, and sustained commitment to transform (Hanna 2018).
4.1. China’s Internet Plus and Economies of Scale
While many countries have undertaken comprehensive policy design and implementation for digital transformation; China truly exemplifies the success of digital transformation efforts owing to the effectiveness of its long-term policies and strategies. China has made the digital economy a critical part of its national development strategy and has developed detailed roadmaps and incentives to shore up the sector (Wu 2022). The country saw over 40 years of uninterrupted growth, often with unorthodox policies the textbooks said would fail (Pan 2018). China’s embrace of the internet, within limits, helped make it a leader in technology. “China’s policies were tremendous, they were like a sponge absorbing water, money, technology, everything” (Pan 2018). China now leads the world in the number of homeowners, internet users, college graduates and, by some counts, billionaires. Extreme poverty has fallen to less than 1 percent. The sheer size of the Chinese internet user base encourages continuous experimentation and enables digital players to achieve economies of scale quickly (Wu 2022).
Fintech[i] development in China can be traced back to 1993 when the People’s Bank of China and other banking financial institutions began to digitalize their back offices and services; recently emerging technologies like, big data, cloud computing, artificial intelligence, and block chain, are being merged into the field of financial business to change or create new financial products or services, lower transaction costs, and improve operational efficiency (Zhou 2022). Additionally, and quite significantly, since the mid-1990s, China has adopted a national policy of indigenous innovation, which aims to support Chinese firms to have a stand in key technologies (Gao 2015).
Given where China began, its present success is stunning. The rise of two major digital payment platforms, Alipay and WeChat Pay, have transformed China’s payment system, reaching near ubiquity in under a decade. These two payment platforms are now the largest system in China and among the largest in the world (Klien 2020). Fintech Development Plan for 2022-2025 seeks to further develop China’s fintech sector and drive the digital transformation of finance in the country over the next four years (Zhou 2022).
China’s public sector evolution of regulation to keep pace with the dynamic sector has been supporting innovation. The Hong Kong China Monetary Authority (HKMA) launched FinTech Supervisor Sandbox (FSS) in 2016 to provide a testing environment for banks and tech firms to innovate and create new FinTech products with relaxed supervisory requirements; its regulatory technology (or “RegTech”) is considered to hold great potential for improving the interrelation between banks and regulators due to its capability of enhancing regulatory processes in the financial sector. From 2016 till June 2019, 62 new products and services have been tested as part of pilot trials, of which 34 have been successfully introduced to the market (Angela Attrey 2020).
Along with “Made in China 2025,” China’s Internet Plus strategy is an important strategy to realize innovation as a new growth engine for the country. This strategy is responsible for promoting industrial advancement and formulating an effective response to the 4th Industrial Revolution (Lee, et al. 2019). The Digital Silk Road (DSR) initiative, launched in 2017, is part of the Belt and Road Initiative and aims to promote digital connectivity and cooperation among the Association of Southeast Asian Nations (ASEAN) (Gordon and Nouwens 2022). The policy approaches and sustained implementation reflect China’s commitment to the development of a robust futuristic digital economy, the contours of which are already visible.
4.2. Estonia’s Interoperable Digital Platforms
Estonia is often cited as a world leader in digital transformation. The country has implemented a wide range of digital services, including a national ID card that can be used for secure digital signatures, e-voting, block chain[ii] and access to medical records. The success of Estonia’s e-government (e-Estonia) hinges on the combination of two interoperability enablers, namely the Estonian digital ID (eID) and the X-road platform for data exchange (Koutsogeorgopoulou 2023). The 2020 Data Management Maturity Program, an organization-wide program that focused on the areas of data governance, data collection, and data storage and analytics supports interoperability among the numerous information systems and registers, has helped to realize the full potential of a digital Government. The X-Road Platform has considerably simplified the interactions of citizens and businesses with the government and the use of digital signatures in Estonia is estimated to save 2% of GDP every year, Moreover, the use of X-Road saved the Estonian administration 804 working years, reducing state budget expenditure (Koutsogeorgopoulou 2023).
Estonia’s early focus on integrating IT education with general school education was an essential factor in enabling digital transformation. Funded by both public and private sector organizations, the Tiger Leap Programme was the first step to bring all Estonian schools online. Private sector companies became involved in a co-sponsored public–private partnership called Look@World. Both programs had an immediate effect on Estonian youth and led to the emergence of a vibrant IT start-up sector and, arguably, to improvements in government operations; it is important to note that Estonia’s case is a success of a national strategy rather than of a single policy or even a bundle of programs (Kattel and Mergel 2019).
4.3. Singapore’s Smart Nation Initiative
The government of Singapore has invested in transforming its services into digital platforms through its “Smart Nation” initiative, launched in 2014; citizens can access a wide range of government services online, including tax filing, applying for permits, and renewing licenses. Furthermore, there is a national digital identity system and a network of sensors and cameras for traffic management. The digitalization of government services has increased efficiency, reduced paperwork, and improved accessibility for citizens. Singapore topped the rankings in The Economist Intelligence Unit’s (EIU), The Asian Digital Transformation Index 2016 and 2018. The EIU found the clarity and ambition of Singapore’s digital vision a driving force in the country’s ranking. Notably, about 97 per cent of Singapore’s population now has access to superfast internet connectivity (Andriesse 2019).
Businesses and SMEs are supported through the Productivity Solutions Grant (PSG) which provides financial support for business owners to adopt pre-scoped IT solutions, equipment and consultancy services to improve productivity. These solutions are aligned to industry roadmaps such as Industry Transformation Maps and Industry Digital Plans (Productivity Solutions Grant 2020). Other notable achievements by the country include cashless payments, Fintech Innovations (Angela Attrey 2020), focus on AI research and a dedicated cyber security oversight mechanism.
Strengths in ICT policy vision and implementation to accelerate fiber deployment, cementing plans for 5G and advancing development of innovation like AI, and investing in both grass roots and ongoing talent training are some of the lessons that countries can learn from Singapore (Andriesse 2019).
4.4. South Korea’s Digital New Deal and 5G Networks
South Korea has a national strategy called “Korea 4.0,” which aims to transform the country into a leader in the Fourth Industrial Revolution. The strategy includes initiatives such as the development of 5G networks (launched in 2019), the Internet of Things (IoT), and artificial intelligence (AI). The “Digital New Deal” policy with the “Korean New Deal Comprehensive Plan” aims to promote the convergence and use of data, fifth-generation mobile communications, and artificial intelligence in all industries (Ministry of Science and ICT 2020).
The Regulatory Sandbox in Korea Programme, launched in 2019, is implemented in a wide range of industries, including the ICT sector, industrial convergence, and regional innovation. The Virtual K-City, established in 2018, is the world’s first test site for autonomous vehicles based on 5G networks (Angela Attrey 2020).
4.5. India’s Digital Public Infrastructure with a laissez-faire Approach
The significant strides that India has made in achieving digitalization are probably best symbolized by the Aadhaar biometric database which has 1.3 billion people, or roughly 99% of Indian adults enrolled in it (Dave 2022). The system is used by citizens to access services, pensions and subsidies with possible future link to their voter registration database (Jones 2022).
India has seen exponential growth in digital service adoption, with financial services at the forefront of this innovation and transformation. India’s foundational Digital Public Infrastructure (DPI), called the India Stack, has been harnessed to foster innovation and competition, expand markets, close gaps in financial inclusion, boost government revenue collection and improve public expenditure efficiency (Alonso, et al. 2023). India Stack is a technological foundation that combines a set of Application Programming Interfaces (APIs), acting as a technical link that enables two software programs to connect with one another. It allows governments, businesses, start-ups, and developers to leverage this unique digital Infrastructure to play a catalytic role in the evolution of the digital ecosystem (IBEF 2023). The Financial Times thinks (Parkin, Reed and Singh 2023) that it is a world-beating solution for building out and regulating the online commons that is more equitable to the US’s laissez-faire approach. Such developments can be traced back to the National e-Governance Plan (NeGP), initiated in 2006, which focused on the use of information technology to deliver government services to citizens (e-governance).
The government acted as an anchor client, utilizing the Digital Public Infrastructure (DPI) to make transfers to beneficiaries. Other factors that supported digitalization are increased penetration of smartphones and mobile data due to sound telecommunication policies, financial inclusion and a vibrant startup ecosystem. The private sector has been a key factor to India’s growth in the use of DPI for social support programs, providing an impetus to adopt the technology (Alonso, et al. 2023).
4.6. Lithuania’s Public Policy Innovations making it a leader in Fintech
The National Progress Plan (NPP) of Lithuania for 2021-30 set the improvement of the science, technology and innovation (STI) systems as a key strategic goal. The Innovation Promotion Fund 2021 supports investment in basic and applied research, as well as experimental development and innovation. Lithuania’s Smart Specialization strategy prioritizes areas for R&D and innovation, including promoting research-business collaboration. Lithuania has been promoting the EU’s single digital Market initiative which will remove barriers to cross border online commerce (Government of Lithuania 2013).
The country enjoys a leading position among Fintech economy (The Baltic Times 2023); there has been a surge in the number of fintech startups, with several established companies relocating their operations to Lithuania due to the country’s favorable regulatory environment and its highly skilled workforce in the technology and financial services sector (The Baltic Times 2023). A blockchain-based sandbox (LBChain) combines technology and regulatory infrastructures to enable financial and fintech companies, including start-ups, to carry out blockchain-oriented research and test and adapt blockchain-based services and provide innovations to their customers. Non-regulatory tools include initiatives such as the Newcomer Programme, which is focused on pre-licensing support. Attracting highly skilled workers is a key priority of Lithuania’s immigration policy (Koutsogeorgopoulou 2023). Since 2016, more than 650 participants have entered the Newcomer Programme from more than 70 countries.
Lithuania’s regulatory framework is business friendly. Barriers to market entry are well below the OECD average, and the administrative burden for setting up a new business is among the lowest among OECD countries. Since 2014, Lithuania has been applying a “one-in, one-out” rule for the administrative burden faced by businesses with biannual plans for selected sectors. The government supports SMEs through loans with preferential rates to obtain the necessary financing to start a business. Moreover, the national promotional institution INVEGA (Investment and Business Guarantees) provides guarantees of loan repayment for companies that do not have sufficient collateral. In Lithuania, crowdfunding platform operators have been regulated for nearly five years; there are currently 21 crowdfunding platform operators in the country (Koutsogeorgopoulou 2023).
Lithuania has enhanced its e-government capabilities in recent years, applying advanced ICT technologies to government operations. Around 60% of the population uses the Internet to interact with the government, and e-government services for businesses are, in comparison to international standards, well developed. The Electronic Government Gateway provides a single access point to e-government services, linking with information systems for taxation, e-health, education, municipal institutions, among other services (Koutsogeorgopoulou 2023).
4.7. UAE – a Country with a Ministry of Artificial Intelligence
United Arab Emirates (UAE) has successfully leveraged its technological infrastructure to make admirable progress towards transforming digitally; spending on ICT infrastructure is expected to reach $23 billion by 2024. Per Telcom Review Middle East (Telecom Review 2022), the country exhibits some of the most advanced and unique innovations, and is among the top 25% of countries in the most important global digital indicators and, among all GCC countries.
UAE’s digital transformation has added value to everyone within its territory by promoting efficiency in the way they do business, ensuring faster time-to-market by using numerous digital platforms available and enabling innovation to drive new services. For example, innovations like the Riayati platform, the national unified medical record system, contributes to a tech enabled system that advances the practice on both patient care delivery and digital healthcare. The country is a regional leader in attracting data center investments, with Microsoft, IBM and Amazon Web Services (AWS) establishing facilities in the country from 2019. In 2021, Abu Dhabi was also ranked among the fastest capitals globally in the 5G network index, with the fastest median download speeds of 421.26 Mbps (Telecom Review 2022). Autonomous vehicles are becoming a reality in the UAE, establishing the Emirates as the first country in the Middle East and the second globally to test outdoors 5G enabled self-driving cars in 2021 (Telecom Review 2022).
The priority accorded to emerging know-how is evident from the fact that the country has a Ministry of Artificial Intelligence which, among other initiatives, has proposed the adoption of an AI curriculum and the launch of six smart platforms to integrate technology within the education system. Per Telcom Review Middle East (Telecom Review 2022), the Emirates Blockchain Strategy 2021 aims to capitalize on blockchain in transforming 50% of government transactions. The UAE has made significant investments to build smart cities. Examples of initiatives include the provision of public Wi-Fi, electric car charging stations and live traffic monitoring. In 2022, Dubai was rated first in the Middle East and 18th globally among the most digitalized cities in the world (Telecom Review 2022).
4.8. Digital Denmark
Denmark receives top rank in the country-level digital competitiveness rankings worldwide as of 2022 (Statista 2023). The country has a comprehensive digital strategy called “Digital Denmark,” which aims to make Denmark a leading digital country in Europe. The strategy includes initiatives such as the development of digital skills, e-government services, and a focus on data-driven innovation. According to the most recent indices, the country has successfully transformed its public services from an analogue to a fully digital service delivery model creating public value. The strategic approach taken by the Danish Government to governance and multi stakeholder cooperation has given a boost to innovation and success of digital transformation.
The compulsory usage of structured business cases and ICT project management frameworks have significantly improved project governance and execution. Monitoring and assessments during implementation are a significant source of data, helping the public sector organization in charge to recognize performance factors and shortcomings in government ICT programs, while continually improving the public sector’s capacity to handle initiatives that are becoming more complicated (OECD 2020).
One of the key governance lessons from Denmark’s digital transformation is the setting of a strategic direction across all three levels of government and ensuing wide parliamentary support to minimize resource intensive stop-start’s and zig-zag’s in its strategic vision of digital transformation (Nielsen 2019). Co-production at all phases, starting from strategy and policy formulation at governmental level to the implementation at the decentralized public administration level, has been highlighted as the key in the success of Danish digital transformation (Scupola and Mergel 2021). It has also been noted that cofinancing was an important instrument in the implementation of public administration.
4.9. Israel – the Startup Nation
Israel has a vibrant culture of innovation and entrepreneurship, often referred to as the “Startup Nation”. The term, in fact, comes from a 2009 book which looks at the phenomenal economic growth of Israel which had at the time more companies listed on the NASDAQ and which produces more startup companies per capita than comparable countries (Senor and Singer 2011). Israel has integrated technological solutions into every aspect of business to improve its efficiency and value; it has a robust ecosystem that encourages ideation, risk-taking and innovation. This culture has fostered the development of groundbreaking technologies and digital solutions across various sectors. In recent years, Israel has become renowned for its pedigree in the tech industry, with 54 start-ups worth over $1 billion. With a deep pool of technological expertise to draw on, the country’s tech ecosystem has become an exemplar of how to drive an economy with product-led technological growth (Ghelber 2022).
One commonly cited factor in Israel’s success is the country’s military and defense industry which has produced successful spin off industries. The Talpiot program, under Mafat[iii], has produced graduates who end up either in academia or technology companies; some of them are founders of Israels most successful companies. Israel, like India and China, has also benefited from expertise or investment from expatriate leadership for development of tech enterprises. Some notable buy outs are Waze sold to Google for $1.3 billion, Mellanox sold to NVIDIA for $6.9 billion and Mobileye sold to Intel for $15.3 billion (Yerman 2019). In addition to supporting R&D, the government supported the availability of much needed capital by investing $100 million through the Yozma program to create ten new venture capital funds (Senor and Singer 2011).
5. LONG-TERM POLICY FRAMEWORKS ENABLE DIGITAL COUNTRY TRANSFORMATION
The above country examples clearly make the case for formulating long term policies and implementing them over a longer period than what could be made possible in the tenure of a government. Longtermism (MacAskill 2022) seeks prioritization of policy options that enhance long-term social, economic, and environmental benefits that lay the basis for long term resilience and build the capacity to deal with future challenges. A government has a limited time to execute its mandate and the work that an elected government can accomplish tends to be constrained by the election cycle; working within a limited time horizon, governments aim to do more with less, have less time or inclination for strategic planning and often end up achieving less (Mian 2019). A digital transformation agenda can be supported by clear policy frameworks that provide an advantageous basis for effective allocation of resources, generate synergies and have multiplier effects across sectors in the economy (Rasul 2020).
The state played an entrepreneurial role in India and several other countries, by taking the risk of investing on a large scale in a new and complex infrastructure, a platform that is open and secure for delivering services for both public and business services (Hanna, 2018). In another remarkable example, the Indian state of Kerala has pursued a long-term strategy for using ICT in school education. The IT@School program was initiated in 2001. The program focused on secondary education, with the aim of training teachers in information technology, providing teachers with content closely linked to the curriculum and providing schools with infrastructure. Most noteworthy is the fact that ownership of the project has been very strong, with successive governments from different political parties continuing the support over a period of more than two decades (Melhem and Jacobson 2021).
Israel exemplifies the advantage of well-considered and well-coordinated long-term planning; the country with a population of around 8.5 million has the largest number of startups per capita in the world, around one startup per 1,400 people. As the old saying goes, “Build a better mousetrap, and the world will beat a path to your door.” Israel, it can be said, has been continually building better – often entirely new – mousetraps (Yerman 2019). Because of the well implemented Yozma program, Israel is still the world leader in venture capital dollars raised per capita, coming in at 2.5 times above the next most venture capital intensive country, the United States. It seems that the country has two other essential ingredients: mission orientation and a cultural acceptance of the need to take risks (Senor and Singer 2011).
Estonia’s flagship program called e-Estonia, launched in 2002, has been one of the most successful digital transformation efforts globally due to the government’s long-term planning and commitment to digitalization (Kattel and Mergel 2019). A fundamental constant in Estonia’s digital transformation has been widespread cross-party support for the digital agenda. Starting with the first independent government in 1992, ICT development in society was seen as delivering a competitive advantage, as a symbol for leaving the Soviet past behind, and as an indicator for opening the Estonian society and economy towards the West (Kattel and Mergel 2019).
6. ARTIFICIAL INTELLIGENCE FOR LONG TERM COUNTRY EVOLUTION
A government spends most of its time in planning, execution and monitoring, while very little time goes into evaluation of policies. The government can use the learnings to plan and implement better; make optimal resource allocations, identify and correct its own mistakes, adapt, make early course corrections and leverage data driven knowledge across sectors and domains.
6.1. Data Enables Learning
Governments need to find solutions to governance challenges and resolve public issues, which is a function of crafting intelligent options and selecting the means to deliver the most preferred ones. All experiences can be reduced to a set of data and information which can enable a thinking government (Mian 2019). Well codified accumulated experiences can help draw up insights and patterns that can shape results, outcomes, and impact.
The public policy process loop could immensely benefit from information and data sets on past projects, regulatory decisions, and socioeconomic interventions.
6.2. Artificial Intelligence can provide Insights and Foresights
An Artificial Intelligence apparatus can help governments operate smarter by analyzing large amounts of public sector data to identify patterns and trends that may not be immediately apparent to humans. An ICT-enabled data clearing house could work on codified data received from various government agencies and projects and generate insights and actionable operational intelligence that can be ploughed back into the policy formulation process. By taking a systems approach, trends and patterns can be generated that highlight interconnections in the ecosystem. Feedback loops and predictive analytics over time can create domain architypes that can be the empirical basis to guide policy and action (Mian 2019). A good example is the Metaculus online platform and aggregation engine founded in 2015 which makes forecasting on issues of global importance based on crowdsourced data (Metaculus n.d.).
A strategic foresight resource center could bring together the power of AI and data and human expertise to plan intelligently and come up with policy options to support sustainable growth. The use of AI in decision-making and design thinking could support targeted interventions, resource efficiency and efficient implementation, and deliver value for the citizens and government itself; each succeeding government can learn from past plans and mistakes make enabled decisions, and consequently perform better. Ultimately, the effectiveness of a government’s decision-making will depend on the quality of its leadership, the use of reliable data, the level of stakeholder participation and, importantly, the political will to prioritize evidence over ideology or partisan interests (Mian 2019).
6.3. The State is a Long-term Stakeholder
While governments may come and go, the state endures and provides continuity in the face of changing political or environmental circumstances; the development of long term national digital infrastructures should be monitored by the state. In her influential work, economist Mariana Mazzucato (2013), stresses the role of the state in fostering long-term innovation and inclusive economic growth. One could make a case that a thinking state can be an entrepreneurial state with a long-term perspective on the long-term economic identity of a country (Mian 2019). It is important to determine priority projects for large-scale digital transformations in such areas as public safety, education, healthcare, tourism, e-government, environmental protection, urban life, non-cash payments and harmonization with European and world scientific initiatives. The main objectives of the state towards digitalization are to correct the shortcomings of market mechanisms, overcome institutional and legislative barriers, attract relevant investments, and stimulate the development of digital infrastructures (Okhrimrnko, et al. 2019). A government is the operational subset of the state and is responsible for implementing the policies and decisions of the state through a set of organizations and individuals.
Digital developments take place in an immersive ecosystem that supports such far reaching transformations; a government can establish long-term and sustainable artificial intelligence development policies, among other things, and come up with support measures to ensure that the AI-related ecosystem is smoothly established. (Lee, et al. 2019). The state played an entrepreneurial role in India and several other countries, by taking the risk of investing on a large scale in a new and complex infrastructure, a platform that is open and secure for delivering services for both public and business services (Hanna 2018).
6.4. Digital transformation and leapfrogging approach to growth
New tools, like artificial intelligence, machine learning algorithms, the Internet of Things (IoT), Internet of Everything (IOE) and blockchain could likely impact all sectors of the economy and how public and private organizations operate across it. Digital transformation can automate labor-intensive processes, improve decision-making, enhance customer experience, create new business models and revenue streams, and accelerate innovation. Digital transformation of government and its services is no longer an option (Hanna 2018).
7. LEAPFROGGING AND TRANSFORMATIVE GROWTH FOR PAKISTAN
Digital transformation, arguably, has the potential to enable a country to leapfrog in development and growth in the next decade by providing a range of benefits, including a boost in automation and innovation in public services and policy implementation and improved efficiency, access to information and competitive economic performance. Leapfrogging[iv] involves taking stock of existing technologies that have already been tried, tested and refined elsewhere in the world, and choosing to implement the most up-to-date version, thus skipping over successive generations of the technology in a cost-effective manner (Woon 2020). Wang et.al (2010) have posited that leapfrogging strategy is the use of policies to guide the industrial structural transformation ahead of a country’s factor endowment. Since Joseph Schumpeter’s pathbreaking work, technology has, in general, been recognized as the center of economic growth and development (Circera, Comin and Cruz 2022).
As mentioned earlier, recognizing the key role of new technologies, a number of countries are ploughing resources into AI research and deployment. Saudi Arabia’s Vision 2030 and the National Transformation Programme recognize the importance of AI in the country’s future. As part of the national agenda for Data & AI, the Saudi Data & AI Authority (SDAIA) was established to elevate the Kingdom as a global leader in the elite league of data-driven economies. King Abdulaziz City for Science and Technology (KACST) established a Data Analytics and AI Center to provide a world-class research environment while the curricula now contain programs on machine learning, AI and technology skills (Sairete, et al. 2021).
7.1. Chinese Solar Panels- a case of transformative leapfrogging
The country examples above indicate that diffusion of ICT technologies can support leapfrogging growth. Wang et al (Wang, Wei and Wong 2010) argue that a leapfrogging strategy is a government-led industrial policy intervention that tilts resource allocation to technologically sophisticated industries and helps private firms to find “latent comparative advantages”; for example the Chinese photovoltaic (PV) sector, through drastic shifts in directionality policies and entrepreneurial strategies, was able to mobilize a saltation strategy to move towards transformative leapfrogging (Yap , et al. 2022). China now dominates the solar energy sector, producing 77.8% of the world’s solar panels and possessing 393GW of solar capacity in 2022.
Leapfrogging could happen across some sectors and hasn’t been observed as an omnibus trend, thus the degree to which this can be made possible is dependent on the type of technology itself, the dynamics of leapfrogging approaches and, importantly, the country context.
8. LESSONS PAKISTAN CAN LEARN FROM THE EXPERIENCE OF OTHERS
Psychologist Robert S. Woodworth regarded thinking as a mental exploration of the data to deal with the environment effectively. Long-term country planning can be a sign of a thinking state (Mian 2019) which is positioning or pivoting for a future evolved version of itself. Digital transformation is an outcome of long-term vision and commitment by national leaders backed by institutions. Case studies of Estonia and Israel demonstrate that strong commitment and clearly articulated objectives and a vision from a country’s leadership are critical to a successful digital transformation.
Digital transformation is a journey which is unique to each country in many ways as the contexts, motivations, ideologies, histories, circumstances, socio-economic enablers are different. This is symbolized well by the question, “What is our Nokia?” as asked by Lennart Meri, Estonia’s first president. Since independence in 1991 from the Soviet Union, the leadership capitalized on the widespread cross-party support for the digital agenda and the intense desire to leapfrog the west’s technology. ICT development in society was seen as delivering a competitive advantage. The political focus was on developing IT as a general-purpose socio-economic skill to be shared by as many citizens as possible (Kattel and Mergel 2019).
Israel’s primary geographic challenge is its lack of abundant resources combined with its lack of strategic depth (Stratfor 2015) which led to mission orientation, technology as a source of value creation and productivity and a cultural acceptance of the need to take risks. Benjamin Netanyahu’s Banking sector reforms policy phased out government bonds that had a guaranteed annual return of about 6 percent (Senor and Singer 2011), releasing capital for technology developments. Until that point, Israeli pensions and life insurance funds were simply invested in the Israeli guaranteed bonds. Today Israel is one of the world’s foremost idea factories and provides clues for the meta-ideas of the future (Senor and Singer 2011).
Strong commitment and clearly articulated objectives and a vision from a country’s leadership are critical to a successful digital transformation (Ma 2021). Citing relevant examples from the South Asian neighbors; Pakistan established the National Database and Registration Authority (NADRA) in March 2000 while the Unique Identification Authority of India (UIDAI), a statutory authority, was established in January 2009 by the Government of India. While the former has performed well on providing solutions for identification, the latter has moved to the next level; the India Stack is an interoperable government-backed API, or application programming interface, upon which third parties can build software with access to government IDs, payment networks and data (Parkin, Reed and Singh 2023). Arguably NADRA could have gone farther with the head start of about 9 years.
Innovations like India Stack, K-city of South Korea, the New Comer Programme and the “one-in, one-out” rule of Lithuania, the last one being an excellent example of regulatory guillotine (Brefort 2011) approach, and China’s move towards transformative leapfrogging in the PV sector, to name a few, all exemplify cases where governments have broadened and deepened their entrepreneurial and innovation roles, stepping in where most needed. In the country examples mentioned above, the state displayed the capacity to harness successive strategies and deliver patient investments to build a dynamic digital transformation ecosystem, ubiquitous Internet access, digital platforms, digital literacy, digital leadership, and sustained commitment to transform (Hanna 2018). One of the key best practices has been the ability of the governments to have played a kickstarter role and create partnership with businesses and propitiate network effects in the digital economy.
As explained above, the state can take the long view compared to a tenured government, as digital transformation is a journey not a project. Explaining the role for the state in the digital age, Hanna (2018) has posited that an innovative, risk-taking state is critical to research new technologies, support early adopters and broad diffusion, encourage effective procurement of these technologies, promote open government data and analytics practices, and develop the complementary policies and test beds for effective absorption and local appropriation. The state can play a leading or catalyst role in developing the data economy and the innovations associated with using open data and big data across the economy; as new digital technologies and platforms emerge, these policies must also be continuously improved.
Complex contemporary challenges like climate change and technological disruption, including AI and biotechnology, have fast-evolving socioeconomic implications and long-term impacts that are already beyond the scope and realm of any single serving political government. The 1933 Convention on the Rights and Duties of States, while defining statehood, refers to the state as a “person of international law.” A state thus is free to “organize any system of government” and can have the endurance, broader view, the vision, and continuity to support the strategic agenda on how a country looks to position itself among its competitors and peers in the near future and how the long-term evolution will be realized (Mian 2019). One may note the UAE Centennial Plan 2071 which is a long-term, full-vision plan that extends for 5 decades after 2021. It forms a clear map for the long-term government work to invest in future skills and knowledge (UAE Government 2021).
It is said, “he who owns the data owns the future”. With the help of sophisticated predictive analytics tools and models, any organization can now use past and current data to reliably forecast trends and behaviors; organizations use predictive analytics to sift through current and historical data to find and exploit patterns contained within data in order to detect risks and opportunities and forecast events. (Olavsrud and Edwards 2023). The utility and effectiveness of data management will depend on the governance and kind of data transaction regime that is put in place. A clear set of rules can inform what kind of data will be generated, how it will be processed, and how it will be used in a fair and equitable manner. Autonomy and strong governance of the national data clearing infrastructure can assure that the strategic capability is used fairly, impartially, and efficaciously by successive governments.
Technological progress is a continuous and accumulative process; opportunities for leapfrogging may still exist, but they tend to happen under very specific conditions and are unlikely to generalize across most technologies (Circera, Comin and Cruz 2022). The leapfrogging hypothesis holds for mobile phones ( Adeleye, et al. 2022) and the diffusion of mobile phones is a prominent example frequently cited to illustrate the process of leapfrogging (Circera, Comin and Cruz 2022). For example, in the case of the telecommunications industry, we started off with landline connections, then transitioned to basic cell phones, and finally arrived at smartphones; it took twenty-five years for mobile phones to be popularized in the Western world, while Kenya achieved this feat in fifteen, and Myanmar in just three (Woon 2020).
There is enough evidence of leapfrogging in the ICT sector which points towards a high probability of that process happening within digital transformation. This has been recently reinforced by developments in AI; ChatGPT gained one million users just five days after launching in November, 2022 (Statista 2023). AI technology is making progress at a breakneck pace and is expected to lend a boost to digital transformation across all sectors, e.g., clinical practice, health and transport. The UK has just introduced the world’s first AI speed camera which has the capability to scan drivers inside their cars and tell how far over the speed limit a driver is travelling, as well as capturing those behind the wheel who are using a mobile phone or are not using their seat belts (Glover 2023).
Leapfrogging the card-based system, China’s Alipay and WeChat payment systems, built on digital wallets and QR codes have come to dominate person-to-person, retail, and many business transactions. Over 92% of mobile payments are made through these two systems. Vehicles and engines, telecommunications and semiconductors are three industries where South Korean firms achieved substantial catching-up or leapfrogging (Lee and Lim 2001). The transformative leapfrogging by the Chinese PV sector was made possible by drastic shifts in directionality policies and entrepreneurial strategies (Yap , et al. 2022).
The Chinese economy will be moving from old drivers of growth such as real estate, consumer internet platforms and low-end manufacturing to new ones such as technology-enabled industrial capacity & supply chain, new energy and materials and healthcare and life sciences. China constitites 33% of the global industrial capacity which is about $5-10 trillion; the AI upside could be 30 to 40% of that.
9. POLICY RECOMMENDATIONS AND CONCLUSION
AlphaBeta’s study (commissioned by Google) finds that digital technologies can unlock PKR 9.7 trillion ($59.7 billion) worth of annual economic value in Pakistan by 2030 (Access Partnership 2021). Digital transformation can be a powerful driver of growth for Pakistan in different sectors of the economy, including manufacturing, agriculture and exports; by leveraging new technologies, data and platforms, digital transformation can enable innovation, productivity and efficiency gains, as well as access new markets and customers. For example, digital transformation can help manufacturers optimize their production processes, reduce costs, improve quality and customize their products to meet customer demand.
A McKinsey report estimates that precision agriculture and digital farming can potentially add $500 billion in additional value to the global gross domestic product by 2030. Pakistan is 3rd in Asia in wheat production. In 2021, agricultural products worth $5.47 billion were exported from the country. The integration of digital technology and precision agriculture in Pakistan’s farming sector can reduce waste, raise yields, enhance resilience and traceability, and connect with buyers and suppliers. It is through the use of technology that we can support farmers, enhance food security, and raise the share of value-added exports.
Furthermore, digital transformation can help diversify and boost our exports by lowering trade barriers, facilitating cross-border transactions, enhancing competitiveness and creating new opportunities for value-added services. Pakistan’s technology sector also has a large export element, with annual revenue from exports of IT and IT-enabled Services (ITeS) accounting for over $3 billion in the fiscal year 2023-24; there is a delta that can be overcome through the right regulatory support which could raise the exports to over $8 billion by 2028. Thus, digital transformation can be a catalyst for economic diversification, inclusion and sustainability.
It is essential to highlight both the strengths and distinctive features of our nation’s ecosystem. A significant concern is the commitment to public policies that operate over a longer period to deliver results. It is imperative to enhance the skills of our workforce to address present and future needs, as evidenced by the gradual but ongoing decline of our labor force in the Middle East. Enhancing overall productivity is also crucial. Although Foreign Direct Investment (FDI) has been criticized for some downsides, it introduces global expertise and stimulates private capital mobilization, ultimately benefiting the ecosystem depending on its level of readiness. The example of Vietnam can be cited here.
Based on the findings, the following policy areas can be considered by developing countries for effective implementation of a digital agenda and overcoming the challenges of digitization:
- Government funding for digital public infrastructure: The government can invest in digital public infrastructure which can foster private sector interaction and mobilize private sector talent and investments. This signals the strategic priority that is being accorded to the digital sector and encourages other players to contribute to the ecosystem leading to transformational progress.
- Country diagnostics: It is of fundamental importance to understand the country context, advantages, gaps and existing value chains; a comprehensive country diagnostic study can map the ecosystem and lead to targeted policy making and implementation arrangements. While literature on digital transformation is beginning to find more depth; still the concept is not seen holistically and contextually, in terms of country history, culture and geography, as it most probably should as that has a strong bearing on how the country might fare over the long term with respect to the “mega trends” (KPMG, 2016).
- Sustainable policy frameworks and regulations: A policy framework on digital transformation needs to consider the dynamism of the sector and be made more sustainable over a longer period of commitment, lasting over multiple government tenures. Regular evaluation of the policies making up the framework will be crucial to achieving successes.
- Development of long-term roadmaps: Digital Transformation is a multidimensional multistakeholder enterprise. Long term road maps spanning over 10 years or more could be useful in codifying commitments, in resources, time and financing.
- Harness Public Private Partnerships (PPPs) for digital public service delivery and co-development: PPPs can promote and leverage domestic and foreign private sector investments in digital public infrastructure; this modality has worked in many countries to unlock capital, share expertise and technology and deliver efficient projects creating public value.
- Lead public sector agency for data governance: Designating or establishing a lead agency for data management could be a key measure to establish a data governance program. The Public sector agency or authority can be responsible for data stewardship, related policies, regulations and initiatives.
- Public policy sandbox: Policy making is evidently a complex process that could benefit from smart piloting to get ideas and data on how stakeholders respond to the policy. Sandboxing promises a test drive of policies, especially where uncertainty is high and the impact slightly longer term. Going further, it will be useful to bring some focus on data-based measurement on how specific policy actions or approaches have contributed to GDP growth in the past.
- Capacity building of key Government regulators: It would be useful to organize customized capacity-building workshops for key government officials and regulators on new internet-based business models for service delivery creation of new value-added opportunities and enhancement of digital trade.
- Skill-based training: The market is evolving to look for demonstrated skills and competencies; the young population needs ICT skills that can act as an important add-on to becoming entrepreneurs, skilled workers and freelancers. This is critical for developing countries with large youth population segments.
- Institutionalize international partnerships: Knowledge partnerships with international stakeholders can support the country’s effort to transform digitally by the sharing of knowledge, collaboration and resource mobilization, including FDI.
Long-term policy planning and a programmatic implementation can play a crucial role in supporting the digital transformation and leapfrogging development of Pakistan. A well-crafted policy framework can help address key challenges, such as infrastructure development, digital literacy, and regulation, which are necessary for a country to realize the full potential of digital technologies. Leapfrog growth can happen where conditions are favorable together with some latent comparative advantages, which need to be honed. Digital transformation is a holistic development spread overtime and takes place within the context of a highly interactive ecosystem, requiring shared vision, agile strategies, sustained commitment, and institutionalized collaboration (Hanna 2018).
Digital Transformation is also about securing a competitive national advantage which is created and secured over several years of consistent policy execution, not just one or two terms of a government. If experience is the best teacher, then the state, arguably, should have the experience of multiple administrations. The state can learn to pick winners, rather than losers picking the state (Hanna 2018). It can be posited that the case for digital transformation and the long-term evolution of our country is predicated on the commitment to the agenda maintained by the state through successive governments. Data science and AI can also help to compare index performance of successive administrations based on a set of consistent benchmarks that broadly support long-term direction.
Digital transformation is not a one-time event, but a continuous and holistic process that requires a shared vision, a long-term commitment, a flexible and adaptive approach, and a collaborative and inclusive ecosystem. To cite an example, the taxation system and digital technology present a mutual challenge-opportunity causal relationship; the former is complex, lacks clarity and places an invisible compliance burden on taxpayers, including ICT businesses, while the latter offers significant opportunity through reform of revenue administration that can digitize, simplify and modernize the system, broaden the tax base, raise revenue and grow the digital economy.
There is significant potential for Pakistan to enhance its economic growth through sectoral application of digital technologies. We need to look at the long-term horizon, harness our demographic dividend, leverage our existing strengths, and learn from the experiences of others.
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[i] Fintech, or financial technology, is a combination of the terms, “finance” and “technology,” which is a catch all term to describe any business that uses technology to enhance or automate financial services and processes.
[ii] All incoming and outgoing transfers are authenticated and encrypted. In addition, transactions are traceable, through a distributed ledger, which means that any transaction or information access will be recorded in several places.
[iii] The Israel Ministry of Defense, Directorate of Defense Research & Development (IMOD DDR&D) abbreviated Maf’at (מפא”ת).
[iv] Leapfrogging, in the simplest sense, refers to the ability of developing countries to make a “quick jump in economic development”.
