Building on a conceptual framework laid out by the United Nations Conference on Trade and Development (UNCTAD) in its 2017 World Investment Report, enabling policies, regulations and measures fall into three pillars.
Enabling investment in digital firms
The digital economy has generated a host of new business models. From social media and the platform economy to cloud computing and data centers, without the internet, such businesses would not have come into existence. Governments that embrace such new business models, create a facilitating environment for digital firms to thrive, and actively promote their digital economy are likely to have greater success in attracting investments.
Southeast Asia is a notable example where policies and measures have encouraged investment, such as the billions being invested in Gojek and Grab, ridesharing and delivery firms competing for market share in this region.
Enabling digital adoption by traditionally non-digital firms.
Beyond new business models, the digital revolution has the potential to change traditional ways of conducting business. Local enterprises may adopt various digital services to reduce obstacles caused by physical barriers, simplify supply and value chains, and provide speedy delivery of goods and services. A precursor to achieving such investment are policies and measures, including telemedicine, mobile banking and online sales, that encourage adoption of digital features to conduct business.
For instance, Polish telemedicine firm MedApp invested in the Baltic states, allowing cardiovascular diagnostics to be provided via telemedicine.
Enabling investment in digital infrastructure.
Robust underlying digital infrastructure is key for the development and growth of the digital economy. Attracting investment in digital infrastructure requires a conducive regulatory framework, for instance, policies and measures that encourage investment in payment processors. Success in attracting foreign investment in digital infrastructure can significantly benefit local companies, especially small and medium enterprises.
For example, Visa invested in Nigeria’s Interswitch, a payment switch and processing company, making Interswitch a unicorn overnight.
Questions investors must ask
Within each of these three scenarios, there are specific policies, regulations and measures that impact a potential investor’s decision to commit capital and other resources. Investors ask three main questions.
Do data localization requirements impact investment in digital firms and activities?
Data localization provisions mandate firms to store and process data locally through data centers. While this requires establishing a physical presence in a country to a certain degree, whether this serves as an impediment for digital FDI remains largely unexplored.
Do taxes on digital goods and services impact digital adoption in traditionally non-digital sectors?
In recent years, several countries have either imposed or are contemplating imposing taxes on mobile and internet usage, electronic goods, digital services such as e-books, and online streaming. However, aside from issues to do with the cost of collection, it is unclear to what degree such taxes affect digital adoption.
Does the use of international standards impact investment in digital infrastructure?
Technical standards for telecommunications, data, electronics and other infrastructure in the digital economy facilitate harmonization. Several international, regional, sectorial and professional organizations are active in standard-setting. However, these standards are rarely universally adopted. In such a context, the impact of using international standards for attracting investment needs to be better understood.
To answer these and other questions, the Forum has launched a new confidential survey asking firms to rank options on a 10-point scale. Findings from the survey will help formulate recommendations to governments, both at the national and multilateral levels, highlighting the most important policies, regulations and measures to consider adopting in each area.
With these advancements, enabling the growth of digital goods and services through attracting inward investment, while simultaneously facilitating the outward investment of firms into digital goods and services in other markets can play an important part in the world’s recovery from the current crisis.