Digital Tools in Economic Development
Although fully 96 percent of households and 83 percent of small and medium enterprises (SMEs) have internet connectivity in Armenia, some surprising gaps remain in how people use this access. Quite simply, there is still a huge untapped market for online services, as the data suggest that many people and businesses are leaving digital opportunities on the table. This final blog of the series discusses why individuals and businesses might still be offline and proposes public policies that can expand the use of these technologies, thereby enhancing economic growth and building resilience for the future.
Individuals, businesses, and governments across the globe have been going digital in order to continue to function during the COVID-19 pandemic. In the longer term, these digital tools and networks can unlock new opportunities. Businesses can become more productive, access new markets, and prepare for future growth. Individuals - as citizens, consumers of goods and services, and participants in the labor market - can connect to information, services, and markets and seek out new avenues for social and economic development.
There is plenty of scope for change. Anecdotal evidence suggests that in the wake of social distancing and other measures to cope with the ongoing crisis, many people and a good number of businesses have switched to online activities. Yet at the same time, a survey that we conducted in late 2019 found that roughly 58 percent of the small businesses that did not use digital technologies in their business operations claimed that IT was not relevant, and 50 percent of the unconnected households similarly claimed that they did not consider the internet to be necessary or useful.
Online but not fully digital
These unconnected households and businesses are representative of a larger group of people who still have not been using the full range of services available on the internet. For example, only 13 percent of internet users had engaged in online shopping in the preceding three months, only 5 percent had used internet banking, about a third had sought health-related information, and only a sixth had accessed e-government services. For some specific practices, such as seeking health information, utilizing internet banking, or finding a job, Armenia’s numbers are lower than in the European Union but also than in neighboring Georgia, which has a similarly high rural population.
Small businesses in Armenia also do not seem to be taking advantage of digital opportunities. Although 43 percent use IT in sales and a third in customer relations management, only a fifth make payments to suppliers digitally and just a third pay their taxes online. In addition, the awareness of advanced technologies is at a low level among companies. Less than one-third of SMEs have heard of such basic enterprise management solutions as ERP, CRM, or electronic invoicing systems. Awareness of even more advanced technologies, such as IOT, artificial intelligence (AI), blockchain, 3D printing, and others, is, unsurprisingly, even lower. This indicates that there is a substantial awareness gap with regard to the technological possibilities available.
The quality of connectivity matters as well. As we have discussed, even though most households are connected, there are gaps still to be addressed. The first is in the types of connections that people have: 60 percent of rural households and 75 percent of urban households have fixed broadband connections. The rest rely on mobile connectivity, which might limit their ability to participate in online learning, for example, or benefit from tele-medicine services. And only a small share of connected households had subscribed to connections of over 100 Mbps; the rest are likely to face difficulties in obtaining reliable internet access, especially if multiple household members go online at the same time.
Even among the businesses surveyed, almost half did not know what speeds they had subscribed to (which is interesting, since it represents a business expense), and only 7 percent were connected to speeds above 100 Mbps. A quarter of connected firms reported that they had had connectivity issues in the past year, the most frequently reported problem. Again, this suggests that there is significant scope to improve access to reliable and high-quality broadband connectivity and hence create the foundation for a more digital economy in Armenia.
Positioning for a digital future
We think that positioning people and businesses to be able to more successfully use digital technologies will help Armenia to build both economic growth and resilience in the future. This effort will help more people and businesses connect to markets, services, and each other - thereby boosting productivity and inclusion, ensuring the continuity of services and business even during a crisis, and opening new channels to learning and earning.
What, then, might be the necessary focus areas for public policies? The gaps in access to and the use of high-speed fixed broadband are clear. Access to these networks can be boosted by increasing competitive pressure in the market to extend the progress that has been made thus far - Armenia’s internet market has grown quickly as its telecommunications and internet service providers have competed and invested. Any currently remaining barriers to the expansion of high-speed networks will need to be identified and addressed.
Even so, there will be places and users who remain out of reach of the market, either because of high-cost locations or because of commercial unviability. In these cases, public policies can strategically attract investment through arrangements such as public-private partnerships. There are many examples of similar programs from around the world, from Asia (e.g., Republic of Korea) to Europe (e.g., Finland, Lithuania, Germany).
Efforts will need to go beyond connectivity infrastructures, however, to also creating incentives to encourage more businesses and households to come online and link with the full range of digital services. Here, programs will need to address the existing barriers to adoption, such as the lack of applications and skills, resource constraints, and weak incentives to change business models when returns are unclear. Supporting the digital transformation of small businesses might be difficult, but the results can unlock gains for a large part of the economy.
These efforts can be complemented by programs that address gaps in digital capabilities among individuals, build awareness about relevant use-cases, and accelerate and sustain the digital transition that begins as people and businesses go online. Such policies would ensure that everyone in Armenia -irrespective of location or income - can gain access to the economic opportunities and digital dividends that technology can offer.
The authors acknowledge the support of the EU4Digital initiative, supported by the European Commission and implemented by the World Bank, and of the Digital Development Partnership that made this research and analysis possible.
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