What will it take for Romania to fully reap the dividends of digital transformation?

Last week I was in Bucharest and attended the launch of the World Development Report (WDR) 2016: Digital Dividends. The event was co-hosted by the National School of Political and Administrative Studies (SNSPA) and the World Bank.

It was the first country-focused launch in an EU member state and brought together academics, business executives, regulators, journalists, former and current policy-makers to discuss the digital agenda and its implications for Romania’s EU2020 targets, growth and development. But this launch is not the only reason why Romania stands out.

The country actually represents a paradoxical case study in terms of digital transformation.    

Romania boasts nine of the world’s top fifteen cities with the fastest broadband internet, yet over 40% of the population is at risk of poverty or social exclusion – the highest rate in the EU.

The country is also making large strides in In terms of digital economy, with more and more people subscribing to fast broadband networks. Romania ranks second in the EU in this area, with 59% of fixed subscriptions linked to a fast connection [1] today, in comparison with 54% in 2013.

However, according to the Digital Economy and Society Index (DESI) 2015, Romania has an overall score of just 0.31 - last among the 28 EU member states.  Low levels of digital skills (only 20% of Romanians possess basic digital skills) and trust (only 7.7% of internet users use online banking and only 17% shop online - the lowest of all EU countries) seem to be holding back the development of its digital economy. With 1.3%, Romania also has the lowest share of ICT specialists in the workforce compared to other EU countries.

So what is the World Bank doing to help Romania maximize the impact of the digital transformation?

The WDR2016 highlights that “the full benefits of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health and promote good governance.”

We have supported advisory services for the Government on the National Strategy for the Digital Agenda in Romania (NSDAR), aiming to assist the country’s efforts to meet the objectives of the Digital Agenda for Europe 2020.  

One of the main findings of the Bank’s assistance in the area of digital agenda is that the internet access gap between rural and urban areas of Romania remains substantial. Romania’s rural population accounts for nearly half of the total (45%), yet rural broadband connections represent just over one-quarter (26%) of total connections in the country. While the penetration rate of broadband Internet was 60.28% in urban areas in 2012, is was just 23.47% in rural areas. This is due, in part, to regulatory bottlenecks and partly because of the limited implementation of public-private partnerships (PPP) to achieve universal coverage.

The WDR notes that geographical and poverty disparities are strongly related to the way technology is used in a country.

Given this, the first challenge for Romania is to simultaneously achieve both universal coverage and higher uptake of internet usage and content. This will require accepting that digital development strategies be much broader than ICT strategies. While connectivity for all remains a major goal, countries also need to create the conditions for technology to be effective. When the analog complements are absent, the development impact will be disappointing.

Moreover, to fully develop its digital economy and society, Romania needs to develop the digital skills of its citizens. At 48%, the country has the lowest percentage of regular Internet users in the EU. 39% of the population has never even used the Internet – more than double the EU average of 18%. This means that more than one-third of the population cannot benefit from the opportunities offered by the Internet, nor can they contribute to the digital economy.

But with these gaps also come opportunities – opportunities that can help advance the implementation of the Digital Agenda in Romania.

The presence of the main global ICT companies on the Romanian market, a well-developed ICT infrastructure in the big cities, a developing network with respect to internet access in public points, the existence of an operational online acquisitions platform at the governmental level, and the development of infrastructure for public e-services all bode well for the country.

Nevertheless, there are substantial limitations that will make achieving Romania’s EU2020 targets quite challenging, including:

• weak interoperability of governmental institutions and their multitude of IT systems;
• the absence of a robust digital authentication system allowing unique identification of users;
• a relatively limited number of computerized public services. 

Moreover, structure-related issues such as decreasing investment funds provided by the state budget and the ongoing decentralization of public authorities - resulting in greater autonomy for local government - have made it more difficult to enforce the use of interoperability standards nationwide.

Targeted and prioritized investments in ICT are therefore essential in meeting the specific targets set by the Digital Agenda for Europe 2014 – 2020. The National Strategy for Digital Agenda in Romania provides an umbrella framework for investments in the sector. The implementation of NSDAR is expected to have both a direct and indirect impact on Romania’s economy. Based on empirical observations in other European countries that have made similar investments, the impact may translate into a GDP growth of 13% - increasing the number of jobs by 11% and reduce administration costs by 12% during the period of 2014-2020.

I am confident that the digital opportunities in Romania are within reach. It will take smart policies to turn them into a source of jobs, growth and inclusion.