19 July 2022

It's time for public-private partnerships to drive digital trade in the most vulnerable nations

by Kati Suominen / in Op-ed

In 2013, I wrote an article calling for “Aid for eTrade” to serve as a cousin to Aid for Trade and promote digital trade through public-private partnerships. This idea led me to build, through my company Nextrade, a number of alliances and public-private partnerships (PPP) to promote digital trade. Some of these included eTrade for All with UNCTAD and subsequently the Alliance for eTrade Development I and II (or “eTrade Alliance”) with USAID and 14 companies, and by now five further initiatives, including a forthcoming one for Africa. The role of PPPs to promote digital trade and small businesses’ access to eCommerce is timely, especially in the most vulnerable nations.

COVID-19 accelerated digitization, digital entrepreneurship, and businesses’ adoption of digital technologies even in poor developing nations. This digitization in LDCs happened in parallel with global technology companies displaying interest to go beyond larger emerging markets and promote digital trade and foreign direct investments (FDI) in the poorest nations.

Unlike in 2013, PPPs are today widely embraced as a vehicle to promote digital trade. Now, they need to be used in places where they have been scarcer, such as the LDCs.  

Public and private sectors bring together complementary assets and capabilities to promote digital trade: development agencies have relationships with governments and experience in and resources for addressing the proverbial last mile (such as with underserved segments and rural areas), while the private sector has technologies, capabilities, and first-hand expertise on business models that accelerate development impacts.

How to then optimize and focalize PPPs to serve the needs of LDCs? Here are seven ideas.

First, financing from both the public and private sector is key to operationalizing PPPs. I have seen and tested many models – and the model that so far has worked best is a blend of in-kind resources and funding from the private sector, and robust co-funding from the public sector – including honest brokers to conceptualize and operationalize common initiatives and broker new alliances and relationships among private sector firms. Funding is critical and it needs to mostly come from donors.

Second, PPPs need an audacious vision – a North Star – for how the work will ultimately translate into economic growth, productivity, job creation, and well-being. It will require clear goals and key performance indicators (KPIs) to get to these ultimate impacts. Firms can use financial metrics (revenue, profitability, exports, cost savings, market share), and governments can use KPIs such as diversification of export products and markets and FDI flowing in the technology sector.

Third, PPPs for digital trade need to go beyond Business to Customer (B2C) models and promotion of products. Volumes in Business to Business (B2B) eCommerce are now booming thanks to B2B sellers’ embrace of omnichannel models. Another focus area needs to be digital services, the fastest-growing segment of world trade. Firms that sell digital services also obviate the thorny logistics constraints that hamper small goods sellers in cross-border trade. Promoting digitally deliverable knowledge-intensive business services will also enable developing countries to cultivate local digital services and plug into multinationals’ global and regional digital value chains.

Fourth, PPPs for digital trade need to look past trade toward enabling access to technologies and talent – as trade will typically follow. Firms that have succeeded at eCommerce have certain characteristics in common, and two stand out. One, they do not just use digital sales channels, but rather they use bundles of multiple technologies and digital services such as client relationship management systems, cloud computing, enterprise resource planning systems and Fintech solutions to streamline and scale their sales. Two, successful sellers also have the technical talent to leverage technologies and use eCommerce – and often developing country firms highlight talent as their top constraint for engaging in digital trade. PPPs can focus on enabling access to technology and talent – one promising opportunity is regional talent programs where firms can access technological capabilities and services beyond their markets and across their regions.

Fifth, PPPs must first and foremost strive for scale and sustainability. Most eCommerce development projects around the world tend to touch a few dozen or at best a few hundred firms. Going forward, we need solutions that address tens and hundreds of thousands of firms – better yet, millions. There are at least three ways to scale:

One is to better leverage platforms. Donors typically enable small firms and women-led firms to onboard these and other types of platforms, for example, to sell more online. However, they can work with platforms to enable digital trade and firms, such as by onboarding new buyers on two-sided platforms; and catalyze entirely new platforms. PPPs also need to think past platforms to leverage the next iteration of the internet – Web3, decentralized finance models, and the augmented reality capabilities of the Metaverse, to power firms and enable new ecosystem services.  

Another way to scale impact is to promote and digitize local ecosystems and services – do the backend work for firms to trade and access services with ease. It is essential PPPs seek to digitize the broader trade ecosystem (such as ports, free trade zones, customs, and single windows) and payments and handshakes among these players through technologies such as blockchain, artificial intelligence, internet of things, and digital B2B payments.

Still another way to scale impact, and one that I find the most critical, is to promote interoperability among digital platforms. As an example, a firm needs no particular workaround or capacity-building for cross-border payments if it can with a simple click accept payment from any customer paying through any platform. Also needed are fundamental solutions such as digital identity that enable firms to be easily authenticated and share data with multiple digital services and financing. Interoperability would also promote the regionalization of digital services needed for digital trade, such as regional lending and insurance services, and also facilitate the use of other financial services such as digital remittances. 

Sixth, enhancing digital policies is a must-have in any project for augmenting and scaling impacts. Our data show that MSMEs are increasingly hard-pressed to understand and comply with proliferating national digital regulations, such as consumer protection and data privacy rules. The global regulatory “splinternetdiscourages firms from diversifying their markets – and needs to be dealt with through coordinated approaches, such as via regional integration schemes and trade deals. At the multilateral level, the minimum is renewing the moratorium on customs duties on electronic transmissions, to enable developing country citizens and firms to access digital goods and services at low costs and also to ultimately export digital goods and services duty-free.

Seventh, PPPs need to do much more to advance the “science of digital trade development”. Development impacts need to be measured better in eCommerce development programs. Attribution can be improved by using, in firm-level interventions, control groups as well as econometrics and machine learning. The private sector can promote learning through its data.

PPPs are extremely timely to promote LDCs’ digital trade and help them access FDI  for the technology sector. Public and private sectors are both necessary, but neither is sufficient for success. The public sector benefits from the private sectors’ technology assets and capabilities it would never build on its own, to enable transactions and markets; the private sector equally benefits through working with donors to bridge market failures and co-fund longer-term initiatives to create entirely new markets – and promote digital sales, new jobs, and economic wellbeing.

To learn more about Aid for Trade and digital trade, register for the WTO Aid for Trade Global Review 27-29 July 2022

Any views and opinions expressed on Trade for Development News are those of the author(s), and do not necessarily reflect those of EIF.