The digital revolution provides significant opportunities for developing countries to diversify their economies, improve sector productivity, build their human capital and enhance governance and public services. This is particularly true for cities where much of this innovation will occur.
However, whilst the digital and concurrent ‘fourth industrial revolution’ have the potential to improve the lives of the urban poor, this is by no means guaranteed. There is therefore a key role for donors and governments who are able to influence and support the adoption of digital technologies in urban contexts, with the explicit aim of improving inclusion.
This paper is therefore intended to inform donors and governments currently considering programming or interventions, so that the digital revolution can be be harnessed as a transformational opportunity for developing country cities.
Summary
The paper begins by examining the technology-influenced risks and opportunities that are emerging for developing country cities. In then sets out the role that digital solutions have in a) growing inclusive urban economies, b) improving urban infrastructure services and c) improving urban governance. The paper provides a wide range of case studies from developing country contexts, making the case that mindful integration of digital solutions is vital to delivering efficient inclusive urban solutions that enable inclusive economic growth. Finally, the paper presents high level recommendations for governments, donors and investors whose leadership is required if the digital, and associated fourth industrial revolution, is to translate into prosperity for all.
Cities currently generate more than 80% of global GDP, with 100m people expected to move to cities by 2025 in Africa alone. However, whilst diversified urban economies have delivered increased productivity and pulled people out of poverty, the rapid urban growth seen in many non-diversified cities in emerging economies is not yielding such outcomes. In towns in non-diversified economies, 84% of jobs are vulnerable, versus 55% in large cities in the handful of economies that have managed to diversify. The majority of the urban workforce is in the informal sector (61%), contributing up to 80% of GDP in some countries. Women are particularly disadvantaged by the lack of formal employment opportunities, with informal jobs making up 92% of opportunities outside of agriculture. A key driver of low productivity in cities is under-development of government policy and services, and consequent under-investment in infrastructure needed to support businesses and households. This results in poor productivity, with annual labour productivity growth being low at 2-3%, however new technologies and technology-enabled business models may offer opportunities to improve productivity.
The Fourth Industrial Revolution (4IR) is a global phenomenon rapidly changing how economies and societies function. New technologies ranging from nano-technology to advanced digital technologies are rapidly changing how products and services are delivered, and how our global economy functions. This is creating threats to and opportunities for inclusive growth, which have been well documented in the World Bank’s Development Report 2016: Digital Dividends paper. In Ethiopia, Thailand, India and Nigeria, 65-85%[1] of jobs are estimated to be prone to automation, and job losses will also be experienced unequally by men and women. Men are projected to gain one job for every three lost to technology advances, whilst women will gain only one for every five lost[2]. In addition, the 4.2bn people currently without internet access are being excluded from many of the potential benefits of this revolution[3]. However, whilst clear threats exist, new digitally-enabled business models are taking hold in developing regions, with countries successfully leapfrogging the inefficient technologies and business models entrenched in the developed world. On-demand services such as Rwanda’s SafeMoto service, Digital Matatus in Kenya, and Uber and EasyTaxi are providing cheaper, safer, more accessible urban transport. India has a successful cohort of businesses innovating solid waste services for households and businesses. City governments across the world from Dar es Salaam to Bishkek and Jakarta are connecting with their citizens through apps and social media, providing more responsive, transparent and inclusive services.
As global centres of growth and production, cities will be at the forefront of harnessing the digital opportunity. Adoption of digital solutions to support urban development has been promoted by the ‘Smart Cities’ movement for the last decade, initially focusing on the use of digital solutions to improve infrastructure services. More recently, the term has come to encompass a whole range of approaches, from the broad use of digital solutions to improve the lives of citizens and urban economies, to the notion of a ‘Smart’ city as one which adopts strategic integrated planning principles. However, whilst this paper takes many cues from solutions and approaches developed by Smart City proponents, consultation revealed that for many the term is overly broad and too often associated with a ubiquitous championing of technologies to effectively aid this discussion paper. Instead, this paper sets out the broad risks and opportunities for digital and frontier technologies to support more inclusive urban development.
Whilst the adoption of digitally enabled solutions in cities could result in more inclusive growth, this is by no means assured. Section 1 of this paper therefore explores the risks and trade offs that digital solutions pose, exploring the broad economic shifts that ‘digital’ and the ‘fourth industrial revolution’ may support. It examines how issues such as automation, skills and training, labour policy, cyber security, and traditional gender divides may narrow or widen the existing digital divide, and highlights the key issues that donors and governments should consider when designing interventions.
To close section 1, the authors set out a high level theory of change for how the mindful integration of digital solutions in urban settings could theoretically result in improved urban market productivity, services, economic empowerment and inclusion. Noting that if developing countries do not embrace the digital opportunities with the explicit aim of promoting inclusion, jobs are likely to be lost to automation; a lack of skills may hamper development of new economic sectors; and infrastructure services will continue to fail to meet the needs of businesses and citizens.
There are significant sectoral opportunities for governments, and investors. Section 2 identifies the need for governments to help build for digital economies. In particular, governments can support development of new digital sectors, develop digital services for the informal sector, and promote digital skills needed for all, including the poorest. Section 3 sets out the opportunities to use data and digital solutions to enable better energy, transport, water and sanitation access in cities, noting the importance of using data to understand the service delivery needs of the most disadvantaged, and to enable financial sustainability of service models. Section 4 examines how city governments can use digital solutions to help them engage citizens, manage budgets and revenues, and control services and investments. The chapter focuses on the importance of increasing transparency and accountability, and enabling more effective investment in much-needed urban services. It also explores opportunities for cities to lead by example by building their own digital capacity, using data to enable decision making and adopting the digital development principles that promote inclusion and openness.
Actions for stakeholders: Section 5 identifies key actions for governments and donors and argues that governments and donors alike should not see the digital transition as a luxury, but as a necessity if cities and nations wish to maintain competitiveness, avoid productivity decline and secure the inclusive growth and poverty reduction outcomes they hope for.
[1] IDS Digital Development Summit Background Paper
[2] Amerasinghe 2016
[3] World Bank: World Development Report 2016: Digital Dividends