Saudi Internet Economy Outperforms Other Strong Emerging Markets
JEDDAH: A new report by The Boston Consulting Group, a global management consulting firm and a leading adviser on business strategy, finds that Saudi Arabia has built a globally competitive internet economy.
The research also found that, worldwide, the gap between countries with large digital economies and those with low online activity amounts to roughly 2.5 percent of GDP, a material figure for any nation.
The study, titled Which Wheels to Grease? Reducing Friction in the Internet Economy, follows BCG’s earlier report, The Connected World: Greasing the Wheels of the Internet Economy. The 2014 analysis identified 55 indicators of “e-friction” that hold back online activity among consumers, businesses, and governments. The accompanying BCG e-Friction Index used those indicators to rank 65 economies according to four types of friction: infrastructure frictions that limit basic access; industry and individual frictions that affect the ability of companies and consumers to transact online; and information frictions tied to the availability of and access to online content. The new research builds on that framework and sets out how economies can climb the e-friction ladder.
“The Internet has created an unprecedented environment for businesses to grow and flourish, thanks to its permission-less innovation, which makes it possible for everyone to explore the untapped opportunities of today’s digital economy,” said Baher Esmat, vice president of stakeholder engagement for the Middle East at the Internet Corporation for Assigned Names and Numbers, which commissioned both the 2014 report and the update. “Countries in the Middle East have the potential to grow their digital economy, and this report by BCG demonstrates how the UAE and Qatar are tapping into this potential and leading the way for growth,” he added.
Where the Kingdom Ranks
The 2015 BCG e-Friction Index places Saudi Arabia 44th globally, ahead of several strong emerging economies such as Brazil, China, India, South Africa, and Turkey. Regionally, the Kingdom ranks sixth, behind Qatar, the UAE, Bahrain, Kuwait, and Jordan.
“In advanced and productive Internet economies, consumers and businesses face few restrictions or constraints on digital activity, what we refer to as ‘e-friction,'” said Hermann Riedl, partner and managing director at BCG Middle East. “The nations that are still lagging behind, however, both in the GCC and in the rest of the world, need to imminently address their sources of e-friction; after all, doing so could have a strong impact on national competitiveness as well as on social and economic development.”
He added that the broad causes of e-friction include wealth, population density, the urban-rural population mix, literacy, and English-language skills. While some of these can be shaped by policy, he said, others call for more creative approaches.
Clusters of Digital Performance
Analysing economies by their e-friction scores against per capita GDP reveals some telling groupings. Eight clusters emerge, divided into three groups by income level. Among high-income economies, “all-rounders” and “well-oiled nations” such as the UAE tend to have low e-friction scores, though the well-oiled group performs less consistently across the 55 indicators than the all-rounders do.
High-income overachievers such as Bahrain excel thanks to focused digital-economy initiatives in areas like infrastructure deployment and e-government. High-income aspirants such as Saudi Arabia, Kuwait, and Qatar enjoy a high per capita GDP despite, rather than because of, the level of friction in their digital economies, with generally moderate performance across the metrics.
Among middle-income economies, achievers outperform on e-friction, while middle-income rural economies and middle-income urban aspirants face equally significant but different challenges. For rural economies, the question is how to deploy infrastructure to large rural populations given the heavy capital costs, high operating expenses, and low average revenue per user. For the others, it is whether to make trade-offs between large unconnected urban populations and those in rural areas.
Finally, the economies with the lowest per capita GDP and poor e-friction performance across the board face compounded challenges rooted in low incomes, rural populations, and often low literacy rates. The economic and social payoff from tackling those challenges is correspondingly large.
Working through all 55 indicators, the report argues, can help any economy reduce friction, boost internet use, and expand digital activity. “No economy should rest on its laurels,” Riedl said. “Even the most advanced economies have sources of friction to address, such as those related to outdated regulation, excessive bureaucracy, and impediments to investment; these require careful interventions.”
