The Digital Silk Road: How Tech is Reshaping Global Trade
In our rapidly evolving world, the digital revolution has brought about transformative changes, presenting both opportunities and challenges for the international trading system. The proliferation of e-commerce, digital services, and innovative business models have reshaped the global market and propelled economic growth and prosperity in both expected and unexpected players. Services have served to play an important role in employment and empowerment of women and youth, and now global exports of digitally delivered services have tripled since 2005, reaching US$3.82 trillion in 2022. The abundance of data generated by the digital economy has also facilitated the growth of sectors such as fintech, health tech, and smart cities.
Inspired by the ancient trade routes, I term the emergence of technology as a catalyst for global trade and the potential of the untapped frontiers it brings in this new era, “the Digital Silk Road” - representing the network of digital infrastructure and services that traverse borders, connecting countries, regions and fundamentally transforming the way we conduct business, communicate, and interact with one another. My musings in this post surround understanding the implications of this evolving landscape and the profound impact of the digital divide on developing countries, before examining means of improving the participation of the Global South in digital trade, particularly that of the Caribbean region in digital services (online trade in goods and in digital products and services are estimated to have grown in the Latin America and Caribbean region at the respective rates of 21% and 20% to 30% year-on-year up to 2020.) I will address the threats to the digital service sector, data privacy and security concerns, in a later blog post.
Advantage 2.0: Tech-Powered Trade and Reshaping Comparative Advantage
The utilisation of technology and data in trade has had a profound impact on economies, allowing capital-abundant countries that manage to leverage advanced technologies such as robotics and AI to gain a competitive edge in certain industries, reshaping comparative advantage in global trade. At the basest level, international trade exists because no country can produce everything it needs efficiently or cost-effectively, and comparative advantage as a concept refers to the ability of a country to produce a specific good or service at a lower opportunity cost than other countries; when countries specialise in producing goods or services in which they have a comparative advantage, they can trade with other countries to obtain the goods or services they lack. With countries like South Korea, Taiwan, and Singapore successfully integrating advanced technologies like robotics, automation, and artificial intelligence (AI) into their manufacturing sectors and enhancing their productivity, improving product quality, and driving innovation, these countries have managed to remain competitive in global markets, attract foreign direct investment (FDI) and strengthen their export-oriented industries, creating comparative advantages in industries they never possessed comparative advantages in before.
Asian nations have witnessed tremendous growth in e-commerce and digital trade, and the rise of platforms like Alibaba, JD.com, and Shopee has facilitated trade within and beyond the continent, enabling small and medium-sized enterprises (SMEs) to participate in global value chains and expand their reach, access new markets, and increase efficiency in cross-border transactions, contributing in turn to economic growth, job creation, and improved competitiveness. Japan and South Korea have excelled in developing data-driven services by embracing digital transformation, investing in research and development, and creating favorable ecosystems for startups and tech companies.
In the west, the United States (US), being a global leader in technology and innovation, has also reaped immense benefits from technology and data in trade, with companies like Google, Apple, and Amazon leveraging technology such as data analytics to dominate global markets. Digital services, including software development, e-commerce, and financial technology, have also contributed significantly to the GDP of the US, and its export earnings. In Europe, countries such as Germany are known for having an advanced manufacturing sector through the adoption of automation, robotics, and data analytics. German manufacturers manage to achieve higher productivity and efficiency through the use of smart factories and IoT (Internet of Things) technologies which allow for real-time monitoring and optimisation of production processes.
Opportunities and Challenges: The Rise of Digitally Enabled Service Exports
Services represent the future of trade, and digital services have emerged as the driving force that is shaping the economic development of the future, accounting for the largest share of global economic activity by generating more than two-thirds of GDP, and employing the most workers, serving as a key source of most new job creation, and providing opportunities for the most vulnerable groups to participate in digital trade, including women and young workers according to World Bank and WTO data.
As illustrated earlier, comparative advantage is not static and can evolve over time; by harnessing digital technology, I believe that we in the Caribbean can similarly seek to transcend geographical boundaries and capitalise on developing a small but highly skilled workforce which can offer niche digital services to clients worldwide. Bangladesh, one of the most successful least developed countries (LDCs), is a great example of a developing country increasingly engaging in digitally enabled service exports. The genesis of a wide range of services that can be delivered remotely using digital platforms and communication technologies, including IT and software development, business process outsourcing (BPO), call centers, graphic design, digital marketing, e-commerce support, and more, present opportunities for us in the Caribbean and other countries of the global south to benefit from investment in our technological capabilities in order to develop these niche industries and establish new competitive advantages based on factors like proximity to markets, natural resources, and specialised knowledge.
But how can we accomplish this? You may be thinking to yourself as you read this that many of our islands still lack the infrastructure in addition to the financial resources needed to fully profit from digital trade, and you would be correct. I believe that while the previously outlined countries have made significant progress in establishing themselves in the IT sector, developing countries in the Caribbean will face challenges in achieving the same level of success if we don’t adapt to suit our circumstances.
I propose three things, educating and upskilling our available workforce to niche IT related jobs, creating a favorable business environment by fashioning and implementing clear policies which enable digital service trade, and seeking out opportunities for financing and technology transfer in the industry.
Firstly there are the matters of scale and market size, linked to education and skills development. The countries I initially mentioned tend to have larger populations, which provides a sizable talent pool for the IT industry, the scale of which allows them a greater number of skilled professionals and a more competitive market. Caribbean countries by contrast tend to have smaller populations, especially the OECS countries, limiting the available talent pool and potentially hindering the growth of our IT sector. Despite this, what we can learn from the global north as something reoccurring was their investment in enhanced educational systems which emphasise technical education and IT-related courses, contributing to the development of skilled workforces.
In the Caribbean, we can work on developing a highly specialised cluster of IT professionals, who will be key to niche industries, by aligning our educational systems to the demands of the IT industry, leading to an increase in those specialized skills. There have been some efforts to do this, such as the Government of Antigua and Barbuda offering a limited number of scholarships to interested students to pursue studies at the School of Science, Computing and Artificial Intelligence at the UWI, Five Islands Campus in 2021, and the Caribbean's first AI conference - the UWIFIC 5IR Artificial Intelligence Annual Research Conference - being held at the UWI, Five Islands Campus in 2024, but there needs to be a stronger push from Ministries of Education across the region to revamp the curricula from the Primary School level upwards, to prepare students for the new realities of our age.
The next thing for consideration is creating domestic enabling environments for trade in digital services with the support of the Government. Ministries of Information across the region need to create clear policy documents which support digital services, and our Governments need to implement such favorable policies and incentives to attract foreign investment in the IT sector. This is essential for both domestic and international service providers, and their increased commerce and investment in services in turn will boost productivity growth and serve as a vital conduit for the diffusion and uptake of new technologies and know-how.
Finally infrastructure and connectivity, both of which can be constrained by the lack of financing at the disposal of Caribbean countries. The previously outlined countries have made substantial investments in digital infrastructure and connectivity in order to improve internet bandwidth and increase access to technology across their populations which aids their digital service industries, by contrast the Caribbean region, while having made some strides in these areas, still faces challenges with limited internet connectivity in some areas and insufficient digital infrastructure, posing a threat to the establishment of a robust IT industry in our islands. While mobile internet access is widespread in the LAC region, there are coverage gaps, with quality also posing an issue - a World Bank and WTO joint report noted that 55% of households that have some internet connectivity report low quality of services. The report also reflected that there are usage gaps in the region due to the high cost of internet services, a lack of awareness about the potential advantages of connectivity, and unfamiliarity with digital platforms.
Within the country groupings of SIDS and G77, CARICOM, OECS and Caribbean states in general need to push on the global stage for the realisation the the “Trade in Services for Development” initiatives, and Aid-for-Trade packages which have been floated in forums such as the WTO, as well as advocate more strongly for technology transfer and financing in the area of digital trade.
The Caribbean's digital transformation journey must recognise the importance of international cooperation in the digital age, as it will be key for the region to overcome some of the structural impediments to the achievement of a thriving IT sector, and unlocking thriving digital trade in services and the benefits which flow with it. I participated in a workshop on "Digital transformation in the Caribbean for inclusive and sustainable justice" held by the Dominican Republic judiciary which focused on leveraging digital tools for legal cooperation against corruption and organized crime, and was able to present on Antigua and Barbuda's successful e-justice portal, launched in 2020, and my biggest takeaway were the similarities in difficulties faced by other islands in the region, and the fact that South-South cooperation on the sharing of digital tools is also vital to our success in the digital arena.
Regarding financing, the Caribbean Development Bank (CDB) and other development banks can also play transformative roles. The CDB already plays a role in financing infrastructure projects in the region, but to further bridge the digital divide, the CDB could offer several financing options including making low-interest loans available to regional governments and private companies to invest in building telecommunications infrastructure, expanding internet coverage across the islands, and improving bandwidth.
The digital revolution is transforming the world, and the Caribbean cannot afford to be left behind. By embracing digital trade and fostering a culture of innovation, we can create new jobs, empower our youth, and build a more prosperous and resilient future for all. The journey on the Digital Silk Road has just begun, and the Global South has a unique opportunity to shape its own path to success; we need to prioritize revamping our education systems, creating favorable policies for digital services, and securing financing for infrastructure projects.
In a future blog post, I will delve deeper into data privacy and security which are also crucial considerations in the digital age, considering both the implications on trade, and means of ensuring a safe and secure digital environments for developing countries, such as those in the Caribbean.