Digitization not just for coping; embracing it is the way forward

THE only way to come out stronger out of this crisis is to embrace digitization and prevent compromising the country’s growth in the next three decades, according to the World Bank.

In a presentation in a public webinar on Tuesday, World Bank Philippines Senior Economist Rong Qian said the extent of the Covid-19 crisis has far-reaching effects, being considered as the “most adverse peacetime shock in over a century.”

Qian said that in order to survive, many firms have turned to technology. But, she said, this shift to digital platforms is not a mere coping mechanism but the wave of the future.

“This crisis is not only hurting the present, it can also lower potential growth [or] growth that the country can have in 10, 20, 30 years,” Qian said.

“I just want to make the emphasis that this shock that is the digital transformation that we were all forced to do is not a coping mechanism. It’s a new era that if you don’t get on it, you’re probably left behind. If you get on it and embrace it, you will come out stronger,” she stressed.

Qian said the Covid-19 crisis has prompted many firms to shift online and offer technology-based services. Many firms also increased their online presence via Facebook and/or Instagram.

Digital platforms

In the country, 42 percent of firms started using digital platforms such as Facebook and Instagram while 23 percent have invested in digital solutions, relatively well positioned compared to neighboring countries.

She added that the value of online banking transactions in the Philippines increased over 600 percent in March before and after the lockdown.

Qian said, however, digital adoption was not even across sectors. She said close to 60 percent of manufacturers and almost 50 percent of the education sector adopted digital solutions while business-process outsourcing (BPO) as well as accounting and legal services firms increased their digital operations.

She said retail and food services as well as agriculture were the least likely to adopt digital solutions.

“These new opportunities require democratizing digital access to prevent low-income families that don’t have digital access [from being] excluded in this process. If this digital divide is not addressed, this crisis could exacerbate the unequal access to economic opportunities,” Qian said.

Qian said some of the obstacles for digital adoption were access to finance, especially for micro firms, followed by the uncertainty of demand and unreliable or expensive Internet connections.

The list includes slow Internet speed. Philippine mobile broadband speed is only half the global average while 3G/4G mobile average download speed was half of the regional average.

Further, broadband penetration is low. She said the dominant mode of Internet connection in the Philippines is 3G technology through mobile phones, which is a slower version of the mobile technology.

In order to fast-track the country’s digital transformation, Qian cited a need to upgrade the digital infrastructure through the common tower policy; promoting digital payments; improving the efficiency of the logistics system; and foster a conducive and competitive business environment that promotes competition and innovation.

In terms of promoting digital payments, Qian said, the government can lead the way in this respect and by implementing the national ID, which can provide a secure KYC procedure.

Qian said the Philippines remains a predominantly cash-based economy with only a third having bank accounts. Many Filipinos are also “unwilling to use them due to perceived risks of digital transactions.”

This makes it necessary for the government to set up a consumer protection framework that is conducive for the growth of e-commerce and digital payments by building trust between online sellers and consumers.

“The government could be one of the pioneers by using  digital payments for payments of salary or delivery of social transfers, benefits and pensions,” she added.

Improving the logistics system is also important to encourage more businesses to engage in e-commerce. Apart from the cost of sending packages, the processing and clearance of imports and exports take longer in the Philippines at 120 hours versus 56 hours in Vietnam and 50 hours in Thailand.

Qian said regulatory requirements should be streamlined and should follow international best practices. There is also a need to modernize customs processes through automation including the online filing, processing and payments.

She said a business environment that promotes competition and innovation would reduce business costs and would be a big help to SMEs that were closed during the pandemic.