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UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT VALUE CREATION AND CAPTURE: IMPLICATIONS FOR DEVELOPING COUNTRIES DIGITAL ECONOMY REPORT2019EMBARGOThe contents of this Report must not be quoted or summarized in the print, broadcast or electronic media before 4 September 2019, 17:00 hours GMTDIGITAL ECONOMY REPORT 2019UNCTAD UNITED NATIONS UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT VALUE CREATION AND CAPTURE: IMPLICATIONS FOR DEVELOPING COUNTRIES DIGITAL ECONOMY REPORT2019EMBARGOThe contents of this Report must not be quoted or summarized in the print, broadcast or electronic media before 4 September 2019, 17:00 hours GMTLayout and Printing at United Nations, Geneva1911016 (E) ΠJuly 2019 Π3,151UNCTAD/DER/2019 United Nations publicationISBN 978-92-1-112955-7

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ii© 2019, United NationsAll rights reserved worldwide Requests to reproduce excerpts or to photocopy should be addressed to the Copyright Clearance Center at copyright.com. All other queries on rights and licences, including subsidiary rights, should be addressed to: United Nations Publications, 300 East 42nd Street, New York, New York 10017, United States of AmericaEmail: publications@un.org Website: un.org/publications The designations employed and the presentation of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. This publication has been edited externally. United Nations publication issued by the United Nations Conference on Trade and Development. UNCTAD/DER/2019 ISBN 978-92-1-112955-7 eISBN 978-92-1-004216-1 Print ISSN 2664-2255 eISSN 2664-2263 Sales No. E.19.II.D.17

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iiiNOTENoteWithin the UNCTAD Division on Technology and Logistics, the ICT Policy Section carries out policy-oriented analytical work on the development implications of information and communications technologies (ICTs) and e-commerce. It is responsible for the preparation of the Digital Economy Report, previously known as the Information Economy Report. The ICT Policy Section promotes international dialogue on issues related to ICTs for development, and contributes to building developing countries™ capacities to measure e-commerce and the digital economy and to design and implement relevant policies and legal frameworks. The Section also manages the eTrade for all initiative.In this Report, the terms country/economy refer, as appropriate, to territories or areas. The designations of country groups are intended solely for statistical or analytical convenience, and do not necessarily express a judgement about the stage of development reached by a particular country or area in the development process. Developed countries: the member countries of the Organisation for Economic Co-operation and Development (OECD) (other than Chile, Mexico, the Republic of Korea and Turkey), plus the European Union member countries that are not OECD members (Bulgaria, Croatia, Cyprus, Lithuania, Malta and Romania), plus Andorra, Liechtenstein, Monaco and San Marino. Countries with economies in transition refers to those in South-East Europe and the Commonwealth of Independent States. Developing economies in general are all the economies downloaded from UNCTADstat at: References to Latin America include the Caribbean countries unless otherwise indicated. References to sub-Saharan Africa include South Africa unless otherwise indicated. References to the United States are to the United States of America, and to the United Kingdom are to the United Kingdom of Great Britain and Northern Ireland. The term fidollarsfl ($) refers to United States dollars, unless otherwise indicated. The following symbols may have been used in the tables:Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been omitted in those cases where no data are available for any of the elements in the row. A dash (Œ) indicates that the item is equal to zero or its value is negligible. A blank in a table indicates that the item is not applicable, unless otherwise indicated. including the beginning and end years.Annual rates of growth or change, unless otherwise stated, refer to annual compound rates. Details and percentages in tables do not necessarily add up to the totals because of rounding.

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ivPreface The digital revolution has transformed our lives and societies with unprecedented speed and scale, delivering to realizing the Sustainable Development Goals, but we cannot take positive outcomes for granted. We must urgently improve international cooperation if we are to achieve the full social and economic potential of digital technology, while avoiding unintended consequences. understanding of the key digital opportunities and challenges before us. The Panel brought together diverse experts and put forward a wide range of recommendations, including on how to better govern digital technology development through open, agile and multi-stakeholder models. In that same spirit and in today™s fast-changing environment, I welcome this timely Digital Economy Report of the United Nations Conference on Trade and Development, which examines the implications of the digital economy, especially for developing countries. Digital advances have generated enormous wealth in record time, but that wealth has been concentrated around a small number of individuals, companies and countries. Under current policies and regulations, this trajectory is likely to continue, further contributing to rising inequality. We must work to close the digital divide, where more than half the world has limited or no access to the Internet. Inclusivity is essential to building a digital economy that delivers for all. the disappearance of jobs in some sectors and the creation of opportunities in others, on a massive scale. The digital economy will require a range of new and different skills, a new generation of social protection policies, and a new relationship between work and leisure. We need a major investment in education, rooted not just in learning but in learning how to learn, and in providing lifelong access to learning opportunities for all. The digital economy has also created new risks, from cybersecurity breaches to facilitating illegal economic Not a day passes for me without seeing the many ways in which digital technology can advance peace, human rights and sustainable development for all. This report offers valuable insights and analyses, and I commend it to a wide global audience as we strive together to ensure that no one is left behind by the fast-evolving digital economy. António Guterres Secretary-General United Nations

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vFOREWORDForeword digital divides threaten to leave developing countries, and especially least developed countries, even further behind. A smart embrace of new technologies, enhanced partnerships and greater intellectual leadership are Digital Economy Report Πpreviously known as the Information Economy Report the implications of the emerging digital economy for developing countries in terms of value creation and capture. explores how current trends of wealth concentration could be replaced by trajectories leading to more equitable sharing of the gains from digitalization. These are still early days in the digital era, and we have more questions than answers about how to deal with the digital challenge. Given the absence of relevant statistics and empirical evidence, as well as the rapid pace of technological change, decision-makers face a moving target as they try to adopt sound policies relating to the digital economy. UNCTAD is committed to accompanying its member States with evidence for informed decision-making, as they on the digital economy, our Intergovernmental Group of Experts on E-Commerce and the Digital Economy and the annual eCommerce Week provide valuable forums for policy dialogue. We also offer technical assistance and capacity-building, and seek to make such support more transparent and easily accessible through the eTrade for all initiative and its 30 partner organizations.It is my hope that this holistic approach will respond to the desire of people in developing countries to take part in the new digital world, not just as users and consumers, but also as producers, exporters and innovators, for creating and capturing more value on their path towards sustainable development. Mukhisa Kituyi Secretary-General United Nations Conference on Trade and Development 24Mukhisa KituyiSecretary-General of UNCTAD

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viiCONTENTSContentsNOTE iiiPREFACE ..ivFOREWORD .vACKNOWLEDGEMENTS ..viLIST OF ABBREVIATIONS .xivOVERVIEW .xvCHAPTER I. RECENT TRENDS IN THE DIGITAL ECONOMY .1A. ON THE CUSP OF A NEW DIGITAL ERA ..3B. WHAT IS T HE DIGITAL ECONOMY? 31. Evolution of the digital economy concept 42. Main components of the digital economy 4C. TRENDS IN EMERGING DIGITAL TEC HNOLOGIES ..61. Blockchain technologies ..62. Three-dimensional printing .63. Internet of things .74. 5G mobile broadband ..75. Cloud computing .76. Automation and robotics .87. .8D. DATA TRAFFIC AND DATA CENTRES 9E. TRENDS IN ACCESS TO AND USE OF ICT .121. Trends in connectivity 122. Connectivity gaps within countries 14F. RECENT EVOLUTION OF E-COMMERCE 15G. THE RISE OF TECHNOLOGY COMPANIES IN T HE GLOBAL BUSINESS LANDSCAPE.17H. CONCLUSIONS 21CHAPTER II. VALUE IN T HE DIGITAL ECONOMY ..23A. DRIVERS OF VALUE CREATION IN T HE DIGITAL ECONOMY ..251. Digital platforms 252. The central role of data and digital intelligence in the digital economy 27a. The complex nature of data ..27b. The economic value of data ..29i) The data value chain 29ii) Data monetization .29iii) fiOwnershipfl of data .32

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viiiB. A FRAMEWORK FOR ASSESSING VALUE IN T HE DIGITAL ECONOMY .331. Implications of the data-driven economy ..332. Dimensions of value in the digital economy ..37a. Distribution of value 37b. Scope for upgrading 37c. Governance of value creation 37d. Value creation vs capture 38C. CHANNELS FOR VALUE CREATION IN T HE DIGITAL ECONOMY IN DEVELOPING COUNTRIES381. Platformization382. E-commerce platforms ..403. Digitalization of value chains 42D. NEW PAT HS FOR VALUE ADDITION, STRUCTURAL TRANSFORMATION AND DEVELOPMENT ..43E. CONCLUDING REMARKS .44CHAPTER III. MEASURING VALUE IN T HE DIGITAL ECONOMY .47A. CHALLENGES TO MEASURING VALUE IN T HE DIGITAL ECONOMY ..491. Measuring the different dimensions of the digital economy ..492. International initiatives for measuring the digital economy .50B. VALUE ADDITION IN T HE ICT SECTOR .511. Overall trends in value added in the ICT sector .512. Value added in ICT manufacturing ..543. Value added in telecommunications and computer services ..55C. EMPLOYMENT IN THE DIGITAL ECONOMY ..581. Employment in the ICT sector 582. Employment in ICT occupations 60D. TRADE RELATED TO T HE DIGITAL ECONOMY .621. Trade in ICT goods .622. Trade in ICT services ..643. Trade in digitally delivered services ..65E. VALUE ADDED IN E-COMMERCE .68F. COMPREHENSIVE MEASUREMENT OF THE DIGITAL ECONOMY: SOME EXAMPLES 691. Accounting for digital spillover effects .692. National initiatives to estimate the value of the digital economy ..69G. EVIDENCE OF THE VALUE OF T HE DATA MARKET 70H. CONCLUSIONS 70ANNEX TO CHAPTER III 72

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ixCONTENTSCHAPTER IV. VALUE CREATION AND CAPTURE IN T HE DIGITAL ECONOMY: A GLOBAL PERSPECTIVE ..81A. GLOBAL REACH OF MAJOR DIGITAL PLATFORMS ..83B. MARKET CONCENTRATION DYNAMICS ..841. Monopolistic trends .842. .853. Expansion into other sectors ..874. Information asymmetry and data .885. Engaging in global policymaking ..88C. THE INTERNATIONAL DIMENSION OF DATA 89D. DIGITAL DATA AND GLOBAL VALUE C HAINS 921. Global data value chain .922. Digital advertising revenue 933. Cloud and infrastructure assets .94E. DIGITAL PLATFORMS AND TAXES ..95F. IMPACTS ON EMPLOYMENT AND PLATFORM WORK 961. Impact of digitalization on employment .962. Work related to digital platforms .97G. CONCLUDING REMARKS .99CHAPTER V. ASSESSING THE SCOPE FOR VALUE CREATION AND CAPTURE IN DEVELOPING COUNTRIES ..103A. THE IMPORTANCE OF BUILDING DOMESTIC PRODUCTIVE CAPACITY ..105B. THE USE OF GLOBAL DIGITAL PLATFORMS IN DEVELOPING COUNTRIES ..106C. LEVERAGING LOCAL AND REGIONAL DIGITAL PLATFORMS ..1081. 1092. Drawbacks from the lack of innovation platforms 1103. Limited growth potential of local and regional digital platforms .111D. DIGITAL ENTREPRENEURS HIP ..1121. Entrepreneurial ecosystems ..1122. Main ecosystem bottlenecks ..112a. Small and fragmented local markets ..112b. Inadequate entrepreneurial knowledge and skills .113c. Lack of a highly skilled and affordable workforce ..113 .1133. Innovation hubs: Opportunities and challenges ..1144. Unevenness and vicious cycles in ecosystem development ..116E. STRATEGIES FOR DIGITAL ENTERPRISES IN AFRICA 1171. Old-school sustainability: Customer relationship scaling as a viable alternative 1172. Last-mile platforms: Moderate user-base scaling through digital-analog infrastructures ..1183. Using exclusive local assets to derive value for clients in developed countries .118F. DIGITALIZATION OF ENTERPRISES IN DEVELOPING COUNTRIES ..119G. CONCLUSIONS .121

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xCHAPTER VI. POLICIES AIMED AT VALUE CREATION AND CAPTURE 123A. INTRODUCTION 125B. NATIONAL POLICIES FOR CREATING AND CAPTURING VALUE IN T HE DIGITAL ECONOMY 1251. Connecting the dots in policy-making ..1252. Lessons from UNCTAD™s Rapid eTrade Readiness Assessments of LDCs 126a. Strategy formulation 127b. ICT infrastructure and services development ..127c. Trade logistics measures ..127d. Payment solutions 127e. Legal and regulatory frameworks .127f. Skills development ..127 .1283. ..1284. Empowering women entrepreneurs in the digital economy 1305. Supporting the digitalization of enterprises 131C. DATA POLICIES FOR CAPTURING VALUE 1311. Data ownership policies..131a. Personal data markets ..132b. Data trusts ..132c. Collective data ownership 132d. Digital data commons 1342. Data protection and privacy ..1343. Data security ..1354. ..135a. A balancing act .135 .1365. Building skills for data-driven development ..137D. COMPETITION POLICY 1381. Updating competition policy for the digital economy .1382. Competition law enforcement ..138 138b. Abuse of market power assessment ..139c. Merger review 1393. Regulation as a solution .1404. The need for greater international collaboration ..141E. TAXATION OF DIGITAL PLATFORMS ..1421. Issues at stake 1422. Current policy developments ..1423. Enhancing developing-country involvement in global tax debates ..144F. INTELLECTUAL PROPERTY RIG HTS POLICIES IN THE DIGITAL ECONOMY .144G. LABOUR MARKET AND SOCIAL PROTECTION POLICIES .146H. THE NEED FOR INTERNATIONAL SUPPORT ..147I. CONCLUSIONS: A DIGITAL ECONOMY FOR T HE MANY, NOT JUST T HE FEW .148REFERENCES 154

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