Digital transformation is one of the most crucial factors changing modern human life, from steam engines to electronic machines, and from digital computers to artificial intelligence (AI). Recent AI technologies include software as a service (SaaS), robotics, the internet of things (IoT) and virtual reality (VR).

In the last decade, the annual number of industrial robot installations worldwide has more than doubled, with more than 400,000 robots installed in 2021 alone. China, Japan, the United States, Korea and Germany accounted for 76 percent of total industrial robot installations.

In the last five years, investment in AI increased almost sixfold from US$13 billion in 2015 to $68 billion in 2020. Brazil, India, Canada and South Africa are among the countries with the highest growth in AI for hiring.

Digital transformation reduces the cost of sharing information, leading to unprecedented changes in what and how we trade. The pandemic has even accelerated digital transformation and digital trade. Developments in digital trade include digital payment services and digital service delivery.

Global retail e-commerce sales in 2020 increased almost 30 percent from 2019 levels (Statista, 2021). In 2020, around 24 percent of firms received orders online and over 40 percent of firms placed orders online (UNCTAD, 2022). Digital trade reached $4.9 trillion last year, and is estimated to reach $5.5 trillion this year and more than $10 trillion by 2030.

Overall, digital transformation improves productivity and trade. Technological advances can work faster and with greater precision and accuracy, and thus reduce production and operating costs. Industrial robots and AI can also help markets to function more efficiently and improve overall human welfare.

While digital transformation improves productivity and trade, it also widens inequality in at least two ways. First is through the displacement effect: Capital and technology take over tasks previously performed by human labor, while automation reduces labor’s share in value added. This displacement effect impacts both employment and wages, particularly for less skilled workers who can be replaced by robots and AI.

Second is through premature deindustrialization: Digital transformation can impact developing countries by the loss of manual and routine jobs before they have become “developed”.

On top of inequality, we face other key challenges in digital transformation, including digital trade.

First is privacy. The personal information and data of individuals are exposed to service providers, including pervasive data exchange that has fueled concerns about the use and misuse of data.

Second is cybersecurity. The rapid expansion of digitalization and data use by businesses and consumers for communication, digital trade and to access information and innovation, comes with increased threats against data, against systems and against people.

Third is competition. Advanced technology enables firms to produce and operate at massive economies of scale, leading to market concentration. Market concentration in turn reduces competition and can create barriers to micro, small and medium enterprises and start-ups to result in an uneven playing field, with big tech players using integration as a strategy to dominate markets and capture more revenue at consumer cost.

Lastly is the digital divide. Digitalized systems and digitally delivered goods and services still account for lower shares in least developed countries than in other countries in the world.

To illustrate, only 2 percent of the population in low-income countries conducted digital trade. Countries, firms and individuals vary greatly in digital trade readiness, depending on infrastructure, capacity and education.

Considering the advantages and challenges of digital transformation and digital trade, what can the Group of 20 do?

First, it is important for the G20 to implement its digital transformation and digital trade commitments, including the Industrial Revolution Action Plan, Roadmap for Digitalization and most recently, AI adoption. What we need now is to operationalize and implement these commitments.

Second, it should improve the quality of key digital enablers, including data security and data governance, laws and regulations, and digital infrastructure and skills. This requires the G20’s commitment to ensuring digital inclusiveness for all.

Third is to promote efforts to improve individual preparedness, as digital transformation is, in the end, about people. The G20 should promote efforts to improve people’s preparedness for digital and AI technologies to reduce the digital divide within and between countries. This calls for better G20 cooperation in providing incentives for the adoption of “good technology” by developing countries.

Finally, the G20 must work to improve the quality of privacy laws as well as competition and antitrust laws, and it is crucial to ensure their worldwide implementation.

This is a must for the G20, which will meet at the at Bali summit in mid-November to ensure it realizes its aim of digital transformation as development for all.

***

The writer is Southeast Asia lead advisor at the Economic Research Institute for ASEAN and East Asia. The views expressed are personal.