Where is Lebanon’s trade in the transition to a digital economy?

The world is witnessing a digital transformation with obvious implications at all levels of the economy, especially at the trade level. New trends are emerging, common practices are being disrupted and competition is intensifying, especially with digitalization which is proving to be linked to greater trade openness and higher profitability.

According to the World Trade Statistical Review 2019, current trade statistics cannot quantify the level of international trade attributable to digital transactions. However, according to UNCTAD estimates, e-commerce sales reached $25.6 trillion globally in 2018, up 8% from 2017, accounting for nearly 30% of global gross domestic product (GDP). this year. This upward trend is highly likely to continue with the pandemic pushing e-commerce to the forefront of retail and accelerating the trend of digital adoption.

In fact, the rise of e-commerce and trading through online channels has driven businesses to move towards creating digital offerings that can meet growing demand where it was and will remain the only way to businesses to thrive in this new economy. environment and adapt to trends shaping the business landscape.

The shift to e-commerce has manifested itself significantly in many parts of the world, as a recent note from the OECD indicates. In the United States, the share of e-commerce in total retail increased to 16.1% between the first and second quarters of 2020, compared to 9.6% recorded during the first quarter of 2018. The same for the Kingdom In the United Kingdom, the share of e-commerce in retail trade increased from 17.3% during the first quarter of 2018 to 31.3% between the first and second quarters of 2020. The evolution is similar for China where the share of online retail in total cumulative retail sales between January and August 2020 reached 24.6%, compared to 19.4% in August 2019 and 17.3% in August 2018. This change has also gained momentum. relevance in several emerging markets such as Kenya, Bolivia and Colombia, where platforms have started to adopt new, more competitive business models by seizing long-term opportunities.

Benefits of faster and more reliable digital commerce

Countries that have adapted to this digital era have been able to realize the benefits associated with digital trade, including lower costs, less bureaucracy, better integration into global value chains, and stronger links with businesses and trade. consumers around the world. This digital revolution has also helped to create higher productivity for businesses, advance the skills of workers and generate greater well-being for consumers and job creation.

However, it should be mentioned that the gains of digitalization do not materialize automatically and the economic benefits are not directly realized in all countries, especially with the rise of various regulatory challenges, complex business transactions and several issues. trade, investment, privacy and security policies.

Many countries have focused their efforts on strengthening their information and communication technology services to promote innovation and foster the emergence of new services and supply models such as cross-border e-commerce, payments digital, cloud computing, etc. The COVID-19 pandemic has also accelerated the adoption of digital technologies and services, where digital trade has played a critical role in securing trade flows, albeit virtually.

According to McKinsey’s Global Executive Survey, companies accelerated the digitization of their customer and supply chain interactions and internal operations by three to four years, and the share of digital or digital in their portfolios has accelerated by seven years.

Where is Lebanon in the digital age?

While Lebanon’s main traditional growth sectors are severely affected by the aggravated crises, the country’s vision is set to structurally change the economy towards modernization and increasing the share of its productive sectors, mainly agriculture. and industry. In fact, this upgrading requires combining new technologies with production and delivery systems to succeed in creating growth and value-added jobs on the one hand and reducing costs on the other.

Advancing this process will not only put Lebanon on the path to economic development, but will also bring substantial social benefits by tapping into the country’s pool of educated labor and raising the standard of living of the population through to higher incomes.

Given the current circumstances, the revival of production and e-commerce will further allow the country to take advantage of the window of opportunity available, namely the devaluation of the Lebanese pound, to stimulate goods and services with high growth potential. export.

Unfortunately, Lebanon’s current economic model is no longer viable and not fit for the digital age, hampering the country’s ability to adapt to economic innovation and rapid technological change. As such, digital transformation can help Lebanon improve its economic prospects, especially with negative growth of 20% in 2020 according to World Bank estimates.

In terms of digital adoption, Lebanon captures only 4.7% of its digital potential, well below the average of 8.4% for Middle Eastern countries, highlighting significant untapped growth. The Lebanese e-commerce market is experiencing moderate growth. It still lags behind many of its neighbours, despite Lebanon being ranked 64e
worldwide, according to UNCTAD’s B2C e-commerce index 2020.

Several challenges hamper Lebanon’s ability to realize the benefits of digitalization. These challenges arise from deficiencies at different levels such as broadband connectivity, digital technologies, ICT skills, customs procedures, logistics, digital infrastructure, regulations, etc.

Digging deeper into the hurdles that stand in the way of a successful transition, Lebanon’s ICT infrastructure stands as the main hurdle, including due to chronic electricity shortages, high internet subscription fees despite low speeds, low subscription to fixed broadband and the absence of fiber optics. network infrastructure.

On the other hand, the ICT skills gaps stem from the outdated education system and the significant “digital divide” which results in a lack of knowledge and awareness of the fundamental digital skills needed for the digital economy.

At the government level, Lebanon ranked 127 out of 193 in the 2020 e-government development index (compared to 88 in 2018), highlighting shortcomings in e-payment systems and the absence of a legislative framework and regulatory framework that is vital for transformation.

Tools needed to seize opportunities

The main point lies in Lebanon’s willingness to engage and adapt to these rapid transformations. Despite several advances, the country still has a long way to go to overcome the challenges that are hampering the progress of digital trade in Lebanon.

According to the latest economic plan published by the Ministry of Economy and Trade, “the transition from a rent-based economic system to a productive economic system requires a profound – and sometimes painful – transformation at all levels”. The plan also pays particular attention to several productive sectors with high export potential, in particular the industrial and agricultural sectors, sources of national comparative advantages and value creation. As such, Lebanon needs to create an enabling environment for trade, take advantage of digital technologies and adapt them to the digital age with special attention to the modernization of these promising sectors and the exploitation of export potential. from the country.

Policy priorities include:

  • Invest in digital infrastructure in terms of logistics, online payments, e-commerce and digital regulations. These investments are imperative to improving the performance of digital commerce;
  • Expansion e-skills
    revising education and training systems and providing workers and MSMEs with the necessary opportunities to improve their skills and respond to changing labor market demands

Design accommodative trade rules, export promotion and trade facilitation strategies to strengthen the integration of SMEs into global value chains, such as the development of online platforms, digital solutions and targeted training aimed at building online business skills.

  • Revision and upgrading of the existing legal and regulatory framework ensure the success of any future agricultural or industrial policy. This involves developing laws and regulations to support legally recognized digital interactions and to protect the interests of all actors.
  • Involve all involved stakeholders including ministries, the private sector, universities and civil society.

And after?

Global trade is constantly changing, and the only way for Lebanon to develop its economy is to take advantage of its comparative advantages and integrate into global value chains. Technological and innovative advancements have posed several challenges forcing Lebanon, like many other developing countries, to create an enabling environment that would foster innovation and enable the imperative transition to a digital economy.

The Lebanese government has a crucial role to play in proactively pursuing digital technologies and expanding the use of digital services in commerce in order to reap the benefits of engaging with global trading partners and companies and avoid the risks associated with the poor adoption of these innovations. this can be disastrous for all productive sectors and citizens.

A holistic approach must be put in place and oriented to enable digital commerce to be the backbone of the country’s economic transformation.

Will Lebanon one day be a “digital” trading partner?

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