The Covid Test :
towards a digital transition of the economies of central and eastern european countries
by Paul Sapriel.
1 – Covid, a developer and catalyst for the development of the digital economy in Central Europe
In the first five months of the Covid-19 pandemic, the digital economy in Central and Eastern Europe (CEE) grew almost twice as fast as in the previous two years. Indeed, according to a McKinsey report entitled “Digital Challenger in the next normal”, it is estimated that between January and May, the digital economy in Central and Eastern Europe grew by more than 14%, or €5.3 billion.
Almost 12 million new users of online services emerged in Central and Eastern Europe in the first months of the pandemic. The strongest growth was seen among consumers over 65 years of age. According to the same report, the effects of the pandemic, such as the change in the consumption patterns of digital services, could be long-lasting, especially as the health and safety measures related to Covid are likely to be prolonged. Around 70% of respondents say they will continue to use new digital services after the pandemic.
The report builds on McKinsey’s series of studies examining the rise of what he calls “digital challengers” in the CEE region. The analysis covered ten countries: Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia are considered digital challengers as they have a high growth potential in the medium term. According to the research carried out for these previous reports, a successful digital transition in the region could contribute to a €200 billion increase in GDP by 2025. Thus, the acceleration effect observed during the Covid episode is part of a more general trend which is a digital transition already well underway in the region. Between, 2017 and 2019, the digital economy in the CEECs grew by almost 8% per year, reaching a value of around 94 billion euros in 2019.
2 – A region with many assets to become a major player in the digital economy
Economic growth, quality digital infrastructure and the increasing number of higher education graduates are all factors that predispose the region to become a significant player in the digital economy in the decade 2020. Indeed, the region has good primary and secondary education systems, as well as a large pool of talent, with 216 000 graduates in STIM (science, technology, engineering and mathematics) in 2018.
In addition, an emerging and dynamic digital ecosystem is being built, suggesting that the region is on track to be a major provider of digital services. In XX, the capitalisation of CEEC unicorns was worth around 31 billion euros.
Nevertheless, far from being a homogeneous block in terms of adoption and production of digital services, there are strong disparities between regions, companies and different levels of penetration by technology and branch of the digital economy :
Companies, particularly large groups, had already invested heavily in digital before the crisis and will therefore benefit from the crisis because they already have digital infrastructures in place.
However, other organisations have not made this choice. This is particularly the case in the public sector and small and medium-sized enterprises.
Slovenia, the Czech Republic and Hungary are leaders in terms of digital development, while Bulgaria, Romania and Poland are the countries with the lowest level of penetration. The technologies and topics with the lowest penetration and adoption rates are payment services and electronic invoicing. Data interoperability also remains an important issue.
In order to overcome these delays, the McKinsey report recommends that companies adopt a holistic approach by digitising customer interactions, optimising operations and modernising IT.
3 – A political agenda in terms of digital transition that remains to be completed:
Digital challenges represent 100 million citizens and 1.5 trillion euros of GDP, which is equivalent to the twelfth largest economy in the world. However, despite these elements and the significant pull effect among many sections of the population and confirmed by the covid episode, there are relatively few initiatives on the part of governments in the CEEC area to accelerate the digital transition of businesses and public services. Digitisation enables all EU cities to become more competitive and more attractive to citizens and businesses. Digital switchover has been a recurring element in the work of the European Innovation Partnership on Intelligent Cities and Communities since 2014 and recently it has also been discussed in depth in the specific partnership of the Urban Agenda for the EU.
Incentives for SMEs to digitise and the creation of technology hubs could help to develop and sustain digital ecosystems in the region.
4 – A regional collaboration that is in its infancy :
While some regional collaboration initiatives between the CEECs already exist – the Three Seas Initiative is the most notable example – none of them focus exclusively on digitisation; nor is there any collaboration aimed at unifying the CEECs’ digital business environment or having working teams implementing such initiatives. A strengthening of this collaboration could contribute to the exchange of best practices on digitisation, innovation and entrepreneurship in the public and private sectors.
As such, McKinsey suggests the creation of a new entity, a Digital Council of the EEC. Such a body could help share best practices and knowledge across the region and establish common standards for digitization. Northern European countries have already implemented a similar concept through the Nordic Council – a formal body for interparliamentary cooperation established in 1952.
Among the Council’s projects are several digital initiatives, including the Nordic Smart Government programme, which has three key objectives: to increase digitisation in government and society, to improve the region’s competitiveness through innovation and to strengthen the digital single market in the Nordic-Baltic region.
However, some recent developments seem to indicate an awareness of the lack of structuring and federation of ecosystems in the UNECE region. These initiatives generally come from the community of national entrepreneurs and ecosystem actors willing to pursue the digital transition in the region.
For example, the Emerging Europe Awards, or initiatives to bring together and connect digital companies such as the Tech Emerging Europe Advocates – a regional community of entrepreneurs, managers, experts and technology investors comprising 20,000 people – have recently emerged. These developments will certainly help to build consensus and facilitate the exchange of best practices, thus enabling these ecosystems to structure themselves by federating so that they can continue to develop.