Disruptive technologies and digitization in development banks

During the workshop on Digitization in Development Finance Institutions, held in Rio de Janeiro on January 14-17, representatives of Asian, European and Latin American development banks discussed the role of the digital economy and the “commoditization” of digital technologies in achieving comprehensive development in Latin America.

In his speech, Jorge Arbache, Vice President of the Private Sector at CAF—development bank of Latin America—, assured that new technologies have the potential of increasing productivity, streamlining processes, creating global value chains, generating a greater variety of goods and services for consumers, providing more and better public services (e-Government); benefitting SMEs at a massive scale, promoting gender equality, fostering entrepreneurship, close the gaps with lagging regions, and taking significant competitive leaps (leapfrogging). He warned, however, that we are in a critical situation for developing countries to converge with developed economies.

Arbache also mentioned that the use of new technologies may have a limit in terms of their benefits for development, because we are experiencing also a digital “commoditization.” The more widely a given technology is adopted, the more marginal the benefits will be both in productivity and competitiveness for those who adopt it (which was conceptually defined as first-order benefits).

From the perspective of technology developers, the opposite applies: the greater the adoption rate, the larger and more increasing will be the marginal benefits (second-order benefits), especially in sectors where few developers dominate the market, for example, operating systems for cell phones.

On the development of blockchain and distributed data bases, Arbache explained that these represent an enormous potential for developing countries, although they are still at a very early stage, with many models and platforms competing, which eventually will converge towards concentration in few developers. In this sense, we need to find low-cost, open source solutions that are accessible and usable, in order to bring about a real impact on development.