The term digital divide can be explained by looking at the gap between demographics and regions that have the ability and capacity to access modern communications technology relative to those that don’t. The division arises from technical proficiency, financial ability as well as access (or rather the lack of it) to the internet. A gap that widens as technology develops. This has created a new category of inequality in this century.
This has created a gap between the data have and have-nots. The traditional economic model which concerns output (production of goods and services) requires decisions on what to produce, how it will be distributed across the economy as well as what is done from the earnings of the production. In today’s world, the digital economy is redefining the main choices that need to be made in the context of a new model: the ability to monetize large volumes of digital data. Digital platforms have now become central actors in the economy whilst data is the key resource in the economic process. The interaction between the two creates value and the ability to utilize the outcome of the interaction will affect the ability to capture the value being created.
In the Malaysian context, the digital economy has emerged as a key part of creating value and distribution during the pandemic and is expected to keep growing. Thus, businesses across the country will need to adapt and identify ways in which value is being created. However, micro and SMEs have struggled to transform their businesses and partake in the digital economy. The main reason behind the inability to transform arises from the access and use divide given the limited access to technology and the skills necessary to unlock the potential of digitalisation.
The digital and data divide points towards a structural problem in the nation’s strive towards harnessing the potential gains from the digital economy. These firms risk being left behind and missing out on economic gains as the country focuses on reaping the benefits of digitalisation. Business owners facing these problems which require rapid adaption will be facing a dilemma as it triggers a flight, fight, or freeze response from the behavioural perspective. This is where fear and inertia may cause small businesses to adopt the freeze response rather than embrace change.
Given that SMEs employ most Malaysians it is critical that the budget aims to close the gaps in connectivity and skills given that it leads to differences in wealth. A widening gap would also potentially lead to greater gender discrimination as well as lower social mobility. Micro and small businesses are seen as riskier by traditional banks and financial institutions. In addition, considering that these firms lack the skills to prepare proper financials they would typically have limited financial history which is an important criterion for credit underwriting.
Incentivising these businesses to shift to a digital model allows a greater ability to now partake in the financial ecosystem given that transactions are now having an electronic trail. For starters, banks, financial institutions, and even the upcoming digital banks would be able to form partnerships with these firms to provide small ticket financing which is tailored to suit their needs based on the ability to harness transactional data which came about due to the shift to a digital model. To resolve the affordability of smartphones and laptop computers among micro and small firms, the budget would also need to provide interest-free financing to make the shift affordable. In addition, internet tariff subsidies would attract a greater degree of adoption among smaller firms. The two-pronged strategy will enable greater interaction between the ability to monetize data among entrepreneurial SMEs. Overall, it will lead to economic growth which is more robust and sustainable.
Professor Dr. Hafezali Bin Iqbal Hussain is the Head of Research in the Faculty of Business and Law and Director of Digital Economy and Business Transformation Impact Lab at Taylor’s University.