«Digital transformation»: To what extent is the country ready to embrace it?

Mikhail Doroshevich, Marina Sokolova

Summary

Belarus tops the list of Eurasian Economic Union (EEU) members in the International Telecommunication Union’s ratings. However, in terms of digitalization (World Bank index), Belarus is second last in the EEU above Kyrgyzstan. The digital adoption index is the lowest when it comes to government agencies and organizations.

The infrastructure (technical capacity) is developing, while the demand (availability and need) is not. The digital transformation process is basically hampered by group interests, unclear regulation, and preservation of the state monopoly.

Provisions of the State Program for the Development of the Digital Economy and Information Society for 2016–2020 adopted in 2016 clearly determine directions for the development of the telecommunications infrastructure. The tasks related to the application of technologies are thus vague, and performance indicators are narrowly sectoral. At the same time, the discourse on digital transformation goes beyond the traditional partnership between the state and the branch lobby.

Trends:
Infrastructural development, the audience and the use of information and communication technologies

Belarus has been assigned higher ITU ratings every year. In 2016, the country was ranked 23rd among 195 countries in terms of broadband access and 31st among 175 countries with respect to ICT development (46th in 2010). In the ‘access’ sub-index, Belarus moved up from the 50th to the 36th position; in the ‘users’ sub-index from the 50th to the 44th, in the ‘skills’ sub-index from the 8th to the 5th, and with respect to the cost of fixed broadband access from the 72nd to the 47th with 3 Mbps. The gateway capacity increased by 137 Gbps against 2015 to 1,100 Gbps. 1

At the same time, Belarus has lost its position as the most actively developing country for a number of reasons, one of which is the steady trend of slowing growth of the number of Internet users (around 70% of users aged 15 to 74 since 2014) (Table 1). On the other hand, the proportion of those going online every day has grown significantly to 90% (users aged 15 to 74).

2009 2010 2011 2012 2013 2014 2015 2016
Number of users, million 3.0 3.4 4.1 4.6 4.8 5.0 5.08 5.1
Table 1. Dynamics of Internet users in 2009-2016, million

The development of infrastructure does not contribute to the growth of the number of users: the supply (technical capacity) is growing, while the demand (availability and need) is not. The average connection bandwidth per subscriber was only 8.8 Mbps with the technical capacity of 1 Gbps 2: users connect at a lower speed, because it is cheaper this way.

The cost of the Internet connection is relatively high due to the state gateway monopoly, which hinders the development of the market of telecommunication services. Private operators (secondary providers) have to buy traffic from the state operators Beltelecom or beCloud. Beltelecom thus performs mutually exclusive functions: it competes for customers on the domestic market and sets the cost of access for all other operators.

In 2016, Beltelecom’s monopoly advantages expanded with the installment of YouTube cache servers in the data center. The company was entitled to monopolize the cost and private providers’ access to them. As a result, commercial operators pay for the access to Google servers as if the servers were located in Germany or the U.S.

An increase in the VAT rate on telecommunication services for cellular operators and Internet providers from 20% to 25% since April 2016 led to a rise in the cost of access to the Internet and had a negative impact on the development of the Internet audience.

Despite some narrowing of the gap, digital inequality in geographical and age terms remains a serious problem. Among residents of Belarus under the age of 30, 91% to 93% go online every day. The proportion of persons aged 55 and over is 20% smaller. In age terms, Internet users aged over 50 are three times fewer than those under 30. 3

Forty percent of residents of Minsk and the Minsk region have Internet access that exceeds the proportion of Internet users in other regions of Belarus manifold: Gomel region 14%, Brest region 13%, Vitebsk region 12%, Grodno region 11%, and Mogilev region 10%. 4 This digital inequality leads to informational asymmetry and determines the differences in access to services. Analysis of the audience of the websites edu.by, gpk.gov.by, minsk.gov.by, and nbrb.by in May 2016 showed that persons aged 55 and over make up slightly more than 5% of the visitors. 5 Internet banking is most actively used by respondents aged 16 to 34 living in cities and urban-type settlements. 6 Online purchases are most often made by residents of regional centers. In 2016, Minsk residents made five times more purchases than residents of Vitebsk and seven times more than residents of Gomel. 7

It is symptomatic that Belarus is the last but one among the EEU countries in the World Bank’s digital adoption rating. This index is the lowest when it comes to government agencies and organizations (Table 2).

Armenia Belarus Kyrgyzstan Kazakhstan Russia
Digital adoption index, total points, including 0.67 0.52 0.49 0.63 0.71
business 0.48 0.43 0.37 0.32 0.37
individuals 0.82 0.76 0.60 0.73 0.62
government 0.72 0.36 0.50 0.83 0.52
Table 2. World Bank’s digital adoption index

The country does have a system of interdepartmental document circulation and a single operator of this system – the National Center for Electronic Services. The system’s infrastructure is being actively adopted: from 2012 to the 1st quarter of 2016, the proportion of system subscribers among government agencies and organizations has grown 22 times (3% in 2012, 31% in 2015 and 66% in 2016), while the number of documents passed through this system only doubled (23% in 2012, 31% in 2015 and 46% in 2016). 8 This means that the expensive infrastructure is used inefficiently.

According to Prime Minister Andrei Kobyakov, “the proportion of correspondence transmitted electronically does not even reach 50% in most government agencies”, and “the funds allocated for the introduction and application of digital technologies in government agencies remain unused in full: less than 50% of the funds were used in 2015 and only 85% in 2016. 9

The underdeveloped advertising market (3.5 euros per capita) 10 does not create conditions for the development of national content, which is one of the main objectives of the national information society advancement strategy. Foreign resources still prevail both in terms of traffic volume and coverage (the number of unique visitors). Over 40% of the traffic falls on youtube.com, vk.com and mail.ru. 11 In terms of the coverage, google.com leads with 71% being followed by vk.com (57%), youtube.com (50%), yandex.by (43%), mail.ru (41%), and tut.by (39%). 12 The ‘Russian direction’ prevailed few years ago (70%), and then, in 2016, the traffic to Russian and European resources was almost even. Freedom House still ranks Belarus as ‘not free’ with respect to the Internet 13 and this does not contribute to the development of national content either.

Digital Business Confederation

The need to integrate into the global digital economic environment, where the actors can not only supply goods and services produced by e-business, but also carry out any economic activity, presupposes the creation of a favorable business environment for digital business at the national level. Much depends on which of the currently conflicting trends will be determinative: simplification of procedures and reduction of the regulatory function of the state, or the aspiration to deprive digital business of preferences and equalize it with traditional one.

The Confederation of Digital Business was created in May 2016 to consolidate efforts in overcoming negative trends in this area. The scientific and technological association Infopark, association of automatic identification GS1 Bel, and NGO Information Society are among its founders. It is assumed that the founders of the Confederation will be able to unite organizations of various sectors of the economy, which conduct their main businesses using information technologies (ICT associations, companies, banks and payment systems, online shops, telemarketing systems, and providers of e-document management, logistic and other digital services). This will enable the business community to communicate with government agencies in order to work out effective measures to regulate the digital market.

The business community is also striving for the removal of barriers to national and cross-border electronic commerce, particularly the harmonization of the digital market with the European Union and creation of a unified digital space of the Eurasian Economic Union. The first initiative is being implemented within the framework of the Eastern Partnership (HDM panel, EU4Digital), and the second one is based on the declaration on the formation of the digital space of the Eurasian Economic Union adopted in November 2016.

Digital Economy and Information Society Development Program

Initiatives of the business community, as well as failures in the introduction of e-government services, suggest one thing: the digital transformation should prioritize not the development of infrastructure, but creation of an adequate conceptual and legal framework for electronic interaction between businesses, individuals and government agencies. Does the State Program for the Development of the Digital Economy and Information Society for 2016–2020 adopted in March 2016 meet this need? 14 The analysis of the Program and the first results of its implementation (or rather failure to implement) 15 are giving strong reason for doubt.

The goal of the Program is to “improve conditions” for the formation of the digital economy, development of an information society and improvement of e-government. The logic of the structuring of the program (subprogram) differs from the goal-oriented part and includes three components (subprograms): ‘information and communication infrastructure’; ‘informatization infrastructure’ (introduction of e-government technologies); ‘digital transformation’ (transformation of business processes in all domains of society). This discrepancy makes it very difficult to assess the extent of achievement of the program’s objectives in general.

The distinctive feature of this document is that the directions of the development of the telecommunications network are made clear, while the plans for the effective use of these technologies are vague or narrowly sectoral, which is typical of Belarusian strategies in this area. For example, the Program prioritizes quite concrete measures to be taken to develop the national information and communication infrastructure, such as the development of fixed and wireless broadband access, digital TV broadcasting and cloud technologies. At the same time, the informatization infrastructure subprogram does not answer the key questions: how many fully automated services for individuals and businesses are already available and how many there will be; what is the strategy for re-engineering the back office; what technologies will be used; how will the digital market be harmonized?

The degree of “transformation of business processes in all domains of society” is limited to indicators of the proportion of institutions covered by the Electronic School project, the proportion of medical professionals able to write prescriptions electronically, the number of e-visas issued to foreign nationals, and an annual increase in the number of Border Guard facilities, which use the integrated state border protection system. Will the calculation of the number of electronic prescriptions, visas and border guard systems enable to evaluate digital transformation successes in “all domains of society”?

“Higher E-Government Readiness Index of the United Nations and the ICT Development Index of the International Telecommunications Union to be achieved by 2020” as an indicator of Program’s success is not only devoid of certainty, but only partially correlates with the stated goals of the Program. In this situation, the necessity of a dialogue between government agencies and the public to identify growth points and obstacles to the use of digital technologies for sustainable development is getting even more urgent.

The national initiative to hold an Internet Governance Forum on May 17, 2016 16 indicates that this dialogue goes beyond the traditional partnership between the state and the branch lobby. The next task is to maximize the effect of these initiatives by involving all stakeholders in forum activities, increasing their competence, and joining global and regional discussions.

Conclusion

Despite the adoption of new development programs in 2016, the trends of the previous period remained unchanged: preservation of digital inequality, emphasis on the extensive development of infrastructure, and inadequate elaboration of the regulatory and legal framework hindering the digital transformation of society. It is quite possible that these trends will continue even if the legislative environment for the digital transformation planned for 2017-2018 will be created. The 2016 government program does not contain a single indicator of the introduction of state electronic services for individuals.

On the other hand, the acceleration and consolidation of business community efforts towards the development of a single digital market and expansion of the dialogue on Internet governance can eliminate shortcomings in national strategic planning to a certain degree and contribute to the success of the digital transformation.