Digital economy offers 'unprecedented opportunities' for wealth creation

07 July 2023 6 min. read

The rapid rise of technological advances and digital adoption presents the UAE with “unprecedented opportunities for wealth creation”, according to a report by Boston Consulting Group (BCG).

In its report, Middle East-based experts from the global strategy consulting firm explored the state and future of the digital economy, defining the landscape as a three-tiered ecosystem consisting of digital activity at so-called core, broad and narrow levels.

Core activity refers to all activity that centres around ICT products and services (technology sector), narrow activity relates to all activity reliant on digital inputs (digital businesses), while narrow takes the scope one step further, also including all economic activity that is augmented by the use of digital inputs (the digitalised economy).

Digital economy offers 'unprecedented opportunities' for wealth creation

Core tier

In the core tier of the digital economy, massive advancement and innovation is set to fold, predicts the report, across dozens of technology domains.

“Over the next three years, digital technology spending (including IT, telecom, and emerging technologies such as artificial intelligence, internet of things, blockchain, robotics, etc) in the UAE is expected to reach $20 billion,” said Thibualt Werle, Managing Director and Partner at Boston Consulting Group.

Out of a long list of activities in the core tier, take quantum computing as an example. “Quantum computing is projected to turn into an $10 billion industry globally. This seamless virtualization of computing, coupled with an expected exponential shift in computation intensity and power, should allow new business models, challenge traditional digital techniques such as cryptography, and fundamentally challenge our understanding and response to humanity’s large-scale existential concerns such as climate change.”

The internet of things is another notable example. Estimates from research firms suggest that approximately 40 billion connected devices will be online in the next half decade. As a result, big data and analytics technology revenue, including from hardware, software, storage and services, is expected to reach $260 billion this year grow at a CAGR of 13% over the next three years.

Enter also artificial intelligence, which is evolving so rapidly that even the industry’s frontrunners are now warning for its evolution, in particular its dark side. According to Boston Consulting Group, “the new wave of artificial intelligence (including generative AI) has the potential to transform entire industries.”

Narrow tier

At the same time as the transformation progresses through its core, the narrow tier of the digital economy could similarly progress to make “businesses dramatically different from their current shape”, said Werle.

Illustrating the case, Werle pointed at the well-known examples of platform disruptors. “Airbnb now has more rooms than Marriot, Fiverr has grown into a billion-dollar freelance worker platform, Spotify is the world’s largest audio streaming service, and Uber is the largest taxi company in the world.”

A more novel form of narrow tier activity is the metaverse, which is expected to be a major driver of economic activity. As per the report, “the metaverse market revenue worldwide is expected to grow from about $48 billion in 2022 to $680 billion in 2030.”

Werle: “The emergence of decentralised and community-driven creation models powered by Web 3.0 is driving user ownership in a new parallel virtual economy and allowing businesses to manifest in other ways as well.”

Broad tier

Meanwhile, in the broad tier of the digital economy, various sectors could face a ‘bionic future’ where a new logic of competition and economic-digital advantage portends success.

“In this scenario, businesses would compete on ‘pace of learning’ instead of economies of scale. Iterative improvements to artificial intelligence models and algorithms, and augmented cognitive machine capabilities blended with flexibility, adaptability, and comprehensive human experience, could lead to ‘superhuman enterprises’ that produce competitive advantage,” explained Werle.

For governments and businesses of all sizes, the prospects of digital means that remaining at the sidelines of the trend is not much of an option. Faisal Hamady, Managing Director and Partner at Boston Consulting Group, commented: “The digital sector’s massive expansion leaves leaders and decision-makers with only two options: adapt to its accelerating pace or be left behind.”

In the eyes of Werle and Hamady, the government of the UAE can clearly be classified as an adopter of digital change. Under its digital future central pillar, the contribution of the digital economy to the region’s GDP is aimed to grow from 9.7 percent to 19.4 percent within the next 10 years. “The UAE is well positioned to achieve its aim.”

About the digital economy definition

To define the market and size of the digital economy, Boston Consulting Group’s authors followed a methodology originally devised by the OECD. “While the three-tiered OECD definition is not a panacea, the definition is holistic and provides solid middle ground for decision-makers to make digital-focused policy decision.”

According to the OECD, the digital economy: “… incorporates all economic activity reliant on, or significantly enhanced, using digital inputs, including digital technologies, digital infrastructure, digital services, and data. It refers to all producers and consumers, including governments that are utilizing these digital inputs in their economic activities.”

Digital economy offers 'unprecedented opportunities' for wealth creation

As per the definition, the digital economy comprises economic activity created by producers and providers across three tiers:

Core: economic activity from producers of digital content, ICT goods and services (including IT and communications businesses that cover hardware, software, and services.)

Narrow: adds economic activity derived from firms that are reliant on digital inputs (such as digital services and platforms businesses) – those are generally defined as ‘digital only’ businesses.

Broad: economic activity from firms significantly enhanced by the use of digital inputs (including significantly digitalized businesses in e-commerce, industry 4.0, etc.