P R I S M : C H A R T I N G T H E C O U R S E – N AV I G AT I N G T H E J O U R N E Y T O N AT I O N A L
D I G I TA L E C O N O M Y T R A N S F O R M AT I O N

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D I G I TA L E C O N O M Y T R A N S F O R M AT I O N

AUTHORS
Gergana Rangelova, Raymond Khoury, Andreas Buelow, Rajesh Duneja,
Nawaf Almaskati, Kiseki Hirakawa

At a country level, digitalization is seen
as a driver of economic growth andskilled jobs creation. While the term
“digital economy” is not new, recent

developments mean policy makers must

now rethink their digitalization agendas.
Firstly, digitalization has become a critical factor in maintaining
economic competitiveness, as it permeates all economic sectors,
disrupting traditional production and exchanges and creating new
growth opportunities. Digitalization is no longer optional – thosethat don’t adopt it risk falling behind.
Secondly, data has become a strategic asset, with the insights
unlocked by AI and machine learning creating sustained competitive
advantage for businesses and individuals while enabling policy
makers to make more informed, evidence-based decisions.
Thirdly, rapid technology evolution needs to be balanced with ethicalconsiderations. For example, algorithmic bias and tech-driven job
displacement are prompting discussions on the societal impact oftechnology in terms of fairness, equity, and inclusivity. Additionally,
the use of data to train generative AI models has ignited concerns
around IP ownership and the need to rethink national dataprotection policies.
Fourthly, the climate emergency is driving a need for radical
action to meet net-zero commitments. Digitalization both enables
decarbonization (such as through process optimization) and plays a
key role in measuring, monitoring, and reporting on national progress
towards net zero.
Finally, the digital economy is becoming an international, pangovernment undertaking with geopolitical ramifications. Policy
makers must find a balance between digital sovereignty overtechnology, IP ownership, and data protection and governance.
International cooperation is necessary to harmonize digital
regulations and facilitate cross-border data flows and digitaltrade agreements.

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Based on insights from an exhaustive global benchmark of digital
economy progress, this article explores how countries should react
to these developments. They need to adopt a holistic approachto a nation’s digitalization that benefits sectors of interest andbuilds national differentiation and global competitiveness. They
must understand the importance of each of the building blocks ofdigitalization and how they interrelate. Overall, nations need toadopt a collaborative and agile approach to maximize digitalization’s
benefits and mitigate any potential risks.

T H E L I N K B E T W E E N T H E D I G I TA LECONOMY AND ECONOMIC GROWTH
Digitalization delivers significant economic benefits through its
positive impact on productivity, employment, and innovation. This istrue across different country maturity levels – while digitalization cantransform developing nations, it can also accelerate new services andinnovation within developed countries, as economies such as Estonia,
Singapore, and the US show.
Our global benchmark demonstrates that digitalized economies
achieve higher productivity levels and faster economic growth thantheir peers, as shown in Figure 11, which reveals a high correlation (R2= 0.47) between digital transformation and GDP per capita levels.
The International Labour Organization (ILO) 2 has estimated that theeconomic multiplier of digital investments is more than double thatof other investments, delivering USD 3.79 versus USD 1.52 for each
USD 1 spent.

Y=72139IN(X) - 268603; R 2=0.4706

120,000

LUXEMBOURG
IRELAND

100,000
80,000SINGAPORESWITZERLANDNORWAYUNITED KINGDOM

60,000CHINA

UAE

UNITED STATESAUSTRALIA

DENMARKCANADA

40,000ISRAELKOREA, REP

SWEDENFINLANDNETHERLANDS

20,000
0

0

45

50

55

60

65

70

75

80

85

90

95

100

LEVEL OF ECONOMY DIGITAL TRANSFORMATIONGLOBAL LEADERS

OTHER COUNTRIESFIGURE 1: ECONOMIC PERFORMANCE VS. LEVEL OF ECONOMY DIGITAL TRANSFORMATION

1. Sources IMD, World Bank
2. Source: Changing demand for skills in digital economies and societies, ILO2

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D I G I TA L E C O N O M Y T R A N S F O R M AT I O NGovernments have seen the importance of building digital
economies for many years. However, it has risen in importance insupport of advancing national development agendas due to thegrowing need for digitalization across the economy; an enormous
increase in data volumes across all sectors, especially whencoupled with AI; ethical considerations; the need to achieve net-zerotargets; and the requirement to balance digital sovereignty andinternational cooperation.

MEETING THE CHALLENGES OFC R E AT I N G A D I G I TA L E C O N O M Y
Building a national digital economy is a large-scale program spanningmany dimensions, involving many stakeholders, and lasting many
years. Achieving ongoing success requires countries to focus on
overcoming three key challenges, related to:– Regulations: A balance is needed between the extremes of overregulation and taking a laissez-faire approach. Governments
need to adopt innovative regimes, such as sandboxes whereexperimentation can occur without regulatory constraints.
– Funding: Digital economy projects, particularly those of an
enabling nature, require significant investment. Governments
should consider alternative sources of funding, such as publicprivate partnerships (PPPs) and structuring monetization models
for services. For example, Indian banks and telcos use government
data-exchange systems to perform electronic verification checks
on new customers, generating revenues for the platform itself.
– Capabilities: The skills required to digitalize, including
programming, cloud computing, AI/data analytics, andcybersecurity capabilities, are in high demand across the globe.
Governments must therefore invest in developing capabilities
through education and training,

DIG ITAL EC O N O MY
PRO JEC T S , PAR TICUL ARLY
TH O S E O F AN ENABLIN G
NATURE , REQ UIRES IG NIFICANT INVES TMENT.

while also attracting andmaintaining such talent. Overthe last 20 years, Singapore has
embedded ICT in its educational
curriculum, for example, helping
nurture much-needed skills, while
Estonia has launched a rangeof measures, including a comprehensive digital talent attraction
program that goes beyond dedicated visas.

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Box 1: Enabling the data embassy concept in the Kingdom of Bahrain
As data has become a strategic asset, concerns are arising arounddata privacy, security, and the ability of governments to protect theircitizens’ data. Countries are increasingly demanding that sensitive
data resides within their jurisdictions. While data sovereignty
increases control and security, it can also reduce the benefits of using
the cloud for cross-border exchanges and transactions.
Understanding the challenges of data protection, the Kingdom of
Bahrain has taken an innovative approach to data sovereignty. The
Kingdom passed its Decree on Providing Cloud Computing Services toForeign Parties law in 2018. This embodies a clause on “data embassy,”
which is a legal concept first introduced in a bilateral agreement
between the governments of Estonia and Luxembourg in 2017. Dataembassy allows customers and countries to store their informationin data centers in the kingdom, while still being governed by theirlocal domestic data protection laws – diplomatic immunity for data
provisioning. The law positions the Kingdom uniquely, stimulating its
economy by attracting investment and accelerating its progress to
becoming a cloud computing hub.

REAL GDP PER CAPITA AT USD PPP 2

A N AT I O N A L D I G I TA L E C O N O M Y F R A M E W O R K– A R O A D M A P T O WA R D S D I G I TA L I Z I N GECONOMIC E XCHANGES AND OUTPUT
On the path to transforming their economies through digitalization,nations need to work holistically from vision to action. Analysis of ourbenchmark research, coupled with our experience, shows six criticalelements to transforming an economy though digitalization, as set
out in Figure 2.

ARTICULATION OF DIGITAL VISION, MISSION,
AND STRATEGIC OBJECTIVESDIGITAL AGENDA

DEVELOPMENT OF THE ECONOMIC, SOCIAL, AND
ENVIRONMENTAL TARGETS RESULTING FROM DIGITAL STRATEGYDIGITAL IMPACT

IDENTIFICATION OF KEY STAKEHOLDERS AND DEFINITION
OF THEIR ROLES WITHIN THE DIGITAL ECOSYSTEM

BREADTH OF DIGITAL COVERAGE ACROSSTHE ECOSYSTEMDIGITAL STAKEHOLDERS

DIGITAL COVERAGE

IDENTIFICATION OF MAJOR DIGITAL SERVICES ANDTECHNOLOGY PLATFORMS WITHIN THE DIGITAL ECOSYSTEMSDIGITAL SERVICES AND TECHNOLOGYDEVELOPMENT OF FOUNDATIONAL ENABLERS TO SUPPORT THE
DIGITAL ECOSYSTEM AND ENHANCE ITS EFFECTIVENESSDIGITAL FOUNDATIONAL ENABLERS

FIGURE 2: DIGITAL ECONOMY FRAMEWORK

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1 . D I G I TA L A G E N D AStart by defining an overall vision and strategic objectives. Thisvision acts as the North Star, steering all national efforts in one
direction, while the objectives are measurable, achievable, and timebound milestones on the journey. Digital Agenda setting is a criticalelement, as it allows policy makers to identify national priorities
with the highest impact, allocate resources efficiently, and provide
a common understanding and purpose to all relevant stakeholders,maximizing the chances of success. For example, Australia hascreated one of the world’s most comprehensive and actionable digital
economy strategies, built on the objective of creating a modern,leading digital economy by 20303.

2 . D I G I TA L I M P A C T
Digital impact is then derived from the vision, reflecting the desired
outcomes and aspirations. Specifically, this entails defining thetargets to be achieved:– Economic targets: such as achieving higher economic growth,enhancing national productivity levels, and creating new jobs
– Social targets: achieving more inclusive economic growth withenhanced access to improved and more efficient public services(such as education, health, and pensions)– Environmental targets: reducing emissions and waste, supporting
climate change efforts, and empowering sustainable practices
across economic sectors
Digital Impact allows countries to measure, evaluate, andcommunicate the effectiveness of their digitalization efforts,
demonstrating value and enhancing accountability. South Korea is astrong example of comprehensive target setting, being one of the few
countries that has put environmental issues at the heart of its New
Deal digital program4.

3 . D I G I TA L S TA K E H O L D E R S
Identifying key stakeholders and defining their roles in the digital
economy agenda are vital, particularly around the four areasof governance:– Overarching strategy governance– Sectorial digitalization– Functional digitalization– Enablement76

3. https://www.globalaustralia.gov.au/news-and-resources/news-items/australias-digital-economy-strategy-launched
4. https://www.iea.org/policies/11514-korean-new-deal-digital-new-deal-green-new-deal-and-stronger-safety-net

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Assigning clear roles and responsibilities guarantees commitment
and accountability. It facilitates effective coordination, avoids
duplication, and fosters synergies, such as around knowledge
exchange and resource pooling. By identifying and involving relevant
stakeholders, policy makers can ensure that sector-specific needs
are addressed. In turn, stakeholders play a crucial role in shaping
the vision, providing insights, and working together to achieve set
objectives.
In Singapore, the Smart Nation and Digital Government Office(SNDGO) spearheads the implementation of digitalization initiatives
and reports directly to the Prime Minister’s Office. SNDGO has
appointed dedicated digital officers in each ministry to act as a
focal point for coordination. These officers ensure that initiatives
are aligned with broader national digitalization objectives, while also
acting as a point of contact for stakeholders within the ministry.
In addition to national stakeholders, policy makers need to engage
internationally, fostering cooperation around areas such as
harmonizing digital regulations and digital trade agreements.

4 . D I G I TA L C O V E R A G E
Depending on Digital Impact objectives, nations need to define key
priority sectors and create specific plans. These sector-specificstrategies cascade overall national digital economy goals and alignwith sector priorities, outline the

IN S IN GAP O RE , THE S MAR T
NATIO N AND D IG ITALG OVERNMENT O FFIC E(S ND G O) S PE ARHE ADS
THE IMPLEMENTATI O N
O F DIG ITALIZ ATIO N
INITIATIVES AND REP O R T S
D IREC TLY TO THE PRIMEMINIS TER ’ S O FFIC E .

government’s role, and set policies
and incentives.
The Digital Coverage element is
crucial as each sector has uniquecharacteristics, requiring tailored
sectorial digitalization policies thatallow stakeholders to work together
more effectively across the value
chain. For example, the Danish Digital
Health Strategy addressed specifichealthcare focus areas, including

streamlining information flows between patients and healthcare
professionals, while emphasizing security and privacy.

5 . D I G I TA L S E R V I C E S A N D T E C H N O L O G Y
Programs need to develop key technology platforms and digital
services that connect ecosystems and enable the seamless exchange
of information, services, and goods. These Digital Public Goods(DPGs) and Digital Public Infrastructures (DPIs) include horizontal
platforms such as digital ID, ePayment, eRegistries, eInvoicing, anddata exchanges, as well as vertical sector-specific platforms such as
national drug registration and inventory systems in the healthcare
sector. For a more detailed look at DPGs and DPIs, refer to Digital
Public Goods – The benefits for citizens, governments, andbusinesses, elsewhere in this issue of Prism.

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D I G I TA L E C O N O M Y T R A N S F O R M AT I O NTechnology should be agile and interoperable, as well as meet thehighest levels of data privacy and cybersecurity to instill trust andconfidence, while creating a level playing field for businesses.
Identification and deployment of digital services and technologies isa critical element of the framework, as it empowers individuals andbusinesses to access information, connect with others, carryout transactions, etc., leading to increased productivity andconvenience. The availability and adoption of interoperable horizontal
and vertical digital services and technology platforms also underpin
sector digitization.
Furthermore, the data gathered from digital services provisioning
allows for evidence-based decision-making, provides insights forcourse correction or refinement of digital impact objectives, andfosters continuous improvement of sectorial policies and initiatives.

Box 2: Complementary digital platforms in Singapore
Singapore has institutionalized a well-integrated system of horizontal
and vertical platforms. Horizontal platforms include digital ID
platform SingPass and ePayment system PayNow. Vertical platforms
include the National Electronic Health Record, a patient health record
management system, and Student Learning Space, a digital learning
platform, along with others.
Showing the connections between them, SingPass serves as agateway to the National Electronic Health Record system, facilitating
secure access to patient healthcare data. It can also be used together
with Student Learning Space to enable access to a wide range ofeducation technology tools.

6 . D I G I TA L F O U N D AT I O N A L E N A B L E R SFoundational Enablers support the development of a digital
ecosystem and enhance its effectiveness. They include developinga robust education and life-long learning system to guarantee
the future readiness of human talent, ensuring the availabilityof financial capital, creating an enabling entrepreneurship andinnovation ecosystem, and crafting a conducive legal and regulatoryenvironment. Digital Foundational Enablers underpin the end-toend digitalization journey and overcome key regulatory, funding, andcapability challenges:

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ARTHUR D. LITTLE– Clear and adaptive regulations build trust and confidence,
encouraging innovation and investment while safeguarding
the interests of stakeholders.
– Focused education initiatives foster employability, inclusion,and entrepreneurship.
– Infrastructure investments facilitate deployment of digitaltechnologies and development of innovative digital services that
benefit citizens and businesses.
For example, New Zealand’s latest digital strategy emphasizes
upskilling and digital inclusion to empower people and organizations
to pursue digitalization. It was driven by government research
indicating that skills gaps were the main barriers to digital
enablement among New Zealand businesses.

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INSIGHTS FOR THE EXECUTIVE
When embarking on national economy transformation throughdigitalization, policy makers need to view the process holistically,following seven best practices:– Make digitalization efforts central to a nation’s strategic

agenda: The digital economy is not just about the ICT sector.
More importantly, it is an enabler across the economy and society
at large. Overall, digital economy strategies must consider thisenablement role of technology, as well as align digitalization
priorities with existing sectorial strategies and plans.

– Focus on strong governance: When implementing a national digital
agenda, policy makers are often faced with resistance to change.
They therefore must institutionalize governance structures thatfacilitate collaboration, communication, and recognition among
stakeholders, as well as assign a lead entity with overarchingauthority to drive implementation.
– Take a holistic, systematic view: To be able to design effective
policies, policy makers need to think holistically and understandthe root cause of a problem and its ramifications for otherinitiatives. Digitalization efforts are unlikely to yield meaningful
results without a plan that considers and effectively integrates
interdependencies between the different elements of the digital
ecosystem.
– Involve the private sector: As the key engine of economic growth,
the private sector has a crucial role in the transformation journey.
Policy makers need to keep an open dialogue with businesses,
tapping into their innovation capabilities and involving them
actively in both strategic planningand implementation.
– Adopt an experimentation mind-set: Digital success requires
agility and readiness to experiment, taking measured risks andlearning from failures – all behaviors that are not typical in apolicy-making setting. Adopting an iterative approach with quick
feedback loops is crucial for digital and non-digital solutions to beadapted to changing circumstances, as well as to ensure efforts are
successfully focused.

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ARTHUR D. LITTLE– Don’t reinvent the wheel: Learn from the experiences of others andadapt existing strategies and technologies to meet your specificneeds. Building on successful programs from other countries
and regions can accelerate and de-risk your own digitalization
strategies, maximizing ROI.
– Don’t neglect long-term foundational enablers: The benefitsof foundational enablers such as ICT education take time
to be realized. This may make taking “quick-win” measuresmore attractive. However, failing to invest in these enablers
will undermine the pillars of the digital economy, making it
unsustainable over time.

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ARTHUR D. LITTLEGERGANA RANGELOVA
is a Principal in Arthur D. Little’s Dubai office anda member of the Telecommunications, Information
Technology, Media, and Electronics (TIME) Practice.
RAYMOND KHOURY
is a Partner in Arthur D. Little’s Beirut office and amember of the Technology & Innovation Management(TIM) Practice.
ANDREAS BUELOW
is a Partner in Arthur D. Little’s Manama office and amember of the Financial Services (FS) Practice.
RAJESH DUNEJA
is a Partner in Arthur D. Little’s Dubai office and amember of the Telecommunications, Information
Technology, Media, and Electronics (TIME) Practice.
NAWAF ALMASKATI
is a Consultant in Arthur D. Little’s Manama office
and a member of the Strategy & Organization (S&O)
Practice.
KISEKI HIRAKAWA
is a Business Analyst in Arthur D. Little’s Dubai office
and a member of the Strategy & Organization (S&O)
Practice.

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