Bringing the business environment online

Bringing the business environment online

How digitalisation can support business environment reform

In this post, I look at how digitalisation can support business environment reform. This includes some useful guidance for policymakers and regulators.

The digitalisation of legal and regulatory compliance requirements is a critical strategy for achieving meaningful business environment reforms.

In the midst of COVID-19, many businesses have quickly adopted new digital technologies in the face of the pandemic.

Governments are quickly becoming aware of the value of online platforms for interacting with the public. For example, online, paperless transactions can be used to strengthen international trade and transport facilitation both in the critical periods of the crisis as well as beyond it. Similarly, digital and online platforms can be used to improve business registration and licensing, taxation registration and reporting, land title and property records, and the payment of fees and taxes, among many other regulatory delivery and administration requirements.

Moving beyond digitising to digitalisation

First, let’s get the terminology straight. I use the term ‘digitisation’ to describe the act of converting something physical to something digital. Converting analogue to digital.

Many older business environment reform programs have done this through the scanning of physical documents, such as company certificates or business licenses. These digital artefacts are typically kept in the government’s storage system or network.

The term ‘digitalisation’ refers to a much broader process. This is the act of changing business processes through the use of digital technology. Digitalisation can be used to support business environment reform in many ways.

While digitalisation might be the first step for reformers, digitalisation is a much more systemic response. It required the redesign of systems through which regulatory procedures are administered.

Starting points for reform

Some ten years ago, I led a review into business environment reform in Bangladesh–you can find my report on donor practices here.

This included a review of the IFC-managed Bangladesh Investment Climate Fund. This program supported an e-government strategy in line with the national Digital Bangladesh strategy. However, this largely focused, at least initially, on the digitisation of company records. Using this approach, the program went deeper into the full range of company registration administration procedures.

One of the key lessons emerging from this study was:

The automation of regulatory administration can be a good starting point for reform processes that can be built upon once knowledge, awareness and confidence have been increased. Often automation can be achieved quickly and without the immediate need for changes in policy and law.

Things have changed a lot since then. New technologies and the emerging of artificial intelligence create important new opportunities for policymakers and regulators. Just as business is embracing these new tools, reformers a finding better ways to improve the conditions for doing business.

Reducing regulatory compliance costs

A common illustration of this redesign process, driven by digitalisation, is found in Myanmar. In 2019, the online platform MyCO was created for company registration and reducing incorporation fees. Several procedures were merged including company name search, requesting business incorporation certificate, payment of the registration fees and stamp duty, obtaining certificate of incorporation and submitting certificate of registration documents.

The World Bank suggests that the primary motivation for these reforms is to reduce the time and cost for business registration as well as to improve access for smaller firms operating at a distance from the registrar’s offices.

Creating opportunities for systemic reform

Online business registration and licensing platforms are not new. Many of the stand-out performers in the World Bank Doing Business assessments have been using these systems for many years.

What is most interesting, from a business environment reform perspective, is the opportunity digitalisation creates to review the whole system associated with legal and regulatory administration. Digitalisation can be used to support business environment reform by examining the whole system of business regulation.

Rather than making minor refinements to a system that has been working poorly for decades, the introduction of digitalisation opens the door for a total reengineering of the system.

New technologies in regulatory delivery

Earlier this year I wrote a policy brief on the use of new technologies in regulatory delivery, based on research commissioned by the Donor Committee for Enterprise Development. This provides useful guidance for policymakers and regulators.

This brief focused on the ways policymakers and regulators can improve the administration and delivery of regulations through better access to data and the use of artificial intelligence and machine learning.

Regulators in both developed and developing economies are exploring and piloting emerging technologies to improve regulation delivery. This technology helps regulators reduce administrative burdens while ensuring public and consumer interests are protected.

New technologies are changing the economy–for example, see my earlier blog on the shared economy. It is important for policymakers to anticipate these developments and expand the range of tools they apply.

The power of artificial intelligence for business environment reform

Artificial intelligence (AI) offers many new opportunities for policymakers and regulators.

AI refers to systems based on algorithms (mathematical formulae) that, by analysing and identifying patterns in data, can identify the most appropriate solution. The majority of these systems perform specific tasks in limited areas, such as control, prediction and guidance. The technology can be designed to adapt its behaviour by observing how the environment is influenced by previous actions.

AI requires regulators to adopt a more anticipatory approach by integrating data and technology in order to improve risk management and service delivery.
AI and associated applications, such as machine learning and natural language processing, present innovative ways of gathering and analysing data.

Regulators are exploring ways of applying AI within these new digital business ecosystems to keep pace with rapid innovations.

For example, the Estonian Centre of Registers and Information Systems (RIK) uses AI to automate business registration-related processes. RIK was established under the Ministry of Justice to integrate business and land registration (i.e., e-Business Register and e-Land Register) with the information systems of courts and other justice systems. Recent pilots involve the use of AI to aid company name selection, the translation of company-related court rulings, chatbots to improve the customer service, and ‘Smart Services’ for companies. The aim is to use AI to fully automate company and land registration.

Also see my earlier post on the use of big data and AI in assessing entrepreneurial ecosystems.

AI presents a number of challenges to governments and is not without risk. Specific regulatory policies and guidelines are required to manage the issues that emerge from these new models and technologies. This includes concerns regarding privacy, the prevention of discrimination and AI algorithmic-bias and various ethical considerations.

Denmark, one of the world’s most digitised countries, has adopted a National Strategy for Artificial Intelligence to ensure Denmark can be a front-runner in responsible development and use of AI.

Also check out the Danish Business Authority and the story behind the digitisation of this agency.

AI and policymaking in the era COVID-19

The OECD describes how AI technologies and tools play a key role in every aspect of the COVID-19 crisis response. AI improves our understanding of the virus and treatments and assists in preventing or slowing the virus’ spread through surveillance and contact tracing.

To realise the full promise of AI to combat COVID-19, policymakers must ensure that AI systems are trustworthy and aligned with the OECD AI Principles: they should respect human rights and privacy; promote inclusivity; be transparent, explainable, robust, secure and safe; and actors involved in their development and use should remain accountable.

Policymakers should recognise that AI and other new technologies is not a silver bullet. AI systems require large amounts of data and its outputs are only as good as the training data applied.

Get in touch!

If this post deals with issues of interest to you or you want to talk more about how digitalisation can support business environment reforms, then feel free to get in touch.

Also, check out the MyPlaceMatters website.

Simon White

Economic Growth | Business Development | Job Creation