Connect with us

Infra

Advancing Digital Transformation and Digital Public Infrastructure: The Role of the Private Sector

Published

on

Digital public infrastructure (DPI), a relatively new term that gained prominence during India’s G20 presidency, describes the network of digital building blocks that are needed to deliver public services across sectors. At the core of DPI are three components: a digital identification (ID), a payments system, and a data exchange platform. DPI is important because it can streamline government operations, enhance the delivery of public services, and foster socioeconomic opportunities, particularly in low- and middle-income countries (LMICs). For example, a McKinsey study of seven countries found that implementing a digital ID can potentially boost GDP by 3–13 percent.

During the Covid-19 pandemic, countries that had robust DPI could make digital payments quickly and more efficiently. On average, these countries were able to reach 51 percent of their populations, compared to 16 percent in countries without DPI. The potential applications of DPI are vast and stretch across various domains, including healthcare, education, finance, and communication.

The evolution of DPI as a construct goes back to the initial days of digital technology; early examples of DPI include global positioning systems (GPS) and the internet. While predominantly focused on improving communication and data processing within specific sectors in the beginning, the scope of digital infrastructure has since expanded to encompass a comprehensive framework integrating various digital services and systems vital for public service delivery and social interaction. The importance of DPI has been particularly notable in the past two decades, going hand in hand with technological advancements. This evolution has been marked by the increasing integration of digital technologies into everyday life, transforming how governments and institutions manage resources and interact with citizens.

In this regard, the private sector—both through its companies and philanthropy—plays a pivotal role in the development and expansion of DPI. Companies add value not only through financial investments, but also through technological innovation, expertise, and strategic partnerships. More importantly, by establishing public-private partnerships (PPPs), companies can unlock capital and make public projects more efficient and innovative. The best outcomes are achieved when the public and private sectors collaborate to develop robust DPI.

The Role of the Private Sector in Developing DPI

The growing demand for digital services presents significant market opportunities for companies in the DPI space. This demand is especially pronounced in emerging economies, where digital infrastructure is often weak. The private sector can drive these innovations, creating more efficient and effective DPI solutions when they contribute their financial muscle and wealth of experience dealing with cutting-edge technologies and market dynamics. This synergy between public goals and private sector efficiency is evident in various successful DPI projects around the globe.

It is worth mentioning that companies, as frontline executors, have a deep understanding of consumer and market opportunities and challenges. In contrast, governments focus more on policy-level solutions and deliverables for citizens. Collaborative approaches combine the private sector’s market insights and financial resources with the government’s policy priorities, thereby yielding optimal outcomes for all stakeholders.

The private sector can provide crucial financial resources for DPI development. This involvement can include direct investment, PPPs, and collaborative projects with international organizations. Companies actively fund DPI projects, often in partnership with governments. A notable example is Google’s initiative to land its first submarine cable in Africa to enhance digital connectivity and internet access across the continent. Philanthropic capital has also been instrumental in developing open-source technologies for digital payments such as Mojaloop, which has been used in Tanzania and Uganda; the project has significant contributions from the Bill & Melinda Gates Foundation, Coil, Google, ModusBox, and the Rockefeller Foundation. Similarly, digital public procurement platforms, such as ProZorro in Ukraine, have benefited from private funding and expertise. ProZorro originated as a volunteer-driven reform initiative and has evolved with funding and oversight from international institutions and nongovernmental organizations. It now serves as a comprehensive platform uniting government purchasing agencies, saving $1.9 billion from Ukraine’s budget within two years of operation.

Collaborative approaches combine the private sector’s market insights and financial resources with the government’s policy priorities, thereby yielding optimal outcomes for all stakeholders.

The private sector’s role and investment potential are vital for funding and scaling these projects, especially where public funds are limited. Private sector expertise is invaluable in managing complex projects and implementing technology, leading to more sustainable DPI systems. Companies’ participation and collaboration with governments are essential in LMICs, where governments alone often cannot provide sufficient technological advancement.

Moreover, inconsistent and evolving regulatory landscapes can pose challenges for DPI deployment. Regulations regarding data privacy, cross-border data flows, and digital transactions vary significantly across countries, complicating the implementation of DPI. This is an issue on which governments can effectively collaborate with private firms, consider their demands, and facilitate operations in the technology sector.

Additionally, private sector entities can contribute to training and skill-development initiatives, helping build local capacities to manage and maintain DPI systems. There are wide capacity and skill gaps in developing countries—especially for designing, implementing, and maintaining DPI systems—that can impede the effective deployment of this infrastructure. Companies can develop training courses and educational tools and resources designed to enhance digital skills among individuals and businesses, thereby empowering people to expand their digital knowledge, prepare effectively for job opportunities, and foster growth in their businesses.

The significant support provided by organizations such as the U.S. Agency for International Development (USAID) and tech giants such as Google exemplifies the integral role of PPPs in advancing DPI. In Ukraine, Google’s support for technical infrastructure and USAID’s development of the Diia e-government app are prime examples of PPPs in action. These initiatives have accelerated digital transformation and ensured that crucial government services remain accessible during challenging times.

The Role of Public-Private Partnerships in Financing DPI

The approach to funding DPI varies significantly between high-income and lower-income countries. In high-income countries, government funding is typically the mainstay for DPI projects, especially in initial stages such as developing an ID system. These countries have robust economic structures and available resources, allowing them to lead in DPI practices and innovations. DPI projects in high-income countries often integrate advanced technologies and sustainable practices, reflecting their commitment to environmental stewardship and technological advancement. Big tech companies such as Nokia and Intel are at the forefront of these efforts, adopting environmentally friendly components and aiming for sustainable manufacturing and product use.

In contrast, LMICs often lack adequate funding for DPI projects. They usually require assistance from external and internal stakeholders, including multilateral organizations, private investors, or philanthropic funding. The Organization for Economic Cooperation and Development’s (OECD) data on official development assistance shows that such aid remains a vital international funding source for DPI, supplemented by loans from multilateral development banks (MDBs) and development finance institutions. Grants from members of the OECD Development Assistance Committee, for example, are directed toward technical assistance for designing DPI solutions in LMICs.

Digital transformation and DPI require additional resources. Hence, it is vital to identify new and innovative financing vehicles and encourage new types of partnerships in which each participant contributes unique value. PPPs can play a crucial role in driving substantial investments toward meeting the UN Sustainable Development Goals (SDGs) and expanding digital connectivity. These partnerships, including ones using blended-finance approaches, can attract diverse investors and address the finance divide, particularly in developing countries. Furthermore, PPPs can localize development agendas and tailor solutions to specific contexts by considering the current and future needs of the local governments. Collaborative international ecosystems also facilitate the sharing of development gains and benefits across stakeholders, making them more accessible.

This shared goal was highlighted during the Group of Twenty (G20) meeting in New Delhi in 2023. Countries committed to providing technical assistance and funding toward implementing DPI in LMICs, recognizing its importance for inclusive and sustainable development. Moreover, in 2023, at the SDG Action Weekend, UN member states and various other entities made a significant financial commitment to bolster secure and inclusive DPI, collectively pledging $400 million for the High Impact Initiative on Digital Public Infrastructure. Estonia committed approximately $21 million earmarked for open-source artificial intelligence (AI) solutions and digital public goods. Additionally, Spain announced the Green & Digital Fund for Technological and Knowledge Transfer for Latin America, a substantial $300 million fund that will primarily focus on enhancing the region’s digitalization, connectivity, and digital skills. Furthermore, the Patrick J. McGovern Foundation pledged $75 million to assist communities and civil society organizations in developing transformative DPI, prioritizing trust and efficient service delivery.

UN member states and various other entities made a significant financial commitment to bolster secure and inclusive DPI, collectively pledging $400 million for the High Impact Initiative on Digital Public Infrastructure.

The U.S. Approach to DPI

Through its government agencies and companies, the United States has consistently demonstrated leadership in shaping global DPI initiatives. Its strategy revolves around fostering open, secure, and interoperable digital frameworks, reflecting a commitment to promoting digital inclusivity and connectivity on a global scale. The United States leverages its diplomatic channels and policy frameworks to influence international standards in DPI, particularly emphasizing cybersecurity and privacy protection.

Washington plays a pivotal role in mobilizing funding for DPI abroad. Various agencies, including the U.S. Department of State, USAID, and the U.S. Trade and Development Agency (USTDA), administer programs specifically designed to finance DPI projects in developing nations. They often implement the projects through public-private partnerships, wherein the U.S. government collaborates with domestic tech giants and start-ups, combining public oversight with private sector innovation and resources. 

One example of such collaboration is the partnership between the USTDA and the Investor Leadership Network (ILN), which aims to mobilize climate finance from among ILN’s global coalition of institutional investors to develop DPI. This partnership involves using USTDA tools to prepare projects in emerging economies for financing consideration by ILN’s member organizations. This collaboration exemplifies a public-private partnership that promotes climate-aligned economic development and accelerates global efforts for a sustainable planet. At the project level, USTDA is supporting technical assistance to the Maldives Ministry of Environment, Climate Change, and Technology, introducing U.S. digital technology to make the government’s services more efficient, less costly, and more secure.

The security of DPI systems against cyber threats is a critical concern for the United States, which focuses on implementing robust cybersecurity protocols to safeguard against data breaches and cyberattacks, underscoring the importance of protecting the integrity and privacy of digital infrastructures. This effort requires close collaboration between the government and the private sector to set and enforce rigorous cybersecurity standards.

Moreover, the United States prioritizes ethical practices in the use of DPI, with private companies adopting guidelines to safeguard user privacy, protect data, and promote responsible use of AI. This trend reflects a growing awareness of the ethical implications of digital technologies and a commitment to addressing these challenges proactively. The private sector is instrumental in developing innovative solutions to ethical dilemmas in DPI, such as mitigating bias in AI and ensuring equitable access to digital services.

U.S. leadership is critical in the face of increased Chinese financing for DPI worldwide through the Belt and Road Initiative, the Digital Silk Road, and other programs. The blurred lines between commercial, political, and military interests in China’s party-led political system are raising concerns about the influence Chinese state-owned and private companies have in foreign countries. Even in Europe there is a growing awareness of the security implications of Chinese-owned critical infrastructure. The challenge lies in the European Union’s lack of a centralized mechanism to scrutinize Chinese investments in strategic projects that could impact European security. This has led to calls for a more thorough analysis of the threats posed by Chinese companies’ access to EU critical infrastructure.

U.S. leadership is critical in the face of increased Chinese financing for DPI worldwide.

Such security concerns could be quite significant in LMICs, whose resources and technological infrastructure are often less developed, making them more vulnerable to similar threats. Moreover, concerns are growing about the security implications of Chinese companies’ involvement in constructing undersea communication cables near military bases, which poses risks related to espionage and underwater surveillance.

The Future of DPI

DPI, with a technological foundation rooted in advancements such as AI, the internet of things, and blockchain, offers unprecedented opportunities for enhancing the efficiency, reach, and impact of public services and initiatives. Moreover, the integration of DPI into various sectors is a cornerstone in realizing the SDGs. For example, DPI in the financial sector can foster economic growth by facilitating more inclusive and efficient financial services. This can directly contribute to poverty reduction (goal 1) and job creation (goal 8) by enabling greater financial inclusion and supporting small and medium-sized enterprises. It can also streamline patient data management in healthcare, improving healthcare delivery (goal 3). Similarly, DPI can enable remote learning and personalized education, thus promoting quality education (goal 4).

Its potential to revolutionize public service delivery and improve governance is immense. As technology continues to advance, collaboration between the private sector and governments will be vital in navigating the challenges and leveraging the opportunities presented by digital transformations.

Conclusion

The role of PPPs in the evolution of DPI cannot be overstated. The private sector’s innovation and investment are crucial for developing advanced DPI technologies. Through PPPs, the private sector can contribute financial resources, expertise, and innovative solutions. Conversely, governments can provide regulatory frameworks and support to ensure these technologies are used ethically and effectively. Such partnerships are essential for maximizing the impact and reach of DPI. Additionally, policies and initiatives that foster innovation in the private sector should be encouraged, alongside a continuous focus on ensuring the security and ethical use of digital technologies. This balanced approach will be crucial in realizing the full potential of DPI in shaping a more connected, efficient, and equitable global digital landscape.

The United States, with its strengths in payment systems and data exchange and its strong commitment to funding and international collaboration, exemplifies leadership in global DPI initiatives. U.S. government agencies and private companies contribute significantly to these goals, leveraging their technological and financial capabilities to foster innovative DPI solutions and collaborations worldwide.

Romina Bandura is a senior fellow with the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Madeleine McLean is a program coordinator and research assistant with the Project on Prosperity and Development at CSIS. Salome Girgvliani is an intern with Project on Prosperity and Development at CSIS. 

This report is made possible through the generous support of the Bill & Melinda Gates Foundation.

Continue Reading