Balkans Can Benefit From Further Digitization

Countries in Central and Eastern Europe (CEE) could earn up to 200 billion euro ($227.2 billion) in an additional gross domestic product (GDP) by 2025 if they develop digital economy across all sectors, McKinsey said in a recent report.

The region’s digital economy may grow to represent 16% of GDP by 2025, meaning up to 30% additional economic growth, the equivalent of one extra percentage point on GDP growth each year over the period, the global management consulting company said in its November 2018 report The rise of Digital Challengers published on its website.

The productivity in the region can be improved through a digital transformation of the public and private sectors, and by boosting e-commerce and offline consumer spending on digital equipment, McKinsey said in the report, covering 10 CEE countries — Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

In terms of mobile broadband coverage, CEE countries are also well developed, with average coverage of 87%. While this falls below the average level of 98% coverage for digital frontrunners, the gap has closed somewhat in recent years, as Bulgaria, Romania, and Slovakia have made significant progress, McKinsey noted.

“CEE can also boast some of the highest coverage rates of ultrafast (100+ Mbps) broadband in Europe, at least in certain countries. Latvia and Lithuania clearly outperform the average for Digital Frontrunners, for instance, while Romania has the highest share of ultrafast broadband subscriptions – approximately 1.7 times the average for Digital Frontrunners,” McKinsey said in the report.

Digital challengers boast a relatively good ICT infrastructure but governments could close the gaps that exist across the region by facilitating cross-border digital infrastructure projects in areas such as fiber optics, 5G technology, strategic e-commerce logistics centers, and complementary energy infrastructures. Similarly, in CEE, Slovenia, Croatia and Slovakia established “TendersForAll,” an e-procurement tool featuring automatic translations.

Among digital challengers, Latvia is well above average in terms of both in both penetration of digitisation in the public sector and uptake of digitisation by society, with levels on par with digital frontrunners. Slovenia, the Czech Republic, and Slovakia, and Poland are in the middle of the spectrum, while Romania and Bulgaria have the furthest to go, with penetration rates below 25%, McKinsey said.

A good education system is another factor strongly correlated with digitisation. The Slovenian education system provides an example of best practice in this area within CEE. In 2015, schoolchildren in Slovenia performed on average better than their digital frontrunner peers, PISA scores increasing by as much as ten points between 2010 and 2015 despite the fact that public spending on education per student fell by nearly one-third in the same period.

Rather than developing solutions in isolation, digital challengers could replicate strategies already tested elsewhere. For instance, Slovenia and the Czech Republic are at the forefront of the adoption of digital tools among enterprises, while Lithuania and Latvia boast the highest number of startups per capita and have wide experience digitising utilities, the report reads.

One of the first applications of digitisation, implemented by many businesses at the end of the last century, was the digitisation of paper documents. Slovenia is a positive outlier in CEE and indeed one of the leaders in Europe as a whole, with 78% of its large enterprises and 56% of its SMEs sending e-invoices.

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