Å·ÃÀÈÕb´óƬ

Summary

A new under the World Bank Group¡¯s Digital Economy for Latin America and the Caribbean (DE4LAC) initiative identifies challenges and opportunities to promote widespread access to digital technologies and provides actionable policy recommendations that would accelerate the pace of El Salvador¡¯s digital transformation and bring the country closer to achieving the vision set forth by the  (PDF). The report leverages a digital economy  (PDF) developed by the World Bank Group and is based on quantitative and qualitative assessments carried out during the second half of 2021 by a multisectoral team.

Main challenges and opportunities

The findings are organized by six pillars of the digital economy:

1. Digital Infrastructure
   The lack of affordable international connectivity constrains digital access in El Salvador, slowing down the pace of digital transformation. The country has almost entirely exhausted its current international capacity, which limits available bandwidth and affordable service.
   - Almost 50% of the population lacks internet access, of which, about 64% identify internet prices as the main obstacle to being online.
2. Public Digital Platforms
   The current governance framework needs additional financial and technical resources to digitalize government services as set forth by El Salvador¡¯s  (PDF). The digital transformation of government services will require updating, redesigning, and integrating existing digital public platforms, allowing the Salvadoran government to maximize the value of data.
   - El Salvador ranks 107th out of 193 economies in the United Nations¡¯ E-Government Development Index (EGDI) report (2020).
3. Digital Financial Services
   There are opportunities to strengthen El Salvador¡¯s ecosystem for digital financial services (DFS) and fintech through improvements to its legal and regulatory framework and market infrastructures. A DFS ecosystem that promotes competition, innovation, and interoperability is essential to ensure that households and firms in El Salvador ¨C particularly those that are currently ¡°unbanked¡± - can access appropriate and affordable digital financial services.
   - Two-thirds of El Salvador¡¯s adult population lacks access to basic financial services, and despite recent growth in mobile money products, the uptake of DFS is lower than in peer countries.
4. Digital Businesses
   Salvadoran firms identify e-commerce, fintech, automation, and artificial intelligence as the vital technologies that will affect their businesses in the next decade. However, most firms in the country are still not using these technologies intensively. Access to finance, skilled labor, and cybersecurity concerns are among the most important barriers to digital entrepreneurship in El Salvador.
   - The labor productivity of businesses in the digital sector, which accounts for about 4% of firms in El Salvador, is about 3.5 times higher than labor productivity in the average firm
5. Digital Skills
   Demand for highly trained professionals in digital technologies outpaces supply.  The insufficient supply of talent with digital skills and the digital divide within the country, partially driven by an inadequate supply of quality fixed broadband infrastructure, limits the potential of digital technologies and slows down the pace of digital transformation in the country.
   - Over 30% of firms of all sizes in El Salvador identify the lack of trained professionals with digital skills as main challenges to adopt and operate digital technologies.
6. Trust Environment
   Enhancing data protection regulations, cybersecurity capabilities, and the digital ID system are critical to improve trust in digital transactions in El Salvador. Due to lack of national authentication platform, access to public and private services remotely through digital means is limited.
   - Cybersecurity risk ranks as the top regulatory challenge for MSMEs in El Salvador. 58% of companies report having faced at least one cyber incident in 2020.

Recommendations

Three key areas that require the attention of Salvadoran policy makers are:

1. Investing in digital infrastructure - International connectivity is acutely limited due to exhausted international capacity and needs to be bolstered to support data heavy enterprise development, such as cloud computing and big data analytics, and other data heavy activities, such as blockchain, along with equitable quality access for all Salvadorans.
2. Modernizing legal and regulatory frameworks - An actionable regulatory roadmap for infrastructure investments, authentication, personal data protection, and fintech is needed to adapt to the opportunities and challenges of the digital economy and foster confidence in digital transactions and promote further digital technology adoption.
3. Improving digital literacy among individuals and promoting the development of a digitally competent workforce - Inclusive digital skills policies would facilitate the development of digital competencies in El Salvador, helping accelerate digital transformation and preparing individuals to better reap the benefits of the digital economy.

The report suggests that a carefully considered combination of public policies that improves access to affordable high-speed internet, helps overcome constraints in institutional capacity, boosts digital inclusion, and improves trust in the digital economy will enable El Salvador to benefit from the opportunities that arise in an increasingly digitized global economy.

DE4LAC is supported by the , administered by the World Bank Group. DDP offers a platform for digital innovation and development financing, bringing public and private sector partners together to advance digital solutions and drive digital transformation in developing countries. Find out more: