Enabling Digitalization Index 2018: Measuring digitagility

Euler Hermes presents its Enabling Digitalization Index (EDI) 2018, which illustrates each country’s ability to provide the necessary environment for business to succeed in an increasingly digitalized global economy.

 

The US on top of the digitagile world

The United States take the lead by far with a score of 87 out of 100. The country benefits from a large market, a strong knowledge ecosystem and a favorable business environment, three major areas when looking at conditions necessary for digital transformation.

 

Western Europe: Reaping the benefits of the single market?

“The surprise comes for Germany, ranking second best with a global score of 75.3 and leading the way in Europe. While outcomes of digitalization are less visible there than in the US (less strong global market players), Germany, as well as the Netherlands, both exhibit robust fundamentals with especially solid logistics infrastructure, connectivity and knowledge ecosystem.” said Georges Dib, an economist with Euler Hermes and co-author of the report.Georges Dib, an economist with Euler Hermes and co-author of the report

 Western Europe stands out when it comes to providing the right environment for businesses to thrive in the digitalization era, with 16 countries ranked in the top 30. Four countries even made it to the top 5: Germany, Netherlands, Switzerland and the United Kingdom. The region seems to have benefitted from the European Union construction: aligned business practices, improved logistic infrastructure and a stronger knowledge ecosystem.

 

Euler Hermes’ report also puts forward interesting patterns within the region with Nordic countries enjoying a strong knowledge environment, small trade and financial hubs benefiting from logistics infrastructures and business environment, versus the largest European countries enjoying a significant market size.

 

Asia Pacific: Champions and rising stars

The Asia Pacific region also comes out as a region supporting digitalization: Out of the 30 top markets, 8 are from Asia-Pacific: Japan (7th), Singapore (8th), Hong Kong (9th), South Korea (10th) and China (17th) lead the pack, followed by Australia, New Zealand and Malaysia.

 

“Strong improvements in Thailand, India and Indonesia are to be noticed since last year: These are our three rising stars in the region. As a demographic giant, China largely benefits from its market size but ranks poorly when it comes to connectivity quality” added Mahamoud Islam, Senior Economist for Asia-Pacific at Euler Hermes and lead author of the report.Mahamoud Islam, Senior Economist for Asia-Pacific at Euler Hermes and lead author of the report.

 

Latin America, Middle East and Africa: Lagging behind despite emerging bright spots

In Latin America, weak connectivity, logistics infrastructure and innovation scores are the main shortcomings. The first two Latin American countries in the ranking are Chile (43rd) and Mexico (52nd) stand out, thanks to their relatively favorable business environment (and large market size for Mexico). In the Middle East, the United Arab Emirates (UAE) is the best performer (24th), with an impressive infrastructure score due to its position as a trade hub, while, by contrast, Saudi Arabia ranks 50th and Egypt 80th.

 

In Africa, South Africa (46th) leads the pack. The second African country of the ranking is Kenya (70th), which owes its score to its infrastructure performance. Nigeria ranks 100th out of 115 countries, despite a substantial market size score.

 

“Developing digital regulation, building human capital, using pivot sectors and territories, banking on smart logistics, and reducing digital inequalities are five successful strategies to top EDI ranking”, said Ludovic Subran, Chief economist at Euler Hermes.said Ludovic Subran, Chief economist at Euler Hermes

 

Methodology:

The EDI measured the conditions for companies to transform and thrive digitally. The score is made of 5 components and 10 indicators:

  • Regulation: we use the Distance To Frontier indicator from the World Bank Doing Business. The indicator is a proxy of regulation aspects which matter for digitagility (ease of getting credit, minority investor’s protection).
  • Knowledge: we use the Higher education and training score (secondary and tertiary enrollment rates, quality of the education system and the extent of employees training) and the Innovation score (R&D by corporates, collaboration between Universities and the private sector, Intellectual property laws) developed by the World Economic Forum.
  • Connectivity: we use four indicators: internet user’s ratio (the number of people using internet in % of population), mobile phone and fixed phones lines subscriptions per 100 people, and the number of secure servers per 100 people.
  • Infrastructure: we use the Logistic Performance Index (World Bank Doing Business) as a proxy of soft and hard logistic infrastructure.
  • Size: We use the number internet users, and their income (captured by nominal GDP).

 

Euler Hermes ranks 115 markets around the world based on their overall index. The index is obtained by averaging the five sub component score. Each score is a simple average of the normalized raw indicator (rescaled to a 0-100 points range).