Artificial Intelligence has enormous potential to augment human intelligence and radically alter how we access products and services, gather information, make products, and interact. In emerging markets, AI offers an opportunity to lower costs and barriers to entry for businesses and deliver innovative business models that can leapfrog traditional solutions and reach the underserved. With technology-based solutions increasingly important to economic development in many nations, the goals of ending poverty and boosting shared prosperity may depend on harnessing AI's power. 

While emerging markets are already using essential AI technologies to solve critical development challenges, much more can be done, and private sector solutions will be critical to scaling new business models, developing new ways of delivering services, and increasing local markets' competitiveness. These solutions require innovative approaches to expand opportunities and mitigate risks associated with this new technology. 

The adoption of AI has significantly accelerated over the last few years due to the diffusion of digital technologies and breakthroughs in algorithmic capabilities, access to richer data, and increasing computing power. 

Reducing Poverty and Boosting Shared Prosperity 

Traditional pathways to a country's economic development are increasingly subject to technology-based disruptions. AI is highly disruptive in that it can result in a step change in the cost of or access to products or services or dramatically change how we gather information, make products, or interact.  

Emerging markets, including some of the world's poorest countries, are already using basic AI to solve critical development challenges, particularly in providing financial services to unserved and underserved populations. 

AI applications can potentially address challenges individuals face at the bottom of the income distribution, particularly the bottom 40 per cent. 

While these individuals lack the means to purchase AI technologies or AI-enabled equipment, they can benefit from AI-as-a-service solutions through their mobile devices. Recent examples include a machine learning app, Nuru, used on farms in Kenya, Mozambique, and Tanzania. 

Despite the potential risks of AI, failing to take advantage of its opportunities could be even more costly. The economic and societal transformations brought about by disruptive technologies can be accelerated with AI and can dramatically speed up progress toward the Sustainable Development Goals and the twin goals.  

Source: The Role of Artificial Intelligence in Supporting Development in Emerging Markets By Davide Strusani and Georges Vivien Houngbonon

Identifying development opportunities 

AI can expand and increase development opportunities in emerging markets in several ways. Improved business productivity from automation of core business processes and human capital development can significantly lower production costs. These improvements are already used by many companies in developed markets.  

AI has the potential to deliver significant productivity gains for businesses. This includes the combination of the accelerated pace of technology diffusion, the convergence of multiple technologies, and the emergence of digital platforms.

Productivity improvements also stem from more efficient investment in human capital thanks to automation. AI can reshape high-quality education and learning through targeted and individually customized human capital investments.

AI is driving innovation in financial services through better data processing and increasing access to credit. By relying on nontraditional data such as mobile phone call records, mobile-money transaction data, text messages, and address books, AI can reduce information asymmetry in contexts where borrowers lack credit history, enabling access to financial services for first-time and unbanked borrowers. 

AI's capacity to handle unstructured data has the potential to enable product innovation in sectors such as pharmaceuticals, transportation, and logistics. It can also alleviate constraints from poor infrastructure in emerging markets by providing alternatives and cost-effective solutions to deliver social services to those who need them most, including remote communities. Productivity growth, lower barriers to entry, and market creation and expansion can potentially raise consumption and output. 

Supporting Private Sector-led solutions

Most private sector initiatives are focused on microlending and use machine learning algorithms in conjunction with mobile phone data to predict the probability of default by potential borrowers, with fintech companies and mobile operators leading the race.  

Critical constraints to the adoption of AI solutions include the lack of a developed digital economy and a supporting entrepreneurial ecosystem capable of driving innovation and attracting financing; a scarcity of local AI expertise; and a lack of government support in key areas such as open access to data, system interoperability, trust, and acceptance of trial and error. 

While basic AI applications such as credit scoring and online platforms (mobile-based or fixed) can rely on traditional connectivity like 2G, advanced AI applications such as facial and speech recognition require a broadband connection to transmit bandwidth-consuming files such as images and audio. 

In terms of entrepreneurial ecosystems, few emerging markets have AI startups. As of 2018, 20 countries hosted 95 per cent of worldwide AI enterprises, and only three of them are emerging markets. China is second with 1011 AI enterprises, India is 5th with 152, and Russia is 20th with 17. 

Development Finance Institutions, including IFC, are pursuing various strategies to help private companies and governments across emerging markets implement AI solutions.22 VC investment, as well as investment in funds, is enabling the growth of AI startups. 

Content and Image source: The Role of Artificial Intelligence in Supporting Development in Emerging Markets By Davide Strusani and Georges Vivien Houngbonon

Cover Image: Unsplash