Emerging markets must prepare for the generative AI revolution. Here's why

• An article published in World Economic Forum, by Alejo Czerwonko, Chief Investment Officer Emerging Markets Americas, UBS AG

• Generative AI tools like ChatGPT offer great potential for emerging markets, including raising living standards and shortening their path towards achieving sustainable development.

• Not only can they lower barriers to entry and operating costs, they can also enhance transparency of government and reduce corruption.

• However, the benefits of generative AI will not materialize automatically and need public-private cooperation to leverage its full potential.

The power of, and the range of opportunities presented by, generative artificial intelligence (AI) tools such as ChatGPT become evident to a user after just a few minutes of interacting with them.

For developing countries, tools such as these hold the promise of raising living standards and shortening their economic path toward achieving through two main channels:

• Empowered private sector initiatives: Generative AI tools can drastically lower barriers to entry and operating costs for entrepreneurs, allowing them to create innovative and scalable business models that can leapfrog traditional approaches. Some concrete applications with immediate potential include access to credit and financial services for a much broader part of the population, improved education outcomes through personalized learning, optimized medical care thanks to early disease detection and virtual care, and better crop yields via land use optimization, among many others.

• Enhanced provision of public goods and services: The technology can be instrumental in increasing transparency of government, improving control of corruption, overcoming infrastructure limitations, deploying environmental conservation tools, instituting early warning systems to manage natural disasters, and engaging with citizens.

These opportunities, however, will not materialize automatically. Harnessing the power of generative AI requires active public-private cooperation. Without public sector involvement, countries will lack the necessary amount of investment in both human and physical capital.

Emerging markets often lack broadband needed for generative AI

At this time, for example, most of the population in many developing countries do not have the broad-based access to high-speed internet that advanced generative AI applications require.

Broadband subscriptions per 100 people in countries such as India, Indonesia, the Philippines, South Africa, and Peru are only a small fraction of that in developed countries, according to the World Bank. A similar conclusion can be reached when looking at data on the availability of 5G network architectures or data centres.

Emerging markets trail in key AI readiness indicators. Image: World Bank, Oxford Insights, UBS, as of July 2023

Yet in recent conversations with policy-makers from various emerging markets, I have perceived no real sense of urgency and priority on these topics.

Questions about what concrete initiatives they are planning to adopt to take advantage of the power of generative AI for the benefit of their country are typically met with answers that either are generic – with plans that are hard to distinguish from those applied to adopt other technological breakthroughs, for example – or suggest a need for a fuller understanding and appreciation of the present and future capabilities of the technology.

Similarly, without a dynamic private sector ecosystem, countries will lack the ability to bring the benefits of generative AI to market – i.e., the spectrum of end-users including individuals, businesses and government agencies and institutions – in a timely matter.

In this regard, there is a lot of work to be done. The technology sector in many emerging markets today scores poorly in terms of maturity and innovation capacity, according to Oxford Insights’ latest Government AI Readiness Index.

AI preparedness needs to be a top priority in developing countries

All these present ample opportunities for development. But first, improving AI preparedness needs to come to the top of policy priorities in emerging markets.

A lack of immediate public-private cooperation would not only represent a failure to take advantage of the promise of the technology, but also translate into increased exposure to multiple related risks, which include:

• Growing technological divide: A larger gap between those with knowledge of and access to advanced generative AI tools and those without is likely to trigger increased income and wealth inequality not only across countries, but also within countries, which in turn could lead to more severe social tensions and conflict.

• Job market disruptions: There are widespread concerns that generative AI may reduce the value of certain skills, even as some new ones emerge as highly valuable. Customer service – to name one area in which many emerging markets have benefited through offshore outsourcing by developed countries – is at risk.

• Diminished public trust and increasing political instability: Worries about false information and fake news are at all-time highs in many emerging markets, according to the latest Edelman Trust Barometer report. Generative AI may exacerbate these threats, making the lines between real and computer-generated content even blurrier. No healthy society can function without trust, and democratic systems seem most at risk of disruption.

Many developed markets are already recognizing the potential and the risks of generative AI, with their governments actively exploring ways to make the technology work for both business and society. The stakes cannot be higher. The time for emerging markets to prepare for the AI revolution is now.