Jun 19, 2017
How to Digitize a Country
Lessons from Estonia
Pop quiz: The Creators of Skype Belong To Which 3 Countries?
If you know the answer to this question, you know what I am alluding to.
If you don’t know the answer to this question, you will be surprised to know.
In either case, Skype is a testament to a truly digital country.
Skype was created in 2003 by Swede Niklas Zennström and the Dane Janus Friis, in cooperation with Ahti Heinla, Priit Kasesalu, and Jaan Tallinn, Estonians who developed the backend that was also used in the music-sharing application Kazaa.
Also, this article is not intended to discuss Sweden or Denmark. Rather, it is meant to discuss Estonia.
So, tervist (hello in Estonian).
Incidentally, Silicon Valley bigwigs will meet with Washington today to brainstorm how to improve the governments use of technology. June 19, 2017 marks the first meeting of the American Technology Council.
Background
The capital of Estonia is Tallinn and the official language is Estonian. Estonians (68.7%), Russians(25.1%) and Ukrainians (1.7%$ make up the population with a small percentage of Belarussians and Finns thrown into the mix. Estonia is situated to the south of 🇫🇮 Finland, the Baltic Sea lies to the west, Lake Peipus and Russia 🇷🇺 to the east and Latvia to the south.
Estonia is a country that lies in the Baltic region of Northern Europe. It was occupied by Soviets and Germans from 1940–1991. It joined the Euro on May 1, 2004.
In that sense, it is a fairly new country which allowed its first government and its people the opportunity to build a digital society from the ground up.
Education
Estonia has a very small population of 1.3 million. It is also a developed nation with a high income economy that is one of the fastest growing economies in the EU.
The PISA test (the Program for International Student Assessment (PISA) is a worldwide study by the Organisation for Economic Co-operation and Development (OECD) in member and non-member nations of 15-year-old school pupils’ scholastic performance on mathematics, science, and reading) places Estonian students third behind Singapore and Japan within the OECD.
e-Estonia
In 2005, Estonia became the First Nation to hold elections over the Internet and in 2014, the First Nation to provide e-residency.
Estonian citizens have a mobile ID (which is powered by a Blockchain type decentralized architecture in the backend).
The Mobile ID allows an Estonian to access public services, financial services, medical and emergency services as well as to drive, pay taxes online, e-vote, provide digital signatures, and travel within the EU without a passport (source:Thomson Reuters)
The e-Estonia website provides an overview of the various components of a truly digital society:
The above info graphic provides a snapshot of the comprehensive nature of digital services that the government actively promotes.
Not surprisingly, 98% of banking transactions are online.
E-Residency
Estonia also has e-residency (or virtual residency) which allows non-Estonians access to Estonian services company, launching company, remote business management, taxation, payment processing using a smart card even if they are not physically in Estonia. The first e-resident of Estonia was a U.K. based journalist Edward Lucas (Senior Editor of the Economist newspaper)
E-residency is not the same as citizenship or permanent residency. It just means virtual residence.
Today, there are 21,058 e-residents from 138 countries and a total of 3256 companies have been established by e-residents. (Source:e-resident).
Many Digital nomads, therefore like Estonia.
Case Study: Skill Mill
Skill Mill is a UK-based social enterprise is that launched in Estonia through e-Residency. As per Adam Rang, Head of Communications at e-residency:
The Skill Mill employs ex-offenders to clean up rivers and plant new landscapes. This not only improves the environment, but also significantly reduces rates of reoffending by ensuring people with troubled pasts can pursue a better future.
Case Study: India
E-residency and the UNCTAD have joined forces to utilize the power entrepreneurs in developing nations to easily launch their businesses. As per Daniela Godoy, Head-Internationalisation at e-residency:
One of the first examples of e-Trade For All in action is now underway in Delhi, India where women are being helped to start their online businesses through e-Residency of Estonia.
At present, women in developing countries are the least likely to benefit from internet access so WEE is helping the participants develop their business ideas and then turn them into a reality through e-Residency.
The X-Road
X-Road is an IT infrastructure that uses decentralized databases (think Blockchain) to link various e-services databases, both in the public and private sector, to operate in harmony together.
As per its website:
X-Road enables a wide range of otherwise complex services to be offered quickly and conveniently:
1.Presenting a registration of residence electronically;
2. Checking one’s personal data (address registration, exam results, health insurance, etc.) from the national databases;
3. Declare taxes electronically;
4. Check the validity of driving license and vehicles registered to an individual.
5. A newborn child receiving health insurance automatically.
Look at the video below for a glimpse into X-Road:
Startups
Kaidi Ruusalepp, 41, CEO of Funderbeam was able to finish all the formalities of creating a startup without visiting a single office in 20 minutes.
Today, Funderbeam is a primary and secondary market for early-stage startup investments providing easy delivery and access of growth capital. Funderbeam already uses Blockchain to record transactions.
Estonia has a veritable list of startups and a vibrant startup ecosystem that relies on 4 building blocks: strong ecosystem, smart people, smart money and friendlier regulations. Some of the popular startups coming out of Estonia include:
Transferwise provides the ability to transfer money without hidden charges
Guardtime provides a secure supplychain using Blockchain.
Fortumo provides one click mobile payments in 97 countries.
Estonia also boasts a great list of startups: Skype, Grabcad, Erply, adcash, starship technologies, Monese, Zero Turnaround, lingvist, Bondora, Taxify, Plumbr, shipitwise, inzmo, rangeforce.
For a complete list, head over to Startup Estonia:
Venture Capital
The Estonian startup ecosytem is worth $1.2 -$1.4 billion. In 2015, Transferwise received $58 million series C from Andreesen Horowitz.
Baltic Capital, The Estonian development Fund, Smartcap are some of the major investors.
As per geektime:
The average seed round is somewhere between $400,000 and $450,000; half of Silicon Valley and behind the $600,000 to $650,000 European average. Series A funding rounds are slightly healthier ($4.5 million to $5 million), but still behind what startups usually get in Europe. You can likely thank the input of Skype’s founding team in their angelic funding of the Tallinn startup ecosystem: Their former Chief Technical Architect, Ahti Heinla, has invested in since-acquired GrabCAD, Fleep, Swap.com and Utopic, among others. The Estonian Business Angels Network (EstBAN) now has over 100 members.
Lessons from Estonia
Perhaps, all creation requires destruction. While Estonia may well represent a digital utopia that all nations can look forward to as their future, it is still hard to emulate. It was a new country which allowed its government to build from the ground up. Since there were few landlines, people leapfrogged to cell phones instead.
It was a developed economy with a small but extremely educated population (as demonstrated by the PISA standings)
Also, in 2007, people in Estonia faced denial of service attacks on major websites as Estonia faced cyber attacks. As a result, Estonia moved its computing database to the Blockchain which cannot be tampered with.
Estonia also has a president and a government firmly committed to digitization as a way of life. In 2000, Estonia became the first country to declare the Internet a basic human right.
While Singapore, Japan and India try to utilize the same lessons ie using digital identity (UIDAI in India’s case) to identify and therefore foster inclusion and direct interaction with the government, financial services players and for food distribution, Estonia’s feat is still hard to achieve.
However, it may not be impossible. The following key elements are needed to create a digitized nation:
1. Basic necessities such as food, clothing, shelter, education and power (electricity) are usually the first order of business. Especially , STEM education becomes critical for citizens to harvest the fruits of digitization. Each of these necessities has to be tackled through a public private partnership. While infrastructure can be a government priority, subsidized private, primary education can be a partnership.
2. Creating a digital identity for citizens is essential for citizens to participate in civic life, file taxes, vote, setup businesses, avail financial services etc. Digital identity similar to India’s Aadhar card is essential.
2. Utilizing a Blockchain as an immutable record of transactions is the next building block for secure and transparent computing.
3. Creating startup ecosystems supported by the government such as tech stars in the U.K., Startup India in India, startup Estonia in Estonia etc.
4. Attracting talent through visa programs such as startup visa in Estonia, French tech visa etc. for countries with a need for importing talent.
5. Access to the Internet should be a basic right but it is easier said than done in certain countries. However, that should be the end goal.
6. Sound fiscal (taxation) policies go a long way in supporting entrepreneurs and startups.
7. Attracting Crowdfunding or traditional venture capital will supplant government support.
8. Accelerators, incubators and mentors play a critical role in providing guidance to young entrepreneurs.
9. Open API’s can foster competition amongst developers to develop to best possible applications for the citizens.
10. Commitment and Buy-in from all major government players is needed to kickstart the process.
Final Remarks
In subsequent articles, I will look at the success of other smaller countries such as Peru, Sweden, and Israel to identify lessons for larger nations to follow as they utilize digitization for inclusion of their citizens into financial services and more importantly into the future.
One thing is for sure though-many stars have to align to achieve complete inclusion and digitization. Some stars may never align but the journey is more important than the destination. In the words of Narendra Modi, Prime Minister of India:
Information, education, skills, healthcare, livelihood, financial inclusion, small and village enterprises, opportunities for women, conservation of natural resources, distributed clean energy — entirely new possibilities have emerged to change the development model.
The question is: will the world embrace the new possibilities to create a digital and inclusive world?
I, for one, certainly think it is time to get over negative news and issues and start thinking positive changes and solutions. Embrace optimism as the first step to creating a digital nation.
