By Eveline Smeets and Iain Bain
The creative industries contributed close to $3 trillion to global GDP in 2020, yet their ability to support inclusive and sustainable economic growth in emerging markets is often largely invisible ― especially compared to traditional sectors such as natural resource extraction, manufacturing, and financial services.
This happens largely because of the challenges in defining and measuring the creative industries and its impact, especially given that several of its development outcomes are intangible. By neglecting to capitalize on their rich cultural assets, emerging markets are missing major opportunities in pursuing economic diversification and promoting shared prosperity.
But now there are strong incentives for governments and the private sector to measure and invest in this industry. That is because new disruptive technologies, which have flourished since the onset of the COVID-19 pandemic, have the potential to create formal income-earning opportunities for hundreds of thousands of individual artists and generate economic growth for countries around the world.
A primer on creative industries
First, some background on creative industries.
These industries use creativity and culture as their main input to produce creative products. These products include music, film, fashion, and the visual arts, among others, and extend to a range of creative content production embedded within other sectors. The sector has the potential to constitute not only a source of cultural value, but also commercial value within emerging markets.
One good example is Nollywood, the Nigerian film industry, which contributes around up to 3 percent to Nigeria’s GDP. Nollywood provides around 300,000 direct and 1 million indirect jobs and generates around 10 percent of foreign exchange earnings from non-oil exports. Still, much of Nollywood’s commercial potential remains unharnessed, as piracy of films is thought to constitute 50 percent of potential profits.
Creativity also supports economic growth through fostering productivity, promoting industrial innovation via supply chain linkages with other sectors, and improving country branding for the tourism industry. Further, unlike other economic sectors, the creative industries provide a broad array of socio-cognitive benefits for individuals, as consumption of creative goods supports educational outcomes, health and wellbeing, and inclusion. These spill over at the country level in the form of nation building, social cohesion, and diversity.
However, emerging markets historically faced substantial challenges in formalizing and commercializing their creative wealth. Broken creative value chains paired with a weak enabling environment have created a fragmented landscape with high costs of production of creative products and limited local and global distribution and monetization channels for artists from emerging markets. The fragmented nature of the sector also means there is limited coverage and enforcement of institutional frameworks to protect creative assets (intellectual property), limited public promotion of the sector, and a lack of available infrastructure, financing, and skills to develop the industries.
Enter disruptive technologies
Partly triggered by the challenges that creatives faced in developing and marketing their products during the pandemic, the adoption of emerging digital technologies is opening new avenues to produce, distribute, and monetize content. Drastic reductions in the costs of media recording technologies, such as cameras and microphones, have also helped more artists purchase equipment.
Consumer-facing digital technologies such as music streaming (Spotify, Pandora), movie streaming and production platforms (Netflix, Amazon Prime), creator tech applications (YouTube, Instagram, Facebook), and e-commerce (Etsy) ― paired with mobile money solutions ― have similarly lowered barriers to entry for talent discovery, distribution, and drawing income from creative content.
For example, musicians in Kenya, Tanzania, and Uganda previously relied on live shows for most of their income earnings, but digital platforms such as Mdundo have enabled more than 90,000 artists in those countries sell their music to global audiences.
Importantly, disruptive technologies have enabled the creative industries to become an investable sector for the first time in many emerging markets. Digital platforms are enabling artists to track earnings and provide pathways for new forms of income generation, such as brand promotion and advertising. New technologies also support technological and legal barriers to production and thereby protect intellectual property.
Evidence about the potential effects of digitalization on protection of creative assets from developed markets highlights that appealing licensed streaming alternatives can thwart piracy rates. Non-Fungible Tokens (NFTs), a relatively nascent blockchain technology that tokenizes and records digital assets on a digital ledger, help enforce copyright protections and enable artists to be rewarded for their work. These technologies also enable data generation on the creative industries, helping governments to understand the relevance of the creative industries and develop evidence-based policies to promote them.
The next frontiers
We are seeing the emergence of several pockets of excellence with the creative industries and the role of digitalization in amplifying them, or creating entirely new creative industries in emerging market. They include:
- The re-emergence of Latin music has been driven largely by digital streaming and was spearheaded by a proactive private sector that sought to digitalize and address international demand. Latin music accounted for 5 percent of the total $12.2 billion recorded music revenues in 2020 in the U.S. market, achieving its highest revenues since 2005. The rise of Danny Ocean, a Venezuelan musician whose songs “streamed [their] way onto the airwaves,” is a case in point on how digital tools lower the barriers to entry for musicians to market their creative products.
- Digitalization also created entirely new creative industries, such as the creator economy ― a software-facilitated economic ecosystem that allows digital content creators to earn revenue from their creative products. Leveraging affordable production technologies and creator tech applications, creative entrepreneurship has become a viable source of living and resulted in a number of economy-wide effects. Taking the example of the creator tech application YouTube, which directly and indirectly contributed around $875 million to GDP in India, and $710 million in Brazil, in 2020. YouTube also supported around 700,000 jobs in India and 122,000 jobs in Brazil. Creator tech applications have facilitated the emergence of new digital startups that support the creator economy, such as One Impression in India, a marketing platform for influencers that automates the brokerage of brand promotion contracts between creative entrepreneurs and businesses seeking to advertise their products.
The multiple benefits of developing a creative industry, paired with the unprecedented potential provided by digitalization, present opportunities for the sector to be transformed from a forgotten industry into a focal industry that supports economic growth and development. Yet much needs to be done to fulfill such promise. The industry needs a combination of investment by private and public stakeholders, including development finance institutions, and integration of the creative industries into the development ambitions of emerging markets. This could eventually help spur growth of their creative economies, create jobs, and in a broader sense lead to greater economic diversification.
Eveline Smeets is an IFC analyst specializing in the economics of disruptive technologies. Iain Bain is an IFC economist and development lead for private equity.
Published in June 2022