CEE in the spotlight

Macroeconomic insights for decision making in Central and Eastern Europe

The transformation imperative: how the digital public sector is contributing to development in CEE

By Emmanuel Koenig and Malina Jankowska

The COVID-19 pandemic has changed the dynamics and hyper-accelerated the pace of digitalisation. People moved online en masse — to work, study, communicate and shop. It clearly showed that digital technologies, including those used in e-government, are important in ensuring uninterrupted interaction between governments, people and businesses under any circumstances. 

As the latest UN E-Government Survey affirms, steady growth and improvement in the development of digital government is continuing. In the post-pandemic world, digital instruments have become a foundation of recovery. Demand for online services is only increasing — and digital transformation has become a vital need. These trends are significantly influencing the investment strategies of governments and international donors, which allocate substantial amounts of funds to digitalisation. 

For example, preparing a plan under the Recovery and Resilience Facility (RRF), EU governments have to allocate at least 20% of this budget to digital measures. According to the EU Digital Economy and Society Index (DESI) report (2022), EU member states dedicated, on average, 26% of their RRF allocation to digital transformation, which is above the compulsory threshold. Lithuania, investing 32% in digital, is a leader among CEE-EU countries in this respect. 

The global shift to digital technologies is an inseparable part of new public sector operating models aimed at creating new public value. We can see how digitalisation opens new opportunities for businesses — and these lessons can be used for governments. Public authorities are also able to benefit from technologies that are already used in the private sector, for instance in banking and e-commerce. 

Digital transformation in the way governments serve people can be a game changer in citizen-state relationships. It can help citizens get better access to public services, improve accountability and increase transparency. Also, digital measures have the potential to increase government efficiency by supporting data-driven decision-making and utilising resources better. In order to adopt and adapt existing digital technologies, the public sector needs to follow the path of constant technological evolution, which can be challenging.

Looking at Central and Eastern Europe, we see ambitious digital projects in different countries and that the region is continually improving in the sphere of e-government development. These advancements are not only about digital transition, but are contributing to the overall development of societies.

Emmanuel Koenig
PwC CEE Government & Public Sector Leader

Malina Jankowska
PwC CEE Digital Public Sector Director

1. E-government, human capital and economic growth

Out of 26 CEE countries surveyed for the UN E-Government Development Index (EGDI), 15 are in the ‘very high’ EGDI group, with Estonia being in the highest ranking class within this group, ten more are in the ‘high’ group, and one is in the ‘middle’ group (Turkmenistan).

What is important about EGDI is that, being a composite index, it is based on three indicators:  Telecommunications Infrastructure Index, Human Capital Index (HCI) and Online Service Index. Looking at the CEE results of these indicators, CEE countries have the highest average in the Human Capital Index — 0.8464. This means that besides technical/infrastructure parameters, education, experience and potential are also important for overall progress in e-government development. 

CEE is catching up with the EU in terms of e-government development.

To check trends in human capital development, we’ll use the World Bank Human Capital Index. Although it is different from the one used for EGDI, it’s still relevant for general reference. For EGDI, HCI consists of four components: adult literacy rate; the combined primary, secondary and tertiary gross enrolment ratio; expected years of schooling; and average years of schooling based on data from the UNESCO-UIS. The World Bank HCI consists of components from three main categories: survival, school and health.

The World Bank HCI shows many CEE countries are aligned with their Western European counterparts. Human capital gradually improves in countries with the lowest scores. For example, Albania and Azerbaijan, which have one of the lowest HCI in CEE, have the highest rate of improvement. The rate of improvement is crucial as  it shows how fast a country can catch up with front-runners and how quickly it can learn and build new competencies.

During the last decade, CEE countries have significantly progressed in the Human Capital Index.

Going back to the E-Government Development Index, although higher EGDI values tend to correspond to higher-income countries than lower-income countries, limited resources are not an obstacle to improving online services provision in many countries. These countries have achieved high and very high levels of EGDI despite lower financial resources. As mentioned in the previous edition of the UN E-government survey, “very often, a country’s political will, strategic leadership and commitment to advance digital services, can improve its comparative ranking”.

But do digital indices influence economic progress? There has been extensive discussion  around the connection between digitisation and economic growth. The research of the International Telecommunication Union (ITU) shows that, in Europe, an increase of 10% in the CAF* Digital Ecosystem Development Index results in a +1.36% change in GDP per capita. The CAF Digital Ecosystem Development Index measures improvements in terms of the digital economy development in a certain country. This shows the potential of the digital economy to make a contribution to overall growth.

*[CAF (Corporación Andina de Fomento) — Development Bank of Latin America]

Also, the ITU indicated the connection between mobile broadband and GDP. It estimated that, on average, an increase of 10% in mobile broadband penetration yielded a 1.5% increase in GDP. 

Looking closer at countries divided into three income groups (high, medium and low), there is some differentiation in results. For high-income countries, there does not appear to be any noticeable economic impact. For middle and low-income countries, a 10% growth in mobile broadband penetration yielded a 1.8% and 2% increase in GDP respectively. The potential explanation of such an impact can be connected to different access levels in connection to technology. In low-income countries, mobile network access to broadband may be the only technology available, while in high-income countries, access to other technologies is much higher. 

CEE countries with lower levels of mobile broadband penetration should pay attention to strengthening their digital access capacities. Potentially, increasing network access may also influence the sphere of digital public services by linking with more users. 

More than three-quarters of CEE countries have developed higher levels of active mobile broadband subscriptions compared to the world average.

2. What’s on the European public sector digital agenda?

In the CEE region we have an influential player in the field of digital transformation of public and private spheres — the European Union. The EU has ambitious digitalisation goals, as well as resources to provide support to countries which lag behind. 

Setting a strategic direction, the EU’s Digital Decade policy programme outlines specific targets member states should reach by 2030. It covers various domains — enhancing skills, fostering digital transformation of businesses, establishing secure and sustainable digital infrastructures, and boosting digitalisation of public services. The EU’s proposed level of ambition by 2030 under this programme is to have 100% of key public services available online, access to medical records (e-records) for 100% of European citizens and digital ID solution usage by 80% of citizens.

There are many programmes which work in the digitalisation area. The Digital Europe Programme supports the developments around supercomputing, artificial intelligence, cybersecurity, advanced digital skills, and promoting the widespread use of digital technologies throughout the economy and society. GovTech supports innovation in the public sector and links it with start-ups and entrepreneurs to provide innovative solutions. The Interoperable Europe initiative (which was started after the ISA² programme) addresses the interoperability challenge helping to remove administrative and other burdens and accelerate the transition to accessible digital public services.

Plans under the Recovery and Resilience Facility also play an important role in financing digital transformation, including digitalising public services and introducing or improving e-government solutions. For instance, it covers e-health, e-justice and the digitalisation of transport and energy systems. It is noted that over one-third of the overall digital expenditure funded by RRF constitutes the estimated cost of investments and reforms planned to support the digitalisation of public services and e-government. DESI 2022 report shows Lithuania and Croatia are among those EU member states that are devoting more than half of their digital budget to public services digitalisation.

As digital transformation is a significant part of the EU’s development, the union is working with neighbours, strategic partners and EU candidate states to strengthen connections and improve cooperation for increasing convergence.

What’s on the European public sector digital agenda?

Digital sector cooperation with the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia) is organised under the Digital Agenda for the Western Balkans and the Economic and Investment Plan (EIP) for the Western Balkans — Flagship 8. Support is provided to introduce fast and secure broadband covering remote areas, develop cloud infrastructures, digital skills, e-government, e-procurement and e-health. For the digital transformation in the period 2009-2023, the Western Balkans Investment Framework grant amounts to €54.2m, and the estimated investment is €640m.

The digital progress of the Western Balkans (WB) is estimated using the WB Digital Economy Society Index (DESI). The latest results (2022) show that Western Balkans scores are significantly below the EU average numbers in all four dimensions: human capital (8.4 vs 11.4), connectivity (7.7 vs 15.0), integration of digital technology (5.2 vs 9.0) and digital public services (8.0 vs 16.8). Taking into account the overall DESI, Montenegro, Serbia and Albania scored above the WB average. 

Interestingly, in some sub-components some Western Balkan countries outperformed the EU average. For example, in the advanced skills and development sub-dimension that relates mostly to the number of ICT specialists, female ICT specialists and ICT graduates, Serbia and Albania have higher scores than the EU average. Also, in the Fixed broadband coverage sub-dimension, Montenegro’s score surpasses the EU average. There are more examples throughout the report, but, in general, WB countries still are lagging behind the EU significantly.

Eastern Partnership (EaP) countries, Armenia, Azerbaijan, Georgia, Moldova and Ukraine, also receive EU support for digital transition. Looking at the Multi-Annual Indicative Programme for the Eastern Neighbourhood, the priority area of Resilient digital transformation is supposed to receive €63.22m.

For EaP countries, there is a flagship regional programme which aims to support digital transformation and harmonisation of digital markets — the EU4Digital Initiative. Building and strengthening infrastructure (like the development of high-speed broadband), cybersecurity, enhancing digital skills and adjusting digital frameworks across society are the main areas of focus for this initiative.

In general, EaP countries have a lot of work ahead to catch up with the EU results in digitalisation. We can, however, see successful cases which illustrate progress. For instance, Ukraine’s project Diia, an application and web portal to provide digital public services, since its launch in 2020, is continuously increasing its scope. In 2022, the number of Diia users increased by 6 million, a total of 18.5 million users of the mobile application and approximately 22 million users of the web portal. 

Even amid Russia’s full-scale war, the Ukrainian Ministry of Digital Transformation is launching new initiatives to make it easier to receive access to public services. For example, in 2022 such services as applying for marriage, submitting a notice about a damaged property and applying for grants, e.g. for own business, garden or greenhouse, became available through Diia web portal. Also, from July 2022, forcibly displaced Ukrainians in Poland can get a digital residence permit Diia.pl in the mObywatel application. What is more, in 2022 Ukraine was the second-ranked in the ranking of the Open Data Maturity assessment. Ukraine’s example shows that the digitalisation of public services is a critical part of overall resilience in the face of multiple challenges.

The EU, together with other international donors, is also helping Central Asian countries, such as Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan, with their digitalisation journey. For example, for the period 2021-2024, the estimated total grant funding to Central Asia is planned to be at least €390 million for both bilateral and regional programmes. This includes the Digital Connectivity initiative which is part of Team Europe projects — initiatives where EU institutions, member states and finance institutions are coordinated to collaborate on critical priorities.

As for the developments, we see Kazakhstan’s stable work in the field of digital transformation, including fostering e-government improvement. Kazakhstan is 28th in the EGDI ranking, with a result which is slightly higher than the EU average (0.8628 vs 0.8625).

Concerning EU's cooperation with Mongolia, digital agenda is a cross-cutting theme in different sectors covered by EU Multiannual Indicative Programme for Mongolia (2021-2027). For example, new technologies are expected to be used for e-agriculture, e-commerce, e-learning, e-governance, IT-based public finance management and revenue collection systems.

digital transformation

Digital transformation is accelerating and scaling its impact in different spheres, including public services. Going digital is becoming a means of future-proofing organisations and society, because potential growth lies in the digital economy. As estimated by the World Economic Forum, over the next ten years, digitally enabled platform business models will become a basis for 70% of new value created in the economy. What is more, we’ve seen evidence of how improving the CAF Digital Ecosystem Development Index or mobile broadband penetration is connected to GDP increase.

Collaboration of public and private sectors could help make the digital transition faster and scale its sustainable effect. That’s why helping governments adapt to a constantly changing digital environment is one of the key directions for PwC in Central and Eastern Europe. For example, we actively work with the EU’s Directorate-General for Structural Reform Support (DG REFORM) and the Polish government to implement the Digital Competence Development Programme. Being a global network, we are applying best practices from different EU countries, such as Estonia, Finland and Spain, to support the Polish government with digitalisation and sustainable development of digital public services with a citizen-centred approach.

Different indices show the progress of CEE countries in various areas of digitalisation, such as e-government development, e-participation or data maturity. The digitalisation of the public sector is a great opportunity for CEE countries to catch up with Western counterparts. Through digital technologies, governments in the region can enhance accessibility for different groups of people and transparency together with the accountability of authorities. So it’s about a potential strengthening of institutions through building trust. Our region is following global hyper-accelerated patterns, with the majority of CEE countries keeping pace. The task is to leverage these developments for people empowerment and growth.

Sign up to receive new articles from the CEE in the spotlight series

By submitting this form you agree to receive commercial information, in particular newsletters from CEE PwC Member Firms as joint controllers.
You have the right to withdraw this consent at any time. PwC CEE member firms will be joint controllers of your personal data.
The data will be processed for the purpose of direct marketing through sending commercial information to you via email. Full information about processing your personal data is available in our Privacy Policy.

Contact us

Emmanuel Koenig

Emmanuel Koenig

PwC CEE Government & Public Services Leader, PwC Central and Eastern Europe

Tel: +381 11 3302112

Malina Jankowska

Malina Jankowska

Director, Digital Public Sector, PwC Central and Eastern Europe

Tel: +48 519 508 126

Jeffery McMillan

Jeffery McMillan

CEE Director of Brand, Marketing & Communications, PwC Central and Eastern Europe

Tel: +48 519 506 633

Follow us on social media