KPMG: Building a regulatory ecosystem conducive to innovation and regulating it

1. Innovating governments
2. Regulating for innovation
3. Multi-stakeholder collaboration required to address the complex challenges of data, regulating the emerging technology

As the digital age progresses, emerging technologies are rapidly changing how societies and economies function. Businesses and the economy have become increasingly dependent on innovation, and governments must find a way to balance the need to protect citizens and competition with the need to encourage innovation. 

Since governments have become increasingly aware of the importance of these technologies, they have begun taking measures to ensure their citizens have access to these technologies. With two new publications, KPMG examines how governments can foster innovation, and how they can create efficient regulatory frameworks to ensure innovation flourishes. 

In order to better understand the best practices for setting up effective regulatory frameworks for innovation, KPMG reviewed the regulatory initiatives of other key markets to assess for applicability in the Kingdom. The two publications together provide a detailed examination of the challenges encountered when establishing effective regulations, as well as the importance of striking a balance between promoting innovation and protecting constituents.

Innovating governments

Saudi Arabia is investing heavily in building an innovation ecosystem to bring digital transformation to its operations, aiming to build a culture of innovation.

 In its first report titled, “Innovating governments - Driving innovation to deliver better public services,” KPMG finds that the Kingdom has dedicated a part of its innovation efforts inwards and focused on digital government as a critical initiative. This includes the notable innovation programs under Vision 2030 and the National Transformation Program (NTP), and the establishment of innovation hubs like the King Abdullah University of Science and Technology (KAUST) and the King Abdulaziz City for Science and Technology (KACST).

Also, the Digital Government Authority (DGA) supports government entities in their digital transformation to provide digital government services. Saudi Arabia climbed to the 31st position in the United Nations’ in the E-Government Development Index (EGDI) an improvement from 52nd in 2018. 

 “Saudi Arabia has a culture of innovation in terms of funding and political will,” commented Dr. Samer Abdallah, Head of ICT Sector at KPMG in Saudi Arabia. “Government innovation is often geared towards improving living standards and job creation. How to measure the impact on government spending on innovation is one of our key objectives with our studies.”

KPMG states that governments may play many roles in the innovation ecosystem, including innovation policymaker, capability builder, capital provider, promoter and innovator. Among the prerequisites for success, a culture of failure, building innovation capabilities, and enabling an innovation ecosystem are all mentioned as critical factors in the publication. 

“Governments must create an environment conducive to innovation. This includes investing in research and development, establishing supportive policies, and creating a culture of innovation within the government itself. Only by taking these steps will government bodies be able to effectively innovate and positively impact society,” Abdallah stated.

Globally, governments innovate to stay relevant and impactful in a volatile, complex, and ambiguous world. Among the ways government innovation creates value for the population are to improve access to government services, improve standards of living, provide access to resources, safeguard citizens' welfare, foster entrepreneurship, adopt new technologies, and create job opportunities. There are a variety of innovative approaches used by different countries in order to address local concerns affecting their communities, as well as pervasive issues across government entities.

Regulating for innovation

On the other hand, regulations can have various types of effects on innovation, and can both be conducive and limiting. They can ensure a level of openness and competition in product markets, focus the areas of research based on society’s needs, and ensure fair “ground rules” for all economic actors in the innovative process. 

In the second part of this series, “Regulating for innovation - Building a regulatory environment conducive to innovation”, KPMG explores the topics of emerging technologies, their importance to society, and the key role of regulations. 

 Saudi Arabia has set up regulatory frameworks to direct the country’s digital transformation and create an ecosystem that attracts foreign investment. In addition to implementing regulatory frameworks to support its digital economy, Saudi Arabia is also encouraging regulation in order to facilitate entrepreneurship and new business ventures. 

A variety of incentives can be provided to the private sector to encourage the adoption of emerging technologies. Some of the benefits include: financial incentives, increased automation, increased flexibility for hybrid and remote work, higher employment rates, improved human resource management practices, a competitive advantage, accurate decision-making, and capturing future markets. Moreover, the adoption of emerging technologies by the public sector has had a positive effect on various fronts, including economic, social and environmental impact, with the opportunity to lead to future prosperity and better government. That said, with emerging technology increasing labour productivity, both the public and private sectors will likely require more skills and capabilities. 

As a result of human-centred design being implemented during the development of solutions, citizens will have greater access to, reliance on, and ability to respond to government agencies. It is predicted that emerging technology will help reduce carbon footprints and can be applied to address environmental challenges by reducing carbon footprints.

“The pace of digital transformation and innovation is always faster than the regulations to direct it. Keeping up with a changing environment and avoiding obstacles to innovation due to outdated regulations is an ongoing global challenge,” stated Abdallah.

The rapid development of the emerging technology market calls for a more responsive and participative approach to co-designing policies and standards, both at the local and global levels. Globally, businesses should work together to create a more unified approach to the regulation of emerging technology, allowing for innovation while also protecting consumer safety. Governments need to be part of this conversation to ensure regulations don't stifle progress and development. Finally, businesses need to be held accountable for the ethical use of the technologies they are creating.

 “Multi-stakeholder collaboration is required to address the complex challenges of data and emerging technology regulation to ensure the free flow of data across borders, protect consumers, and safeguard fair competition,” Abdallah concluded.