In her State of the European Union speech, European Commission President Ursula von der Leyen delivered a clear-eyed assessment of the European Union’s position within the global digital economy. Alongside predictions of a European “digital decade” shaped by initiatives such as GaiaX, von der Leyen admitted Europe had lost the race on defining the parameters of personalized data, leaving Europeans “dependent on others”, writes Louis Auge.

Despite that straightforward admission, the question remains whether European leaders are willing to mount a consistent defence of their citizens’ data privacy, even as they accept reliance on American and Chinese firms. When it comes to challenging American social media or e-commerce giants like Google, Facebook, and Amazon, Europe has no problem seeing itself as the global regulator.

In facing China, however, the European position often seems weaker, with governments only acting to curb the influence of Chinese technology suppliers such as Huawei under intense US pressure. Indeed, in one key area with serious implications for several economic sectors Commission President von der Leyen cited in her speech – unmanned aerial vehicles, otherwise known as drones – Europe is allowing a single Chinese firm, DJI, to corner the market practically unopposed.

A trend accelerated by the pandemic

Shenzhen Dajiang Innovation Technologies Co. (DJI) is the unquestioned leader of a global drone market predicted to skyrocket to $42.8 billion in 2025; by 2018, DJI already controlled 70% of the market in consumer drones. In Europe, DJI has long been the unmanned aerial vehicle (UAV) supplier of choice for military and civilian government clients. The French military uses “commercial off-the-shelf DJI drones” in combat zones like the Sahel, while British police forces uses DJI drones to search for missing persons and manage major events.

The pandemic kicked that trend into high gear. In European cities including Nice and Brussels, DJI drones equipped with loudspeakers admonished citizens about confinement measures and monitored social distancing. DJI representatives have even tried to convince European governments to use their drones to take body temperatures or transport COVID-19 test samples.

This rapid expansion in the use of DJI drones runs counter to decisions being taken by key allies. In the United States, the Departments of Defense (the Pentagon) and the Interior have banned the use of DJI’s drones in their operations, driven by concerns over data security first uncovered by the US Navy in 2017. In the time since, multiple analyses have identified similar flaws in DJI systems.

In May, River Loop Security analyzed DJI’s Mimo app and found the software not only failed to adhere to basic data security protocols, but also that it sent sensitive data “to servers behind the Great Firewall of China.” Another cybersecurity firm, Synacktiv, released an analysis of DJI’s mobile DJI GO 4 application in July, finding the company’s Android software “makes use of the similar anti-analysis techniques as malware,” in addition to forcibly installing updates or software while circumventing Google’s safeguards. Synacktiv’s results were confirmed by GRIMM, which concluded DJI or Weibo (whose software development kit transmitted user data to servers in China) had “created an effective targeting system” for attackers – or the Chinese government, as US officials fear – to exploit.

To address the potential threat, the Pentagon’s Defense Innovation Unit (DIU) has introduced a small Unmanned Aircraft Systems (sUAS) initiative to procure drones from trusted American and allied manufacturers; France’s Parrot is the only European (and, indeed, non-American) firm currently included. Last week, the Department of the Interior announced it would resume purchasing drones through the DIU sUAS program.

DJI’s security flaws have also sparked concern in Australia. In a consultation paper released last month, the Australian transport and infrastructure department flagged weaknesses in Australia’s defenses against “the malicious use of drones,” finding UAVs could potentially be used to attack the country’s infrastructure or other sensitive targets, or otherwise for purposes of “image and signals gathering” and other types of reconnaissance by hostile actors.

In Europe, on the other hand, neither the European Data Protection Board (EDPB), the German Federal Commissioner for Data Protection and Freedom of Information (BfDI), nor the French National Commission on Informatics and Liberty (CNIL) have taken public action on the potential dangers represented by DJI, even after the company’s products were found forcibly installing software and transferring European user data to Chinese servers without allowing consumers to control or object to those actions. Instead, the use of DJI drones by European military and police forces may appear to offer consumers a tacit endorsement of their security.

Despite an opaque ownership structure, links to Chinese state abound

Suspicions of DJI’s motives are not helped by the opacity of its ownership structure. DJI Company Limited, the holding company for the firm via the Hong Kong-based iFlight Technology Co., is based in the British Virgin Islands, which does not disclose shareholders. DJI’s fundraising rounds nonetheless point to a preponderance of Chinese capital, as well as linkages with China’s most prominent administrative bodies.

In September 2015, for example, New Horizon Capital – cofounded by Wen Yunsong, son of former premier Wen Jiabao – invested $300 million in DJI. That same month, New China Life Insurance, partly owned by China’s State Council, also invested in the firm. In 2018, DJI may have raised up to $1 billion ahead of a supposed public listing, although the identify of those investors remains a mystery.

DJI’s leadership structure also points to links with China’s military establishment. Co-founder Li Zexiang has studied or taught at a number of universities linked to the military, including the Harbin Institute of Technology – one of the 'Seven Sons of National Defence' controlled by China’s Ministry of Industry and Information Technology – as well as the National University of Defense Technology (NUDT), directly supervised by the Central Military Commission (CMC). Another executive, Zhu Xiaorui, served as DJI’s head of research and development up until 2013 – and now teaches at the Harbin University of Technology.

These links between DJI’s leadership and China’s military would seem to explain DJI’s prominent role in Beijing’s repression of ethnic minority groups. In December 2017, DJI signed a strategic partnership agreement with the Bureau of Public Security of the Autonomous Region of Xinjiang, outfitting Chinese police units in Xinjiang with drones but also developing specialized software to facilitate missions for the “preservation of social stability.” DJI’s complicity in the campaign of “cultural genocide” against the Uighur population of Xinjiang burst into the headlines last year, when a leaked video – shot by a police-controlled DJI drone – documented a mass transfer of interned Uighurs. The company has also signed agreements with authorities in Tibet.

An inevitable crisis?

While DJI has gone to considerable efforts to counteract the findings of Western governments and researchers, even commissioning a study from consultancy FTI that promotes the security of its new “Local Data Mode” while sidestepping existing flaws, the monopolistic control of this emerging sector by a single firm with links to China’s security establishment and direct involvement in systemic human rights abuses could quickly become a problem for regulators in Brussels and the European capitals.

Given how prevalent drones have become across the wider economy, the security of the data they capture and transmit is a question European leaders will have to address – even if they prefer to ignore it.

Recent media reports suggest a new cryptocurrency legislation for safe cryptocurrency exchange could be introduced in the EU countries. By this new legislation, under the new guidelines, Bitcoin and other digital currencies will be named monetary instruments all through Europe. This means legal cryptocurrency exchange will be more transparent than ever. Moreover, it is said that this new legislation will encourage the innovation associated to crypto and blockchains sector.

One area looking to new innovation using the blockchain is the cross-border money movement in multi-commodity trading business, which is very complex. There are a number of stakeholders, intermediaries and banks operating together to make deals happen. The supply chain deals are massive in value and happen very frequently.

“Many traditional banks have recently exited trade finance sector because it's simply too risky for them,” said Ali Amirliravi, CEO of LGR Crypto Bank of Switzerland. “The banks that stay have no incentive to optimize the inefficient processes, that’s because as the companies are working to gather up all the required documentation and address the compliance needs, the banks are sitting back and charging interest - they actually don’t care how long it takes, it’s the trading companies that have to pay the extra fees.

"It gets even worse in what we call the 'Silk Road Countries'- the areas between Europe, Central Asia and China. Here you really see big differences within the supply chains and they also have to deal with large number of different currencies. You’ve got some companies that are using all manual, paper based processes and others that are moving into digital - there’s no standardization and that’s a real problem."

Ali Amirliravi’s LGR Crypto Bank is a member of the Silk Road Chamber of International Commerce - an international association with the aim of increasing trade amongst members and states.

“These issues outlined are brought up frequently at the high-level meetings of the chamber of commerce,” said  Amirliravi . “The influence of my own experience in the industry mixed with the stories of other stakeholders really pushed me to start to create end-to-end digital system. We are building a better way to do things, one that is faster, cheaper and more transparent for all parties involved. “

“It comes down to integrating new technologies in smart ways. Take my company for example, LGR Crypto Bank, when it comes to money movement, we are focused on 3 things: speed, cost & transparency. To address these issues, we use leading technologies such as  blockchain, digital currencies, and general digitization to optimize the existing processes.

It's quite clear the impact that new technologies can have on things like speed and transparency, but when I say it’s important to integrate the technologies in a smart way that’s important because you always have to keep your customer in mind - the last thing we would want to do is introduce a system that actually confuses our users and makes his or her job more complicated. So on one hand, the solution to these problems is found in new technology, but on the other hand, it’s about creating a user experience that is simple to use and interact with and integrates seamlessly into the existing systems. So it’s a bit of a balancing act between technology and user experience, that’s where the solution is going to be created.

When it comes to the broader topic of supply chain finance, what we see is the need for improved digitalization and automation of the processes and mechanisms that exist throughout the product lifecycle. In the multi-commodity trading industry, there are so many different stakeholders, middlemen, banks, etc. and each of them have their own way of doing this - there is an overall lack of standardization, particularly in the Silk Road Area. The lack of standardization leads to confusion in compliance requirements, trade documents, letters of credit, etc., and this means delays and increased costs for all parties. Furthermore, we have the huge issue of fraud, which you have to expect when you are dealing with such disparity in the quality of processes and reporting. The solution here is again to use technology and digitalize and automate as many of these processes as possible - it should be the goal to reduce risks and take human error out of the equation.

And here is the really exciting thing about bringing digitalization and standardization to supply chain finance: not only is this going to make doing business much more straightforward for the companies themselves, this increased transparency and optimization will also make the companies much more attractive to outside investors. It’s a win-win for everyone involved here.”

The European Union recently unveiled its European Skills Agenda, an ambitious scheme to both upskill and reskill the bloc’s workforce. The right to lifelong learning, enshrined in the European Pillar of Social Rights, has taken on new importance in the wake of the coronavirus pandemic. As Nicolas Schmit, the Commissioner for Jobs and Social Rights, explained: “The skilling of our workforces is one of our central responses to the recovery, and providing people the chance to build the skillsets they need is key to preparing for the green and digital transitions”.

Indeed, while the European bloc has frequently made headlines for its environmental initiatives—particularly the centrepiece of the Von der Leyen Commission, the European Green Deal—it’s allowed digitalisation to fall somewhat by the wayside. One estimate suggested that Europe utilizes only 12% of its digital potential. To tap into this neglected area, the EU must first address the digital inequalities in the bloc’s 27 member states are addressed.

The 2020 Digital Economy and Society Index (DESI), an annual composite assessment summarizing Europe’s digital performance and competitiveness, corroborates this claim. The latest DESI report, released in June, illustrates the imbalances which have left the EU facing a patchwork digital future. The stark divisions revealed by DESI’s data—splits between one member state and the next, between rural and urban areas, between small and large firms or between men and women—make it abundantly clear that while some parts of the EU are prepared for the next generation of technology, others are lagging significantly behind.

A yawning digital divide?

DESI evaluates five principal components of digitalization—connectivity, human capital, the uptake of Internet services, firms’ integration of digital technology, and the availability of digital public services. Across these five categories, a clear rift opens up between the highest-performing countries and those languishing at the bottom of the pack. Finland, Malta, Ireland and the Netherlands stand out as star performers with extremely advanced digital economies, while Italy, Romania, Greece and Bulgaria have a lot of ground to make up.

This overall picture of a widening gap in terms of digitalization is borne out by the report’s detailed sections on each of these five categories. Aspects such as broadband coverage, internet speeds, and next-generation access capability, for example, are all critical for personal and professional digital use—yet parts of Europe are falling short in all of these areas.

Wildly divergent access to broadband

Broadband coverage in rural areas remains a particular challenge—10% of households in Europe’s rural zones are still not covered by any fixed network, while 41% of rural homes are not covered by next generation-access technology. It’s not surprising, therefore, that significantly fewer Europeans living in rural areas have the basic digital skills they need, compared to their compatriots in larger cities and towns.

While these connectivity gaps in rural areas are troubling, particularly given how important digital solutions like precision farming will be for making the European agricultural sector more sustainable, the problems aren’t limited to rural zones. The EU had set a goal for at least 50% of households to have ultrafast broadband (100 Mbps or faster) subscriptions by the end of 2020.  According to the 2020 DESI Index, however, the EU is well short of the mark: only 26% of European households have subscribed to such fast broadband services. This is a problem with take-up, rather than infrastructure—66.5% of European households are covered by a network able to provide at least 100 Mbps broadband.

Yet again, there’s a radical divergence between the frontrunners and the laggards in the continent’s digital race. In Sweden, more than 60% of households have subscribed to ultrafast broadband—while in Greece, Cyprus and Croatia less than 10% of households have such rapid service.

SMEs falling behind

A similar story plagues Europe’s small and medium enterprises (SMEs), which represent 99% of all businesses in the EU. A mere 17% of these firms use cloud services and only 12% use big data analytics. With such a low rate of adoption for these important digital tools, European SMEs risk falling behind not only companies in other countries—74% of SMEs in Singapore, for example, have identified cloud computing as one of the investments with the most measurable impact on their business—but losing ground against larger EU firms.

Larger enterprises overwhelmingly eclipse SMEs on their integration of digital technology—some 38.5% of large firms are already reaping the benefits of advanced cloud services, while 32.7% are relying on big data analytics. Since SMEs are considered the backbone of the European economy, it’s impossible to imagine a successful digital transition in Europe without smaller firms picking up the pace.

Digital divide between citizens

Even if Europe manages to close these gaps in digital infrastructure, though, it means little
without the human capital to back it up. Some 61% of Europeans have at least basic digital skills, though this figure falls alarmingly low in some member states—in Bulgaria, for example, a mere 31% of citizens have even the most basic software skills.

The EU has still further trouble equipping its citizens with the above-basic skills which are increasingly becoming a prerequisite for a wide range of job roles. Currently, only 33% of Europeans possess more advanced digital skills. Information and Communications Technology (ICT) specialists, meanwhile, make up a meager 3.4% of the EU’s total workforce—and only 1 out of 6 are women. Unsurprisingly, this has created difficulties for SMEs struggling to recruit these highly-in-demand specialists. Some 80% of companies in Romania and Czechia reported problems trying to fill positions for ICT specialists, a snag which will undoubtedly slow down these countries’ digital transformations.

The latest DESI report lays out in stark relief the extreme disparities which will continue to thwart Europe’s digital future until they are addressed. The European Skills Agenda and other programs intended to prepare the EU for its digital development are welcome steps in the right direction, but European policymakers should lay out a comprehensive scheme to bring the entire bloc up to speed. They have the perfect opportunity to do so, too—the €750 billion recovery fund proposed to help the European bloc get back on its feet after the coronavirus pandemic. European Commission President Ursula von der Leyen has already stressed that this unprecedent investment must include provisions for Europe’s digitalization: the DESI report has made it clear which digital gaps must be addressed first.