Powering ASEAN-Australia’s Digital Economy: Towards a fully-charged digital region.

The digital economy has great power to transform the ASEAN region and to super-charge regional growth, however, it is important not to chase the possibility of rapid economic growth at the expense of inclusivity, safety and sustainability.

Figure 1: Customer purchase prediction algorithms depicted in real life. Source: Rinna Piccolo

Artificial Intelligence (AI). Machine Learning (ML). Internet of Things (IoT). These technology buzzwords are increasingly used in business and policy as the world shifts our focus towards building a digital economy. ‘Technology is the future” we are often reminded, and in many ways, it is true. Although technology may not completely replace our jobs, it significantly changes the skills society needs to add value to the economy as well as the way we learn and interact with each other. While this essay does not dive into the details of AI, ML and IoT, it will consider what a future driven by technology looks like and what that means for ASEAN and Australia’s digital economy given the digital disparity within the region.

Digital Economy and its Importance

The digital economy refers to economic processes, transactions, interactions and activities that are based on digital technologies (“What is the Digital Economy? – Definition from Techopedia). These technologies enable the production and consumption of products and services via digital platforms and business activities.
The digitization of these activities has changed how the world interacts with one another as businesses, consumers and even in our social relationships. According to Datareportal (Kemp, 2019), following a 9 percent growth from 2018, there are now 4.39 billion internet users, with Asia Pacific accounting for 55 percent of the annual growth figure. In particular, the latest data from Alexa shows that e-commerce sites have been growing steadily with key players like Amazon, Taobao and Tmall being positioned in the Top 10 most visited websites in the world (Alexa – The top 500 sites on the web, n.d.).

More importantly, digital technologies are, and will continue to remain, at the core of commercial and social interactions across the world. Given the rapid growth and ever-changing nature of the online marketplace, there is a pressing need for countries and businesses to stay relevant by riding the wave of technological advancements in order to fully harness the power of a digital economy.

A closer look at ASEAN

In particular, the ASEAN Digital Economy is projected to grow by 500 per cent to be worth over US$200 billion by 2025, with the collective ASEAN Economic Community (AEC) harnessing the potential of becoming the fourth largest economy in the world by 2050 (Feldman, 2018). Within the 2025 digital economy growth projection, e-commerce alone is expected to grow to US$88 billion as seen in the growing number of ASEAN-based e-commerce companies like Singapore-based Lazada and Indonesia’s Tokopedia. (Tang, 2018)

Figure 2: The SEA internet economy is projected to grow from $72 billion in 2018 to $240 billion in 2025. Source: 2018 e-Conomy SEA Report

According to the 2018 Google-Temasek e-Conomy Southeast Asia (SEA) report, the SEA internet economy alone is projected to grow from $72 billion in 2018 to $240 billion in 2025 (Anandan et al, 2018). This suggests huge potential for ASEAN to grow as a regional economy especially in sectors like e-commerce, ride-hailing and the overall startup landscape as investor confidence in the region continues to rise.

Development Opportunities and Regional Cooperation

The potential for the region to succeed as a digital economy lies in the fundamental goal of ASEAN, which was to accelerate economic (as well as social and cultural) growth through intergovernmental cooperation and partnerships between nations instead of operating as silos.

In recent years, ASEAN has seen enhanced regional cooperation within the economy as well as with Australia. The potential for ASEAN to grow as a digital economy and the efforts of the ASEAN region has also won support from a coalition of companies through public pledges.

The ASEAN Digital Skills Vision 2020, launched by WEF in April 2018, is a public pledge open to all companies to show their commitment to helping ASEAN move towards a digital economy. The pledge includes goals to train 20 million people working in ASEAN (Small- and Medium-Sized Enterprises) SMEs in digital skills and to raise $2 million for scholarships for ASEAN technology students by 2020. The initiative garnered early support from technology companies, like Google and Microsoft, through internships for ASEAN university students and training for SME employees. (Digital ASEAN, n.d.)

The Australian Government also recently launched a Digital Economy Strategy that focuses on developing Australia’s digital aptitude at an individual and government level and strengthening IT infrastructure and security (Department of Industry, 2017). Although not part of ASEAN, Australia has also taken an active role in supporting ASEAN nations in their development as a digital economy. In particular, an AU$10million initiative called the Aus4Innovation program was designed to deepen the collaboration between Australia and Vietnam to strengthen Vietnam’s innovation systems in preparing to grow as a digital economy. The blueprint is guided by seven megatrends, including new export markets for Vietnam, the impact of emerging digital technologies and changing consumer behavior (Umali, 2019)

As part of a longer-term cooperation program, ASEAN and Australia are currently on Phase II of the ASEAN-Australia Development Cooperation Program (AADCP), which was formed to support ASEAN‘s goal of establishing an ASEAN Economic Community. As part of Phase II, the AADCP launched various frameworks to help improve infrastructure productivity and connectivity in ASEAN by 2025.

However, while these initiatives involve ambitious goals and commendable effort to come together as a region, these efforts tend to focus on rapid technological advancements both in innovative systems and in up-skilling people as the region strives towards maximizing growth as a high-potential digital economy.

Although economic growth is crucial, it is essential to remember that working towards growth as a region requires ASEAN to take into account the different stages each country is starting at, the varying rates of development in each country and the existing social and political issues a country might be facing that economic growth alone cannot compensate for.

Disruption and the ASEAN-Australia Response

Economic growth is both developmental and disruptive. In order to effectively tap on the region’s potential, ASEAN-Australia needs to find the balance between rapid development and digitalization and managing the effects of disruption.

Although disruption has a negative connotation to it, disruption is unavoidable in a period of growth and can still be beneficial if managed properly. Amidst the allure of becoming a fast-growing economic power through digitalization, ASEAN and Australia need to strive for inclusive and sustainable growth that protects safety of its users in order to succeed in becoming a fully charged but not over-charged region.

Figure 3: Putting the ASEAN Economic Community above all other needs in the region. Source: The Philippine Star

Inclusivity

The three pillars of the ASEAN Community are the ASEAN Political-Security Community (APSC), the ASEAN Economic Community (AEC) and ASEAN Socio-Cultural Community (ASCC). Although the economy is a key driver of growth, and it is tempting to focus on the economy over political security and social welfare, it is important to recognise that within ASEAN, the countries are all at different stages of stability and growth. Not all developing countries are at a suitable stage for transformation into a digital economy as their basic infrastructure and social needs have not been met. For example, ASEAN countries like Philippines and Myamar still need to resolve basic social issues like proper sanitation and securing internet access for all, before they can consider developing digital technologies like AI and IoT.

Based on the ASEAN Investment Report 2018, Australia’s Foreign Direct Investment (FDI) into ASEAN is focused on services such as banking and insurance and in certain countries like Singapore, Indonesia and Thailand, which accounted for more than 90% of Australia’s cumulative FDI in ASEAN between 1995 to 2017 (ASEAN Investment Report 2018). However, focusing FDI on countries that are considered higher-potential digital economies within ASEAN might worsen the growing development gap between ASEAN countries.

One possible way to achieve inclusive growth could be to continue to develop plans using a similar framework to the ASEAN Smart Cities Network, where digital solutions are used to address development challenges that arise due to rapid urbanisation, like pollution and traffic congestion, and to improve regional connectivity (Das, 2018). Addressing a nation’s underlying political and social challenges as a first step is important because they might ultimately limit a country’s potential economic growth in the long run. In countries with more development challenges, using digital solutions to address these challenges can be the priority, while countries that have achieved more political and social stability can focus on up-skilling people and technological advancements.

Stronger digital economies like Australia should also remain open to lower cost products and services from less-developed digital nations instead of focusing investments only in more traditional banking and insurance sectors in certain ASEAN nations. This would not only support developing digital economies, but would also allow Australia to benefit from a greater insight to alternative innovations and development opportunities they might not have considered before. (Meltzer, 2018)

Safety

ASEAN’s potential as a digital economy is not just being recognized by foreign direct investors. ASEAN’s relatively new and unsecured technology infrastructures have also been a vulnerable target for cyberattacks, especially because a single point of attack allows these hackers to gain access to the global network (Lago, 2019). AT Kearney’s report (“Cybersecurity in ASEAN: An Urgent Call to Action”, 2018) found that Malaysia, Indonesia and Vietnam are global operational bases for up to 3.5 times the standard ratio of major blocked suspicious web activities. This makes them even more attractive for malware attacks.

Even more technologically advanced countries, like Singapore and Australia, have been targeted. In Jan 2019, Singapore faced its second major health breach of confidential information belong to 14,200 people diagnosed with HIV, following the largest data breach in Singapore’s history in July 2018, which affected 1.5 million patients. Toyota’s subsidiaries in Australia, along with Thailand and Vietnam, also faced a string of cyberattacks in 2019. (Lago, 2019)

These small data breaches in Southeast Asia and Australia highlight the region’s weakness in cybersecurity and the pressing need to implement regulations to protect user data from future cyberattacks. The rapid digitization of the region needs to be accompanied by safeguards in the form of regulations and security to ensure that the digital landscape remains safe for users. There is currently no clear direction for the ASEAN cybersecurity strategy apart from the discussions held at the ASEAN Ministerial Conference on Cyber Security (AMCC), which was held in Singapore during International Cyber Week in September 2018. While achieving consensus amongst the member states is important, it is also crucial not to delay the execution of cybersecurity measures, both in terms of stronger security and also knowledge transfer to less digitally advanced countries, to mitigate the risk of further cyberattacks across the region.

Beyond the region, ASEAN and Australia can look to the United States of America (USA), one of the more established digital economies, in planning for a regional regulatory framework (Meltzer, 2018). The USA has relevant regulations, such as the Digital Millenium Copyright Act and their Digital Economy Agenda, which may serve as useful points of reference for the up-and-coming ASEAN-Australia digital economy. The Centre for Strategic and International Studies also recommends that the USA and Australia can cooperate to support growth in ASEAN and also strengthen their positions in the Indo-Pacific region. Specific recommendations include developing comprehensive market and cybersecurity regulations to encourage open yet secure cross-border data flows, strengthening digital infrastructure as well as supporting small businesses and individuals in developing alongside technological advancements (Goodman, Brouwer, Armstrong, & Triggs, 2019).

While cybersecurity laws, digital trade regulations and upskilling are essential in forming the foundation of a digital economy, it is also important to teach safety from the ground-up through media literacy trainings tailored to youths, working adults and elderly. Youth and elderly, in particular, must be trained to use the internet and social media carefully and to be able to recognize online scams and fake news.

Figure 4: ASEAN 50 Years On. Source: Paresh Nath

Sustainability

ASEAN was formed with the goal of pursuing economic integration within the region and also between ASEAN and the world. While ASEAN’s economic integration strategy might have proven successful when encouraging free trade, growing as a digital region might need a different strategy.

ASEAN’s digital economy is expected to grow exponentially over the next few years. However, growing at such a fast pace as a region may not be sustainable for all the countries in ASEAN as certain member countries are still struggling with other developmental challenges that may slow down their growth. While it is commendable that ASEAN has been engaged in talks of cooperation through different initiatives such as the ASEAN Digital Integration Framework and ASEAN Innovation Network, it is important for ASEAN to recognize the underlying differences and unique needs of each country instead of being overly focused on growing together as one. Unity for ASEAN does not necessitate aiming for impressive pace of growth for all member states, but rather unity can be found in growing at the best pace and tailoring the strategy for each country.

In particular, the 2018 Recommendations Report on the ASEAN-Australia Digital Trade Standard Cooperation Initiative (DTSCI) includes 10 recommendations, which were presented to ASEAN and Australian Governments and other stakeholders, about a long-term cooperative program between ASEAN and Australia. The recommendations centred around collaboration through working groups, raising awareness and alignment of digital trade standards, sharing of Australian ICT expertise and implementing a long-term program to strengthen infrastructure (“ASEAN - Australia Digital Trade Standards Cooperation Initiative: Recommendations Report December 2018”, 2019). These recommendations are all important in ensuring standardisations and adoption of the regulatory standards across the region and in sharing expertise with less-developed nations.

However, given the different stages of development each ASEAN member state, each country has a different capacity for growth. Adoption of consistent standards and implementation of core infrastructure are important but in a fast-moving digital landscape, there is a need to prioritise the implementation of these recommendations. Perhaps, the first step to sustainable growth as a region should be through the integration of knowledge and education rather than the integration of technology infrastructure, systems and standards. Infrastructure requires a large amount of funding and time, while awareness of digital standards will be less relevant if businesses and society members do not have a foundational understanding of what a digital economy entails and the skillsets needed to stay relevant. As a first step, knowledge is an intangible, lower-cost asset that can be easily shared even if member states are at different stages of growth and more digitally-developed countries can help to support less developed countries through various means of knowledge transfer and training.

Towards a fully-charged, not over-charged, future

Ultimately, ASEAN and Australia have clear potential to be a major player in the global digital economy. However, their growth must be kept at a rate that the region can manage, not over-charging beyond what they can handle. The first consideration would be to ensure that basic social and political issues, like internet access for all, are addressed in certain ASEAN member states, before they can focus on growing their digital economies at a pace that they can sustain. Although different countries may be growing at different paces, more digitally advanced countries like Australia and Singapore can take the lead in sharing their expertise and in implementing regulations to safeguard the upcoming plans to develop the digital economy. It is only in striving towards inclusive, sustainable and regulated growth would ASEAN and Australia then be able to fully-charge their potential as a digital economy.

References

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Das, S. B. (2018, November 04). Commentary: The rebirth of the ASEAN miracle growth model. Retrieved from https://www.channelnewsasia.com/news/commentary/asean-economic-community-connectivity-rebirth-growth-model-10879030


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Goodman, M. P., Brouwer, G. de, Armstrong, S., & Triggs, A. (2019, April 18). Delivering Prosperity in the Indo-Pacific: An Agenda for Australia and the United States. Retrieved from https://www.csis.org/analysis/delivering-prosperity-indo-pacific-agenda-australia-and-united-states


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Meltzer, J. P. (2018). Digital Australia: An Economic and Trade Agenda. Brookings Institution. Retrieved from https://www.brookings.edu/wp-content/uploads/2018/05/working-paper-118_australias-digital-economy-revised-v8.pdf


Tang, S. (2018, November 12). ASEAN economic ministers ink first e-commerce agreement. Channel NewsAsia. Retrieved from https://www.channelnewsasia.com/news/business/asean-economic-ministers-ink-first-e-commerce-agreement-10920610


Umali, T. (2019, May 24). Australia and Vietnam develop blueprint for Vietnam’s digital economy. OpenGov. Retrieved from https://www.opengovasia.com/australia-and-vietnam-develop-blueprint-for-vietnams-digital-economy/


(n.d.). Alexa – The top 500 sites on the web . Retrieved from https://www.alexa.com/topsites


(n.d.). What is the Digital Economy? – Definition from Techopedia. Retrieved from https://www.techopedia.com/definition/32989/digital-economy


(2018). ASEAN Investment Report 2018 (Rep.). Retrieved http://aadcp2.org/wp-content/uploads/ASEAN_investmentRprt2018.pdf


(2018). Cybersecurity in ASEAN: An Urgent Call to Action. A.T. Kearney. Retrieved from https://www.atkearney.com/documents/20152/989824/Cybersecurity in ASEAN.pdf/2e0fb55c-8a50-b1e3-4954-2c5c573dd121


(2019). Asean - Australia Digital Trade Standards Cooperation Initiative: Recommendations Report December 2018. Standards Australia. Retrieved from https://www.standards.org.au/getmedia/d0942d6e-b58a-4fe4-a17d-aecc52effd50/ASEAN-Australia-Digital-Trade-Recommendations-Report.pdf.aspx


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