Southeast Asia's digital economy revolution

Southeast Asia is poised to reap huge growth from a digital economy revolution – but governments need to ensure the region’s infrastructure is up to the challenge, writes Dominique Virgil.

The digital economy became a key driver of economic growth in Asia in 2021, according to analysts’ reports.

At the height of the COVID-19 pandemic in 2021, as more commerce went online and workers were forced to do their jobs from home, online spending in Southeast Asia increased 49 percent to $US 174 billion, research from Google, Temasek Holdings and Bain & Co has found.

And it continues to grow. The ASEAN region’s internet economy is forecast to double to $US 363 billion by 2025, outstripping previous forecasts.

The upbeat outlook for the digital economy is confirmed by an Asia-wide analysis from the Asian Development Bank (ADB) that shows digital technologies targeting business-to-consumer revenues contributed six percent of Gross Domestic Product (GDP) in 2019.

In dollar terms, the ADB predicts digital business to add $US 1 trillion to regional GDP over the next 10 years.

While these forecasts are exciting for industry players, the huge economic opportunities in digital business will need to be backed by strong telecommunications and regulatory infrastructure to maximise data flows and equitable access between the countries of the region.

The Paris-based Organisation for Economic Cooperation and Development (OECD) sums up various definitions of digital connectivity by referring to it as “high quality access to communication networks and services that is made available at affordable prices for all people and firms no matter who they are or where they live.”

As digital technologies become more embedded in all aspects of society, the demand for higher amounts of data transmission between people and firms will necessitate the expansion of digital infrastructure.

While Asia has seen major developments in digital connectivity over the past 15 years, among ASEAN members there remain major disparities in the development of digital infrastructure. In particular, enabling equal and unimpeded improvement of infrastructure cannot be separated from the adequacy of the regulatory framework.

First, it is necessary for ASEAN members to have standardised national regulations on cybersecurity, data protection, and privacy. Currently, not all ASEAN states have regulations on data privacy protection in place, whereas existing international standards on cybercrime have not been well-adopted.

In addition, it is also necessary to operationalise the concept of Data Free Flow with Trust (DFFT) in ASEAN, such as through supporting the use of encryption in data flows among ASEAN states and providing a mechanism where firms can be held accountable in managing data. The creation of a regional plan in advancing DFFT in ASEAN can be modelled after the G7’s Roadmap for Cooperation on DFFT, under which domestic scoping exercises are conducted to map domestic legal barriers to electronic transferable records and identify best practices in consultation with other stakeholders.

These national regulations can also adhere to the principles enshrined in the ASEAN Framework on Personal Data protection, which includes consent, notification, and purpose; accuracy of personal data; security safeguards; access and correction on data upon request by an individual; transfers to another country or territory; retention; and accountability. ASEAN can learn from Japan which already has a rigorous DFFT mechanism in place, and even included DFFT provisions in bilateral trade agreements, one of which is the UK–Japan Comprehensive Economic Partnership Agreement (CEPA), which was signed in 2020.

Second, ASEAN should also establish predictable regulations and procedures for investors wishing to invest in digital infrastructure. According to the World Economic Forum (WEF) “Digital FDI” report, important regulatory elements consist of the ease of receiving licenses for digital infrastructures, availability of skilled local engineers and other workers, the use of international standards and regional coordination for infrastructure investment.

ASEAN, therefore, should ensure that national regulations support the efforts of both public and private sectors to bridge the gap in digital skills among the people of Southeast Asia. This can be done through building relevant skillsets among workers, regulators, government officials, and other stakeholders. Consistent steps to remove regulatory obstacles surrounding digital infrastructure in each ASEAN state will also give confidence to investors.

However, there are certain elements to consider in removing regulatory obstacles for investment in digital infrastructure. According to an ITU report in 2019, these elements include procedures for obtaining permission from the relevant authority, timeline and supporting information on the application, supervision by relevant authority, and additional requirements according to domestic laws in the country. Individual ASEAN members must also consider transitioning towards a One-Stop Centre Approval (OSC) system to facilitate faster process of obtaining permits to build infrastructure, as recommended in the report.

Another avenue that ASEAN could potentially explore is to foster digital Foreign Direct Investment (FDI) in the region through the Regional Comprehensive Economic Partnership (RCEP). Article 12.16 recognises the value of dialogue in discussing various digital issues, including cross-border data flow. This dialogue can be a platform to strengthen regulatory frameworks on digital connectivity as a catalyst in advancing digital economy in the region. Different responses on data localisation provisions in RCEP should be further bridged with the creation of clear national regulations aimed to ensure data security itself.

Third, ASEAN needs to utilise its cooperation with other countries, including with China through its Belt-and-Road Initiative (BRI) and with Australia through the ASEAN-Australia Development Cooperation Program (AADCP), to reap benefits in digital connectivity. These partnerships should result in a conducive regulatory framework that can encourage the rise of digital entrepreneurs in ASEAN and boost innovation, one of which is through provisions on intellectual property protection and easier access of digital services and infrastructure.

ASEAN is already on the right trajectory towards a more integrated region, especially in achieving the objectives of ASEAN Economic Community (AEC) and Master Plan on ASEAN Connectivity (MPAC). Our task now is to ensure the region’s digital economy meets the high expectations set for it by strengthening the necessary underpinning infrastructure, especially regulatory frameworks. This might seem a lengthy process, but it will be a small hurdle compared to the benefits ASEAN can reap in the future.

Dominique Virgil is currently a diplomat candidate at the Ministry of Foreign Affairs of the Republic of Indonesia. She graduated from Faculty of Law, Universitas Indonesia, majoring in public international law. She was a delegate to the recent ASEAN-Australia Strategic Youth Partnership Digital Dialogue.

Banner image: Alor Setar telecommunications tower, Alor Setar, Malaysia - October 20, 2021. Credit: afzam83, Shutterstock.

This article is published in collaboration with the ASEAN-Australia Strategic Youth Partnership (AASYP) and its journal Horizons. The views expressed are the author's own.