The significance of the ASEAN digital economy in a post-pandemic world

November 17, 2020 | 15:05
The Brunei government, as it takes over ASEAN Chairmanship from Vietnam in 2021, faces the daunting task of uniting members in addressing the biggest challenges of this generation. Driving the region’s economic recovery post-pandemic must undoubtedly be at the top of the economic bloc’s agenda.
the significance of the asean digital economy in a post pandemic world
By Jeff Paine - Managing director Asia Internet Coalition

The good news is that ASEAN is well-placed to leverage the potential of its digital economy to drive recovery efforts. In 2019, Southeast Asia’s internet economy hit $100 billion, more than tripling in size over the preceding four years. By 2025, the region’s sector is expected to grow to $300 billion.

The internet economies in Malaysia, Thailand, Singapore, and the Philippines are growing around 20-30 per cent annually. While this is a remarkable feat compared to other regions, Indonesia and Vietnam are the markets to watch – they boast growth rates in excess of 40 per cent a year, according to recent joint work by Google, Temasek, and Bain & Company.

If ASEAN member states want to reap the immense benefits that the internet economy can bring, the economic bloc needs to sow the seeds now. Member countries need to work together to develop smart, forward-looking policies that stimulate ASEAN’s digital economy by spurring innovation, encouraging greater entry and participation of small- and medium-sized enterprises (SMEs) and entrepreneurs, and empowering businesses with the ability to grow and invest for the future.

Free cross-border data flows are critical to overall economic growth. According to data by the McKinsey Global Institute, over a decade, flows of all types acting together have raised global GDP by 10 per cent over what would have resulted in a world without any cross-border flows. This value amounted to some $7.8 trillion in 2014 alone and data flows account for $2.8 trillion of this impact.

The restrictions that some governments in the ASEAN region have placed on data flow, such as data localisation, are likely to hamper inclusive economic growth prospects, dampen foreign investment, and restrict opportunities for local businesses to grow domestically and globally. For SMEs that do not have an international footprint, the free flow of data across borders enables them to use common infrastructure to serve their customers in multiple markets.

The critical role that cross-border data flows play in enabling global digital trade and e-commerce are recognised in global and regional digital trade agreements. ASEAN, however, needs to do more. While the ASEAN E-Commerce Agreement touches on cross-border data flows, member countries need to further build on this agreement to take on more binding commitments on data flows that will have a meaningful impact on the regional digital economy.

Similarly, while the ASEAN Framework on Digital Data Governance is an encouraging commitment to setting the right policies for the seamless flow of data that drives innovation, efforts to enable greater regional digital trade and certainty need to be accelerated.

If the region is committed to leveraging the digital economy to accelerate post-pandemic economic recovery efforts, governments need to create a business environment that brings long-term stability and certainty for businesses to continue to innovate and invest for the future.

Governments in several ASEAN economies including Vietnam, Indonesia, Cambodia, Thailand, and the Philippines have recently enacted content regulations and licencing requirements that not only differ from their peers in the region, but are often onerous. Conflicting policies create unnecessary barriers and complexities, especially for growing local startups trying to operate across multiple markets.

To enable companies to plan for the future with a good degree of certainty and to provide them with a level playing field when operating across borders, ASEAN governments need to leverage digital trade agreements as umbrella frameworks to address policy issues in a coherent and consistent manner across the economic bloc.

The Organisation for Economic Co-operation and Development is currently leading multilateral efforts to address international tax issues arising from the growth of the digital economy. The goal is to develop an agreement built around the key principles of neutrality, efficiency, certainty, and simplicity that will give governments comfort on revenues, businesses the ability to grow and invest for the future, and consumers an understanding of the impact on their wallets.

However, the adverse economic impact of COVID-19 has led to an acceleration in unilateral digital taxation measures by governments as a way of expanding state revenue. Such unilateral digital taxation measures are doing more harm than good by creating double-taxation and administrative hurdles for companies. The cost and complexity of individual countries creating and applying their own rules ultimately hits the pockets of the consumer and potentially delays market expansion.

Brunei, as the next ASEAN chair, has a huge task ahead. There is no better time than now to galvanise member economies to work together and put the digital economy at the centre of the region’s economic recovery strategy. The growth and potential of ASEAN’s digital economy has long outpaced the rest of the world.

The path to fully leveraging the potential of the region’s digital economy is to create a balanced and proportionate policy and regulatory environment that will lead to a conducive digital trading environment, encourage greater entry and participation of local SMEs and micro businesses in the digital economy, and help realise the potential of the internet economy to contribute substantially to the growth of the region as a whole.

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