Building the digital economy in ASEAN
ASEAN has been envisaged as the next frontier of a booming digital economy. In fact, Southeast Asia’s digital economy is expected to hit US$200 billion by 2025, accounting for 6% of the regional gross domestic product. Out of the projected growth for the digital economy, e-commerce in ASEAN would amount to US$88 billion.
Singapore, as chair of ASEAN this year, plans to set the foundation for the region to make headway in realising its potential of an ASEAN digital economy, with an emphasis on e-commerce. It aims to work towards the vision of promoting innovation, building digital connectivity and facilitating e-commerce trade flows to benefit businesses, especially micro, small and medium-sized enterprises (MSMEs).
While there are numerous opportunities for growth in the region, ASEAN is a conglomerate of countries at varying levels of economic development. Some countries could face difficulties in fully realising its e-commerce potential due to a lack of funding, logistics and payment infrastructure shortfall. This could pose significant challenges for the region to move ahead in achieving its digital economic clout.
Dr Faizal Bin Yahya, Senior Research Fellow at the Institute of Policy Studies, provides insights on the key pillars that will bring ASEAN forward in its goal of becoming a robust and integrated digital economy.
Developing consistent e-payments platforms
E-commerce has grown significantly with the advent of online shopping. The boom of the online business is driven by increased digital connectivity through smartphone usage and internet access. In fact, according to research done by the Economic Research Institute of Asia (ERIA) in 2017, smartphone access contributes to more than half of retail website online traffic, and a third of e-retail revenues. ASEAN is also a huge market for e-commerce with two third of users accessing the internet through their smartphones.
With this trend, and with more businesses jumping onto the digital bandwagon, countries have to recognise the emergence of a digital economy. ASEAN needs to be integrated as a digital economy, to fully ride on this trend. In order for this to be achieved, a common e-payment platform would facilitate the ASEAN digital economy, to ensure interoperability across state boundaries.
Developing a common e-payment system requires intensive coordination, funding, technology and manpower. Also, emerging economies whose local banking and finance sectors are still at the early stages of development may face challenges in ramping up their e-payments infrastructure to align with the standards of developed countries in the region.
In addition, countries need to prioritise and invest in the infrastructure to provide faster Internet connection to support the increased online transactions and e-payments within the region. To ensure the smooth flow of information and data for cross-border transactions, Dr Faizal believes that there is a need to develop, increase and upgrade broadband usage. According to research done by ERIA in 2017, there is a wide divergence of internet connection among some ASEAN countries. For instance, the average Internet connection speeds in the region ranges from 20.3 megabits per second (Mbps) in Singapore (which is ranked 7th globally), to 5.5 Mbps in the Philippines (which is ranked 100th globally).
Countries, particularly emerging Asian economies, need to invest in building the infrastructure to upgrade and enhance broadband speed. In addition, specific regulations are required to govern the use of e-payments and harmonise the system across all ASEAN member states to ensure interoperability across states.
Streamline and optimize distribution of goods
The physical distribution of products from the warehouse to the consumer should also be optimised to meet the demands of e-commerce. Hence, setting up an efficient distribution channel across ASEAN is the next critical pillar. Regionally, the local logistics industries must have the infrastructure, manpower and know-how to move goods across state boundaries to achieve seamless delivery and gain the confidence of e-consumers.
However, emerging countries may face domestic infrastructure challenges, such as poor quality of roads, problems in energy supply and incomplete road network that could impede the attainment of this goal. ASEAN must come together to assist developing countries in improving their physical infrastructure to support the demands of a robust e-commerce industry.
In addition to aligning physical infrastructures across regions, ASEAN member states need to streamline regional trade rules to facilitate faster movement of products across borders. Currently, there are initiatives like the ASEAN-wide self-certification regime, which allows authorised exporters to certify that their goods meet ASEAN’s requirements for preferential treatment; and the ASEAN Single Window, a digital platform that expedites the clearance of cargo and shipment. These initiatives are a good start, and ASEAN member states must continue to work together to facilitate trade flows in the region.
Creating a framework for cybersecurity
As the region taps on the opportunities that e-commerce affords, it also needs to prepare for the challenges that could beset the growth of this nascent industry. The largest threat to e-commerce is cybercrimes. This not only jeopardises the security of online businesses, it also has significant economic impact. Recently, complex cyber threats such as the hacks at HBO and Sony, and ransomware campaigns like the GoldenEye, have caused significant economic losses.
To minimise the risk of such threats, ASEAN needs to develop a secure cyberspace. Dr Faizal believes there is a need to build and reinforce the framework for online security such as sharing critical information, establishing protocols to deal with ‘hacking’, coordinating cybersecurity agencies for all members, and creating a regional dispute settlement resolution. This calls for efforts to increase the technical know-how within the region. Singapore has organised programmes such as the ASEAN Cyber Norms Workshop to raise awareness of ongoing global cyber norms, and have also invested S$10 million in the ASEAN Cyber Capacity Building Programme (ACCP) to build the technical capability and knowledge within the region. This will foster greater co-operation on a regional scale as ASEAN tackles the threats of a digital economy.
Focus on MSMEs
As the region builds the infrastructure and boosts human capital to manage the opportunities and threats of e-commerce, local businesses, particularly MSMEs would be more encouraged to embrace the digital business trend. Currently, the market is driven by larger companies. Recently, according to a 2016 article by TechInAsia, e-commerce giants like Alibaba and Amazon, both of whom have dominated their home markets with 80% and 60% market share respectively, have set operations in Southeast Asia. The entry of these big brand players has contributed to the growth of the regional e-commerce industry. However, this has also increased the competition for local companies, particularly MSMEs. Therefore, policies have to be implemented to support them in achieving their potential in e-commerce.
Dr Faizal believes there is a need to provide incentives for MSMEs to leverage on e-commerce. Member states have to foster the use of digital tools and nurture human capital for local businesses.
For instance, Singapore recently announced its National Trade Platform (NTP), a one-stop trade information platform for customs clearance and trade logistics, as well as trade finance. This platform provides opportunities for the development of new and innovative applications to support business needs. More of such initiatives need to be implemented on a regional scale to connect NTPs across borders to support businesses and facilitate trade within the region.
There are enormous opportunities for e-commerce growth in ASEAN. Hence, Singapore’s vision is timely, as the region gears towards being the next frontier of a digital economy in the future. However, to address the challenges in achieving its digital economic clout, member states need to be aligned in reinforcing efforts domestically to build measures that support the development of e-commerce. On a regional scale, ASEAN also need to be united in the effective implementation of regional trade rules and frameworks that boost e-commerce trade-flows and digital connectivity.