ASEAN'S AEC must remove hurdles, boost use of digital to fuel growth

Naveen Menon | Special to CNBC
People using their smartphones in a Bangkok train station

The digital sector has emerged as the leading driver of innovation and growth across the world; there isn't a single business sector, or aspect of human life, that hasn't been touched by the digital evolution of recent years.

Business models have changed, new industries created and existing boundaries and geographical borders rendered redundant.

Now, most major developed economies in the world now have a "digital strategy" focused on how they can co-opt these new technologies to boost economic growth.

This is where the Association of Southeast Asian Nations (ASEAN) bloc has an opportunity to leapfrog to the forefront, putting it in the top five digital economies in the world by 2025.

In hard cash terms, the implementation of a proper digital agenda and strategy could add $1 trillion to ASEAN GDP over the next 10 years.

At current GDP levels, that's an impressive 40 percent boost to overall output over the next decade.

Opportunity No. 1: We're a youthful population

ASEAN is a ten-nation bloc with a combined population of more than 600 million people.

The key facts to note are that 94 percent of the population is literate and 50 percent are under 30 years of age. At the same time, 90 percent of those under 30 years have access to the Internet.

This tech-savvy young group is going to contribute heavily to the growth of the digital economy, by doing most things online from shopping, to banking, to using taxi and hotel booking apps and increasingly even finding love with the fast-growing dating apps.

With the bloc's combined economy, currently valued at $2.5 trillion, projected to grow 6 percent per annum over the next decade, this segment is also likely to see their income levels rise, giving them more disposable cash to spend.

And continued developments in technology would open up even more avenues for them to spend this extra money on.

Opportunity No. 2: We're joining forces

The implementation of the ASEAN Economic Community (AEC) could boost the growth of the digital sector even further.

The AEC creates single market with free movement of goods, services, investment, skilled labor and free flow of capital.

This is likely to open up new growth opportunities for businesses, which in turn will create more jobs. That means more people will be making money, some of which they will spend and add to economic growth of the region.

Opportunity No. 3: Governments are focused

Governments across the region have also been making efforts to build the information and communications infrastructure.

Their investment in such projects has been growing at a compound annual growth rate of 15 percent over the past five years, with $100 billion invested in 2015.

Here's the hurdles

There are roadblocks the region will have to overcome to fulfil its growth potential.

The first is limited broadband access in rural areas. A big chunk of the population, especially in countries like Indonesia, Thailand, Philippines and Vietnam, lives in rural areas where Internet connectivity is relatively poor.

For the bloc to achieve long-term, sustainable digital growth, this will need to be addressed.

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A large number of consumers in the region, especially in countries such Indonesia, also lack access to banking facilities. This limits their ability to shop online and hinders the growth of the sector.

Even among those who have access to banking services such as credit and debit cards, there is a reluctance to conduct online transactions and share financial information online.

Except for Singaporeans, ASEAN citizens are between 10 percent and 30 percent more reluctant than the global average to share financial information in order to make an online purchase.

This needs to change for the sector to unleash its full potential.

Another big obstacle is that current regulatory frameworks are hurting the growth of domestic firms, because regulations are not harmonized between local and international players.

For example, in Malaysia, government sales tax (GST) is not imposed on international transactions, disadvantaging local players.

Meanwhile, Indonesians are subjected to one of the highest import tariffs for manufactured goods in the region.

Even within ASEAN, varying tax, VAT and duties are imposed on online purchases.

Finally, with the exception of Singapore, Malaysia and the Philippines, ASEAN member countries lack comprehensive digital strategies.

Until policymakers have a comprehensive plan to tap into the digital economy, they are unlikely to realize the hurdles they face.

As a result, these obstacles won't be overcome and the region may not achieve its full potential.

There are solutions

The first, obvious thing to do is to develop a comprehensive digital strategy, not just at the country level but for the entire region.

Policymakers across the region should prioritise universal broadband access by improving the business case for investing in digital infrastructure in rural areas and promoting digital literacy and awareness of the benefits of a digital society.

It's also important to accelerate innovation in mobile financial services, with the eventual creation of a single digital payment platform across the region, and allow the formation of digital-only banks. This will help to increase financial inclusion, boosting the sector's growth.

Cybersecurity, data protection and privacy laws should be harmonized across ASEAN and a specific agency created to fight cybercrime.

This will make consumers more confident in sharing financial details online and making transactions.

In order to fulfill the potential for ASEAN to enter the top five digital economies in the world by 2025, the region needs a comprehensive overhaul of in-country and cross-border regulations.

While individual countries and the bloc need to have proper regulations, these should be aimed at facilitating the growth of local and regional businesses rather than stifling it.

If ASEAN can implement these policies effectively, the region can be propelled into the vanguard of the digital revolution, making the member economies more competitive and enriching the lives of its citizens.

Realizing this opportunity should be a top priority for the AEC.

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