ASEAN 4.0: What is driving the region’s digital economy?

Danny Phan
In the face of the pandemic, a culture of collaboration has been a key driver in digital adoption across the region
Managing Director at Wachsman Singapore

In the face of the pandemic, a culture of collaboration has been a key driver in digital adoption across the region

Over the past few months, the coronavirus pandemic has left economies grappling with the economic fallout as industries and businesses struggle to stay afloat. In Southeast Asia alone, the Asian Development Bank estimates losses of up to $253 billion.

Yet, the pandemic, for better or for worse, has given the region its digital tipping point as it embraces technological advancements to transition to the new normal.

In recent months, key ASEAN markets have been exemplars for adaptive and smart regulation in a bid to create a more favourable environment for companies to survive and thrive in through the pandemic. These countries will bear witness to an increasingly future-fit workforce, that can compete on a global stage as the ASEAN age comes to fruition.

Building digital foundations

Over the years, Southeast Asian nations have taken it upon themselves to envisage an increasingly digital-first future, setting national goals and enacting frameworks to transform their existing economies from industrial to digital. However, across developed and developing countries, this journey is far from linear. While developed nations are blessed with the foundations of a robust, post-industrial economy and a highly-skilled workforce, developing nations that still predominantly rely on manufacturing and agriculture are seemingly poised to leapfrog digital transformation, unburdened by legacy players. 

From Thailand’s Industry 4.0 aspirations to Singapore’s well-underway Smart Nation vision, such models have set the tone for economic priorities, infrastructural projects, as well as foreign direct investment interests to spur growth in areas of technology and research and development.

The result is the emergence of progressive frameworks that serve to encourage, rather than hinder innovation as emerging technologies come to the fore. Earlier this year, Singapore’s Payment Services Act came into force, offering what is arguably one of the most measurable pieces of legislation aimed at digital assets as cryptocurrencies and blockchain technologies see greater interest across the region.

Meanwhile, Thailand has also taken measurable steps in further integrating blockchain into its financial ecosystem by officially announcing that trials were to commence for its blockchain-based business payments system, building off the back of Project Inthanon, a central bank digital currency project developed with R3’s Corda infrastructure.

Cambodia’s Project Bakong has similarly banked on blockchain to de-dollarise its economy and revitalise the use of a digital Khmer Riel while leveraging its young digitally-savvy population. With such a level of institutional support, both developed and developing markets alike are able to better attract foreign investment and foreign companies, opening the doors of opportunity for knowledge transfer in a bid to bolster local economies.

While developed nations are blessed with the foundations of a robust, post-industrial economy and a highly-skilled workforce, developing nations that still predominantly rely on manufacturing and agriculture are seemingly poised to leapfrog digital transformation, unburdened by legacy players.

Amid the economic headwinds resulting from the pandemic, institutionalised efforts at encouraging digital adoption have served as a steady foundation for businesses as the ways in which we live, work and play have radically changed in the course of a mere few months.

Home to a robust fintech ecosystem and a commercial landscape peppered with private- and publicly-owned digital payment infrastructures, Singapore ingrained the use of digital wallets and contactless payments as part of its public health strategy to stem the spread of the coronavirus, with the Monetary Authority of Singapore actively encouraging businesses to adopt the island-wide SG QR code payments system.

With the coronavirus prompting broad irreversible shifts in consumer behaviour, countries like Singapore are emblematic of the power of a first-mover advantage in embracing innovation.

Whether it is a developing or a developed economy, a predilection for experimentation encouraged from the top down, or a population demographic that generates favourable conditions for the growth of a digital economy, has the potential to inform the pace of digitalisation.

Funding amid uncertainty

Entrepreneurship is at the heart of Southeast Asia’s socioeconomic landscape, with small and medium-sized enterprises (SMEs) comprising 89% to 99% of all businesses in the region. Despite being a key driver for economic mobility, access to capital and institutional support remain core issues as traditional financial institutions aren’t equipped to cater to their financial needs.

During times of crisis, these inherent inequalities within the funding playing field become increasingly pronounced. In response, relief measures aimed at providing support to small businesses with a heavy emphasis on tax reliefs, funding and loans have been ubiquitous across the majority of Southeast Asian nations.

Emerging markets, such as Cambodia, have predominantly focused on supporting pre-industrial sectors such as agriculture. With land as a vital source of income and security in times of crisis, as well as a form of collateral across the country’s booming microfinancing sector, the economic impact of COVID-19 has left much of the population in debt. To mitigate this, the government has focussed on supporting agricultural businesses by putting up $50 million in the form of low-interest loans disbursed by the state-owned Rural Development Bank.

Developed markets, on the other hand, have taken the approach of incentivising startups and small businesses operating within the tech sector in a bid to encourage innovation and prompt digitalisation across other sectors. The Singapore Government has ensured that startups actively operating in the deep-tech sector will benefit from S$285 ($208) million in additional financing support through co-investing opportunities. This is in addition to the existing S$300 million set aside specifically for deep-tech startups under the Startup SG Equity scheme.

Across the border, Malaysia’s National Economic Recovery Plan includes initiatives such as the MyAssist MSME One-Stop Shop which looks to offer counsel in key areas including funding, trade, branding and promotion, technology and digitalisation, as well as legal, for local SMEs and micro, small, and medium enterprises (MSMEs). Malaysia has also set up its Dana Penjana Nasional fund, valued at RM1.2 billion ($287.6 million) to provide funding and capital to local venture capital funds and startups looking to digitalise businesses.

Upskilling in the new normal

Other markets have taken a different approach altogether in looking beyond financial measures to support SMEs. Despite being home to high levels of mobile phone penetration and internet connectivity, digital literacy and digital upskilling are poised to become long-standing priorities across the region and this will continue to ring true as we enter a post-COVID era.

Within emerging markets, an institutionalised mandate to encourage the adoption of novel platforms spells well for boosting digital literacy across the board.

As such, some markets have placed emphasis on ensuring that SMEs are prepared to enter the digital economy by providing them with the necessary tools and entryways to participate. Singapore has developed a Digital Resilience Bonus in the form of payouts of up to S$10,000 for retail and food and beverage businesses to further digitalise their operations. Such funds will be used for the implementation of the country’s PayNow Corporate e-payments system as well as softwares that enable e-invoicing, e-commerce solutions and other forms of digital infrastructure.

Most notably, Myanmar’s COVID-19 Economic Recovery Plan is noted for its overt promotion of online platforms to revitalise its retail economy. Retailers have been actively encouraged to utilise e-commerce and social commerce systems with the ultimate goal of developing a centralised e-commerce website where local retail businesses can easily sell online.

Within emerging markets, an institutionalised mandate to encourage the adoption of novel platforms spells well for boosting digital literacy across the board.

In recognition of this, ASEAN small businesses are following suit with 64% citing technology as their top investment priority for 2020. Yet to support these digital aspirations, much will need to be done to upskill the existing labour market—whether it is mid-career executives in developed economies or first-time job seekers entering an uncertain economy—upskilling is now essential. Businesses will need to invest in skills-building and governments must do their part to provide legitimate pathways to offer training opportunities.

In Singapore, government ministries have partnered with corporations such as Google to launch Skills Ignition SG, for entry-level and mid-career job seekers.

Across the region, countries that have done well to highlight the importance that every single person in their communities can adapt and participate in the digital economy will be best positioned to compete on a global scale and see ongoing growth.

Ushering in the age of ASEAN

ASEAN has managed to hold its own in recent months. Unlike its Western counterparts that have grappled with the politicisation of policies surrounding basic healthcare guidelines such as wearing masks to economic relief plans, Southeast Asia has seen the general public and private sectors fall in line, in order to collectively work together in the name of national solidarity and economic rehabilitation.

Ingrained across the region is a culture of collaboration and cooperation – one that has informed a style of policymaking that we’ve come to see emerge over the course of the year.

Although disparate in terms of how mature their economies are and the speeds at which they continue to grow, the varied approaches taken by governments across the region have made one thing clear: in this new age of ASEAN, its course of recovery has been underscored by a spirit of collaboration.

This is the reality of the new world order – where government action, smart regulation and the political will of the people function best as a collective whole, not as opposing forces.

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Managing Director at Wachsman Singapore

Danny Phan is the managing director of Wachsman Singapore. Equipped with over 20 years of experience across Asia-Pacific and the US, Danny is an award-winning communications consultant, having advised some of the world’s largest tech companies on policy and regulatory communications, including Southeast Asian ride-hailing giant Grab, American online marketplace Airbnb, and the Asia Internet Coalition. Danny has received multiple accolades, recognised as ‘Young PR Professional of the Year’ at the Asia-Pacific PR Awards and included in Campaign Asia's ‘40 under 40’.

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