revolution The ASEAN digital Photo by Alison MacDougall Kearney, Washington, D.C. Can ASEAN propel a digital revolution—one bold enough to catapult the region into a top five digital economy by 2025? Our latest research sets out five policy imperatives to not only prompt a digital revolution, but also add $1 trillion to the region’s GDP over the next 10 years. Policy imperatives will help ASEAN “leapfrog” into the vanguard of the digital economy— making the region globally competitive and enriching the lives of citizens. Realizing this opportunity must be a top priority. Executive summary The opportunity Although ASEAN (as a single community) lags behind Across the world, digital products and services are its global peers in the digital economy, it has the transforming industries, enriching lives, and propel- potential to enter the top five digital economies in the 1 ling progress. The Association of South East Asian world by 2025. Moreover, implementation of a radical Nations (ASEAN) has an opportunity to leapfrog to the digital agenda could add $1 trillion to the region’s GDP forefront of the fast-moving global digital economy. over the next 10 years. Many of the fundamentals are already in place: By 2025, a digital revolution could transform daily life — Robust economy generating GDP of $2.5 trillion in ASEAN, making physical cash increasingly obsolete and growing at 6 percent per year and cities smarter, safer places to live. With a large and youthful population increasingly equipped with — Literate population of more than 600 million smartphones, ASEAN has an opportunity to pioneer people, with 40 percent under 30 years of age the development of new digital services, especially advanced mobile financial services and e-commerce. — Smartphone penetration of around 35 percent, These sectors are likely to give rise to digital and growing rapidly champions that will lead the way for the broader economy. — Well-developed information and communications technology (ICT) cluster with a track record of A decade from now, ASEAN’s manufacturing sector is innovation and investment in new technology likely to have embraced Industry 4.0 technologies that enable machines on assembly lines to interact — Renewed sense of optimism and urgency for with the products they are producing, boosting economic integration with the implementation of efficiency, increasing flexibility, and enabling greater 2 the ASEAN Economic Community, which pledges customization. Moreover, across ASEAN, citizens will to promote free movement of goods, services, be able to access public services digitally, trans- investment, skilled labor, and free flow of capital forming the way they interact with both national and local governments. By 2025, most of ASEAN’s citizens will be digital natives, fully empowered to use high-tech tools to enhance their personal and professional lives. 1 No ASEAN country—other than Singapore—features consistently and prominently in global digital indices. 2 Industry 4.0 is a term used to represent “smart factories”—that is, intelligent networking of product development and production, logistics, and customers by widely deploying sensors and other IoT technologies. The ASEAN digital revolution 1 The roadblocks The solutions There are several major roadblocks standing between To address both the demand-side and supply-side ASEAN and an advanced digital economy and challenges, policy makers should consider the society. To bring about a full digital revolution, the following five measures or sub-revolutions: following barriers will need to be addressed: Pursue a broadband revolution — Weak business case for building out broadband — Increase broadband access by improving the — Regulations inhibiting innovation in mobile business case for investing in digital infrastructure financial services and e-commerce by, for example, hastening the release of digital dividend by 2017 across ASEAN and allocating — Low consumer awareness and trust hindering the at least 20MHz of that digital dividend spectrum uptake of digital services for top operators; allocating spectrum more efficiently; adopting technology neutrality; and — No single digital market ensuring healthy operator economics (no more than four operators per country) — Limited supply of local content, primarily due to a weak local digital ecosystem — Promote digital literacy and improve awareness of the benefits of a digital society In short, ASEAN needs a comprehensive overhaul of both in-country and cross-border (regional) regula- Accelerate innovation in mobile financial services, tions, addressing both supply-side and demand-side e-commerce, and connected cities objectives. On the supply side, countries within ASEAN should strive to strengthen the business case — Allow for the creation of digital-only banks and aim for investment in digital infrastructure, revisit regula- to scale up existing mobile payment systems tions for key sectors (such as financial services), and boost the local digital ecosystem. On the demand — Create a single digital payment platform—first in- side, ASEAN countries should create a single digital country, then across ASEAN market and take steps to aggressively expand access to broadband. — Establish clear and simple regulations around digital payments (for example, cash-in/cash-out points, KYC, and AML), which are harmonized across ASEAN to facilitate cross-border trade and remittances — Build 35 smart cities by 2025; provide tax incentives for M2M and IoT technologies The ASEAN digital revolution 2 Enhance trust and security in ASEAN’s Foster digital innovation within ASEAN digital economy — Revamp K-12 and higher education systems to — Create a national electronic ID (linked to a mobile develop the skills required for the 21st century, number) in each country for delivery of appropriate while digitizing other sectors of the local economy government services and to ensure interoperability across ASEAN — Ensure the digital ecosystem is ready to be an active enabler; for example, 100 percent — Harmonize cybersecurity, data protection, broadband access in all schools (urban, suburban, e-signature, and privacy laws across ASEAN and rural areas) and colleges in ASEAN by 2020 — Create a world-leading ASEAN-wide agency to — Nurture and protect local innovation by ensuring fight cybercrimes similar to JCAT of Europol that they are digitally led (and thus ready for the 21st century) and get sufficient protection for intellectual property rights Strengthen local digital economies — Ensure Internet-only (OTT) players follow the same If ASEAN can implement these policies effectively, rules as conventional telecom operators with the region will be propelled into the vanguard of the respect to emergency calls, interoperability, and digital revolution, making ASEAN’s national other areas—same service, same rules economies more competitive and enriching the lives of citizens. Realizing this opportunity should be a top — Realize local economic contributions from priority for the new ASEAN Economic Community. international OTTs through fair tax regimes via The first step is for ASEAN to create a Digital Economy respective diverted profit and consumption taxes Promotion Board to make recommendations on the and local employment digital economy, conduct market analysis, and establish and track metrics on ASEAN-wide digital progress to ensure this ASEAN digital revolution becomes a reality. ASEAN has an opportunity to leapfrog to the forefront of the fast-moving global digital economy. The ASEAN digital revolution 3 1. ASEAN today and its digital potential Key trends shaping the digital economy The number of Internet users has grown rapidly over the past decade and today two-fifths of the world’s population is online.3 Increasingly equipped with smartphones, consumers depend on the Internet for a growing range of everyday activities, from connecting with friends and family to shopping and banking. Businesses also harness the Internet extensively across their operations. A complex and dynamic value chain comprising both global and local players has developed to deliver digital services to consumers and businesses. The digital economy’s value chain broadly consists of three elements: devices, networks, and applications (see figure 1 on page 5). Devices include smartphones, tablets, PCs, game consoles, wearables, sensors, and the growing range of connected machines and vehicles that make up the Internet of Things. Systems and software-enabled devices run applications, while fixed, mobile, and satellite networks connect devices to the Internet. Applications include online services, content rights, and the enabling technologies to deliver them. Online services are the most visible and most dynamic part of the digital value chain. Video, music, gaming, social media, over-the-top (OTT) communications, e-commerce, local information services, and search are among the applications that are becoming A complex and increasingly indispensable to the digital citizen. dynamic value chain comprising both global and local players has developed to deliver digital services to consumers and businesses. 3 International Telecommunication Union The ASEAN digital revolution 4 Figure 1 The digital economy value chain is complex Content Online Enabling Connectivity User rights services technology interface and services User Media rights owners Communications Support technology Mobile access Applications — Video and social media — Web hosting — China Mobile — Software — Audio — Skype — Web design — América