EXECUTIVE SUMMARY

The opportunity

Across the world, digital products and services are transforming industries, enriching lives, and propelling progress. The Association of South East Asian Nations (ASEAN) has an opportunity to leapfrog to the forefront of the fast-moving global digital economy. Many of the fundamentals are already in place:

• Robust economy generating GDP of $2.5 trillion and growing at 6 percent per year
• Literate population of more than 600 million people, with 40 percent under 30 years of age
• Smartphone penetration of around 35 percent, and growing rapidly
• Well-developed information and communications technology (ICT) cluster with a track record of innovation and investment in new technology
• Renewed sense of optimism and urgency for economic integration with the implementation of the ASEAN Economic Community, which pledges to promote free movement of goods, services, investment, skilled labor, and free flow of capital

Although ASEAN (as a single community) lags behind its global peers in the digital economy, it has the potential to enter the top five digital economies in the world by 2025.1 Moreover, implementation of a radical digital agenda could add $1 trillion to the region’s GDP over the next 10 years.

By 2025, a digital revolution could transform daily life in ASEAN, making physical cash increasingly obsolete and cities smarter, safer places to live. With a large and youthful population increasingly equipped with smartphones, ASEAN has an opportunity to pioneer the development of new digital services, especially advanced mobile financial services and e-commerce. These sectors are likely to give rise to digital champions that will lead the way for the broader economy.

A decade from now, ASEAN’s manufacturing sector is likely to have embraced “Industry 4.0” technologies that enable machines on assembly lines to interact with the products they are producing, boosting efficiency, increasing flexibility, and enabling greater customization.2 Moreover, across ASEAN, citizens will be able to access public services digitally, transforming 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.

The roadblocks

There are several major roadblocks standing between ASEAN and an advanced digital economy and society. To bring about a full digital revolution, the following barriers will need to be addressed:

• Weak business case for building out broadband
• Regulations inhibiting innovation in mobile financial services and e-commerce
• Low consumer awareness and trust hindering the uptake of digital services
• No single digital market
• Limited supply of local content, primarily due to a weak local digital ecosystem

In short, ASEAN needs a comprehensive overhaul of both in-country and cross-border (regional) regulations, addressing both supply-side and demand-side objectives. On the supply side, countries within ASEAN should strive to strengthen the business case for investment in digital infrastructure, revisit regulations for key sectors (such as financial services), and boost the local digital ecosystem. On the demand side, ASEAN countries should create a single digital market and take steps to aggressively expand access to broadband.

The solutions

To address both the demand-side and supply-side challenges, policy makers should consider the following five measures or sub-revolutions:

1. Pursue a broadband revolution

• Increase broadband access by improving the business case for investing in digital infrastructure by, for example, hastening the release of digital dividend by 2017 across ASEAN and allocating at least 20MHz of that digital dividend spectrum for top operators; allocating spectrum more efficiently; adopting technology neutrality; and ensuring healthy operator economics (no more than four operators per country)
• Promote digital literacy and improve awareness of the benefits of a digital society

2. Accelerate innovation in mobile financial services, e-commerce, and connected cities

• Allow for the creation of digital-only banks and aim to scale up existing mobile payment systems
• Create a single digital payment platform—first in-country, then across ASEAN
• 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

3. Enhance trust and security in ASEAN’s digital economy

• Create a national electronic ID (linked to a mobile number) in each country for delivery of appropriate government services and to ensure interoperability across ASEAN
• Harmonize cybersecurity, data protection, e-signature, and privacy laws across ASEAN
• Create a world-leading ASEAN-wide agency to fight cybercrimes similar to JCAT of Europol

4. Strengthen local digital economies

• Ensure Internet-only (OTT) players follow the same rules as conventional telecom operators with respect to emergency calls, interoperability, and other areas—same service, same rules
• Drive local economic contributions from international OTTs through fair tax regimes via respective diverted profit and consumption taxes and local employment

5. Foster digital innovation within ASEAN

• Revamp K-12 and higher education systems to develop the skills required for the 21st century, while digitizing other sectors of the local economy
• Ensure the digital ecosystem is ready to be an active enabler; for example, 100 percent broad-band access in all schools (urban, suburban, and rural areas) and colleges in ASEAN by 2020
• Nurture and protect local innovation by ensuring that they are digitally led (and thus ready for the 21st century) and get sufficient protection for intellectual property rights

If ASEAN can implement these policies effectively, the region will be propelled into the vanguard of the digital revolution, making ASEAN’s national economies more competitive and enriching the lives of citizens. Realizing this opportunity should be a top priority for the new ASEAN Economic Community. The first step is for ASEAN to create a Digital Economy Promotion Board to make recommendations on the digital economy, conduct market analysis, and establish and track metrics on ASEAN-wide digital progress to ensure this ASEAN digital revolution becomes a reality….