Digital economy crucial in ASEAN’s post-pandemic recovery With Brunei taking the ASEAN leadership mantle next year, the Asia Internet Coalition says now is the time to spur digital economic growth

BANDAR SERI BEGAWAN – As Brunei takes over the ASEAN chairmanship in 2021, it faces the daunting task of uniting members in addressing the biggest challenges of this generation.

Driving the region’s recovery post-COVID-19 must undoubtedly be at the top of the economic bloc’s agenda.

The good news is that ASEAN is well-placed to leverage the potential of its digital economy to drive recovery efforts.

In 2019, Southeast Asia’s Internet economy hit US$100 billion, more than tripling in size over the preceding four years.

By 2025, the region’s Internet economy is expected to grow to US$300 billion.

The Internet economies in Malaysia, Thailand, Singapore, and the Philippines are growing between 20 percent and 30 percent annually.

While this is a remarkable feat compared to other regions, Indonesia and Vietnam are the markets to watch – they boast growth rates in excess of 40 percent a year (Google, Temasek, Bain & Company).

If ASEAN member states want to reap the benefits that the Internet economy can bring, the economic bloc needs to sow the seeds now.

Member countries need to work together to develop smart, forward-looking policies that stimulate ASEAN’s digital economy by spurring innovation, encouraging greater entry and participation of SMEs and entrepreneurs, and empowering businesses to grow and invest for the future.

Southeast Asia must allow free flow of data across borders

Free cross-border data flows are critical to overall economic growth.

According to data by the McKinsey Global Institute, global flows of all types have combined to raise world GDP by 10 percent in over a decade.

This value amounted to some US$7.8 trillion in 2014 alone ,while data flows account for US$2.8 trillion of this impact.

The restrictions that some governments in the region have placed on data flow, such as data localisation, are likely to hamper inclusive economic growth prospects, dampen foreign investment and restrict opportunities for businesses to grow domestically and globally.

For SMEs that do not have an international footprint, the free flow of data across borders enables them to use common infrastructure to serve their customers in multiple markets.

The critical role that cross-border data flows play in enabling global digital trade and e-commerce are recognised in global and regional digital trade agreements. However, ASEAN needs to do more.

While the ASEAN e-commerce agreement touches on cross-border data flows, member countries need to further build on this agreement to take on more binding commitments on data flows that will have a meaningful impact on the regional digital economy.

Similarly, while the ASEAN Framework on Digital Data Governance is an encouraging commitment to setting the right policies for the seamless flow of data that drives innovation, efforts to enable greater regional digital trade and certainty need to be accelerated.

Conflicting policies hinder digital trade growth

If the region is committed to leveraging the digital economy to accelerate post-pandemic economic recovery, governments need to create a business environment that brings long-term stability for businesses to continue to innovate and invest for the future.

Governments in several ASEAN economies, including Vietnam, Indonesia, Cambodia, Thailand, and the Philippines, have recently enacted content regulations and licensing requirements that not only differ from their peers in the region, but are often onerous.

Conflicting policies create unnecessary barriers and complexities, especially for growing local startups trying to operate across multiple markets.

To enable companies to plan for the future with a good degree of certainty and provide them with a level playing field when operating across borders, ASEAN governments need to leverage digital trade agreements as umbrella frameworks to address policy issues in a coherent and consistent manner across the economic bloc.

Unilateral digital taxation measures could dampen investments

The Organisation for Economic Co-operation and Development (OECD) is currently leading multilateral efforts to address international tax issues arising from the growth of the digital economy.

The goal is to develop an agreement built around the key principles of neutrality, efficiency, certainty, and simplicity that will give governments comfort on revenues, businesses the ability to grow and invest for the future, and consumers an understanding of the impact on their wallets.

However, the adverse economic impact of COVID-19 has led to an acceleration in unilateral digital taxation measures by governments, including Indonesia, as a way of expanding state revenue.

Such unilateral digital taxation measures are doing more harm than good by creating double-taxation and administrative hurdles for companies.

The cost and complexity of individual countries creating and applying their own rules ultimately hits the pockets of the consumer and potentially delays market expansion.

Brunei, as the new ASEAN chair, has a huge task ahead.

There is no better time than now to galvanise member economies to work together and put the digital economy at the centre of the region’s economic recovery strategy.

The growth and potential of ASEAN’s digital economy has long outpaced the rest of the world.

The path to fully leveraging the potential of the region’s digital economy is to create a balanced and proportionate policy and regulatory environment that will lead to a conducive digital trading environment.

Greater entry and participation of local SMEs and MSMEs should also be encouraged in the digital economy, and help realise the potential of the Internet economy to contribute substantially to the region’s growth.

Jeff Paine is the managing director of Asia Internet Coalition.