19 Jun 2019

As Southeast Asian countries take steps to digitalise their respective economies, a leading voice in the region has warned that it will be “a scary ride.”

Professor Mari Pangestu says Southeast Asia’s digital transition will be manageable but inherently risky. “I myself feel that it’s one of the greatest anxieties that we face,” she tells Global-is-Asian during an interview before speaking at the “Digital Economy and Development: an ASEAN Perspective” lecture at the Lee Kuan School of Public Policy.

Prof Pangestu served as Indonesia’s Minister of Trade from 2004 to 2011 and Indonesia's first Minister of Tourism and Creative Economy from 2011 to 2014 — a position that saw her develop strategies on how technology can boost Indonesia’s economy.

Dealing with disruption

Digital disruptions may be scary but they are of immense economic value.

Advancements such as robotics and artificial intelligence are expected to bolster growth within the Association of Southeast Asian Nations, or ASEAN. If applied to every sector of Indonesia’s economy, digitisation could increase productivity by 0.55% on average each year, according to economist Arief Anshory of West Java’s Padjadjaran University. The World Bank, meanwhile, has confirmed positive correlations between internet usage and income per capita.

Speaking at the Lee Kuan School of Public Policy where she is currently a visiting professor, the former diplomat describes how technology helps with job creation.

Go jek indonesia

(photo: Afif Kusuma)

In Kaliabu, a rural area in Indonesia’s Central Java province, villagers have become self-taught graphic designers and use platforms such as Australia’s 99designs to connect with clients. And thanks to decent internet connections, wages have risen whilst crime has dropped, she explains.

Tech companies also play a role in economic development. ASEAN’s biggest unicorns, Go-Jek and Grab, contribute $2.9 billion and $3.4 billion to the Indonesian economy respectively, according to studies by research institutes Lembaga Demografi and CSIS Indonesia. Not only are drivers benefiting from higher salaries, small and medium enterprises (SMEs) that are partners with the ride-hailing companies also enjoy increased sales, the studies found.

Governments, meanwhile, could be more transparent and efficient if public services such as applications and taxes were done online, Prof Pangestu explains.

Alongside these benefits, however, come great risks.

Both the public and private sectors have a responsibility to manage what Prof Pangestu calls “the scariest part” of digitalisation: job losses. Around 10.2% of the workforce in ASEAN’s six largest economies will be displaced by automation, with Indonesia and Vietnam most affected, according to Oxford Economics.

In addition to retraining workers, governments could also put forth social protection measures to manage the transition, she suggests.

Connectivity isn’t enough

The biggest challenge for ASEAN is utilising digital connectivity to boost the economy, Prof Pangestu says.

Emerging nations such as Myanmar and Cambodia have made great strides in mobile penetration rates but that isn’t sufficient for them to become digital economies, she warned. These countries may be connected but they still lack “capacity to utilise that connectivity for economic value … That’s where the catch up has to come from.”

In addition to getting citizens online, policy-makers and businesses need to implement complementary policies so they can reap economic gains, or digital dividends, from connectivity, she explains. “It’s about the capacity of the people to be digitally literate and be able to utilise the value of the connectivity for economic purposes.”

For example, activities such as online trading, e-commerce and online banking, are economically advantageous but they aren’t being widely used by citizens. More Southeast Asians may be shopping online than ever before but e-commerce as a percent of retail trade is still only 2% in ASEAN, as compared to 20% in China and 12% in the United States, Prof Pangestu notes.

Vietnam is the country to watch in this space, she predicts. The size of its internet economy as a percentage of gross domestic product is 4%, according to a 2018 report by Google and Temasek. That’s well above Singapore’s 3.2% and Southeast Asia’s average of 2.8%.

Governments looking to facilitate digitalisation among corporates have a variety of policies at their disposal, according to Prof Pangestu. These include increased investment in information communication technology sectors, lowering existing tariffs and implementing tax incentives.

What officials must avoid are protectionist responses to new technologies, Prof Pangestu warns. Indonesia, for example, banned Go-Jek in 2015 following protests by taxi drivers but then quickly reversed that decision amid widespread citizen complaints. A lack of understanding on the benefits of technology often results in policies that favour traditional industries, which can derail the speed of innovation, she adds.

The importance of open data flows

The first female Chinese Indonesian to hold a cabinet position in Indonesia, Prof Pangestu stresses another area for improvement within ASEAN: freely flowing data. Economies can’t benefit from digitalisation without cross-border data flows, she emphasises.

ASEAN’s vision as a united economic bloc is based on the free flow of goods, service, investment and people yet “we still don’t have free data flows,” she tells Global-is-Asian.

Several countries, including Malaysia, Indonesia and Vietnam, have barriers that prohibit the flow of data across borders. Known as data localisation laws, these barriers ensure data obtained within a country is used locally and can’t be transferred elsewhere.

That’s widely seen as counter-productive, according to experts. Differences in data laws across ASEAN countries are holding back trade and innovation, a 2018 report by mobile communications industry body GSMA found.

It could be useful for governments to only allow certain sensitive data to be reserved locally, she recommended. Going forward, officials must balance the need for open data streams against security, regulatory and privacy concerns to ensure consumer protection and business trust, she concludes.

Watch the full recording of “Digital Economy and Development: an ASEAN Perspective”.

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