Digital Economy Landscape in Southeast Asia & Policy Challenges for Governments

Digital Era For Thailand: Beat the Limits, Bangkok, October 2018 Natasha Beschorner Senior ICT Policy Specialist

The signs of rapid digital adoption are everywhere in Southeast Asia…

Individuals are using the Internet at world-leading levels for messaging, social media, and browsing

78 percent of consumers get information on products/services from social media

30-60% social media penetration rates

3.6 hours of mobile internet/day

Photos: Business Times; Straits Times; Gojek

Sources: Google; RVC; We Are Social

Individuals buying online through social media (RVC, 2016)

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But the digital economy is about more than getting people online

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Overall DAI Business People Government

World Bank Digital Adoption Index, 2016

Basic indicators of firms’ use of technology (e.g. having a website) lag comparators >31 percent of firms in Southeast Asia have their own website >Global average: 44 percent >East Asia and the Pacific average: 36 percent >China: 66 percent >India: 49 percent

Source: World Bank Enterprise Surveys

Digitally enabled services trade is growing (ASEAN-selected economies)

Source: ASEAN Secretariat, WB estimates

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But Digital Adoption by Businesses needs to accelerate

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Digital Adoption Index

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What are some key enabling factors for growing the digital economy in SE Asia?

• This is a prerequisite and a physical underpinning to the digital economy and includes the availability of affordable access to broadband, devices and safe cyberspace that instils user trust.

Connectivity

• Access to safe and secure digital payment services provide the opportunity to engage in electronic transactions either as consumers or entrepreneurs, domestically or in overseas markets.

Payments

• In a digitally-driven economy, skills needs range from basic digital and data literacy, to specialized skills to harness the productivity benefits of digital innovation. Digital skills

• The expansion of the digital economy highlights the importance of a developed and cost-effective logistics sector given the higher demand for delivery of goods, especially at low values, both within and across borders.

Logistics

• Policy and regulation specific to each of the other pillars affects their progress. There is also a further set of cross-cutting policies and regulations that shape the digital economy. These issues include those which relate to cross-border data flows, data privacy, cybersecurity, consumer protection, electronic transactions and e-commerce laws.

Digital policy and regulation

Digital policy and regulation: key aspects of national and regional policy frameworks are underdeveloped

1. Framework for e-commerce transactions largely present >E-transactions laws in most countries

2. Framework for data privacy and cross-border data flows less mature >Malaysia, Singapore, Philippines have comprehensive data protection laws >Draft laws in Thailand and Indonesia >Several regulations but no comprehensive law in Vietnam >No public plan for laws in Myanmar, Brunei, Cambodia, Lao PDR

3. Framework to promote trust and security is underdeveloped >Consumer protection: trust deficits a key barrier to consumer adoption (e.g. payments, product quality) >Cybersecurity legal frameworks, enforcement capacity, expenditure relatively limited

National policy frameworks: all countries have some kind of digital economy strategy in most cases, institutional mechanisms to prioritize implementation and monitor are needed

Regional policy frameworks: growing body of high-level regional goals/principles need to move to concrete implementation; technical discussions on coherence of regulations

Connectivity: the digital divide persists, even if mobile broadband usage has grown – and fixed broadband lags, with affordability and speed of connection key weaknesses

13% internet penetration growth per year in Southeast Asia between 2011 and 2016

But, half the population still lacks Internet access in Indonesia, Vietnam and Thailand

High levels of mobile broadband… but fixed broadband is lagging. Affordability of fixed broadband is a factor limiting adoption in a number of countries

“First mile” international gateway prices relatively high

Source: Telegeography, 2018

Key issues for governments: Competition along the broadband value chain; infrastructure sharing and rights of way

Thailand targets 95 percent broadband network access across the country at 100 Mbps speed in all regional hubs by 2020

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Mobile and Mobile Broadband Penetration (% population), 2018

4G/LTE % 3G % GSM (2G) %

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Fixed Broadband population penetration (% population),

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Digital skills: policy needs to build long-term foundations while also helping meet short-term needs

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Complementary skills (e.g. managing complex

tasks, processing information)

Basic digital skills (e.g. computer use)

Foundational skills (e.g. literacy and numeracy)

Source: OECD, EU, World Bank

Complementary skills >WEF Human Capital Index, ranks from 24th for Singapore to 112th for Myanmar >Indonesia, Cambodia, Lao PDR, Myanmar in bottom 50% of countries >Most jobs are medium- or high-skilled, but gender gap in workforce participation is generally high across ASEAN

Basic digital skills: a mixed picture >Online population is tech-savvy… >But only half the population is online

Foundational skills: high literacy (>80%)

Key issues for governments: >Combining long-term education system development with short-term responsiveness to need >Supporting lifelong learning >Coordinating with the private sector to define and meet skills gaps

The region needs to catch up in the use of digital payments: a lack of trust and low consumer awareness driving a continuing preference for cash payments

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Share of account holders that access their account digitally

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Global Middle-income

Means of payment for online purchases

Cash Online

Key issues for governments: Setting appropriate regulatory frameworks; facilitating e-payment adoption through government payments

Logistics: central to e-commerce and trade, and a key sector for digital transformation

Changing industry dynamics

•Entry of new players, e.g. retail giants

•Growth of 4PL models for organizing supply chains

Digitalization

Data-driven analytics for supply chain optimization

Cloud logistics

Blockchain

New industry pressures

Growth of e-commerce driving small parcel deliveries & premium on time

Automated manufacturing increasing premium on timeliness over labor costs

New logistics technologies

Drones

Automated vehicles

Automated warehousing

Both affected by – and a building block – for the digital economy

>Logistics regularly features as a key barrier to e-commerce growth >Overall logistics performance (LPI) includes some top performers and a number of fast-improvers >Cross-border logistics barriers seen as the weakest area of performance

The region is witnessing many innovations in logistics associated with the digital economy…

… but could be doing more to strengthen logistics performance

Key issues for governments: Lowering barriers to entry in logistics for new players; addressing cross-border e-commerce facilitation barriers

Key messages

• The digital divide is closing but still exists in the region – although those online use the Internet for social and browsing at world-leading levels

• The digital economy is about more than being online – and there are various indications that business use of digital technology to grow is not at its full potential

• Government has a key role to play in addressing barriers in connectivity, skills, payments, and logistics – as several of the most important digital economy enablers

• Cross-cutting digital policy frameworks are underdeveloped – especially in data privacy and protection; and in addressing trust and security deficits

Some considerations for Thailand

• How to create opportunities for faster digital adoption by businesses and stimulating new investment

• Potential research on digital transformation in priority sectors of the economy

• A Thailand Digital Transformation Monitor as a tool for policymakers?

• Enhanced Digital ID platform to strengthen the digital economy trust environment

• ASEAN interoperability

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Somkid Jiranuntarat Chairman KBTG

80% of changes fail

“A disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.”

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Blockchain is a replicated, consensus, and synchronized block of digital data

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Document-based process

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New booking every second of which airbnb takes 6%-12% commission

Facebook’s user base grows 8 people/second = 7,246 people every 15 minutes

2015 Facebook boasted 22% of mobile internet advertising revenue

In 2016, Amazon has over 310 millions active customers

Over 353 millions products with 185,000 marketplace sellers

Available in over 80 countries over 600 cities

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How powerful it is for customer engagement

Airbnb’s customer engagement growth

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Customer Traffic

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Ready-made Infrastructure

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The Challenge of Law and Regulation

Speed of bureaucracy

Speed of thought

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Key Success Indicators

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