Potentially Reaching $1 Trillion: Challenges in Southeast Asia's Digital Economy

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Potentially Reaching $1 Trillion: Challenges in Southeast Asia's Digital Economy

The growth potential of the digital economy in Southeast Asia is huge, supported by strong fundamentals. These include a digital consumer base of more than 460 million people, a population that tends to be tech-savvy, and growing internet penetration.

The latest e-Conomy SEA 2022 report from Google, Temasek, and Bain & Company projects that the digital economy in the six ASEAN-6 countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam) will grow by 6% per year. The report also estimates that the digital economy market in the region could reach $1 trillion by 2030.

However, there are still several barriers to the growth of the digital economy in Southeast Asia. These include the urban-rural divide and low levels of digital literacy. The region needs to address these challenges in order for the digital economy to grow smoothly.

According to Anthony Toh, a research analyst at the S. Rajaratnam School of International Studies, digital economic development in ASEAN is underway, but there is still a digital divide among member states. Singapore is the most advanced ASEAN member in terms of digitalization, while countries such as Malaysia, Indonesia, Brunei, Thailand and Vietnam tend to lag behind on some indicators. In addition, Myanmar, Laos, and Cambodia also have lower digitalization prospects.

Ongoing Regulation

In terms of digital integration, Singapore and Malaysia lead on several indicators, while other countries such as Brunei, Indonesia, Thailand, the Philippines, and Vietnam lag behind on one or more indicators.

Meanwhile, Cambodia, Laos, and Myanmar score below average on all indicators and need to catch up on their digital integration efforts in the region.

Kenddrick Chan, a researcher at the Portulans Institute, said that having a strong regulatory framework is important for participating in the digital economy. However, some countries are still lagging behind in developing their regulatory frameworks, resulting in an uneven distribution of the benefits of the digital economy.

ASEAN has indeed established important policies and frameworks to guide governments' digital cooperation. However, these goals require in-depth research, visionary policies, and strong support from regional stakeholders.

The Digital Divide

On the other hand, the digital divide between urban and rural areas is also an issue facing every ASEAN country. While Indonesia is experiencing rapid growth in Internet penetration, the digital divide between urban and rural areas remains high. This can lead to rural communities being left behind in the development of digital technology.

Digital literacy is also an issue in some ASEAN countries. Many residents own smartphones and have access to the Internet, but they tend to use social media such as Facebook, Instagram, and TikTok. To integrate them into the digital economy as a whole, improved digital literacy is needed.

The digital divide in Southeast Asia is a major challenge to digital progress in the region. Currently, the gap is widening and there is no significant improvement towards better standards.

In the World Bank's 2021 forecast, other countries in the region, with the exception of Singapore, Malaysia, and Brunei, have more than 40% of their population living in rural areas.

Data from the Central Statistics Agency (BPS), cited by the Asia Competitiveness Institute at the Lee Kuan Yew School of Public Policy, shows that before the pandemic, the rural-urban digital divide in Indonesia was 24.8 percentage points. However, after the Covid-19 pandemic, the figure narrowed slightly to 22.5 percentage points in 2021.

Some countries in the region also have low levels of digital literacy. For example, much of Cambodia's population still lives in villages, as evidenced by World Bank data showing that 75% of Cambodia's population lives in rural areas.

The digital divide in Southeast Asia is a major challenge to digital progress in the region, according to Toh. Currently, the digital divide seems to be widening rather than narrowing.

Source: CNBC

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