The steady growth of the digital economy is driving a wave of investments into digital infrastructure in the Southeast Asia (SEA) region as an emerging asset. This trend is being driven by the region’s growing demand for digital services and connectivity, as well as the quick development and uptake of technologies like cloud computing, 5G and artificial intelligence (AI). However, there are differences in the political systems and degrees of socio-cultural development among the 11 nations that make up the SEA region. With the technologies always changing, there is a need for an ever-evolving workforce that can adapt to the ever-changing digital environment. Digital upskilling has several advantages despite the initial cost. Upskilling closes socio-economic knowledge and skill gaps while also reducing structural unemployment brought on by skill mismatches. There is a huge labour pool of skilled workers in SEA.
Benefits of technology applications
Some of the benefits of digitalisation include ease of business operations, better supply chain management, improvement of cost efficiency, increase in brand awareness, empowerment of information-based decision-making, better customer service and increased ease of market expansion. To create sustainable, resilient infrastructure, the power of digitalisation helps to provide solutions that make the existing infrastructure systems perform better. Efficiency gains are one of the main advantages of technology application in the infrastructure and construction sectors. With the use of technologies like Building Information Modeling (BIM) and 3D modelling, the construction process becomes much more efficient.
Another advantage of the use of technology in the infrastructure and construction sectors is the significant reductions in project costs. Deployment of technologies and building a digital infrastructure not only eliminates the cost of human error but also cuts down on the waste of material and reduces project timelines. With the use of digital tools and technologies, there is an opportunity to improve safety measures in the industry. Technologies like internet of things (IoT), and drones equipped with cameras can enhance security and improve safety.
Internet penetration in SEA
As per industry estimates, around 400 million people use internet services, with a penetration rate of 75.6 per cent, in most of the SEA countries, except for Laos and Myanmar. Since the SEA region is still a developing region, the pandemic has contributed to the growth of the digital economy, particularly in the areas of e-commerce, food and transportation, online media, online travel, and e-financial services. It is predicted that the digital economy in SEA is expected to exceed $300 billion by 2025 or reach up to $1 trillion in gross merchandise volume (GMV) by 2030. Further, Singapore is expected to be the biggest digital lending market in SEA from 2023 through 2030, while Indonesia is the biggest digital payments market.
Current state of the digital economy and its impact
Digital transformation and digitalisation can lead to several positive impacts. This has been observed in the infrastructure development in the SEA region as well. The ability to connect and carry out online business and non-commercial transactions is available to millions of people in SEA. However, this is only possible with the appropriate legislative framework and strong enforcement. During the Covid-19 pandemic, more consumers in SEA have embarked on digital services and online shopping. Many countries in the SEA region are making concerted efforts and undertaking projects to transform their economies into digital economies. For instance, the Government of Cambodia is planning to fully digitise its operations by 2035. The plan will be executed in two stages. As a part of the first stage, multiple digital revolution units will be established by the Ministry of Posts and Telecommunications. Once all the units are operational in early 2024, internet access across all ministries in the country will increase from 80-90 per cent to 100 per cent. The second stage will cover the development of various service systems for the public in the country. These efforts are guided by the Digital Economy and Society Policy Framework of Cambodia 2021-2035 and the Digital Government Policy of Cambodia 2022-2035 and aim to improve the education of digital technology and the development of digital skills. Takeo province will be used as a model for implementing digital technology development projects. By 2024, the province is expected to have 20 digital technology centres.
Several countries developed and implemented clear roadmaps towards digital transformation. For instance, Thailand 4.0 is a collection of policies aimed at transforming Thailand into an innovative, value-based industrial model. The intention of Thailand 4.0 is to foster creativity and research and development of advanced technologies within the country. Similarly, Indonesia 4.0 is an integrated roadmap for Indonesia’s strategy to enter Industry 4.0. The roadmap is based on an acknowledgement that for Indonesia to remain competitive, it needs to fully utilise ICT in the industrial sector. This is not only in the production process but across the entire industry value chain, promising the creation of new business models and digital innovation.
Malaysia 5.0, on the other hand, is a new vision called for by the Malaysia Digital Economy Corporation (MDEC) for Malaysia to increase its competitiveness in technology. It introduces a designated hub that interconnects companies in Malaysia to the rest of the world, with strong regulatory and strategic oversight and direction from the MDEC. Green financing through technology is another focus area of the SEA economies. Green finance is a future-oriented finance plan that simultaneously pursues the development of the financial industry, improvement of the environment, and economic growth. It is incorporated through new technologies, financial products, industries, and services that consider environment, energy efficiency, and reduction of pollutant emissions.
In a noteworthy development, Kinergy Advancement Bhd (KAB) has signed a memorandum of understanding (MoU) with Alliance Bank Malaysia Bhd (ABMB) to promote green technology financing and clean energy initiatives in Malaysia. The initial term of the MoU is two years, with an extension through mutual written consent. Under the agreement, KAB will provide sustainable energy engineering services which will include specialised engineering consultancy for ABMB, participation in green project financing discussions, and support for ABMB’s initiatives in sustainable energy solutions (SES), environmental, social, and governance (ESG), and sustainable development. Meanwhile, ABMB will provide preferential financial solutions to KAB’s SES projects, facilitate strategic connections, and serve as a banking institution for green project financing. The MoU is in line with a collaboration between KAB, ABMB, and Mah Sing Group Bhd, and targets areas, including sustainable, green, and clean energy projects, technology innovation, green financing, and sustainable development through ESG.
Digital transformation has become a necessity for modern transportation and involves the incorporation of innovative digital transport solutions in the transportation sector. The ports and shipping sector is also making use of many new-age state-of-the-art technologies. The Maritime Port Authority of Singapore (MPA) is deploying many advanced technologies to improve the efficiency at ports. The MPA is currently in the process of building Tuas Port, which will be the biggest port in the world with a capacity of 60 million twenty-foot equivalent units (TEUs), once it is completed in 2040. Besides, the MPA has signed an MoU with China-based Tianjin Municipal Transportation Commission to develop the Singapore-Tianjin green and digital shipping corridor. The corridor will support decarbonisation, digitalisation and growth of the maritime industry between Singapore and the Bohai region.
With the rapid development of new technologies and evolving construction techniques, there have been major changes in the construction of roads, expressways and highways across the SEA region. AI, virtual reality, drones, site robots, and other smart construction techniques and concepts are now being applied at almost all construction sites. BIM is a set of technologies and processes that are used to create a three-dimensional virtual model of a project.The virtual model contains all project information. Countries like Cambodia, Indonesia, Malaysia, the Philippines and Singapore are undertaking various steps to improve road connectivity through technological interventions. Several smart construction materials are also emerging and one of the most innovative construction materials considered today for road and bridge design is self-healing concrete. Smart materials are engineered to respond to cracks, excessive stress, or environmental effects such as temperature, pressure, and the presence of oxygen. The development of smart and new construction materials has also led to the development of standard precast, prestressed concrete beams that are normally designed to act compositely with a cast-in-place reinforced concrete deck slab.
However, the construction of modern road infrastructure is quite complicated. Thus, there is a need for skilled and trained engineers and experts to plan the construction of these structures using the best methods and equipment. In addition, periodic monitoring of roads, highways and bridges remains important for safety purposes. Countries like Malaysia, the Philippines, Vietnam, and Indonesia are also known for the automotive industry and automotive parts manufacturing, with their flourishing logistics and manufacturing sectors that are accessible and cost-effective for OEMs. In a recent development, DRB-Hicom has signed an agreement with China-based Zhejiang Geely Holding Group Company Limited (Geely Holding) to develop the Automotive High-Technology Valley (AHTV) project in Perak state, Malaysia. Under the agreement, both parties will promote new energy vehicles (NEVs) and the development of the new automotive industry. Plans also call for the construction of an auto components industrial park. The AHTV will be an open centre for future vehicle development and will develop high-technology components and parts for NEVs. This will lead to the expansion of local vendors’ capabilities to specialise in high-technology manufacturing. The SEA region is also working towards building nuclear power plants in the region.
The Philippines is amongst the countries in SEA with a significantly advanced nuclear power development plan. It is currently exploring plans to revive the mothballed Bataan Nuclear Power Plant, which has two units of 600 MWe. It is also considering the development of small modular reactors (SMRs). Aside from the Philippines, countries like Indonesia,Vietnam, and Thailand are also exploring the energy sources. In a recent development, PT Pertamina Power Indonesia has signed an MoU with Denmark-based Seaborg Technologies to jointly develop the next generation of nuclear power technology in Indonesia. The MoU complies with the country’s target of achieving net zero carbon emissions by 2060.As per the agreement, the companies will assess a project for the commercial deployment of Seaborg’s Compact Molten Salt Reactor (CMSR) Power Barge. In line with the results of the studies, further collaboration will be considered.
However, the financials are yet to be finalised. Digitalisation also provides opportunities for financial institutions to be innovative, develop and grow in the ever-changing external environment, such as the introduction of blockchain technology, digital banking, internet banking, e-wallet, e-payment, mobile banking, banking applications, etc. This enables commercial and e-commerce transactions to be more seamless, cost-efficient and faster. The SEA region is expected to increase investors’ confidence and thus can attract more inflow investments. According to industry experts, such investment will enhance the SEA region’s economic position in the Asian region and will fuel growth in the region due to the domino effect of the SEA region’s economic growth. The SEA region’s e-commerce spending is estimated to increase to over $90 billion by 2025.
Challenges
Along with the positive impact, a few challenges have also been observed for the digital economy transformation in the SEA region. Some countries and cities in the region lack the basic digital infrastructure, including networks, hardware and software. For instance, as per the latest updates, the internet penetration percentage in Brunei and Malaysia is only 86 per cent and 71 per cent respectively, whereas only 26 per cent of the people in Laos and Myanmar have access to the internet. The digital divide within each SEA country and across SEA countries is too wide and thus there is uneven economic development in the region. This, in turn, results in ongoing socio-economic problems, such as economic migration, uneven social mobility and social unrest. Online data privacy protection and system security represent another significant challenge. Cybersecurity and cybercrimes have been growing concerns of the e-community, including consumers, sellers and governments.
In actuality, cybercriminals now have almost ideal circumstances due to the Covid-19 pandemic. Cyber threats not only endanger internet businesses, but they also have a significant negative economic impact. Another challenge is the level of human capital development. The Human Capital Index, adopted by the World Economic Forum, is used to measure how countries develop and deploy their human resources. The index evaluates several variables (the level of education, skills, employment, and how well countries utilise their human capital to improve their economies, etc.) that are grouped into four main components, namely, capacity, development, deployment, and know-how.
Finally, other challenges include lack of resources, weak financial institutions and online payment systems, weak intellectual property protection, infrastructure-related issues like network connectivity, speed and quality of broadbands, regulations and licensing restrictions, consumer protection issues, sustainability, etc. Lastly, there are other challenges, like lack of funding, weak financial institutions and online payment systems, inadequate protection for intellectual property, problems with infrastructure, such as network connectivity, broadband speed and quality, licensing and regulation issues, problems with consumer protection, sustainability, etc.
Future outlook
A common data policy for the Asian and SEA regions should be developed in light of the advantages and disadvantages of the growing digital economy. This will serve as a framework for policy that complies with local, national, and global regulations. This should focus on three main areas, including digital finance, digital training and development, and digital infrastructure, both physical and institutional. A common e-payment platform and more innovative e-payment methods across SEA countries are necessary as they will facilitate more online transactions, e-public services and e-investment. A good training and development policy would help SEA countries reduce the digital literacy gaps and improve digital inclusion.
Furthermore, integration, cooperation, and development at the regional and national levels would be facilitated by a solid foundation for digital infrastructure. The public and private sectors should collaborate to pool resources and develop such infrastructure for a win-win partnership. A regional digital market cannot be fully developed without a digital-ready workforce. Therefore, to close the digital divide, SEA nations must improve connectivity by pursuing a broadband revolution throughout the region and providing their workforce with the digital skills and adaptable mindset needed to embrace digitalisation.
The goal of SEA countries should be to educate the younger and older generations to meet the growing demand for lifelong learning and digital skills to improve digital inclusion. Moreover, the respective SEA governments should also focus on training and retraining workers, who are negatively affected by the rapid development of digital technologies. In addition, SEA countries must cooperate and build capacity in terms of cybersecurity at the regional level. Due to security and privacy incidents, consumers are discouraged from using online marketplaces. Therefore, there is a need to increase trust and security of these platforms at the national level. To reduce cyberattacks, the countries of the SEA region must create a safe online marketplace.
