Electrons and protons,
Flow freely,
The info comes and goes,
Trade willingly,

The digital age is here,
And it is here to stay.

I still remember when the burly technician installed our first dial-up connection in our house in 2001, “This will connect you to the world. Just have to bear with the loud sounds that come with starting up the modem”. A phrase that I didn’t understand until I saw him boot up the internet and the sharp mechanical cacophony of sounds ringed through my ears.

As far as I know, this was the start of the digital age, where information could be freely obtained worldwide, and we could chat with someone without going through expensive phone lines.

Fast forward to 2023, we have now entered the 5G age where even programs that increasingly emulate the human brains (aptly named Artificial Intelligence) are being pushed forward to improve and change how we conduct our daily lives.

The countries in ASEAN, realizing this potential, have started to initiate conversations and policies that aim to build the economy that sprang out of these technologies which is referred to now as the digital economy.

On 20 August 2023, ASEAN countries agreed to bring forward the negotiation for the Digital Economy Framework Agreement (Defa) from 2025 to the end of 2023.

While this is still in the initial stages, there are several things from Defa that you can take advantage of if you are a:

1. Investor
   Several investment opportunities will open up in the digital and technology sectors that could benefit from this agreement in ASEAN.
2. Business / Entrepreneur

Information will be more readily available, and the potential for further and deeper analysis of business opportunities and markets will increase.

• Consumer

More technology services will be available at a cheaper cost and higher quality.

Without further ado, let’s look at the 5 key things that you need to know about Defa that you could utilize.

#1 Defa could unlock a US$2 trillion digital economy by 2030 in ASEAN

According to Boston Consulting Group (BCG), Defa could triple to US$1 trillion in 2030, while further Defa rules and policies could double this value to US$2 trillion.

How should we put this into context? Using data from Statista, ASEAN’s gross domestic product (a measure of how much economic value ASEAN has) is projected to be US$6.7 trillion by 2030. The digital economy’s percentage of ASEAN GDP is estimated to increase from 9% in 2022 to 30% in 2030.

This will make the digital economy the fastest-growing sector and a key driver of economic growth for most ASEAN countries. For investors and businesses, it will be imperative to seek out investment opportunities in the digital economy segment to take advantage of this uptrend.

#2 Pay attention to the digital segments of E-Commerce, cybersecurity, payments and AI.

Minister Zafrul and the ASEAN body have identified these key areas of the digital economy that they will focus on:

1. E-Commerce

Temasek and Google project that E-Commerce will grow from US$74 billion in 2020 to US$234 billion in 2025.

• Payments

Southeast Asia’s digital payment market is expected to grow to US$2 trillion in transaction value by 2030 according to Google.

• Cybersecurity / Data protection

With the rise in the digital economy, cybersecurity and data protection becomes more important to protect consumers and businesses. According to Statista, the market volume of cybersecurity in ASEAN is projected to triple from US$2.1 billion in 2023 to US$6.7 billion in 2028.

• Artificial Intelligence

AI has the potential to reduce business costs (automating business processes) and identify new investment opportunities in ASEAN. The AI market value in ASEAN is projected to triple to US$27 billion in 2030 from US$8 billion in 2023 according to Statista.

#3 Singapore and Malaysia seems well=positioned to benefit from digital integration

The ASEAN Digital Integration Index (ADII) is a measure compiled by ASEAN to monitor these key pillars:

1. Digital trade and logistics
2. Data protection and cybersecurity
3. Digital payments and identities
4. Digital skills and talents
5. Innovation and entrepreneurship
6. Institutional and infrastructure readiness

What this means, in a nutshell, is that the better the ADII, the more prepared and conducive the country is to embrace the digital economy and technologies.

Of the 6 pillars above, both Singapore and Malaysia rank higher than the ASEAN average in all of them, with Singapore significantly outperforming most of the ASEAN countries in general.

This is followed by Thailand, Brunei, Philippines, Indonesia, and Vietnam. The countries of Laos, Cambodia, and Myanmar generally are considered the weakest performing in the ADII.

#4 Defa has the main objectives of accelerating trade growth and increasing business activities

While this may seem very high-level, here’s how you can interpret them and utilize these statements by Defa. Its main objectives according to the official statement are

1. Offer a comprehensive roadmap to empower businesses and stakeholders across ASEAN

This means using digital technologies to improve your businesses’ operations through information data analysis, AI and increased communication between businesses.

• Accelerating trade growth

With more transparent information shared across the digital economy, businesses can make more informed decisions on imports and exports between the countries in ASEAN.

• Creating a safe online environment

To ensure that data is protected for consumers and businesses.

There are of course many benefits to these 3 main objectives. For most businesses in ASEAN, it is still preferable to invest in ASEAN itself considering the close geographical proximity (closer to home) and its similar cultural and business practices (this is important considering that business deals can be concluded faster).

#5 For ordinary consumers and workers, this will improve services, mobility and productivity

Let’s start with consumers. The effects of the digital economy have mostly been felt in the E-Commerce and E-Hailing section in Southeast Asia.

The rise of Grab and Gojek changed how the taxi and food industry operated by enabling consumers to order at their fingertips for rides and food.

E-Commerce such as Lazada and Shopee enabled the online retail divisions in Southeast Asia to flourish and a place for small businesses to market their products (not much avenue before E-Commerce).

For the workers, a rise in freelance and gig workers meant that employment is no longer subject to a fixed place. Workers with access to the internet can now work anywhere in ASEAN according to their preferences and suitability.

This had the indirect consequences of businesses in ASEAN employing workers from other countries (who mainly work remotely). In this sense, the productivity of businesses also improves by finding employees with a better fit from a wider pool.

Conclusion

Defa is a step in the right direction for ASEAN in creating a bigger digital economy for the region. This has the potential for investors to find unicorn companies that could benefit, businesses to invest with more confidence and information, and consumers and workers to enjoy higher quality services and be more productive.