Southeast Asia’s future must be data-driven

The world’s fastest-growing trade bloc could be a model technology revolution, as ASEAN’s young population leapfrogs old technologies to the front lines of real-time payments, virtual assets and artificial intelligence. The trick will be implementing a regional policy template that protects consumers and ensures market competition without crippling digital trade.

Home to over 600 million people with a collective GDP approaching US$4 trillion, the ASEAN community is one of the world’s most dynamic regions, accounting for approximately 8% of global exports. It sits at the heart of major free trade pacts and is a big beneficiary of the rebalancing of global supply chains.

ASEAN is also the world’s fastest growing digital economy; the World Economic Forum estimates it will be worth $1 trillion by 2030. The number of active digital wallets is forecast to triple to about 440 million by 2025.

However, aggregation is not synonymous with integration. Founded in 1961, ASEAN’s 10 sovereign states are spread across 4.5 million square kilometres of territory. A bird flying straight from ASEAN’s northwestern tip in Myanmar to its southeastern extreme in Papua would travel over 6,000 km, comparable to travelling from Berlin to Nairobi. Unlike the land-linked European Union, with its unified currency and open internal borders, many ASEAN borders are drawn across sea lanes.

This geography poses a challenge. Southeast Asian data pipelines are some of the world’s most vulnerable. Submarine cables have been inadvertently damaged by boat keels and trawling fishermen; kilometres of them have been stolen outright.

So the last thing the region needs is excessive, man-made barriers to data flow.

The New Oil

The analogy that “data is the new oil”, coined by mathematician Clive Humby in 2006, is apt in some ways. Like oil, data has implications for economic strategy and national security. And like oil, the data industry was poorly regulated in its early years. So when governments pass laws that protect consumer rights and ensure the smooth functioning of competitive markets, we should applaud.

On the other hand, having arguably not done enough in the early days of the data economy, some governments now risk going too far, too fast. There are multiple examples of well-meaning officials enacting policies that inadvertently hurt domestic companies – or protect them from healthy competition.

Finally, the exponential rate of legislative change is itself a deterrent to investment. According to OECD research, close to a hundred data localisation measures were in place across 40 countries in early 2023, and more than half of them were enacted in the last eight years.

ASEAN-based companies must do business across borders to achieve the economies of scale they will need to compete with giant rivals. Using a scale based on OECD market-regulation data, the Information Technology and Innovation Foundation assessed that a 1-point cumulative increase in a nation’s data restrictiveness index over a five-year period cuts its gross trade output 7% and slows its productivity by 2.9%.

On the other hand, a 2018 OECD report suggested that a 10% increase in bilateral digital connectivity increased trade in services by more than 3%.

A closer union

Members recognise the challenge. The ASEAN Digital Economy Framework is a laudable step in the direction of solving it. There are ample policy models to consult, first and foremost the Model Law on Electronic Transferable Records promulgated by the United Nations. Officials may also refer to the 2022 UK-Singapore Digital Trade Agreement and the UK-Japan CEPA for examples on how to regulate data without stifling business.

Whatever solution is adopted, the goal is a pan-ASEAN multilateral payment system, aligned with multilateral standards, that supports wholesale financial transactions.

Governance must be rigorous. Banks need to keep due diligence documents updated; a central registry for ASEAN corporates linked to legal entity identifiers would help. A centralized system for sharing information on suspicious transactions would mitigate fraud. An ASEAN-wide commercial data interchange would support credit risk assessment, especially for smaller companies.

The way forward is clear, but the current window of opportunity will not remain open indefinitely. The rebalancing of supply chains now underway will inevitably find a new equilibrium, and capital flows can be fickle. Competition from established technology giants for market share will remain intense. The time to convince investors that ASEAN will be the world’s most digitally integrated trading bloc is now.?