Covid-19 and digitalization in Southeast Asia: a big leap forward but gaps widen too

The gathering offered a rare opportunity for most of key world leaders to have the same platform, whether they are involved in geopolitical tensions or even don't have working diplomatic relations. Among a few common and recurring themes was the initialization of economies. This was emphasized also by Indonesia's president Joko Widodo who has taken the chairmanship of G20 for the year. Among three priorities for G20 2022 are global health infrastructure, digital economy and sustainable energy transition. This shows that the region, as much of the world, are betting much on digital transformation as the way out from the pandemic and the core pillar of their future development. There is a great political momentum behind building up the digital economy capacity, but the key remains a safe, sustainable and equitable transition.

Southeast Asia is home to one of the world's fastest growing markets of internet users. This is no surprise, given that as a bloc, Southeast Asia is the fifth largest economy in the world. It has a population of 660 million, of which 23 percent are 'millennials' - the first generation of technology natives with consumer spending power and immense influence over technology trends. The region has an average internet penetration rate of around 70 percent, although there exists a stark contrast between the most connected (Brunei at 95 percent) and least connected (Myanmar at 43.3 percent) countries. Overall, these 460 million connected users in the region represent just under 10 percent of global internet users and many global tech companies see the region as a growth market.

Pre-pandemic there was enormous optimism about the growth of Southeast Asia's digital economy. Some regional e-commerce platforms such as Lazada, Shopee, and Zalora have become international success stories. It is home to booming unicorns, and produced 19 of those venture-capital-backed startups valued at over $1 billion in 2020 only, and 15 more this year so far. Estimates from 2019 showed a trajectory to triple its $100 billion internet economy by 2025, and add $1 trillion to the region’s GDP in the next ten years.

A deliveryman of ride-hailing app Grab waits to deliver packages at a Covid-19 field hospital in HCMC, July 2021. Photo by VnExpress/Thanh Nguyen

During the first year of the Covid-19 pandemic, the region's internet economy gained more traction, and even achieved double figure growth in Vietnam and Indonesia. In 2020 alone, the region welcomed some 40 million new internet users accompanied by an increase in smartphone uptake. This is four times the number of new users compared with the previous year. Furthermore, the majority of these new users in Malaysia, Indonesia and the Philippines were from non-metropolitan areas, a positive contribution to a narrowing of the urban-rural digital divide.

Southeast Asia is a center of gravity for many international actors who are adamant to integrate with the region’s digital developing ecosystems. Its highly connected and young population and growing economic weight means that the direction of Southeast Asia’s digital economy and technology posture will shape relations across and within the region. The Covid-19 crisis, however, has exposed a wide array of capacity divides within the region as well as within individual economies. Those individuals, businesses and industry sectors that don’t have the skills or access to digital technology are put at increasingly disproportionate disadvantage. The pandemic has also contributed to the further widening of pre-existing digital divides. Women in particular have been disproportionately affected as many are employed in the informal and ‘gig economy’ sectors which were hit hard by lockdowns. Rapid adoption of online services in retail, education and health etc. has further exposed more users to cybersecurity and online safety risks in an environment where practices of cyber hygiene is generally poor. There are growing gaps in protection of data as well as the region's diverse cyber laws and generally cybersecurity standards.

The economic toll on the region has made many to embrace the digital economy as a way to propel out from the Covid-induced stagnation. Southeast Asian countries share ambitious national digital agendas that collectively seek "to propel the region towards a digitally-enabled economy that is secure, sustainable and transformative". Some governments are pushing this ‘drive for digital’ integrated with ambitious Industry 4.0 strategies. At the regional level, in early 2021, ASEAN endorsed an updated Digital Master Plan 2025. Inclusive of an early assessment of the impact of Covid, the regional grouping reaffirmed their priorities to universal access to e-services, e-education and e-health, bringing down trade barriers and increasing digital literacy.

If the region is going to leverage digital transformation as part of its economic recovery, focus needs to turn to underdeveloped skills, particularly in traditionally under-resourced segments of the economy like SMEs, women and those in non-metropolitan areas. Our report suggests that Southeast Asian governments, industry stakeholders and international partners must prioritize enhancing the region’s skill sets to support a digitally-enabled workforce, to adapt to the changing nature of work and to help build a resilient society that has the skills to operate online securely and safely.

The digital transformation in Southeast Asia will continue because of, and despite, the disruption caused by Covid-19. While regions embrace the big leap forward, it needs to address the ever-growing cybersecurity risks and ensure digital inclusiveness. Millions of SMEs in particular, face significant barriers to access the digital services and risk missing out this digital wave. So, going ahead, the real question is how to get it right, particularly the more equal affordability and accessibility of the critical infrastructure.

* Le Thu Huong is a senior analyst at the Australian Strategic Policy Institute (ASPI), and a non-resident fellow at the Center for Strategic and International Studies (CSIS) Washington DC. She is a co-author of the recent report "Digital Southeast Asia". The opinions expressed are her own.