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The Future Digitalisation of Southeast Asia’s Economy

Southeast Asia represents the world’s fastest growing internet market. The digital economy alone could add as much as US$1 trillion to regional GDP over the next decade. This contribution goes well beyond e-commerce giants like Lazada or social media platforms such as Facebook and Instagram. It doesn’t matter which industry you look at, from power and energy through to agriculture, every sector is seeing a growing use of digital tools and technologies – digitalisation is connecting a data-driven future, unlocking huge opportunities for the global economy.

What does digitalisation mean?

The scope of digitalisation is a spark of opportunity that runs through almost every aspect of the global industry. In its most basic form, digitalisation could simply be using a new application to make business processes simpler and digitised. At its most complex, digitalisation could mean a connected, smart infrastructure of sensors and automated machines to create an integrated smart manufacturing system. That includes the connected internet of things (IoT) infrastructure that unlocks a future of smart cities, smart agriculture, and smart connected industry.

Image credit: Jason Quah/ TODAY Singapore. Feinmetall Singapore Facility

Feinmetall’s factory in Singapore saw a 10% increase in productivity in 2016, just a year after automated machine processes were introduced after the company faced difficulties in hiring skilled workers. Far from nudging existing employees out the door, integrating automation into manufacturing processes boosted employees’ wages by 4-8% that year. These are just a few examples of the much wider potential that digitalisation offers to all industries.

Investing in digital opportunity

With the entire world going digital, it’s a no-brainer that digital transformation is a must for all nations to remain competitive in the increasingly connected global landscape. It’s not just a matter of ‘increasing efficiency’ and ‘maximising profits’. The World Bank has made it clear that while digital transformation generates value for business, it also unlocks substantial benefits for society by creating jobs, creating a safer environments for workers, growing the median income, reducing harmful emissions, and a whole host of other societal benefits.

Digitalisation is unlocking huge opportunities for the global economy

Building the right infrastructure to begin this transition in full will require both the hard infrastructure to develop digital networks, as well as softer infrastructure of talent and workforce empowerment. To this end, governments worldwide need to step up in two areas, reskilling the nation’s workforce and investing in grid infrastructure so that it can handle the growing weight of digitalisation.

Connected digital infrastructure such as broadband and emerging 5G networks will be an essential backbone of digital opportunity. Our reliance on digital and virtual operations became even more pronounced during the COVID-19 pandemic. Recently, the Malaysian government, taking the right steps in preparing for the digital future, announced an acceleration of the RM3 billion ringgit National Fiberisation and Connectivity Plan as part of its COVID-19 response. This programme is designed to provide high-speed internet across the country, and will be critical to unlocking the value of digitalisation.

Support for businesses looking to kickstart this transition will also be important, particularly for SMEs. The US$3.1 trillion value for Asia Pacific’s SMEs will only be realised with appropriate incentives. Singapore has an impressive history of empowering digital businesses, a major factor in the country being ranked first in Cisco’s Digital Readiness Index. The recent enhancement of the country’s SMEs Go Digital programme as part of its Fortitude Budget boosts funding support for digital transformation. Similar measures are being adopted across the region.

E-commerce is a particularly exciting area of opportunity for Southeast Asia’s economy. Consumers in the region spent US$125 billion online in 2018 according to research by Facebook and management consultants Bain & Company and that figure is expected to triple by 2025 to reach US$390 billion. In 2018, over 90% of Southeast Asians connected to the internet primarily through their smartphones. This growing connectivity is ushering in a whole new world of opportunities for e-commerce players.

Guiding digital transformation

Digitalization is inevitably going to bring with it a period of work disruption. A survey of 56,000 Southeast Asian respondents, aged between 15 and 35, revealed that over half (52.4%) believe they will need to upgrade skills constantly in the workforce of the future. The three most important skills cited by respondents in preparing for this remarkable digital future were innovation, language skills, and the ability to use technology. These are the foundations on which a future-ready, digitally-driven economy will be built.

Businesses and government will have to work together to support the workforce through this transition. Digital technology will permeate across all areas of industry, from the smallest mamak adopting e-payment technology through to oil and gas players using complex industry analytics to drive efficiencies.

Image credit: Mohd Khairul Helmy Mohd Din/NSTP

While some jobs are more vulnerable than others, champions of this transformation argue that the true scope of digital opportunity is about transitioning workers away from low-skilled work. The aim is to reduce the burden of monotonous tasks and unlock a future of high-skilled and digitally-enabled employment. This transition will require training, retaining and upskilling support by governments. Singapore for example has introduced the SkillsFuture Singapore initiative, designed to provide life-long learning that helps workers evolve to adopt new skills.

Leaders need to recognise digitalisation as the inevitable paradigm shift that it is before it’s too late

Government support and funding initiatives are fundamental for businesses to make the most of digital opportunity. Digital transformation happens by actively identifying areas of opportunity, leveraging the support available to transform, and upskilling the workforce to adapt to that transformed environment. With the right leadership and guidance from governments, benefits of digitalisation will be both widespread and abundant – higher wages, happier workers, increased productivity and larger profit margins are all within reach.

Transforming culture will be an important part of this; adopting a digital-first mindset that champions the value of digital transformation. Research has indicated that 80% of companies that focus on culture sustained strong or breakthrough performance on their digital transformations. On the flip side, 0% of companies that neglected culture change achieved similar performance. Leaders need to recognise digitalisation as the inevitable paradigm shift that it is before it’s too late.

Powering the future

A final consideration threading through this digital opportunity is the question of power. Whether it’s powering a smartphone or powering up a factory, digital technologies require electricity to operate.

It’s not just powering connected devices, but the data architecture that underpins it. Currently it’s estimated that between 5%-9% of the world’s total electricity consumption relates to the wider information and communications (ICT) technology industry. With the growing penetration of digitalisation across our economies, that could potentially grow to 20% by 2030.

The good news is that just like in the wider economy, digital technologies are unlocking a new future in smart power infrastructure. The team at Energy Watch will explore what this means in the second part of this series.

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