20 February 2018

Asean’s digital economy key to unlocking growth

Can the 10-member bloc step up to the plate, whip up momentum to help the region realise its full potential?

By Tony Cripps, CEO of HSBC Singapore

First published in The Business Times, 20 February 2018.

Resilience and innovation. That’s the tag line for Singapore’s chairmanship of Asean this year. And both are very much needed if Asean is to achieve true integration in the form of a single market. Here’s the bottom line going in – while free trade in most goods and some services has been in place for over a decade, the seamless flow of corporate/trade payments and investments remains frustratingly elusive.

Businesses still face restrictions despite a 2015 blueprint mapping steps to eliminate barriers. Some tariffs continue to exist, and new non-tariff barriers have appeared even after the establishment of the Asean Economic Community (AEC).

Singapore’s vision is to build on Asean’s resilience, harness opportunities from disruptive technologies to innovate and make the region more competitive.

The plan is to create an environment that is conducive to freer trade and regional interdependence and establish a network of smart cities. This will power the digital economy, improve trade facilitation, encourage the ease of investment and strengthen ties with external partners.

Underpinning all these dynamics: Asean’s rapidly growing digital consumption market and the demands that come with it.

South-east Asia is the world’s fastest growing Internet region. Nearly four million new users will come online every month for the next five years. According to Deloitte, this translates into a user base of 480 million by 2020. Additionally, there are over 700 million active mobile connections in South-east Asia. That’s a large base. And it’s growing and it’s young (70 per cent are under the age of 40) and it’s increasingly middle-class.

Yet these consumers only spend USD30 billion online. Experts predict that spending could rise 6½ times or 500 per cent to USD200 billion by 2025, fuelled by consumption of electronics, clothing, household goods and groceries and by increased travel within the region.

Clearly, Asean economies stand to benefit from the potential of this flourishing digital economy. But for that potential to become a reality, changes must be made.

Singapore’s Foreign Minister Vivian Balakrishnan paints a vision of a single digital market that would have norms to guard “cybersecurity and yet enable cross-border transactions at very much lower transaction rates”.

And this brings us to the hot topic of integrated e-payments. A single interoperable payment system presents a huge opportunity to enhance intra-regional trade and business activity.

Once operational, an integrated Asean e-payments system would allow, say, a Singapore corporate to be able to pay its Indonesian supplier in rupiah by making a cross-border payment instantly.

Removing cost and logistical barriers to international payments is a major step towards unlocking Asean’s growth potential. Furthermore, if standards such as ISO 20022 are adopted to support this network, the AEC will be globally connected, facilitating the flow of trade and foreign direct investment with the rest of the world.

Digitising Trade Processes

Even greater benefits can be achieved if regional integration is paired with the adoption of disruptive new technologies (Industry 4.0, distributed ledger technology or similar). Like integration, adopting these technologies can potentially boost profits to the tune of between USD25 billion and USD45 billion by 2030.

More needs to be done to digitise the supply chain process and reduce non-tariff barriers. Regional schemes such as the Asean Single Window for customs facilitation and clearance and the Asean-wide self-certification scheme, are a start.

The same applies to Asean’s trade finance systems which are still heavily paper-based. The OECD estimates that the ‘hidden costs’ of trade – the manual processes underlying most transactions – can be as much as 15 per cent of the value of goods traded.

At HSBC, we process USD500 billion worth of trade a year. A team of over 4,000 people manually reviews millions of paper documents. This isn’t sustainable for staffing as well as from a cost or risk perspective.
Moving to a structured, transparent and fully digitised platform like distributed ledger technology concepts currently being tested would cut costs and improve trade facilitation.

In line with the digital economy, Singapore is proposing the development of an Asean smart cities network. The rapid pace of urbanization across Asia means cities have no choice but to become more organised and efficient.

The strain on transport, housing and telecoms and IT networks is evident. Infrastructure development is at the heart of all of this. Roads, ports, airports and telecommunications grids need to be built or retrofitted to handle increased loads.

HSBC estimates that USD2.1 trillion of infrastructure investment is required across Asean. Current budgets will cover only USD910 million.

Asean governments don’t seem to be deterred. Plans have been announced to increase infrastructure spending on large-scale projects, including high-speed railways and mass transit systems. Singapore alone has committed USD1.7 billion of investment in Smart Nation
and fintech initiatives.

Asean also looks to continue strengthening ties with its key external partners including China, the EU, India and the UK. In play – the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP).

RCEP is a trade pact involving all 10 Asean member states and six countries which Asean has free-trade agreements with. Negotiations have so far been slow. Since discussions were launched six years ago, only two chapters on economic and technical cooperation and on support for small and medium-size companies have been concluded. That’s out of 18 chapters listed in the outline.

Soft Infrastructure

Meanwhile, TPP has transformed itself into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP) after the US pulled out of it last year. 11 countries including Malaysia, Brunei, Vietnam and Singapore are set to sign the pact sometime this March.

Whether the accord has teeth or relevance now that the US has withdrawn remains to be seen. The general consensus is that members will still be better off with the CPTPP than without it. Singapore seems philosophical when it comes to these partnerships. “Whether RCEP or TPP, to us they are just multiple roads that lead to a larger destination,” Dr Balakrishnan said.

Establishing smart cities, deepening external ties, digitising trade processes, building integrated systems … that’s a lot of priorities for Singapore to push forward on the Asean agenda. Ideally, Asean would lay down a framework for all these initiatives to build on. But this isn’t a perfect world. And if one thing has to take precedence, it needs to be the digital economy.

Without investing in the region’s soft infrastructure and harmonising systems, Asean will lose its competitive edge in the global economy. Smart cities can’t be developed without embracing the technologies used to build the digital economy. And without a thriving integrated digital economy, the AEC would have less to offer to partners.

Asean’s young population and burgeoning middle class are driving the growth of the digital economy. It is not an initiative. The transformation of our citizens into digital natives empowered to use technology to enhance their personal and professional lives is happening right now. And it’s far better to be in the driver’s seat rather than to watch from the sidelines.


This article is issued by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch (“HSBC” or “we”) and published in The Business Times, 20 February 2018.

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Issued by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch.

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