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Southeast Asia to reap dividends from expansion of digital space: ADB

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SOUTHEAST ASIA is among the regions seen to gain the most in the expected surge in the digital space, the Asian Development Bank (ADB) said, but this would require huge investments and good management of risks.

James P. Villafuerte, a senior economist at the ADB Economic Research and Regional Cooperation Department, said in a webinar on Tuesday that their estimates showed a 20% growth in the digital sector from the 2020 baseline, which could boost Southeast Asia’s gross domestic product (GDP) by $378.2 billion in 2025 and by $853.2 billion in 2030. These are equivalent to 11.1% and 25.1% of the current regional output, respectively.

“The Pacific Central Asia and Southeast Asia are actually the sub-regions experiencing a large impact on GDP. Mainly, this reflects the fact that digital connectivity is actually a very effective means of managing some of these geographical challenges. They also reflect the increasing role of digital productivity in pushing services exports, as well as the large impact of the introduction of a greater digital sector on productivity for economies with very low income,” Mr. Villafuerte said.

His presentation showed tech’s GDP impact for Central Asia is at $133.7 billion in 2025 to $241.3 billion in 2030, or 9.4% and 19.5% of its GDP, respectively.

Mr. Villafuerte said the study measures the economic impact of the expected surge in the digital space if the sector will grow faster after the pandemic as demand grows to minimize physical contact.

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The estimates were based on two scenarios: in the medium-term, if digital platforms will grow 20% higher than expected between 2020 and 2025; and over the long term, if the sector will post a growth of 25% higher than expected starting 2025 to 2030.

In Asia and the Pacific, he said the output will increase by $2.7 trillion in 2025 and by $5.6 trillion in 2030 (9.4% and 19.5% of GDP, respectively).

“However, there’s a huge investment requirement to realize this digital transformation dividend,” Mr. Villafuerte said.

“It will not come automatically. Many countries in the region probably (need to) increase that not necessarily double but increase their investment in telecommunications and ICT sector quite significantly,” he added.

Southeast Asian countries will have to invest a combined $89.2 billion until 2025 or $169.8 billion by 2030 to realize the projected gains. Meanwhile, the broader Asia and the Pacific region might need to invest $472 billion in the next five years and $856.5 billion in a decade.

The study also looked at the sector’s role in boosting employment, with jobs in Southeast Asia seen to increase by 13.6 million in 2025 and 26.3 million in 2030.

The digital expansion could also push global trade, with that of the region seen rising by $263.4 billion in trade value in the next five years and by $581 billion by 2030.

“In Southeast Asian economies, I can see the opportunities because the market is there, the population is there so automatically to invest in some of the Southeast Asian economies but somehow we need basic infrastructure and here where the role of the government [comes in],” said Muhamad Chatib Basri, chairman of PT Bank Mandiri Tbk and PT XL-Axiata Tbk, who was one of the panelists in the webinar.

Mr. Villafuerte said the projected expansion of the digital sector also entails risks and challenges that will have to be mitigated, such as the high concentration in digital industries that may result in a single big winner, as well as concerns on data security.

He added online jobs are only temporary and are barely covered by social security protection measures, cybercrime and identity theft instances could surge while inequality can widen because of the widespread digital divide. Countries will also have to be prepared for digital penetration.

“Another concern, especially for the government, is that despite the huge profit generated by these technological companies, there is a practice of base erosion and profit shifting, which is affecting the fiscal sustainability of many governments, considering that they are actually spending a lot of money in terms of macroeconomic fiscal stimulus,” he added.

“While we presented a huge economic dividend from digital transformation, these are actually not automatic, there’s so many institutional policies and infrastructure improvements that need to happen so that these aggregated levels of impact can be realized. What we wanted to show in this analysis is that if we are able to make this improve governance and infrastructure and invest in our skills, there’s a huge dividend that can be realized and shared in the members of society,” Mr. Villafuerte said.

The study is part of ADB’s upcoming report “Making Digital Platforms Work for Asia and the Pacific” that will be published in February 2021. — B.M. Laforga

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