Leveraging the Rise of Digital Economy for Sustainability

The ASEAN region is witnessing the rise of the digital economy. This is being driven by the high penetration of mobile devices, the steady growth of middle-class consumers, and a relatively young and productive population. Buoyed by these trends, the region’s digital economy growth can be twice as fast as the region’s gross domestic product (GDP) reaching up to US$1 trillion in gross merchandise value (GMV) by 2030. While the impacts of the digital economy on the region’s growth are apparent, there is an emerging discourse that links sustainability with digitalisation. Some evidence shows that ASEAN can leverage the rise of the digital economy not only for growth but also for a sustainable future. 

The concept of sustainability can be defined by three dimensions: profit, people, and the planet, frequently summarised as the “3Ps”. Many studies about the rise of the digital economy in ASEAN have focused much on the first P: profit. These usually include projections of the value, market size, opportunities for future expansion, and the growth prospects of their countries arising from the digital economy. Driven mainly by regional businesses and industries, regional policymakers have sought to harness the benefits of the digital economy to realise a seamless digital trade ecosystem. By doing this, the region will become more attractive for investments and ultimately realise its regional economic integration vision.

The discourse on digitalisation and the second P: people, is increasingly popular, particularly among development partners, governments, academic communities, and civil society in the region. The digital economy presents significant opportunities for countries in the region to improve human development. For instance, the rise of edu-tech platforms has helped regional governments to revolutionise education, making it more accessible and affordable. Online learning platforms can provide access to a wide range of educational resources to people who cannot afford the high costs of traditional higher education. Digital health technology, such as telemedicine, has proven effective in providing health services during COVID-19, particularly for people living in remote or underserved areas.

The digital economy can boost productivity, increase incomes, and improve livelihood by creating employment opportunities and enabling business expansion. According to a study by the Tech for Good Institute in 2021, more than 60% of driver-partners across Southeast Asian countries have experienced an increase in personal income after joining the ride-hailing platform Grab. The study also found that eight in 10 digitally-enabled food and retail micro, small and medium-sized enterprises (MSMEs) reported that they could reach more customers after joining digital marketplaces. Digitalisation has helped them in keeping transaction records, thus building their credit score and improving access to finance. 74% of MSMEs with digital loans in the study claimed that they were previously unable to get financing from banks or conventional lenders.

However, despite some positive evidence for the people, the rise of digital economy also possesses some threats such as job displacement for those employed in low-skilled and routine-based industries. This can have a disproportionate impact on marginalised communities that may lack the skills or training necessary to adapt to new roles in the digital economy. There is a need to ensure technology like high-speed internet and electronic devices are widely available for disadvantaged communities to ease the digital divide and lessen inequality. In addition, the jobs offered in the digital economy sector are sensitive to economic headwinds. Recently, the region has seen a string of layoffs in the tech industry that are impacting vulnerable workers without adequate social protection.

While conversations on the digital economy have surrounded the economic and social development impacts, more dialogue is needed to advance the third P: the planet or environment. According to the World Economic Forum, digital technology can help to cut global greenhouse gas emissions (GHG) by 15%. The rise of the digital economy has the potential to contribute to sustainability in many ways. For instance, from the consumption point of view, e-commerce and online purchasing can lessen the need for physical storefronts and reduce energy use and waste production. Digital communication tools like video conferencing can also reduce the need for business travel. This can significantly reduce carbon emissions.

From the production side, the adoption of emerging technology services such as precision agriculture, smart grids, and energy-efficient buildings can help improve resource efficiency while boosting economic productivity. The digitalisation of business operations can help to facilitate sustainable supply chains, and assist industries to monitor their business risks and suppliers efficiently. At the same time, rapid digital economy adoption can have an impact on infrastructure sectors that produce significant GHG emissions, particularly the power generation sector and logistics. The energy needed to power (and cool) data centres, for instance, is massive. The use of fossil fuels like coal and gas to power these data centres can contribute to climate change. Similarly, while the digital economy can help businesses to decarbonise their operations, the need for logistical services like warehousing and shipping services will only increase, thus still releasing a vast amount of GHG emissions.

What Can ASEAN Do?

The latest scientific report by the Intergovernmental Panel on Climate Change (IPCC) concludes that climate change has already caused widespread and substantial losses to almost every aspect of human life on this planet, and the impact on future generations depend on the choices which are being made now. Being one of the most vulnerable regions to climate impacts, ASEAN must rethink its growth strategies in the long term and take a sustainability pathway for its future development. As the evidence shows, the rise of digital economy is a double-edged sword: it can trigger sustainable practices but can also drive more consumption that has negative impacts on the planet.

Currently, ASEAN is spearheading the ASEAN Digital Economy Framework Agreement (DEFA) to prepare ASEAN to be a leading digital economy. In addition to harmonising digital trade regulations to enable the regions’ businesses to tap revenues from the regional consumer markets, ASEAN needs to ensure the agreement includes rigorous sustainability components. Embedding climate disclosure and transparency in the agreement and prioritising sustainable goods and services to be traded regionally will help to send a strong signal that the region is committed to sustainability practices.

It is time for ASEAN to collaboratively craft its digital economy vision while realising its economic integration and sustainability goals. Rather than building data centres and warehouses in every locality and compete for investments, ASEAN countries should think about creating a collective network of regional logistic centres to pool their resources together and streamline shipping processes. This option will not only allow ASEAN countries to address inefficiency, but also reduce carbon footprints.

The rise of the digital economy has opened up a rare window of opportunity for ASEAN. It would unleash the region’s economic growth and ensure its future sustainability and economic integration. ASEAN should seize this opportunity.

Editor’s Note:
This is an adapted version of an article from ASEANFocus Issue 1/2023 published in March 2023. Download the full issue here.