Southeast Asia’s digital landscape is characterised by a fast-growing digital economy, which has gone from relatively small volumes in 2015 to hundreds of billions of dollars in Gross Merchandise Value (GMV) within less than a decade, maintaining double-digit growth. This economic opportunity is driving increasing investor confidence in the region. In a study by the Global Impact Investing Network, investors are planning to increase allocations in Southeast Asia over the next 5 years: 49% from global investors, and 51% from Asia-focused ones.

In particular, investors in Southeast Asia are racing to capitalise on the significant value creation potential in the region. Nearly US$ 30 billion has been poured into AI-related investments in the first half of 2024 alone, particularly in Singapore, Malaysia and Thailand. Much of this is in the required infrastructure, such as data centres, in supporting the development and adoption of AI solutions. Early estimates project that AI could contribute as much as 10-18% of the regional GDP,  or equivalent to US$1 trillion by 2030.

However, there remain challenges to Southeast Asia’s digital transformation journey.  Countries are in varying stages of readiness and are taking different policy approaches. In this context, there are discussions around the need to regionally harmonise the various dimensions of the region’s digital governance to unlock the potential of Southeast Asia’s digital economy.

At the 103rd ASEAN Business Advisory Council meeting, the Tech for Good Institute (TFGI) briefed attendees on key digitalisation initiatives across South-East Asia. The discussion explored how these initiatives could help transform the region into an innovative, investable and inclusive digital ecosystem. More importantly, the briefing highlighted what key digitalisation initiatives would mean for businesses in the region.

Key Takeaways:

1. Digital integration initiatives present an opportunity to craft a regulatory environment that allows businesses to continue contributing to regional economic growth.

The ASEAN Digital Economy Framework Agreement (DEFA) is a landmark initiative for achieving regional harmonisation in the context of digitalisation. The digital integration efforts across the 9 core components are expected to enable the growth of ASEAN digital economy. This can potentially double ASEAN’s digital economy value to US$2 trillion.

This is especially significant for the private sector. For example, by having policy alignment for cross-border e-commerce, data protection and privacy, and cooperation on emerging technologies, DEFA could potentially save various costs relating to compliance, logistics, fulfillment and data-storage. A clearer, more consistent regulatory landscape would also reduce uncertainty for firms operating in multiple jurisdictions. Finally, region-wide standards and knowledge-sharing would help governments and businesses in coping with the fast-paced nature of technology development.

2. Forward-looking governance ensures relevant and responsible deployment of emerging technologies, including artificial intelligence (AI).

Another key digital initiative is the recently released ASEAN Guide on AI Ethics and Governance, which provides practical guidance on the different traditional applications of AI, whether in governments or businesses. This also enables responsible AI deployment by framing the key principles for AI design in response to common ethical challenges.

Implementation, however, can be hampered by adoption costs, lack of the right talent, and discrepancies in organisational readiness. To address these challenges in AI deployment, businesses will need to focus on continuous AI skill development and cross-sectoral collaboration to shape AI governance. AI adoption and readiness in the region is at varying levels: the SEA-6 countries are rated above the global average on the 2024 Government AI Readiness Index, scoring between 58.51 (Philippines) to 84.25 (Singapore). This demonstrates that AI is quickly becoming a priority for Southeast Asia, as regulations evolve to maximise the opportunities it brings.

There also needs to be a focus on agile, scalable and fit-for-purpose AI applications over complex models. An example of this is Singapore’s large language model (LLM), the Multimodal Empathetic Reasoning and Learning in One Network (MERaLiON), with enhanced multilingual processing and emotional intelligence. The LLM accounts for the region’s cultural diversity with its ability to process the different Southeast Asian languages (Malay, Tamil, Thai, Bahasa Indonesia, Vietnamese, English, Mandarin and Singlish). It is also touted to have advanced code-switching abilities and emotion recognition features, ensuring culturally aware AI applications.

3. Ensuring secure and efficient cross-border data flows is critical for digital economy growth.

Data is a key feature of any digital economy initiative, allowing companies to reach various markets. Hence, ensuring secure and efficient cross-border data flows is now a fundamental need for businesses. By achieving this, businesses can potentially reduce the computing costs typically associated with data localisation. Cross-border data flows also foster innovation through the use of data to personalise offerings across borders; and guard against cyber threats through practices such as sharding.

ASEAN’s strategies in this aspect are evolving, covering enhancements to existing personal data protection policies as in the case of Malaysia, updated national cybersecurity strategies for countries like the Philippines and Vietnam, and initial guidelines on cross-border data flows through the ASEAN Model Contractual Clauses for Cross-Border Data Flows.