By Ming Tan, Senior Fellow & Founding Executive Director; and Fairoz Ahmad, Programme Fellow at Tech For Good Institute.
On 24 October 2025, the ASEAN Economic Community Council announced the substantial conclusion of the ASEAN Digital Economy Framework Agreement (DEFA) to boost the region’s trade, potentially doubling the region’s digital economy. At the same time, only 71% of Southeast Asia’s population is currently online, with a significant range in quality of access across ASEAN Member States (AMS). Central to the economic integration ambitions for ASEAN lies the question: Is a US$2 trillion digital economy possible without leaving 150 million people behind?
The statement issued by the ASEAN Economic Community Council (“AECC Statement”) highlights how DEFA negotiations built on existing ASEAN efforts, such as in the area of advancing digital trade. Forward-looking provisions in emerging areas such as cooperation in artificial intelligence and online safety were also introduced. These two principles, of leveraging existing progress and future-proofing the framework agreement, were articulated as guiding principles at the launch of negotiations. Other principles included an “Impact First” approach to boost growth, well-being and resilience, and a commitment to inclusion. The latter is particularly important given the socio-, cultural- and economic diversity of the region. Collectively, these principles recognise that unlocking economic potential serves goals greater than market interoperability or attracting investment, but also to ensure that inclusivity is “mainstreamed” into ASEAN’s economic integration endeavours. For substantial and sustainable growth for all AMS, innovation is an essential lever when applied with intentionality for inclusion.
That innovation is good for the economy is not in dispute. In the first half of this decade, technological advancements have underpinned significant global growth, driven in large part by the “Magnificent Seven”: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. In Southeast Asia (SEA), the region’s digital economy has similarly flourished, driven by e-commerce, digital financial services, transport, travel and online media. Technologies such as AI, climate tech, and digital finance are already transforming lives—from digital lending platforms serving the previously unbanked, to community-mapped navigation systems built by and for SEA riders and drivers. This year’s Nobel Prize in Economic Sciences honoured scholars Joel Mokyr, Philippe Aghion and Peter Howitt for their work on how innovation enables sustained economic growth, as well as on the need to manage the creative destruction that ensues. Innovation does not guarantee inclusive outcomes; in fact, it can catalyse conflict if the benefits of growth are unevenly distributed.
Balancing Trade-offs
For DEFA to succeed in driving inclusive growth, ASEAN leaders and the market must balance four strategic trade-offs inherent in digital transformation:
Digitalisation has democratised access to information and opportunity. Despite these benefits, the digital divide continues to reflect, and many will say, exacerbate inequalities between rural and urban communities, between men and women, and between mature and emerging economies. The AECC Statement stressed the importance of ensuring that “the benefits of digitalisation are accessible to all.” Disparities in digital readiness are still a major barrier to inclusion. Infrastructure gaps are only part of the challenge; digital literacy, affordability, and cultural relevance must complement connectivity to bridge these divides.
To this end, the ASEAN Connectivity Strategic Plan adopted in May 2025 is instrumental in mobilising resources to support national implementation for last-mile digital infrastructure, not just for connectivity but also for digital public infrastructure such as digital IDs and payments. The Plan also highlights the importance of including micro, small and medium enterprises (MSMEs) in the digital economy and building digital literacy. Such broad-based skilling can complement the Talent Mobility Cooperation elements of DEFA, which are likely to focus more narrowly on highly skilled digital talent.
While market inefficiencies can reveal opportunities for innovation, populations most in need of inclusion are often the least commercially viable. Even if a technical solution were feasible, the cost of operationalising the solution for specific, remote or small segments of the market may not make economic sense. Technical capability must be paired with creativity in new business models, such as finding value in operational or transactional data rather than relying purely on fees or sales. Digitally-enabled platforms are an example of business model innovation, which has transformed the delivery of both public and private services. Financing innovation, such as blended finance and public-private-philanthropic partnerships, can also bridge commercial viability gaps. For instance, the collaboration between the Mastercard Center for Inclusive Growth and &frnds, supported by Microsoft, brings philanthropic funding, local expertise and technology together to serve MSMEs. Beyond business model and financing innovations, targeted policy interventions may also be needed. These include subsidies for resource services to underserved populations or regulatory mandates for inclusion incentives. Digital public infrastructure and open data are foundational platforms for competitive innovation that is available to everyone, not just those who are profitable to service.
Inclusive growth requires both scale to reach large populations of underserved people efficiently and specificity to meet the unique needs of marginal populations like people with complex disabilities. This is particularly pertinent in a region such as SEA, home to more than 100 ethnic groups speaking 1,200 living languages and dialects. Yet, English dominates 50% of all Internet content, while Bahasa Indonesia and Vietnamese each account for about 1%. The rest of Southeast languages account for even less than 1%. In the age of AI systems trained on massive datasets, smaller populations risk becoming statistically invisible—their languages unsupported by large language models or their contexts unrepresented in training data. Local innovation ecosystems are critical enablers to solutions relevant to specific market contexts while maintaining pathways to broader adoption. Moreover, innovation that works is often not sufficient to drive trusted adoption. Here, SEA’s digital ecosystem can build on the success of its many online-offline hybrid models. In financial inclusion, agent networks help first-time users navigate mobile wallets, build confidence and access support in real time. In agriculture, agri-extension workers help farmers interpret digital advisories, apply new techniques and troubleshoot local issues. In healthcare, telemedicine platforms are often paired with community health workers or in-person clinics to ensure continuity of care and follow-up. Social and community networks, together with open government data, can serve as essential levers to encourage adoption and innovation.
Confident adoption of new technologies requires users to trust both the providers of the solutions and the institutions that govern them. A common refrain from investors and innovators is that policymakers are too cautious or too slow. Premature regulations without a clear visibility of potential harms may disincentivise innovation, causing companies to move to friendlier jurisdictions. At the same time, today’s innovation is not just accelerating in speed but at scale. It only took two months, for example, for ChatGPT to build a user base of 100 million users. Once consequences are apparent, they are often widespread and consequential, with market power entrenched and public trust eroded. Belated attempts at governance thus become “expensive, difficult and time-consuming” to implement. Policy, however, can support innovation and its adoption through agile governance with transparency, proportionality, and an outcome-focused approach. Initiatives such as pilots and sandboxes can foster regulatory learning, while technical standards may span jurisdictions to support interoperability and safety.
The Kuala Lumpur Declaration on ASEAN 2045 calls for an ASEAN that is “resilient, innovative, dynamic and people-centred.” Achieving this vision requires moving inclusive growth from a policy aspiration to the primary design parameter to catalyse innovation across technology, business, financing, community development and policy. The tensions between innovation and governance, scale and specificity, or speed and safety are real, but they are not incompatible. We can pursue both simultaneously with innovation levers across technology, business model, financing and policy domains. Each lever can support policymakers, investors and innovators to ensure that waves of creative destruction and economic transformation ultimately benefit society, improve well-being and build resilience for our shared future. DEFA’s success will be measured not by the digital economy’s headline valuation, but by how many of SEA’s 680 million people actively participate in and benefit from that growth.
