Despite the unprecedented challenges posed by the COVID-19 outbreak to the global economy, new economy sectors have grown even faster amid the pandemic. Because of the pandemic, we are living and working with increased reliance on digital businesses such as telecommuting and online shopping, a trend that has accelerated in ASEAN in particular.
Online streaming in Malaysia, Singapore and Vietnam during the "stay home" period surged by 60% compared to the pre-COVID level. Average mobile phone screen time in these countries was 4.2 hours per day, 1.2 times the level of global average, and that number was 5 hours for young people, according to a report released by the World Economic Forum (WEF) in June. Moreover, according to the latest Southeast Asia New Economy Report released by Facebook and Bain, online fresh food sales rose by 300%-400% during the pandemic, more than 80% of the consumers surveyed said they would continue to buy fresh food online even after the pandemic. 85% of the consumers surveyed said they tried new apps during the pandemic, many for the first time.
"The emergence of novel business formats in the new economy sector has accelerated business model transfor-mation and renovation during the pandemic, and we are increasingly using digital technology to gain access to more business opportunities including e-commerce, e-payments and online healthcare. At the end of 2019, the number of internet users in six ASEAN countries increased from 260 million in 2015 to 360 million. It is critical for us to fully capitalize on demographic dividends of ASEAN's internet population." said Wenjie Zhang, EVP and Co-head of Global Banking, HSBC China, during the session themed "Viewpoint: ASEAN’s New Economy" as part of 2020 HSBC China ASEAN Corridor Webinar Series held recently.
A Dual Push for Development of the New Economy by Consumers and Governments
According to WEF’s forecast, ASEAN will become the world’s fourth largest economy in the coming decade, with 70 per cent of its population joining the middle class and a consumer market worth US$4 trillion. Among that, the new economy will be a major theme. According to a joint report by Temasek and Google, among others, from 2015 to 2019, the new economy of six ASEAN countries (Indonesia, Vietnam, Thailand, the Philippines, Singapore and Malaysia) grew at a compound annual growth rate of 33%, with a total GMV (gross merchandise value) of US$32 billion in 2015 and a milestone that topped an unprecedented US$100 billion in 2019, accounting for 3.7% of the total GDP. The number is projected to rise substantially to US$300 billion by 2025, accounting for 8.5% of the total GDP.
"70% of ASEAN's population will become middle-class by 2030, which means we'll see a massive increase in the purchasing power of consumers. The growth rate of consumer spending is expected to return to 5% next year. The use of technology is becoming more and more widespread in the region, not only by business organisations but also by consumers, young and old. They are already making online purchases. So e-commerce stands to ben-efit." said Dato’ Wan Peng Ng, COO of Malaysia Digital Economy Corporation, during the webinar. ASEAN’s new economy is undoubtedly of immense potential. Local governments are embracing digital transformation by launching enabling policies.
On the regional level, the ASEAN Smart Cities Network was adopted at the end of 2018, with 26 member cities from the region. The network is mainly designed to create better living conditions for citizens of its member cit-ies and enable regional connectivity by leveraging digital and other technologies.
"Now the 26 leading ASEAN cities work together through the ASEAN Smart Cities Network to develop a series of demonstrators to adopt new technologies and to engage citizens. Each of the 26 cities within the network is un-dertaking pilot exercises in relation to citizen information, payment systems, and inter-operability. They are also developing broadly-based connected buildings and connected transport to contribute to IOT type outcomes." said Greg Clark, Global Head, Future Cities & New Industries, HSBC.
For example, the Vietnamese government just announced in June the National Digital Transformation Plan by 2025 and Directions for Development by 2030, which aims to accelerate the development of the country's digital government, new economy and digital society, while building globally competitive companies in the digital space. Vietnam plans to increase the weight of its new economy sector in the country's GDP to 20% by 2025 and to realize universal access to fibre-optic broadband and the 5G mobile network by 2030 when over 80% of its population will have e-payment accounts.
In addition, Thailand is actively pursuing the "Thailand 4.0" strategy, which is designed to build a "smart nation" through economic transformation with technologies such as 5G. In an interview in late May, Mr. Arthayudh Sris-amoot, Thailand's ambassador to China, said that Thailand expects to launch 5G services by the end of this year and will become the first ASEAN country to offer 5G commercial services.
"Governments in ASEAN are pushing for digital solutions, especially fintech, because they want to see more de-velopment in the banking and insurance sectors, to satisfy needs of the dispersed farming community in ASEAN. Digital technology has a bright future in the region, and this is also driven by both governments and consumers." said Chris Humphrey, Executive Director, EU-ASEAN Business Council.
Indonesia and Vietnam, Front Runners in ASEAN’s New Economy
The top six economies of the ten ASEAN countries are Indonesia, Vietnam, Thailand, the Philippines, Singapore and Malaysia. They have a combined population of the 570 million, making them not only the engine of the ASEAN economy but also a hotspot where the new economy is most vibrant. In 2015, there were only 49 million e-commerce users in the six ASEAN countries, and by 2019 that number rose dramatically to 150 million.
Of the six countries, the most promising one is Indonesia, ASEAN's most populous country with a total popula-tion of nearly 270 million and an Internet user base surging from 92 million in 2015 to 152 million in 2019. Over the same period, its new economy grew at an average annual rate of 49% and was valued at US$40 billion in 2019. The joint report by Temasek and Google, among others, expects Indonesia's new economy to surpass US$130 billion by 2025. It is particularly strong in e-commerce and online car-hailing.
"Since 2015, GMV growth of the overall Indonesian market is 500% in terms of e-commerce sectors. And in 2019, e-commerce accounted for 15% of FDI in Indonesia. For 2025, according to World Bank's forecasts, there will be US$53 billion in terms of e-commerce GMV growth in Indonesia. JD has been investing in Indonesia for many years. The country’s population and internet penetration make its digital economy a very compelling case. The consumers also have great purchasing power. Its growth potential is just like what China was like 20 years ago." said Andrew You, Director, INACHAMHK; Board Member IDHKBA, Former Head of B2B Solutions, Corporate Business Development, and Government Affairs, JD.ID.
According to Barnaby Robson, Partner Deal Advisory, KPMG Hong Kong, among all markets in ASEAN, Indonesia is 2-4 years ahead of others in the space of digital economy where e-commerce, e-payments and on-demand ser-vices are well-developed and widely used.
The second fastest growing market in terms of digital economy after Indonesia is Vietnam. According to the joint report by Temasek and Google, among others, Vietnam's digital economy has been growing at an annual growth rate of 38% over the past four years and was valued at US$12 billion in 2019. It is expected to reach US$43 bil-lion by 2025. The other four ASEAN-6 countries, namely Thailand, Malaysia, Singapore and the Philippines, are also growing fast in the digital space with annual growth rates of 20-30% since 2015.
On the whole, the biggest highlight of ASEAN's new economy is e-commerce in terms of both size and pace. Ac-cording to the said report, in 2019 the e-commerce GMV of the six ASEAN countries reached US$38 billion and is expected to skyrocket to US$153 billion by 2025.
In addition, ASEAN’s online car-hailing has been booming with distinctive features. The region’s online car-hailing platform was first launched to provide mobility services and was then extended to provide delivery and financial services, with the aim of creating so-called "super apps". The GMV of the online car-hailing platform across the six ASEAN countries has grown from US$2.9 billion in 2015 to US$12.7 billion in 2019, and is expected to reach US$40 billion by 2025.
Another highlight is mobile payment. According to the joint report by Temasek and Google, among others, the development of mobile payment has now reached an inflection point in ASEAN. The total volume of mobile payments in the six ASEAN countries was US$600 billion in 2019 and is expected to exceed US$1.1 trillion by 2025, which means US$1 out of every US$2 transaction in the region is settled by online payment.
"70% of Indonesia’s population in ASEAN still use cash on delivery. We believe this will change in the near future given the huge development of e-commerce and e-payment here." said Andrew You.
With a total population of 650 million, the ten ASEAN countries are at different stages of development and thus offer different opportunities. According to Greg Clark, HSBC’s Global Head of Future Cities & New Industries, in addition to Singapore, and dominant cities such as Kuala Lumpur and Jakarta, there is also a group of smaller capital cities that are now rapidly growing and shifting from traditional manufacturing hubs towards a more ad-vanced service and knowledge-oriented economy. Furthermore, there is a much larger group of cities where much of the population growth is now being contained. These are cities that are urbanizing for the first time, investing in primary infrastructures, and creating the consumers of the next 50 years, and producing a vibrant and dynamic market for new goods and services.
This has brought forth opportunities of Industry 4.0. Governments of Malaysia, Singapore, Thailand and Vietnam are now making a big effort to transform the manufacturing industry towards Industry 4.0. "In Malaysia, with ‘National Policy on Industry 4.0’, our government is looking to support manufacturers in using the Internet of Things and data analytics to understand how to better manage their supply chains and adopt new models of manufacturing. There’ll be a lot of opportunities coming out of that." said Dato’ Wan Peng Ng, COO of Malaysia Digital Economy Corporation
Huge Gap and Opportunities in Infrastructure Development
However, the promising new economy in ASEAN also faces some real problems. A major constraint is the infra-structure, which is holding back the new economy’s penetration in remote areas in particular.
Take Indonesia as an example. According to Andrew You, the country has more than 17,000 islands. So when developing e-commerce in the country, what matters is not just a focus on big data, logistics and e-payment. "In-donesia is actually a pretty big country, with three different time zones from east to west. We hope the govern-ment will invest further in infrastructure." said Andrew.
Despite the huge gap in infrastructure, Tokopedia, Indonesia’s e-commerce giant, is already focusing on opportu-nities in lower-tier markets where the company began to expand its business last year. William Tanuwijaya, its co-founder and CEO, said at the time that there were still 100 million people living in rural Indonesia without access to the Internet. But he also pointed out that this represents an opportunity to promote development by giving farmers and fishermen equal access to technological infrastructure.
According to Andrew You, it is not enough for companies to invest only in local digital platforms. They should also be encouraged to invest in the entire value chain such as local logistics and supply chain so as to contribute to the development of the region’s new economy.
"One of the areas where a lot of attention is being paid currently is on infrastructure development. There is an urban infrastructure investment gap and opportunity of about 2.8 trillion dollars. But there are many enabling mechanisms now to encourage private-sector capital to participate in that. Infrastructure development is at the heart of both the national and the local agendas in the ASEAN countries" said Greg Clark.
2020 is the Year of China-ASEAN Digital Economy Cooperation. At the opening ceremony of the kick-off event, Miao Wei, China’s Minister of Industry and Information Technology, said China will deepen cooperation with ASEAN in new economy sectors. Initiatives include data sharing of anti-coronavirus policies, measures, practices and solutions, 5G, IoT, AI and industrial internet, support for innovation, entrepreneurship and digital transfor-mation, development of smart cities and cybersecurity.
According to Wenjie Zhang, EVP and Co-head of Global Banking of HSBC China, besides traditional infrastructure, ASEAN is also investing in new types of infrastructure that first emerged in China such as the telecommunications infrastructure. In a region with a population over 600 million where local infrastructure is still underdeveloped, investments are much needed in areas such as the development of smart cities. So the ASEAN market offers great potential for further growth.
Over the past more than 150 years, HSBC has played an active role in ASEAN’s economic and infrastructural de-velopment. Today, the Bank has 200 banking outlets serving 30,000 corporate clients across 6 major markets in ASEAN. It has also set up China Desks in key ASEAN markets to help Chinese corporates achieve a new wave of business growth in the region by providing in-depth local knowledge and forward-looking insights.
2020 HSBC China ASEAN Corridor Webinar Series
Viewpoint: ASEAN's New Economy