Introduction:
The Role of Digitalization in Asia’s Growth
In the context of a global growth slowdown, fostering the adoption of technology and narrowing the digital divide is pivotal for enhancing overall productivity and economic output in the Asian region.
Context of Recovery:
Post-Pandemic Dynamics
Authored by Antoinette M. Sayeh, Era Dabla-Norris, and Tidiane Kinda on January 9, 2023, this analysis delves into Asia’s waning economic rebound from the pandemic, marred by tighter financial conditions, dwindling export demands, and a pronounced slowdown of China’s economy.
Wider Implications:
Long-Term Growth at Risk
Coupled with severe economic setbacks inflicted by the pandemic and a pre-existing lackluster track record in productivity growth, Asia’s long-term growth outlook is under duress. Yet, amid these challenges, a glimmer of hope shines through the digital realm—a sector where Asia has consistently held a vanguard role.
Digitalization’s Benefits:
Redefining Efficiency and Access
Digital technologies could enhance efficiency within public and private sectors, increase financial inclusion, improve educational opportunities, and enable firms to cater to remote clients, henceforth tapping into new market territories. For example, during the pandemic, digital distribution of medical and social welfare resources proved indispensable, allowing governments to provide timely aid while controlling expenditure leakage. The digital shift preserved economic resilience amid vast fiscal support, remote working arrangements, and online business models safeguarding workers, students, and companies.
Asia as a Digital Powerhouse:
Innovation at the Forefront
Asia has witnessed a robust expansion in its digital sector, spawning innovations ranging from manufacturing automation and e-commerce platforms to digital payment systems. The region’s share in digital and computer technology patents soared from 40% two decades ago to 60% pre-pandemic. As a manufacturing powerhouse, Asia leads global installations of industrial robots, with China accounting for approximately 30% of the market.
E-commerce giants like Japan’s Rakuten, China’s Alibaba Group, and Indonesia’s GoTo Group match revenues with international behemoths such as Amazon and Walmart. India pioneered a digital infrastructure known as “the stack,” integrating digital payments with identity verification to expand financial access. In nations like Bangladesh, Indonesia, and Vietnam, a burgeoning young population swiftly adopts new technologies, constituting a significant potential clientele for the digital economy.
Accelerated Digitalization:
Pandemic as a Catalyst
The pandemic catalyzed Asia’s digital transformation, with remote working and e-commerce patent applications experiencing a steep increase. Notably, Asia now claims nearly 60% of the global online retail market, with e-commerce in Vietnam, Indonesia, and India growing by 40%-50% in 2020, eclipsing most of the world.
This surge is credited to a gradual shift away from cash transactions towards digital alternatives, notably e-wallets and prepaid cards.
Mitigating The Digital Divide:
A Barrier to Progress
While Asia’s digital triumphs are noteworthy, a regional digital divide curtails productivity growth. Access to cutting-edge digital technologies is starkly uneven both within countries and across enterprises.
Small and medium-sized enterprises (SMEs) face significant barriers in accessing and deploying digital technology. Our recent paper highlights nearly half of SMEs in emerging and developing Asian economies and about a third of larger businesses mark financing as the principal obstacle to technology adoption. Low levels of digitalization coupled with difficulties in acquiring and applying new technologies rendered these enterprises vulnerable during the pandemic, struggling with remote work arrangements and online sales.
Technological Dissemination:
Bridging the Gap
The slow diffusion of technology from leading to lagging firms adds to the divide. A scarcity of digitally proficient labor, unequal access to digital infrastructure, and weak legal frameworks—encompassing inadequate data protection and intellectual property laws—impede information sharing and erode confidence in adopting new technology.
The divide also prevents workers from fully benefiting from and contributing to the new economy. For instance, only a quarter of Indonesia’s population utilizes the internet, marking one of Southeast Asia’s lowest penetration rates. In countries like Vietnam and Bangladesh, while internet access is cost-effective, connectivity is often sluggish.
Policy Pathways:
Fostering Inclusion and Skill
Bridging the digital divide among businesses, sectors, and workers will facilitate closing productivity gaps.
Our new paper focuses on the reforms needed to stimulate widespread innovation and digitalization, thereby enhancing Asia’s overall productivity and growth rates.
Strategic Reforms:
Empowering Change
Key reform areas should include:
- Strengthening Digital Infrastructure: Improving access to information and technology in all countries.
- Enhancing Digital Literacy: Many nations need to bolster digital literacy and skill the youth workforce to meet employers’ demands.
- Easing SME Finance Constraints: Alleviating financing constraints faced by SMEs to foster the adoption of new technologies. Expanding financing avenues would incentivize innovators to launch new products.
- Simplifying Regulations: Streamlining regulations in line with the evolving digital sector, reinforcing the legal environment, including data and intellectual property protections, and promoting digital trade are steps that could promote technology adoption.
Asia stands poised to continue its trajectory as a leader in digital innovation. Promoting equitable access to technology for businesses, sectors, and workers will enable the region to reap the full benefits of digitalization-induced economic growth.
