Originally published in Advancing ASEAN in the Digital Age Book, 14 November 2017.

Malaysia Embraces the Digital Age

The advent of mobile apps and e-commerce platforms have disrupted traditional business models and transformed consumer preferences. Modern consumers are turning more and more to online shopping over conventional retail outlets. Given that this trend coincides with a high digital penetration in Southeast Asia and the need for fast and easy transactions, it is no surprise that demand from consumers for technological services and apps is growing.

ASEAN is no exception to this trend. It is estimated that one quarter of the ASEAN population is already shopping online today. According to a report published by Google in May 2016, Southeast Asia is already the world’s fastest-growing Internet region with a user base expected to grow from 260 million today to 480 million by 2020.

ASEAN’s youthful population and expanding middle class are contributing to the growth of e-commerce in the region. With strong and vibrant economies, favourable demographics, ICT investments and ongoing economic integration, ASEAN has the potential to become a global leader in the digital economy with the right planning and approaches and the necessary coordination.

Increasing Internet penetration and increasingly digitally-empowered consumers – with computers, tablets and smartphones – present unprecedented opportunities for ASEAN businesses to serve customers globally, while online shopping creates new opportunities for ASEAN SMEs in cross-border transactions.

Driven mostly by a growing base in the e-commerce market, online media and online travel, the Internet economy in ASEAN is projected to grow up to US$200 billion by 2025. ASEAN’s transformation into a digital economy powerhouse will boost economic growth and propel the region towards becoming the fourth-largest economy in the world by – according to some estimates – as early as 2030.

Currently, there are several ASEAN initiatives to promote the digital economy, such as the ASEAN Strategic Action Plan for SME Development 2016-2025; the ASEAN ICT Masterplan 2020; the 2025 Master Plan on ASEAN Connectivity; and the ASEAN Strategic Action Plan on Consumer Protection 2025. They include efforts to promote digital trade and the use of electronic payments, to simplify customs procedures, improve Internet access, develop ICT infrastructure, enable transport connectivity, and harmonise e-commerce laws.

As e-commerce and other initiatives relating to the digital economy have been identified as a potential key priority for ASEAN next year, one outcome we can look forward to is the signing of an ASEAN Agreement which is expected to harmonise measures such as facilitating cross-border e-commerce, electronic payments, logistics and transfer of information.

Nonetheless, the existing initiatives are not enough for ASEAN to leapfrog into the ranks of the global digital elite economies. According to a study undertaken by A.T. Kearney, there remains a significant digital divide within ASEAN, while countries in the region also face challenges in building out broadband, in regulations inhibiting innovation in mobile financial services and e-commerce, in low consumer awareness and trust, in the fact there is no single digital market, and in the limited supply of local content being produced by a weak local digital ecosystem.

It is important to note that the growth of e-Commerce is reflective of a broader trend, with new opportunities being created by the technological advances and innovation that constitute the Fourth Industrial Revolution. This will affect all aspects of the global business ecosystem, from how supply chains are managed to people-to-people interaction.

In order for Malaysia to remain relevant and competitive in this digital era, we need to make sure that our human capital is well trained and ready to embrace and adapt to new technology and employment. The Fourth Industrial Revolution should provide Malaysian manufacturing industry the opportunity to move up the value chain, from the “middle development” stage to a more productive, value-added and knowledge-intensive stage.

Malaysia established the National e-commerce Council (NeCC) in December 2015 to accelerate the growth and development of e-commerce in the country. The Council acts as the platform to guide the governance and implementation of the National eCommerce Strategic Roadmap (NeSR) involving 25 key Ministries and agencies.

Meanwhile, the implementation of the Digital Free Trade Zone (DFTZ) – the world’s first – beginning in October 2017 will provide a highly conducive environment for companies anchored in the internet economy to carry out business and export their products and services. There has been very positive interest and much excitement among both local and international e-commerce players about the opportunities the DFTZ will afford once it starts to be implemented.

To kick-start the pilot phase of DFTZ at KLIA Aeropolis, Malaysia is collaborating with e-commerce giant Alibaba. Leveraging Alibaba’s Electronic World Trade Platform (eWTP) that helps SMEs overcome complex regulations, processes and barriers, DFTZ is the first regional eLogistics hub in Southeast Asia, and it is expected that by 2018 the eCommerce ecosystem will be attracting increasing numbers of local and global players who will want to be a part of DFTZ.

In other areas, the Malaysia Digital Economy Corporation (MDEC) is working on creating and supporting new digital hubs, and there are already three MSC Malaysia Cybercities that meet the standards of international hi-tech investors, including Cyberjaya, Mid Valley and Bangsar South.

To ensure our efforts to promote the digital economy are truly inclusive, the eRezeki and eUsahawan initiatives were launched in 2015. The eRezeki programme is aimed at B40 households, helping them to find new ways to earn income, while the eUsahawan programme aims to develop a generation that embraces the Digital Economy by incorporating digital entrepreneurship skills into the curriculum of Technical and Vocational Education and Training (TVET) institutions.

MDEC launched #mydigitalmaker movement, an initiative in partnership with the Ministry of Education (MoE) to aid the integration of Computational Thinking and Computer Science into the formal school curriculum; as well as facilitating industry and universities to help nurture and groom talented young digital makers through extra-curricular activities.

MDEC is also collaborating with Human Resources Development Fund (HRDF) Malaysia for the development of programmes on critical ICT skills. This is part of the Digital Talent Strategic Intervention Roadmap, which is to designed to create a sustainable industry-led development model.

All of the above should help us reach the target under the 11th Malaysia Plan (2016-2020) for the digital economy to contribute 20 percent of GDP by 2020, while our E-commerce Strategic Roadmap also aims to double e-commerce growth from 10.8 percent to 20.8 percent by 2020.

This Government is very aware not just of the potential from the digital economy but of the necessity to do all we can to prepare ourselves and to be leaders, not followers, in the Fourth Industrial Revolution.

This Government is very aware not just of the potential from the digital economy but of the necessity to do all we can to prepare ourselves and to be leaders, not followers, in the Fourth Industrial Revolution, which is why in late 2016 I also called for the cost of fixed broadband to be halved, the internet connection speed doubled, and for 2017 to be our “year of the internet”.

In conclusion, with more than 630 million people living in ASEAN and with more than half of the population under the age of 30, there is massive potential for ASEAN. ASEAN therefore needs to continue developing its internet infrastructure in order to enable the full participation of businesses in cross-border markets at regional and global levels. It is imperative that ASEAN reaches out to companies in the region, particularly SMEs, to stress the importance of embracing digitalisation.

ASEAN also needs to embrace and adapt to new technology and innovation under the Fourth Industrial Revolution in order to remain relevant and competitive as an attractive investment destination.

If ASEAN is to reap the full benefits of the rise of digital technology, the association must see this as an opportunity to adapt, evolve, reform and innovate. Together we can make use of digital technology to empower the ASEAN Economic Community – and for us collectively to move closer to the overarching vision of a more integrated, prosperous and competitive ASEAN by 2025, for the benefit of all.

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About Dato’ Sri Najib Tun Razak