Shared potential
Digital economy offers new ways to prosper from trade and investment, but some countries need help logging in.
The opportunities offered by the digital economy come with challenges in areas of legal, political, social, environmental and economic governance, especially in poorer countries. And while some economies in Asia are reaping benefits from the digital transition, some others are being left behind.
According to the United Nations Conference on Trade and Development (Unctad), global internet traffic in 2018 was 66 times higher than in 2015. Global e-commerce sales topped US$25 trillion in 2015, of which $189 billion came from cross-border transactions. Developing countries accounted for 90% of the 750 million people who went online for the first time between 2012 and 2015.
However, many least developed countries (LDCs) lack the resources and policies to build an inclusive and effective digital economy, as the task is complex and multilayered. They need international support and collaboration from the public and private sectors of countries that have successful digital track records.
In Asia, the countries listed as least developed by the UN are Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Myanmar, Nepal and Timor-Leste.
“Access to internet and mobile is not an issue here,” said Sven Callebaut, Unctad’s team leader for e-trade readiness for LDCs and an international adviser for Thailand’s International Institute for Trade and Development (ITD).
According to an Unctad-IITD report discussed at a recent seminar in Bangkok, the challenges facing Asean LCDs in shaping a digital economy include outdated ecosystems, information and communications technology (ICT) risk, and lack of venture capital. There is also a lack of a single shared vision for e-commerce development, while school curricula place too much emphasis on ICT skills only.
“In terms of curriculum, a lot of them focus on ICT skills and not so much on content development, app development and management,” said Mr Callebaut, who has worked with Unctad, the World Bank and the World Trade Organization in Asean since 2003.
“The number of firms using email is pretty high in the region but when we talk about usage of ICT for B2B or B2C, it is still quite low.”
He does see “some signs of improvement” as cross-border paperless trade is growing. But when it comes to a broader digital infrastructure and framework, “you’ll see that there are policies in place but they are outdated in terms of consumer protection, e-payment, cybercrime and privacy applications”.
About 95% of Asean is still using cash on delivery for payment. Banks and other providers are all offering digital payment and financial technology applications but take-up is still modest in many countries. Digital systems to facilitate cross-border trade remain inadequate, while last-mile delivery is also problematic.
UN agencies are providing support in the region for connectivity, technology adoption, ICT for business-to-business and business-to-consumer models, logistics, trade facilitation, and regulatory infrastructure that supports regional integration.
Paperless trade is seen as essential to accelerate the development of the digital economy in the region, according to Tengfei Wang, an economic affairs officer at the UN Economic and Social Commission for Asia and the Pacific (UN Escap).
Escap adopted a framework agreement cross-border paperless trade in May 2016 but so far only six member states — Armenia, Azerbaijan, Bangladesh, Cambodia, China and Iran — have ratified it.
Paperless trade includes electronic customs declaration and electronic certificates of origin. It also covers legal and technical frameworks in which paperless transactions take place such as an electronic single-window facility and e-port management systems. The Framework Act on Electronic Transactions now being used in South Korea is seen as a good model.
Dr Wang said Escap has been following paperless trade development since 2012 and has seen some improvements at the national level once paperless based systems have been put in place. “But the most difficult part is cross-border paperless trade,” he said.
The Asean Single Window has been evolving for years but is still nowhere near reaching its potential, he said. Only a few big economies, such as China, are changing to electronic documents.
“There is really a lot of work to do and we feel that we have built some initiatives such as the Asean Single Window, but we should expand the benefits to all the countries in the region since we have 53 members plus nine associate members in Asia Pacific,” he said.
The benefits of paperless trade include effective deployment of resources, correct revenue yields, improved trader compliance, enhanced security, increased integrity and transparency for government. Traders can also benefit from lower costs through faster clearance and release, along with predictable application and interpretation of rules.
Another focus of the development effort in the region is the promotion of approaches that offer broad-based and sustainable benefits for each country. UN SDG Impact Finance (UNSIF) is a new UN agency trying to help facilitate investment in a tailored manner for each country.
In Cambodia, for example, it is focusing on special economic zones (SEZs) as the country is “three to four years before the big curve comes” in terms of economic development, while foreign investment is already pouring into the country, said David Galipeau, chief impact officer of the UNSIF, which was established in January 2017.
UNSIF is a co-investment partnership structure under which the public and private sectors can combine blended financing models to create both economic and social returns. This can help facilitate the transition from a grant-only approach to market-based development.
Cambodia has been encouraging foreign direct investment (FDI) in its SEZs, where some 85% of the factories are 100% foreign-owned. The country attracted US$2.5 billion in FDI in 2016 compared with $1.6 billion in 2012.
According to the “Investing in Cambodia” report by the global consultancy KPMG, Cambodia’s large supply of low-cost labour and generous incentives have attracted substantial FDI to the garments and footwear sector, now the country’s biggest export earner. Import duty exemptions and tax holidays of up to nine years are among the incentives offered.
“Their regulatory system is very friendly for foreign investors. It is a US dollar-based economy which is very attractive and when we look at their special economic zones, what we are trying to do is to switch them to more sustainable economic zones,” said Mr Galipeau.
Basically, he said, UNSIF is trying to “break down the wall” surrounding SEZs so that benefits such as quality health services, stable water and electricity supplies enjoyed inside the zones are also available to the surrounding communities.
The agency was set up to promote social impact investments aligned with the UN Sustainable Development Goals to support national development agendas. It approves SDG-aligned impact investments based on rigorous social, economic and environmental standards, said Mr Galipeau.
Blended funding is becoming an important tool for promoting sustainable investment, he said. For example, if there is a $50-million fund to invest in eight to 12 different companies, the UNSIF will try to encourage the investors to commit some of that money to areas that are underserved. It offers to help reduce the investors’ risk in such areas by seeking to “blend” the money with funds from government and philanthropic organisations.
“Maybe a 10% grant component could offer to do the de-risking, which serves the purposes of all stakeholders,” he said. “For example, with the $50-million fund, if you have a $5-million grant to do the technical assistance, it would mean that for $45 million, the investor is getting $50 million worth in return as it has been de-risked.
“This would bring the money into an area such as affordable housing where, for a $5-million grant we are getting $50 million worth of impact so the leverage on the demand side is huge. This is very attractive for foundations and governments.”
Using the blended fund model, where UNSIF and other UN agencies can add a technical assistance component, a lot of “old money” is now moving into new areas such as alternative energy, affordable housing, small and medium businesses development, health and education because of the attraction of de-risking.
“There is no shortage of finance because the liquidity in the world is huge, but what is really missing are attractive and impactful investment projects,” Mr Galipeau added.
“There are policies in place [for paperless trade] but they are outdated in terms of consumer protection, e-payment, cybercrime and privacy applications” SVEN CALLEBAUT Unctad e-trade specialist