Countries around the globe have experienced an acceleration in their digital transformation in the wake of the Covid-19 pandemic. Too often, the media spotlights how apps, big data, automation and artificial intelligence have found their way into everyday life and business processes. Headlines highlight businesses scaling at turbo speed – think of the latest start-up unicorn or the fast-growing sector of tech-enabled firms.

Beyond ‘start-up lust’, there is something more fundamental going on. It is about countries, in a particular region, harnessing digitalisation for sustainable economic development. And that is not just by their measure, but a global standard – the United Nations Sustainable Development Goals (SDGs). These goals are the "blueprint to achieve a better and more sustainable future for all", and they address global challenges such as poverty, inequality, climate change, environmental degradation, peace as well as justice.

Sustainable development insights from Asia

In a 2020 study, private-sector think tank McKinsey Global Institute(MGI) stated that Asia accounted for a large share of global growth in key technology metrics over the preceding decade. For example, it is home to 36 per cent of the world’s unicorns from only two unicorns in 2012, 43 per cent of the growth in start-up funding and a staggering 87 per cent of the growth in patents filings in that period. Elsewhere, the World Economic Forum reported in February 2022 that digitalisation had catapulted South and Southeast Asia into “engines of growth”. And the global market intelligence firm IDC estimates that, by 2023, 30 per cent of companies in the Asia-Pacific region will earn a large share of their revenues from digital products and services. All eyes, then, appear to be on Asia-Pacific and its digital transformation.

Singapore Management University’s (SMU) Professor of Finance (Practice) Dave Fernandez, also the Director of the Sim Kee Boon Institute for Financial Economics at SMU, argues that the Asia-Pacific region offers insights to help economies engage in more sustainable development.

Prof. Fernandez has just co-authored a new book, Harnessing Digitalization for Sustainable Economic Development: Insights for Asia, with John Beirne, Vice-Chair of Research and Senior Research Fellow at the Asian Development Bank Institute (ADBI). It is an edited collection of 14 papers presented at a conference organized by ADBI and SKBI. While the 443-page book’s title promises insights for Asia, all economies can learn from Asian policymakers’ approaches to balancing digitalisation with sustainable development and cyber risks. It is about digitalisation’s impact on trade, economic performance, the labour market, as well as businesses now and into the future.

Digitalisation

The Gartner Glossary defines digitalisation as using digital technologies to transform a business model for new revenue and value-producing opportunities, even social change, continues Gartner. That process creates a digital business. Often, such organisations will use cloud-computing, the Internet of Things, machine learning, artificial intelligence, big data, and business intelligence.

Benefits of digital transformation

Digitalisation, according to Prof. Fernandez, has helped transform economies by boosting competitiveness and productivity across sectors:

All of the above help economies work towards ticking off the UN’s SDGs.

The Goldilocks factor: finding the ‘just right’ balance

But there is a downside for policymakers – balancing the trajectory towards digital transformation with the challenging spinoff effects, says Prof. Fernandez.

“There can also be labour-market implications such as automation and artificial intelligence (AI) replacing workers. Ensuring a sufficient level of internet infrastructure development and digital education and reducing the digital divide are other factors driving the potential of digitalisation as an input to economic progress.”

“Policymakers, therefore, face challenges in order to harness the maximum benefits of digitalisation for the competitiveness of their economies, including through appropriate education and labour market reforms, as well as digital infrastructure investment.”

Lessons to be learnt from Asia-Pacific

The book draws on empirical evidence from cross-regional perspectives as well as specific countries such as China, India, Thailand, Indonesia, and Uzbekistan.

For example, China and India’s economic growth hinge upon the development of their telecommunication/digitalisation infrastructure, with China extracting relatively more from these growth-promoting factors than India. But China is not a monolithic economy, and its manufacturing small and medium enterprises (SMEs), a backbone of the PRC economy, have not fully benefited from greater digitalisation and automation.

Chinese policymakers could overcome bottlenecks to further digitalisation by lowering transaction costs and streamlining procedures for SMEs to access artificial intelligence subsidies, strengthening contract laws to better support the SME manufacturing supply chain, and prioritising investment support for data-collection equipment could help targeted firms move to digitalise their production.

Another study of 574 banks in emerging Asian countries found that digital financial inclusion (DFI), that is financial inclusion where the notion of technology is entertained, has a significant impact on the banking sector stability. DFI also means better digital financial literacy for all and efforts to thwart and deal with cybercrime. A further study, spanning 22 emerging economies from 2004 to 2017, suggested information and communication technology (ICT) policies contributed to sustainable development in the long term. Such policies are intertwined with financial inclusion, and economic freedom.

Importantly, digitalisation has paved the way for trade integration within the region. In the book, researchers investigating bilateral trade flows among Asian economies discovered that digital technology, such as access to broadband internet and internet usage, helped increase e-commerce and digital payment transactions. These, in turn, drive bilateral trade in the region.

However, the long-term effects of investing in proprietary software— closed-source software, by large companies need to be examined. Large firms with access to new proprietary systems and business models tend to dominate their industries and market share, resulting in a growing gap between the productivity of top firms and their competitors. Prof. Fernandez notes that such investments may result in “transforming the nature of markets and technology diffusion, exacerbating economic inequality and undermining government regulation”. He points to growing productivity gaps in income inequality; implications that challenge sustainable economic development.

The way forward for sustainable economies

These were some of the friction points the book raised, which could be addressed through better digital education as well as digital financial education and training. 

Asia-Pacific policymakers also need to invest more in IT infrastructure to improve connectivity, and bear inclusivity in mind as they create the landscape, Prof. Fernandez adds.

He also cautions governments to minimise cybercrime risks, concluding: “It will be important for policymakers to strike the right balance with regard to the regulation and supervision of financial technology to enable innovation, but also to safeguard financial stability and consumer protection.”

In short, for economies to progress in their digital transformation, all echelons of society should be part of that journey for sustainable economic development to be achieved.