Key points
- The revolutionary nature of the digital economy will bring with it sizeable economic opportunities for Southeast Asia and Australia.
- Southeast Asia's digital economy is expected to be worth up to US$1 trillion in 2030;204 in Australia, the benefits of digitalisation should reach up to A$56.7 billion per annum by 2030.205
- Digital standards, e-commerce and cybersecurity will be key to deepening digital interconnectivity and trade, ensuring inclusive growth benefiting Southeast Asian and Australian businesses out to 2040.
Sector overview
Southeast Asia's digital economy is growing rapidly and will have a transformative impact on commerce. The region saw 100 million new internet users over the past three years, hitting 460 million users in 2022.206 As Figure 10.1 illustrates, internet penetration in Southeast Asia has grown significantly over the past two decades. This continuing trend, combined with affordable digital devices and a mobile-first culture, is driving the rapid uptake of emerging technologies.207
Figure 10.1 Internet users in Southeast Asia, as a proportion of the total population, 2000–2021
Source : DFAT analysis of International Telecommunication Union, World Telecommunication/ICT Indicators Database 2022.
Southeast Asia's population is young and digitally savvy – around 380 million people in Southeast Asia were aged under 35 in 2022,208 and daily social media usage is among the highest in the world. The Philippines' average daily social media usage of 3.38 hours ranks only second to Nigeria in global rankings. Indonesia, Malaysia and Thailand also rank highly, at 3.14, 2.52 and 2.35 hours per day, respectively, above the global average of 2.26.209
There were over 23,000 digital or tech startups across the region in 2021, a 77 per cent rise since 2018.210 Singapore and Indonesia have the two largest concentrations of startups in the region.211 A number of these startups have expanded regionally and globally and are already seeing success. There are now at least 13 Indonesian unicorns – companies having a valuation of at least US$1 billion.
Southeast Asia is home to a growing pool of tech talent, a point reinforced during regional consultations. For example, each year around 80,000 ICT students are graduating from Vietnamese universities and the Indonesian Government's National Development Planning Agency (Bappenas) expects the digital economy will create 20–45 million new jobs.212 This talent is supporting the thriving Southeast Asian tech startup ecosystem.
The region's digital economy, including e-commerce, had a gross merchandise value estimated to be at least US$200 billion in 2022, employing 160,000 skilled workers and indirectly supporting 30 million jobs.213 In 2022, regional digital platforms enabled over 20 million merchants and 6 million restaurants to sell products online.214 The digital economy of Southeast Asia is forecast to grow twice as fast as overall GDP to reach $330 billion by 2025 and up to US$1 trillion by 2030.215
These fundamentals are driving significant investor interest. Funding for startups in the region reached US$26.7 billion in private deals and US$13 billion in initial public offerings in 2021.216 Though global economic headwinds saw a more subdued deal flow in 2022, investors remain confident in the long-term outlook.217
Given these developments, Southeast Asia's digital economy represents a sizeable value proposition to Australian business. There are clear opportunities for two-way investment. Rapidly changing digital trends and market conditions, including in areas such as payment technologies, trusted platforms and evolving behavioural preferences, mean there are significant opportunities for Australian technology firms in the region that are willing to invest in deepening their understanding of the local environment.
As the digital economy is an emerging industry, this can mean there are fewer blockages to market entry than other more established industries. Australian businesses can access these new markets and utilise IT talent in the region to support domestic and international operations.
Data localisation also represents an area of opportunity for Australian investors as demand for data centre infrastructure grows. The United Nations Conference on Trade and Development forecasts a rapidly growing global data centre market in ASEAN, overtaking growth in North America.218 Australian businesses are already investing in digital infrastructure, such as data centres and cloud services, including NEXTDC (see case study).
The largest component of digital trade between Australia and Southeast Asia is e-commerce, while demand for Australian digital services, such as software development, digital marketing and cybersecurity, is growing. Other aspects of digital trade include fintech solutions, education and training services, cloud computing services, and software and applications (for example, enterprise software, mobile applications, gaming software and e-commerce platforms).
Southeast Asia's emerging digital economy is providing opportunities for First Nations businesses such as Kalinda IT to engage in the region (see case study).
Case study: NEXTDC providing critical infrastructure in the region
NEXTDC is an ASX 100 technology company, with a nationwide network of the most sophisticated Tier 4 data centre facilities across Australia.
Over the next 5 to 10 years, NEXTDC will invest approximately RM3 billion in Malaysia (A$1 billion), creating significant employment opportunities in the process.
The investment will see the construction of KL1, a 65-megawatt colocation data centre to service cloud platform providers, enterprise and government customers throughout Malaysia. This will be the first Tier 4 accredited data centre above 5 megawatts in Peninsular Malaysia – making it the most technologically advanced, fault tolerant, secure and sustainable by industry standards.
NEXTDC's investment will accelerate the development of critical infrastructure required to advance Malaysia's digital economy ambitions. The new KL1 data centre will attract global tech service providers who are increasingly seeking Tier 4 capability.
NEXTDC CEO and Managing Director, Craig Scroggie, said, 'As an Australian company seeking to invest in Malaysia and extend our capabilities to meet the needs of the Southeast Asian market, the Australian High Commission in Malaysia was very helpful. They assisted NEXTDC in achieving Malaysia Digital Status, which provides certain investment incentives, and assistance to navigate land equity requirements, facilitating the large investment required. At the state level in Selangor, they helped us obtain Foreign Consent to purchase 100 per cent of the target property, and we have just completed the acquisition.'
NEXTDC is committed to digital skilling and educational initiatives, which will develop Malaysia's ICT and digital workforce, sharpening its competitive advantage. Mr Scroggie said, 'I would encourage other Australian businesses seeking to invest in the region to seek out assistance on the ground from Australian embassies, consulates-general and high commissions.'
Case study: Kalinda IT making inroads in Indonesia
Kalinda IT is a 100 per cent Indigenous-owned Australian IT services business. The company won the Supply Nation Indigenous Exporter of the Year award in 2022.
Kalinda IT works across the Indo-Pacific in delivering smart-tech digital services and infrastructure in collaboration with partners in the region. It has developed its own software focused on intelligent transport systems.
Michael Dickerson, CEO of Kalinda IT, said, 'Kalinda's approach to engaging with the region is based on mutual respect and a cultural understanding of the importance of getting to know one another before diving headfirst into business.'
Building on 20-plus years of experience and relationships in the Indo-Pacific region, Mr Dickerson has recognised the importance of taking a focused approach to the region.
'Southeast Asian markets are all different, so developing trusted relationships with local partners is key. It is important to engage with locals on the ground to assist with legal matters and understand local government reporting requirements,' Mr Dickerson said.
This approach has delivered success in Kalinda IT's relationship with Teknologi Karya Digital Nusa (TKDN). Kalinda IT will be exporting its technology to be used as part of the Electronic Road Pricing project in Jakarta, aimed at reducing traffic congestion. While it started as a buyer–supplier relationship, Kalinda IT and TKDN signed a partnership agreement in June 2023. This will also likely see TKDN seeking to export electric buses and electric mopeds into the Australian market.
Kalinda IT's experience represents an important example of Australian tech businesses successfully engaging in Southeast Asia, and provides lessons to others seeking to follow suit.
There is great potential for digital trade to deliver development outcomes and economic empowerment, particularly for micro-, small and medium-sized enterprises and women-led businesses. Trade digitalisation and e-commerce were described as 'groundbreaking' for female entrepreneurs and women-led businesses during strategy consultations. It facilitates greater participation in e-commerce and banking, provides cost-effective business opportunities, and enables women to operate businesses from the home setting.
Australia's development cooperation program is actively supporting the success of female entrepreneurs in the region. For example, through the A$87 million Cambodia–Australia Partnership for Resilient Economic Development (CAP-RED) program in Cambodia – where over 60 per cent of SMEs are women-led – the Australian Government provides training, mentoring, and exposure to e-commerce and its business opportunities. This work fosters women's entrepreneurship and grows a more diverse and inclusive economy. Continued effort will be needed to ensure equitable and safe access to digital tools and services are given to women, LGBTQIA+ people and other marginalised people.
“Bukalapak would encourage other Southeast Asian tech companies to look at Australia ...” (Bukalapak)
Australia also provides attractive opportunities for Southeast Asian investors. The potential economic benefits for Australia through digitalisation have been estimated to reach A$56.7 billion per annum by 2030.219 This will see continued demand for Australia's technology workforce. The technology sector is the seventh-biggest employing sector in Australia.220 By 2030, the proportion of the Australian workforce in technology roles could rise from 6.7 per cent in 2022 to 8.5 per cent, outpacing broader employment growth.
Australia is a welcoming market for innovative Southeast Asian technology companies, with a skilled workforce, regulatory certainty and stability, and relevant domestic infrastructure.221 This has been demonstrated by Indonesian startup Bukalapak's successful launch of a technology hub in Melbourne (see case study).
Promoting a safe and secure cyber environment for global business and trading is critical to the digital economy. Data breaches, identity theft, malware, ransomware and other types of cybercrime are now endemic threats in the digital economy. At-risk members of society are disproportionately impacted by online harms, including technology-facilitated abuse. By 2025, cybercrime could cost the world up to US$10.5 trillion annually.222 In 2020–21, investment in cybersecurity companies reached more than US$32.5 billion; Australian expertise in cybersecurity services and systems will see growing demand, including from Southeast Asia.223
Uplifting Southeast Asia's cyber resilience will in turn help secure the Australian economy against malicious cyber attacks and cybercrime. Australia and Southeast Asia are working together on online safety, cybersecurity and critical technology through several partnerships and multilateral processes to ensure the design, development and use of critical technologies is consistent with international law and standards and fosters a peaceful and stable international environment.224 Privacy frameworks that protect personal information help foster the trust to drive continued technology adoption.
The 2023–2030 Australian Cyber Security Strategy is being developed alongside this Southeast Asia Economic Strategy, building on Australia's vision for a safe, secure and prosperous region enabled by cyberspace and critical technology, and built upon through Australia's Cyber and Critical Tech Cooperation Program (see case study).
Government-to-government engagement on digital trade enhances the interoperability of technology, and creates opportunities for businesses to take part in the unprecedented digital transformation in the region. There are digital trade provisions under the ASEAN–Australia–New Zealand Free Trade Area (AANZFTA), the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and in Australia's bilateral trade agreements with Indonesia, Malaysia, Thailand and Singapore. The ASEAN–Australia Digital Trade Standards Initiative also provides a framework for these countries to cooperate. The Australia–Singapore Digital Economy Agreement set a new benchmark for digital trade rules and is supported by practical cooperation, including on interoperability of e‑invoicing systems, electronic certification of agricultural goods, trade and personal data protection.
Case study: Bukalapak driving innovation and knowledge sharing
Founded in 2010 to empower micro-, small and medium-sized enterprises, Bukalapak swiftly emerged as a leading Indonesian e-commerce company. Its initial public offering in 2021 raised over A$2 billion, and was the largest ever in Indonesia.
Bukalapak is now an all-commerce technology company with a vast customer base of over 100 million. With a remarkable 75 per cent of Bukalapak's transactions occurring outside Indonesia's major cities, the company plays a pivotal role in accelerating economic growth in less developed regions. This underpins Bukalapak's corporate mission to create a fair economy for all.
Following Bukalapak's rapid growth and increasingly complex technology needs, it required international IT engineering expertise to augment its successful Indonesian teams. After a global search, Bukalapak partnered with the Victorian Government to establish its first international technology hub in Melbourne in 2022. Since the successful launch of the tech hub, Bukalapak has expanded its footprint in Australia with an office in Sydney.
Recognising the value of Australia's world-class universities, Bukalapak signed a memorandum of understanding with the University of Melbourne. Teddy Oetomo, President of Bukalapak, said, 'As alumni of Australian universities, we knew that Melbourne's tech ecosystem is an ideal base for Bukalapak to establish this tech hub, which enables Indonesia's tech talent to work together with tech professionals from Australia and around the world. The assistance from Austrade and Invest Victoria to launch this tech hub was invaluable. This partnership opens doors for students, providing them with opportunities for entrepreneurship and research, further driving innovation and cross-border knowledge exchange. Bukalapak would encourage other Southeast Asian tech companies to look at Australia as a great opportunity for collaboration, investment or expansion.'
Case study: Australia and Southeast Asia strengthening cyber and critical tech resilience
Australia's Cyber and Critical Tech Cooperation Program works with key countries in Southeast Asia to strengthen cyber and critical tech resilience. The program strengthens capacity to maximise opportunities and mitigate risks related to the use of cyberspace and critical technologies. Activities under the program include:
- the University of Melbourne's work with Malaysia to improve cyber resilience of critical infrastructure to sophisticated cyber attacks, by training up to 100 cybersecurity managers on how to evaluate their incident response practices
- Standards Australia's work with Cambodia, Indonesia, Malaysia, the Philippines, Thailand and Vietnam to support the integration of international standards for critical and emerging technologies in Southeast Asia – this includes enhancing the effective participation of Southeast Asian experts in the development of critical and emerging technologies standards in international forums, and the improved adoption and use of these standards within Southeast Asian economies
- mapping digital technology policy, legislation and governance processes, with a specific focus on telecommunications and critical infrastructure in the Mekong subregion.
The Australian Government is also actively working to improve its cross-border trade environment for Australian businesses and trading partners through the Simplified Trade System reforms, and is exploring opportunities for further collaboration with ASEAN partners. The Australian Border Force is currently further developing a digital verification platform to pilot digitally issued Australian certificates of origin, with participant countries. This is building on a successful proof-of-concept trial of a digital verification platform using verifiable credentials and blockchain to issue and authenticate electronic certificates of origin, which the Australian Border Force completed under the Australia–Singapore Digital Economy Agreement. The platform was delivered in partnership with Singapore Customs, the Infocomm Media Development Authority, the Australian Industry Group (Ai Group), the Australian Chamber of Commerce and Industry, Rio Tinto, ANZ Bank, Standard Chartered Bank and DBS Bank.
New rules are being negotiated under the Indo-Pacific Economic Framework (IPEF) to support enhanced digital trade facilitation, cross-border data flows, trust in the online environment, and cooperation on new and emerging issues in the digital economy. Australia is also working closely with Southeast Asian partners in the WTO E‑commerce Joint Statement Initiative to agree digital trade rules that will enable businesses, consumers and workers to unlock the benefits of the digital economy.
The Australian Government's Digital Trade Strategy provides a framework for Australia to shape the enabling environment for digital trade.225 The Digital Trade Strategy guides Australia's action as a leader in digital trade, informing our work to deliver commercial benefits and push back against digital protectionism. The negotiation of digital trade rules is a key objective, which can lower barriers to trade, improve trade efficiencies and facilitate access to markets. ASEAN has taken notable steps towards a more integrated region through the planned establishment of a single, competitive and fully integrated market under the ASEAN Economic Community, the Master Plan on ASEAN Connectivity 2025, and the ASEAN E-Commerce Agreement.226 This includes implementing the ASEAN Single Window in 2019, which enabled electronic exchange of trade-related documents among the 10 ASEAN member economies.
Pathways to 2040
In addition to the cross-cutting recommendations outlined in Chapter 2, which will have a broad economic impact, this chapter has additional specific recommendations on the digital economy.
Remove blockages
Maximising the growth potential of Australian and Southeast Asian digital economies – and enabling new opportunities to expand the flow between them – means overcoming a range of challenges. Differences in regulatory frameworks, standards and issues of interoperability hinder two-way trade and investment across the digital economy. Addressing issues in Southeast Asia relating to data privacy, data protection and cybersecurity will also be important. Most countries in Southeast Asia are working to address these challenges at a national level and through regional cooperation.
There is real value for Australia in continuing to push for ambitious digital trade rules to facilitate cross-border data flows, promote trust in the online environment, boost interoperability of technologies and facilitate cooperation on emerging digital economy issues. This could be done in the first place through existing negotiations such as the WTO E-commerce Joint Statement Initiative and IPEF. Upgrades to existing bilateral free trade agreements (for example, with Indonesia, Malaysia and Thailand) or other agreements with Southeast Asian partners could also be a target for further work in this area, supported by a drive for high-ambition outcomes. There is also an opportunity to explore options to collaborate with Southeast Asian partners on digital tools to facilitate cross-border trade in goods, including approaches to paperless trade, systems interoperability and aligning standards.
Recommendation
- Australian Government to work with Southeast Asian partners to expand coverage of ambitious digital trade rules and standards, and promote interoperability through digital trade rules negotiations, advocacy and capacity building.
Build capability
While cooperation between Australia and Southeast Asia on cybersecurity is strong, given the growing threat, there is value in expanding the existing Cyber and Critical Tech Cooperation Program to further build cyber resilience.
Recommendation
- Australian Government to expand the Cyber and Critical Tech Cooperation Program in Southeast Asia to continue building the cyber resilience of the region.
Deepen investment
Consultations in the region suggest that Australian tech companies need more support from the Australian Government to assist them to enter Southeast Asian markets. Austrade's Landing Pad in Singapore provides tech companies with advice, connections and introductions to enter the Singapore market. This could be built upon further, including extending this model to other Southeast Asian markets with strong startup ecosystems, such as Indonesia and Vietnam, with client flow to be driven through targeted Austrade awareness-raising programs throughout Australia.
Austrade's Singapore Landing Pad has serviced more than 120 clients since 2017–18, delivering 61 commercial outcomes to the value of A$17.5 million, with an average annual outcome value of A$4.2 million over five years.
By 2030, the digital economy of Indonesia is projected to be worth US$220–360 billion, while Vietnam's digital economy is projected to be worth US$120–200 billion. Despite the technology sectors booming in both countries, Australian technology exports to these countries are currently very limited.
Landing Pads in both countries could be bolstered by collaboration with partners embedded in their local tech ecosystems, and partnerships with local government agencies, industry associations and accelerators to deliver in-market program services.
Recommendation
- Australian Government to consider establishing Austrade Landing Pads in Indonesia and Vietnam to support Australian tech companies, similar to Austrade's Landing Pad in Singapore.
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224 The Australian Government defines critical technologies as those technologies with the capacity to significantly enhance, or pose risks to, Australia's national interests, including our prosperity, social cohesion and national security. This includes, but is not limited to, technologies (or applications of technologies) such as cyberspace, artificial intelligence, 5G, the internet of things, quantum computing and synthetic biology.
225 Department of Foreign Affairs and Trade (DFAT), Digital Trade Strategy, DFAT, Australian Government,2022.
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