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PROMOTING THE DIGITAL ECONOMY IN THE ASEAN AND APEC REGIONS

APRIL 2017

This publication was produced by Nathan Associates Inc. for review by the United States Agency for International Development.

DISCLAIMER

This document is made possible by the support of the American people through the United States Agency for International Development (USAID). Its contents are the sole responsibility of the author or authors and do not necessarily reflect the views of USAID or the United States government.

PROMOTING THE DIGITAL ECONOMY IN THE ASEAN AND APEC REGIONS

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CONTENTS

Acronyms ii Introduction 1 Chapter 1: Digital Economy Trends in ASEAN and APEC 3

Technical Foundations 4 Access: Mobile First 6 Digital Economy and SMEs 9 Recommendations 12

Chapter 2: Policies to Promote the Digital Economy 13 Create a Conducive Enabling Environment for the Digital Economy 13 Promote Universal Network Access 15 Create Seamless Digital Identities 18 Build Human Resources for a Digital Future 21 Measure the Digital Economy 22 Recommendations 23

Chapter 3: Digital Economy Policy Efforts in Asia 25 Regional Digital Economy Frameworks 25 National Digital Economy Plans 31 International Organizations and the Digital Economy 36 Recommendations 39

Chapter 4: Key Sectoral Areas of Opportunity 45 Agriculture Sector 45 Financial Services Sector 49 Healthcare Sector 58 Recommendations 63

Chapter 5: Conclusions 66 Appendix: Definitions 68

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ACRONYMS ABAC APEC Business Advisory Council

ACMA Australia Communications and Media Authority

ADB Asian Development Bank

AEC ASEAN Economic Community

AHSGIE Ad Hoc Steering Group on the Internet Economy

AI Artificial intelligence

AIM ASEAN ICT Masterplan

APEC Asia-Pacific Economic Cooperation

APFF Asia Pacific Financial Forum

APT Asia Pacific Telecommunications

ASEAN Association of Southeast Asian Nations

ATM Automated teller machine

B2B Business to business

B2C Business to consumer

CTI Committee on Trade and Investment

CBPR Cross-Border Privacy Rules

CGAP Consultative Group to Assist the Poorest

DEAP Digital Economy Action Plan and Work Agenda

DFS Digital financial services

DPS Data Privacy Subgroup

ECO Electronic certificate of origin

ECSG APEC Electronic Commerce Steering Group

EFT Electronic funds transfer

EMR Electronic medical records

GDP Gross Domestic Product

GHz Gigahertz

HR Human resources

ICT Information and communications technology

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IoT Internet of Things

IT Information technology

ITU International Telecommunications Union

KPI Key performance indicator

KYC Know your customer

M2M Machine to machine

MFS Mobile financial services

MHz Megahertz

MIS Management information system

MOOC Massive open online course

MSME Micro, small and medium enterprises

OECD Organization for Economic Cooperation and Development

OTT Over the top

PTS Paperless Trading Subgroup

R&D Research and development

S&T Science and technology

SIM Subscriber identify module

SME Small and medium enterprises

SME WG Small and Medium Enterprises Working Group

SMS Short Message System

TVWS TV White Space

UNCDF U.N. Capital Development Fund

USAID U.S. Agency for International Development

VSS Vietnam Social Security

WDR World Development Report

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INTRODUCTION The digital economy is a global phenomenon and one of the most important drivers of economic growth and competitiveness today. Whether for entrepreneurs running small or medium sized businesses or executives of large corporations, the pervasiveness of the digital economy is felt across all spectrums of industry. However, for most businesses, especially in developing economies, the ability to take full advantage of the opportunities created by the digital economy is still, all too often, out of reach. Governments must focus on how to better enable growth of the digital economy while developing frameworks that govern these emerging trends, such as web services, data privacy, social media, the Internet of Things, and smart grids.

The purpose of this paper is to provide the U.S. Government, primarily the United States Agency for International Development (USAID), with an overarching framework for policy engagement on digital economy issues within the Asia-Pacific region, specifically in the context of ASEAN and APEC. With the digital economy becoming an ever-growing means to reaching APEC and ASEAN’s collective and individual economic objectives, developing economies stand to gain significantly from the opportunities presented by digitization and global data flows. As U.S. governmental agencies chart out interventions in this emerging space, USAID has the potential to leverage the opportunities and innovations presented by the robust growth of the digital economy in order to harness, extend and accelerate the growth for the benefit of developing economies throughout the Asia-Pacific region.

This paper contains the following chapters: Chapter 1 provides an overview of digital economy and cross-border digital trade developments in ASEAN and the APEC economies. Chapter 2 identifies five policy focus areas to promote the growth of the digital economy in the region along with initial recommended activities for USAID. Chapter 3 examines what the various economies of ASEAN and APEC are doing to advance a digital economy, both on their own initiatives and regionally. The chapter also makes specific recommendations for collaboration with regional programs along with gaps where USAID intervention could have significant impact. Chapter 4 focuses on three sectors where there is the potential for the digital economy to have a disproportionate impact, and which present opportunities for USAID. Chapter 5 concludes by highlighting key recommendations for consideration by USAID.

Ultimately, this paper aims to inform the question: where do development objectives and foreign policy interventions align when it comes to enabling the growth of the digital economy and helping developing economies exploit that growth? Where is the most strategic and impactful entry point for USAID and its partners to engage on these issues to help the companies and people of the Asia-Pacific region to realize a more effective digital

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economy to promote more rapid and equitable growth that reduces poverty and improves lives?

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CHAPTER 1: DIGITAL ECONOMY TRENDS IN ASEAN AND APEC Increasingly all sectors of the economy are being enabled by digitization and digital technologies, blurring definitions between the traditional economy and the emerging digital economy, and making any estimates of the size and impact of the digital economy a challenging exercise. Nevertheless, such estimates have begun emerging illustrating the pervasiveness, scale and opportunity of an increasingly digital economy. APEC’s Policy Support Unit, for example, cites various sources, including the GSM Association, AT Kearney and various public reports and financial statements, to conclude that the total digital market was worth $3.5 trillion in 2015, or 4.7% of world gross product.1 This is expected to grow 11% per annum through 2020 resulting in a $5.8 trillion economy.2 Even these numbers are likely conservative given the scope of what they include and what remains outside of the calculations.

Google and Temasek have estimated that the Internet economy in Southeast Asia alone will grow to $200 billion by 2025, while AT Kearney has suggested that the digital economy could add $1 trillion to the GDP of the ASEAN bloc of countries by the same period. At the country level, in Indonesia the total productivity impact is anticipated to be in excess of $120 billion across key sectors of the economy by 2025, and to directly add more than 3.7 million jobs; in Malaysia the digital economy is seen to already comprise 16.8% of the economy, and is being targeted to be more than 20% by 2025; while in Vietnam e-commerce alone is forecast to be worth $10 billion by 2020 with the mobile Internet creating some 150,000 new jobs, or 3.2% of total employment growth.

As the above facts illustrate, the impact of the digital economy on development – both economic and social – is difficult to overstate, even at this early stage in its emergence. The expansion and interconnection of the Internet globally has transformed business and the way in which businesses interact with consumers, in the first instance by permitting any business to immediately and seamlessly reach overseas customers and sell products online, anywhere. The global nature of the Internet and the ability to move data across borders underpins an increasing amount of economic activity and international trade. However, what constitutes this digital economy – and digital trade – is very broad, including for example the use of the Internet to search for products, purchase them, and then deliver them on- or off-line. Definitions of the Internet economy, the digital economy and digital trade are set out in the Appendix. 1 See APEC, Facilitating Digital Trade for Inclusive Growth: Key Issues in Promoting Digital Trade in APEC, Issues Paper No.12, March 2017.

2 GSMA: The Internet Value Chain: A Study on the Economics of the Internet, 2016.

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The Internet is also having a significant impact on how businesses conduct their internal and external operations. For instance, businesses can use the Internet to participate in global supply chains, manage customers, and track production. Businesses are also increasingly using digital inputs – whether accessing IT in the Cloud, or using Skype to communicate with customers and suppliers – to increase productivity and competitiveness. This creates the conditions for growth, particularly for SMEs, if and only if access to the Internet is equally open to all.

Internet access creates opportunities for people and businesses traditionally marginalized from international levels of innovation and competitiveness, since the costs of trade (and of accessing trade) are dramatically reduced. Other more traditional barriers to trade in developing countries such as poor infrastructure, inefficient logistics, and distance to market are also being overcome as the Internet allows for products to be searched for and delivered online.

The following first chapter outlines some of the technical foundations of the digital economy and how mobile access is helping to drive the transition to a digital economy before turning to the impact that the digital economy can have on SME development.

TECHNICAL FOUNDATIONS

The Internet, and the use of Internet Protocol (IP) standards for communications systems throughout the economy – from fixed and mobile telephone networks to private networks used by banks, payment systems companies, airlines, and corporations, to government and public service networks – create the structural foundations for the digital economy.

Progression towards a digital economy is built upon two key network issues:

1. Interconnectivity of networks means that digital traffic can travel across and between networks. This enables economies of scale as the fixed costs of infrastructure rollout are spread across a greater level of output bringing about a fall in unit costs.

2. Interoperability of operating platforms means that digital traffic can run effectively across different types of networks (e.g., from telecoms to banking to educational to health networks and so on). This enables economies of scope, as fixed costs are spread across a wider range of output of different products and services.3

3 TRPC, ISOC (2014): Unleashing the Potential of the Internet for ASEAN Economies. http://www.internetsociety.org/sites/default/files/ASEAN_ISOC_Digital_Economy_Report_Full_0.pdf To reap the full benefits of addition-al connectivity it is necessary to achieve interoperability of the platforms and applications that increasingly drive contemporary commercial and social life. For example, different education networks, hospital systems, airline reservation, and ticketing procedures, manufacturing plants and agricultural processes increasingly need to interconnect and be able to interoperate. We provide examples of specific opportuni-ties and challenges across ASEAN and APEC economies later in the report, but it is fundamentally important to establish the technical capacity to interconnect different networks and for different pieces of software and applications to be able to work together. That lays the foundation for a digital economy to emerge: everyone can communicate and trade with everyone else, and businesses can offer a much wider range of goods and services to different markets. It is from such an approach that a digital economy and digital society can come into being.

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The latter is particularly important in creating the conditions for innovation, and new products and services to emerge. Economies of scale and of scope create a virtuous cycle by driving down costs, increasing user choice of products and services and, in turn, stimulating market innovation and economic growth. An obvious and prominent example has been the rise of social media, and its use across a multitude of economic and social purposes, such as e-commerce and e-government. Achieving the transition to a fully functioning digital economy requires the growth of an ecosystem supporting new entrants and the promotion of linkages back into the traditional economy (e.g., agriculture and aquaculture, manufacturing production and services, distribution and consumption).

Fully realizing the potential of a digital society means recognizing two further issues: (i) promoting and assessing economic impact goes well beyond simple GDP growth to encompass such factors as employment, productivity, etc.; and (ii) the impact of digitization and interoperability is as much on overall social development as on economic growth. This leads to the recommendation at the end of this chapter to actively work with a range of governmental bodies to ensure that these issues are understood.

The challenge for policy-makers is that while they have some influence over the development of their own digital economy, they are far less able to determine digital trade, especially in a world of seamless data transfers. Given the interconnected nature of the digital economy, policy-makers need to be able to look at this picture holistically rather than reacting defensively, to recognize the impact that any restrictions on cross-border data flows can have. Such restrictions cannot be limited to multinational participants; they will also not be limited to Internet and technology businesses, but will increasingly impact the education, health, tourism and e-commerce sectors, among others, as those sectors rely ever more on communication networks.

Regional groups, such as ASEAN and APEC, need to help this process by making the benefits of the digital economy known to all and by promoting the benefits of regional economic integration. There also needs to be recognition of the significant diversity across member economies when it comes to developing the digital economy, as well as the opportunities inherent in being able to access the digital economy early on, so as to accelerate economic development and social growth. Where and how to do this are the focus of the rest of this report.

Digital economy development is driven and accelerated principally by three factors:

● Digitization. The cross-cutting impact of digitization can be seen in developments such as electronic payments, remote healthcare, data analytics being used to map branchless payment programs, and so on. The multiplier impact of scale and scope results from open data trade and cross-sector enablement.

● Mobility. The importance of mobile, particularly in mobile-first Asia, cannot be overstated. The result is that apps and platforms must be mobile-first in architecture.

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To be successful digital initiatives and digital economy plans must have mobile as a core focus strategy – in many cases this is still lacking.

● A Lead Economic Driver. For the digital economy opportunity to be captured and enabled, there needs to be a sector or constituency that provides an initial focus for the digital economy ecosystem to begin to develop around. For many economies in Asia SMEs are the vanguard driving digital adoption.

Earlier we covered the issues around digitization and the economies of scale and scope that can result. Here we briefly review the importance in the growth of mobility for ASEAN and APEC economies to drive access and to enable the possibility for “leap frogging” into broad based digital economy growth. The chapter concludes by reviewing the role of SMEs in the digital economy.

ACCESS: MOBILE FIRST

The Asia-Pacific region has enjoyed exceptionally strong mobile take up in recent years, and this has subsequently driven broad Internet access via mobile devices. Between 2006 and 2015 the number of mobile subscribers in ASEAN, for example, grew from 198.2 million (34% penetration) to 784.4 million (124% penetration) (Figure 1, left side).4 In APEC, the corresponding numbers for the same period were 1.3 billion mobile subscriber accounts (49% penetration) to 3.1 billion mobile subscriber accounts (110%) (Figure 1, right side). Internet penetration across ASEAN, meanwhile, (2006-15) more than tripled from 11% (61.3 million Internet subscribers) to 35% (219 million Internet subscribers), while APEC saw Internet penetration more than double, from 24% penetration (645.1 million Internet accounts) to 55% (1.6 billion) (Figure 2).

Figure 1: ASEAN and APEC Connectivity: Mobile Subscriber Growth

4 ASEAN’s Internet population literally doubled between 2009 and 2013, growing from 81 million to 162 million. Wireless broadband

subscriptions grew 30-fold during the same period. Given that the growth of fixed-broadband penetration was minimal, wireless broadband has been the key driver of rapid Internet uptake across the region

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Figure 2: ASEAN and APEC Connectivity: Internet Subscriber Growth

These are impressive numbers. But they also show that by 2015 there was still a significant component of the region’s populations yet to be connected to the Internet. For ASEAN, some 410 million people (65%) of the total population were yet to be connected, while across APEC the number was 1.3 billion people (45%). An important part of the issue here is the significant diversity across both ASEAN and APEC. APEC, for example, stretches from global Internet leaders such as Japan (93.3% Internet penetration), South Korea (89.9%) and Canada (88.5%) to Papua New Guinea, with just 7.9% of the population subscribing to an Internet account. The range across ASEAN is even more marked, with Singapore at one end at 82.1% Internet penetration, and the world’s first “Smart Nation”, to Laos (18.2% penetration), Cambodia (19%) and Myanmar (21.8%). Myanmar, only two years previously, was sitting at less than 1% Internet connectivity. Thus, while ASEAN and APEC overall have been growing connectivity rapidly, many economies are coming off very low bases (Figure 3). As a result, both groupings, and ASEAN in particular, are punching below their economic weight and their potential, and are therefore still effectively playing catch up. This is true not just in connectivity, but more broadly in digitalization or digital readiness, and also in capacity.

Figure 3: Punching Below Weight? ASEAN and APEC Internet Penetration 2013-16

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It is this “levelling of the playing field” in access, in awareness and in capacity that is the first area requiring focus on the part of governments and donor groups. Until the benefits of broad-based connectivity and the digital economy are widely appreciated – for example, being able to distribute social welfare payments via digital networks, or promote social inclusion through more enabling frameworks – coordinated connectivity efforts will not be undertaken.

A second area of opportunity highlighted by the statistics is the importance of mobility across Asia for driving economic growth that might otherwise not be made available (Table 1).

Table 1: ASEAN and APEC Connectivity Statistics, 2015 ASEAN APEC

% m

obile

su

bs

% fi

xed

BB

use

rs

%

Inte

rnet

us

ers

% m

obile

su

bs

% fi

xed

BB

use

rs

%

Inte

rnet

us

ers

Laos 53.10 0.52 18.20 Papua New Guinea 46.65 0.20 7.90

Myanmar 75.68 0.06 21.80 Philippines 115.75 4.78 40.70

Philippines 115.75 4.78 40.70 Vietnam 130.64 8.14 52.72

Vietnam 130.64 8.14 52.72 Indonesia 132.35 1.09 21.98

Indonesia 132.35 1.09 21.98 Mexico 85.99 11.64 57.43

Cambodia 133.00 0.53 19.00 China 92.18 19.77 50.30

Thailand 152.73 9.24 39.32 Peru 109.87 6.42 40.90

Malaysia 143.89 10.00 71.06 Thailand 152.73 9.24 39.32

Brunei 108.13 8.03 71.20 Malaysia 143.89 10.00 71.06

Singapore 146.53 26.40 82.10 Russian Federation 159.95 18.92 70.10

Canada 82.98 36.32 88.47

Brunei 108.13 8.03 71.20

United States 117.59 31.02 74.55

Korea (Rep.) 118.46 40.25 89.65

New Zealand 121.83 31.57 88.22

Japan 126.54 30.66 91.06

Taiwan 127.30 24.26 78.04

Chile 129.47 15.17 64.29

Australia 132.80 28.54 84.56

Singapore 146.53 26.40 82.10

Hong Kong 228.68 32.10 84.95

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*Blue: lower middle income economies; Yellow: upper-middle income economies; Pink: high-income economies Source: ITU World Telecommunication/ICT Indicators (2016)

To illustrate the point, take Indonesia as an example: an economy of some 250 million people with impressively high mobile connectivity, but very limited Internet connectivity, and yet still home to one of the most active social media markets in the world. In 2014 more tweets were sent from Jakarta than from any other city in the world, accounting for 2.4% of the global total.

The reality is that Internet access, and digital enablement, is greatly underrepresented in official statistics. As of March 2014 there were 91.6 million bank accounts in Indonesia out of the population of 250 million people.5 In other words, more than 63% of the population was financially excluded. The government has been pushing a program of financial inclusion for a number of years now, with mostly limited success. There are some obvious constraints that explain this: extending physical bank branches across Indonesia’s extensive island archipelago can be an expensive challenge. But Indonesia also had 325.6 million mobile phone accounts in that same year. If the mobile phone could be used to promote basic financial access, with the mobile device becoming a digital bank connection, then surely financial inclusion could be rapidly extended.

DIGITAL ECONOMY AND SMES

The impact of the digital economy is fundamentally cross-cutting, as the Internet increasingly becomes a foundational input and driver of all other sectors of the economy, such as financial services, healthcare, education, tourism and hospitality and, more recently, transportation, housing, and other sectors. Because of the digital economy’s pervasiveness, understanding its impact and coordinating its benefits has become even more important and requires coordination across agencies not traditionally seen as “tech” agencies – e.g., agriculture and fisheries, manufacturing, and labor.

Governments thus have multiple roles to play in promoting these developments. On the one hand, the role of government is to create an enabling environment (through laws, policies and regulations) that fosters robust competition and addresses persistent barriers to universal access to a vibrant, inclusive digital economy. This includes, for example, simplifying licensing processes, or placing business registration and regulation processes online, in order to speed up and make efficient any approval processes.

However, the role of government is also to foster growth of the ecosystem by: (a) acting as policymaker and enabler across agencies (e.g., by supporting ICT capacity through the educational system, or supporting entrepreneurs), and (b) acting as a consumer of digital (whether this is through investing more in e-governance platforms or working with industry to incorporate the principles into e-government and community networks and services delivery).

5 See Findex (2015). Bank Indonesia’s number (as reported by Tempo) was 123.1 million at the same period. Both numbers undoubtedly

include multiple accounts owned by the same person – which is also true of mobile phone accounts.

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Another trend is that e-commerce is often leading the development of a digital economy ecosystem. This is important as SMEs represent over 90% of all businesses in Asia, employing over one billion people, and contributing $10.9 trillion to the economy, or nearly 50% of Asia’s GDP. Asia’s SMEs spent approximately $2 billion on IT services in 2014, with the growth rate for emerging Asia at around 24%. And in addition to consumers, it is SMEs that have been nimble and eager adopters of social media, messaging, image-sharing and payments apps, such as Facebook, WhatsApp, Line, and WeChat. These so-called “over-the-top” (OTT) solutions enable smoother and faster real-time communications over IP networks, which can help SMEs lower their cost of doing business, and expand their reach – quite often dramatically so. However, digital solutions are usually developed and targeted at enterprises or consumers – rather than SMEs. This is because (i) as a group they are so diverse and hard to target, and (ii) they often represent such small revenue targets as individual entities that solutions providers are unable to target them. What makes this situation problematic and worthy of focused attention is that SMEs stand to benefit disproportionately from the advantages that the digital economy brings: i.e., lowered costs, dramatically increased reach, and the ability to access and consume enterprise-grade solutions anytime on an as-needed and as-consumed basis.

The sectors ripe for early SME digital promotion will differ by country but are generally found to be industries forming a sizable share of total GDP, and those industries likely to increase their efficiency and/or reach with the use of technological tools. In many of the emerging economies of ASEAN and APEC, the primary focus is likely to be: (1) the financial sector, after improving database and security systems; (2) wholesale and retail trade6, (3) the agriculture and aquaculture sector which has become particularly exciting in the last 1-2 years, (4) the transportation and warehouse sector (as can be seen from the lively ride-sharing app scene that has proliferated across the region), and (4) the creative sector, including work such as graphic design, software development, advertising, and video.

As an example, PeaceSoft in Vietnam heads a group of companies, including eBay Vietnam, shipping and cash-on-delivery gateway ShipChung.vn, warehousing and fulfilment agent BoxMe.vn, and online payment system NganLuong. Given the low penetration rates of credit cards and debit cards in Vietnam, NganLuong designed a payment wallet solution, offering multiple types of settlement methods including credit and debit cards, bank transfers, mobile phone billing, ATM payments and others. By 2015, only 30% of NganLuong’s revenues still came from within the PeaceSoft group, while 70% came from the 20,000 merchants that NganLuong is connected to. Innovators like NganLuong are helping to slowly introduce sellers and consumers to new forms of payments, opening the doors to a range of online services.

6 This includes the e-Commerce sector and the restaurants, hotels and the hospitality sector.

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Similarly, in Indonesia, Doku is encouraging digital adoption by making it easy for businesses to process all types of payments online, and by doing so encourages merchants to go online and invest in digital technologies. Although clients initially came from the insurance and airline sectors, Doku now has merchants in industries as varied as property, food and beverage, marketplaces, and transportation. In recent years in Indonesia, over 20 e-commerce companies have emerged either locally or as foreign ventures.

The specific digital economy opportunities will differ by country in the early stages. It will be up to governments and the donor community to connect the dots and make apparent the early stage opportunity, often helping to identify and aggregate initial demand. The following chapters examine the focus of these efforts, articulate how opportunities are being developed in various sectors and offer suggestions as to what areas or components have the are likely to be most successful if further resources are dedicated.

Case Study: Doku

Doku was established by Nabilah Alsagoff and her colleagues following the Bali bombings and the national mood to demonstrate Indonesia’s resilience and the country’s future.7 After experimenting with a portal for tourists, Doku saw the need for an e-payments gateway for Indonesia’s growing e-commerce market. Initial clients were from the insurance and airline sectors, but Doku has since expanded to include merchants in industries as varied as property, food and beverage, marketplaces, and transportation. Doku has subsequently launched two additional products in new high growth areas: Doku Wallet and Doku MyShortCart.

● Subscriber numbers for Doku Wallet hit 100,000 in December 2014 and 150,000 just three months later. The main markets for Doku Wallet are the 18-40 year demographic, university students, first jobbers and urban families.

● Doku MyShortCart is aimed at SMEs (rather than MSMEs). By signing up with Doku, merchants need to neither own nor operate an online store; they simply register with Doku and the payments gateway is immediately available to their customers. Driving the growth is the growing use of cards as the market matures, and the need for a secure means of payment along with transaction reconciliation tools.

As Doku expands from B2B to B2C more customers want to use mobile devices and the merchants are adapting to this demand. In this way Doku is also facilitating the reach of overseas merchants into the Indonesian market with local payments. Enabling banking regulations can help by making the use of m-payments and mobile devices more viable.

By the end of FY2014 Doku had grown its transactions revenues to IDR6.8 trillion ($522 million) and the number of employees to around 160.

7 See, Doku (2015), “Nabilah Alsagoff and the Story Behind DOKU, Indonesia’s Epayments Pioneer”, http://dokupay.com/demo/dokunewsroom/index.php?post=nabilah-alsagoff-and-the-story-behind-doku-indonesiars-epayments-pioneer

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RECOMMENDATIONS

The bulk of the recommendations in this report are included within the substantive sections that follow. Overall, however, USAID should consider promoting the importance – and emerging impact – of the digital economy that is the result of the cross-cutting nature of the Internet which is increasingly becoming a fundamental input and driver of all other sectors. These sectors include financial services, healthcare, education, tourism and hospitality and, as illustrated in recent years through the sharing economy, transportation and housing, among others. It is because of its very pervasiveness that holistically targeting the benefits deriving from the digital economy has become so important.

USAID can play a timely and practical role by bringing the various silos together via specific programs. This requires two streams of focus:

• Awareness building: The benefits of the digital economy can only be fully captured if the approach is coordinated from the top. This means including agencies not traditionally seen as “tech” agencies in the construction of infrastructure policies so that the opportunities and benefits are properly understood – and so that resource allocation is properly determined. This means, for example, having agriculture or health ministry representatives coordinate with communications officials in developing infrastructure and program development policies.

• Capacity building: If communications officials do not understand the economic opportunities in providing, for example, TV White Space access to remote fishing or rural communities, who will then both consume communications and produce further opportunities and development as a result, they cannot be expected to advance such agendas.

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CHAPTER 2: POLICIES TO PROMOTE THE DIGITAL ECONOMY Given the prospects that the digital economy presents, how do national governments and regional bodies help their citizens to seize these opportunities? This chapter sets out five key areas for focus that lay the foundation for development of the digital economy and digital trade in the region.

CREATE A CONDUCIVE ENABLING ENVIRONMENT FOR THE DIGITAL ECONOMY To promote the growth of the digital economy, business and regulatory environments are important. Possibly, the only thing worse than prohibitive regulations are uncertain regulations. Yet this is the position many start-ups face. In Indonesia, regulatory uncertainty and lack of clarity has limited direct foreign investment in e-commerce and other digital economy areas. In Vietnam, uncertainty around the interpretation and application of transactions and security regulations has become a constraint on the growth of companies and has again curtailed foreign investment and both intellectual and technology transfer. Increasingly we are seeing such issues around data localization, data privacy and cross-border transactions regulations become more and more prevalent. This is an important area for regional groups such as APEC and ASEAN to address if they are to boost regional growth and economic integration. The objective for the private sector is to make the impact of such constraints better understood amongst policymakers. The opportunity for the donor community is to make sure that the constraining impact upon various sectors – such as education, healthcare, agriculture, financial inclusion – is known (further elaborated upon in Chapter 4 of the report).

Locally-based start-ups can innovate and disrupt by pushing boundaries, not only in the use of technologies, but also through the development and use of regulations and business models as well. These start-ups are utilizing business models that value social benefits in addition to economic wealth creation. As we transition to a digital economy, the concept of an “Internet business” no exists, but instead the Internet underlies all sectors of the economy. To be successful requires collaboration amongst different players in different sectors – including government and civil society, which requires a conducive enabling environment

While there are a broad range of regulatory issues to be addressed, cross-border data flows and data privacy/protection are key issues deserving immediate attention within the region.

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Enabling regional cross-border data flow: For regional digital trade to flourish, cross-border data flows need to be facilitated at the regional level. Cross-border data flows underpinning digital trade include digital commerce and electronic- and mobile-money transfers, the exchange of health records or validation of identity between countries, the access of non-local websites and content (both from traditional broadcast and OTT-delivered social media), and so on.

The central problem facing both large enterprises and SMEs who need to transfer data across borders is how to ensure compliance with the alphabet soup of general and sector-specific laws and regulations, as well as procedural uncertainties that differ in detail across jurisdictions. Uncertainty exists at all levels: from policy makers and regulators, to “data controllers” responsible for collecting, storing and processing data. For data protection and data processing to be scalable across jurisdictions, alignment of common practice is needed. As it stands, data service companies are under increasing pressure to retain the services of lawyers and compliance officers across many different jurisdictions in order to keep up with numerous new and revised regulations for different sectors of the economy, including codes of conduct and in some cases court rulings. This pushes up the cost of doing business as uncertainty grows over legal interpretations and the risk of violating data laws increase.

Taking a risk-based approach to identifying and removing the barriers for non-traditional players to offer cross-border services in these areas is required if countries are to be enabled to participate in the global market.

Regulatory alignment for data privacy and protection: Most regulatory regime harmonization remains unlikely in the near-term given the diversity of Asian economies, and the lack of regional enforcement mechanisms. However, alignment between domestic regulatory regimes provides a more viable, less intrusive option in the short- to medium-term, around crucial issues such as data privacy and data protection.

Donor organizations are fundamentally important in expanding awareness of the need for alignment. Smart regulation creates opportunities for innovation, while poor regulation restricts access to innovation. Protecting user privacy and ensuring consumer protection, for example, are important – and will continue to grow in importance – but making sure that data flows for innovative initiatives can be extended across the sectors of an economy and across economies so that successful initiatives can scale is also crucial if the benefits of a digital economy are to be realized.

Addressing the gaps between countries, by increasing awareness of the benefits of enabling cross-border data flows and digital trade, along with the existing costs to economic growth – both domestically and regionally – needs to be undertaken in a structured way for regional alignment to emerge. Without alignment, compliance costs for companies engaged in cross border data transfers will continue to rise, as they are required to manage their customers’ data liability requirements across a potpourri of jurisdictional differences. And, as compliance costs continue to rise, digital trade will decline. SMEs will be hit

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disproportionately by this development as the requirements for legal compliance in multiple jurisdictions will often be beyond their capacity and will discourage expansion. This is an area in which several multinational technology companies have taken a lead, but to date the various regional organizations have failed to come up with enabling frameworks or to engage in a consistent and concerted manner.

PROMOTE UNIVERSAL NETWORK ACCESS

As noted in the first chapter, one factor that makes the digital economy so powerful is scale and reach. Expanding broadband access does not just benefit new users, but benefits everyone. For this reason, individual or incremental investments in Internet access will be too small. This creates a classic basis for government intervention. Moreover, through the Internet and the digital economy, governments have a unique opportunity to make services accessible to their citizens on an immediate, as-needed-when-needed basis. But to take advantage of this opportunity, there is a need to make networks accessible and affordable, and for data services to be enabling and efficient.

Previously the focus in network and Internet development has been on promoting simple communications or network access. Today, with all that the digital economy can enable in terms of economic and social development – from social media and information access to remote healthcare, financial inclusion, and smart societies – quality of access has become as important as access itself (Figure 4).

Figure 4: Different Speeds and Channels of Connectivity

Recognizing this, broadband access needs to be defined in terms that promote development such that “universal broadband access” translates to “everyone who wishes to be or can benefit from being on the network… is on the network”. Having everyone on the network immediately changes the economics of the underlying infrastructure, as well as the possibilities for new and innovative business models moving forward, given the services that can be delivered via broadband networks.

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The economics of network access are transformed because they cease to be defined in terms of the cost of each individual network connection, and are instead defined in terms of the potential for multiple services delivery to each user. The concept of the “uneconomic citizen” is immediately made moot as the multiplier benefits attributable to any and all citizens (from government disbursements, utilities usage and payments, through to voting, censuses and even basic consumption) become significant. In other words, there needs to be explicit recognition of the economies of scale and scope that result from having “everyone on the network.”

Achieving universal network access will enable the provision of a multiplicity of services (as has begun to be identified above and as detailed in specific sector focuses later in the report). This immediately changes the economics of network rollout and of service provision. The existing focus by regulators and incumbent telcos on the “uneconomic citizen” will become questionable as the economy-wide benefits of universal connectivity begin to become apparent through the delivery of e-government and social welfare services, including in areas of e-health, digital finance, and distance education among others (see Chapter 3).

To take one example: the use of networks and devices to deliver medical reminders and diagnostic information to patients and physicians. Reminders via mobile phones can encourage patients to take medication at the suggested time and dosage, improving the quality of patient care, and lowering the costs of healthcare – both to the patient and to society overall. Devices such as smartphones enable customized applications for use by health providers and patients who are dealing with long-term or chronic illness.

However, for this transition to take place there needs to be recognition of the economies of scale and scope that result from having “everyone on the network.” This is as yet not broadly appreciated or understood. There needs to be recognition of the broad-based economic growth that is enabled by all sectors of the economy being interconnected on interoperable networks and platforms, e.g. health sector benefits, education sector benefits, and so on. Equally, there needs to be explicit recognition of the social development made possible, including through policies and programs of inclusion and universal service access.

Spectrum Harmonization: Concrete steps can be taken to promote universal access. A particularly good example of an important digital economy area requiring multi-national cooperation is spectrum harmonization. Increasingly end-user access and connectivity is wireless.8 This is nowhere more true than when it comes to connecting the unconnected or marginalized (the so-called “uneconomic” user). But for such scale to be feasible, the cost of access and of key solutions needs to be as low as possible. That means that the access devices and the solutions being delivered need to be able to access and be delivered over the same frequencies. Such alignment can only happen at the regional or international level.

8 This does not diminish the need for cable and fiber networks – quite the opposite. However, fixed-line broadband net-

works and submarine cables will continue to be the preserve of large private sector enterprises and consortiums (and to a lesser degree, governments).

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Talk of regional “harmonization” is often either misplaced or overly ambitious, as domestic considerations will continue to trump regional initiatives in most cases. However, in spectrum, frequency harmonization is both important and has significant precedent.

Moving forward, harmonization initiatives across the 700MHz, TVWS and Miliband frequencies stand to foster significant growth, in both demand and supply. Harmonizing the use of these bands will create the prospect of regional markets of scale; that in turn will enable vendors to identify markets sizeable enough to make the necessary investments in chipsets, devices, and software, generating regional markets of both scale and scope. This will require inter-governmental organizations such as ASEAN and non-governmental groups such as the ITU and the Asia Pacific Telecommunity (APT) to play their roles proactively in promoting awareness of the benefits and the necessity to move together as a group.

Harmonization of spectrum creating new opportunities

The Asia-Pacific Telecommunity (APT) band plan advocates harmonizing use of the 698-806MHz band (more commonly referred to as the 700MHz band) for the deployment of mobile broadband technologies. Harmonization of the 700MHz band will enable greater interoperability and international roaming between networks. It will also help to increase coverage in underserved rural and remote areas as the better signal propagation enables coverage of a larger geographical area with fewer cell sites, thereby enabling economies of scale for mobile broadband equipment and devices.

Following the ITU’s World Radiocommunication Conference 2015 (WRC-15), Europe, the Middle East, and Africa joined the Americas and Asia Pacific, in committing to harmonize the 700MHz band for mobile broadband, making this initiative global.9 Spectrum will be freed up as part of the switchover from analogue to digital broadcasting. Currently, however, Thailand and the Philippines have yet to commit to allocating the 700MHz band for mobile broadband services, which risks setting them behind in transitioning to a digital economy, and may leave significant gaps in the APEC and ASEAN landscapes.

Forward-looking preparation around spectrum allocation is also necessary in laying the foundation for a digital economy on two further fronts:

1. As more and more activities such as finance, trade, social interactions and entertainment are conducted over IP-based and mobile networks, having sufficient spectrum is essential. The future requirements for the Internet of Things (IoT) and machine-to-machine (M2M) networks, in particular, with the billions of devices (“things” and sensors) foreseen to be connected and transmitting data, need to be borne in mind in this regard when planning. (See examples below.)

9 ITU (2015), World Radiocommunication Conference allocates spectrum for future innovation,

http://www.itu.int/net/pressoffice/press_releases/2015/56.aspx#.VvuK5HrJJv4, accessed 30 March 2016

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2. Spectrum sharing technologies and dynamic allocation of spectrum, which will enable far greater capacity of frequency use, will require both spectrum alignment and database coordination across territories.

Forward-looking spectrum allocation for IoT

In December 2015, the Australian Communications and Media Authority (ACMA) proposed changes to spectrum regulations aimed at providing easier access for M2M operators utilizing spectrum for IoT. These changes would eliminate the technical barrier preventing them from readily accessing narrowband, low-powered networks in the 900MHz, 2.4GHz, and 5.8GHz spectrum bands for applications such as data telemetry, machine data and monitoring, smart metering, security systems, sensor networks, and industrial control.10 ACMA is also looking at adding new frequency bands for other applications including using in-ground ultra-wide bandwidth transmitters for automated parking management systems; radio-determination transmitters for industrial sensors; and analysis devices used for detecting objects in walls, ceilings, and floors. An additional aim is to align usage of the 122.25-123GHz and 244-246GHz bands for short-range devices with the European system.

Singapore’s IDA first established a TV Whitespaces (TVWS) roadmap in 2009 to promote use and innovation across unoccupied frequencies in a manner that would not cause interference to licensed users in Singapore, and neighboring countries.11 From 2009 through 2014, IDA supported the development of TVWS by facilitating testbeds and commercial trials under the Singapore White Spaces Pilot Group (SWSPG). This resulted in the TVWS regulatory framework announced in June 2014, which set aside 180MHz in the VHF and UHF bands. To ensure no interference with licensed and protected services, TVWS use is managed through a Geolocation Database with technical parameters established by IDA for co-channel and adjacent channel use.12

CREATE SEAMLESS DIGITAL IDENTITIES Governments around the world have helped their citizens to establish proof of their identity for centuries. Most recently this has been done through national identity cards, social security numbers, or driver’s licenses, among others. With the move to the digital economy it is critical to create secure digital identities to build trust and carry out seamless interactions. For advanced digital societies with existing identification systems, this means digitizing and integrating legacy systems so that the society is not left with fragmented and incompatible ID systems, and citizens having to carry multiple ID cards – which would defeat much of the benefit that otherwise accrues to digital ID systems. For developing countries, it means ensuring a sound verification system as digital identity systems are rolled

10 ACMA (2016), Easier access to spectrum for Internet of Things, http://www.acma.gov.au/Industry/Spectrum/Spectrum-

planning/About-spectrum-planning/easier-access-to-spectrum-for-internet-of-things, accessed 30 Mar 2016 11 IDA (2010), Trial of White Space Technology Accessing VHF and UHF Bands in Singapore ,

https://www.ida.gov.sg/~/media/Files/PCDG/Licensees/SpectrumMgmt/SpectrumNumMgmt/WhiteSpaceTP.pdf, accessed 30 Mar 2016 12 IDA (2014), Explanatory Memo - Regulatory Framework for TV White Space Operations in the VHF/UHF Bands,

https://www.ida.gov.sg/~/media/Files/PCDG/Consultations/20130617_whitespace/ExplanatoryMemo.pdf, accessed 30 March 2016

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out, and adopting a holistic top-down approach from the outset to ensure network interoperability.

Accessing government services and conducting many other daily activities depend on the ability to prove one’s identity. A secure and scalable digital identity ecosystem is becoming essential if we are to address the imbalance between the provision of digital services and the ability of citizens to identify themselves on digital channels. An important example is the provision of social protection. The delivery of social protection programs are increasingly being enabled by governments and donor agencies making greater use of digital technologies. As costs come down and availability goes up, the use of IT for social protection is bringing about gains in efficiency, transparency and in the scope of services available. A simple but key point should be borne in mind here: it is national policies, demographics and finances that are the key drivers behind social protection projects and programs. The role of IT in social dissemination is to provide ways to deliver, administer, monitor and evaluate projects and programs. However, it is also true that the use of digital technologies, such as the Internet, social media, broadband wireless communications, and the like, can empower citizens by opening up areas of information and social engagement that can influence the policies and resources devoted to social protection.

Whilst connectivity is key to the success of digital services, security is also a central consideration. As the number of digital services has grown and the level of risk individuals are exposed to has increased. Governments and businesses need to recognize the necessity for more secure and convenient ways of creating, managing and applying digital identities. Establishing digital IDs will have the effect of accelerating a variety of programs and opportunities now constrained by fragmentation and a lack of security and trust. It will, for example, accelerate digital know your customer (KYC) programs.

The importance of a holistic approach to digital identity – and the importance of digital identity itself – has been emphasized to many emerging and transitional economies in recent years. In Indonesia, for example, the Home Affairs Minister pointed out in 2015 that, “Some eight million residents have more than one ID card,” citing the recent arrest of a criminal in Jakarta who was found to have “159 ID cards with the same fingerprint and different names.”13 Further, the minister estimated that between 60-70% of normal election costs, such as printing paper and the posting of election materials could be saved with a digital ID system.

Cambodia’s Ministry of the Interior introduced a new electronic national ID card in 2012, replacing the old national ID card, eligible for citizens aged 15 and up. The new ID card costs KHR10,000 (around $2.50) to make, and will be used for voting in the 2017 commune elections, and 2018 national elections.14 Using the electronic national ID cards will allow

13 The Citizen Daily, Indonesia to Copy India’s E-Voting Election System, 1 Sep 2015, http://en.citizendaily.net/indonesia-to-copy-indias-e-voting-election-system/ 14 Lieutenant General Chan Kimseng, spokesman for the Identification General Department at the Ministry of the Interior did in an inter-

view with the Khmer Times that citizens would still be able to use their old ID cards to vote in the 2017 commune elections and the 2018

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citizens to easily fulfil KYC requirements when signing up for new digital financial services (DFS) accounts. The electronic system, when linked to the Ministry’s database, will also allow for quick verification, which will not only simplify but also speed up approval times, making registration processes far more straightforward and encouraging users to sign up. The Ministry had issued over 10 million new domestic ID cards by early 2016, and targets to complete issuance by 2017, although it is still facing difficulties encouraging the elderly and migrants to apply for the new electronic ID cards. The main challenge remains that many Cambodians still choose not to carry their IDs with them, making KYC verification difficult. An announcement by the Ministry of Posts and Telecommunications in September 2015 mandating Subscriber identify module (SIM) registrations for both the new electronic domestic ID and old ID cards suggests a possible path forward if the e-ID is able to virtually be validated from their mobile phones since the SIM has been registered and verified.15

Case Study: Social Dissemination in Viet Nam

The use of digital technology for social dissemination in Viet Nam is still in its formative stages and so too, therefore are the benefits. Currently there are six different software programs covering areas such as social insurance contributions software (to keep a record of contributions from all sources), social protection notebooks and as health insurance cards software (to replace manual data entries of insurance contributions by beneficiaries), benefit determination software, payment software, health and management software and accounting software. A key problem is that the Vietnam Social Security (VSS) agency operates software at 63 provincial offices and 713 district offices with little integration between their offices and no economy-wide standardized UID system. Consequently, for example, a child can receive multiple health insurance cards because they belong to several lists of beneficiaries (e.g., because they are under the age of six years, because they are a relative of a soldier, etc.). As of 2012-13, it was estimated that more than 1.3 million duplicate health insurance cards had been issued. In the case of social protection notebooks, there are instances of fraudulent claims, such as a case where the beneficiary registered in two different VSS offices. “The abuse is very difficult to detect because software deployed at these two VSS offices have no inter-operation for checking.” The benefits to Viet Nam’s social protection system and resource management systems by eradicating these redundancies will be significant in terms cost savings, removal of fraud, increased transparency, time savings and so on. But far more beneficial than such savings will be the opportunities for end-users to receive further disseminations and e-government services once these systems are consolidated and integrated.

VSS has started to replace its six different software systems with a program to cover administrative management, monetary transactions to recipients, and health insurance review software. But this will take time as only three of the 63 provinces have the new software and most recipients are still required to attend VSS offices as the service remains offline. The benefits will eventually come, but they will still be constrained by the lack of further system interoperability. For example, only one-

national election. R. Chanveasna (2016), Interior Ministry Pushes The Adoption of Electronic ID Cards, Khmer Times, http://www.khmertimeskh.com/news/22401/interior-ministry-pushes-the-adoption-of-electronic-id-cards/

15 Although the Ministry of Interior is pushing the adoption of the new electronic ID cards for ensuring voting eligibility, the Ministry did clarify that the old ID cards would still be allowed, which is also the case for SIM registrations.

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third of households have bank accounts, so the electronic fund transfers (EFT) enabled by the software will initially have limited application, covering less than 7% of recipients. The Ministry of Labour, Invalids, and Social Affairs has also introduced a new software program, SASSP (Social Assistance Strengthening Program), with assistance from the World Bank’s Multi-Sectoral Technical Assistance Program. However, this program is not mandatory for all offices and is also not yet online. So again, the benefits, while potentially huge, have yet to be realized.

Individually these programs are admirable and take steps in the right direction, but objectively they speak to the need to take a holistic government approach to developing the digital economy. In this case, again, a standardized digital ID program would go a long way to accelerating and extending the benefits that such initiatives are able to offer.16

Recognizing that the emerging ubiquity of mobile access provides an opportunity for citizens to authenticate and identify themselves remotely and securely for an ever-increasing portfolio of digitally enabled services, governments should actively explore implementation of digital identity through engaging with mobile operators.

BUILD HUMAN RESOURCES FOR A DIGITAL FUTURE A digital economy is essentially a knowledge-based economy, which comes with specific skillsets that many economies lack at present. Organizations, both public and private, are stepping in to address the skills gap with, for example, e-learning and massive open online courses (MOOCs). They offer solutions to challenges common to many economies such as a lack of qualified teachers, the high cost of training, and the lack of support and incentive for skills upgrading.

For instance, the Vietnamese e-education platform GiapSchool is run as a social enterprise, offering courses free of charge. In comparison to earlier forms of e-learning, GiapSchool provides opportunities for students to interact with other students and lecturers, no matter where they are and at any time – an option that has been missing in prior e-learning ventures. GiapSchool succeeds because it engages with specialists who can produce high quality course materials, and is accessible from multiple devices and multiple locations.17

At the other end of the spectrum, in highly developed Japan where the population is aging and job markets are being restructured, there is a focus on reskilling older workers using MOOCs. There is also an emerging focus on continuous learning (adult education), with multiple careers now expected in a single lifespan rather than the old “iron rice bowl” concept. Thus, building on lessons learned internationally,18 JMOOC was created as a

16 Singapore recently began a trial on mobile digital ID system for all online transactions including those with government agencies and commercial firms such as banks. The Mobile Digital ID sits in the cell phone SIM card, and is based on advanced encryption techniques, known as public key infrastructure (PKI), that are more secure than and could supersede the use of one-time passwords (OTPs), which are delivered via SMS or generated by a security token. The IMDA is leading this endeavor in close collaboration with the Monetary Authority of Singapore and the Ministry of Health. The Straits Times, E-identity cards for all Singaporeans on the cards, 16 March 2016 17 It also provides course certifications that students can use with prospective employers, one of the big areas that has been missing and one that will require a degree of standardization across markets if scalability of such ventures is to be made possible – this is a potential area for intervention by groups such as APEC/ ASEAN and donor groups, along with educational and industry standards bodies. 18 Example MOOCs include Coursera, edX and Udacity.

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partnership amongst academia and interested corporations with the initial step being to provide access to the best courses globally by adding Japanese language capabilities and educationalists who could speak to those courses.

What the examples illustrate is that what is often needed in the first instance is a degree of localization of relevant materials and of the service into the local language and local context. Stimulating local demand – and local opportunity – can often best be aided by working with successful international platforms and providers, so as to enable local players to adapt the international platform to local conditions and scale and then service demand locally.

Organizations able to leverage the data and interpret it intelligently will gain a competitive edge. Another motivation for establishing JMOOC was to enable the collection and analysis of educational data so that the courses offered can be tailored to the individual needs of students and working professionals.

Another interesting case, elaborated further later in this report, is the use of technology and data by Aeon Agri Create to boost the agriculture sector in Japan. Most of the farmers on the Aeon farms are tech-savvy youngsters with little or no experience in agriculture. But Aeon Agri Create is using a network of smart devices and sensors to collect data, which is then analyzed and shared with the farmers, making crop production and management easier, smarter, and less-dependent on decades of on-the-job learning by experienced farmers.

MEASURE THE DIGITAL ECONOMY Data is the currency of the digital economy. For policy makers to be able to plan and implement successfully, there needs to be both a framework and a process for the collection, accounting, and analysis of statistics and data. Just as the digital economy requires interoperability, policy benchmarks require statistics and data to be comparable across platforms, sectors and economies.

While basic telecoms access data such as mobile penetration and broadband subscription indicators have become relatively common at this point, a number of APEC and ASEAN economies still show missing data across basic statistical categories. But for effective policy making across the emerging digital economy, the data not only needs to be consistent, and regularly updated, it also needs to support policy and decision making in planning and developing digital services access and delivery, and in this there is a huge gap in understanding what to look at and measure.

Policymakers and statisticians urgently need to come together to define a better evidence base upon which increased public awareness can be built, and more fully informed decisions can be made so as to effectively (i) prioritize and allocate resources at the domestic level, and (ii) coordinate frameworks at the regional level.

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RECOMMENDATIONS

Activities that USAID could consider in support of universal access and digital economy data collection are described here while activities in support of other focus areas are covered in subsequent chapters:

• Promoting Universal Access.

o Identification of opportunity: the digital economy enables opportunities that are very often small in scale on an individual basis – both in terms of size and cost: The use of social media in the ag sector to coordinate experience, the use of a database platform to enable shared curricula and standardized scoring in education across rural communities, and so on. On their own these are all too often not enough to attract significant private sector investment, but when aggregated together they become notable, and potentially profound.

o Coordination of delivery: Collating community-based developments (such as identified in the point above), on the one hand, and working with government on proof of concept delivery that is scalable, on the other, remains a key gap in the emerging economy that requires the donor community and international organizations to play a coordinating role. This can mean bringing various app developments together with larger scale funding, through government grant or VC networks, for example.

o Focusing on access: the most significant gap in the emerging digital economy across the developing world remains the “on ramp” – the access channel, which these days is most often a mobile device. If people are on the network then they can be targeted for delivery solutions, and they themselves can target opportunity and assistance. Having network availability without a device to access the network defeats the opportunity.

In health care for example, mobile devices improve access, administrative efficiency, and affordability. To this end, policymakers need to be looking at proactively encouraging the use and adoption of mobile phones, smartphones, and tablets in medical care (as well as promoting the need for interoperable healthcare platforms). The same is true in education, in logistics, and in finance (as we detail in later chapters). Providing the solutions is a private sector issue, providing the enabling framework is the job of the public sector, but enabling and collating success is a gap that is often left unaddressed. USAID can play an important role in having universal service access policies revisited to include subsidizing devices and solutions platforms for remote and under-accessed communities, individuals, and campus areas.

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• Data Collection: USAID has an immediate and important role to play in working with policymakers to identify already existing statistical indicators in healthcare, financial inclusion, trade, agriculture- and aquaculture, to be able to measure the impact of new policy initiatives so as to demonstrate impact, and to work with policymakers to remove regulatory constraints. Much work has already been done across these domains – in everything from the credit worthiness of small holder farmers, to the productivity of mobility-enabled doctors that is not being even made apparent (let alone taken into consideration) in the new digital economy policies that are currently being developed. This is an urgent area for concern that international organization and donor groups – given their regional and cross-domain vantage point – have a wealth of experience to inject into the conversation.

o USAID could support regional agreements on the types of data that member states or economics would collect based on existing approaches developed by the OECD and/or the World Bank. USAID could further support the tracking of trade in data and of digital economy growth estimates, as well as the collation and dissemination of best practices and national-level successes. This would enable economies to identify agendas for moving up the digital economy value chain and accelerate the transition for emerging economies to becoming digital economies.

o Recognizing the great diversity across APEC and ASEAN member economies, including in public policy capacity, four steps are needed to begin to address the statistical gaps:

§ Consistent and comparable definitions for existing ICT and digital economy datasets;

§ Consolidation of existing sector-specific data sets that be used to measure digital economy program effectiveness;

§ A digital economy framework for applying data;

§ The subsequent coordinated development of new digital economy datasets to better capture the impact upon economic development.

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CHAPTER 3: DIGITAL ECONOMY POLICY EFFORTS IN ASIA This chapter outlines the digital economy and digital trade related initiatives of ASEAN and APEC, highlighting differences and overlaps. It also touches upon initiatives by other donors where relevant. By analyzing the respective strengths of the initiatives and potential gaps, this section identifies potential areas of intervention by USAID, with further sector-based examples in the following chapter.

REGIONAL DIGITAL ECONOMY FRAMEWORKS

Association of Southeast Asian Nations (ASEAN)

ASEAN leaders have long recognized the critical role technology plays in regional integration, connectivity and competitiveness. ASEAN’s commitment to develop a regional digital economy, however, is best seen in the ASEAN ICT Masterplan (AIM). The first AIM (2010-2015) was launched in 2011 as a framework and roadmap to enable ICT development and the better use of ICT for growth.19 In terms of allocation of projects and resources, infrastructure development and bridging the digital divide received nearly 50% of the budget and project priorities, reflecting ASEAN’s emphasis on connectivity in the region.20

The ASEAN ICT Masterplan (2016-2020) (AIM 2020), by contrast, reflects the rapidly changing landscape and a refocus by ASEAN on utilizing ICT to facilitate overall economic growth and social development. While ASEAN is at a comparatively early stage in its work plan, the drivers were explicitly cross-cutting on two fronts: across sectors, and across markets. Where the previous AIM focused on connectivity, AIM 2020 envisions propelling “ASEAN towards a digitally-enabled economy.”21 (Box 2)

19 AIM2015 identified six Strategic Thrusts: i) economic transformation, ii) people empowerment and engagement, iii) innovation, iv)

infrastructure development, v) human capital development and vi) bridging the digital divide. Under each Strategic Thrust were a series of Initiatives, with subsequent Action Points specifying what needed to be done in order to meet the objectives of each Strategic Thrust. ASEAN (2011), We’re Stronger When We’re Connected: ASEAN ICT Masterplan 2015, http://www.aseanconnect.my/CMSPages/GetFile.aspx?guid=8a3f5517-8b2f-4844-a1e4-48b993084874,

20 Ibid 21 AIM2020 has eight Strategic Thrusts, including a focus on utilizing ICT in the single market, new media and content, especially on lo-

cal content creation, and information security. Addressing the digital divide has now been incorporated into the people integration and em-powerment thrust. For details, please see The ASEAN ICT Masterplan 2020 (2015), http://www.asean.org/storage/images/2015/November/ICT/15b%20--%20AIM%202020_Publication_Final.pdf, accessed on March 21, 2016

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Eight Strategic Thrusts of the AIM 2020

1. Economic Development and Transformation: To support member states to be linchpins

in the digital economy, especially in key priority areas such as digital trade and services.

2. People Integration and Empowerment through ICT: To improve people to people

connections as well as improve accessibility, affordability of ICT services to empower

ASEAN citizens.

3. Innovation: To spur entrepreneurship and idea generation to produce ICT leaders.

4. ICT Infrastructure Development: To continue to develop and improve digital

infrastructure backbones.

5. Human Capital Development: To equip ASEAN citizens to be digitally literate,

strengthen workforce through re-skilling programs and to attract talent.

6. ICT in the Single Market: To align the AIM 2020 and AEC goals.

7. New Media and Content: To improve quality and quantity of ASEAN content available

on digital space.

8. Information Security and Assurance: To mitigate increasing cyber threats and build a

trusted digital ecosystem. Source: ASEAN ICT Masterplan 2020

The first thrust, Economic Development and Transformation, is devoted to the promotion of digital economy in priority areas, containing two actions points: promoting digital trade and developing an approach for engaging proactively with Over-the-Top Service Providers. For ASEAN’s policymakers this latter issue is a double-edged sword: on the one hand, they recognize the need to promote and protect domestic markets and domestic carriers. On the other, they are looking to engage with the momentum of the large and disruptive OTT players to further promote access and digital service adoption in such areas as payments, smart cities, and sharing economy developments. Possible projects include studies to determine enabling policies and best practices that promote digital economy as well as to look into the opportunities and challenges of OTT services. There is also an emphasis on SME enablement.

The priorities included in the AIM 2020 show that ASEAN leaders are on board with the importance of promoting digital economy and trade for the growth of the region. At the same time, the types of projects the AIM 2020 is focused on show that ASEAN as a region is still in the early stages of understanding what digital economy and trade are, what the transition will entail, and what other countries are doing.

However, given that AIM 2020 is still in the early stage of implementation, it is difficult to predict which way ASEAN as a region will lean in terms of policy orientation. For example, a consultative approach towards forming OTT policies may sound positive but is not assuring in itself given the limited track record of ASEAN member states in having open

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dialogues. This is a contentious, complex and multi-disciplinary area requiring objective analysis of many different arguments.

Initiative 6.1, “Creating a Conducive Environment for Business” provides additional insight into the current thinking of ASEAN ICT leaders. While its main target focuses on marketing ASEAN as a single market and investment hub for ICT vendors and service providers, this initiative also shows clear intent to accelerate development, investment, and delivery of digital services across ASEAN and into traditional sectors of the economy.

A further initiative now being considered is the development of the ASEAN Single Telecommunications Market, which would seek to encompass issues of spectrum harmonization, roaming fees minimization, and OTT service provider alignment among others. This would be a major step forward in championing the growth of a regional digital society if it were to pass feasibility and take root. This effort is being supported by Australia.

Aside from the AIM, there are other initiatives where digital economy discussions resonate. The newly established ASEAN Economic Community (AEC) is one such platform. The AEC Blueprint 2025 aims to achieve a regional economic bloc with five interrelated and mutually reinforcing characteristics: (i) A Highly Integrated and Cohesive Economy; (ii) A Competitive, Innovative, and Dynamic ASEAN; (iii) Enhanced Connectivity and Sectoral Cooperation; (iv) A Resilient, Inclusive, People-Oriented, and People-Centered ASEAN; and (v) A Global ASEAN.22 The blueprint, while vague enough to not be constraining, suggests that ASEAN leaders understand the critical role digital technology plays across multiple economic building blocks such as trade, investment, people-to-people connectivity, and financial inclusion.

Nevertheless, only one pillar – Enhanced Connectivity and Sectoral Cooperation – explicitly deals with digital development (C.2. Information and Communications Technology (ICT) and C.3. E-Commerce). Digital payments are mentioned once (in Section A.4. Financial Integration, Financial Inclusion and Financial Stability), but without any elaboration on the linkages and symbiotic relationship they have (and need to have) with e-commerce. The section nods towards the potential of digital payment services in cutting costs and expanding access to the unbanked and underbanked populations, including SMEs and low-income groups. However, the Blueprint comes up short of offering guidance as to how members are to promote digital payments nationally, let alone at the regional level.

The AIM 2020 was approved by and is being implemented by the ASEAN Telecommunications Ministers’ Meeting. This poses an implementation challenge, as achieving many of the goals will require coordination across a range of ministries, including trade and finance. The AEC Blueprint provisions on e-commerce are currently being led by the Senior Economic Officials Meeting, which has a broad mandate to promote economic

22 ASEAN (2015), ASEAN Economy Community Blueprint 2025, http://www.asean.org/storage/images/2015/November/aec-page/AEC-

Blueprint-2025-FINAL.pdf, accessed on March 21, 2016

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cooperation in the region, but is at such a senior level that it may have little time to focus on the details of policy reform for e-commerce.

Asia Pacific Economic Cooperation (APEC)

APEC has a history of being a key fora to lead policy development efforts where next generation trade and investment issues are concerned. Within APEC there are at least three key groups and initiatives that look at the promotion of a digital economy. The first is the APEC Electronic Commerce Steering Group (ECSG), established in 1999 to perform a coordinating role for APEC e-commerce activities, based on the principles set out in the 1998 Blueprint.23ECSG projects include those on data privacy such as the creation of the APEC Privacy Framework and later, the Cross-Border Privacy Rules (CBPR) system, to enable accountable cross-border flow of personal information within the APEC region.24 The Data Privacy Subgroup (DPS) is also working towards achieving interoperability between APEC and EU Privacy Rules Systems through a joint working group. Another relevant sub-working group is ECSG’s Paperless Trading Subgroup (PTS), which has been developing e-solutions or e-processes such as Electronic Certificate of Origin (ECO), e-invoicing, etc. to promote cross-border trade in order to implement the Supply-Chain Connectivity Framework and Action Plan.25

Figure 5: APEC Organizational Chart

A second, older, platform within APEC is the APEC Telecommunication and Information Working Group (TEL WG), which is focused more on the pre-conditions for a digital

23 APEC Electronic Commerce Steering Group, http://www.apec.org/groups/committee-on-trade-and-investment/electronic-commerce-

steering-group.aspx 24 Ibid 25 APEC, Supply-Chain Connectivity Framework (2001),

http://www.apec.org/Groups/~/media/1D25FA13CCDB467CA1D2B770BE963F1D.ashx

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economy: connectivity and technology development. TEL WG was created in 1990 to promote affordable and universal access to ICTs and the Internet; its vision is to create an “ICT ecosystem, characterized by an integrated, seamless, secure, trusted and innovative ICT infrastructure, services and applications” by 2020.26 The connectivity focus of the TEL WG is apparent in the projects currently undertaken by the ICT Development Steering Group, such as Next Generation Networks (led by Japan), IoT (led by China) and TV Whitespaces (led by Singapore).27

APEC also prioritizes the promotion of regional economic integration, setting forth initiatives such as developing data standards and promoting free flow of information and cross-border e-commerce as main actions. Following the endorsement of the Strategic Plan in 2015, China has initiated a project to look into policy options and best practices around digitizing traditional services, which directly aligns with Priority Area #4 on Digital/Internet Economy.28

Recognizing the disruption that the Internet and digitization have created across sectors, the need to ensure coordination across the many fora involved in this work led to the creation of the Ad Hoc Steering Group on the Internet Economy (AHSGIE) in 2014. As a coordinating body, it sits above existing committees and reports directly to the Senior Officials’ Meeting (SOM) (Figure 5). This “supra structure” can bring different, and often siloed, fora, such as ECSG, TEL WG and ABAC, within APEC together. The group convenes meetings twice a year at the margins of SOM and focuses on platforms such as e-identity, e-payments, cloud computing and cross-border data flows.29

Through the establishment of the AHSGIE, APEC appears to be taking a holistic approach to digital economy development. Ideally this group will use its mandate to show leadership on two important fronts. The first is a greater focus within APEC to promote the voluntary implementation of the APEC CBPRs as a framework (focused on regulatory alignment between economies) for cross border data flows. The second is the establishment of a set of consistent digital trade statistics that can be measured on an ongoing and comparative basis, and will provide the empirical evidence for looking at barriers to digital trade, and therefore digital economy growth. APEC has a reasonable track record in this regard, having created such frameworks as the CBPR and de minimis trade levels. Where it has fallen short is in the implementation of these frameworks.

Specific to the issue of digital trade, APEC’s Committee of Trade and Investment (CTI) has also launched an in depth work plan over the last two years, examining the nature of digital

26 APEC, APEC Telecommunication and Information Working Group Strategic Action Plan 2016-2020,

http://www.apec.org/~/media/Files/Groups/TEL/20150331_APEC%20TEL%20Strategic%20Action%20Plan%202016-2020.pdf 27 APEC Telecommunication and Information Working Group, http://www.apec.org/groups/som-steering-committee-on-economic-and-

technical-cooperation/working-groups/telecommunications-and-information.aspx 28 Since the project will not be completed until the end of 2016, the results are unknown at the time of writing this report. 29 APEC (2015), Summary Report of the 1st Meeting of the Ad Hoc Steering Group on the Internet Economy (AHSGIE1),

http://mddb.apec.org/Documents/2015/SOM/AHSGIE/15_som_ahsgie1_summary.pdf

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trade as a next generation trade and investment issue. In 2016, CTI endorsed a work plan on facilitating digital trade for inclusive growth with the aim for APEC to provide additional clarity to its members on the nature of digital trade, how to facilitate it, and ultimately, how to increase it in the region for the benefit of overall economic growth and reaching APEC’s long-term objective of free and open trade and investment in the Asia-Pacific. Work that followed under this and a subsequent 2017 work plan has helped to educate regional trade officials on the nature of digital trade, examining the impact of digital trade in certain sectors as well as on MSMEs. These activities will help CTI to better define the various issues that surround digital trade, and to eventually develop possible measures to be taken for economies to facilitate digital trade.

Finally, the SMEWG currently is in the last leg of completing its Strategic Plan 2013-2016, which identified market access and internationalization of SMEs as one of the key issues. In 2015, the SMEWG endorsed the Digital Economy Action Plan and Work Agenda (DEAP), which lays out commitments from various member economies, including Australia, United States, Hong Kong, China, Japan, the Philippines, Chinese Taipei, and the United States, to help MSMEs connect to global and regional markets through digitization.30

Under the digital economy focus, the SMEWG platform currently has five on-going projects (Table 2). Much like the TELWG projects, many are one-off projects involving workshops to promote exchange of best practices and new business models for MSMEs in the digital economy.

Table 2: Digital economy related projects by SME WG

# Project Title Year Proposing Economy

Project Budget (USD)

Status

1 APEC Online-to-Offline Initiative - Enhancing SME Digital Competitiveness and Resilience towards Quality Growth

2016 Malaysia; Philippines; Chinese Taipei

366,529 In implementation

2 Digital Trade Policies for the Development of Digital SMEs

2016 Peru NA In implementation

3 New Era of Growth for APEC SMEs through Online-to-Offline Business Models

2015 Philippines; Chinese Taipei

294,726 In implementation

4 Harmonization of Standards for the Movement of Data across APEC Economies

2015 Australia 278,642 In implementation

30 APEC (2015), Developing a Digital Economy Action Plan, http://mddb.apec.org/Documents/2015/MM/SMEMM/15_smemm_012.pdf

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5 Enhancing Micro, Small and Medium-Sized Enterprises (MSMEs) Access to the Digital Economy

2015 United States 110,962 In implementation

6 International Seminar and Workshop on Policies to Promote the Use of ICT on SME, Experiences APEC Economies

2010 Peru 173,315 Completed

7 APEC Symposium on Improving Capacity Building of ICT SMEs with Outsourcing

2008 Viet Nam 113,460 Completed

NATIONAL DIGITAL ECONOMY PLANS

National digital economy plans provide valuable insight into governments’ digital priorities, degree of commitment, and capacity to deliver on their aspirations. The national digital economy plans of countries vary in numerous ways. Some of the plans are comprehensive and cover many strategically important sectors of the economy. For example, Japan has a roadmap for implementing integrated digital technology across all government ministries. Several others are mostly devoted to specific sectors. In terms of outlook, some plans set out long term goals, while others are devoted to short term aims and objectives.

Table 3 gives a broad overview of the national plans of a small sub-set of selected countries to provide examples of the initiatives and trends emerging across Asian economies, all of which view digitization and the widespread use of ICTs as a cornerstone of their economic growth strategy, regardless of their stage of development. Areas of concern and potential sources of implementation challenges are summarized at the bottom of the table for these select economies.

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Table 3: Select Digital Economy plans from ASEAN and APEC economies

Singapore Australia31 Japan32 Thailand33 Indonesia

Pla

n

- Smart Nation Vision

- Infocomm Media 2025

- National Digital Economy Strategy

- Digital First and the Australian Public Sector ICT Strategy 2013

Declaration to be the World’s Most Advanced IT Nation

- Thailand Information and Communication Technology Policy Framework (2011-2020): ICT2020

- National Digital Economy Master Plan

- Economic Masterplan 2011-2025

- Indonesia Broadband Plan 2014-2019

Ove

rall

Focu

s

Improving data services and smart nation, content, and new R&D technology initiatives

Improving and attaining universal service, developing SME presence online, and new R&D projects

Improving access and services, supporting ICT industry and use of ICT by society

Four phases over 20-year period: nationwide advanced broadband network; digitally-enabled economy and society; public e-services; digitally-skilled consumer base.34

Infrastructure, funding for MSMEs and venture capital policy to provide incentives and facilitate financing for tech start-ups, government online

Dat

a Fo

cus

Concept of trusted data marketplace or Digital Harbor relates data emphasis

Big data is one of the priorities identified and in addition to data analytics

Data services identified as one of the strategic thrusts

Data security priorities and government cloud computing. A digital industry hub is underway

Data security and data residency priorities.

Infr

astr

uctu

re

Minimum fiber implementation completed, and to be upgraded; the concept of Heterogeneous network in future identified

Focused on achieving ubiquitous coverage, broadband for all; Minimum 12mbps requirement (target); Other discussion on infrastructure planning

11th Development Plans indicate 95% coverage by 2020.

To double international bandwidth to meet demands. Digital Thailand infrastructure fund to be set up

Broad wireless access still needs to be prioritized and enabled. Current coverage of 4G rollout concentrates heavily on urban centers.

Man

pow

er

Improved training efforts through grants and specialized training initiatives for silver hair and other segments of society

National Broadband Network-enabled Education and Skills Services programs will fund, source, develop and implement training projects; To trial improved online and interactive education system and skills training using the NBN; Schools related skills and education

Talent development and knowledge workers training initiatives; Emphasis on SME sector; More skills training now afforded under 11th Development Plan which will be effective 2016 onwards

Training digital skills for vocational training and income generation; Online vocational content to 700,000 students and 400,000 of general public; Digital literacy training of 600,000 people from general public; MOOCS, digital access packages; 5000 digital workers to be

Targeting 1000 technoprenuers; digital and financial literacy skills; general skills enablement required

31 Australian Government, Department of Broadband, Communications and The Digital Economy, #au20, National Digital Economy

Strategy http://www.umic.pt/images/stories/publicacoes5/National_Digital_Economy_Strategy.pdf 32 MDEC (2015) ‘Digital Economy and Service Industries’ http://www.twcsi.org.tw/UserFiles/file/20150717003.pdf 33 ITU, Thailand Digital Economy And Society Development Plan https://www.itu.int/en/ITU-D/Regional-

Presence/AsiaPacific/Documents/Events/2016/Apr-Digital2016/S2_Present_Pansak_Siriruchatapong.pdf 34 http://www.thaigov.go.th/index.php/en/government-en1/item/99989-99989.html?tmpl=component&print=1

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Singapore Australia31 Japan32 Thailand33 Indonesia

programs trained

Ince

ntiv

es &

Soc

ial P

rogr

ams

Digital inclusion fund to enable more broadband users; Story lab, capability development grants; Support for start -ups and business accelerators; Film related capability grants; Smart health-assist and education support

Digital enterprises, smart grid/smart city; Grants and incentives for online medical services, and for training and legal services identified; Extensive social programs to encourage healthcare, government, senior citizens and other sectors to go online

ICT business facilitation and market access; Training grants are accessible through various channels; Technology innovation grants; Creative content related grants; Start-ups assistance programs

1500 start-ups supported yearly; 300 ready-prototypes aimed; Incentives to be announced

Cha

lleng

es

Needs to zero in on boosting home-grown innovation. This means a need to iron out details to be able to provide consistency across available programs that support innovation and digitization of SMEs and start-ups. These may include more flexible tax regimes (e.g. R&D tax claims) and immigration laws

- While Internet penetration is high, it lags in affordability and quality of broadband availability. Digital disparity and public capacity between urban centers and remote territories is persistent.

- Ensure that policy and regulatory design support digital innovation. This means potential a re-thinking around data governance, tax regimes and immigration laws.

- Particular attention needs to be given to bringing SMEs online. The adoption rate of ICT solutions to drive profit among SMEs in Japan is very low. The human capacity factor and aging population behind SMEs is a crucial element in meeting this challenge.

- Address lack of interoperability with legacy technologies that hinder adoption of new technologies. Such was the case in Japan’s earlier history of automation getting in the way of future development.

- In implementation, promote coordination among NBTC, Electronic Government Agency and ETDA. Deeper coordination with a clear leadership and decision-making structure is necessary.

- Strengthen consultation with private sector, both local and foreign, in designing national plans. The National Digital Economy Plan was led by a small group of committee members, and the extent to which the private sector was consulted remains

- Recognize that digital society development will have cross-sectoral implications.

- The focus of Indonesia’s digital economy aspirations is currently rather narrowly confined to connectivity, e-commerce and technoprenuers.35

35 The main digital economy goal, according to Minister Rudiantara, is for Indonesia to become the largest digital economy in South Asia

by 2020 by achieving online business value of $130 billion with an annual growth of 50% and having 1,000 new technopreneurs with busi-ness valuation of $10 billion.

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Singapore Australia31 Japan32 Thailand33 Indonesia

unclear.

Cambodia36 Laos Myanmar37 Vietnam38

Pla

n

ICT Masterplan 2020 (ICTopia Cambodia)

- Ten-Year Development Strategy (2016-2025) - Five-Year Socio Economic Development Plan (2016-2020) - Vision 2030

- Draft Telecommunications Master Plan - Draft E-governance Master Plan 2020

- E-commerce Development Plan - National Broadband Plan

Ove

rall

Focu

s

Four focus areas:

1. Empowering People (through digital literacy and ICT HR development),

2. Ensuring Connectivity (national ICT infrastructure, conducive legal frameworks, enhancing cyber security)

3. Enhancing Capabilities (develop the ICT industry, ICT standards, R&D) and

4. Enriching e-Services (e-government, e-public, e-economy, e-education).

Increase GDP per capita to $3,190 by 2020 and adopt technology to increase national productivity and competitiveness

- To build a mobile-first digitally connected nation by developing comprehensive infrastructure, localized services and an enabling institutional framework; - To enable government agencies and organizations to provide effective services by using ICT as a tool

- Increase e-commerce and e-payments transactions;

- Improve broadband network coverage and speeds;

- Improve private sector infrastructure investment and boost local equipment manufacturing.

Dat

a Fo

cus

To facilitate data sharing among government entities and to build a nationwide database for information sharing across the economy (e.g.: for disease surveillance, utility management, transport and logistics, agriculture, etc.).

To facilitate faster and safer data transfer in order to attract investment

- Increasing data connectivity is a key focus.

- Ministry of Communication and Information Technology envisions Myanmar as a hub for data flows between South Asia and Southeast Asia

36 KOICA (2014) ‘Summary on Cambodian ICT Masterplan 2020’ https://sengtha.e-khmer.com/wp-

content/uploads/2015/08/Cambodian_ICT_Masterplan_2020.pdf

37 MCIT (2016) ‘Myanmar e-Governance Master Plan’ http://www.mcit.gov.mm/sites/default/files/Myanmar%20e-Governance%20Master%20Plan%20(2016-2020)%20English%20Version(Draft).pdf

38 MOIT (2016) ‘Prime Minister approving the master plan developed ecommerce period 2016 – 2020’ http://www.moit.gov.vn/vn/tin-tuc/7429/thu-tuong-chinh-phu-phe-duyet-ke-hoach-tong-the-phat-trien-thuong-mai-dien-tu-giai-doan-2016---2020-.aspx

- 35 -

Cambodia36 Laos Myanmar37 Vietnam38

Infr

astr

uctu

re

- To cover at least 70% of the population with broadband speeds of at least 10Mbps by 2020.

- To develop the ASEAN-Cambodia Internet Exchange

- Expand the fiber optic transmission network, both aerial and underground, by 10,000 km.

- Establish a national data center to consolidate electronic data of both public and private sectors by 2018.

- To develop comprehensive national broadband infrastructure over 5-7 years, liberalize international gateways and fill coverage gaps.

- For telecoms networks to reach population coverage of more than 90%, Internet access to more than 85%, and high-speed Internet access of at least 7.2Mbps to more than 50% of the population.

- Increase fixed and mobile broadband access to residences where 60% of subscribers to have min. dl speeds of 25Mbps;

- 100% public Internet access points nationwide with 50% offering 50Mbps min. dl speeds; 4Mbps wireless access in urban areas and 2Mbps wireless access in rural areas

Man

pow

er

- Encourage the 80% rural population to participate in digital literacy programs.

- Create National Level of ICT training.

- 95% of government officials to have basic ICT skills

- Training 11 S&T researchers per 10,000 population by 2020;

- Increase computer literacy to 30% and Internet literacy to 40% of pop; proportion of households with computer literacy to 20%

Digital literacy and skills upgrading policy, emphasis on nurturing skilled ICT professionals

Develop human resources by promoting formal training

Ince

ntiv

es

& S

ocia

l P

rogr

ams

Encourage citizens to work in IT sector by providing tax incentives

Cha

lleng

es

- With 80% of pop being rural and 60% lacking reliable electricity, many of the basic tenants of a digital economy are lacking. - E-government is viewed as a way to increase efficiency and disseminate information. Currently, there is little sharing amongst government agencies. Increasing agency interaction could help reduce costs and reduce burden son citizens.

- Laos’ web decree signed on 16 Sept 2014 places strict regulations on the sharing and disseminating of information online. This may deter foreign investment in the ICT sector. - The Law on Preventing and Combating Cyber Crime has vague implementation guidelines that may undercut Laos’ progress in combating cyber threats and impede its ability to leverage the ICT sector.

- Existing e-Government implementation hindered due to lack of a leading/ coordinating organization, lack of support from senior government officials, corruption etc.

- Expanding 4G coverage seen as difficult due to weak ROIs on 3G rollout. - Over-reliance on a small number of undersea cables increases Vietnam's international connectivity risks. - Network security law increases business and data uncertainty by requiring businesses to submit confidential information and data, as well as provide the government with encryption keys.

Source: TRPC research

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The national plans of Australia, Singapore, and Japan clearly articulate their respective visions and list detailed milestones and benchmarks against which they will measure success. This provides a clear road map for the respective governments to follow. For example, the five-year implementation time line of Australia’s national plan (Advancing Australia as a Digital Economy)39 lists specific action agendas for specific agencies and the deadline for achieving each target. This is presently lacking in the national plans of many other economies.

Japan’s national plan is also robust, specifying quantitative Key Performance Indicators (KPIs) to assess the progress and results of actions taken. Adequate provisions have been made for changes too. For example, the plan says KPIs will be continuously improved throughout the process of implementing the strategy to establish more appropriate indicators. This shows that Japanese policy-makers recognize that the world of digital technology is constantly evolving and they need to be flexible.

INTERNATIONAL ORGANIZATIONS AND THE DIGITAL ECONOMY Multilateral, plurilateral and inter-governmental bodies have an integral role to play as facilitator and convener of dialogues, as a hub for knowledge sharing and dissemination, and as a platform to harmonize differences in approaches towards a digital economy. There is, however, a growing awareness that the role of facilitator may not be enough as the importance of cross border flows increases and as constraints to cross border digital commerce, and therefore overall regional trade, grow. Many of these organizations are beginning to look at how and where to play a more active role in establishing regional frameworks and in aligning national digital economy regimes in areas such as privacy, transactions, de minimis trade levels, spectrum, roaming rates, and so on.

Organization for Economic Co-operation and Development (OECD)

The OECD has been a leader in advancing policies to promote digital economy; it has focused on understanding what challenges the digital economy poses, measuring the socio-economic impact of the digital economy and advancing policy dialogues. Its reports and indicators are often treated as best practices for even non-OECD member economies to use as reference. The OECD has also promoted data privacy and protection as a fundamental value and established guidelines. Its efforts include Guidelines on the Protection of Privacy and Transborder Flows of Personal Data,40 which focuses on the need to address the global dimension of data privacy through improved interoperability and OECD Recommendation on Digital Security Risk Management, which urges that digital security risk

39 DIGECON Research (2013), ‘Advancing Australia as A Digital Economy’, http://www.digecon.info/docs/0089.pdf 40 OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data,

http://www.oecd.org/sti/ieconomy/oecdguidelinesontheprotectionofprivacyandtransborderflowsofpersonaldata.htm, , accessed on March 21, 2016

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should be treated as an economic rather than technical issue and be integrated into overall planning.41

OECD data is the industry standard on digital economy data and measurement, and the organization continues to play a leadership role in advancing the measurement agenda. Its Key ICT Indicators42 and Broadband Portal43have been the go-to platforms to obtain latest statistics and to understand latest thinking around how to measure economic impacts of ICT adoption. Through publication of the “Measuring Digital Economy” series,44 OECD has not only promoted the importance of internationally comparable and updated statistics and cross-country analyses for evidence-based policy making but also proposed experimental indicators.

OECD reports on digital economy cover a broad range issues related to digital technology and ecosystem development such as Internet traffic termination, broadband, and IoT.45 OECD also publishes a biennial series, Digital Economy Outlook, which examines and documents evolutions, emerging opportunities, and challenges in the digital economy.

Asian Development Bank (ADB)

In recent years, the ADB has begun to recognize the potential of digital technology in transforming and enhancing trade, social protection, and financial sector management, among others. The ADB has accordingly started to initiate research and projects in these areas. For example, ADB started issuing newsletters on financial inclusion with a focus on digital payments in 2013. ADB is ramping up efforts to grow its presence in the area, as exemplified by its first regional forum on Financial Inclusion in Digital Economy, organized in May 2016.46

Despite the accumulated lending and project experience across Asia, ADB, at this point, is not yet poised to be a source of knowledge or best practices in most digital economy development. Given the important role ADB plays in the regional development agenda, national governments and other regional organizations would do well to increase the level of awareness within ADB so that they could play more a value-added contribution towards

41 OECD Recommendation on Digital Security Risk Management, http://www.oecd.org/sti/ieconomy/digital-security-risk-

management.htm, accessed on March 21, 2016 42 OECD Key ICT Indicators, http://www.oecd.org/sti/ieconomy/oecdkeyictindicators.htm, accessed on March 21, 2016

43 OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm, accessed on March 21, 2016 44 OECD (2014), Measuring the Digital Economy, http://www.oecd.org/sti/measuring-the-digital-economy-9789264221796-en.htm 45 OECD Digital Economy Paper, http://www.oecd-ilibrary.org/science-and-technology/oecd-digital-economy-papers_20716826, ac-

cessed on March 21, 2016 46 ADB, Financial Inclusion in Digital Economy, http://www.adb.org/news/events/financial-inclusion-digital-economy, accessed on

March 21, 2016

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building a digital society in Asia, particularly in focal ADB areas such as banking reform and financial services, and social welfare and protection.47

In the areas of health and social protection, between 2000 and 2013 the ADB supported 24 ICT-related projects in nine counties (Bangladesh, Cambodia, People’s Republic of China, Lao PDR, Marshall Islands, Mongolia, Pakistan, the Philippines, and Vietnam) and three regional initiatives. Most of the projects relate to health issues, including combatting communicative diseases, and management information systems (MIS) in health care. Five of the projects relate to non-health care social protection programs including MIS, ICT systems upgrades, ICT skills training, and a computerized verification system, and in addition an e-health insurance card system.48

The ADB has also been actively working to help update national financial inclusion strategies for a number of countries around the region, such as Cambodia. The current strategy on financial inclusion focuses on financial outreach, financial literacy and public awareness, as well as expanded access to financial products and services. The regulator is also looking to establish a Financial Stability Unit, and is working with the United Nations Capital Development Fund (UNCDF) and the ADB to develop a broader National Financial Inclusion Strategy.49

The World Bank

The World Bank has steadily increased its involvement in the digitization of key sectors within developing economies through a wide range of ICT-related projects. In the first three months of 2016 alone, the Bank committed $976.71 million, or over 63% of the total commitment for ICT-related sector investments, to Asia, indicating the importance of the region.50

Enhancing ICT connectivity and competition in broadband services is a key and long-standing focus for the Bank, along with the establishment of regulatory and institutional frameworks for improved coordination.51The Bank is also now devoting significant resources in developing national IDs as a step towards social inclusion. In 2010, for example, the World Bank helped implement biometric national IDs to distribute cash grants to flood victims in Pakistan as part of the Citizens’ Damage Compensation Program.52 The Bank has also played a kick-starter role for enhancing national ID systems for better public service

47 Social protection expenditures come under Public Sector Management which accounted for 18% of the total sector expenditures by the end of 2014. ADB ‘Information and Communications Technology’ http://www.adb.org/sectors/ict/main

48 ADB (August 2014) http://www.adb.org/sites/default/files/adb-ict-projects-by-sector.pdf 49 H. Clark (2015), RIF Regulation Mapping: Cambodia, April 2016, http://sptf.info/images/RIF-regulation-mapping-Cambodia-

June201.docx 50 World Bank, Projects and Operations, http://www.worldbank.org/projects/sector?lang=en&page=, accessed on 2 April 2016. 51 World Bank, First Connectivity Development Policy Loan, http://www.worldbank.org/projects/P124006/first-connectivity-

development-policy-loan?lang=en; accessed on 2 April, 2016 52 Word Bank, Pakistan: Uplifting Lives and Livelihoods Through Cash Transfers,

http://www.worldbank.org/en/results/2013/04/15/pakistan-uplifting-lives-and-livelihoods-through-cash-transfers, accessed on 2 April 2016

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delivery in other emerging digital societies in Asia. In 2011, a $195 million concessional credit was approved for the Identification for Enhanced Access to Services Project to assist the Government of Bangladesh in developing a reliable and accurate national identification system. Under the project, identification numbers and cards using robust biometric technology were to be issued to some 90 million Bangladeshi citizens of age 18 and above.53

The Bank’s research and open data initiatives are important resources in digital society dialogue. Its publications, such as the annual World Development Report and Doing Business reports, help set the global agenda by calling attention to crucial development issues, barriers to economic growth, and social development blockers.54 The 2016 WDR “Digital Dividends”, for instance, calls for action around key digital society issues such as digital citizenship and digital finance so that the benefits of rapid technological development can be extended. The publication showcases mobile developments in extending access to financial services, public services, health care and education, as well as to driving productivity in agriculture and enabling innovation such as in smart cities programs.55

Other initiatives include the Global Findex, a comprehensive database providing in-depth data on financial inclusion for 140 countries, and the Identification for Development global data sets, both of which are the most comprehensive of their kind and valuable sources of analysis and decision making for the broader development community.

RECOMMENDATIONS

Based on the national plans and the activities of the various international organizations, USAID should look to be more strategic in targeting its program development. USAID could look to limit its activities in general financial inclusion programs, standard education programs (not including reskilling or lifelong education programs), supply chain facilitation, and gender empowerment as these areas are relatively well covered by others. However, the following areas still require significant attention, either singularly or in coordination with other institutions: social dissemination and government disbursement programs, agribusiness initiatives for ASEAN, data protection, and cross border data flows for transactions and trade for APEC.

Given the emerging digital economy work agendas in ASEAN and APEC, as well as the work programs of other international organizations, we suggest the following focus areas for USAID consideration:

53 World Bank, Bangladesh: Identification System for Enhancing Access to Services (IDEA) Project,

http://www.worldbank.org/en/news/press-release/2011/05/10/world-bank-supports-digital-bangladesh-through-national-identification-system, accessed 2 April, 2016

54 Center for Global Development (2016), The New Role of the World Bank, http://www.cgdev.org/sites/default/files/CGD-Working-Paper-421-Clemens-Kremer-New-Role-World-Bank.pdf

55 World Bank (2016), World Development Report 2016: Digital Dividends http://www.worldbank.org/en/publication/wdr2016, accessed 2 April, 2016

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• The development of a new universal service obligation (USO) framework, and ways of accelerating broadband access and adoption to stimulate digital economy benefits. ASEAN is looking to develop a multi-faceted approach that broadens traditional USO goals to focus on services access, delivery, and usage, rather than just connectivity.56 There are three distinct aspects of this work requiring input and participation:

o Developing and profiling case studies that highlight the benefits of broadband in sectors such as health, education, agriculture, finance, and so on, to develop better awareness and understanding of the sectoral and economy-wide benefits of digital economy enablement and growth.

o Collating success stories that enable economies and policymakers to avoid needlessly re-inventing the wheel as they back small-scale proof of concepts that may already have been successfully run elsewhere, and provides models for emulation and improvement. This will also help in the development of flexible regulation as governments come to recognize that they must be enabling of new cross-cutting opportunities. New approaches such as fintech sandboxes and regtech are indicative of the new approaches to developing small scale initiatives to grow prior to being regulated or licensed.

o Working with ASEAN to define and identify isolated and underserved communities and the digital services that need to be made available for communities and citizens in ASEAN. This means mapping priority locations (cities, provinces) requiring broadband deployment for private sector participation to identify and avoid the emergence of new digital divides. Once again, the issue here is to bring the opportunities together so that initiatives can be developed and rolled out at scale, rather than approaching such opportunities in a piecemeal fashion as has been done so often in the past.

o Promoting the use of next-generation technologies (such as white spaces technologies, spectrum sharing and dynamic spectrum access) to be able to extend broadband access affordably, and pan-regionally through such possible programs as spectrum harmonization and regional spectrum database coordination.

o Finally, the prospect of a Single Telecommunications Market for ASEAN (as is now being studied) means that the abolition of roaming rates and international data charges should be actively considered, given the benefits that this would bring to application developers and marginalized data consumers.

56 See Action Points 2.1 and 4.1 AIM2020.

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• Enhance regional digital trade by identifying best policies and industrial practices, and by developing regional case studies demonstrating the benefits to ASEAN and/or APEC businesses, especially SMEs. A related aspect requiring assistance is raising awareness of the benefits of digital transactions and exchange amongst businesses so that they are able to simplify and improve supply chain processes and customer support.

o This should not be limited to digital payments, but should also include other financial services (e.g., credit, savings instruments, insurance, trade finance) of use to actors along trade value chains, domestically or across borders.

o The opportunity here is to do more than just reiterate the benefits of digital payments, but to help ASEAN members and investors understand how those benefits can be realized. For the benefits to emerge, sound enabling environments, forward-leaning policymakers, meaningful consumer (and SME) protection and competition frameworks are required, along with viable business cases for investors to enter the market.

o The other related item for focus here is the need to foster a healthy supply of providers that are actually developing new digital-enabled services that respond to SME needs. This is needed to promote the development of services that go beyond the urban, well-connected, or formal SMEs, and target the informal SMEs and those beyond the largest cities.

o In the longer term, a further opportunity is to utilize blockchain technology for the ASEAN Customs Single Window initiative. The distributed and disaggregated nature of blockchain ledgers would enable the acceleration of this somewhat constrained initiative and would allow member states to develop at their own pace, rather than being held to a lowest common denominator, as is often the case in coordinated information system approaches (Blockchain could of course be applied in a number of different areas, but this is one initiative that would potentially have immediate impact and bring tangible benefits particularly to the SME community across ASEAN.).

● Promoting regional regulatory equivalence regimes. Regulatory harmonization is challenging. However, APEC in particular is well-positioned to advance the digital economy through the promotion of regulatory equivalence, specifically in data protection, payments and transactions, consumer protection and other such areas amongst services-based sectors. Promoting the digital economy requires the establishment of frameworks that businesses and consumers can trust. Regulations or actions that introduce or increase uncertainty instead dampen investment activity and increase compliance costs. Any increase in compliance costs

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disproportionately impacts SMEs and emerging economies because of the impact it has on trust for new digital activities and opportunities.

● Data Privacy: One of APEC’s aims has been to “provide mechanisms to promote effective cross-border cooperation between authorities in the enforcement of Privacy Law.”57 This was operationalized through the establishment of the Cross-Border Privacy Rules (CBPR) system “designed to protect the privacy of consumer data moving between APEC economies by requiring companies to develop their own internal business rules on cross-border data privacy procedures.”58 This provides a low-cost, high recognition framework for companies and economies to be able to facilitate cross-border data flows.

USAID could look to support and broaden both awareness of and participation in APEC’s Cross Border Privacy Rules framework in promoting regulatory alignment for data privacy. Similarly, support could be given to data protection in transactions through APEC’s E-Commerce Steering Group and ASEAN’s Working Committee on Financial Inclusion, and Working Committee on Payment Systems and Settlements, to develop frameworks necessary to foster transactions flows regionally, enabling remittances, e-commerce, and the potential for scaling various mobile payments and mobile money solutions.59

● Open data programs. APEC is looking to proactively promote open data, particularly for public or government data. Globally, governments are increasingly making their non-restricted data available for the public to discover, access, and use. These open data initiatives facilitate the development of public services, fuel entrepreneurship, accelerate research and scientific discovery, and create efficiencies across multiple sectors.

o Programs that leverage publicly available data assets – from weather patterns and water levels (for agribusiness) to transportation routes and loadings (for logistics and social development programs) – need to be promoted with examples of successful private sector and city agency developments to illustrate the benefits of managing data assets to promote openness and use for the public good.

● Electronic Identity Development. Accessing government services and conducting many other daily activities depend on the ability to prove one’s identity. Physical forms of identification, such as paper or plastic documents, have traditionally

57 See http://www.apec.org/Groups/Committee-on-Trade-and-Investment/Electronic-Commerce-Steering-Group/Cross-

border-Privacy-Enforcement-Arrangement.aspx 58 See http://www.apec.org/Press/Features/2013/0903_cbpr.aspx. The CBPR is a voluntary, certification-based system that

promotes a consistent baseline set of data privacy practices for companies doing business in participating APEC economies. Company privacy policies are to be audited by APEC-recognized Accountability Agents. See http://www.apec.org/Press/News-Releases/2013/0306_data.aspx.

59 See for example the Master Plan on ASEAN Connectivity 2025, Initiative 5.

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been used for identification and authentication, but are less relevant for accessing digital services. Accordingly, a secure and scalable digital identity ecosystem is essential to address the imbalance between the provision of digital services and the ability of citizens to identify themselves on digital channels.

Establishing the framework for the recognition of digital IDs, particularly cross-border recognition, will have the effect of accelerating a variety of programs and opportunities now constrained by fragmentation and a lack of security and trust. It will, for example, accelerate digital KYC programs and thus financial inclusion; the prospects for digital health (and insurance) programs nationally and regionally; social dissemination and government disbursement programs (including disaster response programs among others).

USAID could work with APEC’s E-Commerce Steering Group and the Asia Pacific Financial Forum (APFF) on developing eKYC frameworks. USAID could collaborate with various regional governments to attach their current or planned disbursement programs to e-money networks or opportunities. There are opportunities with the World Bank, UNESCAP, and UNDP to provide eIDs to SMEs to foster and accelerate sustainable development. Providing eIDs would also achieve the SDG goal of providing identity to all, including to all businesses, by 2030.

• Collection of Data on the Digital Economy. There is a lack of indicators for measuring the digital economy and a lack of the accompanying frameworks necessary for supporting regional digital trade. The OECD has done some leading work in the area of developing measurement frameworks, but it is still relatively early days in this process, and across many of the emerging economies of APEC and ASEAN measurement data for even the most basic indicators is often missing or inconsistent. New trade agendas such as Trans Pacific Partnership, Transatlantic Trade and Investment Partnership, and Regional Comprehensive Economic Partnership recognize the importance of promoting benchmarks in areas such as digital commerce and data privacy (to promote trade in data). But, without common indicators, such benchmarks cannot be employed. This is a gap of fundamental importance to promoting regional digital economy development, and is one that can only be addressed by regional or international organizations. The need to have statistical indicators that are comparable across countries means establishing the framework for such databases at an international level.

Similarly, the promotion of best practices for inter-country digital trade can only come from such bodies. To date there is a dearth of such information throughout Asia, and it is into this breach that intergovernmental groups such as APEC and ASEAN, and international organizations such as the World Bank, need to step proactively if regional digital trade is to be progressed. USAID and the U.S. government could take a proactive role in these organizations to promote a digital economy data collection agenda.

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CHAPTER 4: KEY SECTORAL AREAS OF OPPORTUNITY As discussed in the first chapter, the digital economy will have an impact on all sectors of the economy. However, some sectors will be affected more than others, and some are more relevant to the work of USAID.. This Chapter examines in greater detail how the digital economy will affect three key sectors, agriculture; financial services (including financial inclusion, social dissemination and fintech); and healthcare, and identifies opportunities for USAID interventions to expand the benefits of the digital economy in those sectors.

AGRICULTURE SECTOR The agriculture sector plays a critical role in the economies of all developing economies in the Asia-Pacific region. Improvements in agriculture can significantly reduce poverty and improve nutrition and health. Thus, agriculture is an important sector for inclusion in this analysis of policy options for the digital economy.

Agtech provides a very clear window into the transformative effect digital technology can have on traditional industry. Agriculture has at its heart a powerful connection to the physical world. It is by its nature remote and subject to the elements. If there were an industry that might be considered hostile to the disruptive world of tech startups, agriculture would be it. Yet technological innovations will be critical to agricultural prosperity in the coming decades: cloud analytics, big data, drones, autonomous vehicles, and artificial intelligence (AI).

But here, because of the predominance of small stakeholder agricultural businesses across the region and the fragmented supply and logistics chains that service the sector, it can be difficult to scale successful initiatives and reap the benefits of technology. This should be a crucial area of focus for international organizations and donors: demonstrating successful initiatives to policymakers and to the broader industry as well. In many cases, we are seeing technology play an enabling role, whether it be in dramatically lowering cost, immediately raising productivity, or expanding market reach so as to make small stakeholders viable. However, such successes, particularly when disruptive, are often going unnoticed by companies elsewhere, particularly in other countries that may benefit from such opportunities, and often also by policymakers who would otherwise be able to promote such successes. Without the scale that comes from widespread adoption, vendors and distributors do not step in to support and amplify these initial small successes, and thus they do not scale. A first gap that donor organizations are perfectly positioned to address is to collate such success digital economy success stories on the one side, and to match them

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with similar needs and opportunities elsewhere in the region. This is a gap that both the private sector and domestic governments are failing to adequately address. A related focus for donor organizations is in the need to promote flexible regulation, and capacity building across institutional silos.

Agtech, like fintech, tends to be defined broadly, covering companies directly involved with cultivating plants and other living organisms necessary to make food, biofuels, chemicals, medicines, and other materials. But it also includes companies in other parts of the agriculture value chain, such as processing, transportation, financing, marketing, and retail services.

Companies attracting early attention in Agtech have been food ecommerce start-ups that change the way produce reaches consumers, water-related start-ups, and precision agriculture companies – a term that lumps together big data from drones, satellites, sensors, and other smart equipment, with the goal of helping farmers make better decisions.

One such company, The Yield, is an Australian agtech company that helps growers improve yield by providing on-farm sensors and a customized information service to support rapid decision-making. They combine sensing technology and wide area data, and then use data analytics to transform raw observations into value-adding information. The ability to solve problems is affected by the quality of data being captured and analyzed. Local on-farm sensing and intelligence at the edge are integral to such solutions. Their first technology solution was for the oyster industry in Australia, and focused on solving problems such as reducing unnecessary harvest closures that cost the industry millions of dollars a year, labor scheduling based on localized tides, tracking food safety and provenance, and disease management.

Oysters are filter feeders – they pick up whatever is carried by the water in which they live. So if heavy rainfall brings too many toxins, they end up in the oysters, which are rendered unfit for consumption by humans. This costs the Australian industry $34 million a year. The network of sensors provides data, which, in real time, measures the threat to oyster farms across Tasmania. That, in turn, equips farmers with the information necessary to make decisions about their produce. Oysters can be harvested early or left to grow with confidence, and millions of dollars of produce that would otherwise have been wasted can be saved.

This approach is now beginning to be applied broadly across the Australian agricultural sector. Australia, like many economies in the region, cannot simply double farmland – in Australia, over half the continental landmass is already used for agriculture, and much of the rest is inhospitable and barren. Indeed, it is estimated that 85% of the growth of the sector will have to come from increased yields, cropping intensity, and improved productivity. That kind of increase in production is simply impossible without technology. Australia is viewing the transformation both opportunistically and strategically. Solutions and products developed will not only directly help Australian farmers; they can also be exported to the

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world at scale. The global market for agricultural technology is projected to be $189 billion between 2013 and 2022.

In a similar vein, the demand for fish continues to rise globally, while the current volume of ocean harvest cannot be increased without dramatic, negative consequences for the environment and for the sector’s economics. Aquaculture technology is thus playing a key role in long-term food security, particularly in Asia.

In 2014, USAID teamed up with the mobile platform 8Villages to launch the Aqua Farmer Information System (AquaFIS), a mobile phone service that helps small-scale aquaculture farmers in Indonesia access real-time data through SMS, Android applications, and online forums. With the service, farmers no longer need to rely strictly on irregular training and consultations from experts and extension agents. Farmers can find out in real time when and how much to feed their fish, which type of feed to use for their particular species of fish, or how to treat disease. AquaFIS helps close the growing disparity in knowledge and skills, especially among smallholder farmers who live in remote areas and may have waited days for assistance without the mobile phone service.60

The improvement in farming practices has led to production increases, and the buyer/seller networks have expanded, further increasing both the need for access to finance, and in a much more limited way, actual access to finance. One of the key issues here is that while farmers are using technology solutions to improve productivity and performance, the banks have not changed the way in which they manage risk (or understand) the farming sector, particularly for smallholder farmers. This is an area that requires focus, and several areas need to be addressed. For example, the banks need to better understand that technology is able to dramatically change the risk management of small stakeholder firms – but to do so they need to access loans and insurance that break them out of season-to-season financing.

8Villages plans to expand the services to other parts of Indonesia and other countries in ASEAN. Eventually, the platform will create a network between aquaculture farmers across the region and the multiple players in the aquaculture value chain including local fishing companies, input suppliers, buyer and producer organizations, and microfinance institutions.

It is within this context, that eFishery, an Internet of Things (IoT) startup for fish and shrimp farming, based in Bandung, Indonesia, is tackling one of the largest challenges in commercial aquaculture: overfeeding. Fish feeding traditionally accounts for between 50-80% of all overhead costs in the business. Overfeeding negatively impacts the environment in many ways, as a great deal of fish food ultimately goes to waste. Underfeeding, on the other hand, means fish may not survive.

The result of unmeasured and inexact fish feeding methods can mean significant losses for farmers. eFishery offers an automatic smart feeder that uses sensors to measure the fish’s appetite and then dispense food appropriately. Designed for both small and large scale

60 As aquaculture becomes more widespread in Indonesia an estimated 80% of production comes from family-scale operations.

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operations, the system can also deliver real-time reports of consumption straight to the farmer’s smartphone.

The firm’s system is able to monitor and analyze the fish feeding activities in real-time, including using sensors to monitor the water motion of a pond. If sensors detect certain motions, the feeders can determine that fish are agitated and hungry, and then release food. The app lets farmers see when this is happening in real-time on their phone, and further control the system should they feel the need. According to the company, eFishery’s feeding system reduces the amount of feed used by 21% percent on average. Indonesia is estimated to have some 3.3 million fishponds and 2.7 million fish farms. According to the Food and Agriculture Organization, more than 96% of fish farming activities worldwide are concentrated in Asia. In Indonesia alone, the overall market size for commercial aquaculture is $5.4 billion.

Aeon Agri Create61

Established in 2009, Aeon Agri Create is a farming subsidiary of the Aeon Group, which includes one of Japan's leading supermarket chains. Aeon Agri Create manages 15 farms covering over 200 hectares in different locations across Japan, with the harvest sold at Aeon supermarkets in the capital and surrounding areas. Most of the farmers on the Aeon farms are tech-savvy young professionals with little or no experience in agriculture. Aeon Agri Create is using ICT tools to make crop production and management easier, smarter, and less-dependent on the experience and instincts of expert farmers.

Aeon’s farms use Fujitsu’s Akisai cloud computing service. Akisai, with its network of smart devices and sensors that are linked to a data center, forms the basis for daily farm operations and monitoring. Farmers use mobile devices equipped with GPS to input and track the pesticides and fertilizers used, gather data on farming operations, record plant conditions, and photograph scenes of farming and plant diseases. Additionally, sensors are used to regularly monitor the weather and soil conditions in all the farms. Sprinklers, fans, and heaters can be operated remotely, or automated to respond to changes in heat and moisture tracked by sensors. All these data are collated, analyzed, and shared in real time through Akisai to the 15 Aeon Agri Create farms as well as to the head office.

For instance, analysis of the data gathered from planting Japanese mustard spinach has suggested that crop yields per hectare could be improved by up to 33% when sunlight and heat are used to eradicate weeds and when the best harvesting time is selected. Aeon has applied these objective data-driven results to produce greater yields in the following season. According to Fujitsu, Akisai has helped to increase the quantity of produce from 30% to 60% and reduced the often excessively long working hours undertaken by farmers by up to 23%. When farm-generated data is incorporated with point of sale data, farm production can be matched with consumer demand, thus further enhancing Aeon’s efficiency and competitiveness.

61 Fujitsu (2014), “Aeon Agri Create Co., Ltd.: Transforming Farming by Exploiting ICT”, http://www.fujitsu.com/global/vision/2014/casestudy/aeon-agri-create/; Asian News International (2014), “Akisai Food and Agriculture Cloud Services boost agriculture in Japan”, http://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/akisai-food-and-agriculture-cloud-services-boost-agriculture-in-japan/29255301

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Many of these same approaches illustrated in the above examples for aquaculture are being applied more broadly to agriculture with digital technologies such as cloud services, mobile broadband networks, mobile devices and apps, and big data analytics seen to be key. Key lessons learned include (1) the need to improve the economics of the sector by reducing costs and improving reach through access to information (e.g., on weather conditions pests, market conditions such as prices, inputs, and so on); (2) the ability to improving supply chain efficiencies (middle-man logistics, marketing, finance); and (3) the ability to then use these approach to stimulate innovation and overall growth in the sector.

Network sensors, for example, make it easier to observe, monitor, measure, and control the surrounding environment. The data collected can provide valuable information for optimizing agricultural production, minimizing waste (e.g., from pests or adverse weather events), and increasing safety standards (e.g., improving logistics). Larger farms in more developed economies are using networked sensors and cloud computing apps to monitor their fields and control devices such as sprinklers and tractors. These technologies and approaches will rapidly disseminate out to developing economies. Organizations able to leverage the data and interpret it intelligently will gain a competitive edge. As a result, major Japanese IT companies are now designing cloud-based services for use by farmers: Fujitsu launched an agricultural data management service, Akisai, in 2012; NEC has a cloud-based system to monitor environmental conditions in greenhouses; PS Solutions, an affiliate of Softbank, has developed a farm field monitoring system to improve cultivation methods; and NTT East is testing a long-distance farm monitoring system using wireless communications.62

FINANCIAL SERVICES SECTOR Financial Inclusion

Asia is home to the majority of the globally unbanked and faces many challenges in providing safe, timely, and affordable financial services. Within the region, the poor and marginalized, such as the elderly, women, and SMEs, tend to be more widely excluded from formal financial services, stifling their opportunities to move out of poverty and progress up the economic ladder. Moreover, large disparities in access to, and the use of, financial services persist in the region. While bank account ownership is near universal in developed countries such as Singapore and Japan, only about 1 in 5 people have access to financial accounts in emerging countries such as Cambodia and Myanmar.63 Within these countries, access can also be very unevenly distributed; in Indonesia, the poorest 40% are much less likely to hold a bank account than the richest 60%.64 Although the gap has narrowed in

62 T. Kato (2014), “Japan’s Tech Firms Rush into Agriculture Business”, http://www.japantimes.co.jp/news/2014/11/07/national/science-health/japans-tech-firms-rush-into-agriculture-business/

63 World Bank (2015), Global Findex Database, http://datatopics.worldbank.org/financialinclusion/ 64 Ibid

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recent years, women still tend to have more limited access to and use of financial services.65 SMEs in Asia also have significantly lower access to credit than large firms, according to a study by the Asian Development Bank and OECD.66

Mobile Financial Services

Despite the slowdown in growth, agents remain the cornerstone of mobile financial services (MFS), representing over 90% of cash-in and cash-out points globally, significantly higher than the 10% represented by ATMs and banks combined.67 Despite recent growth, the opportunities in the market remain overwhelming and under-exploited. According to the World Bank’s Global Findex report, mobile money accounts still remain far behind financial institutions. With the exception of Sub-Saharan Africa and South Asia (where the proportion of adults with a mobile money account amounts to 12% and 3% respectively), only 2% or less of adults are reported to have a mobile money account. By comparison, some 62% of adults globally now have an account with financial institution.68 This points to the huge potential still to be tapped by MFS. Mobile accounts continue to be the driver of financial inclusion in emerging economies and, as mobile access, and particularly smartphone access, continues to grow through emerging economies, so too will services such as mobile money accounts. As regulatory barriers relax, agent networks are increasingly incorporated in the mobile money frameworks, and service offerings gain in acceptance, these numbers will rise – and once a tipping point is hit, they can be expected to accelerate rapidly.

When set up properly, mobile money services can provide cheaper, faster, and safer means of transferring or storing funds, compared to traditional alternatives. This has important repercussions for extending financial inclusion. Traditional banking systems tend to have limited geographical coverage and charge high transaction fees. Money saved from lower transaction fees, or being able to avoid having to travel to a bank, means more funds in the hands of people and businesses. Since mobile money transfer is also instantaneous, time savings become an increasingly important benefit, particularly for small or remote businesses. Related financial services such as insurance are also now beginning to be offered over mobile money platforms.

But mobile is not just an alternative channel for existing digital commerce platforms. Crucially, it is changing the landscape of financial inclusion in developing countries where the majority of people without access to formal financial services live. People living in remote rural communities that are culturally and socially distinct from cities are able to use mobile money to purchase goods and services, which would have previously been unobtainable to them. For example, in Papua New Guinea, the MFI Nationwide Micro bank launched a mobile payment service, MiCash in 2013, extending financial services to the unbanked with a particular focus on women. Their approach has meant that to date nearly 40% of their customers are women, many of whom were previously financially excluded.

65 For example, in 2014, 58% of women globally had an account with a financial institution, up from 48% in 2011. However, the 7%

point gap between women’s and men’s access to formal accounts persist; in 2014, 65% of men had an account, also up from 54% in 2011. For more information see World Bank (2015), Global Findex Database, http://datatopics.worldbank.org/financialinclusion/; CGAP (2016), Women and Financial Inclusion, http://www.cgap.org/topics/women-and-financial-inclusion

66 ADB and OECD (2014), Enhancing Financial Accessibility for SMEs 67 GSMA (2016), State of the Industry Report Mobile Money 2015 68 World Bank (2015), Global Findex Database, http://datatopics.worldbank.org/financialinclusion/

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The explosive growth in mobile phone adoption has expanded the potential of digital financial services (DFS) to increase financial inclusion and access to financial services. DFS could reduce financial exclusion from 5-20% through 2020, and increase GDP by up to 5%.69 The economic and social benefits of financial inclusion extend beyond increased access to basic bank transfers, remittance, and credit, to an emerging range of extended financial services such as insurance, e-government services, utility (including salary disbursements or government-to-people and other bill payments and on to broad retail consumption. All aspects of this growing array of service offerings contribute to and drive economic growth (GDP), entrepreneurship and innovation, jobs, a reduction in inequality, increased resilience of poor to shocks, and keeping children in school.

Against this potential, the pace of DFS growth is still constrained in many parts of Asia. Cash remains the preferred medium of payment in many places, and differing regulatory frameworks along with different definitions of what constitutes payments continue to constrain cross-border payments. DFS providers are also faced with multiple challenges. While the number of registered users has grown, only a third of them are actively using DFS. The overall growth rate of DFS users has also slowed. Many DFS providers are struggling to expand their agent networks to scale their businesses. The rise in popularity of DFS has also prompted many governments to either create or reform regulatory frameworks, with some such changes leading to unintended consequences.

Case Study: Philippines e-Peso Initiative

In the Philippines, only 26% of Filipinos have access to formal financial channels, with 610 out of 1,635 municipalities not having banks. Despite the rampant proliferation of mobile phones, up to half of all mobile users in the Philippines are still unbanked in any formal way. E-payments, particularly delivered over a mobile device, allow for the poor and unbanked to participate more broadly in the formal economy, but in the Philippines, cash still accounts for upwards of 98% of all retail payment transactions.

The e-peso initiative was thus established in 2015 by the government to accelerate the shift from paper to digital transactions, and to do so in a manner that would contribute to overall economic growth.70 The e-Peso initiative allows users to access a digitized equivalent of the Philippine Peso., It promotes interoperability across e-payment transaction accounts (as part of the Bangko Sentral ng Pilipinas (BSP) implementation of the National Retail Payment System), and it offers a greater ability to track financial flows thus enabling the Government’s thrust towards greater transparency and accountability in financial transactions.

69 BCG (2011), The Socio-Economic Impact of Mobile Financial Services: Analysis of Pakistan, Bangladesh, India, Serbia and Malaysia,

https://www.telenor.com/wp-content/uploads/2012/03/The-Socio-Economic-Impact-of-Mobile-Financial-Services-BCG-Telenor-Group-2011.pdf

70 The initiative was established under House Bill 4914, that created the ‘e-Peso’ as an online medium of exchange for Filipinos, had the Central Bank look at cryptocurrencies and blockchain based peer-to-peer transaction systems, and release an amount of e-Peso equal to 1% of the total supply of Philippine currency in circulation. The e-Peso initiative was also supported by USAID under the U.S.-Philippines Partnership for Growth (PFG).

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In partnership with the Department of Social Welfare and Development (DSWD) Modified Conditional Cash Transfer (M-CCT) Program, Landbank of the Philippines and local e-money issuer OmniPay have been working to transition all 4.5 million families (23% of all households in the Philippines) receiving conditional cash transfers from the government to receiving electronic payments by the end of 2016. Indeed, to ensure transparency and efficiency in the use of public funds, the DBM requires all government disbursements starting in 2016 to be made via electronic payments.71 Once enacted, the provision will become part of the 2016 General Appropriations Act.

USAID has used the e-Peso initiative to further its partnership with the four city governments of Batangas City, Valenzuela City, Quezon City, and Municipality of Pulilan, and three new cities (Iloilo City, Cagayan de Oro City and Zamboanga City) to transition the collection of taxes and business permits, as well as the pay-out of social benefits from cash to electronic mobile money-enabled systems.

The e-Peso initiative is focused to shift the Philippines from a cash-based economy to digital through the development of an efficient, transparent, and inclusive e-payment ecosystem that contributes to broad-based economic growth. The focus being to:

● Drive transaction volume

● Support the expansion and effective management of e-payment infrastructures

● Improve the enabling environment for e-payment usage; and,

● Build the e-payment ecosystem

Access to formal financial services is a key cornerstone of equitable and sustainable socio-economic growth. Formal financial access not only provides individuals, households, communities, and businesses with greater economic opportunities, it can also provide resilience against hard times. By bringing people inside the formal financial net, they become both contributors to and potential recipients of society’s safety nets such as government welfare payments. With more people participating, the “pie” grows bigger and more services can be delivered, inducing further consumption, and so on. From a societal perspective, financial inclusion can enable wide-reaching benefits as individuals and businesses are empowered to move away from the far riskier and more costly informal cash economy.

However, while these prospective benefits have become far more broadly accepted, interventions are still required if the sector is to make the jump from potential users to active users. One area holding significant potential is the opportunity to bring awareness of the migration path from basic account and mobile money transfers to the range of other financial services (insurance, micro-loans, utility payments, retail) once the basic step of

71 This is a part of the Philippine government's commitment under the Better Than Cash (BTC) alliance.

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acquiring the user and making them active has been achieved. Opportunities include the two crucial areas of eKYC and government programs promoting electronic payments. The following sections examine these areas in greater detail. We turn our attention to these opportunities next.

Fintech

Fintech can be broadly defined as technology creating new products, services, delivery mechanisms, platforms, or ways of doing business in financial services. Such offerings are either coming from outside the traditional financial services business or making traditional providers of financial services more digital and fundamentally shifting their approach to business. This latter disruptive element to the traditional business – fragmenting the supply of services, resulting from the aggregation of demand due to digital – is the important distinguisher from traditional financial services. The divergent set of players suddenly participating in and populating each distinct part of the sector illustrates this point (Figure 6).

Figure 6: Financial Sector Fragmentation

Source: SVB Investment Trends in FinTech72

Demonstrating the emerging impact of fintech, Moody’s Analytics recently found that digital payments alone added $296 billion to the GDP of 70 developed and emerging markets between 2011-2015, equivalent to the creation of 2.6 million jobs on average per year. Looking forward, each additional one percent rise in the usage of electronic payments

72

2015 Fintech Report: Investment Trends in Fintech, https://www.svb.com/News/Company-News/2015-Fintech-Report--Investment-Trends-in-Fintech/

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produced, on average, $104 billion in consumption of goods and services, with emerging markets enjoying a bigger increase in GDP than developed.73

Four trends can be seen to be driving much of the fintech trajectory:

• “Push” money Technology that enables consumers to push money to friends, family, and merchants directly. In 2016, a staggering eight billion We Chat “hong bao” were exchanged on Chinese New Year, eight times the number gifted the prior year.74 Payments are no longer tied to banks and mediation by conventional institutions. People can pay and be paid directly by friends, family, and acquaintances, eliminating some of the security risks associated with cash and reducing high transactions costs including travel to banks.

• Seamless transactions Faster and seamless customer payments across devices and companies. Seamless experiences like Uber – in which customers are automatically charged digitally for the transaction, and do not need to provide payment information each time – are adding value to payments and other financial services for consumers, entrepreneurs and retailers.

Of even greater impact, particularly in terms of extending financial inclusion, are solutions that promote “digital liquidity” whereby people are able to transact digitally, without having to revert to cash. However, for this to be possible, it is necessary to have pervasive digital merchant acceptance payment networks – i.e., where consumers can purchase goods or services in shops digitally.

For such networks to emerge, both consumers and merchants need to have adequate incentives to turn away from cash-based transactions. In India, USAID and the Government of India has a partnership specifically focused on growing these types of networks by developing digital finance products and services that encourage merchants to invest in electronic points-of-sale. The partnership has found, for example, that merchants are very willing to accept digital payments if they are provided with a way to obtain working capital, such as for inventory.75

• Alternative credit models The use of data analytics (and other alternatives such as social media correlations) as opposed to an individual’s banking history to score credit worthiness and provide affordable loans to consumers and business owners. One foundation estimates that in

73 Moody’s Analytics, “The Impact of Electronic Payments on Economic Growth” 2016 74 Michael Wade and Jialu Shan, The Red Envelope War (Switzerland: International Institute for Management Development, 2016), 2. 75 https://www.usaid.gov/india/press-releases/oct-14-2016-usaid-launches-catalyst-drive-cashless-payments-india

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the six biggest emerging markets alternative credit has the potential to provide 325-550 million people access to formal credit for the first time.76

• Digital data security and privacy The importance of security and reliability – of trust –for the wide scale adoption and use of these technologies cannot be overemphasized. Consumers must be confident in the service and channel. Especially for new users and new channels, the service must work as expected. This means continuous investment to upgrade storage encryption and systems with the most advanced and reliable technology, even after a product has been launched.

One innovative tool in this space is biometrics for the challenge of verifying and authenticating account holder identity on digital and mobile platforms. In the context of financial inclusion, the right application of biometrics can facilitate access, overcome barriers such as lack of identity cards, low levels of literacy and high costs of KYC compliance – combining to create ease of use and consumer confidence. One bank, for example, developed a savings card that holds fingerprint identity as part of an approach to help those who cannot afford formal identification or read well enough to handle account-opening paperwork.77

The emphasis upon each of these trends look somewhat different in different markets. In developed markets, Internet marketplaces that match lenders and borrowers predominate. In emerging markets, early successes rest with partnerships that leverage mobile network operators’ considerable structured data (e.g. airtime top-ups, mobile money use) from a much larger portion of population than banks use. Fintechs are also increasing the attention to the use of unstructured data such as call records and web browsing, and soliciting consumer psychometric data via digital surveys. Most of the focus is on consumer retail credit and microenterprise lending.

Sesame Credit

Social media and big data are increasingly seen as tools for extending access to finance, particularly through credit rating systems. Being able to leverage data about a user’s online behavior and habits is seen to have the potential to build a far richer picture of a person’s fiscal abilities and awareness.

In China, the central bank has financial data for some 800 million people, but only 320 million of those have a traditional credit history. "Many people don't own houses, cars or credit cards in China, so the kind of information on which they would traditionally be rated for loans or credit facilities, simply isn't available. Moreover, China’s credit scoring and reporting industry is much less developed than in the U.S. or Europe. Although China’s many cities and provinces have credit databases, many user records have little information and banks tend to make rather arbitrary lending

76 Arjuna Costa, Anamitra Deb, and Michael Kubzansky, Big Data, Small Credit: The Digital Revolution and Its Impact on Emerging

Market Consumers, (California: Omidyar Network, 2015), 4. 77 In Malawi, the card was so valued by rural women who wanted a safe place to save that it became a popular wedding gift.

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decisions. Many consumers and SMEs find it difficult to get a loan, as the major Chinese banks are incentivized to lend to large companies.

Recognizing this gap and the strength of the large tech platforms to harness the power of big data and the ubiquity of smartphones, ecommerce, and social media in a society where more than 700 million people live large parts of their lives online, the government published a plan to develop an economy-wide database to enable a far broader and more inclusive credit system that will merge a wide variety of information on every citizen, assessing whether taxes and traffic tickets have been paid, whether academic degrees have been rightly earned and so on.78

Under government-approved pilot projects, eight private companies have set up credit databases that compile a wide range of online, financial and legal information. One of the most popular is Sesame Credit, part of the giant Alibaba ecommerce company that runs the world's largest online shopping platform. Tens of millions of users with high scores have been able to rent cars and bicycles without leaving deposits, company officials say, and can avoid long lines at hospitals by paying fees after leaving with a few taps on a smartphone.

The Sesame Credit scoring system (constructed and deployed by Ant Financial Services Group, an affiliate of the Alibaba Group) uses data from Alibaba's services to compile its score. Sesame pulls from transaction records on Alibaba’s Tmall and Taobao e-commerce platforms to better understand, and then rank, a person or company’s credit worthiness.

Sesame Credit rates the online financial transactions of those using Alibaba's payment system, in addition to data it obtains from its partners including the taxi service Didi Kuaidi, rating whether users bothered to settle taxi payments. The company does not hide that it judges the types of products shoppers buy online. "Someone who plays video games for 10 hours a day, for example, would be considered an idle person, and someone who frequently buys diapers would be considered as probably a parent, who on balance is more likely to have a sense of responsibility," Li Yingyun, Sesame's technology director.

Somewhat similarly, Tencent is privy to a wealth of customer information. The South China-based company owns WeChat, China’s largest messaging platform. Chinese consumers (and many businesses) live on WeChat.79 With that much consumer information and data on financial transactions that Tencent can draw from, the company can paint a fairly good picture of what kind of borrower that individual or company is.

Tencent’s credit score system mines data from users’ social networks in order to determine their credit. The difference between the two systems is reflective of the two companies’ backgrounds and respective data strengths. Ecommerce-focused Alibaba’s credit system is based heavily in users’ purchase and payment history. Social giant Tencent’s credit system is based on users’ social networks. Each company is leveraging the data to which it has access. China doesn’t have a national, comprehensive, and widely-used credit system like those in the West, so private lenders like Alibaba and Tencent have created these systems to better inform their lending decisions.

78 See https://chinacopyrightandmedia.wordpress.com/2014/06/14/planning-outline-for-the-construction-of-a-social-credit-system-2014-

2020/ 79 In a study that Kapronasia did with the Disruption House in late 2015, of 1,000 Chinese millennials, all of them used WeChat at least

once per day and the vast majority admitted to using it several times per hour. See http://www.thedisruptionhouse.com/

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Many Chinese consumers and businesses have been shown to be extremely enthusiastic about the new credit services, citing examples such as seamlessly booking a hotel using Sesame Credit without needing to leave a cash deposit. Sesame has promoted the consumer benefits of a good credit score, from a prominent dating profile on the Baihe matchmaking site to VIP reservations with hotels and car rental companies. A mobile phone game designed by Sesame Credit encourages users to guess whether they have higher or lower credit scores than their friends, encouraging everyone to openly share their ratings.

The government is watching the pilot process very carefully. The government system won't necessarily be the same as the private systems – the longer-term government rating plan is to gather up court, police, banking, tax and employment records – but government officials will be taking cues from the algorithms developed under the private projects.

In the Philippines, where rural banks were some of the first financial service providers to offer SMS reminders for commitment savings (allowing for and helping to drive often dramatic increases in savings rates), a host of new fintech players have emerged supporting banks to increase savings behaviors in low-income customers. One prime example is Juntos. Juntos equips financial services providers with a customized end-to-end solution to build trusting, informative relationships with customers. This is driven by high-touch, personalized conversations designed by Juntos and delivered via SMS. Similarly, there is also a significant potential to utilize SMS technology and/or messaging platforms to support goal-based savings in Indonesia. A case in point is the common practice of saving to meet expenditures for major religious events like Ramadan.

Smart Money’s Approach

In the Philippines, Smart Money has taken an innovative approach to address new market demand and competition from emerging fintechs. In 2015, PLDT and Rocket Internet launched the joint venture, PayMaya Philippines, to offer mobile-first payment services, focusing on the young, tech-savvy and yet underbanked market segment. PayMaya is a prepaid online payment app that enables the unbanked and the “uncarded” to pay online without a need for a physical (credit) card. (PayMaya is based on a virtual Visa or MasterCard debit card.) In addition to services available via Smart Money and Smart Padala, PayMaya offers a number of solutions to the market:

- A prepaid online payment app that enables the unbanked and the “uncarded” to pay online without a need for a physical card80

- PayMaya Business, a solution that allows businesses to receive payments from all cards anytime, anywhere

A SIM-agnostic service is not a new concept, however this is the first time that a mobile operator has built a strategy based on an OTT service to expand beyond their subscriber base and leverage their existing platform and services outside their home market.

80 PayMaya – Operates initially with a virtual card, physical card is issued upon request

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As they expand, digital payments help to create more robust financial infrastructure and more trusting and confident users. All of this leads to the increased use of additional formal financial products – including savings, credit and insurance – that are so important to improving lives and livelihoods. But Fintech goes well beyond financial inclusion, enabling application at all levels of the digital economy, and particularly creating enablement opportunities for SMEs. Another alternative model for example, online peer-to-peer lending, has opened up lots of opportunity, but merits oversight to guard against abuse and to protect consumers who may not be aware of inherent difficulties in the business model when they make an investment.

HEALTHCARE SECTOR

Digital economy opportunities are proving to be equally compelling – and disrupting – for the health sector. Indeed, in many ways digitization is proving even more challenging in the healthcare sector than in finance, as the financial services sector has long had a strong technology element to it. Public healthcare institutions, particularly in emerging economies, are not generally places of high technology or even often strong connectivity. And they are certainly not interconnected let alone interoperable institutions. In this regard, the digital economy impact on the healthcare sector is still at the very early stages.

Nevertheless, the technology that has enabled the Internet of Things to proliferate – ubiquitous data transfer and connected devices, cheaper and smaller sensors, low-cost data storage, advances in analytics and machine learning – is now beginning to dramatically transform healthcare. Recent advancements in sensor technologies, health-related wearables, and transition to electronic medical records (EMRs) are bringing about important changes in the delivery of health care and medicine. E-health enables significantly better informed decision making, real-time treatment, or consultations to remote regions. The use of universal records reduces the risk of negative drug interactions and enables rapid responses to the emergence of epidemics and the aftermath of disasters.81

Two key disruptions in health are to the location of care (e.g., moving care out of the hospital and closer to home) and to the type of care (from “diagnose and treat” to “prevent and manage”). Rather than the traditional focus on the inpatient setting, it is the outpatient setting that will become the optimal medium of care. As such, the home or village/township will become an important new location of care, and virtual care will broaden access to healthcare in rural areas, especially in emerging economies. Virtual care (which includes telehealth and telemedicine) connects clinicians, patients, family members and health professionals in real time to provide health services, promote collaboration, support self-management and coordinate care. Telehealth units in hospitals already use virtual monitoring of high-risk cardiac patients. This will result in a new data-intensive structure for

81 The World Health Organization (WHO) defines E-health as “the transfer of health resources and health care by electronic means. It en-compasses three main areas: (i) the delivery of health information, for health professionals and health consumers, through the Internet and telecommunications, (ii) using the power of IT and e-commerce to improve public health services, e.g. through the education and training of health workers, and (iii) the use of e-commerce and e-business practices in health systems management.

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the healthcare system, with less focus on building new beds and more on developing services to provide improved access and quality of care at a lower cost. The advent of patient-centric healthcare will allow greater emphasis to be placed on prevention and access. Using digital tools with better data, and better access to data and records, will improve productivity, boost efficiency, and drive down costs.

These two shifts will be driven by four digital “care” themes – smart care, care anywhere, empowered care, and intelligent healthcare enterprise:

1. Smart care improves patient outcomes, lowering the cost of healthcare through the use of precision medicine, robotics and medical printing.

2. Care anywhere sees healthcare move closer to the home, through advances in the connected home and virtual care, which will also help broaden access, especially in maturing economies.

3. Empowered care, through the development of “living services”, enables citizens to take a more active role in managing their own well-being and healthcare.

4. Intelligent health enterprises provide data-driven solutions that enable healthcare workers and their enterprises to maximize their efficiency and allow patient health to be monitored more effectively in real time.

Here we provide a brief snapshot of the sheer variety of initiatives emerging across APEC and ASEAN economies to illustrate the breadth of opportunities:

● United States

The evolution of HealthTap, an interactive health app, is illustrative of the progress being made toward virtual care. When HealthTap launched in 2010, it operated as a question-and-answer site, where users could get responses to medical queries from peer-reviewed physicians. Within a few years, it had built up a database of 1.9 billion answers from a pool of 60,000 physicians, accessed by 10 million active users.

HealthTap then introduced a service offering subscribers unlimited access to video consultations with physicians. Patients are able to speak with a physician within a few minutes, 24 hours a day, seven days a week. HealthTap's video service offers a template for how virtual care might work, allowing patients to consult physicians without leaving their homes. As virtual care develops, healthcare companies might choose other options, such as virtual health kiosks and mobile apps where patients can videoconference with physicians, who can also access their personal medical records.

o This type of service is beginning to be replicated in developing economies, particularly through a simplified access via a mobile phone, with a centralized database of diagnoses and responses. The concern for authorities lies in validating the participation of professionals and the reliability of the responses

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being provided. Once coordinated with health authorities, however, the scalability of such solutions is significant.

● Australia

Western Australia is Australia’s largest state, and is the second largest country subdivision in the world.82 The state is therefore under constant strain to cater to an extended, diverse, and often sparse population with very limited resource. Access to medical services for people outside the major population centers of Perth and the Margaret River can be extremely difficult and time consuming. Since its establishment in 2011, the WA Country Health Service telehealth service has:

o Conducted more than 40,000 “virtual” clinical consults across the state (including emergency and outpatient consultations)

o Hosted over 65,000 “virtual” meetings totaling around 46,000 hours in 2014/2015

o Installed a state-wide fleet of more than 720 videoconferencing machines and 478 virtual meeting rooms

o Installed Emergency Telehealth Service equipment in 63 regional sites.

The service is available 24 hours a day.83

Another example in Australia, the Garvan Institute of Medical Research in Sydney, is leveraging the cloud to analyze DNA mutations of thousands of cancer patients. By grouping genetic profiles and analyzing the data together with de-identified personal data from the International Cancer Genome Consortium and the Cancer Genome Atlas, researchers at the Garvan Institute are pushing cancer research beyond tissue mutation analysis towards the exploration of other causes.84

Combining engineering and mathematical methods for big data computation, synthetic biology is emerging as a new discipline advancing understanding of biological processes and driving a new generation of genome sequencing. Biomedical and genomic simulations and computations process big data sets that, if stored in the cloud, bring computation times down. In various parts of Asia, there is a growing trend to build large genomic datasets for large populations. But storing the data securely and in a fashion that allows widespread collaboration is a challenge. A large opportunity exists to merge these

82 If Western Australia were an independent country it would be the 10th largest in the world by landmass.

83 Source: http://www.opengovasia.com/articles/7048-digital-transformation-in-western-australias-health-sector-largely-focused-on-mobility 84 The sequencing of a single genome can generate tens of gigabytes of data. When looking at the genomic makeup of thousands of patients such analysis requires huge computing power. In an economy where access to a supercomputer is both limited and costly Garvan research-ers benefit from data storage, workload queuing, database management, and computing power to achieve ground-breaking research. http://dius.com.au/what-we-do/case-studies/proving-high-performance-cloud-computing-can-support-disease-prevention/

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datasets with existing clinical data to provide a better overview of a patients’ health while having a reference to the patients’ genome. Medical researchers benefit from the immediate access and data processing, eliminating the need for expensive individual tools and queuing times.

Both examples are more immediately relevant to developed economies given the costs involved in the basic infrastructure required. Nevertheless, they point in the direction of future developments on at least two fronts: first, the use of communications technologies to enable remote diagnostics and treatment, particularly from the home or village. This is a theme that has been highlighted consistently throughout this report, and will become more widespread as multiple delivery channels – such as televisions as well as mobile devices – become accessible in an interconnected environment. Second, the use of data analytics in medical research and medical response is set to increase rapidly. One area that such technologies will likely play an important role in the near-term is in the area of epidemics and disease control.

● Indonesia

Online health website TanyaDok85 in Indonesia addresses accessibility concerns, due to issues such as traffic congestion in the country’s major cities – often leading to a 3-hour commute. Founder Dr. Gregorius Bimantoro sees such an issue as one of the many key problems that make Indonesians reluctant to see a doctor. TanyaDok is supported by a medical editorial team and hundreds of contributing doctors, including general physicians, dentists, and an array of experts, such as specialist doctors and senior consultants. The online venture is a way to combat such off-putting factors as the long patient waiting times, traffic jams in commuting, and people simply not having time or ability to get to a doctor.

TanyaDok’s online and mobile consultation service, a Twitter-like interactive feature where patients can ask short questions and get a doctor to answer it briefly and quickly, is a key part of the social health network. The portal also includes 5,000-plus health articles written by specialist doctors across various fields in response to the many questions coming in to the service. Queries on the live service would ideally be answered in real-time, but given the limitations of the doctors, the service ensures a response within an hour. The number of consultations given are in the tens of thousands, either via email or social media.

o This is the type of service that should be expected to be seen throughout ASEAN in the near future, as it addresses issues common across urban environments in the region. The accessibility issues that it addresses also make its approach viable for rural communities and remote access. Issues to be addressed include validation and certification of the providers and participants,

85 See https://www.techinasia.com/tanyadok-patients-consultation-room-doctors-borders. The portal used to be called TanyaDokterAn-da.com (ask your doctor).

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and importantly, the need for data controls and data protection. This latter issue is probably the major constraint in seeing single large providers operating across the region in the near term.

● Vietnam

Within a year of the launch of Digital Immunization Registry (ImmReg), a web-based application that allows local medical staff to use computers and smart phones in managing individual immunization records and vaccine deliveries, the Mekong Delta province of Ben Tre reduced the duration of listing monthly registries from two days to 30 minutes. The rate of people vaccinated on schedule also increased by 10-14%, while newborns were registered 8.5 days after birth on average, as compared to 33.4 days before.86

o There is little about this service offering that is unique to healthcare. But it is a good example of the use of a centralized database and mobile communications technologies. Circling back to the outset of this report, the importance here lies in the interconnectivity and interoperability of the networks, and then being able to provide solutions – often fairly simple solutions – at scale.

o A further opportunity here would be to enable such a solution using a distributed ledger – i.e., a blockchain – so as to scale the solution to other agencies and remove any particular dependence on the information system provider.

● Singapore

In Singapore, the Integrated Health Information Systems at the Ministry of Health is exploring the use of robotics technology to improve patient mobility; delivery drones to dispatch medicines and equipment; augmented reality for doctors; as well as data analytics to improve daily operations and reduce waiting times.

Applying electronic means to the management and delivery of health services to a community invariably involves the need for interconnected digital fixed and mobile networks, and interoperable management systems, for example for the sharing of electronic health records, sending medical images or health-related alerts or notifications.

o The use of automated technologies and drones for delivery will be watched closely throughout the region, but in the immediate term, these types of solutions will remain out of reach until the initial unit costs have been brought down and the deployment of such solutions becomes more standardized. Spreading similar solutions through the region will likely require the significant participation of the private sector. In the initial stages, involvement by

86 http://www.path.org/publications/files/ID_vietnam_unf_cs.pdf

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international organizations such as USAID to target particularly compelling use of successful initiatives (such as drone deliveries of medicines to remote areas) will be important, as will be extending awareness and capacity building to healthcare institutions in less developed economies.

RECOMMENDATIONS There are four overarching areas of focus for USAID that should be noted here:

● Enablement of cross-border data flows, particularly for solutions in the identified sectors benefiting from data processing and data analytics

● Frameworks for data protection especially as new models of credit worthiness (using social media profiles and others) and personalized solutions continue to emerge and come into use transnationally

● Flexible, sector specific regulation and cross-agency enablement to encompass new opportunities and new technology driven business models, such as we have seen more recently with the emergence of financial sandboxes, for example

● The need for governments and society more broadly to establish trust, principally in the first instance through mechanisms of recourse and customer protection

Within this, specific areas of focus for USAID to focus on include the following:

• Strengthening the Enabling Environment. USAID could take a lead in its support for SMEs in areas such fisheries and farms, and healthcare servicing remote access to promote the need for seamless cross border data flows. Support would, of necessity, be required on both sides of the equation: on the one hand, working with APEC and ASEAN fora on frameworks necessary to enable data flows between suppliers and users, as well as between jurisdictions; on the other, working with the SMEs themselves (and relevant government agencies) to be aware of trade in data requirements and constraints. This latter issue requires businesses to be aware of how to protect themselves and their users.

• Enabling Scale in Innovation and Opportunity. Each of the examples cited illustrate the emerging initiatives and burgeoning opportunities being enabled by technology applications. To see traction develop and success emerge, however, likely requires external interventions across a number of areas. These include alleviating the constraints imposed by stakeholders being mostly too small and supply chains too fragmented to individually generate the necessary economies of scale. A key intervention therefore is to collate areas of opportunities across economies and across sectors so as to make the scale and scope of the opportunity more apparent.

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o Awareness building: “connecting the dots”. We speak often of awareness: awareness of technology, awareness of opportunity, as well as of the need for capacity building in such areas. But one of the big gaps is awareness within and throughout existing value chains and between sectors. For example, between farmers and banks – as new initiatives make small shareholders viable and/or enable them to work in a collaborative environment benefitting from aggregated economies of scale, banks need to change their assessment approaches to provide financing. The same is true in education (teachers/students and reporting or grading approaches), healthcare (doctor/patient innovations not being met with insurance or social program changes), and logistics (digital supply chains still being met with a lack of end-consumer digital consumption), and so on. This is a key area for focus requiring an attention to entire supply chains rather than individual solutions.

• Data Protection. A specific example of an area for focus (and regional coordination) is data security and data protection.

o To use an example from healthcare, the benefits of healthcare data accessibility and portability are increasingly well recognized. Whether under emergency conditions or simply a change of care providers, the ability of a doctor and hospital to access the health records of a new patient saves time and cost, improves the quality of care, and reduces medical errors.

o However, health data is some of the most sensitive information that can be maintained – and exchanged. There are both regulatory considerations around the use of data transfers and data analytics, as well as issues around the actual security of the data. And without a significant increase in government and administrative capacity around these issues, along with regional regulatory coordination, economic and social benefits will fail to become possible. The same is true in agriculture, in manufacturing, in transportation, and so on as we rapidly move into an era of the Internet of Things.

o While there are many technical groups targeting these issues, there is a still a dearth of connecting the issue to real and immediate opportunities on the ground and across APEC and ASEAN economies. This means:

§ educating stakeholders on their constraints for data transfer issues as they stand currently;

§ educating governments on what needs to happen to with data transfer frameworks to enable specific sector solutions;

§ educating APEC/ASEAN on what the frameworks need to address to benefit specific sectoral solutions.

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o A specific initiative that would be immediately beneficial would be to bring the regulators (and policymakers) from different sectors together to form cross-enabling regulation. This is particularly required in communications and finance, health, agriculture, education, and manufacturing.

● Electronic Identity Development. Accessing government services and conducting many other daily activities depend on the ability to prove one’s identity. Physical forms of identification, such as paper or plastic documents, have traditionally been used for identification and authentication, but are less relevant for accessing digital services. Accordingly, a secure and scalable digital identity ecosystem is essential to address the imbalance between the provision of digital services and the ability of citizens to identify themselves on digital channels.

Establishing the framework for the recognition of digital IDs will have the effect of accelerating a variety of programs and opportunities now constrained by fragmentation and a lack of security and trust. It will, for example, accelerate digital KYC programs and thus financial inclusion; the prospects for digital health (and insurance) programs on the domestic and regional levels; social dissemination and government disbursement programs (including disaster response programs among others).

o CGAP (under the World Bank) and UNCDF have done work on shared KYC and the benefits of utilizing centralized identity databases. But their work has been mostly focused on central banks and the benefits to the financial sector and financial inclusion. USAID can broaden this work by

§ bringing in other sectors,

§ helping identify and measure the benefits to these other sectors resulting from centralized identity programs so that governments can make the case to proceed with national ID programs, and

§ enabling/developing the provision of various digital services in these sectors – particularly within sector-specific supply chains.

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CHAPTER 5: CONCLUSIONS The inherently transnational, cross-border nature of digitization and data flow means that regional consistency and cooperation can have a disproportionate impact on digital society development. Constraints on e-commerce transactions or mobile money transfers such as international remittance will not only curtail the flow of digital goods and services, and the inflow of funds., For smaller or emerging economies these constraints result in less interest from foreign participants – often the leaders in the sector – and a far slower transfer of expertise and skills, as well as a dampening of potential demand for the ancillary goods and services that build in the ecosystem around new innovative sectors and developer communities.

This paper has identified five policy issues that could be addressed by the U.S. government and made a series of recommendations for programmatic interventions for USAID. While this paper identifies a number of recommended interventions in the core policy areas, the following interventions stand out and should be given special consideration in regional policy:

Create a Conducive Enabling Environment for the Digital Economy

• Bring different stakeholders – private sector, public sector and civil society – together on specific opportunities o The range of stakeholders involved in the issue of digital economy is vast and

represents a group that speaks different technical languages and are many times constrained by different silos, working with varied timeframes. Bringing them together around specific digital economy opportunities is imperative to success if each side is to understand the other. Most important of all in these dialogues is to help to shift the mindset of regulators from one of risk management to one of enablement.

• Clarify compliance costs o Increasing compliance costs for business may be the single biggest constraint to

the development of the digital economy. These costs have been referenced both directly and in passing throughout this report, but it often goes unrecognized by government given that a company likely does not see it in its interest to bring these costs to light, when bigger enterprises have the ability to work around the limitations. This means that compliance costs remain starkly underappreciated in today’s environment and continue to disproportionately impact SMEs.

• Promote trade-in-data for SMEs o This includes limiting the impact of restrictive regulatory practices such as data

localization which, again, disproportionately impacts SMEs (especially traditional

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sector SMEs), and promoting the alignment of data protection, data privacy and data security regimes so that SMEs are equally able to benefit in the sharing of data and the use of data analytics in such areas as sensors, machine-to-machine, and IoT technologies.

Promote Universal Network Access

• Clarify the opportunities around economies of scale and scope resulting from ubiquitous access.

• Promote a more holistic government approach to the opportunities enabled by universal broadband access.

Create Seamless Digital Identities

• Promote digital IDs as a fundamental building block of all digital development programs

• Ensure that digital IDs have meaning across borders. • Expand governance programs based upon universal broadband access and unique

digital IDs.

Build Capacity for a Digital Future

• Promote frameworks that enable “learning by doing” o For regulators this means establishing new regtech frameworks such as

sandboxes so that they are able to more nimbly understand the benefits of digital technologies

o For enterprises and SMEs this means sponsoring localization of language and local characteristics, along with maintaining an open market approach to multinational participation and intellectual transfer

• Promote digital literacy for SMEs to ensure that they are aware of the opportunities they have and not intimidated by technology.

• Address the threat of a newly emerging digital divide.

Measure the Digital Economy

• Establish a regional set of indicators. • Demonstrate the positive impact of the digital economy on the traditional economy

for better allocation of resources.

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APPENDIX: DEFINITIONS While the “Internet Economy”, “Digital Economy” and “Digital Trade” are at times used interchangeably, they are in fact reflective of different policy and market focuses. Understanding this becomes important in measuring the impact that certain policy choices, and the accompanying resource allocations, have. Agreeing to the definitions is a first step; far more important is to begin developing the measurement frameworks, which to date do not exist.

The Internet Economy

The Internet economy refers to economic activity being generated directly from the Internet. Generally, the Internet economy refers only to the economic activities directly associated with use of the Internet, including Internet companies such as ISPs, online content and advertising providers, developers of applications, e-commerce businesses, data storage providers, and so on.87

Defining the Internet economy as being the contribution to GDP directly derived from Internet-based or -related companies provides a framework for capturing and measuring economic impact (e.g., the production value and employment due to ISPs and e-commerce companies), as well as for regulating the Internet (be this to control or promote Internet access, protect consumers, or capture surplus value). In other words, we need to be able to measure and understand the impact of our actions upon economic and social growth. One widely cited figure is that the Internet economy typically appears to equate to between 3-4% of GDP in countries with good basic Internet connectivity.88

Digital Economy

The digital economy encompasses all sectors of the economy that rely upon or use IP-enabled networks and platforms as part of the embedded infrastructure of the society. In fully digitalized economies (e.g., Japan, South Korea) this includes all major sectors of the economy and society.

Estimates for the impact of the digital economy on GDP growth range from 0.8% to 7% or higher. A study by Strategy&, for example, established that a 10% increase in digitization has at least a 0.8% impact on GDP growth.89 The Internet can be used to improve the labor

87However, this approach also risks missing significant value and impact. When, for example, is an e-commerce company an e-commerce

company, and not simply a retailer (a flower seller, bookstore) or service provider (consultancy, law firm) using the Internet to develop, market, and extend their existing business?

88 McKinsey Global Institute, (2011), Internet Matters: the Net’s Sweeping Impact on Growth, Jobs and Prosperity, http://www.mckinsey.com/features/sizing_the_internet_economy

89 http://www.strategyand.pwc.com/media/file/Strategyand_Maximizing-the-Impact-of-Digitization.pdf

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market by streamlining job search capabilities, more effectively matching employers and employees. An increase of 1% in broadband penetration, for example, was shown to have a corresponding lift of 0.2-0.3% in employment per year.90

Achieving the transition to a digital economy requires both the growth of an ecosystem that will support new entrants into the Internet economy, and the promotion of backward linkages from the Internet economy into the traditional economy.

Digital Trade

Digital trade is defined here as domestic commerce and international trade in products and services delivered via the Internet, hence excluding the commerce of physical goods (aside from the value add provided by Internet transactions).91 Increasingly the distinction between domestic commerce and international trade can be seamless and therefore rendered invisible because of the Internet.

In terms of trade the Internet creates more efficient and cost-effective ways to deliver goods and services to customers, including transportation management systems that connect supply chains with logistics networks, and that track and trace the movement of goods from suppliers to customers in real time. A USITC report on “Digital Trade in the U.S. and Global Economies” from 2014 estimated that the Internet reduced trade costs by 26% percent on average.92 This figure was calculated from a US perspective and is likely to be significantly higher for developing economies. Providing access to a global market for merchants and consumers, particularly in the SME-driven economies of East and Southeast Asia, is precisely what makes the Internet so attractive: the second, third or fourth customer of any new business today can be international, i.e., it can be an export. For economies such as Indonesia and the Philippines, for example – large diverse archipelago economies with stark logistical challenges – any structured investment in digital connectivity is very likely to deliver outsize returns. This is true for both integrating domestic commerce and enabling international access and trade.

90 In developing economies, employment growth from the Internet is being shown to be more positive than in developed markets, and in

this case is being driven by the proliferation of mobile phones. ITU 2013 91 USITC: Digital Trade in the U.S. and Global Economies, Part 1, 2014. The second report defines Digital Trade as: U.S. domestic com-

merce and international trade in which the Internet and Internet-based technologies play a particularly significant role in ordering, produc-ing, or delivering products and services. This definition was adopted to capture the wide variety of economic activities that are facilitated by or occur via the Internet. USITC: Digital Trade in the U.S. and Global Economies, Part 2, 2015.

92 USITC 2014: 65