How ASEAN is digitalising trade to overcome headwinds
Digital integration could boost inter-regional trade resilience and inclusivity.
Originally published in The Business Times.
Rising costs, tariffs and regulatory uncertainty are among the largest challenges faced by Southeast Asia’s trade networks. But the region’s businesses are finding new ways to keep their supply chains resilient through deeper integration with digital tools, according to Standard Chartered.
Fresh off the back of substantial conclusions to ASEAN’s Digital Economy Framework Agreement (DEFA) in Kuala Lumpur on October 24, this digital wave can help the region drive greater inter-region trade and inclusivity.
Sunil Kaushal, Standard Chartered’s co-head of corporate and investment banking and chief executive officer of ASEAN and South Asia, noted that a majority of regional corporates were expecting supply chain realignments to increase costs by about 10 to 19 per cent.
In response, up to 70 per cent of Southeast Asian businesses are setting in motion plans to digitalise their supply chain management, based on a study by Standard Chartered in September.
This includes using digital supply chain finance platforms, which help businesses use data to optimise their use of cashflows and working capital.
“These platforms also enable transparency, reduce friction and speed up payments, supporting suppliers, buyers and smaller ASEAN businesses,” Kaushal noted.
Additionally, the use of artificial intelligence (AI) provides businesses with crucial cost-saving and productivity-boosting capabilities, such as predictive analytics, real-time fraud monitoring and reducing human error, he said.
“AI and big data have massive potential to improve productivity, visibility and efficiency of supply chains,” Kaushal added.
He noted that developing innovations such as programmable money – where rules and conditions about payments can be embedded via smart contracts – are also likely to transform supply chain finance.
Digital economy is key to regional integration
ASEAN’s younger demographics, paired with progressive regulations, have enabled the region to swiftly adopt many such digital tools, Kaushal said.
“Investments in digital transformation, regulatory and legal digital economy frameworks are central to trade resilience.” They enable businesses to be agile, help overcome trade barriers, and strengthen ASEAN’s position as a trade bloc, he added.
Improving intra-regional trade in Southeast Asia has become increasingly critical to ASEAN’s economic ambitions, as the region’s leaders highlighted during the Asean Summit in October.
Southeast Asia’s digital economy remains a critical aspect of greater regional integration.
Prior to the summit on October 24, regional economies announced they had reached a substantial conclusion on the ASEAN Digital Economy Framework Agreement (DEFA). The pact is set to be signed next year, in an effort to boost cooperation across a range of areas including digital trade, e-commerce and cross-border data flows.
Such digital integration could hold the key to inter-regional trade resilience, said Kaushal. Cross-border tools, such as cloud-based corridors between Singapore, Indonesia and Malaysia, could aid Southeast Asian countries in turning to each other rather than extra-regional hubs, he noted.
Kaushal added that a stronger digital economy would work in parallel with greater inter-regional trade and supply chain corridors, such as the Johor-Singapore Special Economic Zone, with e-commerce among the most promising sectors to tap on infrastructure growth.
“Driven by the region’s youthful, tech-savvy population and the rapid expansion of digital channels, we see a clear trend of re-shoring and proximity manufacturing to serve ASEAN demand,” he explained.
Malaysia’s Minister for Investment, Trade and Industry Tengku Zafrul Aziz had noted earlier in the year that e-commerce trade under DEFA could hit USD$2 trillion by 2030.
The framework would also ensure greater inclusivity for over 70 million small and medium-sized enterprises (SMEs) in the region’s digital transformation, Zafrul said.
Such smaller enterprises and suppliers, Kaushal added, also stand to benefit from adopting digital supply chain finance platforms – these can help cascade financing to smaller suppliers, making supply chains more inclusive and resilient.
Government and industries must work together
Crucially, governments and industry partners will need to effectively expand access to trade financing to such smaller players, enabling them to integrate into global value chains.
Kaushal noted that such cooperation between governments and industries is critical to maintain the region’s competitiveness within global trade.
Further cooperation could include the acceleration of digital and data interoperability to integrate trade and financing platforms across borders, and greater strategic investment in logistics, ports and digital infrastructure like data centres.
Efforts to harmonise customs, procedures and standards would also enable Southeast Asia to integrate more effectively as a trade hub, he added.
Standard Chartered’s report also noted a greater demand among regional respondents to diversify their supply chains geographically, to reduce overreliance on any single trade corridor.
Likewise, ties from beyond the region are being forged with Southeast Asia’s economies as global supply chains undergo a major recalibration.
Asean’s economies signed with China an upgraded “3.0” version of their free trade agreement on Oct 28, which will include sections on the digital and green economy, among other new industries.
In September, Indonesia signed a pact with the European Union (EU), joining other South-east Asian countries Singapore and Vietnam in establishing bilateral free trade with the bloc. The EU is also in talks with Malaysia, Thailand and the Philippines for similar deals.
Kaushal noted, however, that he expects the US to maintain its position as a major trade partner for the region.
“The US continues to be an important market and innovation hub, given its technology leadership and substantial consumer base, and many corporates plan to maintain or expand their presence there,” he said.
Standard Chartered said that it is actively supporting Southeast Asian clients in using strategic levers to tap on these trends.
“As production bases diversify and intra-ASEAN trade deepens, our focus is on helping clients stay ahead,” said Kaushal.
A deep cross-border network and on-the-ground presence across 54 countries, he noted, enables Standard Chartered to help clients navigate shifts in global and regional supply chains.
“This involves connecting them across emerging trade corridors, supporting their liquidity and risk management needs, and enabling their digital transformation so they can capture opportunities in this dynamic and interconnected region.”
Sunil Kaushal is Co-Head of Corporate & Investment Banking and CEO of ASEAN and South Asia at Standard Chartered.
Source: The Business Times© Singapore Press Holdings Limited. Permission required for reproduction.
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