Digitalization can drive Asian rebound: IMF

January 15, 2023

Asia’s strong post-pandemic economic rally is slowing due to tight money, weak export demand, and China’s slowdown, but IMF bloggers say digitalization can give a boost
Three IMF analysts say Asia is a digital powerhouse whose landscape shows innovations such as manufacturing automation, e-commerce platforms to digital payments
They suggest improving further digital literacy and reducing the digital divide across firms, industries, and workers to help close productivity gaps

Digitalization can re-energize Asia’s erstwhile strong economic rebound from the COVID crisis that is being slowed by tightening funds, weak demand for exports, and China’s sharp slowdown, according to three International Monetary Fund analysts.

In a January 9 blog, Antoinette M. Sayeh, Era Dabla-Norris, and Tidiane Kinda said deep economic scars from the pandemic and the lackluster productivity growth that preceded it are weighing on the region’s longer-term growth prospects.

“But despite these challenges, we see a promising path for boosting Asia’s productivity that runs through a landscape in which it has a history of leadership: digitalization,” the IMF analysts said.

“Digital technologies can increase the efficiency of the public and private sectors, expand financial inclusion, improve access to education, and open new markets by allowing companies to serve distant customers,” they said.

For instance, the analysts said, digitalization improved the allocation of precious resources for health and social benefits during the pandemic, allowing a prompt provision of relief while keeping leakages of public spending in check.

“Digitalization has helped support resilience during the pandemic, where, combined with large fiscal support, remote work and online sales protected workers, students and businesses,” they said.

The IMF bloggers acknowledge Asia as a digital powerhouse. They said the region’s digital landscape has swelled in recent years to encompass innovations ranging from manufacturing automation to e-commerce platforms to digital payments.

The analysts said Asia accounted for 60% of patents in digital and computer technologies right before COVID-19, up from 40% two decades earlier. They said the region as a manufacturing powerhouse, leads the world in installation of industrial robots with China as the single biggest robot user, holding some 30% of the market.

They cited Japan’s Rakuten, China’s Alibaba Group, and Indonesia’s GoTo Group as major e-commerce players rivaling Amazon and Walmart in revenues.

India, the pioneer in digital infrastructure known as stacks, has become “a leading example of how to bring together digital payments and identification to expand access to finance …[and] growing youth populations in Bangladesh, Indonesia and Vietnam have rapidly adopted new technologies and become a sizable potential customer base for the digital economy,”

Patent applications for remote work and e-commerce technologies surged during the pandemic as did spending on e-commerce, with Asia now accounting for nearly 60% of the world’s online retail sales. Vietnam, Indonesia, and India’s e-commerce revenues grew 40–50% in 2020, outpacing most of the world, the report said.

“This rapid increase was spurred by the shift away from cash payments and a resulting boom in digital alternatives, particularly e-wallets and prepaid cards,” said the analysts.

However, they noted that Asia’s digital divides constrain productivity growth and access to cutting-edge digital technologies is highly uneven within countries and across companies.

Small and medium-sized enterprises face significant barriers to access and use of digital technologies, with nearly half of SMEs and about a third of large firms in emerging and developing Asia reporting difficulty in obtaining financing as a major barrier to technology adoption. The analysts said a slow diffusion of technology between leading and lagging firms underpins the technological divide.

“Digital gaps also prevent workers from reaping the full rewards of participating in the new economy and reaching their full potential, they said. For example, with only a quarter of the overall population using the internet, Indonesia has one of the lowest internet penetration rates in Southeast Asia. And while access is affordable in Vietnam and Bangladesh, internet connections are often slow,” said Sayeh, Dabla-Norris and Kinda.

They suggested further improvement of digital literacy and reduction of the digital divide across firms, industries, and workers would help close productivity gaps.

“Asia is poised to continue leading digital innovation. Facilitating equal access to technologies across firms, industries, and workers will help the region fully benefit from the economic boost that digitization offers,” they concluded.