Strategy Note /
Global

How regulators in emerging Asia are supporting tech development

  • Technology is a key element of the modern economy. Regulatory support helps to build strong digital ecosystems

  • We dive into tech-related policies in Bangladesh, Pakistan, the Philippines and Vietnam – the targets look aggressive

  • Key areas of regulatory focus: boosting the digital economy, improving internet access and lifting financial inclusion

How regulators in emerging Asia are supporting tech development
Rohit Kumar
Rohit Kumar

Global Financials/Thematics

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Rahul Shah
Rahul Shah

Head of Financials Equity Research

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Tellimer Research
28 September 2021
Published byTellimer Research

Technology is the cornerstone of the modern economy and a key driver of economic development. In many areas, emerging markets lag their DM peers significantly in terms of technological penetration, but we are seeing rapid improvements. Although the private sector is usually at the forefront technological advancement, the right regulatory environment and technological infrastructure is essential to form a robust ecosystem.

With this in mind, some emerging markets governments and regulators have put in place aggressive targets to lift technological penetration over the next 5-10 years. In this report we look at four small emerging markets in Asia (Bangladesh, Pakistan, Philippines, Vietnam) to assess their targets for the digital economy, key proposed initiatives and some recently taken steps.

We identify three key areas where these regulators are focusing their efforts: 1) raising the contribution of the digital economy to GDP; 2) improving access to the internet; and 3) lifting financial inclusion through technology.

Three key regulatory target areas:

1) Increasing the contribution of the digital economy to GDP

The digital economy incorporates sectors such as e-commerce, online advertising, cloud computing etc. Considering the rapid digitalisation taking place across a wide range of industries, the digital economy’s impact is broadening and will likely be one of the key contributors to overall economic growth in many emerging markets.

Among our surveyed countries, Vietnam is targeting to lift the weight of its digital economy to 30% of GDP in 2030, compared to 8% currently. Pakistan wants to lift the digital economy’s contribution to 10% of GDP in 2030, from 5% currently. Bangladesh aim to lift its proportion of high tech exports from 0.2% currently to 10% by 2031, and its IT service exports from 1.2% currently to 5% by 2031.

2) Improving internet access

Internet access is fundamental to growing digital adoption. However, many emerging markets provide a poor internet access experience. Looking at our four surveyed markets, Vietnam wants its broadband network infrastructure to reach 80% of households by 2025. Bangladesh targets average internet bandwidth consumption to jump from less than 10 kbps currently to over 50 kbps by 2041.

Pakistan aims to improve its broadband penetration from 41% currently to 80% by 2025 and 100% by 2030. In addition, it wants to lift unique internet subscribers from 34.5% of the population currently to 75% by 2030, and for smartphone adoption to increase from 52% currently to 75% by 2025 and 100% by 2030.

3) Lifting financial inclusion through technology

Financial inclusion is an important pillar for economic growth, but is still at a poor level in many emerging markets. However, fintech companies are now targeting customers hitherto ignored by traditional banks. Vietnam plans to have 50% of its population using electronic payment accounts by 2025, while by 2023 the Philippines aims to convert 50% of the total volume of retail payments into digital form and ensure 70% of its population is financially-included. Pakistan is targeting 75% of its internet users to have digital bank accounts by 2025.

Country Profiles

Bangladesh

Bangladesh is weak compared to EM peers in terms of its technological sophistication – it scores poorly on the GSMA mobile connectivity index and also has weak e-commerce penetration and a low volume of high-technology exports. However, there are some positive developments also, such as the strong adoption of mobile money (41mn active mobile wallets). The government and regulators are also pushing aggressively to lift technology penetration, with key targets including increasing overall internet usage, more IT research and development and more IT graduates. The country also aims to increase the share of high-technology goods in its exports basket.

Key targets:

  • Per capita internet bandwidth consumption to jump from less than 10 kbps to over 50 kbps by 2041.

  • IT access country ranking in the Global Innovation Index to improve from 109 currently to 50 by 2031 and 20 by 2041.

  • Improving high tech exports as a percentage of the total from 0.2% currently to 10% by 2031 and 20% by 2041.

  • Increasing IT service exports from 1.2% currently to 5% by 2031 and 8% by 2041.

  • Graduates in Science and Engineering to increase from the existing 11% of total to 20% by 2031 and 30% by 2041.

  • By taking the advantage of IT innovations, Bangladesh aims to reduce road accidents by 70% by 2041.

  • Bangladesh’s R&D investments in the areas of IT, Science and Innovation to reach 2% of GDP by 2041 from 0.6% currently.

  • Knowledge-intensive employment to rise from the existing 8% of the total workforce to 15% by 2031 and 35% by 2041.

Proposed initiatives:

  • The government intends to establish:

    • A National Innovation Agency which will work to build digital ecosystems and forumalate a conducive policy environment.

    • The Sheikh Hasina Institute for Frontier Technologies to create required skills among the population.

    • Industry focused R&D labs, which will implement innovation opportunities.

  • The National Innovation Agency will give universities assignments to improve innovation.

  • The government will ensure physical and virtual access points are within easy reach of every underserved citizen.

  • All service providers and financial institutions unambiguously identify every citizen (unique IDs).

  • The ICT Division is working to transform public services in the digital space, like establishing digital centres and introducing G2P payments systems.

  • The government will leverage big data to ensure evidence-driven policymaking to leapfrog progress, enable improvement of existing services and creation of new services.

Recent initiatives:

  • The Bangladesh Telecommunication Regulatory Commission recently moved to fix broadband prices which, if successful, will benefit rural areas and increase internet access.

  • The Bangladesh Financial Intelligence Unit introduced e-KYC guidelines in 2020 to provide individuals with a better, faster experience when interacting with financial institutions.

  • Bangladesh Bank has created an interoperable QR space called Bangla QR, which will promote low-cost technology allowing all merchants to accept digital payments.

Source: Bangladesh Planning Commission, Ministry of Planning, Government of Bangladesh

Pakistan

Pakistan lags its EM peers significantly in technology penetration, including below-average mobile phone, internet and e-commerce usage. Nonetheless, the regulators have ambitious targets for boosting the digital economy, internet penetration, smartphone adoption, digital banking usage and IT exports.

However, there are various challenges such as customer awareness/trust and the undocumented economy that are stopping SMEs from adopting these new technologies. That said, the potential remains huge as the population is young, and recent developments such as strong mobile wallets adoption are encouraging.

Key targets:

  • The digital economy to contribute 7-8% of GDP by 2025 and 10% by 2030, compared to 5% currently.

  • Broadband penetration to increase from 41% currently to 80% by 2025 and 100% by 2030.

  • Unique internet subscribers to increase from 34.5% currently to 50% by 2025 and 75% by 2030.

  • Smartphone adoption to increase from 52% currently to 75% by 2025 and 100% by 2030.

  • More than 75% of businesses and commercial facilities should have access to high-speed fixed and mobile broadband internet by 2025.

  • To provide 75% of internet users with digital bank accounts by 2025.

  • To have more than 75% of academic content available online to embrace blended education by 2025.

  • The State Bank of Pakistan will migrate to an electronic payments system, which will boost GDP by 7%, create 4mn jobs and result in US$263bn in new deposits by 2025.

  • IT exports targeted to reach US$5bn by 2023 versus US$2bn in 2021.

Proposed initiatives:

  • Transforming the legacy internet infrastructure to a fibre network.

  • Provision of Wi-Fi hotspots based on international standards for commercial use.

  • Infrastructure sharing to be promoted in the telecoms sector to save costs.

  • The SBP is studying the introduction of a central bank digital currency.

Recent initiatives:

  • The government has launched its Cyber Security Policy 2021.

  • Earlier this year the SBP launched Raast, an instant payments system.

  • The SBP has launched a digital onboarding framework for banks to enable account opening without physical interaction.

  • The SBP has built a framework for e-money licences and has also published draft digital banking regulations.

  • The SBP has made it mandatory for banks to offer a minimum level of online services.

Note: Some of the targets are based on the draft National Broadband Policy 2021, which maybe subject to change.

Source: National Broadband Policy 2021 (draft), State Bank of Pakistan

 

The Philippines

The Philippines scans well on most technological metrics, with strong mobile and internet penetration. The government is targeting to further improve this positioning, and has set some specific targets pertaining to financial inclusion through digital channels. The country aims to have 50% of retail payments in digital form by 2023 and wants 70% of the population to be financially-included (2017: 34.5%). There have been various proposed initiatives to strengthen the country’s digital ecosystem, such as extending QR code use-cases, promoting payments system interoperability, a national broadband plan and a cybersecurity plan.

Key targets:

  • Converting 50% of the total volume of retail payments into digital form by 2023.

  • 70% of population to be financially-included by 2023.

Proposed initiatives:

  • The national broadband plan aims to improve internet speed through increased broadband capability for broader, faster, and more affordable access for Filipinos.

  • Free Wi-Fi for all – over 30k free Wi-Fi zones will be set up to boost internet access.

  • The National Cybersecurity Plan 2022 aims to ensure the privacy, confidentiality and security of information.

  • The central bank will proactively build a regulatory environment that is conducive to digital innovation.

  • The central bank intends to introduce interoperability among its payments systems (InstaPay and PESONet).

  • Extending QR use-cases from P2P to P2M (person-to-merchant).

  • The central bank has a direct debit use-case in the pipeline, where the payer can send the payee an electronic authority or mandate to draw funds directly from the payer's account on a regular basis.

Recently taken initiatives:

  • The central bank recently launched a new licence category for digital banks.

  • The digital PERA (Personal Equity Retirement Account) has been launched. It is a digital platform where investors can open, access, and invest 24/7 through their PERA account anywhere in the world using their mobile gadgets.

  • The central bank is boosting its digital literacy programme to increase public trust in the digital financial ecosystem.

Source: Department of Information and Communication Technology, Bangko Sentral ng Pilipinas

 

Vietnam

Vietnam’s technology ecosystem is more sophisticated than most of its EM peers. The country has good internet and mobile phone penetration and it also scores well on cybersecurity metrics. Despite this, regulators have very aggressive plans to further boost technology penetration. Vietnam aims to lift the digital economy’s GDP contribution to 20% by 2025 from the current 8%, and wants 50% of the population using electronic payments by then. Given Vietnam’s young, tech-savvy population and considering recent strong trends in digital adoption, we think the country can achieve these set targets. 

 

Key targets:

  • The digital economy to account for 20% of GDP by 2025 and 30% by 2030 (from the current c8%).

  • Broadband network infrastructure to cover over 80% of households and 100% of villages by 2025.

  • 80% of the population using the internet by 2025.

  • 50% of the population using electronic payments accounts by 2025.

  • Being listed in the group of top 30 countries in the United Nations E-Government index by 2030.

  • Developing at least three smart cities in three key economic regions (North, Central, and South) and deploying 5G networks in these cities by 2025.

Proposed initiatives:

  • Developing and improving institutions for industries with new business models.

  • Reviewing and improving regulations to encourage domestic digital technology enterprises to invest in development and research.

  • Developing the legal framework to prevent and control non-traditional and high-tech crimes.

  • Improving the business environment and reducing costs for businesses.

  • Developing high-speed internet and securing digital infrastructure to meet big data connection and processing demands.

  • Building and upgrading technical systems to ensure network safety and security.

Recently taken initiatives:

  • Issued a draft decree on electronic identification and electronic authentication in July 2021.

  • Issued draft decree on Personal Data Protection.

  • The State Bank of Vietnam has been assigned to study the launch of a central bank digital currency.

  • The government and associated institutions have launched various funds to support start-ups.

  • The government has issued a resolution to create a regulatory sandbox for fintech firms.

Source: National Strategy on the Fourth Industrial Revolution, E-government development strategy