SINGAPORE (Apr 3): While Southeast Asia stands to enjoy exponential additional value as a result of adopting 5G technology, a growing “digital divide” between regional economies could limit the region’s ability to realise the full potential of 5G connectivity.
Analysing hundreds of 5G use cases in the mobility, healthcare, manufacturing, and retail sectors (around 30% of the global economy), a Mc-Kinsey Global Institute (MGI) report found that the most promising use cases in these four sectors alone could lead to a US$1.2 trillion-US$2 trillion ($1.72 trillion-$2.86 trillion) increase to global GDP. Gains from the global economy as a whole are estimated to vastly exceed this amount.
Developing countries will benefit significantly from such advances in connectivity. The addition of two billion internet users in the developing world would initially generate an extra US$1.5 trillion to US$2 trillion in global GDP, representing significant economic gains for developing countries like Myanmar and Cambodia.
In Southeast Asia’s fast-growing ride-hailing industry, for instance, improved connectivity can enhance user experience by improving app navigation capabilities and allowing firms to provide in-vehicle media content.
In the long run, improvements to vehicle-to-infrastructure and vehicle- to-vehicle communications could lead to the development of autonomous vehicles. Improved connectivity could see the mobility sector generating up to US$170 million-US$280 million in global GDP by 2030.
“Overall, the share of the global addressable population remaining wholly offline or limited to only the most basic connectivity could shrink by half, from 40% today down to 20% by 2030. The economic and social benefits would be profound, from improved access to mobile banking and credit to new educational opportunities,” says Sree Ramaswamy, a partner at MGI.
Mind the connectivity gap
The report warns, however, of a potential connectivity gap emerging between more and less connected countries. MGI estimates that 70% to 80% of the value created from 5G connectivity would accrue to countries with advanced connectivity such as France and Canada, with the remaining going to countries with cutting-edge “frontier” technology such as China, Japan and the US.
Countries with less access to such technology such as Poland and Bolivia, however, may find it difficult to gain widespread advanced connectivity in the near to medium term. It may therefore be difficult for such countries to fully capture added value arising from improved 5G connectivity.
This inequality has significant implications for Southeast Asia, as the connectivity maturities of regional economies are as diverse as the region itself. On the one hand, there are the more connected markets such as Singapore and Thailand, which are well-poised to roll out the necessary infrastructure to realise 5G’s economic potential more fully.
On the other hand, countries without such advanced connectivity, such as Laos (especially in rural areas), are less able to capture this added value compared to countries like Singapore. There are others, somewhere in the middle, such as Indonesia which, as relatively latecomers, may find it difficult to fully tap the value-add arising from 5G, says MGI.
As Industry 4.0 disrupts the global economy, less connected countries may find themselves stuck in a “middle income trap” if they do not develop the necessary infrastructure to adopt automated production processes prevalent in the digital economy.
This could limit Asean’s global economic competitiveness. Uneven access to 5G connectivity could reduce its ability to harness this technology and compete globally as an integrated regional economy.
“In a world where future economic growth depends on finding new avenues for improving productivity, the hurdles slowing both network deployment and the widespread adoption of use cases urgently need to be addressed,” says Eric Kutcher, head of MGI’s global technology, media and telecommunications practice.
China’s allure
To fully close this connectivity gap, Southeast Asian economies have sought out overseas expertise and backing to develop their 5G infrastructure. Telcos in Cambodia and the Philippines have launched collaborations with Chinese tech giant Huawei Technologies, while Finland’s Nokia Corp has offered to provide 5G services to Malaysia’s ports.
Chinese firms, especially Huawei, and to a smaller extent, ZTE Corp, are partners of choice for most regional countries. In recent years, they have been actively marketing themselves in these markets. Chinese firms are involved in 5G telecommunications in all Southeast Asian countries except Vietnam.
UBS identifies cost-effectiveness and robust investment (one-third of global capital investment) as key factors behind the attractiveness of Chinese 5G. This is sweetened by ready financing from China’s Belt and Road Initiative (BRI) to further offset capital investment.
The BRI would furthermore help Southeast Asia overcome two significant barriers to adopting 5G technology – weak value chain coordination and insufficient economies of scale.
Embedding 5G infrastructure projects within BRI-themed programmes would encourage policy coordination between states by promoting inter-governmental cooperation and multi-level inter-governmental communication. It will also help align common technical standards between different countries to develop an extensive infrastructure network spanning the whole of Asia and the world.
The sheer scale of the BRI – which spans across Asia, Africa and Europe and involves more than US$1 trillion in investment – means that it can also act as an “aggregator” to create sufficient viable scale in demand to make 5G infrastructure development financially feasible.
Choosing sides
There are, however, significant security and financial concerns regarding China’s growing regional 5G footprint. Questions have been asked about the political independence of Chinese tech firms, leading to fears of cybersecurity threats and intellectual property theft. BRI financing has also been criticised for placing most of the financial risk on beneficiary states to obtain financial leverage.
Several developed countries, including Australia, France and Japan, have restricted Chinese involvement in their 5G networks. The US, in particular, has barred American businesses from doing business with Huawei, leading to fears of supply chain decoupling and American retaliation against other states for using Chinese technology.
While several countries have strengthened cybersecurity laws recently, the region remains undeterred from seeking Chinese tech financing. The strategic imperative to develop 5G capabilities quickly and cheaply is simply too great.
“Other things being equal, governments indebted to China may feel less free to turn down Huawei,” says Donald K Emmerson, senior fellow at Stanford University’s Freeman Spogli Institute for International Studies and director of its Southeast Asia programme.
Traditionally shying away from great power rivalry, regional states are also uncomfortable with “choosing sides” in what they see as a US-China geopolitical conflict played out in the technology realm.
Nevertheless, the prospect of enjoying an economic boost underpinned by better connectivity, is something that will not be dismissed. Asean Deputy Secretary-General Aladdin Rillo said at the Huawei Cybersecurity Transparency Centre: “Huawei, like others, is a key player [in regional technological development] and would definitely help us in this regard ... We want to take advantage of that.”
