The rise of the digital economy: What is it and why it matters for Singapore

SINGAPORE: A few taps on a smartphone is what most people will do these days to book a ride, order a meal or pay a bill.

These changes in day-to-day activities are powered by technological advancements, which have also reshaped jobs and how businesses operate.

For instance, the mobile app that allows you to pay a bill, apply for a new credit card and open a new account underscores how banks are tapping technology to create new products and services for digital-savvy customers. With fewer people visiting bank branches, some job functions, such as those of bank tellers, have had to evolve.

Singapore has embarked on an all-out push to get itself ready for this new reality.

Going digital is now an imperative for companies across all sectors, and workers are nudged to pick up new skills as the economy embraces more technology.

By one estimate, the burgeoning digital economy is set to add as much as US$10 billion (about S$13.5 billion) to Singapore’s gross domestic product (GDP) by 2021.

It can also increase GDP growth rate by 0.6 per cent annually, according to the 2018 study by Microsoft and market research firm IDC Asia-Pacific.

But with opportunities come challenges. For example, when jobs and skills are made redundant quicker than people think.

What does the transformation into a digital economy mean? Here’s what to know:

WHAT IT’S ALL ABOUT

The World Economic Forum and the Group of Twenty define the digital economy as a broad range of economic activities that use digitised information and knowledge as key factors of production, modern information networks as an important activity space, as well as information and communications technology to drive productivity growth.

To put it simply, the digital economy is organised, enabled and facilitated by technology ranging from computers, Internet to emerging ones like artificial intelligence and the Internet of Things.

Its growth and far-reaching influence have brought about tremendous disruptions across all industries.

Look no further than the brick-and-mortar retailers and taxi operators, which have been upended by the rise of e-commerce and ride-hailing platforms, respectively.

Back at banks, technology has also been deployed at the back end amid the chase for greater productivity and cost efficiencies. For instance, the use of software to automate manual and repetitive operational tasks and processes.

READ: Fast and no need for coffee breaks: ‘Robots’ take over mundane tasks at Singapore banks

READ: UOB to re-skill 900 staff in professional conversion programme

As the relentless march of technology leaves its mark across industries, some jobs have changed. While some became obsolete, others now demand new skills such as programming and data analytics.

These changes will continue to come thick and fast, said a 2019 report by a United Nations body that focuses on trade, investment and development issues.

This boils down to how the collection, usage and analysis of massive amounts of data are now possible.

The United Nations Conference on Trade and Development also named the emergence of digital platforms as a catalyst. These data-driven platforms, which enable different parties to interact online, have disrupted existing industries over the past decade and will continue to do so.

“The power of platforms is reflected in the fact that seven of the world’s top eight companies by market capitalisation use platform-based business models,” the report said, citing the examples of Facebook and Alibaba.

WHY SHOULD SINGAPORE CARE?

The digital age has thrown up a resource – data – that allows Singapore to overcome its geographic and resource limitations, according to Trade and Industry Minister Chan Chun Sing at a press conference on the launch of the Committee on the Future Economy report in 2017.

With the global outlook for 2020 still shrouded in uncertainty, the digital economy remains one of the “exciting” opportunities – and a “major” one – for Singapore, he said in Parliament this month.

Digitalisation enables small countries like Singapore to transcend size and geography, and helps enterprises to penetrate new markets, he said.

Southeast Asia’s digital market, which is estimated to exceed US$300 billion by 2025, also serves up opportunities, added the minister in a speech on Jan 6.

READ: Uncertainties remain in global economy, with US-China trade war being biggest risk: Chan Chun Sing

Professor Sumit Agarwal from the National University of Singapore (NUS) Business School said Singapore, as a small and open economy, has been at the forefront of previous economic revolutions.

With digital technologies becoming increasingly pervasive in economies, businesses and people’s everyday lives, embracing it is crucial in remaining relevant.

“If Singapore doesn’t care, Singapore will be left behind,” he said.

WHAT HAS BEEN DONE

A plethora of measures have been put in place, with the digital economy named a key pillar of Singapore’s Smart Nation goals.

These include continued investments into digital infrastructure by setting aside S$40 million to build an open and inclusive 5G ecosystem.

An additional S$500 million will also go into digital technologies as announced last year under a mid-term review of the five-year Research, Innovation and Enterprise 2020 plan.

To nudge businesses to digitalise, transformation maps for 23 industries were rolled out from 2017, alongside initiatives that offer funding support or advice like the SME Go Digital programme.

More recently, a new digital-focused office has been set up. It will encourage public-private partnerships to help companies digitise, while creating an estimated 10,000 new tech-related jobs over the next three years.

READ: New office for digital industry aims to help create 10,000 tech jobs in Singapore

Another key focus is on raising the digital capabilities of the local workforce.

This by incorporating more technology-centric programmes into the curriculum at education institutions and providing existing workers with various options for skills upgrading or on-the-job training.

More help for both businesses and workers can be expected in Budget 2020, Deputy Prime Minister Heng Swee Keat has said in his New Year message.

Elsewhere, the push towards a cashless society continues and the local banking sector is poised for more shake-up with plans by the Monetary Authority of Singapore to issue five new digital bank licenses.

READ: 21 applications for digital bank licences: MAS

On a broader level, Singapore is pursuing digital economy agreements with Chile, Australia and New Zealand. It is also co-leading the World Trade Organisation Joint Statement on E-Commerce initiative, which aims to establish rules for the digital economy.

For all these efforts, Singapore was ranked as the world’s second-most digitally competitive country in an annual ranking published by Swiss business school IMD last year. The United States took the top spot.

CHALLENGES 

There are also concerns, with the readiness of workers for the digital economy at the top of the minds of experts that CNA spoke to.

Many countries, including leading economies, are facing the challenge of a job-skills mismatch, said Ms Jaya Dass, managing director of recruitment firm Randstad in Malaysia and Singapore.

“The speed at which technology is advancing surpasses the current capabilities of the local workforce. There are new technologies such as robotics process automation and artificial intelligence, which the majority of the workforce is not equipped to carry out.”

Singapore’s Manpower Minister Josephine Teo said last month that the jobs and skills mismatch here will not go away.

In fact, Singapore must expect it “if we are transforming our economy at a fast enough rate” and see it as an opportunity instead.

READ: Unemployment rate inches up to 2.3%, even as total employment grows in Q3

Some surveys have showed societal concerns about the future of work.

A 2019 survey by PwC showed one in five Singaporeans being concerned about the future impact of technology on their jobs. This put Singapore as the second-most nervous country in the 11-nation poll.

When asked why they felt nervous or scared, 58 per cent of respondents were worried about being made redundant by technology and 36 per cent feared about not having the right skills.

Slightly more than half also thought that it is likely their roles will be made obsolete or significantly changed by automation over the next 10 years, the survey said.

Asked if Singapore is making the transition too quickly, OCBC’s head of treasury research and strategy Selena Ling said given how the rise of the digital economy is a global phenomenon, the pace of transformation is not something that can be controlled.

She said the local education sector is now “a lot more plugged in with the general economic direction and industry needs”, and the challenge remains on how to help existing workers keep up with the technology-induced shifts in the labour market.

This will likely have to involve more support measures for businesses, especially the small- and medium-sized enterprises, and workers moving forward, said Ms Ling.

Globally, there are concerns about how existing inequalities, such as the digital divide with sharing being predicated on access to technology and income divide, could be exacerbated.

The digital economy also tosses up new problems, such as cybersecurity risks and taxation, for world governments to mull over, experts said.

Singapore has, for instance, begun levying the Goods and Services Tax on digital imported services from January 2020.

“I think we are still at the nascent stage in policy responses to the digital economy, but overtime you’ll expect it to grow and displace traditional economic activities. Then, how you regulate, govern and tax will become increasingly important,” said Ms Ling from OCBC.

In March 2020, the inaugural CNA Digital Economy Leadership Summit 2020 will bring together some 200 key decision makers from Government, diplomatic circles and the private sector from around Asia, to explore key issues that include: How to grow and innovate in a digital economy, as well as how to manage talent and ensure sustainability in the digital economy.