The great APAC digital divide

At first sight, Asia Pacific looks like a single engine of digitalization and economic growth. Projections are that APAC will make up more than 50% of global GDP by 2050 (IMF, 2022) with digitalisation contributing roughly 60% to this number (IDC, 2018).

In this article – published in partnership with international law firm Allen & Overy – research reveals that in fact the APAC region is split between developed, developing and emerging countries in terms of their digital advancement.

China and India – the world´s two population giants – are at different extremes. While China is considered a fast-paced digital hub, India ranked lowest in digitalisation among the large APAC countries according to a 2022 study by Asia House.

The digitally emerging APAC countries in Southern and South East Asia are largely at a much earlier stage in digital infrastructure and thus digitalization.They are still transitioning from 2G/3G to 4G/5G broadband networks and focusing on raising smartphone connectivity in their populations. Smartphone penetration in India is a mere 51%, compared with 87% in Singapore (GSMA, 2021).

A lack of investment and poorly adapted policy networks stand as barriers to improving digital infra in most emerging APAC countries.

By 2040, the estimated investment gap for APAC digital infra is expected to reach $512 billion (McKinsey, 2020). A total of 54% of this gap can be attributed to connectivity-related investments, with most of the rest being for data centers (AIIB, 2020).

The emerging digital economies – including India, Pakistan and Sri Lanka – are expected to plan digital infrastructure investments of $18.6 billion for 1.85 billion people (AIIB, 2020).

By contrast, the developing countries – including China, Indonesia, Philippines and Thailand – will invest an estimated $73.2 billion for a huge population of 1.96 billion.

The digitally developed countries – such as Australia, South Korea and Japan – with a combined population of a mere 220 million, are estimated to invest $49.9 billion in digital infrastructure by 2024.

The telco sector will not be able to close the financing gap, as revenues and margins decline. While most downstream digital services seeing a CAGR of 9-19% globally in 2010-2015, telcos actually witnessed a drop of 2% in revenues as result of competition, lower tariffs and increased regulation (UNTAD).

Jamie Palmer, a Sydney-based partner with leading global law firm Allen & Overy, says: “I think we'll absolutely see more of the expansion of what constitutes digital infrastructure and infrastructure more broadly.”

Most current investment in digital infra in APAC is internally funded by digital infrastructure industries, followed by project and corporate finance (IJGlobal, 2019).

Although public investments in digital infrastructure are still fractional, the growing recognition among governments of the importance of DI for economic growth is likely to increase this number as well as drive PPPs.

According to the International Telecommunications Union ITU, legislators and regulators – particularly in emerging digital economies – will have to implement streamlined permission processes for installing broadband equipment such as underground optic fiber cable, transmission towers and poles.

Although the list of conditions put to governments is long, the ITU highlights tax incentives, a digital infrastructure roadmap and allowing digital companies to public facilities such as roads, buildings, land transmission towers (ITU, 2019).