Two women using their mobile phones at Raffles Place, the central business district area of Singapore.
Nicky Loh | Bloomberg | Getty Images
SINGAPORE — South East Asia’s top digital economies grew faster than expected in 2022 and is about to succeed in $200 billion in total value of transactions made this yr, based on a latest report by Google, Temasek and Bain & Company.
The milestone comes three years ahead of earlier projections and is a 20% increase from last yr’s $161 billion in gross merchandize value (GMV). An earlier report in 2016 estimated the web economy within the region’s six major countries will close in on $200 billion in GMV by 2025.
The six major economies covered within the report are: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The report didn’t address the populations of Brunei, Cambodia, Laos and Myanmar, in addition to East Timor and Papua Latest Guinea.
“After years of acceleration, digital adoption growth is normalising,” said the report released Thursday.
Southeast Asia continues to see growth within the variety of web users — with 20 million latest users added in 2022, raising the full variety of users to 460 million.
Nevertheless, that growth is beginning to slow, and was just 4% in 2022 in comparison with a yr ago. That is in comparison with a ten% year-on-year increase in 2021 and 11% growth in 2020, at the peak of the coronavirus pandemic.
Growth drivers
E-commerce continues to drive the expansion within the region despite the resumption of offline shopping as pandemic lockdowns lifted. GMV within the sector grew 16% to $131 billion in 2022.
Nevertheless, the following three years might even see a slowdown, the report said, projecting growth within the sector to e-commerce to grow at a 17% CAGR from 2022 to 2025.
“E-commerce continues to speed up, food delivery and online media are returning to pre-pandemic growth levels, while travel and transport recovery to pre-COVID levels will take time,” the report said.
One other growth driver, digital financial services, which incorporates payments, remittances, lending, investments and insurance, have seen healthy growth from 2021 to 2022, due to offline-to-online behavior shifts post-pandemic, wrote the report.
Amongst these services, insurance recorded the very best, growing 31% year-on-year while lending grew 25% year-on-year.
“As we’ve opened back up post-pandemic, mobility in retail places has actually surpassed pre-pandemic [levels] in multiple countries. Yet, the digital economy still grew by 20% year-on-year. And that signifies that a number of the adoption that took place throughout the pandemic is here to remain. Some latest habits have been formed,” Stephanie Davis, vp at Google Southeast Asia, said on CNBC’s “Street Signs Asia.”
Growth in digital adoption slows
After years of acceleration, digital adoption growth is normalizing, wrote the identical report. This happens as Southeast Asian economies reopened their borders in 2022 after prolonged lockdowns and consumers resumed their shopping offline.
As well as, current macroeconomic conditions resembling surging inflation rates have impacted Southeast Asian consumers and the digital economy. The report cited rising prices, lower disposable income as a result of a slowdown, in addition to consumers having less access to products as supply chains are disrupted while production backlogs construct up, partly as a result of China’s zero-Covid policies.
Southeast Asia’s online economy remains to be on course to succeed in $1 trillion by 2030 as online shopping becomes the norm, based on the report.
Overall, the web economy within the six countries is predicted to succeed in $330 billion by 2025 if firms put a greater concentrate on profitability for the following three years. A few of Southeast Asia’s biggest unicorns resembling Grab and Sea Limited have yet to record a profit, amassing billions in losses in 2021.
“The rising rate environment has led to us to conclude that growth-at-all-costs strategy is not any longer a viable strategy. Investors are continuing to pivot towards profitability, free money flow and normalized profit margins. Finding the correct balance and calibrating between cost optimization and top line growth is something that each one firms should work through,” Fock Wai Hoong, Temasek’s technology and consumer deputy head, said on CNBC’s “Street Signs Asia.”
Investors might be cautious within the short-term as most don’t expect a return to 2021 deal activity and valuation peaks in the following couple of years.
All six countries are set to post double-digit growth in GMV from 2022 to 2025.
Vietnam is within the lead and set to post a 31% growth in GMV from $23 billion in 2022 to $49 billion in 2025, the report showed. The Philippines is correct behind with an expected 20% growth in GMV, from $20 billion in 2022 to $35 billion in 2025.
Cautious investors
There was continued strong momentum in investments in the primary half of 2022, but investors have gotten more prudent.
“Investors might be cautious within the short-term as most don’t expect a return to 2021 deal activity and valuation peaks in the following couple of years,” the report said.
“Nonetheless, most investors remain bullish in SEA’s medium- to long-term potential,” but enterprise capitalists remain vested within the region with $15 billion dry powder to sustain deals, continued the report.
“We note increasing interest in emerging markets, just like the Philippines and Vietnam, and in nascent sectors, like SaaS and Web3.”
Early-stagers are flourishing, while late-stage investments are impacted by dim public listing prospects, based on the report.
Singapore-based ride-hailing and food delivery giant Grab saw a less-than-stellar stock debut at the top of 2021 despite being the most important initial public offering by a Southeast Asian company in U.S. history.
FinAccel — the parent of Indonesia’s buy now pay later platform Kredivo — canceled its IPO plans in October as a result of unfavorable market conditions.
