Google, Temasek and Bain report on the Southeast Asian digital economy in 2022

Two women using mobile phones in Raffles Place, Singapore’s central business district.

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SINGAPORE — South East Asia’s largest digital economies grew faster than expected in 2022, with total transaction value expected to reach $200 billion this year, according to a new report by Google, Temasek and Bain & Company.

The milestone comes three years ahead of previous estimates, a 20% increase over last year’s $161 billion gross commercial value (GMV). An earlier report in 2016 estimated that the internet economy in six of the region’s largest countries would approach $200 billion in GMV by 2025.

The six major economies included in the report: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The report did not consider the populations of Brunei, Cambodia, Laos and Myanmar, as well as East Timor and Papua New Guinea.

“Digital adoption growth is normalizing after years of acceleration,” the report, released Thursday, said.

Southeast Asia continues to see growth in the number of internet users, bringing the total number of users to 460 million, with 20 million new users added in 2022.

However, this growth is starting to slow and was only 4% in 2022 from a year ago. This compares to a 10% annual increase in 2021 and an 11% growth in 2020 at the height of the coronavirus pandemic.

growth factors

Despite the resumption of offline shopping as pandemic restrictions are lifted, e-commerce continues to drive growth in the region. GMV in the industry grew by 16% in 2022 to reach $131 billion.

However, the report states that it may see a slowdown in the next three years, and the growth in the e-commerce sector is projected to grow at a CAGR of 17% from 2022 to 2025.

“E-commerce continues to accelerate, food delivery and online media return to pre-pandemic growth levels, travel and transportation will take time to recover to pre-COVID levels,” the report said.

Digital financial services, including payments, remittances, lending, investments and insurance, which are another growth driver, enjoyed healthy growth from 2021 to 2022, thanks to post-pandemic offline-to-online behavioral changes, the report said.

Among these services, insurance had the highest share with a growth of 31% compared to the previous year, while loans grew by 25% annually.

“As we are back post-pandemic, activity in retail outlets has actually surpassed the pre-pandemic era. [levels] in multiple countries. Still, the digital economy still grew by 20% year-on-year. And that means most of the adoptions that took place during the pandemic are here to stay. “Some new habits have been formed on CNBC’s “Street Signs Asia,” said Stephanie Davis, vice president of Google Southeast Asia.

Growth in digital adoption is slowing

After years of acceleration, digital adoption growth is normalizing, wrote the same report. This happens as Southeast Asian economies reopen their borders in 2022 after prolonged lockdowns and consumers continue their shopping offline.

Additionally, current macroeconomic conditions such as rising inflation rates have affected Southeast Asian consumers and the digital economy. The report cited consumers who have less access to products as supply chains are disrupted as production builds up, backlogs due in part to rising prices, lower disposable income due to the slowdown, and China’s zero Covid policies.

According to the report, Southeast Asia’s online economy is on track to reach $1 trillion by 2030, with online shopping becoming the norm.

Overall, the internet economy in six countries is predicted to reach $330 billion by 2025 if companies focus more on profitability for the next three years. Some of Southeast Asia’s biggest unicorns To capture and Sea Limited It has yet to record a profit, collecting billions in losses in 2021.

“The rising rate environment has led us to conclude that the growth strategy at all costs is no longer a viable strategy. Investors continue to gravitate towards profitability, free cash flow and normalized profit margins. Temasek’s vice president of technology and consumer Fock Wai Hoong, CNBC’s “Cost optimization and maximal growth is something all companies need to work on.”

Investors will be cautious in the short term, as most do not expect a return to 2021 deal activity and valuation peaks over the next few years.

All six countries will record double-digit growth in GMV from 2022 to 2025.

According to the report, Vietnam is the leader and is poised to record 31% growth in GMV from $23 billion in 2022 to $49 billion in 2025. The Philippines is right behind with 20% growth in GMV expected to grow from $20 billion in 2022 to $35 billion in 2025.

cautious investors

Strong investment momentum continued in the first half of 2022, but investors are becoming more cautious.

“Investors will be cautious in the short term, as most do not expect a return to 2021 deal activity and valuation peaks over the next few years,” the report said.

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“Still, most investors remain bullish on SEA’s medium- and long-term potential,” according to the report, though venture capitalists continue to earn $15 billion in dry powder to keep deals in the region.

“We note increased interest in emerging markets such as the Philippines and Vietnam, and emerging industries such as SaaS and Web3.”

According to the report, early-stage investments are improving, while late-stage investments are impacted by public listing prospects.

Singapore-based ride-hailing and food delivery giant Grab saw a sub-stellar stock debut at the end of 2021 despite being the largest IPO in US history by a Southeast Asian company.

FinAccel, the parent company of Indonesia’s pay-now platform Kredivo, canceled its IPO plans in October due to adverse market conditions.

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