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Southeast Asia’s digital economies are expected to reach a total of $218 billion in transactions this year, up 11% from a year ago, despite global macroeconomic headwinds, a new report from Google shows , Temasek and Bain & Company.
“Southeast Asia has weathered global macroeconomic headwinds with more resilience compared to other regions in the world… Consumer confidence will start to recover in the second half of 2023, after falling to lower levels in the first half of 2023 ,” said the report titled e-Conomy. SEA 2023.
The annual report analyzed the five key sectors of Southeast Asia’s digital economy: e-commerce, travel, food and transportation, online media and digital financial services.
The report also shows that sales in Southeast Asia’s digital economy are expected to reach $100 billion this year, growing 1.7 times faster than the region’s total transaction value.
This is because companies are shifting their focus from ‘growth at all costs’ to profitability, in an attempt to build ‘healthy’ businesses.
“Southeast Asia’s digital economy is really in the midst of an unprecedented pivot towards profitability. There is now a laser-like focus on high-quality revenue and monetization, which is, frankly, incredibly healthy,” said Fock Wai Hoong, head of Southeast Asia -Asia at Temasek, said on CNBC’s “Street Signs Asia” on Wednesday.
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The report covered six major economies: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The populations of Brunei, Cambodia, Laos, Myanmar, East Timor and Papua New Guinea were not discussed.
“By keeping the focus on the digital participation gap and decisively removing barriers to enable more Southeast Asians to become active users of digital products and services, the region will unlock further growth in the digital decade,” said Sapna Chadha, vice president at Google Southeast Asia. said in the report.
Sectors that drive growth
Online companies are moving from acquiring users at high costs to deepening engagement with existing customers in an effort to focus on profitability, the report said.
“Companies and entrepreneurs are now realizing that the best way to grow is not to grow at all costs, and are extending this early stage mentality across a scale, but honestly, to move as quickly as possible through the early stage, the growth stage and into more financial sustainability. Fock told CNBC’s JP Ong.
The report notes that e-commerce platforms are focusing more on attracting high-value users, increasing transaction size and looking at revenue streams such as advertising and delivery services to drive long-term growth. The sector’s gross transaction value is estimated to reach $186 billion in 2025, up from $139 billion in 2023.
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As underbanked consumers and small businesses participate in the digital economy, consumer demand has driven digital lending – which accounted for the majority of the $30 billion in digital financial services revenue, according to the report. Singapore is expected to be the largest digital lending market in the region until 2030.
Thanks to a post-Covid recovery, the online travel and transportation sectors are on track to reach pre-pandemic levels by 2024, the report said. Despite a return to in-person dining and a reduction in promotions, food delivery revenues – which fall under the transportation sector – reached $800 million in 2023, up 60% from a year ago.
Thailand sees “significant momentum” with online travel being the main growth driver in 2023, growing 85% year-on-year.
Dry powder is still on the rise
Macro headwinds such as inflation and high capital costs have caused the use of private finance to fall to the lowest level in six years, the report said.
Despite investors being more discerning, the “dry powder” rose to $15.7 billion at the end of 2022, up from $12.4 billion in 2021. The report noted that the term refers to “the amount of capital committed minus the amount that has been requested. investment.”
“This shows that there is fuel available to propel Southeast Asia’s digital economy into the next phase of growth,” the report said.
To attract financing in this current economic climate, digital companies must show investors that they have clear and achievable paths to profitability.
Digital financial services remain the top sector in which investors deploy capital, due to its high monetization potential.
The report also noted that emerging sectors in the region, such as healthcare technology, education technology and automotive, are seeing “a growing share of deal activity,” a signal that “investors are diversifying their portfolios.”