According to a new report by Google, Temasek, and Bain & Company, South East Asia’s top digital economies grew faster than expected in 2022 and are on track to reach $200 billion in total transaction value this year.

The achievement comes three years ahead of schedule and represents a 20 per cent increase over last year’s gross merchandise value of $161 billion. An earlier report from 2016 predicted that the internet economy in the region’s six major countries would approach $200 billion in GMV by 2025.

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

“After years of acceleration, digital adoption growth is normalising,” said the report.

Southeast Asia’s internet user base continues to grow, with 20 million new users added in 2022, bringing the total number of users to 460 million.

However, growth is slowing and was only 4 per cent in 2022 compared to the previous year. This compares to a 10% year-on-year increase in 2021 and 11 per cent growth in 2020, when the coronavirus pandemic was at its peak.

Despite the resumption of offline shopping following the lifting of pandemic lockdowns, e-commerce continues to drive growth in the region. GMV in the sector is expected to increase 16 per cent to $131 billion by 2022.

The report predicts that growth in the e-commerce sector will slow over the next three years, with a 17 per cent CAGR from 2022 to 2025.

“E-commerce continues to accelerate, 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.

Another growth driver, digital financial services, which include payments, remittances, lending, investments, and insurance, have seen healthy growth from 2021 to 2022, owing to post-pandemic shifts in offline-to-online behavior, according to the report.

Among these services, insurance grew the most, 31 per cent year on year, while lending grew 25 per cent year on year.

According to the same report, digital adoption growth is normalizing after years of acceleration. This occurs as Southeast Asian economies reopened their borders in 2022 after lengthy closures, and consumers resumed their offline shopping.

Furthermore, current macroeconomic conditions, such as rising inflation rates, have had an impact on Southeast Asian consumers and the digital economy.

The report cited rising prices, lower disposable income as a result of the slowdown, and consumers having less access to products as supply chains are disrupted and production backlogs build up, owing in part to China’s zero-Covid policies.

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

Overall, the internet economy in the six countries is expected to reach $330 billion by 2025 if businesses prioritize profitability over the next three years. Some of Southeast Asia’s most successful unicorns, such as Grab and Sea Limited, have yet to turn a profit, accumulating billions of dollars in losses in 2021.

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

From 2022 to 2025, all six countries are expected to experience double-digit GMV growth.

According to the report, Vietnam is in the lead, with a 31 per cent increase in GMV from $23 billion in 2022 to $49 billion in 2025. The Philippines is close behind, with a 20 per cent increase in GMV expected from $20 billion in 2022 to $35 billion in 2025.

Investments remained strong 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 in the next couple of years,” the report said.

“Nonetheless, most investors remain bullish in SEA’s medium- to long-term potential,” but venture capitalists remain vested in the region with $15 billion dry powder to sustain deals, continued the report.

“We note increasing interest in emerging markets, like the Philippines and Vietnam, and in nascent sectors, like SaaS and Web3.”

According to the report, early-stage investments are thriving, while late-stage investments are being hampered by bleak public listing prospects.

Despite being the largest initial public offering by a Southeast Asian company in US history, Singapore-based ride-hailing and food delivery giant Grab had a less-than-stellar stock debut at the end of 2021.

Due to unfavorable market conditions, FinAccel, the parent company of Indonesia’s buy now pay later platform Kredivo, canceled its IPO plans in October.

(Adapted from WorldNewsEra.com)

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