Despite macroeconomic difficulties globally, digital economies in Southeast Asia are expected to reach a transaction value of $218 billion in 2023, representing a year-over-year increase of 11%. "There has been an unprecedented transition to profitability for the digital economy in Southeast Asia," Fock Wai Hoong, the head of Temasek's Southeast Asian operations, stated in a CNBC discussion Wednesday. Investors are more selective in their decisions, yet a surge in capital is still occurring, yet businesses must demonstrate an obvious path to profitability to receive funding.
Despite global macroeconomic challenges, Southeast Asia's digital economies have seen an 11% increase in transaction value to an expected $218 billion this year. According to the e-Conomy SEA 2023 report by Google, Temasek and Bain & Company, consumer confidence has bounced back in the second half of 2023 following a dip earlier in the year. This growth is driven by the five major sectors of the digital economy – e-commerce, travel, food and transport, online media and digital financial services – while businesses are shifting focus from growth expansion to profitability. Fock Wai Hoong, Head of Southeast Asia at Temasek, commented on CNBC's "Street Signs Asia" that the digital economy is undergoing a significant transformation, focusing on high quality revenue and monetization.
The report looked into six key economies in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. It did not take into consideration Brunei, Cambodia, Laos, Myanmar, East Timor and Papua New Guinea. According to Sapna Chadha, Vice President at Google Southeast Asia, “In order to maximize growth potential in the digital era, we must focus on closing the digital participation gap and removing any hindrances that prevent Southeast Asians from actively using digital products and services.”
According to a report, online businesses are shifting from acquiring new customers at high costs to engaging more with their existing customers as a way to direct emphasis towards profitability. Julie Fock from CNBC's JP Ong stated that companies and entrepreneurs now understand that the optimal way to expand is not to extend their reach to as many people as possible, but rather to move from the early stages to a phase that is financially sustainable as soon as possible. Additionally, the report suggested that e-commerce organizations are paying more attention to retaining their high-value consumers, increasing their transaction amounts, and coming up with other sources of income such as advertising and delivery services to secure long-term growth. It is projected that the sector's overall transaction value will reach $186 billion by 2025, which is higher than the $139 billion in 2023.
The consumer demand for digital lending due to underbanked consumers and small businesses participating in the digital economy is reflected in the $30 billion worth of revenue in digital financial services. Singapore is predicted to be the biggest market for digital lending in the region up to 2030. Furthermore, the post-Covid recovery has facilitated the online travel and transport sectors to hit pre-pandemic levels by 2024, with food delivery revenue under the transport sector increasing by 60% year-on-year to reach $800 million in 2023. Additionally, online travel is seeing "significant momentum" in Thailand, with growth of 85% year-on-year.
Macroeconomic conditions including inflation and high cost of capital have caused private funding to drop to its least amount in six years, the report outlined. Nevertheless, “dry powder” rose to 15.7 billion dollars by the end of 2022, up from 12.4 billion dollars in 2021. 'Dry powder' is defined as “the amount of capital that has been pledged minus the amount that has been requested to be invested.” It was observed in the report that “this emphasises that there is fuel present to thrust Southeast Asia's digital economy into its succeeding development accelerator.”
In order to gain investor backing in the current financial climate, digital firms must demonstrate that they have tangible and achievable ways of becoming profitable. Digital financial services remains the primary area where investors are making investments,due to its ability to generate income.The report additionally pointed out that rising sectors like health tech, education tech and automotive are encountering "a rising fraction of investment activity," suggesting that "investors are diversifying their portfolios."
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