TECH4GOOD
Monchito Ibrahim
The Philippines continues to ride the crest of the ASEAN digital economy juggernaut. According to the e-Conomy SEA report 2022 recently released by Google, Temasek, and Bain and Company, our country’s digital economy growth remains to be one of the fastest among the six ASEAN member states (ASEAN 6) tracked by the study, coming in next to Vietnam which came out the fastest. But the seventh edition of the annual study also says global headwinds are blowing ahead that potentially impact the upward trajectory and even derail the full economic recovery of the Southeast Asian countries including the Philippines. Will the Philippines again show extraordinary resiliency to withstand the rough seas ahead?
Last year, the same report dubbed the next 10 years for ASEAN as the Roaring 20s: The SEA digital decade. The region is supposed to solidify its position as the world’s fastest-growing digital economy. Existing enablers like digital payments and tech-enabled logistics have been put in place to make it happen. We have seen significant improvements in terms of infrastructures and capacities meant to bridge the regional digital divide. ASEAN was really poised for a steep growth trajectory. Then geopolitical tensions started to appear in different corners of the globe that are now causing interest rates and inflationary pressures to rise affecting consumer demand in the region.
These headwinds are causing disruptions in our supply chains with rising freight costs. Zero-Covid mandates and lockdowns in China, a major trading partner of the region, have resulted in production backlogs making the sourcing of affordable goods very challenging. High inflation has resulted in the depreciation of regional currencies including our peso causing price hikes in goods and services including travel. The currency depreciations have also ballooned the foreign debts of countries. The report says that with the economic slowdown and a softer labor market, we are beginning to see weakened discretionary spending by consumers. And climate change is adding up to our situation in the Philippines. This year alone, we have seen some of the worst storms hit our shores with record-high destructions and death tolls keeping everyone focused on normalizing their lives rather than making purchases online.
Despite the prevailing rough seas, however, the report says the digital economy of the ASEAN 6 remains on track to hit US$200 billion in gross merchandise value (GMV) by the end of this year. Surprisingly, it is about to achieve this figure three years earlier than expected in the 2016 first edition of the report. Digital adoption has expanded significantly during the first two years of the pandemic. One hundred million additional internet users have come online in the region in the last three years. The Philippines alone added more than two million internet users between 2020 and 2021 resulting in an internet penetration rate of 68 percent of the total population. The pace of digital adoption may be slower than the steep acceleration at the peak of the pandemic but it continues to rise even today.
Affluent consumers and young digital natives in the urban areas continue to drive the growth of the digital economy of the ASEAN 6 and, in the case of e-Commerce, adoption is almost at its full potential. Generally, the buying habits of these digital consumers have all gone back to pre-pandemic levels. We are seeing, however, a different picture as far as the adoption and usage of digital financial services are concerned which have flourished during the pandemic driven by the shift to everything online. But the current headwinds are expected to put into stress-test the business models of the new digital banks and the platforms.
There is no question that the digital economy has opened a lot of opportunities for the citizens of the ASEAN 6. Across the region, it has created high-skilled jobs for 160,000 workers and 30 million indirect jobs. On the part of the platforms, they have enabled over 20 million merchants and six million food entrepreneurs to grow their businesses online. The report also highlights the need for continuous dialogue between regulators and the platforms to address emerging social concerns around the welfare of worker-partners brought about by the new business models of the new players.
The Philippine digital decade, as shown in the report, continues its upward trend at 20 percent year-on-year to reach US$20 billion this year primarily driven by e-Commerce transactions. It is projected to hit US$35 billion by 2025 and potentially US$150 billion by end of 2030. To achieve these figures, the Philippines needs to turn its focus on capacitating people outside of the metros so they can start to enjoy the benefits of online commerce and make its digital infrastructure world-class but affordable. It has been always a catchup game when it comes to efforts to bridge the digital divide. But there is no other alternative in sight but to work on the digital inclusion of on-a-budget consumers and those in the provinces to sustain the growth of the Philippine digital economy.
(The author is the lead Convenor of the Alliance for Technology Innovators for the Nation (ATIN), vice president of the Analytics Association of the Philippines, and vice president of the UP System Information Technology Foundation.)