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Business trends

ASEAN's digital economy projected to hit $1tn by 2030

Google-led report says retail and finance to fuel growth as internet use surges

The coronavirus pandemic has added further fuel to Southeast Asia's rapidly growing digital economy. (Source photo by AP)

SINGAPORE -- The digital economy in the Association of Southeast Asian Nations is on track to grow to $1 trillion by 2030, as millions of new internet users fuel online businesses in fields including e-commerce and virtual finance, says a new Google-led report. 

Released on Wednesday, the annual report on digital trends in the 10-country bloc published by the U.S. technology giant, Singapore state investor Temasek and consultancy Bain & Co., said 40 million new internet users came online this year within the region.

That raised internet penetration in ASEAN to 75%, with eight in 10 of the new users having bought something online at least once.

Since the COVID-19 pandemic started, 60 million new digital consumers have been added to the bloc's internet economy, with 20 million joining in the first half of the year alone, the report highlighted -- contributing to a total digital consumer population of 350 million.

"Pre-pandemic it was our metro areas across the region that had, no surprise, the highest connectivity rates and it's also where we saw online consumerism taking place for the most part," said Stephanie Davis, vice president for Google Southeast Asia at an online briefing for the report.

"What we see are those who are consuming for the first time are actually coming more and more from non-metro areas," she continued. "In fact, that was the majority in 2020 and an even larger majority in 2021, so we see this urban-rural divide beginning to close."

The findings laid out in the report set the stage for years of rapid growth for ASEAN's internet unicorns -- startups worth $1 billion and more -- like superapp providers Grab and GoTo, as well as for Southeast Asia's largest listed company, Sea Group.

Collectively, the three firms dabble in various areas of e-commerce and financial technology -- segments of digital businesses that are poised to boost the value of ASEAN's internet economy in the coming decade, according to Google's report.

The report was produced after online surveys with some 9,400 participants from July to August in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, as wells as polls with around 3,000 respondents who represented merchants in August.

It found that amid the coronavirus health crisis -- with restrictions on movement and social interactions to prevent COVID's spread prompting many to rely on digital services -- the gross merchandise value of Southeast Asia's internet economy grew at a compounded annual rate of 49%, from $117 billion in 2020 to $174 billion this year.

This is set to climb by a CAGR of 20% to $363 billion by 2025, the report projected, with e-commerce the main driver for the expansion, accounting for the lion's share of increased contributions to the value of the region's digital economy.

E-commerce accounted for $74 billion in gross merchandise value generated in 2020, which rose to $120 billion this year and is expected to hit $234 billion by 2025.

Growing 33% year-on-year to reach $12 billion in gross market value was the food delivery sector, which the study highlights as an area that has accelerated in development. It is now the digital service with the deepest penetration, with 71% of all internet users ordering meals online at least once.

"There [are] now really very few consumers in Southeast Asia which have not consumed in some form online," said Florian Hoppe, partner and head of digital practice in the Asia-Pacific at Bain during the Wednesday briefing.

"The battle now is really for depth and loyalty," he said of the competition among online merchants for customers. "You can see the game shifting to getting more transactions per consumer."

The virus-induced surge in internet users prompted the study's authors to raise by $63 billion the projection for the size of internet commerce in ASEAN within the next four years. In the previous edition of the report, authors had tipped the size to be around $300 billion by 2025.

Digital financial services have seen "strong growth," the report noted, with digital payments and e-wallets fast becoming mainstream -- linked to the growth of e-commerce, where purchases are settled online instead of using physical cash.

Digital payments expanded 9% by gross transaction value, from $646 billion in 2020 to $707 billion this year, and are projected to reach $1.17 trillion by 2025. Digital lending in ASEAN increased 48% from $26 billion in 2020 to $39 billion this year, and is set to hit $116 billion by 2025, the report said.

The prominence of fintech and e-commerce in raising the stakes for ASEAN's internet economy has sparked a flurry of interest from investors in startups plying their trade in these areas.

Google's report noted that deal-making in the region has been anchored around these two segments, in contrast to those such as transport and food, online media and online travel.

E-commerce deals in the region were worth $4.7 billion in the first half of this year, with digital financial services making up $2.5 billion -- the two largest stand-alone segments under the digital economy.

The report highlighted a strong rebound in Southeast Asia's overall deal activity from $6.3 billion in the first half of 2020 to $11.5 billion in the first half of this year -- just about matching the total sum of $11.6 billion for the whole of 2020.

Eleven consumer tech unicorns were created this year, taking the total to 23 in the region, with each country studied in the report represented in the exclusive club for the first time.

"A lot of credit to this interest in the region must go to Sea Group, which has crossed $200 billion in market cap [and] that has forced investors around the world to sort of look at Southeast Asia with heightened interest," Rohit Sipahimalani, chief investment strategist and head of Southeast Asia for Temasek, said at the briefing.

"Most of the investments coming into the region are not just by regional players or local players out here," he added. "A lot of the capital flows are coming from global investors."

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