PHL digital economy’s share to GDP dropped in 2023

The digital economy’s annual contribution to the country’s economic output decreased as its growth slowed down in 2023, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary data from the statistics agency showed the digital economy’s share to the country’s gross domestic product (GDP) went down to 8.4% last year from 8.6% in 2022, making it the lowest share to GDP since 2018.

In terms of gross value added, the digital sector grew by 7.7% to P2.05 trillion last year from the P1.90 trillion recorded in 2022.

However, this was slower than the 9.4% annual increase in 2022. This was the slowest expansion since the 8.7% contraction in 2020 during the pandemic.

The PSA said the digital economy is composed of digital transactions covering digital-enabling infrastructure, e-commerce, digital media/content, and government digital services.

It added the government digital services component to cover the government services directly related to supporting the digital economy.

Digital-enabling infrastructure accounted for the largest of total digital transactions last year amounting to P1.70 trillion or 82.9% of the sector’s total gross value added in 2023.

Digital media/content accounted for 2.9% or P60.21 billion in 2023. This was followed by e-commerce with a 14% contribution or P286.67 billion and government digital services with 0.2% or P4.16 billion.

In employment, there were 9.68 million employed Filipinos in the digital industries, up by 1.6% from 9.53 million in 2022. The employment growth was slower than the 8.5% in the previous year.

Last year, employment in the e-commerce sector had the largest share with 87.3% or 8.45 million employed Filipinos. Following were digital-enabling infrastructure with 11.6% or 1.12 million, digital media/content (1.1% or 104,000), and government digital services (0.1% or 5,000)

“I believe the digital industry wasn’t able to elude the long reach of inflation and sluggish business conditions that characterized 2023,” University of Asia and the Pacific Senior Economist Cid L. Terosa said.

Mr. Terosa said the negative sentiments in the business sector brought by the rising prices, interest rate hikes, and possible wage increase hauled the digital sector’s growth last year.

“If inflation is contained and the interest rate is lowered towards the third quarter of this year, I think the digital industry can recover but its growth trajectory will remain below what was achieved in 2022,” he added.

Inflation last year averaged 6%, higher than the 5.8% in 2022. This was also the highest in 14 years since the 8.2% average in 2008 during the global financial crisis.

The Bangko Sentral ng Pilipinas has hiked borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a near 17-year high of 6.5%.

Source: Business World

Policies limiting PH digitalization

Digitalization in the Philippines is hampered by outdated policies, and comprehensive reforms are needed to address infrastructure and other issues, the World Bank said.

"Compared to other Asean countries, the Philippines' internet connectivity lags in affordability, speed, and access, creating an uneven landscape for digital participation," the Washington-based multilateral organization said in a January policy note.

Limited internet access is curbing the digital potentials of people and businesses, it added.

"The country's poor broadband infrastructure is rooted in outdated policy frameworks that stifle investment in rural areas and foster a market with weak competition, both of which hinder broadband expansion," the World Bank continued.

"Binding constraints underlying the Philippines poor broadband infrastructure are interrelated, requiring a comprehensive package of reforms to yield desired entry, investments, and sector performance outcomes."

Among others, the World Bank noted that fixed broadband takeup among Philippine households was just 33 percent as of 2022, well below Malaysia's 50 percent, Thailand's 58 percent and Vietnam's 76 percent.

The Philippines, it added, accounts for over 50 percent of the Asean population with no fixed broadband connections.

This has led to a lack of skills, with just 2 percent of Filipinos said to be able to use basic formulas in Excel.

Only 6 percent, meanwhile, can copy and paste into a document, and just 7 percent know how to add an attachment to emails.

In terms of investments, the Philippines spent just 0.44 percent of gross domestic product on telecommunications infrastructure in 2022, down from 0.64 percent in 2018.

This is much lower than at least 1 percent invested by over 100 countries in the last 15 years, the World Bank said.

"Laws on connectivity have remained unchanged despite vast technological advancements, evolving business models, and widening access gap," it noted.

In the "most concentrated, most profitable, and least invested market in the region," the broadband market remains in the hands of a duopoly that is not incentivized nor obliged to expand rural coverage, it added.

The country's regulatory weaknesses, the World Bank said, include barriers to market entry and investments, including a tedious licensing process and the requirement to secure a legislative franchise; an unlevel playing field; ineffective infrastructure sharing policies; and outdated frequency management.

It said that the proposed Open Access in Data Transmission bill, which aims to set a regulatory framework that would expand the internet infrastructure by encouraging investments, would be a "promising, viable start," among other measures.

The bill, passed by the House of Representatives in December 2022 and still pending in the Senate, can be complemented by government investments in a national broadband network and improving access to the masses.

Reforms such as mobile spectrum restacking, which will facilitate higher data speeds; spectrum auctions; and pricing changes could follow.

"The cost of inaction — loss of growth opportunity, people remaining unequipped for future jobs, and widening of the digital divide — is too high for the Philippines," the World Bank said.

"For inclusive growth through digitalization that benefits all Filipinos, updating Philippine policy to promote competition, encourage investment, and upgrade broadband infrastructure is urgent and necessary," it added.

BETTER INTERNET FOR ALL FILIPINOS.pdf

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Source: Manila Times and world Bank

PHL digital economy projected to reach up to $150B by 2030

The Philippines’ digital economy is projected to reach as high as $150 billion by 2030 as the e-commerce boom continues, according to a report released on Wednesday.

The e-Conomy SEA report by Google, Temasek Holdings and Bain & Company showed the Philippines is forecast to reach between $80 billion and $150 billion in gross merchandise value (GMV) by 2030, slightly lower than its previous projection of $100-150 billion.

It projected that the Philippines’ internet economy will grow by an annual 20% to reach $35 billion by 2025. This 20% compound annual growth rate (CAGR) will be the fastest in Southeast Asia, along with Vietnam.

This year, the Philippines’ digital economy is projected to grow by 13% to $24 billion in GMV.

“While internet users in the Philippines are amongst the most engaged in the world, digital participation across sectors remains lower. This signals sizable headroom for digital economic growth over the medium to long term as incomes grow,” according to the report.

Digital economy growth will be mainly driven by e-commerce, which is expected to expand by 21% annually to hit $24 billion by 2025. E-commerce is forecast to reach $60 billion in GMV by 2030.

Online media is expected to grow by 19% annually to $5 billion by 2025, with its GMV seen to hit $10 billion by 2030. Online media covers advertising, music streaming, gaming, and video-on-demand.

Online travel, which includes flights and hotels, is expected to account for about $4 billion of the digital economy by 2025. The report projected 18% CAGR for online travel through 2025, which is slower than the previous forecast of 44%.

Transport and food delivery services are projected to grow by 19% annually to $3 billion by 2025, and to $5 billion by 2030.

“Both domestic and regional transport providers are expanding to outer cities to fuel long-term growth. To capture these segments, businesses have started growing their two-wheeler offerings as a more affordable alternative,” according to the report.

The Philippines’ digital financial service sector is expected to grow sharply through 2030, mainly driven by digital payments.

The report sees gross transaction value (GTV) in digital payments growing by 17% to $93 billion this year, and by 16% annually to $126 billion by 2025. Digital payments are expected to reach $220 billion in GTV by 2030.

“As digital payments gain traction, e-wallet and account-to-account (A2A) payment rails will see the fastest growth due to lower costs to merchants. Informal A2A payments, in particular, are expected to grow in merchant adoption as they look to sidestep formal registration of business accounts with digital payment providers,” according to the report.

Digital lending is projected to have a $7-billion loan book by 2025 before hitting $20 billion by 2030. Digital insurance and assets under management for digital wealth are also expected to grow significantly through 2030.

SOUTHEAST ASIA

Meanwhile, Southeast Asia’s internet economy is expected to grow by 11% year on year in 2023, slowing from last year’s growth of 20%, the report showed.

Google, Temasek and Bain also said the region’s internet economy is seen at $295 billion by 2025, down from a previous estimate of $330 billion.

“Digital economy sectors are showing positive growth trajectories, with travel and transport on track to exceed pre-pandemic levels by 2024,” they said in a joint statement.

The forecast cut is mainly due to a long-term goal change and a post-pandemic stabilization, and it should now be a fairly steady runway toward 2025, said Florian Hoppe, partner and head of Vector in Asia-Pacific, Bain & Company.

The region of 11 countries has more than half-a-billion people, with a predominantly young population, widespread smartphone usage and a growing middle class, making it one of the world’s fastest-growing internet markets.

Vietnam’s digital economy is expected to grow by 20% a year in 2023-2025 and is on track to reach around $45 billion by 2025, the fastest in Southeast Asia along with the Philippines, according to the report.

“Digital payment continues to grow in Vietnam driven by strong support from the government, investment from commercial banks and the widespread popularity of QR codes,” the report showed.

The trend is expected to accelerate as the country’s central bank promotes cashless payments in rural and remote areas, it added.

The report, which also covers Indonesia, Thailand, Vietnam, Singapore, Malaysia and the Philippines, showed private funding for digital economy-related sectors has declined to 2017 levels from record highs in 2021. But cash reserves for investments are still rising despite investors becoming increasingly cautious.

“To exit this funding winter, Southeast Asia’s digital businesses need to prove that quality deals with visible exit pathways are readily available,” according to the report. The decline is in line with global shifts toward high cost of capital and issues across the funding lifecycle.

Venture capitalists had $15.7 billion on hand to drive deals at year-end 2022, according to the report.

“It’s really a function of how quickly companies can pivot towards profitability. The sooner they play this out, the quicker funding will return,” said Fock Wai Hoong, head of Southeast Asia at Temasek.

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Source: Business World and Google