Singapore's digital economy due to bounce back

Singapore

SINGAPORE'S digital economy leans heavily on travel-related online bookings, and the Covid-19 crisis has meant that the Republic was the only country in the South-east Asia region to see a contraction in its gross merchandise value (GMV) this year.

A report jointly produced by Temasek, Google, and Bain showed in November that Singapore's GMV fell 24 per cent to US$9 billion, with GMV a measure of online spending, and one signal of the strength of the country's digital economy. It reflects that online travel is among the most mature digital sectors, generating almost half of Singapore's digital economy last year.

Despite an addition of 40 million new online users, South-east Asia's Internet economy is expected to achieve US$105 billion in GMV this year, mostly on par with the levels seen in 2019. This is the first time such estimates in the annual South-east Asia e-Conomy report - now in its fifth year - have not been revised upwards.

The surge in online shopping, entertainment consumption and food delivery services has been offset by the declines in transport and online travel services.

That being said, the decline specifically in the Republic's digital economy is likely to be short-term in nature. In time, online travel is expected to have the steepest recovery, at a compound annual growth rate (CAGR) of 33 per cent, to reach US$60 billion in 2025, while transport and food is expected to rise to US$42 billion.

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E-commerce is likely to rise to US$172 billion in five years, and online media to US$35 billion. It is expected too that Singapore's overall digital economy will bounce back with a CAGR of 19 per cent, and reach US$22 billion by 2025. The report also showed that funding for unicorns in South-east Asia has tapered from a 2018 high, as investors start to shy away from heavy cash-consuming businesses.

Investments for the region's 12 unicorns in the first half of 2020 fell to US$3 billion, down 41.2 per cent from a year earlier, and nearly a third from 2018.

Investors will likely be more selective and staying on a path to profitability will be "more critical and urgent than ever" for businesses in the Internet economy, the report added. More capital - and the dry powder available - has been directed towards budding sectors such as fintech, edtech and healthtech instead.

For example, deal value in the fintech industry rose to a record high of US$1.7 billion in 2019, a 40 per cent jump from 2018. The industry continued to ride on its strong momentum in the first half of this year amid the pandemic, on the back of various high profile deals such as Mitsubishi UFJ Financial Group's investment into Grab Financial Group, Gojek's acquisition of Indonesia's Moka, and Ant Group's injection into Wave Money.

More investments and consolidations are expected in the coming years as financial and strategic investors capitalise on the fast-growing digital financial services sector, the report added. Healthtech and edtech are also both set to "take off", as the pandemic helped lower old barriers and injected new impetus to these sectors.

Healthtech firms have made huge strides during Covid-19, accelerating commercial interest in telemedicine platforms, attracting greater regulatory and policy support, as well as pushing for more integration and collaboration between existing providers and telemedicine startups.

Healthtech usage has grown by up to 4.5 times during the pandemic, and has largely retained its users even as restrictions eased for most countries in South-east Asia. Investments in the sector have also been rising over the years, reaching US$220 million in the first half of 2020, up 15.8 per cent from US$190 million a year ago.

Edtech too, saw a steep uptick in 2019 to stand at US$270 million - more than three times that of 2018 - despite prior years of modest funding. A large proportion of funds were put into online learning platforms such as Indonesia-based Ruangguru, which raised US$150 million in December 2019, making it one of the largest rounds for a South-east Asian edtech company.

The report added that new startups will emerge and funding will continue to grow post-Covid-19, as investors seek startups that have benefited from the online learning trend induced by the pandemic.

Educators have yet to tap the full potential of edtech, which could be unlocked by deeply integrating innovative methodologies into current curriculum.

Between 2016 and 2019, unicorns in the transport and food sectors received the lion's share of funds raised - totalling US$15 billion, or 37.5 per cent, of US$40 billion. E-commerce unicorns were next, at US$7 billion. But as these sectors mature and remain largely consolidated around a handful of late-stage companies, it is unlikely for record amounts of capital to follow continuously, said the report. Focus will now shift heavily towards profit levers for an eventual exit.