The country’s start-up community needs $4 billion in investments from foreign and local sources in the next decade to allow the Philippine digital economy to hit $19 billion by 2025.
Reaching this potential, however, should be coupled with government regulatory reforms.
This was according to the collaborative study of Google and Temasek, titled “E-conomy SEA: Unlocking the $200-billion Opportunity in Southeast Asia,” the Philippine-specific findings of which were presented by Google Philippines on Wednesday.
“Out of the $200-billion digital opportunity in Southeast Asia by 2025, we see the Philippines’s share at $19 billion in a decade’s time. That’s more than 10 times the current value of $1.7 billion,” said Kenneth Lingan, Google Philippines country manager.
The said study analyzed the potential digital ecosystem valuation of six Southeast Asian nations (Indonesia, Singapore, Malaysia, the Philippines, Thailand and Vietnam), studying three sectors of e-commerce, travel and media.
According to the study, in terms of consumption, the trajectory of the digital economy will primarily be fueled by the e-commerce market in the Philippines and online travel expenditure.
With 8 million Filipinos already shopping online, the e-commerce market is specifically seen to grow at a compounded annual growth rate of 34 percent, to be valued at $9.5 billion in 2025, from an estimated worth of $ 5 billion last year.
The online travel industry is seen to contribute $6 billion, with the remainder credit to media spending (online expenditures on ads and gaming).
However, on the investment side, there is a need to infuse $4 billion in Philippine start-ups to drive the growth of the country’s digital economy.
According to the study, investments of venture capitalists (VCs) have been “markedly muted” for the Philippines, with the deal flows amounting to only $28 million in 2015 out of the total $1.1 billion invested in Southeast Asia in 2015.
Of the total deal value, 88 percent were directed to Singapore and Indonesia.
“Funding shouldn’t come only from foreign investors, local businesses should also look into funding these start-ups,” Lingan said.
“A lot of the funding in terms of deal value in 2015—70 percent of them—are from the top 5 start-ups in Southeast Asia. So, there’s an opportunity to increase that funding for start-ups happening in the Philippines. We want to know how we can make the Philippines as an investment opportunity for these VCs,” he added.
In terms of number of start-ups, the Philippines is also in the penultimate place, with only 400 start-ups compared to Indonesia, which has over 2,000 start-ups; Singapore, with 1,850; and Vietnam, with 1,541.
Minette Navarrete, president of Globe’s Kickstart Ventures Inc., said reforms in regulations are needed to help scale up Filipino start-ups, which are essentially micro and small enterprises, in the digital space.
“We need to make a lot of policy changes,because if you look at our laws on taxation, and Securities and Exchange Commission regulations, all of those are organized around large, traditional corporations. The permit system in local government units is different per local government unit,” she said.
Navarrete said that, while these laws are geared toward protecting consumers and establish the legitimacy of businesses, some of the policies are no longer in sync with the needs of start-ups in the digital economy.