Driven by the release of pent-up demand from consumers, the Philippine economy is projected to surge to a 7.2% growth in 2022 and will average a 5.7% growth in 2023, according to the Philippines Economic Update (PEU) released by the World Bank.

Progress in the Philippine Digital Economy

Berns San Juan: Let’s talk about 2022. In this portion of the podcast. I wanna do a wrap-up series with you guys, and for the first part of our wrap-up series, I wanted to talk about the progress in the Philippine Digital Economy. As 2022 is about to close, how did the Philippines do in terms of progress?

I know that with headliners like lockdowns in China, supply chain disruptions, and the war in Ukraine, everybody is talking about inflation. And then the news in the west doesn’t help because everybody’s talking about the recession. And you know, the headline for inflation in the Philippines is that it currently stands at an aggregate of about 4.7% with forecasts saying it could go as high as 6.9%. It currently stands at about 5.8%, but if you’ve listened to me for a while, you’ll know I’m a glass-half-full kind of guy. And so I wanted to approach how the Philippine economy, the digital economy specifically, has progressed over the year 2022.

There was a report by the World Bank in the mid-year… if you’re not aware, the World Bank does two reports on the Philippine digital economy specifically. They release one in July and then they release one right about this time of year, which is sort of what I was looking for. But it hasn’t been released yet. What’s the political environment? What’s the socioeconomic environment or actually what’s social, what’s the economy, and then what’s the tech environment like in your country, right?

So while doing this, we were looking at the conditions outside. And to me, I thought it was worth a podcast episode to talk about how much the Philippine economy has progressed despite all of the challenges. So let’s take that first figure that I threw out at you guys.

An inflation rate of let’s say 5.8%. How did the Philippines fare compare against that figure? Well, in a report released by the World Bank, which was just yesterday, the Philippine economy is projected to surge at about 7.2% in 2022. That’s not bad. That is usually the growth rate of the Philippine economy. We usually are in high success when it comes to growth. And for next year, the World Bank’s forecast is not a recession for the Philippines. Our development, our progress will taper off to about 6%, probably around 5.7%, thereabouts in 2023. But still, overall not bad, right?

While the rest of the world is facing 5, 6, 7, and 8 points in inflation, not all of them are experiencing 7.7 points something increases in terms of GP and so the Philippine economy is continuing to grow.

Contributors to the Philippines’ economic growth in 2022

E-commerce

In terms of the digital economy, the biggest contributor is e-commerce. If the Philippine economy is growing by 7.2%, the digital economy is still growing by about 20%. That’s huge. And this is based on the compounded annual growth rate of the e-commerce sector in the Philippines. What contributed to these figures is a couple of verticals specifically.

So I’m going to switch from basing my figures on the World Bank to basing my figures on a report that got released by Google, Bain, and Temasek. So an example is one of the biggest things that people spent on this year online were household appliances an increase, a whopping increase of 37%. Another big increase that we saw, remember, growth in the economy is at 7.2%, right? So anything growing better than that is outpacing the economy. Another one is personal care. So for you guys that are buying COSRX or you guys that are buying your self-care products online, you contributed to this growth of 21% in the personal care space. Another one is a growth in consumer electronics and accessories by 20%. So these are huge jumps in performance. Overall, we saw growth in e-commerce, transporting food and online travel, and online media.

I’ll talk to you guys about what this might look like by 2025. But let’s just take 2022 as an example where total e-commerce total transactions amounted to about 14 billion US dollars. Transportation and food, Filipino spent about almost 2 billion US dollars. Filipino spent about a billion dollars on online travel. I’m using dollars because the international figures are in dollars. And here’s another one. We spent 3.1 billion on online media. That’s insane.That is 500 million more than last year. And it’s still expected to grow. Take it, for example, online travel is still expected to grow at 44% to 4 billion by 2025. It currently stands at about half a billion.

Transportation in food is expected to grow by 29% year on year. So it’s expected to grow to 4 billion by 2025 from where it currently stands at 1.9, and online media is expected to grow to 5 billion US dollars from where it currently stands at 30.1. That’s about 18% year on year.

World Bank Recommendations for Sustained Growth and Development

Now, aside from just where these figures stand, the World Bank did have recommendations for the things that will enable growth in the country. And they have four key recommendations, which I super agree with.

Digital infrastructure

First off, let’s talk about digital infrastructure, which is the first recommendation, and you know, sort of common sense where you have to improve the physical infrastructure. But I think the recommendation goes further than, “Oh, let’s provide faster broadband for everybody.” It goes away further than that.

Part of the recommendation that the World Bank says is that you have to be able to distribute these resources equitably, meaning, aside from just improving the digital infrastructure for the top 10% of the population, the top 20% of the population, heaven forbid, the top 1% of the population. You not only have to develop the physical infrastructure, but you also have to make sure that the access to the infrastructure is equitable, and that everybody’s got a fair chance to be able to access the infrastructure, and the technology to be able to benefit from the development. And so, Philippine infrastructure is one of the key drivers to make sure that we either make or exceed those targets.

Digital Financial Services

Now, when the world access digital financial services, it doesn’t just mean FinTech. It doesn’t just mean FinTech, but, let’s face it, the foreign investments in the Philippines related to FinTech amounted to about 800 million this year alone. That’s huge. It is by far the largest piece of the foreign investment pie that the Philippines receives. And in the digital space, it is the largest compared to all other digital businesses. digital companies, it is in FinTech where there is a lot of interest and where there is a lot of investment.

But it goes beyond just more FinTech. And it goes beyond just being able to access the unbanked Filipinos. Take, for example, the Philippines for the longest time has sat at a 3.1% credit card access percentage. That’s not huge, right? That means there are less than 4 million Filipinos that hold credit cards in the country, in a country of what? I think 113 million now. So about 3% of our population has access to credit cards.

If you want to see continued growth in e-commerce, you have to enable payments. And I think this is where Maya comes in, where Gcash shines, where PayMongo comes in, where people like Payoneer are coming in. There are a lot of brands that enable people to receive payments and make payments online now, definitely way more than 8, 9, 10 years ago. But it also speaks about ease of doing business, like for the government to enable portals where people can complete business transactions, where people can submit compliance. It’s just about putting things online where you don’t have to fall in line at a government agency. Essentially, just improves the ease of business. So this recommendation goes way further than just more FinTech. It is also about the digitalization of government services. And you know, just making things more seamless. Just making things, you know, putting things in the 21st century.

Digital Skills Program

Now, another thing that is near and dear to me in terms of… I would say, in terms of just the person running a digital business the digital skills recommendation portion where part of the assessment from the World Bank is that TESDA has to put in more programs. But let’s face it. I don’t think people in TESDA can train. I think they can, but they can’t. But because it’s not like WordPress is rocket-silence. But even hiring from the top schools. UP, UST, DLSU, Ateneo. Even when we hire from the top schools, what we discover is that we need to train these people for six months to two years to bring out their maximum potential because of the scale gap in what is expected in the market and the scale gap of what graduates out of universities is just huge. So there is a need to improve the digital scales of the Filipino workforce.

Part of the assessment that the World Bank made was that there is significantly more demand than there is supply in the market. I guess this is why the digital marketing space is very friendly. The reason it’s not very cutthroat competition in digital is that the demand is significantly higher than the supply. And you know, and I cannot even stress how significant it is, but it is significantly larger than the number of people that can satisfy the requirements. And it’s because of this, right? Because digital skills development is largely left to businesses, it’s largely left to entrepreneurs to grow the skills that are competitive in the market. It’s largely left up to online agencies like us and all of our friends in the industry. So for me, this is like a big, big sticking point and a big talking point.

Conducive regulations for digital market access.

This one’s more of a note for the government like Amen. Amen to this. We’re just starting to not apply traditional regulations to online businesses. I think there are smart ways to regulate and I’m a fan of regulation, by the way. I don’t think being an online business means you should be less responsible. For your audience, for the market, and your consumers. I think if anything because you can grow that faster than anybody, it makes you more responsible.

But from the regulations that we see, a lot of the regulations tend to start with innovation. A lot of the regulations do not incentivize innovation. Some of the regulations just downright do not understand the digital economy. To me, the easiest one here that comes to mind is regulating Grab like a taxi franchise. The same thing happened to Uber, They exited. It’s stuff like this that sort of prevents people and the world at large and foreign direct investments from being able to see the country as an attractive place to invest in because it doesn’t seem to understand the way the world works. It doesn’t seem to understand we legislate for the digital economy the way we legislate for the real economy. And they don’t. It doesn’t work that way. If anything, the digital economy is the real economy on steroids. And so you have to have a more realistic, more grounded, I would say, more literate understanding of what the digital world looks like to be able to provide good regulations, good legislation, and enable market access for the general Filipino.

There was this study that was done. I’ll be candid. I saw it in a TED Talk where they drew a map of progress in the world and they correlated it with a map of internet access in the world. And sure enough, where access to the internet was abundant, development was abundant. And where access to the internet was sparse, development was sparse. And I don’t think that’s not a coincidence. If you educate people, if you give them access to information, if you give them the means to develop themselves, they ultimately develop themselves.

Key Takeaway

So what is the summary of the quick take for 2022? Things are looking up. They’re not as rosy as we would like, but the Philippines is not in the same boat

As the US is facing recession, fears as the UK is facing recession fears, almost surely going to look at recession. And other countries that are worried about, “Ooh, recession, recession, recession.” If anything, the country’s not going to go through a recession next year. We’re gonna slow down a bit. Sure. And that’s because of stuff that we can’t control.

But if the country faces even a 5.8% inflation rate, we’re growing at 7.3% in terms of GDP. So the Philippines is growing, and the key to making sure that we keep growing and that we beat the 5% increase for next year is the digital economy, digital commerce, and some of the things that can help are those four things. It’s making sure that there is good digital infrastructure. It’s ensuring that good digital and government services are available online. It is about bridging the skills gap between what the market requires and what graduates out of university. And it is about smart regulation that enables access to the digital market for everybody so that everybody can share in the prosperity that’s brought on by the internet.

So overall, that about wraps it up for me, for the first part of our 2022 wrap-up series. Thank you very much for joining me. I hope you guys enjoyed this episode as much as we enjoyed digging through the info for you guys.

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I appreciate all of the time that you guys put into joining us on the episodes. Thank you very much. Cheers!