The digital and tech industry of Southeast Asia (SEA) is witnessing an unprecedented boom since the onset of the COVID-19 pandemic. According to Forbes,Venture Capital (VC) investments have grown more than five times between 2015 and 2020, when compared to an only 1.4 times increase over the same period in India and China, two of the leading start-up countries. The first half of 2021 (H1) has seen record-breaking VC investments of roughly $10 billion, which is more than all annual records to date along with a whopping $101 billion worth of deals that took place.
The most significant and largest deal in 2021 was the merger between SoftBank-backed “super app” company Grab and US-listed SPAC Altimeter Growth, accounting for almost half of the H1s deal value. It was valued at $34.7 billion, making it the highest valued SPAC on record when it happened. Under this deal Altimeter Growth Corporation will raise $4 billion and will also allow Grab to be listed in the New York Stock Exchange.
The merging of ride-hailing giant Gojek with the online marketplace Tokopedia in a deal valued at $7.6 billion was another significant investment in the SEA tech space. The merging of Indonesia’s two largest start-ups will form the GoTo Group that will provide the masses a one-stop digital platform providing ride-hailing, food delivery, and e-commerce services. The GoTo Group is planning a dual listing on both Indonesian and the US stock exchanges.
THE WHY AND HOW OF THE SUDDEN SPIKE IN INVESTMENTS
SEA has been attracting investments in its tech industry for more than a decade now but this sudden spike in investments is primarily led by the impacts of the pandemic. The most significant impact is the adoption of the ‘digital’ by the masses. The e-Conomy SEA 2020 report by Google and Temasek based on data from Singapore, Thailand, Indonesia, Philippines, and Vietnam shows that more than a third of the consumers have come aboard the digital platforms for the first time and over 90% of them intend to continue using these platforms even after the pandemic. The region saw an addition of 40 million new internet users in 2020, thus making 400 million people, which is equivalent to 70% of the entire region’s population, come online.
Another reason for a sudden increase in investments is the presence of an experienced talent base which provides a strong foundation for the tech industry in SEA. Many of the first-generation start-ups were founded by native returnees who had acquired an understanding of the global tech market while working in Silicon Valley or other developed economies. Their acquired knowledge came in handy as it helped them create a world-class tech set-up in their backyard.
The crack-down of tech companies in China led to the exodus of capital to SEA. As investors started looking for a safer and more reliable market to invest in, SEA’s rapid digital growth created the space that these investors were looking for.
PRE & POST COVID-19
Before the onset of the COVID-19 pandemic, a common feature of the SEA economy was the tech brain drain as most would move abroad for better livelihood opportunities. After the pandemic, there has been a drastic change in the trend as now many choose to stay in their home countries. Although COVID-19 proved to be a catalyst for digital adoption, it should also be noted that SEA’s young and tech-savvy population made this tremendous digital growth possible.
There was a change in consumer behavior triggered by social-distancing norms due to COVID-19 protocols; these new and increased numbers of digital consumers had to undergo the difficult process of change from an offline mode to the online platforms. Although, for the new consumer the change in their approach and learning how to utilise the various digital services was not an easy task. But once equipped, life has become more convenient and efficient, ensuring that the new entrants continue to use these platforms thus giving a boost to the digital and tech industry further. With a supportive ecosystem and encouraging regulatory environment, the digital economy can see a further considerable rise.
BUT, IS IT A SOUTHEAST ASIA BOOM?
This recent tech boom is projected as a very region-specific phenomenon, but upon a closer look, it can be contemplated that only a select few countries are leading the VC space such as Singapore, Indonesia, and Vietnam. Not only this, many countries in SEA don’t even have basic amenities and decent standards of living. This tech boom seems over-hyped and superficial when one looks closer into the division of haves and have-nots. If one looks at the overall region and its economy, it is mostly dominated by a few developed countries. Even among the members of the region, there is a huge economic disparity, therefore, is it correct to call it a SEA tech boom instead of focusing on the countries which have individually had tremendous growth. Due to COVID-19, the entire world had to undergo certain structural changes, forcing the world to get more digitised as it adopted a remote mode of living due to the COVID-19 protocols of social distancing. The basic changes that have occurred in some of the countries in the region are similar to any other countries around the world that happened due to the pandemic. Therefore, one might wonder whether it’s a narrative that is being built by the media or are actual facts on ground.
Ananya Raj Kakoti and Gunwant Singh have completed their MA in International Relations and Area Studies from Jawaharlal Nehru University, New Delhi.
Disclaimer: All views are personal to the authors.