PH Digital Economy Boom Highlights The Need For More Infrastructure Investment

After a relatively slow start in the 2010s, the gross merchandise value (GMV) of the Philippine digital economy is projected to hit an all-time high of USD 35 billion by 2025, according to a report by Bain & Co, Google, and Temasek Holdings. This massive growth is expected despite a projected global recession that is seen as affecting virtually every country in the world by 2023.

At present, the country’s digital economy is valued at USD 20 billion GMV, which means that the Philippines is expected to post an annual compound growth rate in the region of 20% annually until 2025. This will be driven by the country’s growing demand for digital services. Despite the global downturn, there are still a lot of potential and opportunities for the Philippine e-commerce sector.

The same report also indicates that the Philippine digital economy’s GMV may reach USD 100 billion to USD 150 billion by 2030. To achieve this growth, the country’s policymakers need to continue spending on substantive logistics and digital infrastructure investments.

Connecting Filipinos in the Countryside

The Philippines is notably a world leader in social media usage and has high smartphone ownership. Despite this, however, broadband internet access is lacking or unevenly distributed throughout the country, which restricts the ability of Filipinos to engage in value-adding activities. This is especially true in much of the Philippine countryside, where low population densities and high installation costs dissuade developers from adding digital infrastructure.

Things have started to change with the country’s recent common tower policy, which has reduced the cost of digital infrastructure additions through tower sharing. The policy has also paved the way for third-party common tower providers such as Unity Digital Infrastructure, which are further bringing down the cost of connectivity in the Philippine countryside.

Nowadays, a reliable broadband connection has become a necessity, as more and more sectors shift to more digital processes.  Reaching more and more people, digital infrastructures are being used to improve healthcare, share important technical knowledge, and foster scientific and entrepreneurial innovation in previously isolated areas. As rural Filipinos comprise about half of the country’s population, the improved availability of broadband connectivity in rural areas can substantially change the economic calculus for the entire country.

The Role of Digital Finance

Perhaps the biggest way better digital infrastructure will improve the lives of Filipinos is by bringing more people into the banking system. According to the same report, about 75% of Filipinos are unbanked, which not only denies them the opportunity for quality financing but also represents a massive lost opportunity for the country’s financial sector.

Even now, payments comprise the biggest portion of activities in the digital economy. Lending, insurance, remittance, and investment transactions are also increasingly being facilitated online.

Improvements in digital infrastructure will almost certainly boost participation in online finance, which will, in turn, give local financial institutions the means to facilitate loans for a wider range of clients, boosting local economic activity. All this will necessarily mean better employment and more money circulating in the Philippine economy.

Digital Investments May Spur Exponential Growth

More digital infrastructure is bound to create multiple opportunities for economic growth. It would also help spread the knowledge needed for more Filipinos to engage in entrepreneurial activities.

This has already happened in urban areas, where telco providers have concentrated their broadband communications infrastructure. Expanding these vital communications networks further will serve to increase the value of local markets while also democratizing entrepreneurship and value creation for more Filipinos.

This will all be helped by a financial sector that also benefits from better digital connectivity. As mentioned earlier, wider broadband connectivity should also boost participation in mainstream finance, which should help banks and other lenders facilitate business. More Filipinos participating in the digital economy should therefore mean benefits for all Filipinos.

Basic Infrastructure Needs to Be Addressed

It’s not just digital infrastructure that needs to be improved. Basic infrastructure such as roads, seaports airports, water systems, and clean energy are also requisites to sustainable and substantive participation in the digital economy. Improvements in these areas are foundational not only for encouraging local and foreign investment but also for reducing business costs and creating new economic opportunities.

One such opportunity is in tourism. Digital and basic infrastructure developments are already starting to help boost the local tourism industry, which was adversely impacted by the COVID-19 pandemic. Access to all these infrastructure elements should help create sustainable and synergistic growth for multiple sectors of the economy.

Building the Philippines’ Digital Future

Thanks to the efforts of the private sector as well as the Philippines’ national and local governments, the basic and digital infrastructure needed to grow the digital economy has seen massive improvements since the start of the COVID-19 pandemic.

Yet, there is still plenty of work needed, particularly in the countryside. With careful and holistic infrastructure investments, the Philippine digital economy may hit or exceed already optimistic projections. Through sustained connectivity projects, the idea of a more economically secure Philippines can be brought closer to reality.