COVID-19 & South East Asia: A Catalyst for a Sustainable Leapfrog in the Digital Age
By Denis Barrier & Nicolas Ducray
Over the last few years, Southeast Asia (SEA), home to over 650 million people and startup unicorns like Grab, Gojek and Tokopedia, has been recognized as one of the hottest emerging startup economies to watch due to rapid growth and an increasingly mobile-savvy population — with mobile penetration growing 132% in 2019.
But now, with the Coronavirus sweeping across the world, many are wondering how the pandemic will impact these emerging economies. Up until last week, SEA had seemingly avoided the mass spread of the virus we saw in so many other densely populated areas. Some countries, specifically Singapore, received praise for tackling the pandemic early on and more impressively — without lockdowns.
However, despite its early success in containment, Singapore has been hit with a new wave of infections and now has the highest number of reported cases in the region — prompting the implementation of a so-called “circuit breaker,” closing all schools and non-essentials businesses for one month and calling on its population to stay home and limit social interactions. As Singapore locks down, joining the long list of countries across the world, we wanted to take a moment to assess the situation throughout SEA and what kind of impact we should expect to see in this up and coming technology hub.
With various countries under different forms of lockdown, SEA surely faces difficult times ahead but stands to benefit from the post-crisis acceleration of digitization. Many industries are coming to a halt during the crisis, but with businesses forced to operate more efficiently, many sectors will have the opportunity to reset and restart on new grounds with technology at the core.
Just as the mobile revolution transformed China, SEA can benefit from a similar sustainable technology leapfrog. By adopting the latest technologies and well-tested business models adapted to local conditions, innovative startups have the opportunity to quickly scale and create massive socio-economic impact in the process.
An Overview: COVID-19 & The Impact on South East Asia
The COVID-19 situation varies widely across countries, but we can expect the impact to be significant as SEA has all the ingredients for rapid spread of the virus: primarily weak public health systems (lacking ability to test and detect the virus), crowded cities, poverty and significant migrant worker flows.
source: CNA, Nikkei Asian Review
The virus is expected to take a massive toll on the economies in the region with Singapore’s economy having already contracted by 2.2% in the first quarter of 2020 from a year ago. Malaysia’s economy is also expected to contract by as much as 2.9% in 2020, with some 2.4 million job losses.
In anticipation of the massive economic fallout, the governments of the six largest economies of SEA have already announced stimulus packages totaling close to $200 billion — with several countries injecting tens of billions of dollars to support the economy, its populations and counter the impact.
These injections of capital will help countries kickstart their economies and stimulate investment post-pandemic, particularly in tourism and manufacturing. Tourism represents a major source of income for many SEA economies, such as Thailand or the Philippines where it represents 15–20% of GDP. Thus, the sudden interruption of all travel worldwide will take a major toll on these economies in the short term, but there’s plenty of opportunity to rebound.
The Opportunity: SEA is Primed for a Sustainable Leapfrog
The crisis presents an opportunity for SEA to leapfrog many economic activities into the digital world as businesses will be required to run more efficiently after a big reset. Specifically, the healthcare, education, retail, agriculture, and logistics sectors will see a new wave of digitization and local startups and tech companies will be well positioned to participate in the reinvention of these industries.
With mobile technologies and connectivity more prevalent, the population will have better access to information, financial services and education, which are fundamental for people to learn about, identify and seize economic opportunities. Here’s a closer look at some of the industries where we’ll see the most transformation and opportunity:
Healthcare: Digital Health & Tele-medicine to Compensate for Deficiencies
Apart from Singapore, most SEA countries suffer from an under-developed healthcare system, lacking the hospital beds and doctors to satisfy demand. The digital health sector has attracted large amounts of investment, even before the pandemic, with APAC drawing over $6.8 billion in investment in 2018 and SEA alone coming in at $242 million in 2019 (according to Galen Growth Asia).
Telemedicine in particular has proved extremely valuable as a way to optimize consultation management while doctors are scarce. For example, take a look at Indonesian mobile health tech platforms Alodokter, which has raised over $45 million in funding, and Halodoc, with nearly $100 million from investors such as the Bill and Melinda Gates Foundation, serving around seven million patients per month with 80% of patients residing outside the main city centers. Digital health and Tele-medicine platforms are well positioned to compensate for the deficiencies of SEA’s healthcare systems and will certainly grow further during the pandemic. While many different models will co-exist, we’ll likely see influence from the large Chinese digital health platforms like Alihealth, WeDoctor, Ping An Good Doctor, DXY and others.
Singapore will have a major role to play as the center of excellence for healthcare in Southeast Asia. Healthcare and biomedical sciences is one of the four pillars of Singapore’s national R&D strategy, representing a $4 billion budget for the Research, Innovation and Enterprise (RIE) 2020 Plan of the National Research Foundation.
Mobility, Logistics, Retail & Supply Chain: SMEs to Reinvent Operating Models
The pandemic will revolutionize several sectors, pushing SMEs to reinvent their operating model by impacting mobility, logistics, retail operations and supply chains. Naturally, the retail sector will suffer the most as populations will be in lock-down for several weeks to months. The recovery of offline retail will certainly imply a wave of digitization of retail operations to build more resilient companies.
In parallel, online retail and last-mile delivery will clearly benefit from social distancing. Companies like Grab, Gojek and Ninja Van, have had to quickly ramp up to meet the demand for fulfillment of online grocery, food delivery and e-commerce all over the region. Innovative technologies such as machine learning will be required to optimize platforms that are reaching operating bottlenecks and will benefit from more data-centric models in areas like pricing, addressing, inventory management, routing and supply chain management to make logistics and e-commerce operations faster and more resilient.
The Next Big Opportunities: Fintech, Edtech & Future of Work
In an environment where 70% of consumers are underbanked and 70% of SME merchants accept cash-only payments, fintech companies and online lenders are likely to emerge as big winners with the closing of physical bank branches and more transactions driven online. As most of these companies acquire users online, the increase in e-commerce and online transactions will bring more traffic to fintech companies in the region who are positioned well to help people in precarious financial situations after a loss of income or unemployment.
Finally, the crisis will create massive opportunities in the edtech and “future of work” space. In China, we saw investment in online education spike at the end of the lock-down with the drastic increase in time spent on online education platforms (particularly children’s education with parents compensating for school closures). New ways to work and vocational education will also be very promising sectors. Just like the explosive rise in video conferencing services like Zoom, we can anticipate that collaborative and decentralized work platforms will gain in popularity. With unemployment rising, online hiring platforms (such as Kalibrr in the Philippines or older generation JobStreet / JobsDB portals) are expected to accelerate during the post-pandemic recovery period.
Parting Thoughts: Investment in SEA to Remain Strong
The opportunity for innovation and investment in SEA remains strong — with the region fundamentally enjoying favorable growth factors due to its demographics, modernization and rapid growth of its digital economy — expected to reach $300B by 2025 (according to a report published by Google and Temasek) — and accelerated tech adoption. However, many countries have severe deficiencies in infrastructure, unequal access to basic services such as healthcare and education and increasing inequalities between the rural and urban worlds — which can largely be addressed with technology.