Sustaining the momentum of our digital economy

The season is upon us, and a lot of people are probably busy ticking items off their Christmas shopping lists. Over the past week, I am sure many of us made good progress on our Christmas shopping lists by taking advantage of the big 11.11 sales and offers.

The whole idea behind these November 11 shopping event actually started as a marketing gimmick in China over a decade ago. In 2009,  Alibaba, China's equivalent of Amazon, decided to hold a shopping event that coincided with Singles' Day, an unofficial holiday in China that celebrates singlehood. 

It may have started out as a marketing gimmick, but 11.11 is now the world's largest physical retail and online shopping day. In the Philippines, popular e-commerce platforms like Lazada, Shopee and Zalora also offer 11.11 promos to the rapidly growing number of Filipino digital consumers.

Just to illustrate how rapidly the Filipino digital consumer base is expanding, according to a report from Google, Temasek and Bain & Company, the Philippines had seen the addition of 12 million new digital consumers since the start of the pandemic last year. In addition, e-commerce is also taking root in non-metro areas, with 63% of new digital consumers coming from non-metro regions.

The report also found that  99% say that they intend to continue using e-commerce services going forward. But, Filipino digital consumers are not only embracing digital services; their use of these services is increasing. Pre-pandemic users - those who used the services before the pandemic - now consume 4.3 times more digital services than when they did when before the pandemic began, and 95% of pandemic consumers are still consumers today.

Like their customers, Filipino businesses have also embraced the digital economy. For example, on average, digital merchants use 2 digital platforms, 97% now accept digital payments, and 67% have adopted digital lending solutions. In addition, many are also embracing digital tools to engage with their customers, with 68% expecting to increase usage of digital marketing tools in the next five years. In fact, 39% of digital merchants said they didn't believe their business would have survived the pandemic if not for digital platforms.

The report also noted the country's health investment appetite for digital services such as e-commerce, fintech, health tech and edtech. In fact, investment deals in the first half of 2021 alone surpassed the deal values of each of the last four years.

Driven by the continued lockdowns, slow vaccination, and lack of proper testing and tracing systems, Filipinos have continued to flock to digital services. Driven by Filipinos' new behavior, the country is now the fastest-growing digital economy in the region, with an internet economy projected to reach $40 billion in value by 2025.

However, despite the rapid growth, there is still a lot of room for improvement. That's because, despite the country leading the region in growth, it also has the lowest digital penetration in the region, with only 68% of internet users consuming digital services.

If the country is to reach the projected $40 billion valuation by 2025. Then the number of Filipinos using the internet and consuming digital services must continue to grow. To realize the potential of its digital economy, it must overcome hurdles to increasing its internet user and consumer base.

One key challenge that the Philippines must address is ensuring the country's talent pool is prepared to face the demands of a digital economy. This means our education system should prioritize STEM education, but at the same time, must also instill important lessons on digital citizenship in their student. But cultivating digital skills is not only schools. Micro, small and medium enterprises should also look into upskilling employees' digital skills to create a digital-ready workforce.

Improving the country's digital infrastructure is another challenge. Contrary to popular belief, the country's internet services have actually improved significantly in the past years. Average mobile download speeds, according to Ookla, stood at 35Mbps in September of this year — a 107.4% improvement from the same month last year. Fixed broadband speeds have also improved to 71.85 Mbps and have the Philippines ranked 64th out of 181 countries.

What may also come as a surprise to many is that the country has among the highest rates of investment in digital infrastructure at 10th in the world, according to the World Digital Competitiveness report. 

Despite all this, the big challenge that the Philippines must hurdle to improve its internet penetration is the lack of government investment into digital infrastructure. Unlike other countries where their national governments invest millions if not billions into developing infrastructure to connect rural and other underserved areas, the Philippine government has repeatedly underfunded its proposed national broadband plan (NBP). Moreover, by leaving the NBP unimplemented, the government has effectively left the country's digital infrastructure development to the private sector, which is likely to develop only in areas that make commercial sense.

Lastly, to enable the growth of our digital economy, the country must also have an innovation-friendly policy framework in place. This means that policymakers must ensure that existing regulations and laws do not hamper the development of new technology. Furthermore, once new technologies emerge, regulators must also make sure they do not stunt innovation by forcing these emerging technologies into antiquated governance frameworks. 

Like the technology they seek to govern and regulate, policymakers and regulators must be innovative too and find ways to develop new policies and frameworks that adequately address concerns while still allowing policies to keep pace with technology development.

In just a few short years, the Philippines' e-commerce and digital economy have grown from a nascent industry to one that has real, tangible momentum. But if it is to realize its potential and sustain this momentum, then the number of Filipinos using the internet and consuming digital services must continue to grow. For that to happen, our digital infrastructure, talent pool, and policy framework all need constant upgrading.

Paco Pangalangan is the executive director of think tank Stratbase ADR Institute.