According to management consultancy RedSeer, the digital economy of the Middle East, North Africa and Pakistan (Menap) will surpass $100 billion this year and has the potential to reach $700 billion by 2030 if supported by proper investments.
The digital economy posted robust growth in 2021 and could grow 42 percent annually to $104 billion this year as the Covid-19 pandemic accelerates the pace of digital adoption, Redseer said in a report on Tuesday.
But growth depends largely on the digital economy securing around $20 billion in funding over the next two to three years, the India-based company said.
“The pandemic has given the digital economy a strong tailwind. This has taken it past the initial disruption phase and placed it on a springboard for continued strong growth,” said RedSeer.
“Investor confidence in the industry is increasing and we expect more private equity/venture capital funding to flow in the short to medium term.”
The Menap region’s digital economy offers a significant opportunity to drive economic and societal growth as more and more users increasingly rely on smartphones and digital services for their transactions and activities.
According to Statista, the number of mobile internet users is expected to grow to about 357 million by 2025, up from 264 million in 2019, with a mobile internet penetration rate of about 53 percent of the population by then.
According to Global Media Insight, the United Arab Emirates alone has around 9.9 million active internet users, or 99 percent of its population.
Meanwhile, Pakistan had about 82.9 million internet users as of January, after growing 36 percent last year, and an internet penetration rate of 36.5 percent, according to research firm DataReportal.
But despite the Menap countries’ strong digital penetration and significant purchasing power, the region still lags behind parts of Southeast Asia and India in terms of digital economy maturity and investment, RedSeer said.
India’s digital economy in particular has seen large amounts of funding, with a cumulative inflow of about $100 billion over the past five years, of which $42 billion was raised in 2021 alone, RedSeer said.
In Southeast Asia, internet economy investment hit a record in 2021 – the busiest year for businesses in recent memory despite the Covid-19 pandemic – and is expected to double to $363 billion by 2025, according to a report by Google, Temasek and Bain & Co said last November.
Investor confidence in the space is increasing and we expect more private equity/venture capital funding to flow in the short to medium term
redseer
The Menap region has received limited funding in comparison. A large proportion of the funds were funded by corporations and private equity, while venture capital funding was scant.
This is the reason for the relatively low maturity of the region’s digital economy, RedSeer said.
However, investors targeting Menap could benefit from a significantly higher yield multiple over the next five to 10 years, according to the consultancy.
“Additionally, insights from more developed digital economies can be used to skip stages of development where possible and place the region in an attractive position,” RedSeer said.
The latest study is broadly consistent with RedSeer’s forecast last July, although it was limited to the Mena region. The region’s digital economy was expected to reach $100 billion by 2023.
The Menap region includes the GCC countries, Lebanon, Jordan, Iraq, Egypt, Morocco and Pakistan.
The digital economy includes high-growth industries such as e-retail, foodtech, mobility, online travel, education technology, health technology and fintech, among others.
Updated Mar 16, 2022 4:31 am
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