(FINAL)_Temasek (Phase 4) - Future of Consumption

Future of Consumption

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The past two years have seen an explosion in e-commerce across Southeast Asia, with the emergence of 60 million new online consumers. But what started out as a necessity – as lockdowns forced people online – has become a permanent shift.

WHAT

WHY

HOW

Digitization is a megatrend permeating all sectors and companies. While the trend has long been underway, Covid-19 proved an accelerant. Increasingly, foundational technologies including blockchain, AI, 5G, and IoT are giving birth to whole new uses of technology.

Temasek sees the decarbonisation challenge as a powerful opportunity to plot a path towards stability and prosperity – and is placing catalytic investment to address urgent global challenges and reduce emissions

Advances in technology bring risks and complexities including cybersecurity concerns and the growth of a digital divide. In order to harness the power of digitization, Temasek is commited to tackling these critical challenges while driving innovation.

Looking ahead, Southeast Asia’s digital economy could reach a GMV of US$1 trillion by 2030, far eclipsing previous growth estimates. Growth on that scale would see Southeast Asia play a key role in defining the future of the global digital ecosystem. As Stephanie Davis, Vice President of Google Southeast Asia, notes, “The phenomenal growth we see in Southeast Asia reinforces our view that the region will define the future of global digital ecosystems. We’ll continue to build for the future of the internet in this region, ensure equitable growth for all workers and businesses, and provide inclusive and safe access for online communities.”

Investing in Digital Champions

Global investors like Temasek, which is invested in consumer technology company Sea Limited, the parent company of Shopee, are not only taking note of Southeast Asia’s digital hypergrowth, but directly shaping its digital economy by investing in digital champions. “The pandemic has led to accelerated and enduring digital adoption in Southeast Asia, which has propelled its internet economy to new heights,” notes Rohit Sipahimalani, Temasek’s Chief Investment Officer and Head, Southeast Asia. “Temasek looks forward to increasing our investments in the region’s digital champions, using our capital to catalyze solutions and growth that will enable these companies to take maximum advantage of the digital decade.”

The boom of digital consumption

To address this paradox – that AI is ready for business, but many businesses are not ready for AI ,

internet economy

Surging Sectors

The value of regional e-commerce reached US$120 billion in 2021, up from US$74 billion in 2020, and will account for over two-thirds of GMV in 2030. By the same year, e-commerce will become the norm for Southeast Asian consumers of all ages, both urban and rural. Whether through platforms like Shopee or other online channels, merchants are also embracing the digital economy. Across Southeast Asia, one in three small and medium enterprises believe they would not have survived the pandemic if not for digital platforms. A new wave of digital merchants also points to digital financial services as critical enablers, with over 90% of Southeast Asian merchants currently accepting digital payments. In the next five years, eight in 10 merchants anticipate that more than half their sales will come from online sources.

Southeast Asia’s digital economy could reach a GMV of US$1 trillion by 2030.

Temasek is shaping Southeast Asia's digital economy by investing in digital champions.

Over 90% of Southeast Asian merchants currently accept digital payments.

Other notable e-commerce players that Temasek has invested in include Vietnam's e-logistics services provider, Scommerce, Asia-Pacific-wide cashback program, Shopback, and Singapore-headquartered secondhand car marketplace unicorn, Carro. The food delivery sector has also emerged as a regional bright spot, growing 33% year-on-year to reach US$12 billion in GMV in 2021. Food delivery has now become the most penetrated digital service, with 71% of all internet users ordering meals online at least once. And nascent categories like online media could unlock the next wave of growth and contribute as much as e-commerce does today, once gaining ground in non-metro areas. The move online is also creating demand for new products and services, leading to new opportunities in areas like fintech, digital investments and mobile games. Southeast Asia is now the world’s fastest-growing region for mobile wallets. Reflecting the e-commerce boom, the number of mobile wallets is expected to grow 311% from 2020 to 2025, reaching almost 440 million by mid-decade.

The second pillar of Temasek’s decarbonisation strategy involves enabling carbon negative solutions to reduce emissions. An example of this is Climate Impact X (CIX), a global exchange and marketplace for high-quality carbon credits, jointly established by DBS Bank, Singapore Exchange, Standard Chartered and Temasek. Leveraging on satellite monitoring, machine learning and blockchain technology to enhance the transparency, integrity and quality of carbon credits, CIX provides a near term solution for companies to neutralise unavoidable emissions and set them on the path to net zero. Another example is Canada-based company Svante, which in 2021 raised US$75 million in new financing, led by Temasek, for its efforts to address hard-to-abate emissions from industrial operations such as cement manufacturing, blue hydrogen production and natural gas boilers . Svante’s breakthrough solid sorbent technology allows large-scale capture of CO directly from industrial sources – at half the cost of traditional engineered solutions .

As a long-term investor anchored in Asia, Temasek is confident in the outlook for the Southeast Asian internet economy. The region is home to a fast-growing, highly engaged population that is rapidly embracing digitization, and by 2030, is poised to add 140 million new young consumers – nearly a fifth of the world’s total. Riding the wave of strong demographics and accelerating digitization, digital commerce enablers such as e-commerce will be the key drivers of the future of consumption. As regional startups evolve into encompassing platforms and super-apps that enable further forms of digital consumption across online media and travel, as well as emerging sectors like digital education and healthcare, Southeast Asia’s digital economy continues to develop in line with regional needs. Its boom is just beginning, and Temasek is keenly watching and catalyzing growth in this space. “Southeast Asia’s internet economy continues to attract global capital because of its strong growth fundamentals such as a large base of highly engaged digital users and its growing digital ecosystem of incubators, accelerators and innovation labs,” said Rohit Sipahimalani, Chief Investment Officer and Head, Southeast Asia, Temasek. “We look forward to increasing our investments in Southeast Asia’s digital champions, using our capital to catalyze digital solutions and accelerate economic growth and job opportunities for our local communities.”

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1. https://www.ipcc.ch/ 2. https://www.bloomberg.com/news/features/2021-08-09/ipcc-report-human-caused-climate-change-unequivocal 3. https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Headline-statements.pdf 4. https://www.temasekreview.com.sg/our-stories/the-race-against-the-clock-to-net-zero.html 5. https://eqtgroup.com/news/2020/eqt-and-temasek-launch-o2-power-a-renewable-energy-platform-in-india 6. https://eqtgroup.com/news/2020/eqt-and-temasek-launch-o2-power-a-renewable-energy-platform-in-india 7. https://svanteinc.com/svante-raises-75-million-to-decarbonize-cement-and-hydrogen-production/ 8. https://svanteinc.com/svante-raises-75-million-to-decarbonize-cement-and-hydrogen-production/ 9. https://www.ecosperity.sg/ 10. https://www.temasek.com.sg/en/news-and-views/news-room/news/2021/temasek-review-2021-bounce-forward 11. https://www.temasekreview.com.sg/our-stories/the-race-against-the-clock-to-net-zero.html

Footnotes

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Resilience and Resurgence in Southeast Asia's Digital Decade

*PLACEHOLDER TO INSERT HEAT SPIKE INFOGRAPHICS

1. e-Conomy Southeast Asia 2021 2. e-Conomy Southeast Asia 2021 3. e-Conomy Southeast Asia 2021 4. e-Conomy Southeast Asia 2021 5. e-Conomy Southeast Asia 2019 6. e-Conomy Southeast Asia 2021 7. e-Conomy Southeast Asia 2021 8. e-Conomy Southeast Asia 2021 9. e-Conomy Southeast Asia 2021 10. e-Conomy Southeast Asia 2021 11. e-Conomy Southeast Asia 2021 12. e-Conomy Southeast Asia 2021 13. e-Conomy Southeast Asia 2021 14. 2021 Mobile Wallets Report 15. e-Conomy Southeast Asia 2021; Statista 16. e-Conomy Southeast Asia 2021 17. e-Conomy Southeast Asia 2021 18. e-Conomy Southeast Asia 2021 19. Statista 20. Business Wire 21. World Economic Forum

In April this year (2021), Temasek combined forces with U.S.-based investment company BlackRock to launch Decarbonization Partners, a series of late stage venture capital and early growth private equity investment funds focused on accelerating decarbonisation solutions. The funds have a sharp focus on catalysing early-stage growth companies that develop proven next-generation decarbonisation technologies – including emerging fuel sources, grid solutions, battery storage, and electric and autonomous vehicle technologies.

Investors aren’t only taking note, but are actively driving the growth in this area. In 2021, startups building technology to advance industrial digitalization raised a record US$17 billion . Foundational technologies, such as blockchain and AI, are enabling pervasive cross-industry disruption in recent years. From improving energy efficiency at cement, steel and chemical companies to automating conventionally labor-intensive activities like farming, AI is transforming business by optimizing machine learning and execution in real time. Blockchain presents similarly horizontal solutions. In a market that’s projected to grow from US$4.9 billion in 2019 to US$67.4 billion by 2026 , blockchain technology and services have moved beyond cryptocurrencies into many facets of business, from reducing shipping logjams to streamlining sharing of medical records and financial information in a secure way.

The COVID-19 pandemic has made the threat of food security more pronounced with disrupted supply chains and rising food prices

Despite this looming crisis, 1.3 billion tonnes of food is wasted each year globally – that is a third of the food produced for consumption

Temasek uses its capital to catalyze impactful ideas and solutions, build a resilient portfolio, and deliver sustainable returns over the long term.

Beyond investing, Temasek contributes by fostering dialogue, building tech capabilities, and strengthening the industry ecosystem as we collectively embrace technologies – including the ones needed for the sustainability of our business models and our planet.

Southeast Asia’s internet economy to reach

The hypergrowth is real

new digital consumers since the pandemic began.

Southeast Asia has entered a digital decade

bought something online at least once, compared to 1 in 2 users who used internet economy services in 2019.

Online shopping is more popular than ever

US$360 billion

8 in 10

60 million

2020

A global technology company that develops and scales AI solutions, empowering businesses to leverage AI for better business outcomes.

An AI platform to generate better insights for financial services as part of the National AI Programme in Finance.

2021

A platform that uses blockchain and distributed ledger technology for quicker, more efficient settlement of banking payments.

Partior

E-commerce

digital financial services

The region has generated tremendous investor interest over the past two years.

Source: The Good Food Institute

For future generations to survive and prosper, sustainable food production needs to be made an urgent global strategic priority. As a recent report from the UN’s Intergovernmental Panel on Climate Change (IPCC) reminds us, humanity is currently undergoing drastic climate change, rising sea levels, rainfall irregularities, droughts, and ocean acidification. We need to act now and with urgency, before the effects of climate change become irreversible and cause catastrophic consequences for our already vulnerable food systems. This unfolding crisis is further heightened by rising food demand. The world’s population is expected to reach almost 10 billion by 2050, further straining our already burdened natural resources. With food production alone contributing to around 30% of global greenhouse gas (GHG) emissions , both climate and non-climate stresses are clear threats to global food security. More recently, disruptions from the COVID-19 pandemic have further exacerbated these challenges, as more countries confront acute food insecurity.

To feed an estimated 10 billion people by 2050, we will require 56% more food which needs an additional 593 million-hectare of land, an area nearly twice the size of India

Climate change is threatening Earth’s already fragile food systems. Rising temperatures have adversely impacted crop yield, with a disproportionate effect on the poor. The Intergovernmental Panel on Climate Change warned that crop yield may drop by up to 30% in 2050, due to climate change

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”Technology adoption and innovations are key to transforming the sector, advancing sustainability and resilience across the global food system,”

This year, Temasek partnered with the Economic Development Board, Enterprise Singapore, Singapore Food Agency, and the Singapore Tourism Board, plus event organizers Rethink and Constellar, to launch the inaugural Singapore International Agri-Food Week (SIAW), an annual gathering of global stakeholders from the agri-food industry, to share ideas, showcase new technologies and catalyze innovative solutions.

To dive deep into the changing food consumption habits and trends among Asian consumers, Temasek collaborated with PwC and Rabobank to launch the second edition of the Asia Food Challenge Report (2021). This report highlighted that to meet the demands of increasingly affluent and sophisticated Asian consumers, Asia’s agri-food sector will require an estimated US$750 billion – this is on top of existing levels – by 2030. To this end, Temasek has established the Asia Sustainable Foods Platform to accelerate the commercialization of sustainable foods in Asia. The Platform will provide bespoke solutions, as an enabler, operator and investor, to food-tech companies as they go through their life cycle from product development to commercial scale-up. The Asia Sustainable Foods Platform and A*STAR’s Singapore Institute of Food & Biotechnology Innovation (SIFBI) have committed to invest over S$30 million in the Food Tech Innovation Centre (FTIC) over the next three years, to provide tailored infrastructure and service offerings to promising food-tech start-ups. This will provide much-needed pilot scale capabilities for companies to shorten time to market.

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Investing in Sustainable Solutions

1. Singapore International Agri-Food Week (SIAW) 2. Intergovernmental Panel on Climate Change (IPCC) 3. World Resources Institute 4. State of Food Security and Nutrition in the World 2021 Report 5. UN Environment Programme 6. Intergovernmental Panel on Climate Change (IPCC) 7. 2020 World Population Data Sheet, Population Reference Bureau (PRB) 8. Intergovernmental Panel on Climate Change (IPCC) 9. World Bank, Bloomberg, UN 10. Future Directions 11. World Resources Institute 12. World Resources Institute 13. UN Environment Programme 14. United Nations 15. The Good Food Institute 16. Bloomberg 17. WWF 18. Rivulis 19. UN Environment Programme 20. Temasek

Footnotes

Global investor Temasek has increased its investments in the region’s digital champions, using its capital to catalyze solutions that will enable these companies to take full advantage of the digital decade.

HOW

Propelled by the pandemic, a new wave of consumers as well as digital merchants is driving growth across all sectors, from e-commerce and food delivery to fintech and online media.

WHY

As Southeast Asia ventures through its digital decade, the internet economy is expected to reach US$1 trillion in gross merchandise value (GMV) by 2030.

WHAT

The boom of digital consumption is being keenly felt across Southeast Asia’s thriving funding landscape. Deal value reached US$25.7 billion in 2021, more than doubling the US$11.6 billion worth of deals recorded across 2020, with most investments in high-growth e-commerce and digital financial services – the crucial payments infrastructure propelling the digital economy.

AI business value will reach nearly

are leveraging AI strategically to disrupt their industry .

"Temasek looks forward to increasing our investments in the region’s digital champions, using our capital to catalyze solutions and growth that will enable these companies to take maximum advantage of the digital decade."

Rohit Sipahimalani

Chief Investment Officer and Head, Southeast Asia, Temasek

as a powerful force for good.

Temasek is confident in the outlook for the Southeast Asian

"New technologies can potentially disrupt or redefine many current trade and commerce arrangements."

Chia Song Hwee

Deputy CEO of Temasek

by 2022 .

Yet only

AI technologies could unlock

US$9.5 trillion

was invested in Southeast Asia's internet economy in the first half of 2021.

US$11.5 billion

Funding hit an all-time high

The Road Ahead

Solving Global Food Production Challenges

Funding hit an all-time high

A global technology company that develops and scales AI solutions, empowering businesses to leverage AI for better business outcomes.

Aicadium

An AI platform to generate insights in financial risks as part of the National AI Programme in Finance.

NovA!

A platform that uses blockchain and distributed ledger technology for quicker, more efficient settlement of banking payments.

Partior

US$4 trillion

1% of companies

digital technologies

To mitigate these pitfalls, governments, businesses, and technologists must work together to build robust digital governance policies and public trust. Cybersecurity is a requisite for digital competitiveness and sustainability – a strategic advantage that innovators like Temasek have reframed from challenge to opportunity. By founding ISTARI, a global platform of leading cybersecurity companies, Temasek helped group top talents to offer customers a one-stop solution to manage digital risks and navigate the ever-shifting challenges of cyber resilience, while advancing cybersecurity as a key business agenda. With ISTARI’s IronNet collective defence mechanism, for example, demand for cybersecurity is aggregated and costs are brought down. It therefore reduces the barrier for companies to adopt good cybersecurity practices by bringing in capabilities and tools at a cost that is easier to accept.

E-commerce platform Shopee has won consumers over with its seamless experience, from search to payment. But it also recognized early on in the pandemic how transformative its platform could be for sellers. It created a Seller Education Hub, for instance, offering guidance on everything from the basics of selling using its tools to advanced topics like live-streaming. And for small-scale vendors such as Richard Salvo (randashoesofficial), a footwear seller who gained 320,000 followers across the Philippines after moving his struggling business online, or for Singapore-based Zoe Wong (zozeprints), a calligraphy hobbyist who turned a passion for designing personalized cards into a successful creative outlet while at university, Shopee has been more than just a platform. It has upskilled sellers and given them the tools to reach and engage with a much bigger pool of receptive buyers.

Southeast Asia’s Digital Decade

The surge in the popularity of a platform like Shopee among consumers and business owners is a microcosm of the Future of Consumption. The Asian century is also certainly Southeast Asia’s digital decade: as one of the world’s most populous and economically dynamic growth zones, Southeast Asia is fast becoming the world’s next mega-market for digital consumption, ushering in a fourth wave of regional growth as over 350 million consumers shift their spending online.

in GMV by 2025 and

US$1 trillion

in 2030.

of the region’s

440 million

internet users

Southeast Asia is fast becoming the world’s next mega-market for digital consumption.

Increased deal activity and larger valuations that led to bigger funding rounds have spurred the induction of 11 new consumer technology unicorns in 2021, bringing the total number to 23. Temasek has been investing in Southeast Asia’s e-commerce space, by far the biggest driver of the future of consumption. Florian Hoppe, Partner and Head of Asia-Pacific Digital Practice at Bain & Company, says, “It is clear that Southeast Asia’s internet economy has rebuilt tremendous growth momentum. GMV has increased 49% year-on-year, as seismic consumer and ecosystem shifts, accelerated by Covid, continue to drive a massive digital adoption spurt for everything from online shopping and food delivery to digital payments and digital lending. The region has generated tremendous investor interest over the past two years, and we believe the ‘roaring 20s’ will really put Southeast Asia’s internet economy on the global map, as it charts a unique growth path and reshapes all industry sectors in the region. Managing this growth sustainably in the interest of all stakeholders will be a key mission for all ecosystem participants."

US$25.7 billion

US$11.6 billion

Wealth management services are also on the rise. Leveraging automated analysis tools and technologies, these services help to reduce barriers of entry for retail investors. Across the region, robo-advisory platforms saw 32% growth from 2020 to 2021, with some platforms exceeding US$1 billion assets under management. Beyond fintech platforms, banks and traditional wealth management services have also shifted their client engagements online, further boosting the adoption of digital investment platforms among mass market consumers as well as high-net-worth individuals. Accelerated by the pandemic, online media grew by 32% to US$22 billion in 2021. In particular, a new generation of gamers has shown a greater willingness to spend. Driven by low barriers to entry and new customer engagement technologies such as AR/VR, mobile gaming revenue is projected to reach almost US$4 billion in 2022, and grow at a CAGR of 8.5% from 2022 to 2027. The region’s significant headroom for the growth of enabling technologies like 5G mobile connectivity and cloud-based computing means that mobile gaming is a key space to watch.

The boom of digital consumption

Overall deal value across Southeast Asia

1-4, 6-15, 18-20. e-Conomy Southeast Asia 2021 5. e-Conomy Southeast Asia 2019 16. 2021 Mobile Wallets Report 17. e-Conomy Southeast Asia 2021; Statista 21. Statista 22. Business Wire 23. World Economic Forum

Footnotes

Driving Change in a Digital World

ARTICLE

Coming soon

Future of

Southeast Asia’s digital economy could reach a GMV of US$1 trillion by 2030.

AI technologies could unlock

US$9.5 trillion

was invested in Southeast Asia's internet economy in the first half of 2021.

US$11.5 billion

E-commerce platform Shopee has won consumers over with its seamless experience, from search to payment. But it also recognized early on in the pandemic how transformative its platform could be for sellers. It created a Seller Education Hub, for instance, offering guidance on everything from the basics of selling using its tools to advanced topics like live-streaming. And for small-scale vendors such as Richard Salvo (randashoesofficial), a footwear seller who gained 320,000 followers across the Philippines after moving his struggling business online, or for Zoe Wong (zozeprints), a calligraphy hobbyist who turned a passion for designing personalized cards into a successful creative outlet while at university, Shopee has been more than just a platform. It has upskilled sellers and given them the tools to reach and engage with a much bigger pool of receptive buyers.

Driving Change in a Digital World

AI business value will reach nearly

by 2022 .

are leveraging AI strategically to disrupt their industry .

Yet only

Increased deal activity and larger valuations that led to bigger funding rounds have spurred the induction of 11 new consumer technology unicorns in 2021, bringing the total number to 23. Temasek has been investing in Southeast Asia’s e-commerce space, by far the biggest driver of the future of consumption. Florian Hoppe, Partner and Head of Asia-Pacific Digital Practice at Bain & Company, adds, “It is clear that Southeast Asia’s internet economy has rebuilt tremendous growth momentum. GMV has increased 49% year-on-year, as seismic consumer and ecosystem shifts, accelerated by Covid, continue to drive a massive digital adoption spurt for everything from online shopping and food delivery to digital payments and digital lending. The region has generated tremendous investor interest over the past two years, and we believe the ‘roaring 20s’ will really put Southeast Asia’s internet economy on the global map, as it charts a unique growth path and reshapes all industry sectors in the region. Managing this growth sustainably in the interest of all stakeholders will be a key mission for all ecosystem participants."

Over 90% of Southeast Asian merchants currently accept digital payments.

The food delivery sector has also emerged as a regional bright spot, growing 33% year-on-year to reach US$12 billion in GMV in 2021. Food delivery has now become the most penetrated digital service, with 71% of all internet users ordering meals online at least once. And nascent categories like online media could unlock the next wave of growth and contribute as much as e-commerce does today, once gaining ground in non-metro areas. The move online is also creating demand for new products and services, leading to new opportunities in areas like fintech, digital investments and mobile games. Southeast Asia is now the world’s fastest-growing region for mobile wallets. Reflecting the e-commerce boom, the number of mobile wallets is expected to grow 311% from 2020 to 2025, reaching almost 440 million by mid-decade.