The digital economy of the Middle East, North Africa and Pakistan (Menap) is set to exceed $100 billion this year and has the potential to reach $700bn by 2030 if backed by adequate investment, according to management consultancy RedSeer.
The digital economy registered robust growth in 2021 and could expand by 42 per cent annually to $104bn this year as the Covid-19 pandemic hastens the pace of digital adoption, Redseer said in a report on Tuesday.
However, the growth is largely dependent on the digital economy securing about $20bn in funding in the next two to three years, the India-based company said.
“The digital economy has seen a strong tailwind thanks to the pandemic. This has moved it beyond the initial disruption phase and placed it on a springboard for further strong growth,” RedSeer said.
“Investor confidence in the space is rising and we expect more private equity/venture capital funding to start coming through in the short to medium term.”
The Menap region's digital economy presents a significant opportunity to drive economic and societal growth as more users increasingly rely on smartphones and digital services for their transactions and activities.
The number of mobile internet users is expected to increase to about 357 million by 2025, up from 264 million in 2019, with a mobile internet penetration rate of about 53 per cent of the population by that time, according to Statista.
The UAE alone has about 9.9 million active internet users, or 99 per cent of its population, according to Global Media Insight.
Meanwhile, Pakistan had about 82.9 million internet users through to January, having grown 36 per cent last year, and an internet penetration rate of 36.5 per cent, according to research company DataReportal.
But despite Menap countries having strong digital penetration and considerable spending power, the region still lags behind parts of South-East Asia and India in terms of digital economy maturity and investment, RedSeer said.
India's digital economy, in particular, registered high amounts of funding, with a cumulative inflow of about $100bn over the past five years, of which $42bn was raised in 2021 alone, RedSeer said.
In South-East Asia, internet economy investment hit a record in 2021 — the busiest year for deals in recent memory despite the Covid-19 pandemic — and are expected to double to $363bn by 2025, a report by Google, Temasek and Bain & Co said last November.
The Menap region, in comparison, has received limited funding. A large portion of funds have been driven by companies and private equity while venture capital funding has been low.
This has been the reason for the relatively low maturity of the region's digital economy, RedSeer said.
However, investors setting their sights on Menap could benefit from a much higher return multiple over the next five to 10 years, the management consultancy said.
“Additionally, learnings from more evolved digital economies can be leveraged to leapfrog stages of evolution where possible, placing the region in an attractive position,” RedSeer said.
The latest study is largely in line with RedSeer prediction last July, although it was limited to the Mena region. The region's digital economy was expected to hit $100bn by 2023.
The Menap region includes GCC countries, Lebanon, Jordan, Iraq, Egypt, Morocco and Pakistan.
The digital economy includes high-growth sectors such as e-retail, FoodTech, mobility, online travel, education technology, health technology and FinTech, among others.
