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 $700 billion 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 percent annually to $104 billion this year as the Covid-19 pandemic hastens the pace of digital adoption, the National reported.
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 in its report. “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.
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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 percent of the population by that time, according to Statista.
Meanwhile, Pakistan had about 82.9 million internet users through January, having grown 36 percent last year, and an internet penetration rate of 36.5 percent, 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.
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 has 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 Menap region includes GCC countries, Lebanon, Jordan, Iraq, Egypt, Morocco and Pakistan.