As we usher in the new year amidst a cloud of economic uncertainty, everyone is curious what 2023 will bring for the Philippine tech industry. After all, 2022 was filled with socioeconomic and industry events whose ramifications businesses are still dealing with today.
The beginning of the year saw Russia launch a surprise invasion of Ukraine, sending shockwaves through supply chains for everything from wheat to semiconductor chips. Rampant global inflation also caused the prices of almost all goods to go up. Elon Musk bought Twitter, and the rise of AI tools like ChatGPT brought the technology closer than ever to mass adoption. In short, 2022 never ran out of stories for tech players to follow.
In the Philippines, the tech industry fared relatively well. According to The Gobi-Core State of Talent in Tech 2022 report, the country’s entrepreneur-led startups successfully closed six Series B and two Series C rounds. Additionally, total funds raised by these entrepreneur-led startups have now exceeded US$500m—nearly doubling the amount raised in 2021.
With Filipinos expected to continue to be more tech-savvy with digital habits picked up during the pandemic, it’s worth looking at what the Philippine tech industry should expect in 2023.
Slowdown in investments
The first thing tech players can expect is a general slowdown of tech-related investments due to macroeconomic factors like rising inflation. According to research firm Preqin, the value of new VC deals globally went down 42% in the first 11 months of 2022 compared to 2021. The drop has surpassed the decline of even the dot-com crash of the early 2000s.
Even established tech giants like Meta (formerly Facebook), Apple, Amazon, Netflix, and Google owner Alphabet were not safe from 2022’s downturns. Meta decreased in value by 64% in 2022; Netflix went down 51%; the other FAANG stocks (as they are commonly known) declined at least 27%. Altogether, the FAANG stocks shed upwards of $3 trillion in market value in 2022—a shocking turn for tech giants once considered the darlings of the stock market.
Southeast Asia was not spared by the worldwide slowdown in tech investments. Notable startups from the region such as Grab have lost 69% of their initial valuation of about $40 billion since its December 2021 debut. This has resulted in the region’s venture capital firms adopting a more cautious investment strategy going into 2023, making it harder for ambitious startups to raise funding.
Continued Philippine government support
Yet despite rougher seas anticipated for tech in 2023, the Philippine government understands supporting the local tech scene is important. The Department of Trade and Industry (DTI), For example, is set to roll out a P250 million startup fund later this year. The fund was made possible via a partnership with the National Development Co. (NDC) and QBO Innovation Hub. The fund will target startups in the seed to series B stage, as part of the government’s initiative to grow the nation’s startup ecosystem. Further investments by the DTI include an Industry 4.0 pilot factory set to open sometime this year in the Calabarzon area. The factory will house advanced technologies like drones, artificial intelligence-of-things (AIoT), robotics, virtual and augmented reality, and more.
The DTI even partnered with the International Trade Centre, a joint agency of the World Trade Organization and the United Nations, to map the nation’s entrepreneurship ecosystem. The published report outlined the main challenges facing the country’s entrepreneurship ecosystem such as skills mismatch among new graduates and lack of access to funding. The report then also advocated for possible solutions to help grow the local entrepreneurship ecosystem, such as setting up incubators outside Metro Manila and building angel investor networks.
Apart from the DTI, the Department of Science and Technology (DOST) and the Department of Information and Communications Technology (DICT) have also contributed to growing the nation’s tech industry. For instance, both agencies played a role in supporting PH Startup Week 2022, which brought together the local startup community and showcased the various stakeholders growing the nation’s startup ecosystem.
Both the DICT and DOST have their own respective programs helping startups and technopreneurs. In November, the DICT opened a startup grant fund worth P1 million for startups across the country. The fund specifically targets new and early-stage startups needing help with startup development, capacity building, and network building. According to DICT Secretary Ivan John Uy, at least 10 startups are planned to be part of the grant fund’s first run.
Similarly, the DOST has done significant work in launching numerous technology business incubators (TBIs). During DOST’s TBI summit in PH Startup Week 2022, it was shared that the agency’s TBIs have already incubated and nurtured 1,369 startups, created over 5000 jobs, raised more than P1.7B in private investments, and generated P766.7 million worth of private investment.
The Philippine tech industry can expect continued support from the government in 2023. Whether the support comes in the form of increased investment, tech skills upgrades or evolving regulation, the country’s tech ecosystem will likely remain a priority.
Southeast Asia as a bright spot
The government’s continued support for the PH tech industry is a good decision considering that despite an overall slowdown in investment, ASEAN’s economic growth was projected to be at about 5 percent in 2022 and 2023, outperforming China for the first time. Additionally, developing Asian countries are generally expected to experience faster growth and lower inflation. Both international and regional investors should appreciate the continued growth despite the anticipated slowdown on the global stage.
The continued growth in the ASEAN region is due partly to its rapidly expanding digital economy. In 2021 alone, an estimated 40 million new internet users in the region came online for the first time. A 2022 e-Conomy report by Google, Temasek and Bain & Co. estimates that the region’s digital economy is on track to grow to $1 trillion by 2030, fueled by growth in virtual finance and e-commerce. E-commerce and fintech in particular are expected to continue growing in the region. Based on the report, the Philippines’ digital economy specifically is expected to grow to $35 billion in gross merchandise value by 2025.
Increased demand for the metaverse and AI
Of course, certain technologies are emerging faster than others. While the once-booming world of cryptocurrency is largely expected to continue its crypto winter, technology such as the metaverse and AI have gained increasing attention.
AI gained particular prominence in 2022 after the release of tools like ChatGPT, a self-learning chatbot capable of writing questions and full-on essays. Another AI development is the rise of AI art generators, capable of producing a myriad of artistic images based simply on text-based prompts. The rise of AI has driven heated debates over how far the technology should be allowed to go, including whether or not it is being used in the best possible way.
Meanwhile, the metaverse has also dominated conversations in tech—with Facebook going as far as rebranding to Meta to emphasize the company’s dedication to the metaverse. The metaverse is expected to be a game-changer because of its potential to introduce virtual reality (VR)-based wearables that will change how people interact with one another. For example, the metaverse will allow anyone with VR headsets to visit an immersive, virtual replica of Paris without ever leaving their couch. This is just the tip of the iceberg when it comes to the potential applications of the metaverse.
2023 is set to be a big year for both the metaverse and AI. Tech giants including Google parent company Alphabet, Amazon, and Microsoft have all invested heavily in creating their metaverse platforms. In 2022, about 50% of firms now say they have adopted AI in at least one business area.
The Philippine tech industry is no exception to the rise of the metaverse and AI. The locally-developed MetaverseGo, for example, was able to raise USD 4.2 million in August 2022 from Galaxy Interactive and 14 other investors. The startup offers easy access to metaverse-based play-and-earn games, guilds, NFTs, and decentralized applications.
Filipino startups leveraging AI also had an eventful 2022. AI-powered analytics firm Beterteem was able to raise funds in August from investors such as Techstars, Crestone Venture Capital, 1337 Ventures, and Suresh Thiru. The firm uses AI to efficiently analyze employee data and reduce turnover. Another Filipino startup using AI is Expedock, which uses AI to improve processes along the supply chain. Last year, Expedock raised USD 13.5 million in Series A funding, bringing their total amount to USD 17.5 million.
Overall, the Philippine tech industry has good reason to be cautiously optimistic for 2023. While achieving growth may be harder than in previous years, government initiatives will continue to support where they can. Investors are also unlikely to turn their backs on Southeast Asia as the region is still expected to register economic growth. Coupled with the rise of new technologies such as the metaverse and AI, it is safe to say 2023 will still come with its own set of opportunities.
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