FT-Omdia Digital Economies Index: tomorrow’s top tech growth markets
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Look east: that is the standout conclusion of the second edition of the Digital Economies Index published by the FT and technology research firm Omdia. Investors searching for vibrant technology markets should channel their money towards Asia, which by 2026 is predicted to have three of the world’s five fastest-growing digital economies, with Vietnam and India in first and second place respectively, and Indonesia in fourth.
Compiled by analysing 16 performance measures across 51 countries, the index puts Mexico in third place by 2026 and Saudi Arabia in fifth. But of the G7 countries there is little sign until much further down the ranking: Canada, with projected year-on-year growth of 4.2 per cent comes highest — but that is still far behind Vietnam’s 8.7 per cent.
The picture on absolute digital market size is different, with the G7 comprising half of the top 14. But here too Asia takes the top slot: the FT-Omdia data indicate that China will continue to be the biggest digital market by 2026, a position it assumed this year, displacing the US.
The FT-Omdia performance measures fall into five broad categories: connectivity — how easy it is to access digital services via fixed and mobile broadband; devices — the availability of smartphones, tablets and more; entertainment — the number of subscriptions to music and video streaming services, and the number of YouTube and Facebook users; payments — the number of debit and credit card holders, and the volume of transactions; and enterprise expenditure — on cloud computing and information technology more generally.
Because the measures have become available for more countries, this year’s index is larger than last year’s, which covered 39 countries. Among the new entrants are two of the highest flyers in the growth category, Vietnam and Israel.
Meanwhile some of last year’s stars have tumbled: Mike Roberts, principal consultant at Omdia, points to Hong Kong, where growth has been torpedoed by the spread of the Omicron coronavirus variant and China’s zero-Covid policies. Previously forecast to be the second fastest-growing digital economy by 2024, it is now expected to be in 49th place by then.
A drill down into the data provides insights into where countries’ strengths lie. China, for example, is a leader in several categories: it has the highest number of both music and video streaming subscriptions, with the latter projected to exceed 500mn by 2026, and has by far the most cellular “internet of things” (IoT) connections. Omdia expects the total for these to reach 1.7bn by the end of this year — about 73 per cent of the global figure. (The IoT consists of everyday products with data-transmitting chips, which allow networks to track and optimise usage.)
But that very predominance may mean that growth opportunities lie elsewhere, as laggards play catch-up. South-east Asia is currently far ahead of western countries in terms of fibre broadband — it accounts for just over 90 per cent of broadband subscriptions, a figure set to increase by one or two percentage points by 2027. In western Europe, which still has lots of legacy copper-cable telecommunications infrastructure, fibre comprises just over 32 per cent of broadband subscriptions currently, but is predicted to account for about 57 per cent by 2027. Similarly in North America, Omdia estimates that the increase over the same period will be from 23 per cent to 38 per cent.
This increase is in part due to the coronavirus pandemic, which, by accelerating the transition to working from home, boosted demand for more reliable broadband. The growing popularity of video streaming services has also played a part. But growth in fibre broadband is not wholly consumer-led: government policy plays a role too, as politicians in countries such as the UK promise to close the digital divide between rural and urban areas.
Fibre broadband is a key element of the upgraded infrastructure that 5G mobile networks require, and Omdia predicts significant growth in this area. Though it expects the biggest percentage increases will, again, be in western Europe and North America — reaching over 70 per cent in both markets by 2027, from the low teens and low 20s respectively — it sees the bulk of the opportunity in Asia, which will account for more than half of the world’s 6bn subscriptions by 2027.
Roberts warns, however, that the bulk of the risks may be in Asia too. “Investors often have to accept more political and regulatory risk to invest in high-growth markets,” he says, noting that Vietnam this year passed a law requiring tech companies to keep user data in the country. “That will require significant investments in local servers and offices,” he says.
More broadly, today’s global economic headwinds — with soaring energy costs, high inflation, and the effects of lockdowns in China and war in Ukraine — mean, Roberts says, that “there are definitely more downside than upside risks to our forecasts now”, though he argues that the FT-Omdia index is “relatively robust”.
One reason for optimism is that rapidly improving connectivity, whether fixed or mobile, is already accelerating the growth of new markets in diverse areas. In the payments sector, for example, digital-only “neobanks” and “buy now, pay later” providers are challenging the dominance of the big card networks. In advertising, companies are spending heavily on getting their messages to viewers of online videos. And in cloud gaming, where the tiniest lag can make the difference between victory and defeat, Omdia predicts that revenues will reach nearly $12bn by 2026, up from just over $5bn this year.
“Countries increasingly see their digital economies as not only a way to create wealth and jobs, but also to weather broader economic downturns,” says Roberts. “We’ll see digital markets continue to outpace many other segments of the economy going forward.”
More details of the FT-Omdia Digital Economies Index are available on the Omdia web portal