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Indonesia on track to strengthened tech sector

It has been reported that the use of digital technologies has experienced significant growth in Indonesia in recent years. This trend has accelerated since the COVID-19 pandemic began, with face-to-face services forced to close or dramatically cut their hours and visitor numbers to reduce the spread of the virus. Further, there has been a lot of interest in Indonesia’s booming tech sector – both domestically and from overseas. Indonesia is slated to have three new unicorns – a privately held start-up company valued at over US$1 billion – in the next five years. Currently, Indonesia has one decacorn or start-up with a valuation of more than US$10 billion and four unicorns valued at over US$1 billion.

Based on research from a survey of over 2,100 end consumers and 1,100 retailers in 23 cities along with and interviews with stakeholders in 13 cities, these massive startups could come from the three sectors – e-commerce, fintech and digitisation of Micro, Small and Medium Enterprises (MSMEs).

First, e-commerce, because people switched predominantly to online shopping during the COVID-19 pandemic. Social commerce also has the potential to become a unicorn. A study by an international tech company shows that the number of digital consumers in Indonesia is estimated to increase from 119 million in 2019 to 137 million last year. The percentage also jumped from 58% to 68% of the total population. Meanwhile, the number of digital consumers in Southeast Asia is also on the rise, data shows that more potential transactions can be achieved by online merchants, including in e-commerce.

Second, fintech, especially financing (lending). Apart from the need, this sector has been boosted by e-commerce. The researchers also see that credit scoring by fintech lending is getting better. As is well known, start-ups in this sector have a data centre in place. This tool, which is also known as the Fintech Data Centre (FDC), has captured 26 million borrowers’ data as of the end of last year. With data and an increasingly mature ecosystem, the researchers are sure that there will be unicorns from this sector.

Third, providers of MSME digitisation solutions, including business to business (B2B) commerce.

Education (EdTech) and health (Healthtech) start-ups were also in the running. Researchers believe that the use of the services of these two startup companies was indeed rapid during the pandemic. The use of online learning applications has increased in ASEAN due to the impact of COVID-19, based on data from the World Economic Forum (WEF). In terms of Healthtech, it is estimated that the value of the health industry in Indonesia was US$21 trillion last year, up from US$7 trillion in 2014.

However, researchers said that many things need to be considered. Not all health services can be adopted digitally. Previously, the Founder and Chairman of the Indonesian Healthtech Association, said that the use of virtual health services was not yet massive in the country, even though it had increased during the pandemic. Not all citizens have switched to virtual consulting. The government has indeed spent large funds for handling COVID-19. However, it does not go to Healthtech, but offline services, the association added.

Local governments, below the national level, are responsible for most of the service delivery in Indonesia. Subsequently, both the quality of services and their use of digital tools and technologies vary significantly from one region to another. Areas with higher human development index rankings have generally led digitisation efforts, but rural and less developed districts are by no means left behind.

COVID-19 has forced Indonesia’s local governments to quickly adopt digital methods of providing public services. Some agencies and service providers have shifted quickly and successfully, while others are still experimenting to discover what works best for their users. With the pandemic still ongoing and the number of cases in Indonesia predicted to continue rising into 2021, digital service provision and tech adoptions will need to remain a key focus area to keep vital services flowing while reducing the spread of the virus as much as possible.

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