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Indonesia’s Digital Market Set to Grow to $300 Billion Over 3 Years

With over 275 million people, Indonesia is Southeast Asia’s second-largest economy and the world’s fourth-most populous country. Several unicorn start-ups, or private enterprises valued at $1 billion or more, are based in this country, including e-commerce firm.

Investors have said the country’s growing internet users and expanding middle class are conditions ripe for a digital boom. But Indonesia is a tricky market to navigate, partly because the population is spread across more than 10,000 islands — many with their own culture and language. Nonetheless, Indonesia’s digital scene’s growth potential has opened the way for internet start-ups that have caught the attention of international investors.

OpenGov Asia recently 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. Even prior to the pandemic, between 2015 and 2019, Indonesia’s digital economy quadrupled in size – at an average growth rate of 49% per year – to reach an estimated $40 billion.

All things considered, the digital economy is forecast to grow to $130 billion by 2025, driven by the widespread adoption of digital payments, infrastructure improvements and healthy competition between leading tech companies.

The vibrancy of Indonesia’s digital economy is evident in the ubiquity of the green-uniformed delivery drivers navigating via mobile devices through the streets of its major cities. Due to the demographic and macroeconomic variables, Indonesia has the largest and fastest-growing ICT market in Southeast Asia, and presents an intriguing potential for investors, particularly as the government presses on.

 

In Indonesia, there were 38 licenced e-money businesses under the supervision of Bank Indonesia as of October 2019. There are 12 banks among them, while the others are a mix of state-owned and private businesses. E-money transactions nearly quadrupled between the first half of 2018 and the first half of 2019, from Rp20.7 trillion ($1.6 billion) to Rp56.1 trillion ($4 billion). This was largely due to the proliferation of digital payment infrastructure, supported by a national payment gateway that offers a range of options to the growing number of Indonesians included in the banking system.

Another OpenGov Asia article by OpenGov Asia indicated that the development and integration of 5G infrastructure to support the bandwidth required for digital applications to function are crucial to Indonesia’s digital transformation. The adoption and deployment of these applications will lead to an increase in the number of interconnected devices, sensors, and systems, as well as an exponential growth in data volumes.

Long-standing government plans to improve internet and mobile data service availability across the country are coming to fruition, along with the emergence of a vibrant digital services ecosystem led by homegrown unicorns and supported by a thriving ancillary services market. Domestic telcos are taking advantage of surging demand for data services, despite the difficulties inherent in expanding services in a geographically disparate country.

The digital economy is Indonesia’s greatest investment success story: until 2016, e-commerce was restricted from foreign ownership; now, online marketplaces, user-generated content web portals, and reservation services are now accessible to 100% foreign ownership. Nearly $3 billion in foreign direct investment was attracted to the sector between 2013 and 2016. Substantially more is expected in the coming years, following a number of strategic decisions by international technology companies.

An uncertain macroeconomic environment weighted down by the Covid-19 virus, as well as an undefined regulatory and legal framework in which cybercrime threatens to undermine trust and confidence, are among the challenges ahead. These obstacles however are not insurmountable, and it is hoped that President Jokowi’s administration will have the political will – as well as international support – to meet challenges and maintain Indonesia’s position as the region’s digital leader.

Despite the fact that Indonesia, like the rest of the world, is struggling from the economic consequences of the COVID-19 pandemic, the country’s digital economy is poised to lead the region in growth in the coming years.

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