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National-level priorities to grow the digital economy: Spotlight on Indonesia

As part of Tech For Good Institute's new qualitative study to better understand how the concept of “Tech for Good” may apply in the context of Southeast Asia, this series provides an overview of the national-level priorities of Southeast Asia-6 (SEA-6) [1] economies as they pursue digital economy development. This article also examines how Digital Economy Companies (DECs) can play a part to advance the countries’ digital economy.

Indonesia’s digital economy is the largest market in Southeast Asia, making the country an attractive investment destination for businesses. It has grown at an impressive rate of 414% from 2017 to 2021 and is projected to reach USD 130 billion by 2025. With the potential of the digital economy to be a key economic driver for Indonesia, public and private sector stakeholders aim to continue the growth momentum by further highlighting the need for digital transformation.

In this article, we identify five (5) priority areas in Indonesia that relate to the development of the country’s digital economy. They are:

1. Accelerating connectivity through infrastructure development;
2. Fostering a capable digital society;
3. Promoting trust in the digital economy;
4. Empowering MSMEs; and
5. Advancing digital financial services for economic growth.

This article also highlights opportunities where Digital Economy Companies (DECs) with operations in the country are best positioned to support and deliver shared outcomes.

Priority 1: Accelerating Connectivity through Infrastructure Development

Infrastructure is considered a critical pillar in Indonesia’s digital transformation. The government recognises the importance of internet access and connectivity in addressing the nation’s digital divide, developing adaptive ICT skills, and promoting digital literacy. There are several government initiatives aimed at improving Indonesia’s physical and digital infrastructure. These include:

Construction of Base Transceiver Station (BTS) towers in 1,682 Indonesian urban villages. These BTS towers are located in communities with limited cellular communications services;
Upgrading of networks to next-generation 5G cellular technology;
Deployment of the High Throughput Multifunction Satellite (SATRIA-1) with a capacity of 150 GBPS to provide internet access to 150,000 public facilities;
Spectrum farming and re-farming to improve radio frequency allocation and 5G deployment;
Establishment of the National Data Center; and
Developing a telecommunications monitoring center to oversee quality of experience (QoE) and quality of service (QoS).

Where DECs may play a part

DECs can play a part in accelerating connectivity by partnering with the government on physical and digital infrastructure projects. This can be through public-private partnerships, especially in far-flung areas, where connectivity remains an issue. DECs can work closely with implementing agencies to identify investment opportunities, align with national and local development plans, and co-create responsive policies to roll out digital services.

Priority 2: Fostering a capable digital society

A key priority for Indonesia is to ensure that the population has the necessary digital skills to not only participate, but more importantly thrive, in the digital economy. In line with this, Indonesia’s Ministry of Communications and Information Technology collaborates with other government agencies in launching initiatives that offer digital literacy and digital skills training. These initiatives include:

The Siberkreasi National Movement for Digital Literacy which aims to accelerate digital literacy development by focusing on digital ethics, digital culture, digital skills, and digital safety. The initiative is a multi-stakeholder programme with institutional partners from the private sector, government, civil society, media, and academic institutions; and
The Digital Talent Scholarship (DTS), which is a scholarship program on intensive training that aims to increase the capabilities and competitiveness of human resources in the field of information and communication technology. It is divided into eight academies: Fresh Graduate Academy, Vocational School Graduate Academy, Thematic Academy, Professional Academy, Government Transformation Academy, Digital Entrepreneurship Academy, Digital Leadership Academy, and Talent Scouting Academy. To carry out this initiative, the government is collaborating with tech companies.

Where DECs may play a part

DECs can support national and local efforts in advancing digital literacy through education and upskilling efforts. In support of the National Movement for Digital Literacy, DECs can partner with local communities to share their expertise by conducting certification training. With the DTS, DECs can align with schools and academic institutions to offer upskilling partnerships and technical support that would give the students the knowledge and experience to be both confident consumers and well-prepared entrants to the workforce.

Priority 3: Promoting Trust in the Digital Economy

To continue the growth of the digital economy, Indonesia needs to foster trust within its digital ecosystems by increasing awareness of Indonesians to potential risks, protecting consumer data, and ensuring the implementation of cybersecurity best practices. Moreover, it is important that businesses are transparent about their policies, standards and capacities to respond to growing cyberthreats. The government has taken the some key measures to advance trust in the digital economy, including:

The legislation of the Personal Data Protection Act in 2022. The Act “aims to guarantee the privacy rights of Indonesian citizens while encouraging the growth of Indonesia’s digital economy and communications technology sector.”
Indonesia recently released updated cybersecurity rules and regulations for the financial sector, including banks and other financial services providers. The new policy covers risk assessments, risk management, data protection, incident response planning, and employee capacity.

Where DECs may play a part

DECs can help foster a trusted digital environment through participation in public initiatives, embracing cyber ethics and protecting personal data. DECs can also help raise cybersecurity awareness in their respective communities through capacity-building and knowledge sharing programmes. Furthermore, DECs developing trust-enhancing technologies specifically for addressing potential risks, such as cybercrime, fraud or misinformation, will find increasing demand for their products and services. Finally, DECs can also foster trust by being transparent in their business models, data use, and artificial intelligence (AI) algorithms.

Priority 4: Empowering of MSMEs

The micro, small and medium enterprises (MSMEs) are the backbone of the Indonesian economy, contributing around 62% to the nation’s gross domestic product. The nation’s MSMEs account for approximately 99% of existing business enterprises and employ more than 95% of the total workforce in the country. Key innovations have been identified as enablers to support MSMEs’ growth, including cloud-based tools and computing, social media platforms, e-commerce apps, and the platform economy.

The following efforts aim to empower MSMEs as they play a key role in the digital economy:

Bangga Buatan Indonesia (Proud of Indonesian Products) is a national multi stakeholder movement aimed to aid MSMEs through the COVID-19 crisis. This public-private partnership encourages the use of e-commerce platforms;
“Wiki Wirausaha Platform” serves as a platform to connect MSMEs with governments agencies with the aim of helping MSMEs grow by solving supply chain-related problem; and
The Broadband Commission launched initiatives which prioritises MSME connectivity to reduce the number of businesses without internet access by 50% by 2025.

Where DECs may play a part

There is an opportunity for DECs to leverage their expertise and experience to help support MSMEs unlock productivity gains. For DECs such as platform companies, it can help MSMEs meet baseline standards for trusted participation in the digital economy, improve their logistics capacity, and unlock new markets. Large DECs can also offer their services to help MSMEs harness emerging technologies such as AI and cloud-computing.

Some DECs may also be well-placed to encourage upskilling amongst specific segments of the population that are already on their platforms, such as MSMEs and platform workers. These DECs may distribute bite-sized content, skills certification modules and training to further empower MSMEs.

Priority 5: Advancing digital finance to accelerate economic growth

Indonesia’s financial technology (fintech) sector is one of its most promising industries. The country is home to 20% of all fintech companies in ASEAN and is expected to generate USD 8.6 billion worth of revenue by 2025. Indonesia’s fintech players are considered catalysts for the rapid growth of Indonesia’s digital economy through its wide range of innovative financial services. These include products such as payment services, digital lending, insurance and investment instruments.

Some of efforts are underway to further develop the financial services sector in the country, including:

The Financial Services Authority of Indonesia (OJK) implemented a national action plan titled “Digital Financial Innovation Road Map and Action Plan 2020-2024”. The plan is aimed at developing a supportive and comprehensive digital financial ecosystem to ensure that the financial services industry is competitive, resilient to change, and fit for the future;
The OJK also launched the “Master Plan for the Indonesian Financial Services Sector (MPSJKI) 2021-2025”, which focuses on the role of the financial services sector in supporting the post-pandemic economic recovery of Indonesia; and
In support of the MPSJKI 2021-2025, OJK also released the 2020-2025 Indonesian Banking Development Roadmap (RP2I) which focuses on strengthening the competitive advantage of the financial services sector, encouraging the use of emerging technologies such as AI, promoting technology cooperation between businesses, advancing financial education, and improving regulations, licensing and supervision through digital solutions.

Where DECs may play a part

DECs may actively collaborate with the government to co-create policies that would promote innovation in the financial services sector. As noted in the roadmaps, business-to-business collaboration is also key. DECs may partner with like-minded firms in their respective sectors to develop products and services that would enhance digital financial inclusion for Indonesians. Looking beyond the domestic market, DECs can also advocate for interoperable payment systems in the region that will enable Indonesians to access financial products and services that are available in other markets.

This article is part of a series which covers national-level priorities of SEA-6 economies for digital economy development. As part of the “Tech for Good” study, the Tech For Good Institute also conducted roundtable discussions with policymakers, regulators, industry, and the academia in SEA-6. Summary and key recommendations of Indoenesia’s roundtable discussions can be found here.

Footnotes:
[1] Southeast Asia-6 markets refers to the six biggest economies in the region, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam