The Promise Of Indonesia’s Digital Economy In Post-COVID Era – Analysis

By Anbound Malaysia*

As early as 2019, Indonesia has been highlighted as one of the two most promising countries (the other is Vietnam) for digital economy in the ASEAN region. Superseding Southeast Asia’s annual growth rate of 33% since 2015, Indonesia’s digital economy has grown four-fold from 2015 to 2019. As specified in E-conomy SEA 2019 report jointly published by Google, Temasek and Bain and Company, Indonesia’s digital economy for these 4 years is growing at a remarkable rate of 49% per year and given such rapid pace, it is forecasted that the country will eventually hit the US$130 billion-mark by 2025. 

And despite the COVID-19 pandemic that hit the country’s economy hard in most sectors, such growth continued unabated throughout the year 2020. Despite the pandemic interrupted certain online industries such as car-hailing, online travel and e-lending services, the country’s digital economy is showing its resilience during this testing time. Far from contraction, Indonesia’s digital economy still expanded by 11% to reach a total of US$44 billion in 2020. While revising the earlier prediction of US$130 billion-value of Indonesia’s digital economy by 2025, Google, Temasek and Bain and Company still capped the country’s e-economy growth at US$124 billion in that period of 5 years. Such positive assessment of course, is given in light of the accelerated and continuous growth of 7 online industries which thrive in ASEAN-6 countries (including Indonesia) during the pandemic era: e-commerce, food delivery, online media, insurance, investment, payment and remittance. 

The Digital Rush of Global Players 

Given the immense potential of Indonesia’s digital economy, big digital players around the world — Facebook, Paypal, Google, Amazon and Tesla ⸺ have rushed into the Indonesian market with different goals in mind. Facebook and Paypal, for instance, have been the earliest to enter the Indonesian market by injecting funds into Gojek, a local online start-up that has gained prominence for setting up a “super app” which offered services such as ride-hailing, food delivery and financial transactions for the young Indonesian consumers. On the other hand, Google has also joined in the foray by cooperating with Singapore’s Temasek to invest a total of US$350 million in Tokopedia, a well-known e-commerce giant that possessed 100 million monthly users and more than 9 million retailers throughout Indonesia. 

The biggest investment (US$2.85 billion) in the IT sector, however, comes from another American multinational, Amazon. According to the conglomerate’s plan, three data centers in West Java province will be built at the end of 2021 to early 2022 as part of its Amazon Web Services (AWS) “region”. In specific, such AWS “region” will host 3 “Availability Zones” to which public cloud services operated in the economically vibrant region near the capital, Jakarta. As revealed by the Indonesian government recently, these data centers will be the crucial facilitator to the business digitalization among small and medium enterprises (SMEs) in the coming years.   

Last but not least, the Jokowi administration has been actively wooing Tesla for its ambitious goal to join the global supply chain for the electric vehicle (EV) industry. Not content with Indonesia being the nickel supplier for the EV’s lithium-based battery, Jakarta has been lobbying Tesla to build another factory in Central Java province as part of the former’s efforts to become part of the EV industry’s global supply chain. As of end of December 2020, it is reported that President Jokowi had personally invited Tesla’s CEO, Elon Musk to invest in the country via telephone call — an invitation that led to the latter sending a team to Indonesia in January 2021 for exploration of investment opportunities there. 

Prospect in the Post-COVID Era

In what to be an unconventional move against what most countries are doing, Indonesia has started its early COVID-19 vaccination drive that targeted the younger population instead of the old and vulnerable groups. While Minister of Health, Dr. Nadia Wikeko had reportedly told Al Jazeera that such choice is taken due to the concern regarding the efficacy of Sinovac vaccine for those aged 60 and beyond, such rationale is far from convincing international public health experts on the unorthodox approach. As a matter of fact, economic consideration remained to be the real influence behind such move by the current Jokowi administration. 

With younger Indonesians being vaccinated at first, the country is expected to see an early economic recovery as its most productive cohort (18 to 59 years of age) is now able to travel freely for work and thereby, keep the economic activities ongoing for the nation. Whereas such rationale is perfectly conceivable for Indonesia observers and alike, Jakarta’s unorthodox move to vaccinate its younger population should be understood within the context of consumerism for the country’s economy. 

Like any other country, consumer spending in Indonesia has taken a hit due to the need to cut physical contacts between customers and providers during this pandemic period. With such constraint restricting the spending power of the burgeoning middle class in the country, it is completely difficult to achieve the same level of consumer spending in the pre-COVID era. But with early vaccination of the younger population, such constraint will be lifted earlier than its ASEAN neighbours and with that, paving the way for earlier economic recovery through consumer spending.  

This is especially vital for the digital economy in which the COVID-19 pandemic has forced ever more Indonesian consumers to shop online since the start of the outbreak. From the E-conomy SEA 2020 report, the percentage of new Indonesian digital consumers since the COVID-19 pandemic is 37%, a figure surpassing those in Malaysia, Singapore, the Philippines and Thailand and only to be ranked second to Vietnam (41%). With 93% of new Indonesian digital consumers expressed their intention to continue using at least one digital service in the post-COVID era, it is expected that the country’s digital economy will continue to boom even after the pandemic ends in the coming months or year. By all means, the future certainly looks bright for Indonesia’s digital economy in the post-COVID era.   

*Anbound Malaysia is part of Anbound China, a leading independent think tank based in Beijing. The think tank is also a consultancy firm working with the corporate players in China-ASEAN cooperation. For any feedback, please contact: [email protected].