Opinion

Internet penetration and
the connected archipelago

Recently, there has been discussion about the behavior of Indonesians online as well as the potential growth
of the number of people using the Internet.

We found out that the top five online activities by Indonesians involve social media and messaging, and also that there are roughly 50 million Indonesians online, a number that may double in less than five years given the current growth rate.

But what does that mean in terms of the economy? Does this affect businesses at all and if it does, how does it compare with other industries?

The Connected Archipelago is a report that was put together by Deloitte and takes a fresh look at this question by treating the Internet as a boring industry and measuring it in a traditional way. This isn’t as easy as it sounds. It’s shockingly hard.

Governments don’t track the Internet’s activity as they do other industries, so whatever the Internet does gets counted as something done by someone else. If a shipping firm uses the Internet to reduce its inventory and speed up shipments, that counts as an expansion of the shipping sector.

As a general rule, when the Internet helps a business, that business takes the credit. When it hurts a business, however, the Internet will take the blame.

What the folks at Deloitte have done is measure the Internet using the same methods that the government uses to add up GDP statistics, the basic benchmark of how much Indonesia has produced in a year.

Bottom line is they have produced a report that provides a more meaningful way of looking at the Internet, which allows us to see the industry from a different perspective.

They have added up how much Indonesia has spent in total on the Internet, which happens to be the same amount that the Internet has produced for Indonesia. And that finally allows us to judge how big the Internet really is. Bigger than cars? Bigger than mining? Bigger than Syahrini?

So this is what they’ve discovered. Internet-related activities in Indonesia have produced 1.6 percent of the nation’s gross domestic product (GDP). This is larger than liquefied natural gas at 1.45 percent and larger than electronic and electrical equipment exports at 1.51 percent. This is more than three times larger than wood and wood-related manufacturing.

Indonesia’s Internet economy is massive. If we put this alongside the other major national industries, how would we treat this Internet economy?

How would we encourage its growth? Should we protect it? Thanks to the proliferation of Internet-enabled mobile phones and affordable Internet access, this industry will only grow larger.

The report says that “it is likely the number of Indonesian households with access to the Internet will double over the next five years, increasing the value of the Internet economy by around Rp 70 trillion, or 1 percent of GDP”.

There’s also great potential for e-commerce. The report estimates only US$230 million a year in 2010, less than 0.1 percent of GDP. And yet the survey cites a ComScore survey that found 50 percent of Indonesian Internet users had visited retail sites in 2010, up from 41 percent in 2009.

A survey of small and medium enterprises found that a majority of them were using the Internet to find a greater range of products and suppliers, at lower prices, and almost two-thirds were using the Internet to source supplies.

Therein lies a clue as to how the Internet became so big. Most businesses are having some form of
business discussion on the Internet. You mess with that, you’re messing with every business’s ability to get supplies, find clients and handle complaints.

This makes the answer to the earlier question about growing the industry pretty clear. With businesses relying on the Internet for much of their operations, it only makes sense that there needs to be more people online, especially businesses, supplied with as much information as possible.

Limiting the number of people online would only mean taking away a cut of the GDP, effectively reducing the ability and competitiveness of Indonesia on the world stage, in which the distribution of information and knowledge is playing a greater role to move a nation forward.

The report reckons that the Internet economy will grow to around three times the rate of the overall economy over the next five years.

By 2016, it will account for at least 2.5 percent of GDP by 2016, which means that in just a few years we are looking at a sector as big or bigger than the textiles, leather products and footwear industries (all of which contribute about 2.1 percent of GDP).

The report though, still has yet to consider the fact that many Indonesians are trading online, selling goods and services, using personal Facebook pages and BlackBerry Messenger groups. These “underground stores” are not impossible to measure but are usually invisible to most studies as they are easily forgotten or ignored.

You know you have Indonesian friends on Facebook when you have been tagged in photos in which there may not be a single person in it but you will see dresses or cameras or bags, or just about anything that can be sold.

Instead of using sites like Multiply, eBay, Rakuten, or Tokobagus, a lot of these people buy and sell goods on what is normally seen as social networks.

People may joke about it but it’s an underground economy nonetheless, one which plays a part in contributing to the Internet economy.

So, if not already, maybe it’s time to consider the Internet not as a place to play around, but as a serious industry that has a massive effect on the nation’s economy.

It will only continue to play such a role in years to come as it blows past other, more traditional economies and spreads its influence across those very industries.

The writer is the technology columnist at Daily Social, a news site focusing on Indonesian start-ups, technology and tech-related innovations. He was also the managing editor of e27.sg, a technology news site based in
Singapore covering start-ups and innovations across Southeast Asia

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