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Jakarta Post

Leading Indonesia out of its digital impasse

  • Hari Venkataramani and Shirley Santoso

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Jakarta   /   Sat, April 13, 2019   /   12:07 pm
Leading Indonesia out of its digital impasse Young people using various gadgets (Shutterstock/File)

Indonesia had a Twitter field day when the country’s two presidential hopefuls traded barbs over “unicorns” during a televised debate last month.

The term “unicorns” draws its name from a mythological creature, with the notion that it will be rare for a startup’s value to pass the US$1 billion threshold.

Yet, Southeast Asia boasts seven unicorns — and four of these call Indonesia home. That’s impressive by any measure, but the underlying frustration concerning the country’s digital success in comparison to its peers, persists. As Indonesia is set for a presidential election in just a few days — will the next presidency lead the country out of its digital impasse? It’s very possible.

With much of its economy driven by a predominantly young population of more than 250 million armed with over 100 million smartphones, Indonesia is easily the biggest digital economy in Southeast Asia. It could be worth more than $28 billion and is expected to soar to $100 billion over the next seven years, according to a recent Google-Temasek study. But there are cracks in the country’s digital plan.

The archipelago’s remarkable growth as a digital hotbed in the region has been largely spurred by startup giants, such as Go-Jek and Tokopedia. Large corporations are also starting to take note and formulate digital transformation plans.

But Indonesian small and medium enterprises are left far behind and it’s clear that more needs to be done to help them play their part in contributing to the digital revolution. For example, while a quarter of local companies have adopted Artificial Intelligence, it also has the highest percentage of organizations with no plan to adopt any emerging technologies within the next five years, according to an International Data Corporation (IDC) Asia-Pacific Enterprise Cognitive survey.

Recognizing the important role that SME’s play in the digital economy, the two presidential candidates have recently pledged to create a more conducive environment for them to thrive through regulatory measures. But that alone won’t be enough. Indonesia needs a coherent national digital roadmap with a strong focus on investment in digital infrastructure, skills and technology. The government can also further stimulate the environment through rapid digitalization of state-owned enterprises.

Indonesia leads Southeast Asia with 150 million internet users and is expected to add 50 million new internet users by 2020, reaching a penetration rate of 53 percent (fdispotlight.com/indonesia/the-indonesian-digital-economy/). While the country has made significant leaps forward in connectivity over the past decade, broadband connectivity speeds in Indonesia continue to lag behind its regional peers. While its neighbors are planning for a future with 5G mobile connectivity, many rural parts of Indonesia still have limited or no proper access to mobile networks.

To put it simply, a country can’t have a robust digital economy when its mobile connectivity is still limited in some parts of the country. The government needs to incentivize companies to build vital infrastructure that will give rural economies a badly needed boost. While the Palapa Ring and the National Smart City projects were a good start, it’s far from enough.

Besides uneven internet access, the amount of money that Indonesia spends in building a digital infrastructure is also less than those spent by its neighbors. For example, the country’s investment in digital infrastructure amounted to 1.3 percent of its gross domestic product. Thailand’s was 2.4 percent of GDP, against Malaysia’s 4.5 percent and Singapore’s 6.6 percent (Gartner 2016; “Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide 2012-2018”).

Over the next five years, Indonesia needs to increase the country’s ICT spending to 2.5 percent of its GDP and invest Rp 275-300 trillion ($19.47-21.24 billion) per year in 10 emerging trends, including networking, security, cloud, and data analytics, according to AT Kearney’s study on Indonesia’s digital potential.

With millennials making up 24 percent of Indonesia’s population, and a whopping 88 percent of them wanting to start their own businesses, there’s a great need to further build on existing government initiatives, such as Industry 4.0.

When it comes to ensuring that the next generation of the workforce is getting the right skills, the education system needs to provide students with a competitive advantage to avoid the talent drain that has been affecting Indonesia for so long.

To be digitally savvy is not optional anymore. Compared to other countries in the region like Singapore and Malaysia, Indonesia invests less in education on a per capita basis. For example, Indonesia ranks 45th out of 63 countries in Institute for Management Development’s latest “Talent Ranking Report”, moving up two spots this year, thanks to improvements in the quality of its educational system. That said, the study confirms there’s still room for improvement particularly in areas related to the cultivation and development of home-grown talent.

State-owned enterprises contribute 13 percent of GDP and reflect 25 percent of the stock market. Given their relative size and economic importance, they can act as a powerful catalyst in helping Indonesia better harness its digital potential.

But compared to global digital leaders, state-owned enterprises in Indonesia have a relatively-low digital maturity.

Yearly digital investment would therefore need to triple over the next four to five years to ensure that they could catch up with other economies with a particular focus on manufacturing, logistics, agriculture, and services, which will offer the biggest opportunities for Indonesia.

This would also enable them to help strengthen consumer trust, educate and up-skill the workforce, and build the local innovation ecosystem. Were these entities to make significant strides, their progress could be a blueprint for other companies around the country to learn from. As those companies started to digitize in turn, their growth could encourage the development of a local digital ecosystem. In other words, substantial knock-on benefits are to be enjoyed should the government nurture state-owned enterprises in adopting a digital economy.

Indonesia has shown that unicorns are no myth and that everything it wants is within its reach. While no single government agency is responsible for bolstering the digital economy of a country, the choice of president — and the part he will play alongside industry — will be determinant to this success. Let’s hope the next president will put a national digital roadmap high-up on his to-do list.

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The writers are partners at AT Kearney. Hari Venkataramani is also co-author of the recent report Unleashing Indonesia’s Digital Potential.

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.