With other Southeast Asian countries already having prepared the ground for the digital economy to prosper, the Indonesian government has finally taken the initiative to spur the growth of e-commerce within its own boarders.
Announced on Thursday evening, the 14th economic policy package will tackle eight issues that could determine the success of President Joko “Jokowi” Widodo’s goal of turning Indonesia into the biggest digital economy of the region by 2020 with a targeted value of US$130 billion. The eight issues are funding, taxation, consumer protection, human resources, logistics, communication infrastructure, cyber security and the establishment of a project management office.
The government expects the new policy package, dubbed the e-commerce road map, to create 1,000 “techno-preneurs” with businesses that have a total value of $10 billion by 2020.
Coordinating Economic Minister Darmin Nasution said the e-commerce road map, which will be translated into a presidential decree, was essential to boost connectivity and efficiency in the industry.
The government also expects the road map to better protect national interests and give priority to small and medium-sized enterprises and start-ups.
“We also want to boost creative innovation and invention of new economic activities, especially for youths who enjoy playing around with new things,” he said during a press conference to unveil the package on Thursday.
Indonesia’s e-commerce market is estimated to be worth Rp 18 trillion ($1.4 billion) as of 2015, with 37 million consumers from a total population of 255 million, according to World Economic Outlook data compiled by the Internet Service Providers Association. The association expects the e-commerce market will be worth Rp 25 trillion by 2016, with 49 million consumers.
Meanwhile, Communications and Information Minister Rudiantara presented some details of the road map, which includes grants or subsidies to help start-ups boost their chances of surviving in the tough e-commerce industry.
The government also aims to reduce taxes for locals investing in start-ups and simplify taxation procedures for e-commerce start-ups with a turnover of less than Rp 4.8 billion a year, so that the final income tax will only come to 1 percent.
“In terms of logistics, this is interesting, because we have already decided to reposition [state-owned postal company] Pos Indonesia as a logistical platform for Indonesian e-commerce,” Rudiantara said.
Since taking office in 2014, Jokowi has issued 13 stimulus packages aimed at eliminating business hurdles.
A recent report from management consulting firm McKinsey & Company suggested that by going digital, Indonesia would be able to unleash its next level of economic growth to the tune of $150 billion in terms of impact by the year 2025 if it were able to address the most pressing issues adequately.
The report suggested that while Indonesia was admirable in terms of the number of internet and smartphone users, it still did not adequately embrace modern technology. Internet penetration in Indonesia has only reached 39 percent of the population, despite smartphone penetration standing at 43 percent.
The report partly places the blame for the low penetration on Indonesia’s relatively weak information and communication technology infrastructure. Indonesia’s internet bandwidth, for instance, is still at a relatively low average rate of 6.2 kbps per user, far below Malaysia’s 27.2 kbps and the Philippines’ 27.7 kbps.
Bank Central Asia (BCA) economist David Sumual was optimistic about the latest economic policy package, saying Indonesia’s market was large and investors had already begun to show interest in the business.
David, however, warned the government’s digital economy dream could end if the country failed to improve infrastructure and logistics.
“It will not reach its maximum potential if our logistics remain the same. It may be alright in the bigger cities, but how will it work in the remote areas? Weak infrastructure remains our biggest task.”