ICT has been a priority under the administration of President Joko “Jokowi” Widodo, who has rolled out ambitious policies like the Palapa Ring network that involves underground fiber optic cables as well as satellites to connect the archipelago.

Jokowi has expressed on many occasions that such digital infrastructure would complement its physical counterparts in creating more inclusive economic growth, especially for small and medium enterprises.

However, enabling people to access smartphone applications and e-commerce websites could have negative repercussions for the economy, Nunung Nuriyantono, dean of the School of Economics and Business at the Bogor Agricultural University, said.

“If the government encourages the entire population to access the internet, the main concern should be the demand for imports that is made possible with that access,” Nunung said during a discussion held by the government-backed National Economic and Industry Committee (KEIN) on Thursday.

“Our existing ICT supply chain mostly consists of imported goods in both hardware and software, and this will have bad implications for our current account balance in the long run because of how much money we spend buying [goods] from abroad.”

Citing the 2018 annual digital report by We Are Social and Hootsuite, Nunung pointed out that the number of smartphones used in Indonesia outnumbered its population, at 355.5 million against 268.2 million respectively.

The most popular smartphones were also of South Korean and Chinese brands, with Samsung, Xiaomi and Oppo the most used keywords on e-commerce websites.

In terms of software, there were five billion application downloads in the country alone, with app and in-app purchases amounting to US$313.6 million last year.

The value of those purchases, said Nunung, did not go into GDP.

“The government has indeed increased the minimum requirement for local content in smartphones to 30 percent, but that still leaves a lot of room for imported content,” he said. “We also have growth in app purchases and the e-commerce industry, but the government still cannot ensure that such growth includes local goods or app creators.”

Speaking on the same occasion, KEIN vice chairman Arif Budimanta referred to data from Bank Indonesia saying that the deficit in ICT services and intellectual property rights usage was at $339 million and $397 million respectively, which contributed to the $1.78 billion trade deficit in the first quarter.

Imports of ICT-related electronics and machinery also reached $21.45 billion in 2018, or 11.37 percent of imports, data from the United Nations Comtrade shows.

“We did not experience these deficits from ICT and intellectual property before 2011,” Arif said.

“Therefore, with respect to the government’s Industry 4.0 goals, we have to increase our attention to research in the ICT sector. Otherwise, we would have to import all the tools and worsen the balance.”

He acknowledged the government’s super deductible tax plan, which provides up to a 200 percent tax deduction for manufacturers who are willing to relocate their research and development activities to Indonesia.

Nevertheless, policymakers need to make sure that the incentives will go in the right direction and sectors, including ICT industries, to ensure its effectiveness, he added.

“By pushing for locally-generated ICT services and products, stakeholders will significantly reduce intellectual property costs as well as imported goods and thus fix our current account and balance of payments deficit,” said Arif.

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