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RI's digital economy on track to dominate SE Asia
Indonesia’s digital economy is well on track to dominate Southeast Asia as its market value is projected to triple to US$130 billion by 2025 from $40 billion in 2019, with e-commerce and ride-hailing sectors spearheading the growth
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Indonesia’s digital economy is well on track to dominate Southeast Asia as its market value is projected to triple to US$130 billion by 2025 from $40 billion in 2019, with e-commerce and ride-hailing sectors spearheading the growth.
According to the annual “e-Conomy Southeast Asia” study, conducted by American tech giant Google, Singaporean holding company Temasek and management consulting firm Bain & Company, the e-commerce and ride-hailing sectors are firing on all cylinders with the former growing at a compound annual growth rate (CAGR) of 88 percent from 2015 to 2019 with a gross merchandise value (GMV) of $21 billion and the latter grew at a CAGR of 57 percent with a GMV of $6 billion.
“The e-commerce and ride-hailing sectors are growing rapidly [in Indonesia] due to large funding and tight competition from local and regional players,” said Google Indonesia managing director Randy Jusuf during a press conference about the study on Monday. He added that the sectors had also enjoyed the fruits of adopting digital payment systems.
Other than that, online travel and online media, including gaming, are also enjoying double-digit growth with the former growing at a CAGR of 19 percent with a GMV of $10 billion and the latter growing at a CAGR of 56 percent with a GMV of $4 billion.
Randy said that the growth in the e-commerce sector occurred thanks to online shopping festivals, in-app entertainment and seller development, while growth in the ride-hailing sector occurred because of promotions and food delivery services.
“There is a lot of innovation to encourage people to use e-commerce, such as in-app entertainment through ‘gamification’ and seller development by multiplying well-known brands […] ride-hailing is divided into transportation and food delivery services in which the latter grows significantly,” he said, citing the study that Southeast Asian countries are experiencing active user growth with total e-commerce users rising to 150 million in 2019 from 49 million individuals in 2015 and ride-hailing users rising to 40 million from 8 million.
The study also found that Indonesia, the second most funded country in the region after Singapore, is on track to match 2018 funding record of $3.8 billion this year as the digital economy sectors have booked $1.8 billion in investments in the first half, with fewer but larger deals, from 157 in 2018 to 124 this year.
“In spite of global headwinds, Indonesia has been getting a lot of funding and the country is on track to reach the 2018 [funding] record of about $4 billion this year,” said Temasek investment group joint head Rohit Sipahimalani, adding that the number understates the amount of money that is really coming to Indonesia because of the exclusion of some investments from the study.
The study also found that Southeast Asia’s 11 unicorns, including local unicorns — start-ups valued at more than $1 billion — have received about $24 billion in funding since 2015.
Indonesia itself boasts four unicorns, namely the newly announced e-wallet service OVO, travel and lifestyle service provider Traveloka, online marketplaces Bukalapak and Tokopedia and one decacorn — startups valued at $10 billion — namely ride-hailing service Gojek.
Meanwhile, more than 70 aspiring unicorns in Southeast Asia have raised $5 billion since 2015, including some local start-ups such as health app Halodoc and marketplace akulaku.
“We are seeing a lot of potential in Indonesia’s digital economy as the younger population is very active in becoming the key factor of their economic growth,” Rohit added.
Contacted separately, Indonesian E-Commerce Association (idEA) chairman Ignatius Untung told The Jakarta Post that there were some challenges to be addressed to realize the projection, citing the lack of infrastructure and a skills gap as the main factors that could hamper the country’s digital economy.
“The government should boost the digital infrastructure, which could provide Indonesians with access to the digital economy […] Workers’ skills should be improved to fulfill the quality and quantity needed to reach the projection,” said Ignatius in a phone interview.
Ignatius said the e-commerce sector had a problem with logistics costs because of the relatively high price of making deliveries to remote areas, adding that the ride-hailing platforms in Indonesia face several issues such as some people’s resistance against the ride-hailing service.
The idEA chairman added that the government’s support was required to boost the growing industry through the acceleration of internet penetration in the country, a friendly policy to support market penetration and more investment in local tech companies.
The government is finishing up the construction of a broadband network under the Palapa Ring project to boost internet penetration, Communications and Information Minister Rudiantara said in Jakarta on Oct. 2.
“Indonesia is being left behind in information and communications technology as we are currently behind Singapore, Malaysia and Thailand. So our priority is building infrastructure,” said the minister recently, adding that the government is speeding up the construction of digital infrastructure such as through the Palapa Ring project and a satellite project.
Rudiantara added that the government would focus on formulating light-touch regulations to strengthen the country’s digital economy ecosystem.
