Indonesia has already become Southeast Asia’s largest digital economy by gross merchandise value (GMV), with Google estimating Indonesia’s vibrant digital economy to more than triple in size to US$146 billion by 2025, reflecting the government’s goals for a transition toward a digital-first nation.

A healthy amount of Indonesia’s digital progress has been driven by its micro, small and medium-sized locally-owned businesses (MSMEs), which generates more than 60 percent of the country’s Gross Domestic Product (GDP) and accounts for 97 percent of the domestic workforce.

However, despite the strides already made, the pandemic has dampened Indonesia’s economic momentum, and more alarmingly, only 13 percent of Indonesian MSMEs successfully repivoted digitally and remotely when the pandemic’s impact was first felt. While the Indonesian economy looks to be on the recovery, the shocks from the global crisis could leave long-lasting scars on the economy if the critical gaps in digital connectivity and inclusion are left unaddressed.

Indonesia’s high volume of smartphone and mobile subscriptions, fueled by its growing demographic of younger consumers who are undoubtedly more digitally-savvy, has historically been an explosive economic driver. But, despite Indonesians’ exponential demand for internet access, data speeds for both fixed and mobile broadband in Indonesia are measured to be the lowest across Southeast Asia, even when compared against other emerging markets like Vietnam and the Philippines.

A full fiber coverage and 5G-ready networks will create opportunities for the MSMEs to tap into a broader customer base, and the opportunity to develop more innovations. While building an infrastructure to provide ubiquitous connectivity is a huge undertaking, Fiber-To-The-x (FTTx) is an impactful way to deliver seamless broadband connectivity, bringing significant benefits to the society and economy.

Education is also another key foundation for a successful digital recovery. There must be a collective and concerted efforts to learn about emerging use cases for the digital economy and tomorrow’s smart cities, and how these can be implemented. For MSME owners, being educated could mean something as simple as leveraging online commerce platforms, or investing in human capital to enable new digital tools for productivity, accounting, inventory control, and other processes.   

Cities, too, will be transformed by having the right foundations in digital infrastructure and education. The government has been prioritizing a national smart city push, with the goal to have 100 smart cities across the country by 2045 and moving the nation’s capital to the new smart metropolis being constructed in Kalimantan.

However, many of these ambitious initiatives in Indonesian cities are facing delays in implementation, due to insufficient knowledge and expertise in the integration and deployment of digital solutions.

To address these ongoing issues, Indonesian municipal and urban planners need to understand how Internet of Things (IoT) can uncover enhanced cost efficiencies and improved quality of life for citizens. For instance, an IoT-based Smart Parking system uses Big Data and connected devices to help users find available parking spaces in crowded metropolitan areas therefore helping to ease the traffic congestion typically encountered in big cities like Jakarta.

Recent reforms and infrastructural investments are already underway to help address these challenges, such as the implementation of national cloud first policies that have encouraged tech giants such as Google Cloud, Alibaba, Tencent Cloud and AWS to set up data centers in Indonesia.

Such investments, which are expected to spur growth of a $800 million public cloud market by 2023, will support the growing needs of local players like Tokopedia and Traveloka, and also enable growth for new disruptors which can potentially become unicorns, such as fast emerging health tech startup HaloDoc and digital logistics provider Shipper.

The government is also partnering closely with telecom operators and the private sector, to extend reliable connectivity beyond the economic hub of Java and ensure homogenous internet access across the country. These initiatives will look to provide or upgrade transceiver stations in villages and help bring mobile broadband to over 12,000 previously unconnected villages.

While the pandemic brought unprecedented disruption to Indonesia’s economy and society, the volatility has propelled greater digitalization of everyday lives and subsequently might have just moved the needle towards the next phase of Indonesia’s digital evolution. In the first half of 2021, close to 15 million Indonesians from non-urban areas used an internet-powered service for the first time in their lives.

These fundamental changes in Indonesians’ daily preferences and lifestyle habits will spur a whole new generation of digital-first customers – especially from Indonesia’s lower-tier cities – with growing appetites for more enhanced, immersive and mobile-first experiential services.

Such momentum can become a catalyst for businesses to unlock opportunities and new business models, especially in emerging lower-tier cities which are estimated to contribute a combined $77 billion in GDP by 2030. With the transformative impact of these economic shifts on the less metropolitan areas, the government has committed to empowering over 16 million Indonesian MSMEs to digitalize by 2024.

While a steady flow of significant investments has been committed to provide equitable internet access across Indonesia, such as the completion of the Palapa Ring network, bottlenecks such as a lagging network and broadband infrastructure, and fragmented telecoms regulations signal that more has to be done.

For Indonesia to fulfil its digital potential and realize its long-held ambition of being a leading digital nation, the immediate priorities will be to focus on upgrading and accelerating the national digital infrastructure and implementing a comprehensive review of regulatory and policy frameworks to support infrastructure development.

Indonesia’s digital advancements in the last few years have proven to be key enablers for its rebounding economy, alongside increasing digital progress and inclusion from its education, healthcare, and banking sectors.

However, for digital technologies to create lasting impact that addresses the country’s outstanding long-term inequalities, a national foundation of dependable and broadband connectivity that can be deployed at scale and universally accessible to everyone will be critical.

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The writer is senior vice president, service provider, Asia Pacific and Europe, Middle East and Africa, CommScope.