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Indonesia’s future will be written in code
Despite massive potential, start-ups in emerging markets lack adequate capital, digital talent, and infrastructure to scale their innovations.
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Going digital: A local designer and member of a small and medium enterprises (SME) community in Malang, East Java, takes a picture of his product to be uploaded on the community’s digital marketplace on July 29, 2022. Digitalization is expected to expand markets for SMEs. (Antara/Ari Bowo Sucipto)
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n Sukorejo, a small village in Central Java, there is a warung (small kiosk) that sells traditional snacks pempek (fish cake), cilok (sago cake) and martabak telur (savory stuffed pancake). It’s not unlike other warungs in Sukorejo or anywhere in Indonesia for that matter, except this one is owned by Lestari.
Like many Indonesians, her story is one of resilience. Even before the pandemic struck, Lestari’s world was turned upside down when her husband was killed in an accident while working as a motorcycle taxi driver. It was a settlement related to her husband’s policy that enabled her to open the warung, which meant she could continue to support herself and her two children.
Lestari’s husband might not have had that policy but for the rapid digitalization of Indonesia’s economy. In this case, a start-up founded in Indonesia has used machine learning to speed up its underwriting and claims process to sell on-demand digital microinsurance products.
Digitalization has enabled the company to sell policies for as little as Rp 5,000 (33 US cent) to families like Lestari’s. Since launching in 2015, the company has issued more than one billion policies, offering an affordable safety net to millions of uninsured Indonesians.
This is just one example of how digital technologies are transforming development. Tech startups are bringing to market innovations that are helping overcome critical infrastructure and service gaps and create jobs, particularly for youth. Rapid digitalization is boosting financial inclusion, lifting people out of poverty, and setting up countries like Indonesia to be exporters of innovation.
Digital solutions can also help fight climate change and protect the environment. Artificial intelligence is helping process plastic waste into plastic for production and smart textiles mean we are already turning disposable items into durable and recyclable fashion. Digitalization means drones are helping to sow seeds and fertilize fields more precisely. In West Java, that means farmers are taking home a larger income.
With one swipe in an e-commerce app, Sudrajat, a farmer tending a small crop on the slopes of Mount Gede, now has instant access to a host of data. This data helps him plan his crop rotations and gives him greater access to Indonesia’s booming grocery market, estimated to be worth $120 billion. Sudrajat is one of 33 million farmers in Indonesia that rely on e-commerce digital technology that connects him directly to an online customer base.
But despite all the progress, there is a long way to go. For example, while fintechs, especially those in mobile banking, are providing new solutions to expand financial inclusion, globally, about 1.4 billion adults are still unbanked, and most of them are women. Despite massive potential, start-ups in emerging markets lack adequate capital, digital talent, and infrastructure to scale their innovations.
If emerging markets like Indonesia are to fully realize the opportunities of a digitalized future, then we have to offer people the skills and tools they need to become the next generation of digital creators and tech entrepreneurs.
To do this, we need to ramp up investment in four key areas—digital entrepreneurship, digital infrastructure, digital skills, and digital financial services.
Young Indonesian tech entrepreneurs are working right now on launching the next tech unicorn. Only with continued investment from financial institutions, a supportive education and mentorship system, an encouraging policy framework from governments and strong data protection will that entrepreneur succeed – and in so doing help the likes of Lestari and Sudrajat succeed as well.
Indonesia’s is both the largest and fastest growing digital economy in Southeast Asia and on track to be worth $130 billion by 2025. The country already has seven home-grown unicorns, and more tech start-ups, particularly in fintech, are on the cusp of joining the billion-dollar-valuation club.
For our part, we have a strong track record of achieving development impact and financial returns through investment in innovative technologies across various industries. To date, the International Finance Corporation (IFC) has invested and committed over $2.6 billion in venture capital (VC), supporting hundreds of startups in emerging markets either directly or through VC funds and accelerators, including in Indonesia.
In Indonesia, this approach has boosted growth opportunities for micro, small and medium-sized enterprises, which in many ways are the lifeblood of the Indonesian economy, providing millions of jobs, and more importantly, a key income stream for female entrepreneurs. And it includes start-ups that support the agriculture sector, like the one that works with Sudrajat and which improved productivity and delivered higher incomes for farmers.
The pandemic has only accelerated digitalization, and the Indonesian government is supporting a strong push to cement its status as the powerhouse digital economy in the region.
Having a giant market share today, however, does not automatically translate into innovation tomorrow. Only sustained investment of capital, expertise and resources will ensure that. One thing is certain, though: the future, whatever it may hold, will be written in code.
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The writer is managing director of the International Finance Corporation.
