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Unlocking the Potential of Indonesian MSMEs: Rethinking Data Localization Policies
Indonesia's digital economy, projected to exceed US$130 billion by 2025, is a rapidly growing sector that significantly contributes to the country's overall economic output.
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AUTHOR: Christa Sabathaly, Co-Founder and CEO of SPUN
Indonesia's digital economy, projected to exceed US$130 billion by 2025, is a rapidly growing sector that significantly contributes to the country's overall economic output.
MSMEs and Tech Start-ups are vital components of the Indonesian economy, they play a crucial role in driving this continuous and compounding digital transformation.
According to a study by Google, Temasek, and Bain & Company, Indonesian MSMEs contributed approximately 57% of the country's GDP in 2020. The same study also revealed that 80% of Indonesian MSMEs are already using digital tools and technologies, such as e-commerce platforms and social media, to reach customers and conduct business.
As the digital economy continues to expand, data privacy and protection become increasingly crucial. In response, the Indonesian government has implemented two key regulations: Government Regulation (GR) 71/2019 on Organization of Electronic Systems and Transactions and the Personal Data Protection (PDP) Law.
While these regulations are superb initiatives from the government aimed to protect society’s personal data, they also have implications for data localization, which mandates electronic system operators (ESOs) to retain and store personal data in local jurisdictions.
Currently, GR 71/2019 only requires Public ESOs, or government entities or those appointed by government entities, to store data domestically. However, there are unconfirmed reports suggesting that future revisions may expand this requirement to the private sector. If enforced, this could pose challenges for many MSMEs and tech start-ups, who are key contributors to the economy, job creation, and problem-solving for consumers in Indonesia. On top of that, the PDP Law imposes restrictions on cross-border data flow.
Beyond a Blanket Approach: Challenges for Indonesian Tech MSMEs
Although the data localization policy aims to ensure data security and sovereignty, it can also create challenges for businesses that need to process and store data across borders. These regulations will require businesses to store data within Indonesian borders, potentially leading to increased costs, operational complexities, and restrictions on cross border data transfer. This could place a significant strain on MSMEs or early-stage start-ups, which often operate within a limited pool of resources. Moreover, this could hinder their ability to innovate and compete on a global scale, potentially stifling the growth of Indonesia's digital economy in the long run.
In alignment with the EU’s General Data Protection Regulation, widely regarded as a gold standard in data protection, the right to data protection must be balanced with other fundamental rights, such as the freedom to conduct business.
If data localization requirements are extended to private sector data, MSMEs and tech start-ups may be forced to forgo using best-in-class technologies from overseas providers. This could hinder their ability to innovate and compete on a global scale, directly competing with the great vision that had been laid out in Visi Indonesia Digital 2045, which aims to position Indonesia as a global digital leader by 2045, leveraging technology to drive economic growth, social development, and improve the quality of life for its citizens.
Stringent data localization requirements may very well limit access to global markets in the long run by creating data silos, which may make it difficult for MSMEs and Tech Startups alike to access and analyze data from different regions. This can hinder their ability to develop products and services that cater to global markets and ultimately reduce their competitiveness compared to their international counterparts.
A blanket approach to enforcing data localization for all businesses may not be the most effective solution. Given the diverse challenges and operational scales faced by various companies, a one-size-fits-all approach could potentially hinder the interests of the broader economy.
A Balanced Approach for MSME Growth
SPUN is an Indonesian early-stage start-up in the immigration tech space. We are simplifying the process that Indonesians and travelers with limited passport privileges face on every trip—obtaining visas and permits to enter a country. We believe that the movement of people goes beyond leisure; if the process is made simpler, easier, and more efficient, people may have better opportunities to change the course of their lives through international travel experiences such as studying or working abroad.
Indonesians need visas to enter over 100 countries, a stark contrast to European passport holders, who only need visas for around 20 countries. This challenge is not unique to Indonesians; many Southeast Asian countries, such as the Philippines and Vietnam, face similar issues.
With a mission to establish a strong international presence in the global immigration landscape, this begs us to ask the question: how effective are data localization measures in ensuring not only data security but also the growth and sustainability of businesses like ours?
The Digital Prosperity for Asia (DPA) Coalition, representing hundreds of digital MSMEs across the Asia-Pacific region also sees that it is essential to recognize that there is a broader ecosystem of measures and regulations beyond data localization that may contribute to the flourishing of MSMEs and the digital economy.
Adherence with the EU General Data Protection Regulation (GDPR), or participation in the APEC Cross-Border Privacy Rules (CBPR) can be used as benchmarks to demonstrate strong privacy and data protection practices.
As outlined in the GDPR Recital 13, regulators should consider the unique needs of micro, small and medium-sized enterprises in the application of data protection. As we welcome the new Presidential administration, it is crucial to re-evaluate the effectiveness of these regulations and consider alternative approaches that prioritize both data protection and the growth of the digital economy.
Looking Ahead
As Indonesia's digital economy continues to grow, it is imperative to create a policy environment that supports the growth and innovation of MSMEs, tech start-ups, and the broader entrepreneurial ecosystem, while ensuring the protection of personal data.
By adopting a more flexible and risk-based approach to data localization and fostering international cooperation and collaboration, Indonesia can create a stronger tailwind for its MSMEs and Tech Start-ups to be included and thrive in the global marketplace with access to the best-in-class practices and innovation.
The ideas expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post
Source : Digital Prosperity Asia
