Indonesia is expected to remain the biggest internet economy in Southeast Asia despite the raging COVID-19 pandemic taking its toll, an industry study shows.

The e-Conomy SEA 2020 report by technology behemoth Google, Singaporean state-owned investor Temasek and global consultancy Bain & Co. expects Indonesia’s internet economy to grow 11 percent year-on-year (yoy) this year to reach a value of US$44 billion as Southeast Asia's digital economy is expected to reach $105 billion. Indonesia and Vietnam are the only two countries projected to book double-digit growth this year.

“We believe the growing number of talented developers, a young population and government support for the digital economy are all helping drive this momentum,” Google Indonesia managing director Randy Jusuf told The Jakarta Post on Wednesday.  

Indonesia’s digital economy has thrived in recent years as more people have access to the internet, opening access for small businesses and start-ups to more customers. The number of internet users in Indonesia increased by 14.6 percent to 196 million people last year from 171 million in 2018, the Indonesian Internet Providers Association (APJII) nationwide survey has shown.

The survey also revealed that Indonesia’s internet penetration rate has gone up to 73.7 percent from 64.8 percent in 2018.

The e-Conomy SEA 2020 report reveals that Indonesia’s e-commerce industry is growing at 54 percent this year, while online media are expanding at 24 percent. Meanwhile, transportation and delivery contracted 18 percent, and online travel saw a 68 percent decline due to the pandemic.

“Although some sectors see a decline, we believe that they will bounce back in the short-to-medium term and do well in 2025,” Randy added.

The report revises down its projection for the country’s digital economy value to $124 billion in 2025 from $130 billion projected last year as a result of the pandemic-induced economic downturn.

Despite the lower projection, Indonesia will still make up a large portion of the projected $310 billion total internet economy potential in the region in 2025, the report reads.

“Indonesia remains the largest internet economy in Southeast Asia and a major competitive area for technology platforms. Therefore, the country is well prepared to be the main driver of digital innovation in the region,” Bain & Company’s Southeast Asia Private Equity Practice Partner and Leader Alessandro Cannarsi said in a press conference on Tuesday.

He projected that e-commerce was still the driving force of the internet economy in Indonesia, despite challenges in online onboarding and the growing trend of social commerce – a practice of people selling goods on social media.

A study by Sea Insight showed that small and medium enterprises (SMEs) are facing challenges in onboarding digital platform, such as unstable internet connections and high internet cost as well as logistical problems.

“E-commerce has been growing faster than social commerce because organized e-commerce has richer feature sets, such as platforms managing the transactions and other facilities,” Cannarsi said, adding that by 2025, around 80 percent of people selling goods online would be on e-commerce and 20 percent will be on social commerce.

The report also shows that funding for unicorns, which has declined since 2018, will fall further this year due to the global health crisis. This means that investors are becoming “cautiously optimistic” while companies are focusing on their path to profitability.

Temasek chief investment strategist Rohit Sipahimalani said investors were now looking at the education technology and health technology sector as the pandemic accelerated the use of services in those segments.

The report reveals that the number of health tech users across the region has grown fourfold during the pandemic and that funding for the sector has grown to $220 million in the first half of the year from $190 million over the same period last year. Meanwhile, the adoption of education technology tools has more than tripled during COVID-19.  

“Both health tech and [education tech] have played a very crucial role during lockdowns. Even in last year's report, we highlighted this as two nascent sectors to watch out for,” he said. “As people use these platforms and get used to them, seeing their benefits, this is only going to continue to grow in a post-COVID world.”