The government, private investors, state-owned enterprises and conglomerates invested a lot of money in data centers last year.

According to a report from Mordor Intelligence, the data center market was worth US$1.67 billion in 2022. The market research firm also projected a compound annual growth rate (CAGR) of 13.15 percent for the sector from 2022 to 2027, which translates into a market value of $3.43 billion in 2027.

“Data center investment and businesses, as the main backbone of digital technology, will grow rapidly in 2023 and years to come,” Deni Friawan, economic researcher at the Centre for Strategic and International Studies (CSIS), told The Jakarta Post on Tuesday.

Massive population potential, a low level of public access to digital services, a growing digital economy and digital transformation in government were among the mainsprings of rapid growth in Indonesia’s tech sector, which in turn led to higher demand for data center infrastructure, Deni noted.

Meanwhile, Toronto-based research and consulting firm Structure Research has revealed that colocation data centers in Jakarta had a market value of $336.6 million and a CAGR projection of 22.7 percent to 2027.

To date, 73.7 percent of the Indonesian population uses the internet. The country’s total data center capacity presents a high disparity relative to this figure at only 12.7 percent, which translates into just 0.6 watt per capita; a very low rate compared to Singapore’s 183 watt per capita.

“With penetration of just 0.6 watt and the large number of internet users in Indonesia, data centers with reliable networks are naturally needed. Competition is not a big concern, because the market is still expansive,” said Deni.

Many data centers are intended for hyperscale computing, a system of interconnected data centers for seamless provision of services that can expand computing, memory, networking and storage to match increased demand. Hyperscale computing infrastructure typically consists of countless data centers interconnected across many countries.

Read also: Answering the need for national data centers

Under a government regulation that mandates data localization, digital infrastructure and the data contained within must be physically present and processed within Indonesian territory.

According to Deni, the decision-making process in drafting the regulation was questionable.

“This happened because of the decision-makers’ ignorance regarding the cloud system in technology. They think that if the servers and the data are in Indonesia, it means it’s secure,” he said.

“Hyperscale [computing] is of course better than an exclusive, local data center,” Deni added.

Deni pointed out that several investment projects involved on-premises data centers.

Also known as an on-prem data center, the term refers to a group of servers that is privately owned and controlled, and generally exists near where its owner operates.

Andry Satrio Nugroho, who heads the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (INDEF), said this was because many users were still skeptical about cloud computing security.

“Some companies still don’t trust that the data [stored in the cloud] are safe and cannot be accessed by other parties,” said Andry

However, Andry said data center businesses in Indonesia would keep growing: “Many companies still need data centers and from the regulation side, the government has mandated these companies to have localized data centers in Indonesia.”

He added that Indonesia still did not have many tier 3 or 4 data centers, which were what big companies actually needed.

National data center

The government is currently developing four national data centers in Bekasi, West Java, in Nongsa, the Riau Islands, in Balikpapan, East Kalimantan, and in Labuan Bajo, East Nusa Tenggara. According to a press briefing by the Communication and Information Ministry on Nov. 10, the project is scheduled for completion in October 2024.

Read also: Advancing Indonesia’s cloud and data center services

“We need a national data center, especially considering how its funding is not very burdensome for the state budget, because France is providing a big chunk [of financing],” said Andry.

He said a national data center would accelerate the transformation into e-burreaucracy, which included integrated civil registry data on the practical side. A national data center could also integrate data from the finance and social affairs ministries for better policymaking.

Deni from CSIS lauded the objective behind the national data center, which was to integrate government data and applications. This would in turn lead to cost efficiency, given that each ministry and agency would not have to pay extra for essentially using the same data.