Indonesia prepares to be South East Asia’s digital hub

Indonesia, one of the world’s fastest growing economies, is fast-tracking plans to transform itself into a digital hub for the Southeast Asia region. The region’s largest economy saw its digital industry’s value grow from US$41 billion in 2019 to US$77 billion in 2022. With the sector’s favourable performance, its valuation is expected to quadruple to 130 billion in 2025 and reach 220-360 billion by 2030.

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Jakarta downtown skyline with high-rise buildings at sunset

At the Digital Transformation Summit, Indonesia forecast becoming Southeast Asia’s largest digital powerhouse, working hard at promoting innovation in the digital sphere and attracting foreign investment to the sector with an array of digital growth policies implemented by the government, from a digital roadmap to the ministry of industry’s ‘Making Indonesia 4.0’.

According to a 2022 report by Temasek, Bain and Google, Southeast Asia’s digital economy grew by 67 per cent in the Covid-19 pandemic years and although the world over saw an acceleration of digitalization, South East Asia, and Indonesia in particular, march ahead with Indonesia securing a $3 billion investment deal in the first quarter of 2022, the second largest valuation after Singapore.

A Centre of Excellence lab was launched in Jakarta by Indosat Ooredoo Hutchison and Tech Mahindra, powered by Google Cloud, with the goal of accelerating Indonesia’s digital ambitions and will focus on developing innovative solutions using next-generation technologies including Data Analytics, 5G or Augmented and Virtual Reality.

Driven primarily by e-commerce, Indonesia’s digital industry’s value is expected to increase to US$130 billion by 2025 according to a paper published by ISEAS – Yusuf Ishak’s Fulcrum. The digital transformation journey of the world’s fourth-most populous country is fuelled by its rapidly growing population of internet and smartphone users.

As in many parts of the world, e-commerce is one of the key growth areas for digital transformation in Indonesia. In 2023, the e-commerce market alone in Indonesia is expected to reach US$53 billion, making it the largest in Southeast Asia. The rise of e-commerce has led to the emergence of a new breed of digital entrepreneurs and transformed how Indonesians shop and consume.

With more than 212 million internet users (up from 150 million users in 2019) and over 180 million smartphone users, Indonesia’s total internet penetration at over 73% and smartphone adoption can be explained by the tech savviness of a young population.

Indonesia’s potential for digital innovation and transformation is so fast and vast that the government “has introduced supportive policies to boost the digital economy, accompanied by improvements in the digital infrastructure e.g., building data centres and digital talents” according to Negara and Meilasari-Sugiana’s paper in Fulcrum, adding that it is aiming to attract some 30 million MSMEs into Indonesia’s digital economy by 2030.

According to the Pacific Telecommunications Council, “Indonesia is quickly becoming one of Asia-Pacific’s fastest-growing public cloud marketplaces, attracting investments from all over the globe, including some of the world’s leading tech companies. A massive increase in startups and digital unicorns is also contributing to Indonesia’s accelerated growth – and the potential for even more growth is astronomical. There are approximately 6,700 startups in Indonesia, eight of which are considered unicorns (startups with a valuation of more than USD 1 billion)… The Indonesian data center market is projected to reach nearly USD 3.5 billion by 2027, up from USD 1.7 billion in 2022.”

Fintech is another area where digital transformation is making waves in Indonesia. The country has one of the largest unbanked populations in the world, and fintech is helping to bridge the gap by providing access to digital financial services. According to Negara and Meilasari-Sugiana’s study on Indonesia’s digital economy, “the growing popularity of digital payments has also correlated with the increase in online consumption.” There are more than 300 fintech startups in Indonesia, with a combined valuation of over $15 billion.

Indonesia is also building smart cities that leverage digital technology to improve urban living. In the capital city Jakarta, for instance, the government has launched the Jakarta Smart City programme, which uses data analytics and other digital tools to improve public services, enhance mobility, and ensure public safety.

Indonesia’s digital transformation journey is transforming the country’s economy and society, making it more connected, efficient, and inclusive. By embracing digital technology, Indonesia is on a journey of innovation, growth and opportunity and positioning itself as a digital powerhouse in Southeast Asia.

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