Grant Thornton Indonesia's Update

Indonesia is Seeing the Future as A Digital Market Leader

When we are talking about economic growth in Asia, the focus often falls on China. But we must understand while China’s story is continually staggering in its scale, the Chinese economic powerhouse is only a part of a much wider story in Asia.

Not only China, rapidly-growing countries like Indonesia, Cambodia, Vietnam, and The Philippines are also seeing their economies transform in meaningful ways. Southeast Asia as a whole is becoming one of the most exciting regions for technological adoption, foreign investment, and digital innovation in the world.

The internet has triggered the Fourth Industrial Revolution, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. It is marked by the development of digital economy globally, among others.

Globally, digital economy contributes 22 percent to the economy, while digital technology applications are set to contribute US$2 trillion to the global gross domestic product by 2020. In Southeast Asia, the value of online trade is estimated to reach $88 billion during the period between 2015 and 2025 for various apparel, electronic, household, and food products.

With the world`s fourth-largest population and a large number of internet users, Indonesia has the potential to become the biggest digital economy in Southeast Asia, both in terms of the manufacturing and retail industries.

This aspect was highlighted by Google and Temasek, foreign investors in Indonesia, through a study on digital economy in the Association of Southeast Asian Nations, according to an article by the Indonesian Investment Coordinating Board (BKPM).

Based on the study, Indonesia has witnessed a 19 percent annual increase in the number of internet users, with this figure possibly reaching 215 million before 2020. Apart from a high growth in the number of internet users, Indonesia has also experienced a significant growth in the online market or e-commerce which is reaching about 36 percent and is estimated to reach $81 billion before 2025.

Data Source : Hootsuite and We Are Social’s Global Report 2018

President Joko Widodo (Jokowi) believes that Indonesia will become the largest digital economy in Southeast Asia because of its strong foundation and availability of capital. "We must not let go of the huge market potential," he told a limited meeting at the Presidential Office, recently.

He called for making immediate efforts to realize the potential that Indonesia has. Otherwise, it will lag behind neighboring countries. As the first step to achieve the goal, Indonesia must build a world-class logistic platform, capitalizing on products that rural areas have to offer, he stressed.

The latest data from Statista showed Indonesia reach US$7.05 billion in 2017. In 2022 e-commerce sales are set to surpass US$14.4 billion in revenues or double number of today. In fact, e-commerce can help many micros, small, and medium business undertakings in Indonesia to contribute 55 percent of the national gross domestic product.

The Indonesian government has planned to formulate a policy to encourage innovations in digital economy and provide opportunities for e-commerce players to grow their businesses. "The policies should not be too strict but be dynamic and adaptive in order to offer space for innovation and legal certainty," Coordinating Minister for Economic Affairs Darmin Nasution stated recently.

"Nowadays, this is not the standard that we want to set, as it will quickly become obsolete and tends to change easily. We want to implement principle policies to create a level playing field, which requires similarities between online and offline businesses to balance the competition," Nasution explained.