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Indonesia’s young, social, and increasingly wealthy population creates high growth potential for the country’s digital economy.

Players in the startup ecosystem are rolling up their sleeves to address hurdles that are keeping Indonesia’s digital economy from becoming a predicted US$130 billion behemoth.


Logistics and expensive oranges

Domestic delivery in Indonesia is more expensive than international shipping into the country.

According to a World Bank report last year, it is cheaper to ship a container of mandarin oranges from Shanghai to Jakarta than to send a similar freight from Jakarta to Padang in West Sumatra, which is only one-sixth the distance away.

Photo credit: Ikhlasul Ama - TechInAsia.

Photo credit: Ikhlasul Ama – TechInAsia.

Unsurprisingly, unreliable logistics has caused the nation’s ecommerce growth to fall behind expectations. However, with a US$400 million funding from the World Bank, Indonesia’s logistics networks is expected to improve.

Meanwhile, logistics startups continue to offer immediate solutions to consumers. Homegrown motorbike-hailing app Go-Jek has evolved into a logistics service that can traverse through congested roads in 25 cities in Indonesia. Policymakers have recognized the startup’s impact in helping businesses reach more customers and boost revenues.

Homegrown and international logistics startups such as Ninjavan, Lalamove, Anterin, Deliveree also continue to expand.

The recent entry of Chinese tech giants Alibaba and JD.com in Indonesia’s ecommerce market is expected to push established logistics companies to stay on their toes. Alibaba, through China Smart Logistics, has already partnered with Singpost and Indo Post to halve the delivery time for shipping goods from China to Indonesia.


Indonesians need to collaborate on electronic payments

85 percent of the population still use cash transactions. A majority of the population remains unbanked (PDF).

Telcos, banks, and fintech startups have created their own payment platforms to make financial services more accessible.

Different lending startups are also furthering financial inclusivity in the country. Despite the booming startup ecosystem in Indonesia, there are nearly 49 million unbanked SMEs in the country that cannot provide collateral. P2P lending startups such as Amartha, Julo, and Investree aim to serve this sector.

Unsurprisingly, local P2P lending startups have successfully raised funding in the recent years and are already catching the attention of international investors.

Ecommerce installment lending startups are also helping further financial inclusivity in Indonesia. Some notable ones with fresh funding are Cicil, a platform for college students to access installment loans for digital devices, Akulaku, an online shopping app, and Cermati, a web portal for financial products such as personal loans and credit cards.

Image Courtesy KBRI Washington DC.

Image Courtesy KBRI Washington DC.

Indonesians prefer cash transactions due to a lack of trust in online payments, according to a 2017 Macquerie report (PDF). Beyond fintech, some of the most popular social platforms in the country, such as Line, WhatsApp, BBM, and Facebook, are evolving into ecommerce solutions that bridge businesses or sellers to customers and build customer trust through real-time one-to-one conversations between users. It has paid off thus far – in 2014, nearly 27 percent of ecommerce transactions in the country were done through social media.

Indonesia has yet to see an online payment breakthrough as there are too many online payment options that can be confusing to consumers. Moreover, Indonesia’s recent crackdown on ewallets, poses a challenge to startups. While Indonesia’s infrastructure development has a long way to go, players in its digital ecosystem – startups, corporations, investors, government and other institutions included – all have the capacity to provide solutions to fill in the gap. [1]


Indonesia to Become The ASEAN’s Biggest Digital Economy Country

Indonesia has the potential to become the biggest digital economy country in Southeast Asia, both on manufacture and retail industry. Google and Temasek which are the foreign investors in Indonesia, emphasized it through a study about the digital economy in ASEAN.

The rapid growth of internet user’s population becomes one of the reasons why Indonesia is in the spotlight on the study carried by Google and Temasek. Based on the study, Indonesia has an enhancement in the internet user population about 19% per year. There is possibility that the internet user in Indonesia will reach 215 million people before 2020.

Aside from the high growth of the internet user, Indonesia also has a significant growth in online market or e-commerce. Currently, the percentage of e-commerce transaction in Indonesia is high about 36%. Estimated, before 2025, e-commerce in Indonesia would reach to US$ 81 billion. Digital economy in Indonesia also has a rapid development in online travel sector. The existence of online transportation services like Gojek, Uber and Grab, supports Indonesia in becoming the biggest online travel market in Southeast Asia. The online travel growth in Indonesia is estimated will increase about 22% per year, from US$ 800 million in 2015 to US$ 5,6 billion in 2025.

The Google and Temasek’s study also underline the aspects that need to be done for Indonesia to explore the potentials in digital economy sector. For examples are the enhancement of internet network quality and the logistic infrastructure improvement, online payment mechanism improvement, and building a stronger trust with the customers. However, the most important aspect is to have the human resources with the right skills. Google Indonesia CEO, Tony Kuesgen, said that having the human resources with eloquent understanding about digital economy can reveal the big potential of Indonesia to become the biggest digital economy in Southeast Asia. The study also reveal that Indonesia as the country that has more than 2000 startup business, requires funding of US$ 20 billion from foreign or local investment to increase the digital economy sector.

Realizing the Indonesia’s potency in digital economy sector, the President of Indonesia, Joko Widodo, continually strive to improve the telecommunication infrastructure quality in business Indonesia. He describe that the quality improvement is necessary to accelerate many innovation in information and technology to support Indonesia in becoming the biggest digital economy in ASEAN.

Chart Courtesy BKPM - the Investment Coordinating Board of the Republic of Indonesia.

Chart Courtesy BKPM – the Investment Coordinating Board of the Republic of Indonesia.

The adoption of 4G technology is one of the efforts to fulfill the ambition. In the state and financial notes of RAPBN 2017 speech in the National Parliaments Building, last August, Joko Widodo state that the government has activated the 4G technology supported by Palapa Ring network which was established in 2015 to reach the 400 district/town through optical fiber.

Joko Widodo also revealed that this year the government is focusing on the development of three breakthrough steps, which are reduce poverty, unemployment, and social imbalances and inequality. These three steps are needed to accelerate the infrastructure development of any industry or sector, including industrial manufacturing. [2]



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References Sources:

[1] Taken from How Indonesia’s digital economy is responding to infrastructure woes written by Tintin Dela Cruz for TechInAsia.

[2] Taken from Indonesia to Become The ASEAN’s Biggest Digital Economy Country written by BKPM, BKPM is the Investment Coordinating Board of the Republic of Indonesia.

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