How digitized is Indonesia?

Rapid growth, Public Benefits

nascent development and
digital divide - 78% of population still of
have no access to internet
Digital
Economy

Mari Pangestu
Diskusi Pulbik,
CSIS Tenggara
Jakarta 23, July 2019
The Potential Economic Impact of
Digital Economy in Indonesia
 Digital Technologies Spreading Rapidly in Developing
Countries through Mobile Phones
(but lets not forget basic service – no electricity, no phone...)
Digital developments are improving rapidly
140 in Indonesia
Mobile phone
120

100 Electricity
Improved
Secondary
water
80 School
Improved
60
sanitation
40

20 Internet

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: ITU (www.itu.int) & WDI (data.worldbank.org)
 Growing Share of ICT sector in Indonesia’s GDP is growing – along with the
high growth rate (similar developments in ICT sector in other countries).

Now, ICT sector contribute 7.2% to total GDP and it grows around 10% yoy.
ICT sector and the share of GDP ICT sector growth vs. GDP growth
250 8% 25%
7.24%
7%
ICT total output (trillion Rp)

200 20%
5.73% 6%

Share to total GDP (%)

150 5% 15%
4%
100 3% 10%
2.45%

2%
50 1.31% 5%
1%

0 0% 0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15

00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20

20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Information and Communication Share of ICT to GDP GDP Growth rate YoY ICT Growth rate YoY

Source: Statistics Indonesia (www.bps.go.id)

Source: Bain
 Estimated Impact to GDP and employment
From Oxford Economics, May 2016, The Impact of Mobile Internet in
Indonesia
• Impact to GDP:
• For each percentage point increase in mobile penetration will
add $ 640 million to GDP in 2020. Mobile internet will sustain
around 8% of total forecasted GDP growth in 2020.
• Impact to employment: For each percentage point increase in
mobile penetration: Extra 10,700 formal jobs.
Public Benefits of Digital
Economy
Realizing the Development Dividends
 Public Benefits: Digital Economy and Development
Connectivity is the sufficient condition to realize Digital Dividends (growth,
jobs and services). Once connected there needs to be the capacity to gain
economic value and the right strategy is needed (necessary condition) to
realize benefits and reduce risks.
Digital Technologies provide opportunities for economic development
through 3 main channels

Grab Riders B-B E-commerce Mobile+Payments

& vendors Tokopedia, Grab Doku, Jenius
 Dividends: growth, jobs and service delivery
How the three channels affect business, people and governments
Many digital transactions involve all three
mechanisms in a two sided market
 Dividends come through impact on people
• Job Creation:
• direct ICT sector (small) and indirect (larger) because enabled by digital technologies
(M-Pesa 30,000 agents, China: 10 million because of boom in e-commerce),
• Self employment and entrepreneurship,
• Reduces transaction costs so opportunities for people facing barriers (women,
disabled and in remote areas). On line workers: freelancing work platforms
• Increasing labor productivity:
• routine to higher value work
• Connecting people to work and market
• especially important for poor people get information about prices, inputs, new technologies,
quality, weather and coordination reducing costly journeys, asymmetry of information. E.g. M-Pesa
system and women trader in market, farmers in agriculture
• Increasing consumer surplus: increase variety of goods and services,
including for leisure, lower price and convenience
• quantifiable in terms of convenience and services they get for free e.g $50 a month for
services it now gets for free (McKinsey survey of consumers in several countries)
Information Tourism
- Price - Ticket booking,
e.g. Traveloka
information
- Hotel booking, e.g.
- Reviews
Trip Advisor,
- Product
INDONESIA Airbnb
- Digital branding,
Market INCLUSIVENESS e.g.
- e-Commerce Work
#instagrammable
- SMEs
- Export- Access and Jobs
Imports Matching: LinkedIn
Utilization New jobs, e.g. Grab
Financial riders, selebgram,
vlogger,
Services outsourcing
Public Services
- 50% unbanked
(Findex, 2018) - Health
- Fintech - Education
- Microlending - Donation
Source:
McKinsey 2018
Source: McKinsey 2018
Without a Strategy Opportunities may turn to Risks
 Disrupting and Changing Business Models:
• Transportation: Ride Sharing with GRAB and Gojek in SEA, Didi in China
and Ola in India.
• Protests from traditional transportation industry, attempts to regulate for consumer
safety (also min and max pricing vs surge pricing)
• Protection of workers vs independent contractors/partners (drivers)
• Competition issues
• Travel, airline and hotel:
• on line bookings and platforms vs traditional agents and hotels; on line travel and
budget carriers have been a boon for tourism
• Financial Sector:
• On line banking, mobile banking and fintech products and services: branchless
banking, peer to peer lending, e-money and payments on e-commerce platforms
vs banks
• Impact: increased financial inclusion, leap frogging but regulatory issues
What are the Policy Implications?
Source: World Bank, The Digital Economy of Southeast Asia, 2019
 In Brief: The Major Issues
• Basic Infrastructure and connectivity: electricity, digital connectivity, logistics (the
last mile)
• Human capital: digital literacy, education, talent, retraining/upskilling
• Regulations:
• digitization means need for freedom of data flows (seamless) and allowing
innovation to enter “uncharted” and “unregulated” territory vs
• managing security, privacy, disruptions, taxation, and competition issues
regulatory agency’s capacity (also raises issues of interoperability and
standards – within a country and between countries, localization of servers)
• Lack of an understanding of this major issue has led to risks of the policy responses
being protectionist and behind the curve, which can affect speed of innovation and
change
• At the same time there is also emergence of a new digital divide in terms of access
to these new services and hollowing out: managing transition
Priority Policy Responses and Strategy with level of development

Source: World Bank, WDR 2016

THANK YOU