Indonesia Has 'Most Potential' In ASEAN Digital Economy, But Accessibility Issues Persist: Experts

Indonesia has come a long way in its digital transformation journey, gradually gaining the attention of the world in the developing world's digitized space, and while there are hurdles that this rising Southeast Asian star has to overcome, there's still room for improvement through foreign investments and inclusivity, experts said.

Among Indonesia's strengths is the bankability of its local innovators, including software provider GoTo, e-commerce app Bukalapak, digital wallet Dana, and more, Varun Arora, digital lead for Asia Pacific at global management consulting firm Kearney, told International Business Times.

"Local startups understand the market far better and work well with the local ecosystem," Arora explained, citing the domestic success of media streaming platform Vidio, which is overtaking streaming giants Netflix and Amazon Prime in terms of popularity among Indonesian audiences.

Bloomberg and CNN featured Vidio late last year, branding the streamer as the most-watched in the country, beating Disney+ and Netflix.

Hasran, trade researcher at Jakarta-based think tank the Center for Indonesian Policy Studies (CIPS), told IBT that Indonesia does have "the most potential in ASEAN," adding that it is possible for the country's economic growth to be driven and "dominated by the digital economy."

Among the subsectors that are experiencing rapid growth in Indonesia are finance, transportation, e-commerce, health services, and digital education, Hasran said.

Aside from the significant growth that some subsectors in the digital economy have shown in recent years, there's also the support of government leaders, many of whom come from the digital industry, Arora noted. He added that government agencies are dedicating time to develop long-term digital strategies, including efforts to turn Indonesia's new capital into a smart city.

Infrastructure investments have also helped propel growth in Indonesia's innovation goals.

In a January digital economy report focused on Indonesia, a global organization, the Economic Research Institute for ASEAN and East Asia (ERIA), noted that infrastructure in telecommunications, digital payments, cybersecurity, and know-your-customer (KYC) businesses will help harness the power of the country's digital economy.

For Hasran, foreign investment will play a critical role in driving Indonesia's digital economy as it will help develop the macroeconomy and also open new jobs, helping reduce unemployment and poverty rates.

Hasran noted that there has been a steady rise in foreign investments in the Indonesian digital economy in the last five years, including key players in cloud and data centers from China, Japan, Europe, Singapore, and the United States.

While Indonesia's potential is steadily gaining attention in the global digital ecosystem, there are still challenges that the country should overcome to someday topple Singapore as the leading digital economy among ASEAN member nations.

Arora said that while Indonesia has been less affected by cybersecurity issues compared to other developing nations, such problems are expected to grow as data becomes more localized. He also believes that talent growth will be a continuous challenge not just in Indonesia but also in other Southeast Asian markets.

A potential stumbling block in Indonesia's path toward Southeast Asian digital dominance is its expensive markets for fixed broadband, Hasran pointed out, adding that the country still has "accessibility" problems in terms of internet connectivity. "Without accessibility for all segments of society, digital transformation will only widen the digital divide leaving the most vulnerable," he said.

There is a need to involve the private sector in resolving the accessibility divide, Hasran said, especially since Indonesia has a vast territory that affects the reach of digital products.

Private banking company the Asian Development Bank (ADB) noted in a blog earlier this year that while the island of Java is expected to benefit the most from Indonesia's digitalization drive, the regions of Maluku and Papua are projected to "fall further behind." The said regions are already the most disadvantaged in the country, the ADB wrote. Arora said inclusivity is the solution, especially for SMEs, to ensure no one is left behind.

Despite the fences Indonesia has to jump, so its digital economy can grow further, the country can still be a model for other Southeast Asian nations with digitalization goals, Arora said, particularly in government efforts to push innovation through various ministries.