East Ventures Digital Competitiveness Index 2021

Pandemic accelerated digital transformation in Indonesia, making it more equal

March 23, 2021

East Ventures, a pioneering digital startup venture capital in Indonesia has launched the East Ventures Digital Competitiveness Index 2021. Today, the report is also available in English. This is the second year that East Ventures has committed to mapping out the development of the digital economy across Indonesia.

Taking “Indonesia’s accelerating digital economic transformation” as this year’s theme, EV-DCI 2021 does not only provide in-depth data on various indicators related to the digital economy but also offers perspectives and insights from renowned stakeholders in the government, leaders of giant corporations, and startup founders. This report highlighted that synergy amongst these varying stakeholders is pivotal in developing the overall tech ecosystem in Indonesia.

The East Ventures Digital Competitiveness Index (EV-DCI) 2021 found that the digital competitiveness among provinces in Indonesia has become more equal. This equality is reflected in the increase of the median EV-DCI score, jumping from 27.9 in 2020 to 32.1 in 2021.

According to the findings in the report, there are two drivers of growth and equality of Indonesia’s digital competitiveness amidst the pandemic.

First, infrastructure development has become more equal and well distributed. The Infrastructure Pillar had the highest score increase amongst the nine pillars in EV-DCI with +7.5 points to a total of 54.3 in 2021. Some indicators that support this increase are the ratio of villages with 3G and 4G connectivity, the ratio of households with permanent telephone networks, and the rate of power outages in cities.

Second, the increased spending for information and communications technology (ICT) indicates that more people across provinces are now using digital services and transactions. Spending for ICT pillar saw an increase of 6.3 points, supported by varying indicators, including the increase of the ratio of households with spending allocation for ICT, average household spending for ICT, and wage and service fees for workers in the ICT sector.

Significant development in the two aforementioned pillars in EV-DCI boosted Indonesia’s competitiveness in its use of ICT. Although it only saw an increase of 2.7 points in 2021, the use of ICT in Indonesia is the highest of all pillars in EV-DCI and has the most distributed score compared to others.

“The pandemic slowed down the growth rate of Indonesia’s digital economy. However, the pandemic also helped accelerate the adoption of digital services in Indonesia. Like a slingshot that is being pulled backward, Indonesia’s digital economy will be ready to propel faster toward its golden era after the pandemic has subsided,” said Willson Cuaca, Co-founder & Managing Partner East Ventures.

Indonesia witnessed massive digital adoption in several verticals throughout the tech industry. Education technology platform Ruangguru now has 22 million students. One of Ruangguru’s products, a free online class made available for free during the pandemic, has helped more than 10 million of Indonesian students study from home. Meanwhile, around 2.5 million new merchants joined marketplace platform Tokopedia throughout the pandemic, compared to 7 million merchants in the previous 10 years.

After being hit hard in the early months of the pandemic, Traveloka managed a swift recovery by focusing on domestic tourist destinations to support the local hotel and tourism industry. Warung Pintar also expanded in order to support more warung (kiosk) owners and has now successfully partnered with more than 230,000 warung owners in 65 cities in 2020. Logistics platform Waresix, now providing 40,000 trucks and 375 warehouses in 200 cities in Indonesia, is helping brands distribute their products efficiently amidst the physical restrictions set in place.

Other pillars in EV-DCI 2021 that saw an increase in their scores include human capital, economy, entrepreneurship and productivity, finance, and regulations and regional government’s capacity. Each had an increase of about 3-5 points while the manpower pillar score increased by 0.8 points.

“President Joko Widodo has encouraged all of us to leverage the challenges and obstacles that rose due to the pandemic as a means that fueled the momentum in accelerating national digital transformation. Technology is the most crucial key in making Indonesia more efficient and productive,” said Willson. “Almost every province experienced an increase in their infrastructure score. This is thanks to the collaborative efforts from the government to boost the overall digital infrastructure development. We are hoping that every Indonesian across all 34 provinces can enjoy the golden era of Indonesia’s digital economy,” he added.

In special interviews with EV-DCI 2021 team, Minister of Finance Sri Mulyani, Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan, and Minister of Tourism and Creative Economy Sandiaga Uno all emphasized the government’s continuing commitment to support the digital transformation in Indonesia.

Minister of Finance Sri Mulyani said that the government has allocated part of the state budget for digital transformation acceleration. “The acceleration of digital economic transformation has been a priority in the state budget so that we can finance the development of digital infrastructure, provide accessible internet for all, and increase the quality of human resources.”

Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan said that the government had also pushed for the digital transformation among micro and small, medium enterprises (MSMEs). “We have to train the MSME players to use digital platforms, from knowing packaging techniques, promotion, to increasing the product quality. At the end, those who can adopt digital technology are the ones who will reap the benefits,” said Luhut.

Minister of Tourism and Creative Economy Sandiaga Uno emphasized the use of digital platforms and technology in developing tourism and the creative economy. “The way we travel and consume products should utilize digital platforms and should be technology-driven so that this digital lifestyle can help boost the tourism and creative industries in a more sustainable way,” said Sandiaga.

Key industry leaders expect the digital transformation will continue to accelerate as digital competitiveness becomes more equal in Indonesia. For instance, CEO & Co-founder Tokopedia William Tanuwijaya sees a trend rising during the pandemic wherein people realize the importance of technology and hence, business must go online. “The infrastructure is readily available. In five years, I believe we can reach 35 percent as well. Meaning, one in three transactions in Indonesia will be done online,” said William.

Nongsa Digital Park boosts digital transformation in Riau Islands

DKI Jakarta still leads the overall digital competitiveness on the provincial level in Indonesia, with an EV-DCI 2021 score of 77.6, followed by West Java with a score of 57.1 and East Java with a score of 48.0. On the other end of the spectrum, Papua holds the bottom position with a score of 22.0.

Bali and the Riau Islands are the two provinces that saw significant increase in scores, breaking through the domination of provinces in Java island in the Top 10 ranking. Bali occupied the 4th place in the index with a score of 47.7, a positive leap from last year’s position at 7th with a score of 40.6. Riau Islands moved to 7th place with a score increase from 35.9 last year to 43.0 in 2021. In both provinces, more people are relying on the internet for their job or business.

Bali’s leap into 4th place resulted from the digital infrastructure development in the province, which has the second-highest score of 82.42 after DKI Jakarta. The achievement in the infrastructure pillar is supported by improvements in some key indicators, including the rise in the ratio of villages with 3G and 4G connectivity.

Similarly, Riau Islands’ rank increase and overall higher score can be attributed to a significant geographical factor, as it is located close to Singapore. This makes the islands, especially Batam, one of the top investment targets for Singapore. One of the latest investments from Singapore is the development of the Nongsa Digital Park, which is a designated special economic zone. The development of this digital park signals its strategic location.

“The Nongsa Digital Park will be a ‘digital bridge’ between Singapore and many of the fast growing digital players in Indonesia. Indonesians can take advantage of the job openings at tech startups and multinational companies that previously made Singapore their home,” said Chng Kai Fong, Managing Director at Singapore Economic Development Board.

The findings of EV-DCI 2021 show an encouraging trend of the growth of the digital economy in Indonesia. It emphasizes that the equality of digitalization across the country is pivotal as it makes possible unprecedented economic growth, the ability to lift millions out of poverty and the ability to healthily compete with nations abroad. EV-DCI 2021 highlights that Indonesia’s provinces are becoming more equal and have much untapped potential to fuel significant growth in the coming years. Together, we can commit to creating a better, richer, more sustainable Indonesia.

EV-DCI 2021 can be downloaded here.