Digital competitiveness now more equitably spread across Indonesia

FOR all the talk of a global digital winter, Indonesia’s digital economy – on track to be worth an estimated US$360 billion by 2030 – continues to power ahead.

The latest digital competitiveness index (DCI) report by venture capital firm East Ventures has reported that the impact of digitalisation on society and the economy is starting to be felt even in the far reaches of the sprawling archipelago. Digital competitiveness across Indonesia’s 38 provinces and 157 cities has also been more evenly distributed since 2020.

This means that even second-tier and third-tier cities are catching up with first-tier cities such as Jakarta, Surabaya and Bandung in terms of Internet penetration and the level of digitalization. On the whole, 77 percent of the population has access to the Internet, up sharply from just 13 percent in 2009.

Indonesia’s DCI has risen over the past four years, with a median score of 38.5 in 2023 – up from 35.2 in 2022 and 32.1 in both 2020 and 2021. An increase in the median score indicates an improvement in digital competitiveness in the middle- and lower-ranked provinces.

Jambi in South Sumatra, for example, saw the biggest improvement in the DCI, rising 16 spots to rank 14th, largely due to the regional government implementing a new system that encourages micro, small, and medium-sized enterprises (MSMEs) to use cashless payment systems.

On the flip side, regions such as South Sulawesi are falling behind due to the slow implementation of digital payment systems.

Jakarta remains on top of the index with a score of 76.6 this year, while Central Papua rounds off the list with a score of 23.3.

The East Ventures report noted that achievements in infrastructure development, digital business transformation and the application of sustainability aspects, among other factors, can be the foundation for Indonesia’s journey “towards a digital golden era”.

The country’s digital literacy index has also been growing, rising from 3.47 in 2020 to 3.54 in 2022.

The report found that, through the advancement of the digital economy, interactions between producers and consumers have become easier; residents in the least-developed regions now have the same market access opportunities as residents in the capital, Jakarta.

Willson Cuaca, Co-Founder and Managing Partner of East Ventures, told The Business Times that the index proves that digitalization and Internet penetration are reaching deep into the rural areas.

“Every provincial and local government now understands that digitalization is the key to economic growth. The growth in the digital economy is not just in the cities, but extends to the rural areas, and we are able to measure it,” he said.

The impact of what he terms greater inclusiveness of the digital economy will be far-reaching as financial, educational and other services reach the rural communities.

“This is the foundation for sustainable economic growth and wealth creation across Indonesia,” Cuaca said.

With greater parity and wider Internet penetration, he noted that sectors such as health, education, tourism and climate change have significant upside, supported by government policies and initiatives.

East Ventures, which has US$1.3 billion in assets under management and closed a US$550 million fund last year, is focusing on services targeted at MSMEs.

“The next decade will be the decade of B2B (business-to-business) services, so we are focused on these new sectors,” he noted.

The report said that the number of MSMEs that have adopted digital technologies has grown from seven million in 2020 to 24 million this year, and is expected to hit 30 million next year.

The number of startups offering technology-based innovations in e-farming and e-payments is also growing rapidly, especially in second-tier and third-tier cities.

However, Cuaca cautioned that the current downturn in the global digital sector will have an impact on Indonesian startups.

“The crisis has brought clarity, especially to investors, in terms of the companies that have strong business models and those that do not,” he said.

The report added that, in addition to strengthening fundamentals, startups must also become more efficient, given the limited amount of funding available today. The latest data estimates that total e-commerce funding fell from US$1.4 billion in 2021 to US$900 million last year.

“There is still a lot of ‘homework’ to complete and challenges that all stakeholders must address,” said Cuaca. “We will continue to support equal distribution of digital competitiveness in Indonesia, and participate in developing the digital economy through various investments, initiatives and programs.”

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The original article was published in The Business Times, Friday, 14 April 2023, on page 3.