The Digital Landscape in Indonesia

Oct 2020

  • Estimated at USD 40 billion in 2019, Indonesia’s Internet economy has more than quadrupled in size since 2015, at an average growth rate of 49% a year. As the largest and fastest growing Internet economy in the region, Indonesia is well on track to cross the USD 130 billion mark by 2025.
  • As of January 2020, Indonesia counted 175.4 million internet users with an internet penetration rate of 64%, 160 million social media users, and 338 million mobile connections, equal to 124% of the total population. It was estimated that the average Indonesian spent eight hours a day surfing the net.
  • An estimated 70% to 80% of internet traffic runs through mobile connections, at costs lower than regional peers, and which are among the lowest in the world. Indonesia is likely to become the country with the third-largest number of smartphone users, at 410 million, by 2025.
  • In late 2019, the government announced the completion of the Palapa Ring project – a priority infrastructure project that aims to provide access to 4G internet services across the country. However, significant gaps remain. For instance, as of 2019, only 6.5 million SMEs, or around 10% of the country’s total, were using digital technologies.
  • The growth of the sector is attracting an increasing number of foreign companies. For example, in May 2020, it was reported that Microsoft was considering building a USD 2.5 billion data center. The announcement followed the decision from Google Cloud to build its first data center in Indonesia. In January of the same year, Amazon’s AWS announced that it will build an infrastructure “region” in Jakarta by early 2022. Moreover, in 2019, NTT decided it will invest USD 500 million for its data center in the country.
  • The e-Commerce segment is growing strongly in Indonesia, and the outlook remains positive notwithstanding the decision to put a 10% value-added tax digital products and services sold by non-resident internet companies starting from July 2020, in part to boost revenues following the impact of the COVID-19 pandemic. A case in point is offered by local e-commerce start-up Ula – five months after its launch, it announced in June 2020 that it had raised a USD 10.5 million seed round.
  • Indonesia has the highest number of unicorns in the region, defined as companies whose value is valued above USD 1 billion, which include on-demand transport and logistics service provider Go-Jek, hotel and flight booking platform Traveloka, digital payment service company OVO, and two B2B/B2C online marketplaces, Bukalapak and Tokopedia.
  • Although Internet economy players are concentrated in large cities, some of them are investing to develop their businesses beyond metropolitan areas, in search of further growth. For example, Tokopedia has announced its intention to expand to rural areas by signing an MoU to develop “digital villages”, in partnership with the West Java administration.
  • One of the positive consequences on the impact of COVID-19 on the sector has been the accelerated growth it has led to in the fintech segment. For instance, it is expected that one of the consequences will be an increased willingness amongst consumers to embrace digital wallets, contactless payments, as well as digital IDs. Importantly, Indonesia already ranks as the second largest market for fintech funding in the region after Singapore.

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