Indonesia tech will boom when the infrastructure is put in place

From the western tip of Sumatra to the eastern island of Sulawesi, the green motorbikes criss-cross cities over Indonesia’s sprawling archipelago.

Go-Jek, the first tech unicorn in a nation of 260 million, has transformed Indonesian life with its motorbike ride-hailing and delivery services. It represents freedom for millions of Indonesians in a country with poor transport services and horrific street congestion. Forbes last year named it 17th in its list of 50 companies that had changed the world.

Go-Jek is an emblem of the promise that Indonesia holds for becoming a major digital economy. Indonesia now has four tech unicorns – the most in Southeast Asia – and the government has plans to make it ten by 2020. A huge market, growing middle-class and untapped market potential means digital companies in Indonesia have the ability to scale. Goldman Sachs predicted in an April report that Indonesia would be the next tech battleground.

Yet amid the promise, Indonesia is being held back from achieving its potential. Indonesia’s digital economy is underdeveloped – with infrastructure poor and Internet penetration low. Only 40 per cent of Indonesians have Internet access, according to Statista, against roughly 70 per cent in neighbouring Malaysia. Indonesia also lags fellow Southeast Asian economies in IT spending.

In order to emerge as a major economic power, Indonesia must do more to embrace digitalisation, not only among tech-savvy urbanites but across its vast society. McKinsey says digitalisation can add $150 billion – 10 per cent of GDP – to Indonesia’s economy by 2025.

“There are only 8 per cent of local enterprises that have embarked on the digital transformation journey,” Mevira Munindra, head of consulting at IDC Indonesia, said at a recent conference in Jakarta. “Enterprises in Indonesia are still at the stage of exploring for potential technologies and business models.”

The government of reformist President Jokowi is on an aggressive drive to promote Indonesia’s digital ecosystem. Last year it launched Nexicorn (for “next Indonesian unicorn), a programme that seeks to cultivate Indonesia’s new crop of billion-dollar companies by matching foreign investors with post-series A startups. The first event in September brought together 45 startups with Japanese investors.

Indonesia, moreover, stands at the threshold of great economic opportunity as rising wages make China less attractive as a manufacturing powerhouse. Indonesia’s massive population and cheap labour make it a potentially attractive alternative to China. It can expect a demographic windfall with projections of a working age population of 180 million by 2030. McKinsey argues that if the country can embrace the right digital technologies such as IoT and robotics, it can ride the wave of a manufacturing bonanza.

The combination of explosive digital startup energy and weak digital foundations does of course mean a wealth of opportunity. Innovators such as Go-Jek’s 33-year-old founder Nadiem Makarim are finding new ways to transform life in the remotest areas. Makarim, educated at Brown University and Harvard Business School, serves as a role model for Indonesia’s tech entrepreneurs who are turning Indonesia into one of Asia’s hottest tech scenes.

For example, e-commerce firm Kioson, which launched Indonesia’s first IPO by a startup in November, runs an app that allows people without Internet access to order goods at one of the nation’s ubiquitous kiosks, called warungs, and pick up upon delivery. The warung owner earns a small fee for the service. It’s the kind of innovation that, like Go-Jek, has raised living standards and generated a virtuous circle of economic activity. And it could soon see Indonesia emerge as Southeast Asia’s digital archipelago.