Digitalisation in Indonesia

last updated on 24 August 2022 | reading time approx. 4 minutes

Interview with Stefan Ewers

Digitization is a cross-sector and cross-society issue. How do you assess the current situation in Indonesia? Which sectors already hit the road to success, and which are rather lagging behind?

Indonesia has been making efforts to digitize for quite some time, but this initially only served as an “alternative” to accompany and complement traditional methods. In recent years however, partly triggered by the Covid 19 pandemic, digitization efforts have been significantly stepped up in both, the public and private sectors.

In the public sector, for example, the government is gradually moving towards digitizing its operations by mandating online submission of business license applications. For some licenses, manual submission is no longer possible at all. Digital licence documents are replacing the traditional wet-signed ones, and providing more opportunities for online consultations. Just last year, the government introduced an electronic land deed, which many suspect will eventually replace the traditional physical land deed.

In the private sector, the digitization process has also grown exponentially in recent years. Following the success of ride-sharing services – which even offer last-mile delivery services – other technology-enabled services ranging from financial services (money transfers, online payments, P2P loans, stock trading, etc.) to e-commerce, e-groceries and digital learning platforms are also experiencing a sharp increase in demand, with no signs of slowing down.

These business areas are opening up new opportunities in the digital world and creating new professions that have been in increasing demand in recent years, such as digital marketing or data analytics.

From a geographical perspective, unfortunately only major cities in Indonesia, such as Jakarta or Surabaya, can enjoy the full benefits of digital innovation for the time being due to uneven Internet access throughout the country. Other areas that are not as developed as the big cities, can only partially benefit from these innovations.

Where do you see potential for German or European companies in Indonesia?

With the growth of e-commerce platforms, demand for consumer goods is also expected to increase, which could ultimately lead to an increase in production capacity. Since German/European companies are known to have a strong position in providing high-quality (technological) machinery or equipment for manufacturing or distribution processes, we see a good opportunity to tap the markets for production/distribution automation.

Since a reliable Internet connection is one of the – if not the most – important component in the digitization process, another promising field would be to participate in the development of digital infrastructure, either by building the infrastructure itself or by manufacturing/distributing the supporting equipment (e.g. high-speed Internet cables, microwave transmitters).

Regardless of the type of contribution, in many cases a local presence in Indonesia is required to enable seamless participation in the digitization process.

Digitization always raises questions about issues such as cybersecurity, data protection and the creation of new rules and standards for the digital economy. What are your experiences in Indonesia? Are there already laws or regulations that specifically regulate these issues, providing safety for companies?

While Indonesian data protection measures are not yet as advanced as the EU Cybersecurity and Data Protection Regulation, we have seen clear efforts by the Indonesian government to regulate these issues.

Data protection regulations are fragmented in sectoral laws and regulations, and there is not yet a single comprehensive law addressing this very important issue in Indonesia. However, we are well on our way in the right direction, as draft laws on personal data protection and amendments to the Electronic Information and Transactions Act are currently listed in the House of Representatives as priority issues to be addressed by 2024.

Just recently, the government mandated registration of electronic systems operators with a web portal, website or online application that meet certain criteria. Failure to do so could result in the nationwide suspension of Internet access for the operator in question. This obligation applies not only to local operators of electronic systems, but also to those from abroad, for example Google, Facebook, WhatsApp. After the registration deadline expired on July 20 in 2022, the government blocked foreign operators of electronic systems that did not comply with this obligation, including PayPal. This action later triggered an outcry from PayPal customers in Indonesia, as the blockade prevented them from withdrawing their money.

While there is much room for improvement, we believe the recent PayPal blockade demonstrates the Indonesian government's resolve in implementing cybersecurity and privacy measures.

To what extent did the Covid-19 pandemic have an impact on the developments since its beginning?

The nationwide shutdown caused by the Covid 19 pandemic was, in our view, one of the most important factors driving the digitization process.

For example, from the perspective of workers/individuals who were unable to leave their homes across the country and were forced to work from home, the demand for more reliable home Internet services and any services that can help them meet their needs without leaving home (e.g., grocery delivery services, e-commerce platforms, entertainment streaming services, etc.) undoubtedly skyrocketed.

On the other hand, as a result of the lock-in, employers/businesses have been forced to invest in technologies and infrastructure that enable seamless implementation of remote work arrangements like more powerful servers, cloud computing, online meeting platforms or e-signature tools. Since the investments have already been made, it is safe to assume that this technology and infrastructure will continue to be used after the pandemic is over.

Smart cities and smart economies – are these recognizable trends or pilot projects in Indonesia and if so, what are the opportunities for German technologies or knowledge transfers?

Yes. In addition to the campaign to transform Jakarta (the country's current capital) into a smart city, the legislature passed a law in February 2022 that marks the implementation of the long-standing plan to relocate Indonesia's capital – which will then become a smart city.

Since the country's new capital will be built relatively recently, numerous opportunities will arise during or in conjunction with the relocation process, such as the construction of the city itself, as well as various other topics like the development of clean energy, public transportation or smart city planning.