March 2, 2023
JAKARTA – Indonesia has a large population of over 280 million and a rapidly growing middle class. However, it faces numerous challenges in sustaining economic growth and improving living standards. One crucial area where Indonesia needs to improve is digital competitiveness.
The East Ventures-Digital Competitiveness Index (EV-DCI) 2022 shows that Indonesia’s digital competitiveness has become even more distributed each year, marked by yearly increases in the EV-DCI median score. EV-DCI is a measurement created by East Ventures to calculate digital competitiveness among provinces in the country. Nevertheless, regions in Java still dominate the top positions, leaving the eastern regions behind.
Improving digital competitiveness and closing the gap among provinces is essential for the country’s economic and environmental sustainability.
According to the e-Conomy SEA 2022 report by Google, Temasek and Bain & Company, Indonesia’s digital economy has surged significantly from US$41 billion in 2019 to $77 billion in 2022. In 2025, the figure is estimated to increase to $130 billion, which is achievable if we can optimize our resources appropriately.
The digital economy cannot be separated from the role of micro, small and medium enterprises (MSMEs), which hold the key to bringing Indonesia to sustainability.
The country is home to 65 million MSMEs that account for over 60 percent of gross domestic product (GDP) and employ around 110 million people. Despite this, only a third of these MSMEs are on digital platforms and even fewer are based in regions outside major cities.
Many MSMEs need help in terms of access to capital, financing, market access and most importantly, technology utilization. Improving the digital competitiveness of MSMEs is therefore crucial if Indonesia is to achieve sustainability and continue to grow its economy.
Firstly, by increasing technology utilization among MSMEs, Indonesia can improve the efficiency and competitiveness of these businesses, enabling them to reach new markets and customers. For example, through e-commerce platforms and mobile payments, MSMEs can reach customers across the country and beyond, increasing their revenue and improving their sustainability.
One of our earliest portfolio companies, Tokopedia, has been actively embracing local MSMEs in digitalizing their businesses. To date, the firm has onboarded to its platform around 12 million merchants, primarily MSMEs. However, it is also a reminder that this can only happen with decent digital infrastructure, which the government and local administrations have improved in pursuit of the betterment of technology utilization.
This includes providing training and support to help businesses adopt new technologies and digital solutions, as well as investing in digital infrastructure to make it easier for MSMEs to access the digital tools they need to grow their business.
Another key benefit of improving digital competitiveness among MSMEs is that it can help increase financial inclusion. Many Indonesian MSMEs face financial challenges that can limit growth and sustainability.
However, fintech start-ups can leverage their digital financial services and close the gap so that MSMEs can improve their access to financing, enabling them to grow their businesses and improve their financial stability. One of our portfolio companies, Komunal, contributes to resolving this issue. The firm targets rural banks, which are still painfully traditional with fragmented processes yet offer higher, government-guaranteed ceiling deposit rates compared to commercial banks. In 2022, Komunal has channeled $230 million worth of deposits and loans to local BPRs and MSMEs, helping MSMEs manage their finances and capital conveniently and efficiently.
Moreover, improving digital competitiveness can also help increase MSMEs’ transparency, accountability and reporting, which are crucial for building trust and confidence. For example, by using digital platforms to manage their accounts and transactions, MSMEs can have better recordkeeping that demonstrates their reliability to potential customers and partners.
Improving digital competitiveness can also enable MSMEs to manage their resources better and reduce environmental impacts. A study by Accenture, in collaboration with the World Economic Forum (WEF), verified that digital adoption could be the key to lowering carbon emissions by up to 20 percent by 2050 in the three highest-emitting sectors: energy, mobility and materials. The study also suggests that businesses must prioritize digital inclusion and skills development to ensure that current and future workforces can access new technologies, by fostering the necessary skills to scale digital technologies.
By adopting digital tools, MSMEs can reduce their energy consumption and carbon footprint and improve their sustainability. For instance, we have noted that Gojek and Grab are aspiring to gradually shift their transportation modes to two-wheeled electric vehicles (2WEV), which are more environmentally friendly.
Meanwhile, some online food delivery start-ups are also encouraging MSMEs to use sustainable packaging, such as wooden cutlery and recyclable bags, along with other initiatives.
More broadly, a digital start-up can also help MSMEs and their customers to implement sustainable practices. In the case of Aruna, the Indonesian fishery start-up is leveraging technology to practice sustainable fishing at coastal, untouched communities and create better livelihoods for local communities through good fishing practices, supply chains and education. MSMEs can utilize those kinds of digital initiatives to contribute to a sustainable environment.
In conclusion, digital competitiveness can catalyze Indonesia’s journey to sustainability. It can bridge the gap between regions, improve digital literacy and achieve sustainable economic growth. The potential impacts on society and the environment cannot be ignored and must be considered in promoting digital adoption in Indonesia. The government and private sector must work together to create a supportive environment that enables MSMEs across the archipelago to take advantage of the digital economy and thrive in today’s global marketplace.