March 15, 2022
JAKARTA – The latest Digital Competitiveness Index (DCI) report paints a rosy picture of digitalization in Indonesia, mainly thanks to the development of infrastructure, particularly telecommunications infrastructure like base transceiver stations (BTS).
On a scale of zero to 100, Indonesia scored 35.2 in 2022, up 3.2 points from last year, according to the index report made by Katadata Insight Center, PricewaterhouseCoopers (PwC) Indonesia and East Ventures.
But while new infrastructure has undoubtedly improved the business climate in the country, it is too early to celebrate. Much is left to be done as the country still lags behind ASEAN peers in digital competitiveness, limiting its ability to attract much-needed foreign direct investment to boost the digital economy. The key to Indonesia’s quest for digital might is, as the late Apple cofounder Steve Jobs put it, to “stay hungry”.
In the report, East Ventures cofounder Willson Cuaca said Indonesia had entered its “golden digital economy era” in 2022 as the digital industry experienced rapid growth due to the COVID-19 pandemic. “Not only did the internet penetration increase significantly, but society’s awareness to further utilize the digital sector as an economic propeller also escalated,” he said.
The DCI measures six subindices, wherein infrastructure posted the highest reading at 64.8, while the human resources subindex – a measure of skill levels – was the lowest at 21.8.
Similarly, Indonesia’s ranking improved from 56th to 53rd in the 2021 Global DCI published by the Institute for Management Development (IMD). This report surveyed 64 countries.
But the DCI also shows Indonesia fared worse than fellow ASEAN countries. Singapore leads in fifth place, followed by Malaysia in 27th and Thailand in 38th.
According to the IMD, Indonesia’s main weaknesses include the relatively limited number of internet users and slow internet speeds. Starting businesses is also relatively difficult, software piracy rates are high and tablet ownership rates are low.
Tech start-ups in Indonesia also struggle with talent shortfalls, regulatory uncertainty and shallow financial markets.
A landmark World Bank report in 2018 estimated that Indonesia would face a shortfall of 9 million skilled and semi-skilled IT workers from 2015 to 2030. Many countries around the world face this shortfall, but the problem is particularly acute in Indonesia due to limitations in the education system.
Due to these limitations, Indonesia, despite its giant market potential, has been losing to Singapore in attracting tech investments on a yearly basis since 2016, according to the annual Google-Temasek e-Conomy SEA reports.
Granted, the latest 2021 e-Conomy SEA report shows that Indonesia surpassed Singapore in the first half of 2021, but only the 2022 report will reveal whether or not the trend applies for the whole year.
At the same time, investors have been increasingly placing their bets on Vietnam, the “rising star” of Southeast Asia, as the hottest growth market in the region.
Vietnam’s digital economy is expected to grow 29 percent annually from 2021 to 2025, the fastest among the six largest ASEAN economies, according to the Google-Temasek report. Indonesia is third at 20 percent.
The DCI indices correctly show that the Indonesian digital economy is growing fast, but the country’s shortfalls relative to its ASEAN neighbors carry real implications in terms of the ability of businesses to deliver returns.
At the end of the day, investors want returns.