Recovering Indonesia's Economy through Digitalization

17 Mar 2021   |  Indonesia

Indonesia's already volatile market conditions experienced a heavy downfall in the first following months of the pandemic. More than 7% of Indonesian were jobless by August 2020. The economy grew minus 3.49% by the end of the third quartile of 2020, officially putting Indonesia in recession.

There were less than a handful of industries that have benefited from the presence of the COVID-19 pandemic. But one sector rose distinctively. Throughout the year, various companies from once conventional sectors have taken a significant step on digitalization. In 2021 alone, approximately 10 to 15 local banks have taken an approach to digitalization in an enthusiastic fashion.

Indonesia Recovery 1

Source: unsplash

Bright Opportunities Ahead

Perry Warjiyo, the Governor of Bank Indonesia (BI), has expressed the tight coordination between BI and Otoritas Jasa Keuangan (OJK) to support the digital payment dispersion system to push digital expansion in the banking industry.

One of BI's attempts to become a catalyst to banking digitalization was the implementation of Quick Response Indonesia Standard (QRIS), with the target of 12 million registered merchants this year.

Other industries may feel tempted to go into the digital transformation wagon by looking at the digital companies' growth during the pandemic. Shopee achieved a 72% user growth rate from Q3 2019 to Q3 2020, and Tokopedia reached a 28% growth rate in the same period. The total transactions made within Indonesia's e-commerce market was as high as USD 1.4 Million, contributing 11% to the Indonesian GDP. The degree to which e-commerce companies expanded in 2020 reached its all-time high due to the thriving dependency on online activities.

Challenges for Other Industries

However, the road to total digitalization among Indonesian industries may not be as smooth as it seems. For example, as one of the Indonesian economy’s critical drivers, the FMCG industry experienced a merely 8% growth rate in 2020.

As much as the FMCG companies seek to shift toward the e-commerce market, unequal infrastructure becomes the most significant constraint. Logistics providers fail to provide accessible pricing to consumers living outside Java.

The multifaceted issues that prevent established companies from digitizing stem from the fear of complexities that may arise in their supply chain. The FMCG companies would not be able to settle in the digital market if logistic companies do not find other ways to reduce costs. Yet, cost restructuration relies heavily on the development of Indonesia's manufacturing corporations.

Indonesia Recovery 2

Source: unsplash

Digitizing comes with its own risk. It requires collaboration and a shared intention of giving societal benefits. A company's hesitation in adapting could disrupt the change process of its surroundings. However, Accenture suggests that the potential cumulative value to society and industries could reach up to USD 20 Trillion in 2025 from the total digitalization of automotive, consumer, electricity, and logistics sectors.

Digitalization fundamentally changes how the market behaves and how competition works—allowing only the most agile companies to stay ahead by understanding how to provide the consumers' needs best. However, the future of total digitalization in Indonesia's conventional industries seems still far away. Regardless of the officials' desire to doing so.

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