This article is the first of a five-part series on burgeoning digital economies in Southeast Asia
Southeast Asia is home to stunning coastal vistas, delectable food, and a long history of cultural tradition. Today, however, Southeast Asia is known for one other thing–a region that is growing its innovative capabilities at full speed.
It would be wrong to see the region as a uniform, homogenized market. For instance, as one of the top 20 global startup ecosystems, Singapore has made its mark in Southeast Asia as a hub for innovation, owing to ease of doing business in the country as well as access to capital networks.
However, even companies in Singapore have to look at the wider Asia Pacific for markets to grow in, as Singapore is simply too compact a market for companies to scale. And Singapore is not the only one; as businesses start to exit China amidst global tensions, Southeast Asian countries are well positioned to seize the opportunity. Southeast Asia also has a booming Internet economy. A massive 70% of Southeast Asian consumers are expected to go digital by the end of 2020, with a pool of 310 million users accounting for the region’s US$100+ billion Internet economy, although the numbers vary according to country.
In recent time, Southeast Asia has emerged from the shadows in tech and is accelerating the transformation of its digital landscape. Here’s a low-down on where its biggest economies have reached so far.
With a GDP in purchasing power parity of $3.7 trillion, Indonesia is not only the largest ASEAN economy (nominal GDP $1.1 trillion), but also the only Southeast Asian one to feature in the world’s top 20 economies.
Indonesia has a significant population. In fact, it is the fourth most populous country in the world, and this plays to its strength – household or domestic consumption accounts for 55% of Indonesia’s economic growth.
It’s a Millennial Thing
Indonesia is a very young country in terms of its population. Following the trend in most heavily populated Asia Pacific countries, the country has a large workforce made up mostly of millennials and Gen Z; the median age in Indonesia was 28.6 years as of 2016.
Subsequently, Indonesia relies heavily on its young population to fuel the digital economy in the country.
“[With improved telecom infrastructure in Indonesia] there will be Internet availability and better speed. We hope that our millennials will take part in the industry, whether through platforms, applications or whatever to make Indonesia in the digital era,” Minister of Communication and Informatics Johnny G. Plate said at a summit last year.
The summit, no surprises, was called the Indonesia Millennial Summit held in Jakarta.
Banking on the Digital Economy
Indonesia is clearly the largest Southeast Asia’s economy by GDP and by population. There’s one other thing that it takes lead in – Internet usage.
Estimated to be worth $40 billion in 2019, the island nation’s rapidly growing Internet economy is expected to swell to $130 billion by 2025. That’s a growth of 3X. As of 2019, there were 152 million Internet users in Indonesia, a proportion of nearly 60% of its population.
The startup ecosystem in Indonesia is mushrooming, and represents the closest competition to Singapore in Southeast Asia. Jakarta is the number one emerging startup ecosystem leader not only by value, but also by total early-stage funding received.
Indonesian unicorns stand testament to this, with Bukalapak, GO-JEK, Tokopedia, Traveloka, and Ovo bringing attractive investments into the country. As highlighted by the above list, ecommerce and ride-hailing are currently the hottest industries within this robust Internet economy.
Digital payments is also a part of this list. In fact, Indonesia is expected to show the second-highest growth in digital financial services revenues, after Vietnam, reaching $8.6 billion in 2025 from $1.5 billion in 2019, at a growth rate of 34%.
What’s more, Indonesia’s smartphone penetration rate, the percentage of the population that has smartphones, stood at 63% in 2019, and is expected to touch 89% by 2025.
Balancing Tech with Socio-Economic Needs
Indonesia is fairly ahead of the global average in terms of digital transformation, though perhaps not as much so as Malaysia.
26% of Indonesian executives said that they were ‘extremely far’ into their digital transformation journey, as compared to the 21% global average, and three in 10 Indonesian organizations spent over $500,000 on IT in 2019.
This presents a massive opportunity for Indonesia, which is contending with issues of poverty and a needs gap. For instance, nearly half the population is rural, the poverty rate is expected to reach 9.7% by the end of 2020, and a solid 77% of the population is either un- or under-banked. Moreover, 80% of the Indonesian population is concentrated in the West of the country, in Java and Sumatra, with Java accounting for a hefty 60%. What this means is that most services in Indonesia that could contribute to its digital transformation are also concentrated in this region, leading to imbalanced regional development in Indonesia.
Owing to this skewed population density, annual per capita spending on the Internet economy is five times more in the western Jakarta metropolitan area at $555, whereas it’s at $103 outside this region. Indonesia is undoubtedly ahead of the pack in digital technologies within the region. However, for technology to radically transform Indonesia, the country will also have to address concerns of low R&D spending, lack of skilled workers, and access to capital, in addition to beefing up its digital infrastructure.
The future of Indonesia’s digital revolution lies in the hands of the generation at the helm of its transformation – millennials – and with the Indonesian government, which needs to capitalize on the country’s lead in digital penetration and tackle Indonesia’s digital challenges head-on.
Header image by ahmad syahrir from Pexels