The ubiquitous presence of digital technologies in global economic activity means that they are expected to remain a key part of Indonesia’s economy, which is growing at a rapid pace (see Economy chapter). A large and competitive telecommunications market, and robust growth in financial technology (fintech) uptake and e-commerce activity, are driving growth in the digital economy. In addition, the Covid-19 pandemic saw business activity, education and social interaction migrate online.
A young population and the government’s focus on integrating the development of digital skills into education present opportunities for expansion. Other government goals include the modernisation of the economy by attracting increased volumes of private and foreign investment into areas such as advanced manufacturing, renewable energy and smart cities. To achieve this, the relevant authorities must first address a number of regulatory, geographical and socio-economic constraints.
Structure & Oversight
The Ministry of Communication and Information Technology (Kominfo) is responsible for overseeing policies related to information and communications-related services, including the country’s postal service. As the key entity in the field of public communications, the ministry is integral to the development of the telecommunications market. The Telecommunication and Information Accessibility Agency (BAKTI), one of several work units under the Kominfo umbrella, works to improve digital infrastructure and increase digital inclusion in the country. In particular, BAKTI focuses on boosting digital connectivity for the country’s rural and more isolated regions.
The Ministry of Education, Culture, Research and Technology was formed in April 2021, after the government merged the Ministry of Education and Culture with the Ministry of Research and Technology. In doing so, the authorities aimed to better integrate technology, research and innovation into the education system. This move sought to instil digital literacy from a young age and provide the essential foundations for advanced skill development, better preparing the country’s workforce to compete globally. Notably, the head of this ministry is Nadiem Makarim – the founder of Gojek, a multi-service digital app and payment platform.
The National Cyber and Encryption Agency, a government entity established in April 2021 that reports directly to the president, oversees matters pertaining to information security and encryption to help ensure economic growth. In addition, rapid growth in areas such as digital banking, business processes and e-commerce make the Ministry of Finance and the Ministry of Trade (MoT) of particular significance. Given the important role that technology start-ups have been playing in the development of the digital economy, the Ministry of Cooperatives and Small and Medium Enterprises is also instrumental in supporting the expansion of the sector.
Digital Government
In 2019 the government announced plans to fully digitise public services by 2025. The country’s Online Submissions System, which launched in July 2018 and is overseen by the Ministry of Investment, enables end-to-end services by integrating the federal government with provincial and municipal authorities. The goal of the submissions system is to streamline the processes for receiving business licences and help investors receive necessary services more quickly.
Indonesia’s geography has historically made it difficult to apply laws and offer services in a uniform manner. In terms of digital services, excessive numbers of government service apps and their illegal duplication has further exacerbated this problem. In order to streamline processes, Kominfo collaborated with various public and private stakeholders to create an e-government operating framework. With the framework in place, in December 2023 the government issued a decree regarding the acceleration of digital transformation and the integration of national digital services. In June 2024 Indonesia planned to launch a digital identification system through which citizens would be able to access online government services, although as of July 2024 there had been no updates as to the status of this initiative. The platform aims to provide citizens and residents with online access to finance, education, health care, social welfare and law-enforcement-related services and information.
The continued digitisation of government services is key to the achievement of a number of Indonesia’s goals, such as more efficient business and investment procedures, broader socio-economic inclusion, reduced government costs and increased transparency. The government’s initial plan was to unify 27,000 apps into nine super apps by the third quarter of 2024, streamlining and enabling consistency in the provision of public services. However, in May 2024 President Joko Widodo, better known as President Jokowi, announced that nine priority public services would instead be combined into a single digital platform, INA Digital.
Demographics
An April 2021 study by UN Trade and Development focused on the implementation of digital economy fundamentals within Indonesia in comparison with China – two countries with large, diverse populations and growing middle classes, albeit at different stages of economic development. Indonesia has an opportunity to further capitalise on the momentum resulting from the digitisation of economic activity during the pandemic through its young, tech-savvy population. Indonesia’s median age is 30, with 56% of its population under the age of 35 as of the beginning of 2024. Start-up analysis firm StartupBlink ranked Indonesia 36th overall out of 100 countries in its Global Start-up Ecosystem Index 2024 report, with Jakarta ranking among the top 25 cities in the world for start-ups in e-commerce and retail, fintech and food technology. Indeed, several Indonesian start-ups in the fintech and e-commerce spaces have achieved unicorn status. However, the government must upgrade digital infrastructure and further develop digital policy and regulation to fully harness its strengths and propel inclusive, long-term development in the sector.
Data Security
The enactment of thorough data protection legislation represents a noteworthy step towards developing a mature digital economy, with implementation requiring a cross-governmental approach. In October 2024 Law No. 27 of 2022 on Personal Data Protection (PDP Law) will officially enter into force, replacing and revoking a number of pre-existing regulations. The time lapse between the PDP Law’s adoption in September 2022 and its enactment is to allow companies and other affected parties to comply with new criteria.
Penalties will be in place for unlawful data gathering and breaches, and other related criminal activities, with the most severe punishment a possible six-year prison term or a fine of up to Rp6bn ($390,000). The bill, which differentiates between general and specific types of data, further states that controllers must have a legal basis for collecting information and are required to report any breaches within 72 hours of their discovery. The PDP Law also provides for the formulation of a dedicated authority to enforce data protection regulations, carry out investigations and issue sanctions where necessary, as Kominfo currently handles such matters.
The new law makes data localisation mandatory, so public electronic systems operators (ESOs) must store data inside the country. Private ESOs are subject to more flexible regulations in terms of border restrictions, but they are to be supervised by government authorities to whom they must grant data access. Specific localisation laws will apply to operators within the banking sector, and e-commerce businesses will require authorisation from the MoT for data transfers. While the current regulations makes Kominfo responsible for coordinating data transfers, the PDP Law is set to further regulate such processes through a series of safeguarding protocols, particularly in relation to the security of cross-border data transfers. Such transfers will be authorised if the recipient country has a similar or higher level of data protection regulations, the recipient entity is in a legally binding agreement with the transferring entity, or the data subject agrees to the transferral of their information.
The implementation of more sophisticated data retrieval, storage and protection processes opens up a raft of data-centre-related investment opportunities. This is due to this particular line of business attracting significant levels of foreign direct investment across developing economies in recent years, as both public and private sector entities are making greater efforts to secure their digital assets.
Regulatory Upgrades
Tighter regulations regarding content moderation are also set to be rolled out, with a new criminal code adopted in January 2023 and set to enter into force in January 2026 – defining a number of digitally transmitted activities as criminal acts. These include illegal recording or the publication of unlawful material, defamation and hate speech, and enabling access to banned content, among other offences. Kominfo is responsible for oversight and enforcement, with the authority amending existing regulations so that greater protections are in place until the new criminal code is in effect. Both public and private ESOs are legally obliged to monitor and regulate content, while private ESOs are required to comply with orders to remove or block content within 24 hours, or within four hours if the case is deemed urgent.
Increased digital business activity has prompted the government to roll out new competition laws. In January 2023 a 1999 law on monopolistic practices and unfair competition was updated and adopted by the Indonesian Competition Commission (KPPU) to more suitably address digital markets. The updates focus on rules and criteria that are related to mergers and multi-sided markets. Notably, in March 2022 the KPPU approved a merger between Gojek and Tokopedia, one of Indonesia’s largest e-commerce platforms, to form GoTo Group.
Additional regulatory upgrades include a 2020 law on ESO registration – the deadline for which, following multiple delays, was put into effect in July 2022. The law requires ESOs operating in Indonesia, and foreign ESOs that conduct business activities within the country, to register with Kominfo. Major global ESOs were issued warnings regarding compliance, while others were blocked temporarily, demonstrating the government’s willingness to enforce the law regardless of a company’s size and profile. Regulatory advances have also been carried out in areas such as customs duties and value-added tax on electronic transmissions and intangible goods.
Internet Penetration, Usage & Speed
According to digital insights platform DataReportal’s 2024 report on Indonesia, as of January of that year the country’s overall internet penetration rate was estimated to be 66.5%, or 185.3m active internet users, with close to 99% of these users accessing the internet via mobile devices. Meanwhile, as of January 2024 the average time spent online by people in Indonesia between the ages of 16 and 64 was seven hours and 38 minutes. Annual consumer spending on mobile apps and in-app purchases in Indonesia rose by 20.5% between 2023 and 2024, or $129m in value terms, to surpass $757m. This growth demonstrates considerable opportunities for digital marketers and content creators.
In April 2024 internet speed analysis platform Ookla recorded a median mobile download speed of 26.6 Mbps for Indonesia and a median fixed broadband download speed of 30.2 Mbps. That same month the median mobile download speed in South Jakarta was 40 Mbps, while the median download speed for fixed broadband was 39.6 Mbps.
Performance & Size
In spite of challenges, Indonesia’s digital economy is expanding rapidly. According to Statistics Indonesia (BPS), the government’s official economic data provider, the information and communication sector underwent 7.6% year-on-year (y-o-y) growth in 2023, following on from 7.7% y-o-y expansion in 2022. High growth has been maintained due to the rapidly expanding population, the accelerated uptake of mobile technologies and government efforts to expand digital infrastructure.
According to the Economic Research Institute for ASEAN and East Asia, Indonesia’s digital economy grew by 414% from 2017 to 2021, and it is expected to expand by 62% from 2021 to 2025. In 2022 Indonesia’s digital economy reached $77bn – representing a 22% increase over 2021 – and its value could reach as high as $360bn by 2030. These figures are similar to those in the 2023 e-Conomy SEA report, a collaboration between Google, Singaporean investment company Temasek and global consultancy Bain & Company. This report valued the country’s digital economy at $76bn in 2022 and $82bn in 2023, with the sector’s value projected to rise to $109bn in 2025 and to $210bn-360bn by 2030.
Telecoms
In 2024 the size of the country’s telecommunications market is estimated to be roughly $13.7bn, forecast to grow to nearly $14.4bn by 2029, equating to a compound annual growth rate (CAGR) of 1%. Indonesia’s largest telecommunications company is Telkom Indonesia, which operates in the mobile market under subsidiary brand Telkomsel. Indosat Ooredoo Hutchison (Indosat), XL Axiata and Smartfren are the other major market players. Telkom Indonesia, which is government-owned, accounted for approximately 63% of market revenue in 2022, down from 67% in 2018. Indosat, which was formed in 2022 through the merger of Indosat Ooredoo and Hutchison 3 Indonesia, had a market share of close to 20% that same year, while XL Axiata controlled 12.4% and Smartfren just under 5%.
As of January 2024 Indonesia had more than 353m mobile subscriptions, a number that exceeds the country’s population due to some consumers having multiple subscriptions. In 2022 around 97% of mobile subscriptions were pre-paid, a dynamic that incentivises telecommunications companies to offer competitive price points to attract customers. Market share measured by percentage of active mobile subscriptions paints a similar picture to that of market share by revenue, albeit with a narrower advantage held by Telkom Indonesia. In 2022 the company accounted for 44.5% of mobile subscriptions, down from 47.5% in 2021. In contrast, Indosat’s market share climbed from 27.5% to 29%, XL Axiata’s from 15.6% to 16.3% and Smartfren’s from 9.3% to 10.2%. According to DataReportal, as of January 2024 the mobile penetration rate was equal to approximately 127% of the country’s population.
Infrastructure
Telkom Indonesia dominates the telecommunications infrastructure landscape. Data published in mid-2023 by Singapore-based research firm Twimbit shows that by the end of 2022 Telkom Indonesia owned and operated roughly 265,200 telecommunications towers, or 58.5% of the country’s total, while XL Axiata held the next-highest share at around 144,800, equal to 32% of the total. In 2022 Smartfren owned more than 43,500 towers, equal to 9.6% of the country’s total towers.
In spite of a 4G coverage rate of 97% by the third quarter of 2023, a lack of accessibility and poor connectivity have impeded internet penetration – particularly in more remote regions, as the bulk of the country’s primary digital infrastructure is concentrated on the island of Java. Addressing this issue is central to the government’s digital inclusion strategy, which targets adequate connectivity for all of Indonesia’s villages. In December 2023 Telkom Indonesia subsidiary Dayamitra Telekomunikasi purchased 803 towers from infrastructure operator Gametraco Tunggal for $113m, with around 70% of the newly acquired infrastructure outside of Java.
5G
According to the GSMA, an international mobile network lobby, as of the third quarter of 2023, 15% of the population was covered by 5G. This figure is projected to reach 80% by 2030 in the baseline scenario. The technology is expected to add more than $41bn to the country’s economic growth from 2024-30. However, a lack of related infrastructure has impacted the country’s digital development in recent years, given the new technology’s importance to advanced digital technologies such as the internet of things, advanced robotics and manufacturing, blockchain and cloud technologies, artificial intelligence and smart cities. All of these new technologies are considered integral to Indonesia’s development.
Insufficient bandwidth and spectrum, coupled with the high cost of the latter, are leading factors in the delayed expansion of 5G coverage. Telecommunications companies in Indonesia acquire broadband spectrum via auction, which pushes up costs for companies – subsequently limiting investment and impeding the implementation of new technologies. That, in turn, contributes to the perceived low quality of service delivery, reduced accessibility and connectivity, subdued adoption rates and unrealised economic gains for the country. Furthermore, as of November 2023 Indonesia’s 5G download speed of 58.3 Mbps was behind its neighbours in South-east Asia, at more than six times slower than in Malaysia and more than five times slower than in Singapore.
Given that 5G provides the bedrock for advanced technologies, the GMSA’s baseline scenario projects that Indonesia could realise economic benefits of $13.6bn from 2024-30 if the government and the country’s major telecommunications companies work to establish a more fruitful regulatory and business environment to facilitate infrastructure development. The government is working towards reaching its 4G and 5G targets under its digital roadmap for 2021-24, the stated goals of which are to modernise Indonesia’s digital infrastructure, accelerate the development of the digital government, boost the digital economy and strengthen digital society. Furthermore, XL Axiata has partnered with Chinese telecommunications firm Huawei and US company Juniper Networks to establish and advance different dimensions of its 5G services. In addition, Indosat is working with China’s ZTE, Sweden’s Ericsson, Japan’s NEC and German optical networking firm Adran to further its own 5G rollout, which had extended to eight Indonesian cities as of December 2023. Meanwhile, June 2023 and February 2024 saw the launch of powerful new Indonesian satellites through a partnership with US spacecraft manufacturer SpaceX, marking significant developments for the development of digital infrastructure.
Digital Payments & Fintech
The increased use of digital wallets and payment apps is deepening financial inclusion in Indonesia, with accelerated uptake since the pandemic. The implementation of the central bank’s Quick Response Code Indonesia Standard (QRIS) payment system has seen commercial digital banks assume the lion’s share of digital payments. In January 2024 digital banking transactions were up 17.2% y-o-y to more than Rp5300trn ($344.5bn), while payment transactions through the QRIS were up nearly 150%. From April to August 2023 the value of transactions carried out by e-money providers reached Rp189trn ($12.3bn), representing an increase of 12.6% y-o-y. This underscores that apps such as GoPay and OVO remain crucial to financial inclusion due to their availability to sections of the unbanked population. Meanwhile, commercial banks and fintech companies are innovating to improve access to formal banking channels for Indonesia’s rural areas (see Banking chapter).
As of January 2024 the proportion of Indonesians aged 15 or over holding an account with a financial institution was 51%, while the proportion holding a mobile money account was 9.3%, according to DataReportal’s 2024 report on Indonesia. The same publication noted that the proportion of those making digital purchases or payments was 29%, and the percentage of people who purchased something using a mobile phone or the internet within the past year was 18.2%. According to the US International Trade Administration (ITA), the number of fintech firms in Indonesia has grown rapidly, accounting for 20% of ASEAN fintech companies in 2024, with combined revenue to reach $8.6bn by 2025.
E-Commerce
The deeper integration of fintech facilities is boosting growth in Indonesia’s e-commerce segment. According to the ITA, Indonesia accounted for 52% of the total value of the ASEAN e-commerce market in 2022. By the start of 2024, 59% of Indonesian internet users between the ages of 16 and 64 were purchasing products or services online each week, while around 39% of customers were using buy-now-pay-later facilities every week. According to Indian market research firm Mordor Intelligence, the value of Indonesia’s e-commerce market is estimated to reach $81.8bn in 2024, with a CAGR of 15.5% forecast for the sector through to 2029 – to reach a value of more than $168.1bn.
In order to better regulate and manage the market, the MoT has issued a succession of regulatory updates over the past decade. Articles pertaining to e-commerce regulation are enforced by Law No. 7 of 2014 on Trade, which was expanded on and updated by new e-commerce-specific regulatory packages in 2019, 2020 and 2023. These changes addressed areas such as digital transactions and transaction management, business licensing, advertising and foreign e-commerce business involvement. Regarding the latter, foreign e-commerce businesses that complete over 1000 transactions and deliveries in Indonesia in a single year must establish a representative office in the country. They must also open an office if traffic to the operator is equal to 1% of local internet traffic within a one-year period.
Outlook
Digital technologies are now fundamental to international business and economic activities, and Indonesia’s government has responded by updating multiple dimensions of its digital policy to provide better protections for consumers, businesses and investors. To further capitalise on the country’s advantages and the population’s apparent appetite for digital solutions, the government and prominent telecommunications companies must overcome issues regarding high spectrum costs, uneven infrastructure dispersal and low-quality service delivery in underserved regions. That being said, these kinds of challenges equate to significant room for growth and a wealth of opportunity for international investors, particularly in light of marked changes to Indonesia’s business and investment laws that have been enacted in recent years.
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