Digitalization Becomes a New Economic Driver

Digitalization has provided a lot of opportunities to accelerate economic growth. However, it turns out that only 21 percent of MSMEs have been able to take advantage of digital technology.

KOMPAS/PRIYOMBODO (PRI)

Activities at the electronic payment company Doku office in Jakarta, Tuesday (22/10/2019). Indonesia's digital economy ecosystem is maturing along with the rapid growth of the country's digital industry.

JAKARTA, KOMPAS — Digitalization, which has developed rapidly in the last two years, is expected to become a new engine of economic growth. However, amid the bright prospects, there are challenges that should be anticipated so that digitalization will not widen the gap in Indonesia’s economic recovery.

The digitalization trend is seen in the rapid growth in the value and volume of digital transactions. According to data provided by Bank Indonesia (BI), the value of digital banking transactions reached a total of Rp 11.10 quadrillion (US$758.68 billion) in the first quarter of 2022, a 34.9 percent increase compared to the figure recorded in the first quarter of 2021.

In February, the value of digital financial transactions in e-commerce totaled Rp 30.8 trillion with 222.9 million transactions, an increase by about 12 percent from Rp 27.3 trillion, with 174.6 million transactions, in the same period, 2021.

The growth in transaction value and volume also occurred in the QRIS payment method. As of February, the total value of the QRIS transactions quadrupled annually to Rp 4.5 trillion, while its volume tripled to 54.6 million transactions.

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According to a survey conducted by Google, Temasek and Bain & Company, the gross merchandise value of the digital economy (the total value of goods traded) in Indonesia reached $70 billion at the end of 2021.

Finance Minister Sri Mulyani said the issue of economic digitalization was one of the main agendas and concerns in this year's Group of 20 forum discussions. Digital transformation in various aspects of life and economic activities has become a worldwide phenomenon, especially since the Covid-19 pandemic.

"Hopefully, digitalization in various aspects of life and economic activities can be a new source of economic growth," Mulyani said in Jakarta on Thursday (12/5/2022).

The easing of the pandemic will not necessarily drive the people, who previously used e-commerce platforms, back to offline transactions. According to Lazada's Digital Commerce Confidence Index report, 77 percent of the 766 online sellers in six Southeast Asian countries, including Indonesia, are optimistic about achieving 10 percent sales growth in the second quarter of 2022.

BI Governor Perry Warjiyo has emphasized that digitalization is a changing factor that can increase business capacity post-pandemic. Digitalization also significantly contributes to the development of micro, small and medium enterprises (MSMEs).

KOMPAS/TOTOK WIJAYANTO (TOK)

Online motorcycle taxi drivers queue to order food ordered by customers at a restaurant in the Tanjung Priok area, North Jakarta, Thursday (2/4/2020).

The chairman of the Indonesian Employers' Association, Hariyadi Sukamdani, said that digitalization did not only improve the operational efficiency of the business world but also expanded market coverage. Digitalization has also brought a new economic order where anyone can dominate the market as long as they have internet access and are good at navigating the digital ecosystem.

“The economy becomes more efficient and the market reach is wider. The order is fairer. Everyone can take advantage of it, not only old businesses which have large resources," he said.

Inequality

However, it is feared that digitalization can widen inequality in economic recovery. According to a World Bank study, “Beyond Unicorns: Harnessing Digital Technologies for Inclusion in Indonesia ” (2021), based on the per capita expenditure of decile groups, 71 percent of the people connected to the internet in Indonesia come from the 10th decile group (the most prosperous).

The lower the economy class, the more disconnected they are from internet access. Only 14 percent of decile group 1 (the least prosperous) is connected to the internet.

The internet for business is also mostly used by the people t from the richest group (quintile 5), which account for 24 percent. In contrast, only 1 percent of the poorest group (quintile 1) uses the internet for business.

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The same thing is shown in the 2020 National Socio-Economic Survey. The majority of e-commerce players or 64 percent come from the richest people in Indonesia. Only 19 percent of the underprivileged people use the internet for business.

The secretary-general of the Indonesian MSME Association, Edy Misero, said recently that most MSME players did not have the ability to access digital technology. Of the 64 million MSMEs in Indonesia, only 21 percent have used digital technology to increase competitiveness.

The gap in the use of digital technology, he said, must be addressed by the government, associations and MSME owners.

KOMPAS/RADITYA HELABUMI (RAD)

Rony, a gado-gado and ketoprak seller, shows his shop on the ShopeeFood application in the Tanjung Duren area, West Jakarta, Friday (13/8/2021).

There should be an easy access to financing, markets, training and coaching to empower MSME players to adopt digitalization.

Edy criticized the high commission fee charged by e-commerce platforms, especially food delivery applications, which has burdened MSMEs.

“MSMEs want to digitize, but they become cash cows, while the platforms are getting more profits. We are grateful for the presence of the platform, but don't let them become new middlemen," he said.

Solutions

A number of technology start-ups have also begun to highlight the issue of digital inequality; for example, eFishery, which has supported aquaculture fish farmers for the last nine years by providing internet of things (IoT) facilities for feeding fish, financial services, as well as food and fish product marketplaces.

Support in the form of financial technology has also been offered to MSME owners. Peer-to-peer lender Amartha , for example, has disbursed a total loan of Rp 6.45 trillion to 1.058 million female micro-entrepreneur partners. The Amartha Sustainability Report 2020 shows that the welfare of 94.3 percent of the women entrepreneurs who borrow from Amartha has increased.

It is better to discuss the efforts on how the government should facilitate digital technology platform providers so that they provide solutions that make it easier for the community and MSMEs.

The executive director of the Centre for Strategic and International Studies (CSIS), Yose Rizal Damuri, suggested that as the holder of the G20 presidency, the government should be able to propose solutions for cooperation between developed and developing countries to support the use of digital technology for the community and MSMEs.

"It is better to discuss the efforts on how the government should facilitate digital technology platform providers so that they provide solutions that make it easier for the community and MSMEs. That way, the benefits obtained from the digital economy will be even greater,” said Yose.

This article was translated by Hendarsyah Tarmizi.