Pandemic Accelerates Digitalization, But Not Yet Inclusive

KOMPAS/RADITYA HELABUMI

Cashiers serve digital payments through QRIS (Quick Response Code Indonesian Standard) at the Karya Kreatif Indonesia 2022 exhibition at the Jakarta Convention Center (JCC), Jakarta, Thursday (26/5/2022).

The Covid-19 pandemic has accelerated digital transformation in all aspects of life. However, digital transformation is not yet inclusive. The problem of unequal internet access, the lack of digital literacy and the limitations of a competent workforce remain the main barriers.

The social restrictions imposed to cope with the Covid-19 pandemic are believed to have partly contributed to the acceleration of the adoption of the digital technology in various aspects of life. A research report related to Southeast Asia, The Home for Digital Transformation, published by Bain & Company with full support from Facebook Inc (2021), indicated that the Southeast Asia region, led by Indonesia, added 70 million new consumers of digital services since the start of the pandemic. These services range from social media to digital payments.

Meanwhile, Bain & Company together with Google and Temasek through the e-Economy SEA 2021 report showed that during 2020 to semester I-2021, as many as 72 percent of the additional 21 million new consumers of digital services came from non-big cities. Unlike with the Southeast Asia report, The Home for Digital Transformation, the e-Economy SEA 2021 report limits digital services in the concept of the internet economy originating from e-commerce, online media, ride hailing, tourism and travel, digital financial services, educational technology and health technology.

An owner of a small company which sells herbal drinks in Bantul, Yogyakarta, Herdiana Dewi Utari, who started her business in 2008, has proven it.

In the e-Economy SEA 2021 report, it was also stated that 28 percent of Indonesian small and medium enterprises (SMEs) that had adopted digital technology were able to survive during the pandemic. An owner of a small company which sells herbal drinks in Bantul, Yogyakarta, Herdiana Dewi Utari, who started her business in 2008, has proven it.

After Covid-19 was officially declared pandemic and social restrictions were imposed, retail shops -- which were the main distributors of herbal products in the form of instant spices -- had to close. In fact, the stocks that had already been prepared could not be distributed. With her new knowledge from participating in various digital marketing trainings, including at the Dharma Bakti Astra Foundation, she decided to open online stores in various market places and social media.

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When contacted on Friday (10/6/2022), Herdiana acknowledged that the demand for herbal products continued to increase thanks to the use of online sales channels. Many of her friends who were previously engaged in handicraft production were forced to look for other jobs. Herdiana then invited them to become resellers of her herbal products.

H. Nuryaman (50) had a similar experience. He did not expect the pandemic to change the way he sold his cakes. He no longer sells his cakes via vendors in a number of markets in Bogor Regency, West Java. At present, the majority of cakes are sold online. He has opened an online shop called Toko Pasti Puas at the Shopee market place.

"In 2020, cake orders amounted to 5,400 with a value of Rp 77.79 million (US$5,250). In 2021, since many people had to work from home, the orders further increased to 12,625 with a value of Rp 138.29 million. Then, from January to May, the number of orders for the cakes amounted to 6,690 with a value of Rp 62.67 million,” said Nuryaman.

Based on the e-Economy SEA 2021 report, the e-commerce sector was the biggest contributor to the soaring value of the internet economy. At least 52 percent of the Indonesian internet economy worth about $70 billion in 2021 came from e-commerce. The increase cannot be separated from the government's role in encouraging micro, small and medium enterprises (MSMEs) to enter digital marketing (digital onboarding). Shortly after Covid-19 was declared a pandemic, the government called for the Proud with Indonesian Products Movement. All ministries/agencies and of course the private sector have been encouraged to get actively involved in training, including a product-branding workshop.

Shopee Indonesia’s executive director Handhika Jahja said tens of thousands of MSME partners had participated in digital marketing training at nine Shopee MSME campuses. Export trainings were also held during the pandemic. Shopee has so far had 180,000 MSME partners who have marketed their products in foreign countries such as Dinova Store, Monica The Label and Gudang Barang Bandung.

The number of users of BukuWarung's bookkeeping application rose 333 percent or to 6.5 million users by the end of 2021.

The rapid development of the e-commerce sector has also had a positive impact on the supporting businesses, such as warehouses, courier services and financial-recording solutions. The head of product marketing at the BukuWarung bookkeeping startup, Irwansyah Fansury, acknowledged that there was a growing awareness among SMEs to digitize their business processes, not just market them. The number of users of BukuWarung's bookkeeping application rose 333 percent or to 6.5 million users by the end of 2021.

Non-trading

In the fisheries sector, CEO and co-founder of Jala Tech, Liris Maduningtyas, said the pandemic, due to the limitations imposed on people's activities, had encouraged shrimp farmers to be more active in using applications to monitor production in ponds, including entering collective-growth data.

Jala Tech has even been able to develop several new business models, including shrimp farming and a partnership with shrimp traders to get shrimp supplies from farmers through the Jala application. With this approach, traders are able to increase the supply of shrimp from 20 tons to 60 tons per week. In 2021, Liris said that Jala received an injection of new investment worth $6 million from investors which included Mirova and the Meloy Fund.

Education is also one of the sectors hardest hit by social restrictions due to the Covid-19 pandemic. However, this situation has accelerated the adoption of educational technology (ed tech) services that have been developing since 2012. As of June 2020, citing the Daily Social EdTech Report 2020 report, there were 19 ed tech startups valued at more than $1 billion, or unicorns, around the world, that have collectively raised more than $9 billion of total funding over the last 10 years.

Some have entered Indonesia, such as Duolingo, Udemy and Cousera. According to Holon IQ, several Indonesian ed tech startups have even made the list of top 50 in Southeast Asia, including RuangGuru, HarukaEdu, Bahaso, Quintal and Zenius (Kompas, 21/12/2020).

“Our service now has 38 million registered users and is accessed 200 million times per month. The learning management system or LMS solution that we have developed has been used by 38,000 schools," said Ruang Guru president director Adamas Belva S Devara.

Problem

Despite these brilliant achievements, a number of problems still restrain digital transformation. Citing the World Bank report, Beyond Unicorns: Harnessing Digital Technologies for Inclusion (2021), the Indonesian HealthTech Association reported that about 250 registered companies had operated in the health technology services.

Just like ed tech startups, health tech startups in Indonesia have also provided their services online during the Covid-19 pandemic. However, their services are limited to affluent clients in urban centers, mostly in Java.

Due to the slow internet speed, data transfer becomes costly.

The Cooperatives and Small and Medium Enterprises Deputy Minister for Micro Business, AH Novie, said in Jakarta on Monday (6/6/2022) that poor internet connection remained an obstacle for MSMEs in a number of areas. Due to the slow internet speed, data transfer becomes costly.

“There was a story about business players wanting to obtain the business registration number (NIB) to get a business license. They had difficulties due to slow internet speeds. While the data had been given to mentors and being processed at PLUT (Integrated Business Service Center) for Cooperatives and Micro, Small, and Medium Enterprises, the requests could not be sent because there was no internet network," he explained.

Assistant of the Deputy for Digital Economy at the Office of the Coordinating Economic Affairs Minister, Rizal Edwin, said that there were still problems related to human resources. The digital literacy index in Indonesia in 2021 is still relatively moderate. The financial inclusion index in 2019 had indeed reached 76.19 percent, but financial literacy was still 38.03 percent. Indonesia also still lacks around 600,000 competent talents in digital technology per year until 2030.

The World Bank Country Director for Indonesia and Timor Leste, Satu Kahkonen, in the report Beyond Unicorns: Harnessing Digital Technologies for Inclusion (2021), said that the universalization of the internet served as an important starting point in policy-making that the Indonesian government must have. Therefore, policy interventions should not only address telecommunication infrastructure issues, but also regulations that enable the digital economy to grow more inclusively.

“The government needs active intervention to ensure workers across the country are equipped with the skills they need to take full advantage of digital opportunities,” he said.

(This article was translated by Hendarsyah Tarmizi)