{"id":127557,"date":"2021-08-02T16:12:06","date_gmt":"2021-08-02T08:12:06","guid":{"rendered":"https:\/\/www.grab.com\/sg\/?p=127557"},"modified":"2021-08-02T16:12:32","modified_gmt":"2021-08-02T08:12:32","slug":"digital-policy-in-indonesia-the-missing-public-sector-link","status":"publish","type":"post","link":"https:\/\/www.grab.com\/sg\/blog\/public-policy\/digital-policy-in-indonesia-the-missing-public-sector-link\/","title":{"rendered":"Digital policy in Indonesia: The missing public sector link"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"127557\" class=\"elementor elementor-127557\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-fa9e740 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"fa9e740\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-ddf24d5\" data-id=\"ddf24d5\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-477304c elementor-widget elementor-widget-text-editor\" data-id=\"477304c\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p><i><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/assets.grab.com\/wp-content\/uploads\/sites\/4\/2021\/08\/02160750\/agung-prasetyo-H_janvmOIrk-unsplash-11.jpg\" alt=\"\" width=\"1920\" height=\"910\" \/><\/i><\/p><p><i>Ridzki Kramadibrata, President, Indonesia, Grab writes about the role of the public sector in shaping the nation&#8217;s digital economy. This article was originally published by the <a href=\"https:\/\/www.weforum.org\/agenda\/2021\/03\/digital-policy-in-indonesia-the-missing-public-sector-link\/\">World Economic Forum<\/a>.<\/i><\/p><div class=\"st__content-block st__content-block--list\"><ul><li>The digital economy is the motor behind the growth of the entire technology sector in Indonesia.<\/li><li>Regulators must be cognisant of the ever-escalating role the digital sector is playing and adopt concrete regulation that supports growth of digital firms.<b><\/b><\/li><li>Although government support in expanding hard infrastructure is appreciated, Indonesia\u2019s low digital competitiveness remains a long-term concern.<\/li><\/ul><\/div><div class=\"st__content-block st__content-block--text\"><p>There is no industry in Indonesia that has grown as fast as the digital economy. It is predicted that by 2025, the digital economy in Indonesia will have\u00a0<a href=\"https:\/\/storage.googleapis.com\/gweb-economy-sea.appspot.com\/assets\/pdf\/e-Conomy_SEA_2020_Report.pdf\" target=\"_blank\" rel=\"noopener\">reached $124 billion<\/a>, up from $44 billion in 2020. Even during the COVID-19 pandemic, the country\u2019s digital sector is projected to grow by 10%, up from $40 billion in 2019 \u2013 far outpacing other sectors that are currently stagnating. Statistically, this is an unprecedented fourfold increase from 2015 to 2020 and a more than twofold increase between 2020 and 2025.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>Unfortunately, this growth has been driven almost exclusively by the private sector. But without sufficient public support, the benefits stemming from the digital economy,\u00a0<a href=\"https:\/\/www2.deloitte.com\/id\/en\/pages\/financial-advisory\/articles\/smes-powering-indonesia-success-report.html\" target=\"_blank\" rel=\"noopener\">especially to small and medium-sized enterprises (SMEs<\/a>), cannot be properly developed. Soon, however, the digital economy will be too big for regulators to ignore.<\/p><div class=\"st__content-block st__content-block--text\"><p><b>A catalyst for economic recovery<\/b><\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>Currently, the digital economy accounts for more than 4% of Indonesian GDP and more than 10% of Indonesia\u2019s stock market capitalisation (JCI Index). Indonesia currently has six unicorns with a combined valuation of over $30 billion. With an IPO well within the short-run trajectory for some of these firms, it is imperative that regulatory authorities tailor themselves to prepare for the advent of this \u201cnew economy\u201d. If these unicorns indeed go public within the next three years, they are well on track to becoming the sixth largest sector in the JCI index.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>Given how significant the digital economy is in penetrating every segment of the economy, regulators must be cognisant of the ever-escalating role that is being assumed by this sector. Importantly, the digital economy is proven to be a catalyst for economic recovery. Initiatives started by governments, such as Bangga Buatan Indonesia<i>\u00a0<\/i>(Proudly Made in Indonesia)<i>,\u00a0<\/i>whereby digital firms are encouraged to promote local SMEs to market their local products, is a sign that the government has realized the resilience of this sector in sheltering such businesses during the COVID-19 pandemic.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>However, persuasion alone is not enough. There must be concrete regulation that supports the growth of these digital firms and ensures a healthy flow of capital for the benefit of the greater good.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p><b>The case for digital industry<\/b><\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>The digital industry is often lumped together with the well-known technology industry. In Indonesia, both industries are often classified under the umbrella term TIK (Information, Communication and Technology). In setting policies, regulators caught in this murky lexicon often surreptitiously conflate the two under the umbrella categorisation of \u201ctech firm\u201d, thereby sacrificing the analytical rigour needed to streamline policy-setting.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>The digital or internet economy is a more restrictive subset of the technology industry that utilises computing technology to enhance user experience. It is more focused on user-centricity: streamlining customers\u2019 journey, leveraging business activities or shifting the way that daily activities are conducted are at the core of digital businesses. Digital firms are less of a producer of physical products than a progenitor of complementary prototypes that nurse users\u2019 daily activities. E-commerce firms, which connect merchants and prospective buyers, or ride-hailing firms, which connect passengers with prospective drivers, are examples of such.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>Bearing in mind that digital firms have their own business characteristics, regulators must then understand the nature of this industry to set a more targeted policy. Since the digital sector is often seen as just another part of the technology sector, the policy created is usually all-encompassing, which fails to take into account of the distinct characteristics of the digital sector. For example, current incentives in the technology sector in Indonesia rely mainly on tax deductions for R&amp;D and worker training. Would such incentives be effective in attracting digital investment to Indonesia?<\/p><div class=\"st__content-block st__content-block--text\"><p>The entry point in understanding the nature of the digital industry is to investigate its spending structure. As its products are primarily digital, the fixed asset possession is generally much lower than other businesses. Yet investment regulation in Indonesia still strictly considers capital expenditure (capex) as the only item eligible for investment incentives. This does not bode well for digital firms, which generally spend very little in capex for their operations. Instead, digital firms are concerned with the need to establish a new ecosystem for their product to thrive in.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>The spending to build a consumer base is often diminutively called \u201ccash burning\u201d. However, digital firms are ambitious: they are trying to introduce a new product, a so-called \u201cdisruption\u201d, that will change the way users conduct their daily activities. For digital firms, the spending to build this ecosystem is an intangible asset by itself. In the digital world, where products are initially alien, testing the water before any capex commitment is made is crucial. Naturally, after the ecosystem is sufficiently built, the spending on infrastructure (such as a data centre) will come by itself. This business model is akin to a large digital firm like Amazon or Google, whose long-term profitability horizon rests on its success in building its unique network base.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p><b>Facing the digital future<\/b><\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>It is not incorrect, to say the least, that the Indonesian technology sector has grown rapidly. To be more precise, however, it is necessary to attribute this growth almost exclusively to the digital economy sector. The digital economy can be thought of as the motor behind the entire technology sector in Indonesia.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>In the end, the law and accounting standards have difficulty in coping with the pace of innovation. This is despite the significant contribution of this spending to the Indonesian economy, especially in\u00a0<a href=\"https:\/\/www2.deloitte.com\/content\/dam\/Deloitte\/sg\/Documents\/financial-services\/sea-fsi-digital-financial-services-in-Indonesia-noexp.pdf\" target=\"_blank\" rel=\"noopener\">facilitating financial inclusion<\/a>\u00a0or opening up\u00a0<a href=\"https:\/\/www.thejakartapost.com\/academia\/2020\/01\/30\/how-digital-economy-could-benefit-indonesians.html\" target=\"_blank\" rel=\"noopener\">massive employment opportunities<\/a>. Instead of lurking within the framework of the law, regulation must adopt an agile and impact-focused mindset in facilitating digital transformation to best appropriate its benefits.<\/p><\/div><div class=\"st__content-block st__content-block--text\"><p>By implication, it is necessary for regulators to set an appropriate policy that is tailored for the digital sector. Whilst infrastructure plays a crucial role in expanding the digital reach of the population, the digital industry is directly related to the capability of human capital in utilising technology to assist their activities. Although government support in expanding hard infrastructure is appreciated, our\u00a0<a href=\"https:\/\/www.imd.org\/globalassets\/wcc\/docs\/release-2020\/digital\/digital_2020.pdf\" target=\"_blank\" rel=\"noopener\">low digital competitiveness<\/a>\u00a0remains a long-run concern. Supporting the digital industry implies leveraging our soft infrastructure in preparing for the new economy.<\/p><\/div><\/div><\/div>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"Ridzki Kramadibrata, President, Indonesia, Grab writes about the role of the public sector in shaping the nation&#8217;s digital economy.","protected":false},"author":1103,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[480],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/posts\/127557"}],"collection":[{"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/users\/1103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/comments?post=127557"}],"version-history":[{"count":5,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/posts\/127557\/revisions"}],"predecessor-version":[{"id":127566,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/posts\/127557\/revisions\/127566"}],"wp:attachment":[{"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/media?parent=127557"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/categories?post=127557"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.grab.com\/sg\/wp-json\/wp\/v2\/tags?post=127557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}