Prospera estimates digital economy growth will continue to be driven by industries embedding digital innovation into business operations.

The Indonesian digital economy of today looks very different to 2010 when Nadiem Makarim, Kevin Aluwi and Michaelangelo Moran founded a ride hailing and courier call centre with a small team of 20 motorcycle-taxi (ojek) drivers.

Within the decade the start-up – Gojek – was a household name which had taken Southeast Asia by storm and held a mirror to Indonesia’s digital journey.

In 2010, the digital economy represented just 5.7% of GDP and was dominated by a core information and communications technology (ICT) sector.

These activities – like internet service providers, web development and communication equipment manufacturing – accounted for more than 70% of the digital economy.

A relatively small component of the sector related to digital processes used in business operations (broad scope) or creating intrinsically digital products (narrow scope).

By 2021 this had changed and, according to recent Prospera estimates, the additional value created by the digital economy had grown to 7.5% of GDP.

Prospera economist Rendra Delano said the digital economy was not viewed as a standalone industry but one distributed across other sectors.

“The measurements deducted the digital economy’s contribution from each parent sector,” he said.

“This would make it Indonesia’s sixth largest sector – larger than finance and transportation, and slightly smaller than the mining industry.”

A digital wave
The digital boom was driven by significant growth in the narrow and broad scope sectors which, in little more than a decade, went from less than 30% of the digital economy to nearly half.

On the other side of the coin, the core ICT sector represented 4% of GDP in 2021 – same as 11 years earlier – but decreased by nearly 17 percentage points in terms of its digital economy share.

The shift began in the mid-2010s as broad scope firms began to digitalise their business models by embedding innovative new technologies such as digital marketplaces and reservation platforms.

At the same time, narrow scope businesses flourished with entrepreneurs creating intrinsically digital products like streaming services and mobile apps.

Among them was Gojek, which launched into both broad and narrow scope sectors at the start of 2015 with a new app that offered ride, payment, shopping and food services.

As the first of Indonesia’s unicorns – tech start-ups valued over USD 1 billion – and with 2 million drivers across Indonesia, Vietnam and Singapore, it’s fair to say Gojek has come a long way from a few ojeks buzzing around Jakarta.

Indonesia is home to 11 of 35 Southeast Asian unicorns. Singapore, which has 15, is the only country in the region with more.

Last year Gojek merged with fellow unicorn and e-commerce business Tokopedia to form GoTo. This month the conglomerate listed on the Indonesian stock exchange with the country’s largest public share offering, raising USD 1.1 billion in the process.

 

The roaring 2020s
With the digital economy surging, new measurement techniques are needed for policy making in areas such as investment, innovation and skills.

In addition to tracking the digital economy from 2010, Prospera also forecast its growth through the current decade.

Prospera’s measurements – which were conservative and did not account for a major technological revolution – indicate that by 2030 digital could represent a tenth of the national economy.

This growth will again be driven by the broad scope and narrow scope sectors. Taken together they could comprise more than half the digital economy and over 5% of GDP by 2030.

The core ICT sector will need to be strengthened for Indonesia to affirm its position as a major global player in the digital economy.

While the core sector will continue to be outpaced by the broad and narrow sectors, it too is expected to grow by more than a percentage point through the decade.

Gojek may have been the first Indonesian unicorn but, with the wheels on the digital economy set to keep turning, it likely won’t be the last.

For more information, please contact Rendra Delano, Economist, at rendra.delano@prospera.or.id