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Taking the digital bull by the horns toward post-pandemic economic recovery

COVID-19 has changed human lives and lifestyles, interaction, socialization, commerce, work and education. The pandemic has had a significant impact on us, but we have also been fortunate in that we have seen the benefits of rapid digitalization in our lives. As a result, we have been relatively successful in transitioning our lifestyles to be more digitally oriented, even with the many challenges ahead that we must still face.

Rapid digital transformation in Indonesia was made possible because the government has been successful in providing nationwide access to electricity and the internet in completing the Palapa Ring Project at the end of 2019. This project has been central to our transition to the digital era.

The recent statistics in January 2020 from We Are Social show that 124 percent of the Indonesian population use a mobile phone, 54 percent have internet access and 69 percent actively use social media.

The 2017 Digital Evolution Index by MasterCard and the Fletcher business school categorized Indonesia as a “breakout” country with a relatively low but rapidly improving digitalization.

But Indonesia’s digitalization is uneven, developing fast in big cities in Java, moderately in Bali and Northern Sumatra, but relatively slowly in Central Kalimantan and East Nusa Tenggara. Those regions with local government support for digitalization, better human resources and digital infrastructure have a more developed digital economy.

Indonesia’s digital transformation has picked up the pace since the epidemic emerged here. Changes such as working from home, online teaching and learning and shopping online have become the new normal. The use of digital technology for work, school, business and daily activities has increased rapidly, despite the challenges of relatively slow internet connections, limited technical knowledge and the limited availability of digital devices. However, most people have learned quickly with the help of government and other organizations.

Statistics Indonesia (BPS) reported that 4.2 percent of non-agricultural small and medium-scale enterprises (SMEs) were involved in e-commerce in 2016, and that this increased to 15.08 percent in 2019, mostly in Java.

The epidemic has further accelerated our transformation to a digital economy. E-commerce transactions increased 162 percent in 2017-2019 according to Bank Indonesia data, while  the Cooperatives and SMEs Ministry found that online sales of food products increased 300 percent after the pandemic arrived in Indonesia in early March. This extreme growth was also observed in the fintech industry, which reported an increase of more than 200 percent in P2P lending in March.

Before the epidemic, Indonesia’s digital economy accounted for just 3.6 percent of gross domestic product (GDP), but the e-Conomy SEA 2019 report from Google, Temasek and Bain shows that it grew 49 percent per annum from 2015 to 2019, the largest growth in ASEAN. Growth is projected at 32 percent per annum until 2025, which means that in the next 10 years, the internet economy will comprise half of the Indonesian economy with even faster growth post-pandemic.

Digitalization is expected to extend to the post-pandemic economic recovery era. Craig Resnick of the ARC Advisory Group said this year that the COVID-19 pandemic has necessitated corporations to be more digitalized. In April, the World Economic Forum noted that governments that embraced new digital business models, like the platform economy and cloud computing, and created an environment for digital firms to thrive were more likely to capture inwards investment opportunities and spur economic growth.

Hence, the pandemic has resulted in the acceleration of digital transformation and automation. The challenge for Indonesia now is to prepare so that we are ready for the digitalization era.

It is interesting to assess our readiness for meeting the digitalization era. The indexes on digital competitiveness and ease of doing business show that Indonesia generally ranks around the middle in comparison to other countries.

Indonesia ranked 50th among the 141 countries in the 2019 Global Competitiveness Index 4.0, and ranked 72nd in ICT adoption. While we still rank low among the 63 countries surveyed on the IMD World Digital Competitiveness Ranking 2019, we have demonstrated some improvement, rising from 62nd in 2018 to 56th in 2019.

Indonesia dropped to 12th among the 14 Asia-Pacific economies in the 2020 Cloud Readiness Index (CRI), by the Asia Cloud Computing Association (ACCA), due to insufficient cloud infrastructure and poor performance in the governance needed for cloud adoption. Unfortunately, we also rank relatively low in the Ease of Doing Digital Business (EDDB).

Our life will change in the future, especially in the business sector. Digitalization is not only the best solution but also critical if we want to be modern and competitive. The digital economy will be an important economic driver and could become the largest contributor to GDP in the next decade. For this reason, Indonesia needs to build a robust digital ecosystem so we can attain high digital competitiveness, which in turn will support the growth of our digital economy.

We therefore need to continue improving our base infrastructure to support the digital economy, such as electricity and a fast internet connection. The infrastructure needs to be competitive, reliable and efficient throughout the archipelago. We also need to prepare laws in all sectors related to the digital economy (business, health, finance, safety etc), so we feel safe and comfortable using digital technology.

Most importantly, the regulations need to build public trust in digital technology, reassuring users of the privacy of their data and the reliability of the systems they use. We need to support digital transformation for entrepreneurs, especially SMEs, that need the functionality and flexibility of digital solutions to increase efficiency and face the headwinds of a post-COVID economy.

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The writer is an economics professor at Gadjah Mada University and founder of the Institute of Social, Economic, and Digital (ISED).
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.