Digital trade to grow 18-fold to reach US$172 billion in Indonesia by 2030

Digital trade will be the biggest contributor to Indonesia’s economy by 2030 as it will help in increasing and diversifying the export base and promote the local firms to leverage digital technologies across every sector of the economy.

In 2017, the economic value of digital trade-enabled benefits to the Indonesian economy is estimated to be worth US$9 billion, which is equivalent to 0.9 percent of its GDP, according to a report by the Hinrich Foundation, titled “The Digital Komodo Dragon: How Indonesia Can Capture The Digital Trade Opportunity At Home And Abroad”.

The report states that if digital trade is fully leveraged, it is estimated that the value of Indonesia’s domestic sectors could grow by more than 18-fold to reach US$172 billion by 2030. 

The digital export accounted for US$2 billion in 2017 and this could grow by 768 percent to reach US$18 billion by 2030. The country has been rushing to develop regulations for the digital economy. One of the promising reforms has been to raise the de minimis thresholds on inbound shipments. 

The country’s e-commerce market is expected to be the biggest at $53 billion or 41 percent growth for 2015-2025, according to Google – Temasek e-economy SEA 2018. The e-commerce market in the country has been booming as 47 percent of the total population use smartphones with screen time of almost four hours a day. 

However, the proposed data localization requirements and the imposition of customs duties on digital imports could significantly impact data flows and undermine the country’s ability to capture the digital opportunity. 

On data localization, the government has enacted a law that electronic system providers offering public services must place data centres and disaster recovery centres within Indonesia, ostensibly for the purposes of law enforcement and customer protection. It is unclear what constitutes “public services” in this regulation and law enforcement and customer protection concerns can be addressed without requiring data localization, which can impose significant costs on the economy. 

The recently enacted legislation on data localization could potentially reduce GDP by around 0.5 percent in Indonesia and this could grow to up to 0.7 percent of the GDP if economy-wide restriction is introduced.