Looking beyond unicorns for an inclusive digital future in Indonesia

The COVID-19 pandemic has exacted a heavy toll on the lives and livelihoods of people in Indonesia. The economy shrank by 2.2 percent in 2020. At the previous peak of the crisis, about 5.1 million people (2.5 percent of the working-age population) were estimated to have become unemployed and another 24 million individuals working reduced hours due to COVID-19. More than 2.2 million Indonesians were pushed into COVID-induced poverty.

One globally recognized trend during the pandemic that has appeared as a silver lining of sorts is the accelerated adoption of digital technologies, by people, by firms, and in many cases also by governments. For Indonesia which was already the fastest-growing digital economy in the South East Asia region, this presents an exciting opportunity to harness the power of these technologies to address some of its fundamental development challenges of making the economy more competitive and inclusive.

But will the benefits of a growing digital economy be shared evenly by all segments of Indonesian society? Or will some leapfrog ahead, leaving others behind? Who will the winners and losers be? And what can policymakers do to ensure that the growing adoption of digital technologies helps reduce existing gaps and inequalities and not actually widen them?

Our team takes on some of these questions in our latest publication Beyond Unicorns. Extracting novel insights from a variety of data and methods, we show how a growing digital economy is not necessarily an equitable one. Long-standing non-digital challenges that Indonesia has faced to make growth inclusive remain important constraints on how effectively Indonesia is able to harness the digital dividends for all. 

But the digital divide doesn’t have to be Indonesia’s destiny. With proactive policy measures to ensure a level playing field for all actors, Indonesia can secure a truly inclusive digital future for its citizens . We highlight three key policy priorities to help Indonesia achieve this.

First, universalizing access to good quality internet is foundational. Despite significant progress over the last decade on expanding access, including through the completion of the Palapa Ring Project, almost half of Indonesia’s adult population remains not connected to the Internet. Closing this gap will require not just addressing the hard infrastructure-related constraints, especially for last mile connectivity, but also softer interventions related to competition and sector regulation which have a major bearing on the quality and affordability of the internet, especially for the less well-off.

The second priority is ensuring that the digital economy works for all. This will require investing in and facilitating key enablers of the digital economy while at the same time unlocking citizen capabilities to seize the opportunities that are generated. To achieve this Indonesia will need to make progress on financial inclusion, facilitate trust to promote greater take-up of digital payment services, improve logistics and scale up investment in digital skills as well as a broader set of skills to thrive in the digital economy.

The third policy priority is for the government to lead in harnessing the medium to provide better services and upgrade the quality of citizen-state interactions. This is a complex agenda but two concrete starting points could be a whole-of-economy national digital ID initiative and a whole-of-government approach to digital transformation driven by an agency sufficiently empowered to resolve crucial inter-agency coordination challenges. To boost trust in online transactions and digital government, the passage of the draft Law on Personal Data Protection would be important to provide safeguards and accountability for the collection, use and sharing of personal data, as well as formalizing the rights of data subjects. An essential feature for the credibility and strength of such a law would be independent oversight.

Finally, in addition to these three fronts, there is a cross-cutting fourth area that is critical. In order to truly make the digital economy more inclusive, efforts to universalize the digital medium and stimulate digital innovations must be embedded in a broader ‘bricks-and-mortar’ reform agenda that includes greater openness and competitiveness, stronger regulations, more comprehensive social protection and investments in skills for the future.