SEA’s digital economy to double in 2025, nearly half of it in Indonesia

Southeast Asia’s digital economy is expected to expand to US$363 billion by 2025 according to the latest SEA e-Conomy repot from Google, Bain and Temasek, surpassing the previous forecast of $300 billion. Nearly half of that growth is contributed by Indonesia. Meanwhile, East Java promises to be an exciting new frontier for Indonesia’s digital economy.

E-commerce, travel, media, transport and food are among the drivers of digital growth in the region. According to the report, online spending should have risen by 49 % in 2021 compared to the previous year. As many as 60 million new digital consumers entered the market since the start of the COVID-19 pandemic.  

Deals for internet companies in Southeast Asia reached $11.5 billion in the first half of 2021, putting the region on track to surpass its 2020 record. Major internet companies such as Indonesia-based GoTo (a merger between the two Indonesian unicorn giants Gojek and Tokopedia) and Malaysia based Grab are among those that are reaping the funds and are taking steps to allow early investors to profit from their investment. 

Little wonder that Indonesia, with its massive population size and favorable demographics, is the largest digital economy in the region. According to the report, online spending in the archipelago will likely double to $146 billion by 2025. Deals for internet companies in the country in the first half of 2021 have already surpassed the full-year totals of the past four years. Indonesia in particular will possibly become twice as big a market as the entire Southeast Asian region by 2030, said Florian Hoppe, head of digital practice in Asia Pacific at Bain, as quoted by Bloomberg.  

East Java: a promising digital frontier 

The information and communication business in East Java is proliferating. This situation is mainly due to the implementation of work from home (WFH) and school from home (SFH) policies caused by the COVID-19 pandemic. This has resulted in higher data traffic among cellular and an increasing use of virtual meeting applications, such as Zoom and MS Teams. Not only that, e-commerce also contributes significantly to the rapid development of the digital economy in East Java 

A look at the development of the digital economy in East Java reveals quite significant progress; the Indonesian Central Statistics Agency (BPS) and the Tourism and Creative Economy Agency (Bekraf) report that there has been a considerable increase in this sector since 2016. Based on gross added value, the world of film, animation, and video has grown by 32.45 %. Meanwhile, the development in the television and radio sub-sectors reached 28.56 %. On the other hand, the digital economy continues to grow at a rate of 40% per year. 

The East Java Provincial Government strongly supports the development of the digital economy by establishing the Millenial Job Center (MJC), a networking and link and match platform for digital professionals. MJC is expected to be a forum for digital sector industry players to seek and find professionals in the digitalization field in line with the criteria of a company. It is intended to reduce unemployment and increase community participation in the development of the digital sector. MJC was first introduced with the establishment of Jatim IT Creative (JITC), a gathering place that is equipped with internship programs, co-working spaces, and meeting rooms that are free of charge. JITC was formed in Surabaya and Malang and has produced six community start-up groups in Industrial Products Design, Animation, Photography, Comics, Digital Marketing, and Cinematography.  

Surabaya itself is the number one leading start-up host city in East Java. It hosts 98 digital industry players of the total 281 start-ups in East Java (2019 data)—followed by Malang in second place with a total of 70 start-ups formed. These start-ups are generally engaged in e-commerce, online tuition payments, bitcoin investment, financial technology, drones, animation services, game development, network service provision, business contacts, travel services, health, and others. 

Surabaya and Malang are two cities in East Java that are included in the top 10 in the category of cities that are considered competitive based on the digital economy industry in Indonesia by the East Ventures Digital Competitiveness Index (EV-DCI) 2020. Surabaya hovered in third place with a score of 53.9, while the city of Malang was ranked ninth with a score of 47.2. The first position meanwhile is, of course, still occupied by DKI Jakarta as the nation's capital, with a population approaching 10,500,000 pocketing an EV-DCI score of 78.8 and followed by Bandung, the capital of West Java, with a population approaching 2,500,000 people with an EV-DCI score of 56.9.  

Source: East Ventures Digital Competitiveness Index 2020 

One example of a start-up from East Java that has developed rapidly and penetrated the international market is MOCCA, a start-up assisted by MJC at JITC Malang since 2012. This start-up is engaged in international animation, working on films, digital applications, and several derivative products. MOCCA has successfully worked on animation projects on a B2B basis and has established partnerships with major studios in foreign countries such as Italy, Canada, the United States (US), India, Thailand, the Philippines, and others. 

The rapid growth of the digital industrial sector is of course not a phenomenon limited to East Java. It is more or less evenly distributed throughout the world and funneled by the Covid-19 pandemic that hit everywhere in the world at the same time. However, seeing its potential in Indonesia, East Java itself can expand further and develop this sector more promisingly.  

Digital collaborations or digital knowledge exchanges between local start-ups and foreign parties are still needed to develop Indonesia’s digital economy. Germany, as one of the largest markets for information and communication technologies (ICT), hosts a large number of digital enterprises and ICT professionals that could be potential partners for Indonesian companies. Among the leaders in digital services and applications like Fintech, Cloud Services, Big Data, Artificial Intelligence and Cyber Security as well as in Industry 4.0, German companies are well suited to partner up with their Indonesian counterparts and support the country’s transition into the digital age. As of April 2021, Indonesia itself has recorded a total of 2,229 start-ups. This number points to the potential for cooperation with new local players, especially in the digital field. The establishment of incubators as active habitats for industry players can be considered. Knowledge exchange with digital lectures and direct introductions with application or e-commerce experts from Germany can also be an alternative to collaborate with digital sector players in East Java. EKONID, with its representation in Surabaya, provides extensive information and support for industry players to get to know more about the movement of the East Java digital industry and to get in touch with its actors.