The technology trends that could turbocharge Indonesia’s economy

The technology trends that could turbocharge Indonesia’s economy

April 26, 2022Periods of rapid technological progress also tend to deliver significant economic growth. Indeed, the Ministry of Finance predicts that Indonesia’s economy could gain as much $2.8 trillion by 2040 through technology adoption, adding 0.55 percentage points to GDP growth annually between 2020 and 2040. So, where will this anticipated growth come from beyond some of the familiar headline-grabbing sectors such as e-commerce and ride hailing?

We see technology—especially digital, robotics, and automation—expanding and having a profound impact across sectors such as manufacturing, energy, and housing to name a few. In particular, we anticipate four technology-based growth drivers as being especially significant for Indonesia’s economy: clean tech, the future of connectivity that integrates 5G and the Internet of Things (IoT), distributed infrastructure such as cloud and edge computing, and next-level process automation. What’s more, many of these technology trends will be mutually reinforcing, potentially leading to exponential growth.

Clean tech

Following the recent COP26 conference in Glasgow there is now an even greater focus on carbon-neutral policies, not least on replacing internal-combustion engine (ICE) vehicles with electric vehicles (EVs). Most promisingly, Indonesia as a country holds around 30 percent of the world’s nickel reserves, according to Indonesian Investment Coordinating Board (BKPM) data, which is an essential component of EV batteries.

The Indonesian government is supporting investment in nickel processing with both fiscal and non-fiscal incentives, as it looks for the country to become a regional EV production hub, with a target of 600,000 electric cars and 2.5 million electric motorcycles by 2030, expanding to 5.7 million units by 2035. To achieve this switch to EVs, it will be vital to build an integrated ecosystem with abundant charging facilities, along with the necessary incentives for buyers and car makers.

Future of connectivity

Connectivity in Indonesia will soon be revolutionized with significant investments in 5G and IoT. 5G will impact multiple industries by transforming how they operate, for example by bringing forward immersive services such as mixed and augmented reality, as well as streaming and gaming services. Meanwhile, the IoT’s ecosystem of physical devices—including vehicles, household appliances, robotic machinery in factories, and other electronics such as sensors connected to the internet—is set to transform many aspects of our lives from mobility to medicine.

According to our research, Indonesia’s second largest consumer audience, Gen Z, spends 8.5 hours a day on their phone to digitally meet various lifestyle needs. According to a report by Ericsson, some five million smartphone users in Indonesia could opt for 5G services in the first two years of commercial networks coming online. Meanwhile, as a fundamental component of Industry 4.0, the Internet of Things is also expected to grow rapidly, reaching a value of some US $30 billion next year in Indonesia when content and applications, platforms, networks, and gateways are accounted for alongside IoT devices.

Distributed infrastructure

Indonesia, which is home to over 175 million internet users and thousands of start-ups, is one of the fastest-growing markets for public cloud services in the Southeast Asia region. The country is expected to lead Asia-Pacific in overall IT spending over the next four years, reaching US $6 billion by 2024.

Indonesia’s potential in the cloud and edge computing space is substantial, with global “hyper-scalers” entering the market. Among the global players active in Indonesia are Alibaba Cloud, which recently opened its third data center, Google Cloud Platform which has set up its first facility in Jakarta, and Amazon Web Services, which is set to launch its cloud center next year.

Cloud companies have traditionally served Indonesian customers from neighboring regional facilities. However, establishing physical infrastructure on Indonesian territory will mean shorter data traffic routes and reduced latency. Ramp-up among all these services will be a major stimulus and benefit to companies undergoing digital transformation, something that was given unexpected impetus by the COVID-19 pandemic.

Next-level process automation

In 2018, the government launched Making Indonesia 4.0, a roadmap to accelerating digital manufacturing. Early ambitions were recognized a year later when Schneider Electric’s smart factory in Batam and mining company Petrosea’s Kalimantan operation were inducted into the World Economic Forum Global Lighthouse Network in recognition of their transformation efforts.

Industry 4.0 technologies have not only introduced efficiencies and boosted performance, but have also enabled organizations to continue operating through the pandemic. Despite its captivating capabilities, companies have faced various challenges at different stages of the implementation of Industry 4.0, most notably, according to a McKinsey survey conducted in 2020, in funding, people and knowledge constraints. The Ministry of Industry’s flagship PIDI4.0 digital capability center (DCC) is set to open its doors in Permata Hijau at the end of this year. The DCC sets out to help companies overcome these challenges by assisting them to build awareness, establish current state of operations, prioritize value drivers and provide guidance on driving successful implementations.

How can companies prepare?

There are big opportunities for growth for companies that can capture and scale Industry 4.0 and other digital capabilities; however, winners will be defined as those able to harness these technological advances quickly and successfully.

How can organizations best respond? Businesses in Indonesia need to focus on three primary issues—the scale of the impact of the specific trend, its technical maturity, and the organizational fit of the technology. Importantly, there are no universally correct answers; individual companies’ responses to the digital challenge will need to be tailored to each specific organization’s culture and set-up.

Reference: https://www.mckinsey.com/featured-insights/future-of-asia/countries-and-regions/southeast-asia/southeast-asia-perspectives/the-technology-trends-that-could-turbocharge-indonesias-economy

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