The rapid growth of the digital sector is one of the bright sparks of the Indonesian economy. From agriculture to transportation to finance and e-commerce, digitalization can raise productivity, connect the under-served and improve the lives of rural communities.
Phillia Wibowo, a partner at McKinsey & Company, Indonesia spelled out the benefits and potential of the information, communications and technology (ICT) sector. She spoke to GlobeAsia's' Shoeb Kagda in an interview.
GA: How critical is ICT and improving digital connectivity to Indonesia’s future economic and social progress?
PW: In the recent McKinsey Report “Ten Ideas to maximize the socioeconomic impact of ICT in Indonesia,” we discussed findings that there is a strong link between a country’s economic competitiveness and its ICT readiness. The better a country’s ICT readiness – which includes a range of capabilities such as skills availability, affordability of ICT services, business and government usage and ICT infrastructure – the better its economic competitiveness.
Analysis from the World Economic Forum shows that ICT can play a central role in improving and enhancing a nation’s social and economic development. Research by the International Telecommunications Union has also shown that for every 10% increase in broadband penetration, GDP growth can be boosted by 1.21% to 1.38%. Furthermore, a strong ICT sector not only creates jobs and skills in the ICT industry, it has a positive socioeconomic impact in spillover job creation, with every ICT job created leading to the further creation of three jobs in other economic sectors, according to research published by the National Association of Software and Services Companies (NASSCOM).
Also, a vibrant ICT sector can contribute to more equitable social development and a more transparent and efficient public sector. From finance to farming, health and education, regional disparities and quality of life, economic growth and skills development, ICT has a crucial role to play in Indonesia’s future and a greater focus on its development could have hugely positive benefits for the country.
GA: How does Indonesia compare in terms of ICT developments with its regional peers and other emerging economies?
PW:Indonesia is the world’s 16th biggest economy, but it punches below its weight when it comes to ICT. Based on the Global IT Report 2014 launched at the World Economic Forum, Indonesia ranks in the middle on most key ICT metrics. For instance, Indonesia is ranked 64th out of 148 countries in terms of network readiness. We are slightly ahead of some of our neighbors, e.g. Thailand (rank 67) and Philippines (rank 78). But we still trail behind many others, e.g. Singapore is far ahead at 2nd rank. Indonesia has the opportunity and the potential to grow its ICT development to enhance socioeconomic impacts.
GA: What is the scale of the economic opportunity for businesses in the new digital age?
PW: While we have not yet done the specific calculation for Indonesia, as we mentioned in the report, various researches have established that for every 10% increase in broadband penetration the positive impact on GDP can reach up to 1.2-1.4%. If we look at this in terms of the 2015 real GDP, the new economic impact of a 10% increase in broadband penetration can be up to $10-12 billion or Rp140-160 trillion. In terms of job creation, one job created in the ICT sector creates another three in other sectors. Thus, the economic upside that ICTs can enable is potentially huge.
GA:What are the five key industries or sectors that gain maximum benefits from ICT in the near term? What are the practical ICT implementations to drive economic impact in the country?
PW:Agriculture, financial services/ banking, healthcare, manufacturing and creative industries (such as media, e-services and other digital applications). Let me provide concrete examples of how ICT can be used as a powerful tool to transform the economy by looking more closely at agriculture and financial services.
Agriculture: The agriculture sector, which currently employs around 39 million Indonesians (34% of total employment) and contributes about 15% to the overall economy, can further grow and help improve the lives of farmers and their families if we successfully utilize ICTs as the examples of India, Bolivia and Sri Lanka show.
For instance, in India in 2000, the agribusiness division of one of India’s conglomerates created e-Choupal, an internet-based supply-chain system. This system enables farmers to sell their crops directly to producers, without paying fees to traders or commissions to agents. The initiative has reached more than four million farmers in over 40,000 villages through 6,500 kiosks across 10 states. There is anecdotal evidence that farmers have doubled their incomes in certain parts of India because of this. The system could be extended to precision farming, where the provision of localized information can guide decisions to increase efficiency and yield.
Similarly, Bolivia has a Rural Bolivia ICT program which enables farmers to have access to better agricultural information in terms of product prices and better farming practices. About 60% of farmers that participate in the program agreed that the use of ICTs has led to a positive economic effect in their lives as they now have greater access to information which in turn allows them to negotiate and get better prices for their products or adopt better farming methods.
In another example, small fishermen in Sri Lanka lack access to refrigerated transportation so they end up selling their catch in the nearest market where pricing may not be the best. With the use of mobile phones, fishermen can compare fish prices in various markets and can decide to sell their catch where the prices are highest. About 40% have agreed that their incomes have gone up by as much as 10% because of this.
Financial services: On the financial sector, ICTs can promote financial inclusion through access to banking services. Currently, only 20% of Indonesia’s population over the age of 14 has accounts at formal financial institutions. Experience in developing countries such as Kenya and the Philippines shows that approaches like electronic- and mobile-banking services are popular. For example, in the Philippines, both leading telecommunications companies offer financial services that allow consumers to transfer money and pay bills with a mobile phone. They have more than eight million users between them. While banking and mobile operators in Indonesia have launched mobile payments and banking products, they have yet to reach scale and broader adoption among users.
Mobile operators could play an important role in increasing financial inclusion by using their networks to offer mobile money or online services such as remittances, bill payments, micro-credit, and micro-insurance. A legal framework that would allow mobile operators to use their existing networks, massive informal physical-distribution networks, and money-collection and payment systems would support the target of bringing half of the population into the formal banking system by 2018.
GA: How can Indonesia accelerate the development of an ICT eco-system?
PW: Putting in place a national ICT road map with clear objectives, linked to economic and social development goals, would help the government better plan for and work towards developing ICT to better support its citizens, businesses and wider economy.
A priority focus on supporting the ICT industry to resolve major infrastructure and regulatory bottlenecks would have a number of benefits, including improving the reach, cost and bandwidth for consumers.
Resolving infrastructure and regulatory bottlenecks would also help address the digital divide between urban and rural areas, through more tailored policies and enable alternative internet technology supply models to be utilized.
Establishing a ‘convergent regulator’ that can deal with the increasingly blurred lines between broadcasting, telecommunication and information technology would help increase coordination and lead to greater investment with greater innovation. This would need to be accompanied by strengthening intellectual property (IP) policies and reinforcing regulation concerning cyber-security, data security and a safe internet
GA:How can ICT improve the delivery of public services?
PW: ICT can potentially contribute to improving the lives of Indonesians by increasing accessibility for the people to public services (such as online registration to healthcare programs, or online IDs etc.) and by transforming the quality of education, healthcare, public safety, public transport and farming services. ICT will also create an environment of greater transparency, broadening inclusiveness for all.
ICT can be utilized to bring government services online, enabling faster, transparent and more efficient access to government services such as paying taxes, registrations for business licenses, land deeds, births, etc. or getting access to public information.
The quality and efficiency of public services could also be vastly improved by increasing centralization of IT governance, infrastructure, services, and procurement to minimize regional disparities.
GA:Are there examples in other developing countries where ICT and digital technology have been used to dramatically improve public services?
PW: In India, the Apollo hospitals worked with a leading telecommunications company to provide medical services such as basic diagnostics and check-ups through mobile devices. The project could help India offer affordable and accessible healthcare to millions of people in remote parts of the country.
In South Africa, numerous mobile-health initiatives have been launched that focus on diseases such as HIV/AIDS and tuberculosis.They use ICT to provide treatment reminders and disclose information about diseases, among other initiatives. Requests for information about HIV/AIDS have topped one million a day, and the percentage of patients who have completed the course of treatment for tuberculosis increased from 20% to 60% during 2009.
In the case of Uruguay, the country launched in 2006 the Ceibal program. The program aimed to provide a laptop for each and every child and teacher, as well as broadband in public schools, IT training for teachers and families, and create new online education tools. The program had the strong backing of the president himself, technical leadership from the LATU – Laboratório Tecnológico do Uruguai - and involvement of key stakeholders such as the country’s federation of teachers and other cultural, educational, research and innovation government agencies.
The plan was launched in waves: first a micro pilot was run in small towns in the interior, then expanded to cities in the interior before rolling it out to the entire country over the course of three years. The program cost $140 million between 2007 and 2009, all which was funded by the government. By 2009, 95% of public schools had implemented the Ceibal Plan, covering 293 primary schools and 2,068 students. The plan was widely accepted by teachers and parents. A survey of school principals showed that Ceibal increased student motivation during class and homework.
GA: How can ICT enable sustainable social development?
PW:The ICT revolution can improve people’s lives in many ways. The most important thing, however, is to find a sustainable mechanism to deliver the social development objectives of ICT. Successful Public Private Partnership (PPP) will be one of the key here – the delivery of the social development objectives will be more sustainable if corporations are involved while at the same time reaping long-term economic benefits from the partnership. ICT players could look at this additional lens as they are calibrating their investments, as this will in turn benefit them commercially.
The story was first published at GlobeAsia's November edition