Digital Revolution to Add $150b to Indonesia's Economy by 2025

An illustration picture shows a projection of binary code on a man holding a laptop computer. (Reuters Photo/Kacper Pempel)

By : Sarah Yuniarni | on 4:57 PM September 28, 2016
Category : Business, Economy, Featured, Labor

Jakarta. Indonesia can add up to $150 billion to its annual gross domestic product by 2025, if it can make sure the inevitable march toward digitalization goes smoothly in all its economic sectors, a study released by a global consultancy firm on Tuesday (27/09) concludes.

McKinsey & Co. made the conclusion on their study after researching information technology regulations, infrastructures and technology adoption in 20 countries — from first-world economies South Korea and Germany to developing ones in Brazil, Russia and Thailand.

Khoon Tee Tan of McKinsey Indonesia said that according to the study, digitalization will allow up to 50 million Indonesians who have never been part of the workforce — such as stay-at-home mothers — to add $35 billion to the country's GDP and create 3.7 million new jobs every year.

Digitalization is expected to boost productivity, especially in five major sectors: manufacturing, retail, transportation, mining and agriculture.

"Just as an example, a digital procurement system can predict demand for equipment in a factory and suggest replacements when necessary. Predictive maintenance can reduce machine downtime by 25 percent to 70 percent," Tan said.

According to McKinsey's estimation, the manufacturing sector in Indonesia can earn an additional $34 billion from digitalizing its operations over the next decade, while mining and agriculture can see up to $15 billion and $11 billion in additional output respectively.

Better stock and route management enabled by technologies like Google Maps can provide an extra $24 billion to Indonesia's retail industry and $16 billion to the transportation sector. Other sectors like telco and media, healthcare, utilities and finance can boost their earnings by up to $21 billion, McKinsey claims.

To unlock these potentials, Indonesia needs to improve its information technology infrastructure, broadband affordability and regulatory support.

The study shows that Indonesia — although it has the second cheapest internet among the 20 countries studied — still struggles with poor connection, narrow bandwidth and slow speed. Overall, Indonesian is ranked 18 on a list that includes Malaysia, Singapore and other Asean states — all ranked above it.

"E-commerce in Indonesia is growing rapidly but is constrained by limited access to technology, lack of tech-savviness and not enough credit cards," Agung Nugroho, an e-commerce expert, said as quoted by McKinsey.

According to McKinsey, Indonesian businesses should create cross-channel business models to encourage online and offline sales.

Other strategies include establishing a two-fold cyber protection system, leveraging big data to drive real-time access across value chains and focusing on a customer-centric experience — coming up with innovative products and services to keep customers loyal.

The study also suggests that digitalization can happen quicker if companies build strong and dedicated technology departments that integrate operations in all divisions of their businesses.

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