A recent World Bank report on the impacts of COVID-19 provides sobering reading for the region. It states that “significant economic pain seems unavoidable in all countries”.
Indonesia’s finance minister has said the best-case scenario for Indonesia is 2.3 percent economic growth, the lowest in 21 years. The worst case was for the economy to contract by 0.4 percent.
While an economic slowdown seems unavoidable, this is a window to leverage the power of the internet and accelerate the pace of digitalization to help mitigate risks. Indonesia’s digital economy, the largest in Asia, is valued at US$40 billion. By 2025, the number could reach $133 billion, a leap from just $8 billion five years ago. Maintaining this growth trajectory will be crucial to help enable a rapid economic rebound when the pandemic threat is over.
The path to that growth is a balanced and proportionate policy and regulatory environment that takes a long-term view.
The national e-commerce policy, GR80, will play a crucial role across Indonesia’s economy and society. The plan is for a comprehensive framework designed to regulate e-commerce, define e-commerce services and develop regulatory and licensing requirements for e-commerce providers. The policy also outlines the responsibilities of providers in areas such as consumer rights, payments, advertising and dispute resolution.
The government is right to drive this. However, the current approach outlined in the regulation could hurt investment, undermine competition, stifle growth and lead to less choice and higher costs for Indonesian consumers.
A recent digital economy report highlighted online travel, ride-hailing and e-commerce as the brightest lights behind Indonesia’s internet economy. Indonesian e-commerce itself is forecast to reach $21 billion in total value this year, or 52 percent of Indonesia’s current $40 billion digital economy. By 2025, e-commerce is anticipated to comprise two-thirds of the country’s digital economy.
Indonesia’s young, growing and digitally savvy population have among the world’s highest social media and mobile-usage growth rates, which are critical drivers of e-commerce adoption. Underpinning this growth are Indonesians micro, small and medium enterprises (MSMEs). These enterprises are crucial to the economy, and they also comprise virtually all online sellers. They have helped improve socio-economic outcomes for millions of Indonesians and have created new markets domestically and abroad.
A platform like Tokopedia has over 7 million digitized microbusinesses operating across its platform; 86.5 percent are first-time entrepreneurs, and no matter the location across the vast archipelago, the marketplace is no longer the confines of their desa (village).
Government initiatives to digitize MSMEs are well underway, but more must be done to ensure e-commerce policy can enable the sector’s full potential.
Implementation regulations for GR80 are currently being drafted. Vital areas need resolving to enable e-commerce to unlock opportunity and growth.
Indonesia’s e-commerce sector is at a nascent stage, with expenditure a relatively low 3 percent of total retail, compared to 16 percent for China and 12 percent for the United States. To capture this significant value, Indonesian MSMEs need simple and clear rules. These rules should be applied consistently and not create additional burdens that could restrict the ability for MSMEs to scale operations and trade.
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21 April 2020