Maximizing the Digital Startups to Strengthen Indonesia’s Position in ASEAN Economic Community (AEC)
Fri, 01 Feb 2019 || By Siti Rizqi Ashfina Rahmaddina

ASEAN Economic Community (AEC) is an ambitious agenda for Southeast Asian economies to materialize regional economic integration. The agenda was initially established through consensus to respond the importance of widening domestic markets to global economy to alleviate social-economic inequality in ASEAN economies[i] One notable consequence of AEC is free flow of goods and service, investment, credit, and skilled labors between ASEAN economies. Domestically, Indonesia’s government responded the regional environment by issuing Presidential Instruction No. 11/2011 to implement blueprint of AEC and prepare the nation for free trade across ASEAN economies[ii]

            Regardless of the differing degree of acceptance to AEC at societal level, AEC has become a source of economic benefits and opportunities for Indonesia to improve its competitiveness between ASEAN economies. The emerging digital economy has become the sector that proves the premise. Digital economy sector empowers the information technology, employing hardware, software, application, and telecommunication in multiple economic aspects. This also includes the operational activity in an organization run either by business, government, and non-profit[iii] According to Ministry of Information and Communication, e-commerce or startups digital on e-commerce or sharing economy has been an integral part of Indonesia’s national economy even though national economic growth was sluggish. In addition to that, the ministry also emphasized that the development of digital startups may enable Indonesia to become the major player in digital economy in the region[iv]

            The emergence of digital economy in Indonesia underwent the transformational processes. The first transformational phase of digital economy was between 1997 and 2001. However, due to the financial crisis, digital economy failed to develop. Indonesia entered the second transformational phase in 2007 to today in a form of digital startups. Many startups entrepreneurs during this period experienced their first failure, then resurrected, and led the development of digital economy in Indonesia. The circumstance incentivized the local and new digital startups to start their business. The prominent startups today are Tokopedia, Bukalapak, Tiket.com, and many others[v]. The emergence of digital startups in Indonesia is also seen by how many foreign digital companies, SK Telecom, GREE, Recruit, eBay, Tencent, of Google to name a few that injected their investment to local digital startups.

            With the growing trend of digital startups, there are two potential opportunities to be harnessed. First, the higher degree of probability to widen the access for people to have jobs and as a consequence, the second potential opportunity is that they might lessen the existing economic inequality. According to the Central Bureau of Statistics (BPS), the total number of unemployment in Indonesia increased to the level of 7.56 million people in 2015.[vi] The increase was due to the increasing number of labor force. But on the other side, the degree of labor force’ absorption in some industries is weaker. The digital startups, therefore, might address this hurdle to widen more access for labor forces to enter the industry. One of prominent digital startups in Indonesia and experienced rapid growth is Go-Jek. By empowering mobile application to run the company, Go-Jek is able to open more access to people to have jobs. Go-Jek is an instance to show how they managed to recruit more than 30 thousand drivers and workers to serve 2 million of application downloaders[vii] Therefore, startups digital may provide a new alternative of job for society. The expansion of Go-Jek has a promise to create more innovation and more people might have more job opportunities.

            As a consequence, the growing digital startups companies in Indonesia may lessen the existing economic inequality. In recent years, the economic inequality has reached the culmination. According to the World Bank, Gini index coefficient of Indonesia has risen to the level of 11 point from 30 point in 2000 and in 2014, the point rose to 41. The increasing economic inequality in the country was caused by the absence of equal opportunity for each person to access job opportunity.[viii] Although the economic growth happened to increase, it is not aligned with the existing economic inequality. Due to the pervasive economic inequality, Indonesia is in the low position relative to other countries in the region, such as Thailand, Vietnam, Cambodia, and Lao PDR. According to World Bank, only 20% of Indonesian society who enjoyed the benefits of economic growth pie in last decades, while 80% of 205 million people are left behind[ix] In cases, this where digital startups may be utilized to address the problem. They provide equal opportunity for everyone to access job opportunities. This particularly applies to low middle class society where they may to earn income and have better lives.

            However, the two hurdles of developing startups in Indonesia are able to be addressed if the government plays their pivotal role in supporting them to develop. Government has allocated their funding to improve local entrepreneurs who has potentials in digital economy. It might be in a form of credit or subsidy for banking industries. Government should also fix the institutional problems to provide better service and short administrative procedures that hinder local entrepreneurs to start their own digital startups. Therefore, more concrete solutions are essential to harness the benefits from digital economy in Indonesia.

Editor: Anisa Pratita Mantovani

Writer: Siti Rizqi Ashfina Rahmaddina and Karina Apriladhatin

 

[i] Narjoko, A. and Teguh Y. Wicaksono. (2010). “Achieving the ASEAN Economic Community Agenda: an Indonesian Perspective.” LSE IDEAS Analysis. pp. 16.

 

[ii] Carolina, E. (2016). Analysis: ASEAN Economic Community for Entrepreneurs. [online] The Jakarta Post, http://www.thejakartapost.com/news/2016/01/13/analysis-asean-economic-community-entrepreneurs.html (Accessed on July 28th 2016).

 

[iii] Malecki, E. and Moriset, B. (2008). The Digital Economy: Business Organization, Production Processes, and Regional Development. London: Routledge, pp. 4.

 

[iv] Kominfo. (2016). “Indonesia akan menjadi Pemain Ekonomi Digital Terbesar di Asia Tenggara,” [online] Berita Kementerian Komunikasi dan Informatika, https://kominfo.go.id/index.php/content/detail/6441/Indonesia+Akan+Jadi+Pemain+Ekonomi+Digital+Terbesar+di+Asia+Tenggara/0/berita_satker (accessed in July 31st 2016).

 

[v]  E27.(2012). The Rise of Indonesia’s Tech Scene. [online] e27. https://e27.co/the-rise-of-indonesias-tech-scene/ (accessed on August 2016).

 

[vi] Ibid.,

 

[vii] Cosseboom, L.(2015). “Nadiem Makarim Mengubah Go-Jek dari “Zombie” Menjadi Startup Paling Terkenal di Indonesia,” [online] Tech In Asia, https://id.techinasia.com/nadiem-makarim-mengubah-gojek-startup-terkenal-indonesia (accessed on July 29th 2016).

 

[viii] Siswo, S.(2015). “Inequality in Indonesia at Record Levels: World Bank,” Channel News Asia [online] http://www.channelnewsasia.com/news/asiapacific/inequality-in-indonesia/2328430.html (accessed on July 31st 2016).

[ix] Zain. (2016). “Behind the Rise of Income Inequality in Indonesia,”[online] The Jakarta Post, http://www.thejakartapost.com/academia/2016/06/08/behind-the-rise-of-income-inequality-in-indonesia.html, (accessed on August 2016).