In the era of industrial revolution, digital economy became a new spear in driving the economy of countries in the world, including Indonesia. To improve the competitiveness of Indonesian economy, primarily the digital industry, the government seeks to develop infrastructure and entrepreneurship programs based on digital technology such as Palapa Ring development and Gerakan Nasional 1.000 Startup Digital. One of the reasons why the government intensively pursues this, because Indonesia has the potential to become center of digital economy in Southeast Asia in 2020. Slow but sure, data from BPS (2018) shows that the contribution of the digital market to Indonesia’s Gross Domestic Product (GDP) is increasing. The contribution reached 3,61 percent in 2016, then increased to 4 percent in 2017. Based on McKinsey study in 2016, the Indonesian economy could even grow by the US $ 150 billion (around Rp2 quadrillion) in 2025 or 10 percent of GDP Indonesia at that time. This development is predicted to be able to absorb around 4 million workers.
Palapa Ring is Not Enough
The development of Palapa Ring project is one of the government's support in providing infrastructure. Palapa Ring is the telecommunications backbone network so that people can access the internet and digital services. With these networks, Indonesia will have the digital infrastructure, and the benefits are enormous in the development of information technology. Palapa Ring project will reach 34 provinces and 440 cities/districts throughout Indonesia. So far, Indonesia's internet quality is still low. The average cable internet speed in Indonesia is 15,5 Mbps, while the average world cable internet speed is 54,3 Mbps. Hopefully, Palapa Ring can improve internet quality and overcome telecommunication gaps throughout all of Indonesia. However, before going further to the internet network, the government should be able to provide electricity first to the secluded areas that are still not electrified as the foundation for the use of technology.
Also, the amount of investment in infrastructure should be accompanied by the readiness of human resources. The condition of people in the secluded areas is still far behind, such as low education, health problems, and high poverty levels. So, even though the region will already have adequate telecommunications networks, if the resources are not ready, it will not have a significant positive impact.
Not Only a Movement but also Ecosystem
Another government support in realizing the digital economy is through Gerakan Nasional 1.000 Startup Digital. The program aims to give birth to the quality start-ups that have positive impacts by resolving significant problems in Indonesia. This movement is targeted to create 1.000 new companies with a total business valuation worth USD 10 billion by 2020. However, to realize the creation of 1.000 Startups that able to develop, of course, a supportive start-up ecosystem is needed. Unfortunately, the Indonesian government’s support for domestic startup has not been strong enough. For example, in terms of investment and regulation.
Based on data from the Investment Coordinating Board (BKPM), the realization of Foreign Investment (PMA) in the second quarter of 2018 decreased by 12,9 percent to Rp95,7 trillion on an annual basis. In fact, in the previous quarter, PMA realization could still grow by 12,3 percent to Rp109,9 trillion. When being accumulated, the realization of PMA during the first semester of 2018 was recorded at Rp204,6 trillion, down 1,1 percent compared to the same period last year, Rp206,9 trillion.
That shows the instability of the investment climate in Indonesia, so investors prefer to choose investments in the countries that are believed to provide more certainty. Also, the high amount of tax for investors is another inhibiting factor. Investment profits are taxed at rates of up to 25 percent. Foreign nationals whose countries are not covered by the tax treaty with Indonesia must pay 5 percent tax on the proceeds of the sale of their assets domestically. In comparison, Singapore and Malaysia did not impose a tax on investment profits. That shows that there is a need for government deregulation.
Palapa Ring and Gerakan Nasional 1.000 Startup Digital that are targeting young entrepreneurs are the concrete steps for the government to support the digital economy in Indonesia. However, to compete with the ASEAN countries and be superior in the field of the digital economy, the government needs to improve the quality of human resources and get rid of the rules that hinder the growth of domestic start-ups.
Thus, the infrastructure that consumes enormous funds will also have a significant impact on the Indonesian economy, as well as Gerakan National 1.000 Startup Digital that will not give birth a lot of ‘the failed start-ups’, but the start-ups that can grow and sustainable, even can ultimately become the major contributors to the digital economy in Indonesia.
Read another article by Laili Rahmawati
Editor: Janitra Haryanto
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