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Indonesia Version

The Digital Revolution
Tuesday, 28 November, 2017 | 18:04 WIB
The Digital Revolution

TEMPO.CO, Jakarta - The digital revolution is staring at us in the face and we must study this new development carefully. If we fail to prepare ourselves, Indonesia may become nothing more than a spectator and a market for imported products. The government must be smart enough to anticipate changes so that they can bring benefits: improvements to both productivity and welfare.

This will be an immense challenge. The digital revolution is often dubbed as the fourth wave of the industrial revolution. The first revolution was triggered by the invention of the steam engine, followed by a revolution that led to mass production with electrical power. The third stage was brought about by information and electronic technologies. Now comes the Internet-based revolution that has been welcomed enthusiastically by businesspeople.

In our nation, the shift has been marked by an increasingly widespread Internet use. According to a survey by the Indonesian Association of Internet Service Providers, Internet users reached 132.7 million last year, or 52 percent of the population. Most of these people access the Internet through cellphones. The survey also found that 34.1 million people had bought tickets online, and that 29.4 million people were buying household needs via the Internet.

An analysis by Frost & Sullivan found that the annual growth of retail sales in our nation averages 18.5 percent. This year, it is estimated that the online total will surpass 3.1 percent of the total retail market. It is not so surprising that investment for e-commerce startups is rising fast. This sector is now one of the top three investment sites, after oil & gas and mining. The Chinese Alibaba Group, for example, paid Rp14.9 trillion for Tokopedia. It is not only retail businesses that are attracting startup investors, but also transport, hotel, finance and health companies.

Businesspeople must be cautious when deciding on their business models and calculating profits. An over-valued business startup could end in disaster. Sky-high valuations of businesses could lead to a repeat of the dotcom bubble of the late 1990s when share values plummeted because profits were not as high as had been expected.

And there are also plenty of business opportunities for conventional businesses. They must be smart enough to adapt. The ability to pair online and offline businesses will become an extraordinary strength. The government has a vital role to play, especially in preparing state-owned enterprises to assist small businesses in competing for e-commerce.

The government has issued Presidential Regulation No. 74/2017 on the National Electronic Trade System Roadmap. But rather than simply offering guidance, the government must achieve its targets, especially in the construction of communications infrastructure. According to 2017 data from the IMD World Competitiveness Centre, Internet in our nation is a long way behind that of our neighbors. Indonesia is ranked 59th in readiness for the digital era, while Malaysia is ranked much higher, at number 24, and Singapore is ranked number 1. The Palapa Ring high-speed Internet project will not be finished until 2019.

The government needs to draft regulations for all sectors affected by the digital revolution. In line with the e-commerce roadmap, the government should also provide incentives for small and medium-scale businesses. Last year's data shows that 60 percent of the e-commerce market is made up of imported products. Indonesia also lacks digital technicians, although there are plenty of people with just about adequate skills.

Without proper anticipation, the digital revolution will lead to higher unemployment. Many types of work will disappear. At present, unemployment in Indonesia stands at 5.5 percent, higher than the rates in ASEAN countries such as Malaysia and Thailand. Our problem is rather peculiar because we are entering a time of demographic bonus when there are more productive-age citizens than those in the non-productive age group. This demographic bonus will peak in 2030- when the productive-age citizens will reach 70 percent of the population- and more job opportunities will be needed.

The digital economy clearly has the potential to spark economic growth. But we must anticipate it carefully because the digital revolution requires significant capital. The government must maximize its benefits for the people.

Read the full article in this week's edition of Tempo English Magazine

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