Unleashing the Potential of the Digital Economy

By Gimbar Maulana on 01:29 pm Oct 15, 2019

By Muhamad Al Azhari

However, despite 64.8 percent of the country’s population having had access to the internet as of last year, according to the latest data from the Indonesian Internet Service Providers Association (APJII), industry players say the country still has many obstacles to overcome before it can unleash the true power of its digital economy.

GlobeAsia spoke with APJII chairman Jamalul Izza, who shared his views on what Indonesia must do to become a true digital economic powerhouse in Asia.

Data Protection

He said one of the most important legal foundations the country currently lacks, is a regulation on privacy and personal data protection for individuals.

“It is important and urgent for President Joko Widodo to push for deliberation on the draft personal data protection bill. Why? Because so many over-the-top applications request users to submit their personal data,” said Jamalul, better known as Jamal.

“The president has mentioned that data is our new gold mine. We need something like Europe’s GDPR,” he said, referring to the 2016 General Data Protection Regulation that regulates data protection and privacy for all citizens within the European Union and European Economic Area.

The Indonesian government has drafted the bill on the protection of privacy and personal data, but has yet to submit it to the House of Representatives.

Personal data submitted to various platforms by Indonesia’s 171 million internet users is currently prone to misuse. One of the most recent controversies involved abuses by unlicensed financial technology companies, especially lenders.

Jamal said Indonesia also needs to speed up a revision of the 2012 government regulation on the implementation of electronic transactions and systems. The regulation states that providers of electronic systems that mine data from Indonesian citizens are required to locate their data and disaster recovery centers within the country’s borders.

This regulation was enacted to ensure the state’s sovereignty over its citizens’ data.

However, due to complications in enforcing this regulation, especially on giant content providers such as Facebook and Google, the government has decided to classify electronic data into three groups: strategic, high-risk and low-risk. The draft revision only requires strategic electronic data to be stored in Indonesia.

“The method to determine what data must be kept here is still not clear enough,” Jamal said.
The existing regulation also applies to financial institutions, including foreign-owned entities. Many foreign lenders refuse to store their data in Indonesia, arguing that the service levels of local data center providers are not yet up to standard.

Lagging in Digital Competitiveness

Indonesian netizens are also very active on social media. According to data provided by global online statistics, market research and business intelligence portal Statista.com, the country had about 130 million Facebook users as of July 2019, which makes it the third-largest in the world.

Indonesia also rose to 56th place from 62nd in the IMD World Digital Competitiveness report, which measures the capacity and readiness of 63 economies to adopt and explore digital technologies as a key driver for economic transformation in business, government and wider society.

However, despite Indonesia enjoying one of the biggest leaps in comparison with other countries, it still trails its neighbors in the Association of Southeast Asian Nations, in terms of digital competitiveness. Singapore sits firmly in second place, Malaysia in 26th, Thailand in 40th and the Philippines in 55th. Indonesia also takes a backseat to its similar-sized emerging-market rival Turkey, which is in 52nd place.

“The key to unleashing Indonesia’s digital economic power is also through infrastructure. How the government can offer internet services to all its citizens. As the population continues to increase, the more we need connectivity,” said Jamal, whose second term as APJII chairman ends next year.

“The government has built the Palapa Ring project, which is the backbone. We, from the ISPs side, play our part in delivering the services to the last mile,” he said.

Jamal said it had never been easy for ISPs to pull the cable to customers’ homes, as they must deal with various complexities, such as securing permits from the lowest levels of government, additional costs and sometimes even having to negotiate with local communities.

The Palapa Ring has been one of the government’s priority infrastructure projects between 2016 and 2019. The project involved the installation of a 13,000-kilometer undersea fiber-optic cable network and a 22,000-kilometer onshore network. This serves as the backbone for fast internet access in both urban and rural areas.

APJII is a nonprofit association founded on May 15, 1996, and which initially had only internet service providers as members.

Membership is not limited to fixed-line ISPs, and includes major mobile network operators such as Telkomsel, Indosat and XL Axiata. APJII currently has about 550 ISPs registered as members and the association has also expanded its memberships to non-ISPs, including government agencies, corporations and technology vendors.

The association has played an important role in the development of the internet industry in Indonesia and laid the foundation for internet connectivity tariffs for end-users. APJII has also established Indonesian Internet Exchanges (IIX), or logistical networks that connect member ISPs to exchange points, allowing for faster connections.

APJII further plays an important role as the national internet registry, a mandate it secured from the Asia-Pacific Network Information Centre, which provides number resource allocation and registration services that support the operation of the internet in the region. This role is affirmed by a ministerial regulation.

Internet and the Economy

As the association continues to seek a bigger role in the economy, it is encouraging its members to provide people in rural areas with internet access. Jamal said APJII is embarking on its “Internet for Villages” project, which aims to connect about 2,000 villages to theinternet.

“We start from the bottom; if we can provide internet services in villages, it will be easier for regional governments to build smart cities,” he said.

“According to a report by Oxford Economy in 2016, every 1 percent addition to internet penetration in Indonesia’s population adds Rp 9.6 trillion [$677 million] to our gross domestic product and 10,700 new jobs. That’s why we are so keen to boost our internet penetration rate,” Jamal said.

“[By] going digital, Indonesia can unleash the next level of economic growth – to the tune of $150 billion in annual economic impact by 2025,” management consulting firm McKinsey & Company said in its 2016 report titled “Unlocking Indonesia’s Digital Opportunity.”

However, McKinsey noted three years ago that despite Indonesia’s vibrant startup ecosystem and its digital denizens being among the world’s most active, it still lagged overall in embracing the benefits of modern technology. The consulting firm noted that apart from the country’s information and communications technology infrastructure remaining inadequate, digital usage is uneven within and among various business sectors.

“It takes a concerted effort to unleash Indonesia’s digital economic potential. That’s why I am urging all stakeholders to play their roles in pushing for improvements,” Jamal said.

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