Indonesia and its Digital Economy: A

Sub-national Competitiveness Analysis

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Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

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About ACI
The Asia Competitiveness Institute (ACI) was established in August 2006 as a research centre at
the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore (NUS). It
aims to build intellectual leadership and network for understanding and developing
competitiveness and sustainable growth in Asia. ACI seeks to contribute to the enhancement of
inclusive growth, living standards, and institutional governance through competitiveness research
on sub-national economies in Asia. It identifies mitigating issues and challenges for potential public
policy interventions through close collaboration with regional governments, business corporations,
policy think tanks, and academics. ACI’s three key research pillars include (i) sub-national
economies level competitiveness analysis, (ii) emerging sustainable development landscape in 16
Asia economies, and (iii) Asia’s long-term growth strategies and public policy analysis.

ACI’s value propositions may be encapsulated in its acronym:

Analytical inputs to initiate policies for policy-makers and business leaders in Asia
Capacity building to enable others through improvement in productivity and efficiency
Intellectual leadership to create pragmatic models of competitiveness and inclusive growth

Vision and Mission

• ACI’s over-arching vision is to build up its research credibility with policy impact, contributing
as a professional, world-class think-tank.
• ACI’s mission is to establish our niche as a leading policy think-tank by identifying development
trends, opportunities, and challenges among Asian economies and business corporations.
• ACI endeavours to articulate sound recommendations, promote discussion, and shape
research agenda in the arena of public policy amongst Asian governments.
• ACI undertakes evidence-based analysis of public policy issues and decisions, in order to
provide assessment of their effectiveness as well as economic and societal impact

i
 Preface

Amidst the ongoing global challenges of the COVID-19 pandemic and geopolitical
uncertainty, Indonesia’s economy appears to be resilient with a GDP growth of 5.3% in
2022. Domestically, total domestic consumption has increased by 4. 93%. Internationally,
the total trade volume has increased from USD 427.80 billion to USD 529.43 billion.
While most studies on the Indonesian economy are focused on the national level,
the Asia Competitiveness Institute (ACI) at the Lee Kuan Yew School of Public Policy
(LKYSPP), National University of Singapore (NUS) recognises the need to focus greater
attention on the sub-national level in Indonesia. To achieve this goal, the institute
has conducted annual empirical studies that analyse and rank the competitiveness of
Indonesia’s 34 provincial economies. This study aims to help policymakers understand
the strengths and weaknesses of provinces to improve competitiveness at the provincial
and regional levels.
This tenth edition of the book continues to track the competitiveness of Indonesia’s
sub-national economies. Additionally, this year’s edition features ACI’s analysis of
Indonesia’s digital competitiveness. Indonesia’s digital economy is projected to be among
the fastest growing and largest digital economies in the ASEAN region. The pandemic-
induced digitalisation has brought significant growth to Indonesia’s digital economy,
with the Gross Merchandise Value (GMV) increasing from USD 41 billion in 2019 to
USD 77 billion in 2022. The demand for e-commerce activity has also increased and
facilitated the usage of digital payments. However, as an emerging economy, the country
continues to grapple with regional disparities from inadequate infrastructure and uneven
human capital development. The urban-rural gap in the number of internet users has also
increased from 14.5 to 22.5 percentage points between 2011 and 2021.
This book is timely in providing details on subnational competitiveness so that local
governments can address unequal digital development at an early stage. I am confident
that the insights from this book will provide valuable guidance to policymakers in
addressing disparity and enhancing the country’s overall economic growth.

Professor Paul Cheung

Director, Asia Competitiveness Institute
Lee Kuan Yew School of Public Policy
National University of Singapore

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Contents
About ACI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
List of Provinces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
List of Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Chapter 1 Year in Review: Indonesia in 2022 1

1.1 Structure and Content of the Book . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Indonesia in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2.1 Indonesia’s Stable Economic Performance in the Face of Global
Economic Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2.2 Indonesia’s Transition towards the Endemic . . . . . . . . . . . . . 4
1.2.3 The Recovery of Indonesia’s Tourism Sector . . . . . . . . . . . . . . 6
1.2.4 Prospects and Challenges Facing Indonesia in 2023 . . . . . . . . . 6
1.3 Overview of Indonesia’s Recent Economic Developments . . . . . . . . . . 8
1.3.1 Growth Trends and Prospects . . . . . . . . . . . . . . . . . . . . . . 8
1.3.2 Fiscal and Monetary Trends . . . . . . . . . . . . . . . . . . . . . . . 12
1.3.3 Trade Performance and Investment Outlook . . . . . . . . . . . . . 15
1.4 Labour Market and Social Development . . . . . . . . . . . . . . . . . . . . 16
1.5 Indonesia’s Digital Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.5.1 Overview of Digitalisation Sector in Indonesia . . . . . . . . . . . . 17
1.5.2 Digital Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5.3 Digital Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.5.4 Digital Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.5.5 Digital Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Chapter 2 2022 Annual Update on Competitiveness Analysis of Indonesian

Provinces 27
2.1 Introductory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2 Broad Sweep of Competitiveness Literature . . . . . . . . . . . . . . . . . . 28
2.2.1 Competitiveness Analyses on Indonesia . . . . . . . . . . . . . . . . 29
2.3 Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.3.1 ACI’s Competitiveness Framework . . . . . . . . . . . . . . . . . . . 32
2.3.2 Indicators and Data Sources . . . . . . . . . . . . . . . . . . . . . . . 35

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iv Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

2.3.3 The standardised Score . . . . . . . . . . . . . . . . . . . . . . . . . 35

2.3.4 What-if Simulation Analysis . . . . . . . . . . . . . . . . . . . . . . . 36
2.3.5 Shapley Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.3.5.1 Shapley Weightage – The “Bottom-Up” Approach . . . . 37
2.3.5.2 Comparison between the Shapley Method and the
Entropy Method . . . . . . . . . . . . . . . . . . . . . . . . 37
2.4 Competitiveness Analysis Results . . . . . . . . . . . . . . . . . . . . . . . . 39
2.4.1 Ranking and Scores for Overall Competitiveness . . . . . . . . . . . 39
2.4.2 Ranking and Scores by Four Environments . . . . . . . . . . . . . . 44
2.4.2.1 Macroeconomic Stability . . . . . . . . . . . . . . . . . . . 44
2.4.2.2 Government and Institutional Setting . . . . . . . . . . . . 47
2.4.2.3 Financial, Businesses and Manpower Conditions . . . . . 51
2.4.2.4 Quality of Life and Infrastructure Development . . . . . . 56
2.4.3 What-if Simulation Analysis on Overall Competitiveness . . . . . . 71
2.3.4 What-if Simulation Analysis on Four Environments . . . . . . . . . 73
2.4.5 Median and Maximum Competitiveness Web Analysis . . . . . . . 79
2.4.6 Shapley Value: Comparing Competitiveness Results based on
Equal and Shapley Weightage . . . . . . . . . . . . . . . . . . . . . . 81
2.4.6.1 Comparison of Results for Overall Competitiveness based
on equal weight and Shapley Weight Methods . . . . . . . 82
2.4.6.2 Comparison of Results for Four Environments based on
Equal weight and Shapley Weight Methods . . . . . . . . 84
2.5 Concluding Notes and Policy Implications . . . . . . . . . . . . . . . . . . . 89
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Chapter 3 2022 Annual Update on Competitiveness Analysis of Six Indonesian

Regions 98
3.1 Introductory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
3.2 Research Methodology: A Note on Regional Data Aggregation . . . . . . . 102
3.3 Competitiveness Analysis Results . . . . . . . . . . . . . . . . . . . . . . . . 103
3.3.1 Ranking and Scores for Overall Competitiveness . . . . . . . . . . . 103
3.3.2 Ranking and Scores by Four Environments . . . . . . . . . . . . . . 106
3.3.2.1 Macroeconomic Stability . . . . . . . . . . . . . . . . . . . 106
3.3.2.2 Government and Institutional Setting . . . . . . . . . . . . 109
3.3.2.3 Financial, Business, and Manpower Conditions . . . . . . 112
3.3.2.4 Quality of Life and Infrastructure Development . . . . . . 115
3.3.3 Median and Maximum Competitiveness Web Analysis . . . . . . . 118
3.4 Concluding Notes and Policy Implications . . . . . . . . . . . . . . . . . . . 123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Chapter 4 Digital Competitiveness in Indonesia 151

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
4.2 Research Methodology and Analytical Results . . . . . . . . . . . . . . . . 154
4.2.1 Framework and Methodology . . . . . . . . . . . . . . . . . . . . . . 154
 2022 Annual Update on Competitiveness Analysis of Six Indonesian Regions v

4.2.2 Overall Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

4.2.3 Digital Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
4.2.4 Digital Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
4.2.5 Core Inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
4.2.6 Digital Utilisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
4.3 Case Study: Differential Performance of North Sulawesi and Central
Kalimantan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
4.3.1 Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
4.3.1.1 Competitiveness Scores . . . . . . . . . . . . . . . . . . . . 170
4.3.1.2 North Sulawesi: possible barriers that hindered the
welfare effect of digitalisation . . . . . . . . . . . . . . . . 172
4.3.1.3 Central Kalimantan: possible barriers that hindered
digital development . . . . . . . . . . . . . . . . . . . . . . 175
4.3.2 Existing Government Efforts . . . . . . . . . . . . . . . . . . . . . . 176
4.3.3 Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 178
4.3.3.1 North Sulawesi: Leverage E-commerce and Digital Payment178
4.3.3.2 Central Kalimantan: Expand Basic Connectivity
Infrastructure and Improve Quality of Education . . . . . 179
4.4 Concluding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Appendix 1 About the Authors 184

Appendix 2 List of Indicators for the 2020 Competitiveness Index and Ranking
for Indonesian Provinces and Regions 186

Appendix 3 Algorithm for Computation of the Provincial and Regional

Competitiveness Index and Ranking using Equal Weights 193

Appendix 4 Algorithm for Computation of the Provincial and Regional

Competitiveness Index and Ranking using Shapley Weights 196

Appendix 5 Notes on Data Aggregation of Competitiveness Indicators from

Provincial to Regional Level 200

Appendix 6 List of Indicators for the Digital Competitiveness Index 207

Appendix 7 2022 Competitiveness Profile of Indonesian Provinces 210

Appendix 8 2019 and 2020 Digital Competitiveness Profile of Indonesian

Provinces 280
 Executive Summary

Indonesia has shown progressive recovery from the pandemic since 2021. Amidst
the global economic uncertainties that occurred throughout 2022, Indonesia’s economy
remained resilient with GDP growth of 5.3%. The growth was primarily attributed to
two factors: strong domestic demand and commodity exports. Due to the government’s
decision to relax mobility restrictions (PPKM), domestic demand has increased and
private consumption has grown by 4.93% (y-o-y) in 2022. Meanwhile, the rise in global
commodity prices and demand, aided by the implementation of a zero-tariff policy for
Crude Palm Oil (CPO), has resulted in strong commodity export growth for Indonesia.
As a result, the current account surplus reached a peak of US$ 13.22 billion in 2022, a
record high since 2017.
The study by ACI examines the competitiveness of the 34 sub-national Indonesian
economies during the country’s recovery phase. Chapter 1 of the book provides
an overview of the country’s socioeconomic performance amidst the global economic
uncertainties of 2022 as well as its economic trajectory for 2023. This chapter guides
readers to identify the main sectors that have contributed to Indonesia’s growth and
to understand the country’s key economic development indicators before and after the
pandemic. Finally, a background study of Indonesia’s digital landscape is presented to
support ACI’s new thematic research on digital competitiveness.
Chapter 2 provides an annual update on Indonesia’s provincial competitiveness
analysis. According to the annual competitiveness ranking of the country’s 34 provinces,
DKI Jakarta remained the top-ranked province in the competitiveness chart. Its
dominance can be seen in its superior performance in all environments, except for
Quality of Life and Infrastructure Development (QLID). East Kalimantan has also shown
improvement, moving up from the fifth position in 2020 to the fourth position in 2021.
This signals a solid foundation for moving the capital city to East Kalimantan in the near
future. This chapter concludes with a case study of two provinces, one of which – Bali –
has shown steady improvement and the other – South Sulawesi – deterioration, in overall
competitiveness rankings between 2013 and 2022. The case study specifically provides
an overview of two key drivers that contribute to competitiveness: human capital and
infrastructure.
A discussion of the competitiveness of the different regions of Indonesia is presented
in Chapter 3. According to the overall regional competitiveness results, there is a
significant disparity between the Western and Eastern Indonesian regions, with Java
and Sumatra continuing to hold the top two positions, while Maluku-Papua remains at
the bottom. Despite Java’s dominance, the Kalimantan region offers a higher quality
of life, as demonstrated by its superiority in terms of quality of life indicators. The
positive attributes of Kalimantan provide a solid foundation and may have influenced the
Indonesian Government’s decision to relocate its capital to East Kalimantan. However,
the Kalimantan region remains challenged by intra-regional disparities. A case study

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 Executive Summary vii

delves into details of provincial development in the region and identifies several key
factors driving such disparities, such as infrastructure development, labour productivity,
and geographic conditions.
A thematic research for this edition is presented in Chapter 4, which examines the
digital competitiveness of the 34 Indonesian sub-national economies. According to the
study, despite growing digital adoption and a thriving digital economy in Indonesia, the
digital disparity is worsening, especially between Java and non-Java regions and between
urban and rural areas. This chapter also features a case study on Central Kalimantan
and North Sulawesi. According to the study, Central Kalimantan performs well in ACI’s
annual competitiveness ranking (ACA) but not in the Digital Competitiveness Analysis
(DCA). North Sulawesi, on the other hand, excels in terms of DCA, but performs poorly
with respect to ACA. The study found that connectivity infrastructure and quality of
education are key issues that Central Kalimantan needs to tackle in order to improve
its digital competitiveness. Meanwhile, North Sulawesi needs to realise the welfare effect
of digitalisation by leveraging the potential of e-commerce activity and mobile payment
service.
 Acknowledgments

This year’s Annual Competitiveness Analysis and Socio-Economic Development of

Indonesian Sub-National Economies is supervised by Dr Zhang Xuyao and led by Bima
Satria and Hilda Kurniawati.
In this book, we have updated previous sub-national and regional competitiveness
studies with the latest available data. Our comprehensive approach to measuring
competitiveness takes into account different factors that collectively shape the ability
of a nation or region to achieve substantial and inclusive economic development over
a sustained period of time. In addition, we apply a novel approach to assigning weights
in the form of Shapley values to test the robustness of the findings. Furthermore, we
added digital competitiveness analysis of the 34 provinces to the book. We examine how
each provinces performed in terms of digital outputs, digital infrastructutre, core inputs,
and digital utilisation.
This book would not have been possible without the support of our research and
administrative colleagues. In particular, we would like to extend our sincere thanks to
the competent and dedicated administrative team at ACI, including Cai Jiao Tracy, Nur
Lyne PO Lai Yin, Dewi Jelina Ayu Binte Johari, and Atiqah Binte Rahmat. We would also
like to note with great appreciation the contributions from ACI Director Professor Paul
Cheung and the research staff – Dr Xie Taojun, Dr Ammu George, Dr Lucas Shen, Dr
Zhang Chi, Dr Banh Thi Hang, Dr Liu Jingting, Tan Kway Guan, Faith Tan Shih Yun, Fan
Litianqi, Ge Yixuan, Li Jingwei, Ng Wee Yang, Rohanshi Vaid, Shubhangi Gupta, Ulrike
Sengstschmid, and Yan Bowen.
We place on record our appreciation for the encouragement by Professor Danny
Quah (Dean), Professor Khong Yuen Foong (Vice Dean, Research and Development),
Kadir Suzaina (Vice Dean, Academic Affairs), Francesco Mancini (Vice Dean, Executive
Education) and other colleagues in the Lee Kuan Yew School of Public Policy, NUS, for
making this project possible.
We would also like to thank our partners in Indonesia, Coordinating Ministry for
Economic Affairs, Indonesian Employers Association (APINDO), Governor of Bali,
Governor of Riau Islands, Regional Development Planning Agency (Bappeda) of the 34
provinces, and ACI’s academic counterparts in the 34 provinces for their ongoing support
and collaboration.

viii
 List of Abbreviations

3T Disadvantaged, Frontier, Outermost Areas (Daerah Tertinggal,

Terdepan, dan Terluar)
AFI Attractiveness to Foreign Investors
APBN State Budget (Anggaran Pendapatan dan Belanja Negara)
APBD Local Government Budget (Anggaran Pendapatan dan Belanja Daerah)
ACI Asia Competitiveness Institute
ACA Annual Competitiveness Analysis
ASEAN Association of Southeast Asian Nations
BAKTI Telecommunications and Information Accessibility Agency (Badan
Aksesibilitas Telekomunikasi dan Informasi)
BBPP Agricultural Training Center (Balai Besar Pelatihan Pertanian)
BI Central Bank of Indonesia (Bank Indonesia)
BI7DRR BI 7-Day Reverse Repo Rate
BKPM Investment Coordinating Board (Badan Koordinasi Penanaman Modal)
BLK Technical and Vocational Education and Training (TVET) Center
(Balai Latihan Kerja)
BLT Village Fund Direct Cash Assistance (Bantuan Langsung Tunai)
BPMP Education Quality Assurance Center (Balai Penjaminan Mutu
Pendidikan)
BPS Indonesia’s Bureau of Statistics (Badan Pusat Statistik)
BRICS Brazil, Russia, India, China, and South Africa
BRT Buss Rapid Transit
BSPI Indonesian Payment System Blueprint (Blueprint Sistem Pembayaran
Indonesia)
BTS Base Transceiver Stations
CAGR Compound Annual Growth Rate
CI Competitiveness Index
CI Core Inputs
CLMV Cambodia, Laos, Myanmar, and Vietnam
CPO Crude Palm Oil
CRSRL Competition, Regulatory Standards and Rule of Law
DCA Digital Competitiveness Analysis
DI Digital Infrastructure
DO Digital Output
DU Digital Utilisation
DKI Special Capital Region (Daerah Khusus Ibukota)

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x Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

ESDM Ministry of Energy and Mineral Resources (Kementerian Energi dan

Sumber Daya Mineral)
ETPD Electronification of Local Government Transactions (Elektronifikasi
Transaksi Pemerintah Daerah)
FBMC Financial, Businesses and Manpower Conditions
FDBE Financial Deepening and Business Efficiency
FDI Foreign Direct Investment
FFR Fed Funds Rate
GCI Global Competitiveness Index
GDP Gross Domestic Product
GIS Government and Institutional Setting
GMV Gross Merchandise Value
GPFS Government Policies and Fiscal Sustainability
GRDP Gross Regional Domestic Product
HBS Hot Backup Satellite
HDI Human Development Index
HIMBARA State-Owned Bank Association (Himpunan Bank Milik Negara)
IDR Indonesian Rupiah
ICT Information and Communication Technology
IGL Institutions, Governance and Leadership
IKN Nusantara Capital City (Ibu Kota Negara)
IMD International Institute for Management Development
IMF International Monetary Fund
INDO- Indonesia Database for Policy and Economic Research
DAPOER
IPLT Sewage Waste Treatment Plant (Instalasi Pengolahan Lumpur Tinja)
JKN National Health Insurance (Jaminan Kesehatan Nasional)
K-12 From Kindergarten to 12th Grade
KOMINFO Ministry of Telecommunications and Information (Kementerian
Komunikasi dan Informatika Republik Indonesia)
LMF Labour Market Flexibility
LPG Liquified Petroleum Gas
ODSK Local Operation to Alleviate Poverty (Operasi Daerah Selesaikan
Kemiskinan)
PPKM Restrictions on Community Activities (Pemberlakuan Pembatasan
Kegiatan Masyarakat)
LKYSPP Lee Kuan Yew School of Public Policy
MDR Merchant Discount Rate
MINT Mexico, Indonesia, Nigeria, and Turkey
MP3EI Masterplan for Acceleration and Expansion of Indonesia’s
Economic Development 2011-2015
MRT Mass Rapid Transit
MS Macroeconomic Stability
 List of Abbreviations xi

MSMEs Micro, Small, and Medium Entreprises

NPK Nitrogen (N) Phosphorus (P) and Potassium (K)
OJK Financial Services Authority (Otoritas Jasa Keuangan)
OTS Openness to Trade and Services
PAD Original Local Government Revenue (Pendapatan Asli Daerah)
PAUD Pre-school Education (Pendidikan Anak Usia Dini)
PCR Polymerase Chain Reaction
PDN National Data Center (Pusat Data Nasional)
PEN National Economic Recovery (Pemulihan Ekonomi Nasional)
PI Physical Infrastructure
PKH Family Hope Program (Program Keluarga Harapan)
PNBP Non-tax State Revenue (Penerimaan Negara Bukan Pajak)
PP Productivity and Performance
PPP Public-Private Partnerships
PPU Penajem Paser Utara North Penajem Paser
PSN National Strategic Project (Proyek Strategis Nasional)
QLID Quality of Life and Infrastructure Development
QRIS QR Code Indonesian Standard
REV Regional Economic Vibrancy
RPJMD Regional Medium-Term Development Plan (Rencana Pembangunan
Jangka Menengah Daerah)
RPJMN National Medium-Term Development Plan (Rencana Pembangunan
Jangka Menengah Nasional)
SATRIA Greater Indonesia Satellite (Satelit Indonesia Raya)
SLESS Standard of Living, Education and Social Stability
SPBE Electronic-Based Government Systems (Sistem Pemerintahan Berbasis
Elektronik)
SUPAS Indonesian Intercensal Population Survey (Survei Penduduk Antar
Sensus)
TKI Indonesian Migrant Workers (Tenaga Kerja Indonesia)
TP2DD Acceleration and Expansion of Regional Digitalisation Taskforce
(Tim Percepatan dan Perluasan Digitalisasi Daerah)
TPAKD Team for Acceleration of Regional Financial Access (Tim Percepatan
Akses Keuangan Daerah)
USD United States Dollar
VA Volt Ampere
VAT Value-added Tax
WCY World Competitiveness Yearbook
WEF World Economic Forum
y-o-y year-on-year
 List of Provinces

Name of Province in English Name of Province in Bahasa Region

1 Aceh Aceh Sumatra
2 Bali Bali Bali-Nusa Tenggara
3 Bangka Belitung Islands Kepulauan Bangka Belitung Sumatra
4 Banten Banten Java
5 Bengkulu Bengkulu Sumatra
6 Central Java Jawa Tengah Java
7 Central Kalimantan Kalimantan Tengah Kalimantan
8 Central Sulawesi Sulawesi Tengah Sulawesi
9 DI Yogyakarta DI Yogyakarta Java
10 DKI Jakarta DKI Jakarta Java
11 East Java Jawa Timur Java
12 East Kalimantan Kalimantan Timur Kalimantan
13 East Nusa Tenggara Nusa Tenggara Timur Bali-Nusa Tenggara
14 Gorontalo Gorontalo Sulawesi
15 Jambi Jambi Sumatra
16 Lampung Lampung Sumatra
17 Maluku Maluku Maluku-Papua
18 North Kalimantan Kalimantan Utara Kalimantan
19 North Maluku Maluku Utara Maluku-Papua
20 North Sulawesi Sulawesi Utara Sulawesi
21 North Sumatra Sumatera Utara Sumatra
22 Papua Papua Maluku-Papua
23 Riau Riau Sumatra
24 Riau Islands Kepulauan Riau Sumatra
25 South Kalimantan Kalimantan Selatan Kalimantan
26 South Sulawesi Sulawesi Selatan Sulawesi
27 South Sumatra Sumatera Selatan Sumatra
28 Southeast Sulawesi Sulawesi Tenggara Sulawesi
29 West Java Jawa Barat Java
30 West Kalimantan Kalimantan Barat Kalimantan
31 West Nusa Tenggara Nusa Tenggara Barat Bali-Nusa Tenggara
32 West Papua Papua Barat Maluku-Papua
33 West Sulawesi Sulawesi Barat Sulawesi
34 West Sumatra Sumatera Barat Sumatra
Note: For analysis purposes, Bali is categorised as Java-Bali region in Chapter 4.

xii
 List of Figures and Tables

Chapter 1
Table 1.1: Highlights of ACI’s 2021 Overall Competitiveness Ranking of
Indonesian Provinces, (Top-5 and Bottom-5 Provinces)
Table 1.2: APBN 2023 by Sector and Main Priorities

Figure 1.1: COVID-19 Statistics and Development

Figure 1.2: GDP Growth Rate for Indonesia, BRICS Countries and MINT
Countries (in Percentage), 2018–2022
Figure 1.3: GDP Growth Rate for Indonesia and ASEAN-10 Countries (in
Percentage), 2018–2022
Figure 1.4: Quarterly GDP Growth (Y-o-Y), 2020–2022
Figure 1.5: GDP Growth Rate by Expenditure (Year on Year Percentage), Q1 of
2017–Q4 of 2022
Figure 1.6: GDP Growth Rate for Top-6 Largest Industries (Year on Year
Percentage), 2017–2022
Figure 1.7: Components of Actual Government Expenditure by Type (Rupiah
Trillion), 2018–2022
Figure 1.8: Sources of Actual Government Revenue (Rupiah Trillion), 2018–2022
Figure 1.9: Inflation and Central Bank Policy Rate (Percent), 2017–2023
Figure 1.10: Indonesia’s Exchange Rate against USD (IDR/USD), 2021–2023
Figure 1.11: Current Account Components of Indonesia (USD Billion), 2017–2023
Figure 1.12: Unemployment rate (Percentage), 2019–2022
Figure 1.13: Poverty Rate (Percentage), 2019–2022

Chapter 2
Table 2.1: Example to Compare the Shapley and Entropy Weight Methods
Table 2.2: 2022 Overall Competitiveness Standardised Scores and Three-Year
Rankings, 2020-2022
Table 2.3: Macroeconomic Stability Standardised Scores and Three-Year
Rankings, by Sub-environments, 2020-2022
Table 2.4: 2022 Government and Institutional Setting Standardised Scores and
Three-Year Rankings, 2019-2022
Table 2.5: 2022 Financial, Businesses and Manpower Conditions Standardised
Scores and Three-Year Rankings, 2020-2022
Table 2.6: 2022 Quality of Life and Infrastructure Development Standardised
Scores and Three-Year Rankings, 2021-2022

xiii
xiv Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Table 2.6: 2022 Quality of Life and Infrastructure Development Standardised

Scores and Three-Year Rankings, 2021-2022
Table 2.7: Overall 2022 What-if Simulation
Table 2.8: 2022 What-if Simulation on Macroeconomic Stability
Table 2.9: 2022 What-if Simulation on Government and Institutional Setting
Table 2.10: 2022 What-if Simulation on Financial, Businesses and Manpower
Conditions
Table 2.11: 2022 What-if Simulation on Quality of Life and Infrastructure
Development
Table 2.12: 2022 Comparing Results based on Equal Weight and Shapley Weight
Methods: Overall Competitiveness
Table 2.13: 2022 Comparing Results based on Equal Weight and Shapley Weight
Methods: Macroeconomic Stability
Table 2.14: 2022 Comparing Results based on Equal Weight and Shapley Weight
Methods: Government and Institutional Setting
Table 2.15: 2022 Comparing Results based on Equal Weight and Shapley Weight
Methods: Financial, Businesses and Manpower Conditions
Table 2.16: 2022 Comparing Results based on Equal Weight and Shapley Weight
Methods: Quality of Life and Infrastructure Development
Table 2.17: 2022 Overall Competitiveness and by Four Environments: Summary
of Ranking and standardised Scores

Figure 2.1: ACI’s Competitiveness Framework, 2000–2019 (ASEAN-10

Countries)
Figure 2.2: World Economic Forum Global Competitiveness Index, 2012–2019
(Selected Countries)
Figure 2.3: International Institute for Management and Development World
Competitiveness Yearbook, 2012–2022 (Selected Countries)
Figure 2.4: ACI Competitiveness Framework
Figure 2.5: Overall Changes in Ranking, 2021 – 2022
Figure 2.6: Map of Overall Competitiveness Ranking, 2022
Figure 2.7: Overall Performance Gap, 2013-2022
Figure 2.8: Map of Macroeconomic Stability Ranking, 2022
Figure 2.9: Performance Gap in Macroeconomic Stability, 2013-2022
Figure 2.10: 2022 Map of Government and Institutional Setting Ranking
Figure 2.11: Performance Gap in Government and Institutional Setting, 2013-2022
Figure 2.12: 2022 Map of Financial, Businesses and Manpower Conditions
Ranking
Figure 2.13: Performance Gap in Financial, Businesses and Manpower
Conditions, 2013-2022
Figure 2.14: 2022 Map of Quality of Life and Infrastructure Development Ranking
 List of Figures and Tables xv

Figure 2.15: Performance Gap in Quality of Life and Infrastructure Development,

2013-2022
Figure 2.16: Distribution of GRDP by Industry, 2010-2019
Figure 2.17: Comparison Between the Bali and South Sulawesi’s Rankings, 2010-
2019
Figure 2.18: Sub-environment Ranking: Physical Infrastructure and
Technological Infrastructure, 2010-2019
Figure 2.19: Length of Paved Road per Total Area, 2010-2019
Figure 2.20: Sub-environment Ranking: Standard of Living, Education and Social
Stability, 2010-2019
Figure 2.21: Quality and Attainment of Education
Figure 2.22: Life Expectancy and Malnourished Baby, 2010-2019
Figure 2.23: Households Access to Clean Water and Proper Sanitation, 2010-2019
Figure 2.24: 2022 Median Competitiveness Web Analysis: Top and Bottom
Performing Provinces
Figure 2.25: 2022 Maximum Competitiveness Web Analysis: Top and Bottom
Performing Provinces
Figure 2.26: 2022 Comparison of Weights for Each Competitiveness Environment

Chapter 3
Table 3.1: 2022 Overall Competitiveness: Ranking and Scores
Table 3.2: Macroeconomic Stability: Ranking and Scores
Table 3.3: Government and Institutional Setting: Ranking and Scores
Table 3.4: Financial, Business, and Manpower Conditions: Ranking and Scores
Table 3.5: Quality of Life and Infrastructure Development: Ranking and Scores

Figure 3.1: Regional share of GDP, FDI, Exports and Labour (in Percentage),
2020
Figure 3.2: Map of the Six Economic Corridors
Figure 3.3: 2022 Overall Competitiveness: Geographical Spread
Figure 3.4: Overall Competitiveness Ranking, 2014-2022
Figure 3.5: 2022 Overall Competitiveness: Top and Bottom Performing
Provinces in Each Region
Figure 3.6: Macroeconomic Stability Ranking, 2014-2022
Figure 3.7: 2022 Macroeconomic Stability: Sub-Environment Spread
Figure 3.8: 2022 Macroeconomic Stability: Top and Bottom Performing
Provinces in Each Region
Figure 3.9: Government and Institutional Setting Ranking, 2014-2022
Figure 3.10: 2022 Government and Institutional Setting: Sub-Environment
Spread
Figure 3.11: 2022 Government and Institutional Setting: Top and Bottom
Performing Provinces in Each Region
Figure 3.12: Financial, Business, and Manpower Conditions Ranking, 2014-2022
xvi Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Figure 3.13: 2022 Financial, Business, and Manpower Conditions: Sub-

Environment Spread
Figure 3.14: 2022 Financial, Business, and Manpower Conditions: Top and
Bottom Performing Provinces in Each Region
Figure 3.15: Quality of Life and Infrastructure Development Ranking: 2014-2022
Figure 3.16: 2022 Quality of Life and Infrastructure Development: Sub-
Environment Spread
Figure 3.17: 2022 Quality of Life and Infrastructure Development: Top and
Bottom Performing Provinces in Each Region
Figure 3.18: 2022 Median and Maximum Web Analysis: Bali-Nusa Tenggara
Figure 3.19: 2022 Median and Maximum Web Analysis: Java
Figure 3.20: 2022 Median and Maximum Web Analysis: Kalimantan
Figure 3.21: 2022 Median and Maximum Web Analysis: Maluku and Papua
Figure 3.22: 2022 Median and Maximum Web Analysis: Sulawesi
Figure 3.23: 2022 Median and Maximum Web Analysis: Sumatra
Figure 3.24: Distribution of Indonesia’s Gross Domestic Product by Region, 2021
Figure 3.25: Standardised Score comparison between Kalimantan and Java, 2022
Figure 3.26: Kalimantan - Overall Competitiveness Ranking, 2013-2022
Figure 3.27: Standardised Score Difference of East Kalimantan: Overall
Competitiveness (2020-2022)
Figure 3.28: Standardised Score Difference of East Kalimantan: Quality of Life
and Infrastructure Development (2020-2022)
Figure 3.29: Labour Productivity, 2019
Figure 3.30: Population 15 Years of Age and Over who Worked During the
Previous Week, by Educational Attainment (August 2022)
Figure 3.31: Financial Inclusion Index, 2019
Figure 3.32: Percentage of Households with State Electricity Services, 2019
Figure 3.33: Share of Economic Sectors in the Gross Regional Domestic Product
(GRDP), 2019
Figure 3.34: Number of Affected Villages by Type of Natural Disaster

Chapter 4
Table 4.1: Environments Description
Table 4.2: Overall Digital Competitiveness Results, 2019 and 2020
Table 4.3: Digital Output Results
Table 4.4: Digital Infrastructure Results, 2019 and 2020
Table 4.5: Core Input Results, 2019 and 2020
Table 4.6: Digital Utilisation Results, 2019 and 2020
Table 4.7: Key Socioeconomic Indicators, 2019
Table 4.8: Average Internet Infrastructure Coverage, North Sulawesi by Type of
Districts, 2019
 List of Figures and Tables xvii

Table 4.9: ICT Contribution to GRDP, Population, Poverty, and Unemployment

Rate, North Sulawesi by Districts, 2019
Table 4.10: E-commerce Activity from Internet Users, North Sulawesi by Type of
Districts, 2019

Figure 4.1: Proportion of Population who has Access Internet by Classification,

2011-2020
Figure 4.2: Urban and Rural Differences in Percentage Points (Proportion of
Population who has Accessed the Internet), by Region, 2019-2020
Figure 4.3: Proportion of Villages/Sub-district and Kelurahan that has BTS with
Strong Signal, 2011 and 2020
Figure 4.4: Map of Overall Digital Competitiveness Ranking, 2019
Figure 4.5: Map of Digital Output Ranking, 2019
Figure 4.6: Map of Digital Infrastructure Ranking, 2019
Figure 4.7: Map of Core Inputs Ranking, 2019
Figure 4.8: Intra-regional Ranking Gap between Top Performer and Least
Performer, Core Inputs, 2019
Figure 4.9: Map of Digital Utilisation Ranking, 2019
Figure 4.10: Intra-regional Ranking Gap between Top Performer and Least
Performer, Digital Utilisation, 2019
Figure 4.11: The Proportion of Urban and Rural Populations that Use Computer,
2020
Figure 4.12: Ranking Comparison between ACI’s Digital Competitiveness and
ACI’s Annual Competitiveness
Figure 4.13: The Contribution of ICT Sector to GRDP, 2010-2019
Figure 4.14: Worker in ICT Sector to Total Worker, 2015-2021
Figure 4.15: North Sulawesi and Central Kalimantan Digital Competitiveness
Performance by Environment, 2019
Figure 4.16: North Sulawesi and Central Kalimantan Annual Competitiveness
Performance by Environment, 2019
Figure 4.17: Map of North Sulawesi Population, 2019
Figure 4.18: Internet Penetration and ICT Output, Central Kalimantan and
Selected Provinces, 2019
Figure 4.19: Poverty and Unemployment Rate, North Sulawesi RPJMD’s
Development Targets and Actual Achievements, 2017-2021
Figure 4.20: Key Central Kalimantan RPJMD’s Development Targets and Actual
Achievements, 2017-2021
 Chapter 1
Year in Review: Indonesia in 2022

1.1 Structure and Content of the Book

In this book, we present an update of Indonesia’s recent economic and social

development and the results of Asia Competitiveness Institute’s most recent series of
studies on Indonesia’s regional economies. This edition contains not only the annual
competitiveness analysis and simulation studies for Indonesia’s provinces and regions,
but also the results of ACI’s new thematic research on Digital Competitiveness in
Indonesia. Along with a descriptive analysis, this book also features an in-depth analysis
of the highlighted issues in each chapter, illustrated by case studies.
The book consists of four chapters, including this introductory chapter, which
provides an overview of the structure and content of the book. The following is the
summary and highlights of the next three chapters. As part of ACI’s flagship research
project, Chapter 2 presents an annual update of Indonesia’s provincial competitiveness
analysis. The index evaluates competitiveness as a composite of four environments,
spanning: (i) Macroeconomic Stability (MS), (ii) Government and Institutional Setting
(GIS), (iii) Financial, Businesses and Manpower Conditions (FBMC), and (iv) Quality
of Life and Infrastructure Development (QLID). As part of this chapter, a case study is
also presented of two provinces, one of which – Bali – has shown steady improvement
and the other – South Sulawesi – deterioration, between 2014 and 2022.
As shown in Table 1.1, the top three positions – DKI Jakarta, East Java, and West
Java – have remained unchanged from the previous year. Furthermore, the dominance
of DKI Jakarta as Indonesia’s capital city can be seen in its superior performance in all
environments, except QLID. A significant change was observed in the top-five ranking
this year, with East Kalimantan taking the fourth place from Central Java, which ended
up in the fifth position. The improvement in performance indicates the potential for East
Kalimantan to become the new capital city (IKN) in the near future. However, it should
be noted that provinces in the eastern regions, such as Bali-Nusa Tenggara, Sulawesi, and
Maluku-Papua, remain at the bottom of the rankings.

1
2 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Table 1.1: Highlights of ACI’s 2021 Overall Competitiveness Ranking of Indonesian Provinces,
(Top-5 and Bottom-5 Provinces)
Overall Province MS GIS FBMC QLID

1 DKI Jakarta 1 1 1 8

2 East Java 3 5 2 9

3 West Java 2 2 3 15

4 East Kalimantan 5 6 4 1

5 Central Java 4 3 5 11

6 Bali 19 4 9 2

7 Banten 6 7 26 6

8 Riau Islands 7 17 10 5

9 DI Yogyakarta 27 9 13 3

10 South Kalimantan 12 12 18 4

… … … … … …

25 Lampung 14 19 34 27

26 Jambi 21 31 19 22

27 North Sulawesi 25 29 27 18

28 North Maluku 18 27 31 24

29 Gorontalo 33 24 33 29

30 East Nusa Tenggara 29 22 32 31

31 West Sulawesi 23 23 29 33

32 West Papua 24 34 25 28

33 Maluku 34 33 30 30

34 Papua 28 21 8 34

Java Region Top-10

Maluku-Papua Region Middle-14

Bottom-10

Source: ACI

Chapter 3 examines the competitiveness of the different regions of Indonesia. It

applies the same framework used in Chapter 2 to the six regions in Indonesia, where each
region is an aggregation of several provinces based on their major island groupings. In
line with the findings at the provincial level presented in Chapter 2, we observed that the
overall regional results indicate significant regional disparities between the western and
eastern regions. Java and Sumatra, both located in western Indonesia, retain the top two
positions. On the other hand, the eastern region (Maluku-Papua) remains at the bottom
of the rankings, a position it has occupied since last year. The only fierce competition can
be observed among the middle-ranked regions, such as Bali-Nusa Tenggara and Sulawesi,
which have switched positions repeatedly in the last three years.
 Year in Review: Indonesia in 2022 3

Based on the results of Chapter 3, the Kalimantan region has a higher QLID score
than Java, which may be attributed to the lower risk of natural disasters. Despite
Kalimantan’s excellent performance, there is a significant intra-regional disparity in this
environment, specifically between East Kalimantan (ranked first) and West Kalimantan
(ranked 32nd ). A case study analysing intra-regional disparities within the Kalimantan
region is included in Chapter 3 to provide readers with a deeper insight into this issue. It
is essential to understand that the Kalimantan region, as the future home of Indonesia’s
capital city, will be an important part of Chapter 3.
In Chapter 4, ACI presents its new thematic research on Digital Competitiveness
in Indonesia. This chapter aims to examine digital competitiveness at the sub-national
level to identify how digital inequality arises at the provincial level. This study also
seeks to provide insights into the aspects and regions that require particular attention to
escape the digital divide trap. The digital competitiveness framework is based on ACI’s
study on digital competitiveness among ASEAN member countries. A few modifications
were made to the study, particularly in terms of the number of environments that were
adopted. The index evaluates digital competitiveness as a composite of four broad
environments, including: (i) Digital Outputs, (ii) Digital Infrastructure, (iii) Core Inputs,
and (iv) Digital Utilisation.
Results from Chapter 4 stand in parallel with the overall competitiveness ranking
presented in Chapter 2, in which DKI Jakarta occupies the first position, and the top five
performers are all dominated by provinces in Java. In addition, provinces with better
performance in ACI’s annual competitiveness rankings tend to have a higher ranking
in digital competitiveness, except for Central Kalimantan and North Sulawesi. In this
chapter, a brief case study will also be presented to provide further insights into the
performance of these two provinces.
As the country enters the post-pandemic era, tracking the progress and comparative
advantages of each province has become increasingly important. The book is expected
to provide empirical as well as policy guidance to Indonesia’s policymakers, academics,
and business players in devising recovery strategies. A compilation of competitiveness
outlooks and provincial socio-economic reviews is an invaluable tool for understanding
Indonesia’s future policy direction, especially in an era of digitalisation.

1.2 Indonesia in 2022

1.2.1 Indonesia’s Stable Economic Performance in the Face of Global

Economic Challenges
Global economic growth has recovered from -3.1% in 2020 to 3.2% in 2022, and it is
expected to grow at a slower rate of 2.7% in 2023. This slow growth was mainly affected
by the start of the Russia-Ukraine war on 24th February 2022, which disrupted the global
recovery process. In particular, the war has disrupted the global supply chain, resulting
in a rise in global commodity prices, especially coal, oil, and gas, due to tighter supplies.
4 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Consequently, the US Federal Reserve has adopted a contractionary monetary policy by

increasing interest rates, resulting in a tightening of external financing.
In spite of global economic shocks in 2022, the Indonesian economy remained
relatively stable from a macroeconomic, fiscal-monetary, and financial perspective. In
Indonesia, the higher commodity prices acted as a double-edged sword that had both
positive and negative consequences for its economy.
On one hand, Indonesia’s real GDP increased by 5.72% (y-o-y) in Q3 2022, outpacing
the global growth rate. It was primarily due to the strong commodity exports that
increased the current account surplus from 0.2% of GDP in Q3 2021 to 0.9% of GDP in Q3
2022. The country’s Crude Palm Oil (CPO)’s zero export tariff policy also contributed
to the strong export growth. The Ministry of Finance Regulation (PMK) Number
115/PMK.05/2022 has been issued to support exporters, by reducing the export levy rate
to USD 0. This regulation eliminated the export levy on all CPO products and their
derivatives from 15th July to 31st August 2022. Meanwhile, progressive rates will be
applied again to export levy prices from 1st September 2022.
On the other hand, higher global commodity prices have prompted the country’s
inflation rate to rise to 5.95%, significantly higher than in 2021 (1.87%). It should be
noted, however, that the impact has been limited due to the Central Bank of Indonesia’s
price control mechanism. Bank Indonesia has increased its policy rate (BI7DRR) to 4.25%
in Q3 2022 in order to control inflation spikes, to avoid higher lending rates in future.

1.2.2 Indonesia’s Transition towards the Endemic

Indonesia’s strong economic performance has been largely attributed to the improvement
in domestic demand and the successful vaccination rate that has improved society’s
confidence to return to economic activities. As of February 2022, the vaccination rate of
the first and second doses has reached 80% and 57% of the total population, respectively,
while the vaccination rate of the third dose remained at 3% of the total population
(Ministry of Health (2022b). As a result of this higher vaccination rate, Indonesia was
better prepared to deal with the Omicron variant that emerged in mid-February 2022,
with 65,000 cases per day. According to Figure 1.1, the number of daily cases associated
with mutations in Omicron variants (BA.4 and BA.5) increased between February and
March 2022. However, the daily death trend was significantly lower than during the
Delta waves of July 2021.
In addition to the successful vaccination rate, greater mobility due to the government’s
decision to relax mobility restrictions (PPKM), has contributed to the strong domestic
demand and private consumption (The World Bank (2022)). During the peak of the
Omicron variant, in February and March 2022, the government set the PPKM level to
Level 3 for most provinces in Java-Bali, and allowed 50% physical attendance in public
areas, such as parks, tourist attractions, and gymnasiums (CMMIA (2022)). Compared
to PPKM policies during the peak of the Delta variants in mid-2021, these policies were
relatively less stringent. In June and July 2022, the government further relaxed the
restriction by allowing 100% physical attendance for offices and places of worship in Level
 Year in Review: Indonesia in 2022 5

1 areas (the lowest level of PPKM) (Ministry of Home Affairs (2022)). The requirement to
wear a mask outdoors was also lifted. Since August 2022, the government has eliminated
the requirement of antigen and PCR tests for domestic travellers who have received their
third dose of vaccine and exempted quarantine for foreign travellers who have received
their third dose of vaccine and have a negative PCR test (Ministry of Tourism and Creative
Economy (2022b).
Figure 1.1: COVID-19 Statistics and Development

70,000

60,000

50,000

40,000
Person(s)

30,000

20,000

10,000

0
1/1/20
19/1/20
6/2/20
24/2/20
13/3/20
31/3/20
18/4/20
6/5/20
24/5/20
11/6/20
29/6/20
17/7/20
4/8/20
22/8/20
9/9/20
27/9/20
15/10/20
2/11/20
20/11/20
8/12/20
26/12/20
13/1/21
31/1/21
18/2/21
8/3/21
26/3/21
13/4/21
1/5/21
19/5/21
6/6/21
24/6/21
12/7/21
30/7/21
17/8/21
4/9/21
22/9/21
10/10/21
28/10/21
15/11/21
3/12/21
21/12/21
13/2/22
3/3/22
21/3/22
8/4/22
26/4/22
14/5/22
1/6/22
New Cases Deaths 20/6/22

Source: Google Health

As the COVID-19 pandemic in Indonesia was finally under control (the weekly
positivity and hospitalisation rates were 3.35% and 4.79%, respectively – with a low
death rate of 2.39%), President Jokowi revoked the PPKM policy on 30th December
2022 (Ministry of Health (2022a)). The PPKM removal was in accordance with the
instructions of the Ministry of Home Affairs Number 53 of 2022, concerning the
Prevention and Control of Coronavirus Disease 2019 during the Transitional Period
towards Endemic. However, in order to control the spread of COVID-19 and to prevent
a spike in cases, proactive, persuasive, focused and coordinated strategies will be
implemented during the transition period to endemic. As part of these efforts, people
are still encouraged to wear masks, test for COVID-19 symptoms, and undergo primary
and booster vaccinations.
6 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

1.2.3 The Recovery of Indonesia’s Tourism Sector

The recovery of Indonesia’s economy is also reflected in the performance of various
business sectors in all regions, particularly tourism. Transportation and storage, as well
as accommodation and food and beverage, are two sectors closely related to tourism.
During the pandemic era, the growth of these sectors decreased to below zero but in 2022
they achieved 11.38% and 20.96% growth respectively. A significant increase in tourist
numbers was also observed in 2022. Approximately 1.2 million foreign tourists visited
the country during the first half of 2022. This is a significant increase over the 1.6 million
tourists who visited the country during the entire year of 2021.
The revival of the tourism sector was also supported by the G20 Summit held in Bali on
15-16 November 2022. It was recorded that the event increased Bali’s economic growth in
Q3 2022 to 8% year-on-year compared to 3% in the previous quarter (Ministry of Tourism
and Creative Economy (2022a)). The economic contribution of the G20 Summit to the
national economy reached USD 533 million or IDR 7.4 trillion and created more than
33,000 new jobs. In addition, hotel occupancy rates in the Nusa Dua area increased by up
to 70 % during the G20 Summit. The number of domestic and foreign tourists is predicted
to continue to increase, on average, to 24,000 per day, due to the Christmas and New Year
holidays (Ministry of Tourism and Creative Economy (2022c)).

1.2.4 Prospects and Challenges Facing Indonesia in 2023

It is forecast that Indonesia will maintain its stable and robust macroeconomic
performance in 2023. Continuity in implementing structural transformation is expected
to positively impact the country’s economic growth, which is predicted to remain strong
at 5.3%. Despite a rise in Bank Indonesia’s policy interest rate at the end of 2022 to
curb inflation, Indonesia’s inflation rate in 2023 is forecast to be 3.3% (The World Bank
(2022)). This projected lower inflation rate (compared with 5.5% in 2022) would be the
result of the government’s extended efforts to retain supply availability and distribution.
Moreover, the budget deficit is projected to return to below 3% of the GDP in 2023 or
equal to IDR 598.2 trillion. The 2023 budget deficit is expected to be below 3% for the first
time since the COVID-19 pandemic, in accordance with the mandate of Law no. 2 of 2020
concerning the Ratio of the Budget Deficit to GDP.
As stated in the Indonesian Budget 2023 (APBN 2023), the Indonesian government
has anticipated these uncertain global economic conditions by using its state budget
as a ’shock absorber’ to protect the purchasing power of people. The 2023 fiscal
policy will focus on five areas, namely 1) improving the quality of human capital;
2) accelerating infrastructure development to support economic transformation; 3)
reforming bureaucratic processes and simplifying regulations; 4) revitalising the
industrial sector; and 5) developing a green economy (Ministry of Finance (2022a)).
 Year in Review: Indonesia in 2022 7

Table 1.2: APBN 2023 by Sector and Main Priorities

Sector Main Priorities
Education ● Achieving universal access to quality education
● Improving the quality of infrastructure to support educational activities, especially in the 3T
Rp 612.2 trillion
(Disadvantaged, Frontier, Outermost) areas
● Strengthening the quality of pre-school education (PAUD) through commitment with the local
government
● Improving link and match system between job seekers and with the labour market
Social ● Increasing the use of integrated data and expanding targeted social protection through Socio-
Protection economic Registration (Regsosek)
Rp 476 trillion ● Intensifying poverty graduation and accelerating extreme poverty reduction

● Strengthening lifelong social protection that is inclusive of the elderly and people with disability

● Providing support for social protection provision that is adaptive to crisis

Infrastructure ● Accelerating infrastructure development to support basic services
● Supporting equitable access to information and communication technology (ICT) infrastructure
Rp 392 trillion
in supporting economic activity
● Enhancing infrastructure development that supports economic transformation (energy, food,
connectivity, and transportation)
● Supporting the gradual and sustainable completion of the national strategic project (PSN) and
the development of the National Capital (IKN)
● Increasing the synergy of funding between ministries/institutions, central and regional, as well
as through the implementation of Public-Private Partnerships (PPP) financing schemes.
Energy Energy Subsidy
● Continuing the provision of price difference subsidies for kerosene and fixed subsidies for
Rp 341.3 trillion diesel fuel accompanied by volume control and supervision of groups or sectors that are entitled to
utilise;
● Transforming 3 kg cylinder LPG subsidies to be based on target recipients and integrated with
social protection programs in stages by taking into account economic recovery and people’s
purchasing power;
● Providing targeted electricity subsidies by harmonising economic recovery and people’s
purchasing power
Non-energy Subsidy
● Strengthening the implementation of targeted fertiliser subsidies by limiting the types of
subsidised fertilisers for urea and NPK to priority commodities;
● Improving the quality and innovation of public transportation services and digitising
information and communication services;
● Increasing business competitiveness and expanding capital for MSMEs and farmers;
● Supporting the business world through tax incentives
Health ● Improving the quality of services for primary and secondary health facilities
Rp 178.7 trillion ● Accelerating stunting prevention and control programs
● Increasing the benefits of the National Health Insurance (JKN) program
● Enhancing quality and improving the distribution of medical equipment and personnel
Food Security ● Increasing the productivity of strategic food commodities

● Encouraging the creation of competitive human capital in agriculture and fisheries sectors by
Rp 104.2 trillion
strengthening business institutions (corporations), modernisation, and increased counselling

● Encouraging the use of technology and data, as well as the development of an innovation
climate

● Strengthening the national food logistics system and transforming a sustainable food system

● Accelerating the completion of infrastructure development for irrigation systems and

dams/reservoirs
Source: Ministry of Finance
8 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Table 1.2 shows the breakdown of the 2023 State Budget (Ministry of Finance
(2022b)). In 2023, state revenue is projected to grow by 5% from last year, accounting for
IDR 2,463 trillion. This comes from tax revenue of IDR 2,021 trillion, non-tax state revenue
(PNBP) of IDR 441.4 trillion, and grants of IDR 0.4 trillion. Meanwhile, next year’s state
expenditure is expected to reach IDR 3,061.2 trillion, consisting of central government
spending of IDR 2,246.5 trillion and transfers to the regions of IDR 814.7 trillion.
As shown in Table 1.2, the education sector receives approximately 20% of the total
expenditures. A key focus of the education sector in 2023 will be enhancing the quality
of human capital while making quality education more accessible to all, including
those living in Disadvantaged, Frontier and Outermost (3T) areas. The next largest
expenditure (16%) will be for social protection. The government intends to maintain the
state budget (APBN) as a ‘shock absorber’ to protect Indonesia’s economy from shocks
arising from uncertain global economic conditions. In addition, 13% of the budget is
devoted to infrastructure. The infrastructure budget is mainly used to provide basic
infrastructure such as electricity, transportation, and information technology, as well
as to support economic transformation through the gradual completion of the national
strategic project (PSN) and development of the new capital city in East Kalimantan
(IKN).

1.3 Overview of Indonesia’s Recent Economic

Developments

1.3.1 Growth Trends and Prospects

In this section, we will discuss Indonesia’s growth trends and prospects, fiscal and
monetary trends, trade performance, investment outlook, as well as the labour market
and social development. An evaluation of Indonesia’s performance during and after the
COVID-19 pandemic will be presented.
Figure 1.2 shows GDP growth rates for Brazil, Russia, India, China, and South Africa
(BRICS) and Mexico, Indonesia, Nigeria, and Turkey (MINT). The COVID-19 pandemic
has caused fluctuations in the GDP growth of these countries between 2018 and 2022. In
2020, most countries experienced negative growth, except for China (2.2%) and Turkey
(1.9%). Indonesia is the only country with increasing growth during the recovery years
(3.7% in 2021 and 5.3% in 2022).
A similar pattern is observed for the ASEAN-10 countries (Figure 1.3). The
Philippines experienced the greatest drop of -9.5% in 2020, while Singapore achieved the
highest growth of 7.6% in 2021. On the other hand, Myanmar experienced a sudden drop
in GDP growth after the Myanmar military took control of the country in a coup in early
February 2021. Despite the uncertain economic conditions in 2022, all countries achieved
positive growth, with Indonesia achieving the fourth-highest among the ASEAN-10
countries.
 Year in Review: Indonesia in 2022 9

Figure 1.2: GDP Growth Rate for Indonesia, BRICS Countries and MINT Countries (in
Percentage), 2018–2022

12.0
11.4
11.0

10.0

9.0
8.7
8.0 8.1

7.0
6.8 6.8
6.5
6.0 6.0
4.9
5.2 4.8 5.3
5.0 5.0 4.7 5
4.6
4.0
3.7 3.7
3.6 3.2
GDP Growth Rate (%)

3.0 3.0
2.8 2.8

2.0 2.2 2.2 2.2 2.1

1.9 1.9
1.8
1.0 1.5 1.2
0.8
0.3
0.0
-0.2

-1.0

-2.0 -1.8
-2.1
-2.7
-3.0
-3.4
-4.0 -3.9

-5.0

-6.0
-6.3
-6.6
-7.0

-8.0 -8.1

-9.0
2018 2019 2020 2021 2022
Brazil Russia China India South Africa Mexico Indonesia Nigeria Turkey

Note: Figures for 2022 are based on preliminary data. Figures at the end of the line indicate growth rates in
2022. Dashed lines represent MINT countries.
Source: International Monetary Fund, compiled by ACI

Indonesia’s quarterly GDP growth trend has improved between 2020 and 2022 (Figure
1.4). It plummeted in 2020 due to the first shock caused by the COVID-19 pandemic,
and fluctuated in 2021 during the recovery period. It is important to note that the
government’s reintroduction of mobility restrictions in response to the Delta variants
caused a drop in GDP growth in Q3 2021.
Meanwhile, Indonesia’s quarterly GDP growth rate in 2022 was relatively stable, with
an average of 5.31% – a record high since 2014 (Coordinating Ministry for Economic
Affairs (2023)). Indonesia’s strong economic performance has been largely attributed
to a rise in domestic demand and exports. In addition, the high vaccination rate and
relaxed policies have raised society’s confidence in resuming normal economic activities.
10 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Figure 1.3: GDP Growth Rate for Indonesia and ASEAN-10 Countries (in Percentage), 2018–2022

7.5 7.6
7.2 7.2
7.1 7.0
6.8 6.5
6.4
6.3 6.1
6.0 5.4
5.7
5.2 5.0 5.3
4.8 4.7
4.2 4.4 5.1
3.7 3.9 3.0
3.2
2.9 3.2
3.1
3.0
2.6 2.8
2.2 2.1 2.2
1.5 2.0
1.0 1.1 1.1 1.2
0.1
-0.4
-1.6
-2.1
GDP Growth Rate (%)

-3.1
-4.0 -4.1

-5.5
-6.2

-9.0
-9.5

-14.0

-17.9
-19.0
2018 2019 2020 2021 2022
Brunei Cambodia Indonesia Lao PDR Malaysia
Myanmar Philippines Singapore Thailand Vietnam

Note: Figures for 2022 are based on preliminary data. Figures at the end of the line indicate GDP growth rate
in 2022. Dotted lines represent CLMV countries.
Source: International Monetary Fund, compiled by ACI

Figure 1.4: Quarterly GDP Growth (Y-o-Y), 2020–2022

7.07

6
5.73
5.46
5.02 5.02 5.01

4
3.51
2.97

2
Percentage

0
QI-2020 QII-2020 QIII-2020 QIV-2020 QI-2021
-0.7 QII-2021 QIII-2021 QIV-2021 QI-2022 QII-2022 QIII-2022 QIV-2022

-2 -2.17

-3.49
-4

-5.32
-6

Source: Central Bureau of Statistics (BPS)

The stable growth in Indonesia’s GDP is also reflected in its positive expenditure
throughout 2022, except for government consumption (Figure 1.5). As of 2022,
household consumption increased by 4.93% (y-o-y), more than double the growth of
2.08% (y-o-y) recorded in the previous year. Likewise, gross fixed capital also grew
 Year in Review: Indonesia in 2022 11

steadily at 3.87% (y-o-y) in 2022.

Figure 1.5: GDP Growth Rate by Expenditure (Year on Year Percentage), Q1 of 2017–Q4 of 2022

80

60

40
Percentage

20

0
17

17

17

17

18

18

18

18

19

19

19

19

20

20

20

20

20

20

20

20

21

21

21

21

22

22

22

22
1-

2-

3-

4-

1-

2-

3-

4-

1-

2-

3-

4-

1-

2-

3-

4-

1-

2-

3-

4-

1-

2-

3-

4-

1-

2-

3-

4-
Q

Q
-20

-40

-60
Household Consumption Government Consumption Gross Fixed Capital Formation Exports Imports

Source: Central Bureau of Statistics (BPS)

This year’s strongest growth has been recorded in the foreign trade sector. Over the
course of 2022, exports have performed outstandingly, peaking at 19.41% (y-o-y) in Q3
2022. Several factors contributed to this development, including strong demand from
major trading partners and government policies designed to facilitate the export of palm
oil, such as CPO’s zero export tariff policy. Consequently, the strong performance of
exports and domestic demand resulted in a 15.10% increase in imports in 2022. In spite
of this, the growth of government consumption contracted by 4.64% (y-o-y) due to the
reduction in government expenditures on goods and social assistance, especially for the
handling of COVID-19.
Figure 1.6 illustrates the trend in GDP growth rates for the top six largest industries
in Indonesia. Following a negative growth year in 2020, all sectors began to recover
and grew positively in 2021 and 2022. In spite of the third wave of Omicron variants
that emerged in early 2022, all sectors remained resilient. The fastest growing sectors
were Information and Communication (7.7%), Wholesale and Retail Trade (5.5%),
Manufacturing (4.9%), and Mining and Quarrying (4. 4%), while the agricultural,
forestry, fish and construction sectors grew at the slower rates of 2.3% and 2%,
respectively.
As shown in Figure 1.6, the Information and Communication sector had the most
significant 6-year average growth (8.5%). This improvement indicates that Indonesia’s
digitalisation has advanced and that this sector has taken advantage of the opportunities.
12 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

Figure 1.6: GDP Growth Rate for Top-6 Largest Industries (Year on Year Percentage), 2017–2022

12%

10%

8%

6%

4%

2%

0%
Agriculture, Forestry, Mining, Quarrying Manufacturing Construction Wholesale and Retail Trade Information and
Fishery Communication
-2%

-4%

-6%
2017 2018 2019 2020 2021 2022 6-year average

Source: Central Bureau of Statistics (BPS)

1.3.2 Fiscal and Monetary Trends

The previous sub-chapter described the growth trends and prospects for several
macroeconomic indicators in Indonesia during and after the COVID-19 pandemic. By
examining Indonesia’s fiscal and monetary indicators, this sub-chapter attempts to
analyse the country’s recovery from the pandemic.

Figure 1.7: Components of Actual Government Expenditure by Type (Rupiah Trillion), 2018–2022

600

500

400
Rupiah Trillion

300

200

100

0
Personnel Goods Capital Interest Subsidies: Subsidies: Social Grants and
Payment Energy Non-energy Assistance Other
Expenditure
2018 2019 2020 2021 2022

Source: Ministry of Finance

 Year in Review: Indonesia in 2022 13

As can be seen in Figure 1.7, Indonesia’s budget priorities have changed significantly
over the past few years. In 2020, most of the expenditure was devoted to handling
COVID-19, as evidenced by the significant increase in social assistance, grants, and other
expenses. The government began to focus on the economy’s recovery in 2021 and 2022,
by reducing its social assistance programs while increasing its expenditure on subsidies
to promote economic growth.
In spite of this, the state budget for 2022 has been impacted by various global
economic uncertainties. It can be seen that fluctuating interest rates and exchange
rates have increased the interest payment expenditure from IDR 343.5 trillion in 2021
to IDR 403.9 trillion in 2022 (Figure 1.7). In response to this vulnerability, the 2022 state
budget was primarily used as a shock absorber tool to maintain the national economic
recovery momentum and to protect people’s purchasing power, particularly those with
low income, from persistent inflation (Ministry of Finance (2023a)).
In the past five years, energy subsidies, grants, and other expenditure have reached
a record high. A sudden increase in the actual expenditure on energy subsidies was
attributed to an increase in the global price of energy commodities. To mitigate the effects
on consumers, the government added the budget for energy subsidies and compensation
before increasing the cost of subsidised diesel and RON90 gasoline (Pertalite) in
September 2022. Miscellaneous expenditure has also increased significantly, reaching
almost IDR 500 trillion.
Figure 1.8: Sources of Actual Government Revenue (Rupiah Trillion), 2018–2022

1,000

900

800

700
Rupiah Trillion

600

500

400

300

200

100

0
Income Tax Value Added & Other Domestic Taxes on Int'l Non-tax Revenue Grants
Luxury Tax Taxes Trade
2018 2019 2020 2021 2022

Source: Ministry of Finance

Figure 1.8 illustrates the actual government revenue from 2018 to 2022. Most sources
of government revenue began to increase rapidly after 2020, surpassing pre-pandemic
levels, except for grants. Value-added and luxury taxes (VAT) have increased due to the
implementation of Law Number 7 of 2021 concerning Harmonisation of Tax Regulations.
As a result, the VAT rate has increased from 10% to 11% since 1st April 2022. Aside from
14 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

the harmonisation of tax regulations, the excellent performance in most revenue sources
is the result of an increase in commodity prices and the expansion of the economy.

Figure 1.9: Inflation and Central Bank Policy Rate (Percent), 2017–2023

7.0

6.0

5.0

4.0
Percentage

3.0

2.0

1.0

0.0
-1

20 2

20 3

20 4

20 5

20 6

20 7

20 8
20 -9

20 1

20 2

20 3

20 4

20 5

20 6

20 7

20 8
20 -9

20 1

20 2

20 3

20 4

20 5

20 6

20 7

20 8
20 -9

20 1

20 2

20 3

20 4

20 5

20 6

20 7

20 8
20 -9
20 10

20 11

20 2

20 0

20 11

20 2

20 10

20 11

20 2

20 10

20 11

2
-

-1

-1

-1

-1

-1
19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

21

21

21

21

21

21

21

21

21

22

22

22

22

22

22

22

22

22
-

-
19

19

19

20

20

20

21

21

21

22

22

22
20

20

Inflation BI Rate

Source: Central Bank of Indonesia

Apart from the fiscal condition, the economic slowdown in 2020 also affected
Indonesia’s monetary condition, including inflation and the central bank policy rate
(Figure 1.9). After a long period of controlled inflation during 2020-2021, it rose
from 2.18% in January 2022 to 2.6% in March 2022. It is in line with the rising
global commodity prices, particularly energy and food commodities, primarily due to
increasing geopolitical tensions. Inflation peaked at 5.95% in September 2022, due to a
second round of subsidised fuel price adjustments and persistent high global energy and
food prices.
Similarly, global economic uncertainty has also had an impact on the central bank
policy rate (BI7DRR). BI has effectively maintained the cost of borrowing and lending
during the pandemic period by lowering the BI7DRR from 5% in January 2020 to 3.5% in
July 2022. However, from August to December 2022, BI increased its BI7DRR five times
to reach 5.5% as a means of maintaining inflation at 3.0 ± 1%.
As shown in Figure 1.10, inflation and high commodity prices also affected Indonesia’s
exchange rate against the dollar during this period. The rupiah has depreciated by -
9.1% (ytd) from IDR 14,270/USD in January 2022 to IDR 15,592/USD in December 2022.
Several other factors contributed to the rise in currency pressures, including an increase
in portfolio debt outflows since July as a result of the Fed Funds Rate (FFR) (The World
Bank (2022)).
 Year in Review: Indonesia in 2022 15

Figure 1.10: Indonesia’s Exchange Rate against USD (IDR/USD), 2021–2023

Rp16,000

Rp15,500

Rp15,000
IDR/USD

Rp14,500

Rp14,000

Rp13,500

Rp13,000
January 2021

February 2021

March 2021

April 2021

May 2021

June 2021

August 2021

September 2021

October 2021

November 2021

December 2021

January 2022

February 2022

March 2022

April 2022

May 2022

June 2022

August 2022

September 2022

October 2022

November 2022

December 2022

January 2023
July 2021

July 2022
Source: Central Bank of Indonesia

1.3.3 Trade Performance and Investment Outlook

Figure 1.11: Current Account Components of Indonesia (USD Billion), 2017–2023

400

300

200

100
Net Secondary Income
Net Primary Income
Services Imports
0
Services Exports
Goods Imports
Goods Exports
-100 Current Account

-200

-300

-400
2016 2017 2018 2019 2020 2021 2022

Source: Central Bank of Indonesia

During the past year, global economic conditions have heavily influenced Indonesia’s
trade performance. Global supply chains and international trade were disrupted by
mobility restrictions that many countries, including Indonesia, implemented in response
16 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

to the COVID-19 pandemic in 2020. As shown in Figure 1.11, all components of

Indonesia’s current account have deteriorated, particularly services exports (-53%) and
services imports (-37%).
Nonetheless, Indonesia’s current account performance has gradually improved as the
country recovered from the pandemic. It went from a deficit of USD 4.41 billion in 2020
to a surplus of USD 3.51 billion in 2021, reaching a peak of USD 13.22 billion in 2022 – a
record high since 2017. As mentioned above, the increase was caused by high oil prices
and the government’s zero export tariff policy on CPO, which caused the exports and
imports of goods to increase by 26% and 22%, respectively. Other sectors also performed
well: services exports (68%), services imports (52%) and net primary income (12%).

1.4 Labour Market and Social Development

As mentioned previously, Indonesia’s main economic indicators showed a downward
trend in 2020, due to pandemic shocks and began to recover gradually in 2021. This
recovery can also be seen in labour market and social development indicators, including
the unemployment rate (Figure 1.12) and poverty rate (Figure 1.13).

Figure 1.12: Unemployment rate (Percentage), 2019–2022

7.5

7.07
7

6.49
6.5
6.26
Percentage

6 5.86
5.83

5.5
5.23

4.98 4.94
5

4.5
February 2019 August 2019 February 2020 August 2020 February 2021 August 2021 February 2022 August 2022

Source: Central Bureau of Statistics (BPS)

The Indonesian government has taken various measures to mitigate the economic
impact of COVID-19, both at the household and corporate levels, under the National
Economic Recovery Program (PEN). A variety of programs have been implemented
between 2020 and 2022, including the Family Hope Program (PKH), provision of food
 Year in Review: Indonesia in 2022 17

assistance, expansion of Pre-Employment cards, discounts on household electricity of

450 VA and 900 VA, and Village Fund Direct Cash Assistance (BLT) (Ministry of Finance
(2023b)).
As a result, PEN’s various programs have successfully reduced unemployment from
7.7% in August 2020 to 5.86% in August 2022. Similarly, the policies have reduced
poverty rates from 10.19% in September 2020 to 9.54% in March 2022. Despite these
improvements, unemployment and poverty rates remain higher than at the pre-pandemic
levels of 4.94% and 9.41%, respectively.

Figure 1.13: Poverty Rate (Percentage), 2019–2022

10.4

10.19
10.2 10.14

10

9.78
9.8
9.71

9.6 9.54
Percentage

9.41
9.4

9.22
9.2

8.8

8.6
March 2019 September 2019 March 2020 September 2020 March 2021 September 2021 March 2022

Source: Central Bureau of Statistics (BPS)

1.5 Indonesia’s Digital Landscape

1.5.1 Overview of Digitalisation Sector in Indonesia

A major goal of the Indonesian government in the upcoming years is to become one
of the fastest-growing countries in Southeast Asia in terms of its digital economy. As
evidence of this optimism, Indonesia’s digital economy grew considerably in 2019, with
a compound annual growth rate (CAGR) of 49% and a gross merchandise value (GMV)
of USD 40 billion, the fastest in Southeast Asia. Furthermore, the number is estimated to
grow to USD 130 billion by 2025 (Bain and Company (2019)), and Indonesia’s ICT sector
is projected to create 3.7 million new jobs in the next five years.
Indonesia has highlighted the urgency of its digital economic transformation at two
major events, the G20 Leaders’ Summit in November 2022 and the ASEAN Chairmanship
18 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

in 2023. Digital transformation is also reflected in Indonesia’s projected growth for 2023,
as digital transactions are expected to grow significantly, including e-commerce (IDR 572
trillion), digital banking (IDR 67,700 trillion), and electronic money (IDR 508 trillion).
The Indonesian government has translated this ambition into the Digital Roadmap
2021-2024. This roadmap reflects the government’s commitment to speed up digital
transformation by focusing on four important areas: digital infrastructure, digital
governance, digital society, and digital economy. These priority areas are expected to
achieve the following key targets:

1. Digital Infrastructure: Development of an inclusive, safe, and reliable digital and

connectivity infrastructure that provides high-quality services.

2. Digital Governance: Enhancement of public services by developing transparent

and integrated digital government institutions as well as harmonising regulations
and increasing funding to advance innovations.

3. Digital Society: Development of a digital culture by utilising Indonesia’s

demographic advantages and empowering Indonesians to participate in the
development of the digital world.

4. Digital Economy: Transforming Indonesia from a consumer nation to a technology

producer through investment in digital platforms, products, and systems, as well as
strengthening the digital capability of the priority sectors to improve geostrategic
competitiveness and encourage quality growth. One of the targets involves the
digitalisation of Micro, Small, and Medium Enterprises (MSMEs).

With a supportive digital ecosystem, harmonised regulations, and the development

of the digital skills of its human capital, Indonesia hopes to accelerate its digital
transformation. Each of the following sub-chapters provides details of the government’s
efforts to achieve digital transformation.

1.5.2 Digital Infrastructure

The Palapa Ring Project
The enhancement of a country’s digital infrastructure is crucial to achieving digital
transformation. One of Indonesia’s major attempts to upgrade digital infrastructure
is through the Palapa Ring project, the development of a national fibre optic network
backbone covering the entire country (Ministry of Communication and Information
Technology (2013)). This project aims to establish an integrated large-capacity
telecommunication network infrastructure that can be the primary network for all
providers and users. It is hoped that the upgraded digital telecommunication
infrastructure will facilitate equity in digital infrastructure through internet access that is
high-quality, safe, affordable, and accessible to all.
After three years of development, the backbone network of the first phase of the 12,229
km Palapa Ring fibre-optic cable was put into operation and inaugurated by President
 Year in Review: Indonesia in 2022 19

Jokowi in 2019. Since 2020, a feasibility study has been underway for the second phase of
the project, the integrated Palapa Ring, and is currently entering the preparation phase
(Ministry of Communication and Information Technology (2022b)). Since the first phase
went live, a total of 27 telecommunication operators have registered as users at various
locations on the Palapa Ring route segment. The Palapa Ring’s usage across all segments
continues to increase and has exceeded its target. By December 2022, the West Palapa
Ring had reached 190 Gbps from the target of 150 Gbps, and the Central Palapa Ring had
achieved 213 Gbps from 210 Gbps. A similar result was achieved by the East Palapa Ring,
which achieved 4,700 Mbps microwave and 284 Gbps fibre optic compared to the target
of 280 Gbps (Jatmiko (2023)).

Base Transceiver Station (BTS 4G) in 3T (Disadvantaged, Frontier, Outermost) Areas

The development of the digital infrastructure also plays a key role in creating new
growth centres, such as in the 3T areas. To provide digital connectivity to all levels of
society, the Indonesian government intends to enhance 4G connectivity throughout the
country by constructing Base Transceiver Stations (BTS 4G). It is part of a government
initiative to promote inclusive digital economic growth in Indonesia by ensuring that
all areas have equal access to the internet. In order to accelerate the construction,
the Ministry of Telecommunications and Information (Kominfo) has appointed the
Telecommunications and Information Accessibility Agency (BAKTI). The target of 4,200
BTS 4G locations was divided into two phases. Phase 1A included the construction of
BTS in 2,271 locations, while Phase 1B included 1,783 locations.
However, the government faces challenges providing digital infrastructure in 3T
areas. Most 3T areas were geographically difficult to reach, have very poor road
infrastructure, and are often subject to security and cultural issues (Ministry of
Communication and Information Technology (2022a)). Construction of BTS 4G has also
been delayed due to the Covid-19 pandemic. Consequently, the construction of phase 1
BTS was delayed and missed its deadline for completion by the end of 2021. As at the
end of December 2022, phase 1A had only realised 92.6% of its target and phase 1B 89.7%
(Iswara (2023)).

The Greater Indonesia Satellite (SATRIA)-1

The government also launched the Greater Indonesia Satellite (SATRIA)-1 to enhance
internet connection. SATRIA-1 is a Government Multifunction Satellite (SMP) funded
through a Public-Private Partnership (PPP). SATRIA-1 enhances the 4G Base Transceiver
Station (BTS) in public facilities such as schools, local governments, defence, security
administrations, and health facilities (CNN Indonesia (2022)). A total of 150,000 such
public service points will be served by SATRIA-1 (Ministry of Communication and
Information Technology (2020a)). In order to support SATRIA-1’s performance, the
Kominfo will also provide a backup satellite in the form of a Hot Backup Satellite
(HBS) with a capacity of 80 Gbps. By June 2022, the construction of HBS was 51.5%
completed,.The SATRIA-1 project is scheduled to be operational by the end of 2023.
20 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

1.5.3 Digital Governance

The Electronic-Based Government Systems (SPBE)

Digital governance is the second pillar of Indonesia’s digital transformation plan. The
importance of digital governance was emphasised through the Presidential Regulation
No. 95 of 2018, concerning Electronic-Based Government Systems (SPBE). SPBE is a
government administration system that uses information and communication technology
to provide services to its users, including the government, business players, and
consumers. This system aims to achieve clean, effective, transparent, and accountable
governance and reliable public services (Ministry of Administrative and Bureaucratic
Reform (2020b)).
The SPBE may benefit its users in several ways. First, since the system integrates
all data at the local and national levels, it facilitates the realisation of the One Data
Portal Indonesia by sharing data among government agencies and regional governments.
Second, the system can facilitate the adoption and use of ICT infrastructure at all levels
of government. Lastly, information shared among local governments can be stored and
shared more securely.
In accordance with Article 4 of the SPBE Presidential Decree, Kominfo has been
assigned the responsibility of developing the national SPBE infrastructure and its four
general applications: archive, community complaint, human resource, and performance-
based budgeting. A national data centre (PDN) will also be developed as part of the
National SPBE infrastructure (Ministry of Communication and Information Technology
(2020b)).
As of 2020, two general applications have been operational: Srikandi (archive
application) and SP4N-LAPOR (community complaint application). Srikandi was
designed to improve government administrative efficiency and integrate archive
management, while SP4N-LAPOR is a transparent application for public service
complaints (Ministry of Administrative and Bureaucratic Reform (2020a)). Meanwhile,
Simpegnas – the human resource application – was established in 2021. Simpegnas
will facilitate real-time communication and coordination among government agencies
regarding staffing, administration and management.
This was followed by the establishment of the National SPBE infrastructure (PDN)
in 2022. The PDN aims to consolidate and facilitate the interoperabiity of data among
its 27,000 servers spread throughout Indonesia. It is hoped that effective management
of data centres can assist the government in achieving data-driven decision making
(Ministry of Communication and Information Technology (2022c)). Last but not least,
the government anticipates finishing the performance-based budget application by 2023,
in order to integrate planning, budgeting, procurement, evaluation, and monitoring
among government agencies and regional governments.

Electronification of Local Government Transactions (ETPD)

Aside from SPBE, the government has also committed to digitising government
 Year in Review: Indonesia in 2022 21

transactions for regional expenditure and revenue transactions through the

Electronification of Local Government Transactions (ETPD) (Bank Indonesia (2022)).
The system is expected to increase the growth of the regional economy by increasing
the accountability and transparency of local financial management, while enhancing
revenue absorption. The ETPD pilot project, conducted in 12 regions, found that local
governments that use electronic transactions experience an increase of 11.1% in local
revenue (PAD) each year.
To monitor this program, the Indonesian government established the Acceleration
and Expansion of Regional Digitalisation Taskforce (TP2DD). It is in accordance with
Presidential Decree No. 3 of 2021, which aims to promote economic growth and
development at the national and regional levels. The task force comprises leaders from
eight ministries and institutions and 542 TP2DD teams chaired by regional heads (CMEA
(2022)). By 20th September 2021, 465 TP2DDs, or 86% of the 542 regional governments,
had been formed, including 33 at the provincial level and 432 at the district and city levels.
Accordingly, the Central Bank of Indonesia (BI) has also demonstrated its
commitment to digital transformation by creating a digital payment ecosystem that
is aligned with the Vision of the Indonesian Payment System Blueprint (BSPI) 2025
(Bank Indonesia (2021)). In addition, BI plays a key role in connecting TP2DD with
stakeholders that can assist in efforts to accelerate and expand regional digitalisation,
including business associations and industry players. The following are various BI
initiatives aimed at accelerating the implementation of ETPD and payment digitalisation:

1. Extend the use of payment instruments and channels, such as the QR Code
Indonesian Standard (QRIS).

2. Enhance the interconnection and interoperability of payment systems.

3. Promote the use of e-commerce platforms for payment of taxes and levies.

4. Assist the government in mapping ETPD profiles in all regional governments.

5. Encourage payment service providers to collaborate with local governments

The ETPD is expected to benefit the government’s financial system in a number of

ways (Bank Indonesia (2021)). First, it can strengthen the financial governance system
at the local level. The advantages include simplified administrative processes, the ability
to track all transactions, more efficient financial management, and greater accuracy in
economic planning. The second benefit is the possibility of achieving more wide-ranging
financial access, making a greater variety of cashless payment channels and instruments
available throughout Indonesia. Ultimately, this will increase the accessibility to formal
banking services for the unbanked.

1.5.4 Digital Society

As Indonesia continues to lag behind its neighbouring countries in terms of digital
competitiveness, such as Singapore, Malaysia and Thailand, improving the digital skills
22 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

of Indonesia’s human capital has also become a priority (IMD (2021)). In terms of overall
digital competitiveness, Indonesia is ranked 52nd out of 64 countries, with the digital
knowledge factor ranking lowest (60th ) compared to other factors, such as technology
(49th ) and future readiness (48th ).
The objective of addressing human capital development is also outlined in the recent
National Medium-Term Development Plan (RPJMN) 2020-2024 as one of the priority
strategies. Based on the master plan, the main objective for human capital development is
to develop dynamic, skilled, hardworking individuals who are proficient in science and
technology. Thus, the government has been implementing various programs and policies
in order to adapt to the digital age – despite the COVID-19 pandemic.

Digital Literacy Roadmap

In early 2021, the Indonesian government released a Digital Literacy Roadmap, which
guides the development of Indonesia’s education curriculum and national programs in
order to increase digital literacy in the era of digital technology. The government seeks
to enhance the cognitive abilities of the labour force so that the skills are not restricted
to ‘operating’ devices. This framework is intended to serve as a guideline to evaluate
cognitive and affective competencies in relation to digital technology.
The roadmap features three major Kominfo programs that target all levels of society
with three types of basic digital training. The first program is SiberKreasi, which aims
to develop the basic skills necessary for digital literacy. The SiberKreasi platform has
published 17 articles and news, 1,034 posters on social media, 17 infographics and 78
e-books as well as 38 videos and podcasts on Digital Literacy. Materials and content
uploaded by contributors are available for public download under a Creative Commons
licence. The Digital Talent Scholarship is Kominfo’s second digital training program.
This program provides scholarships for individuals to develop various digital technology
skills in priority sectors. Meanwhile, the Digital Leadership Academy is the last training
program provided by Kominfo. It is specifically designed for professionals and experts
in the public and private sectors.

Pre-Employment Card Program

Since March 2020, the Indonesian government has allocated IDR 20 trillion to the Pre-
Employment Card Program (Program Kartu Prakerja) as part of the COVID-19 recovery
program. It is designed for job seekers, retrenched employees, and workers who wish to
enhance their skills and competencies. Participants in this program must be Indonesian
citizens, 18 years old or older, and not enrolled in any formal educational institution.
Participants who qualify may use their card balance to register for online and offline
training programs, up to IDR 3 million and IDR 7 million respectively. In addition to the
certifications, the participants will also receive a monthly cash incentive of IDR 500,000 –
which will be credited to their card balance – for three months.
As of 2020, the Indonesian government has disbursed 98.17% of the Pre-Employment
Card Program budget, or IDR 19.6 trillion. As of 27th June 2021, 8.28 million people have
 Year in Review: Indonesia in 2022 23

registered for Pre-Employment Cards. The Pre-Employment Card Program is supported

by seven digital platforms (one of which is the Ministry of Manpower’s Sisnaker), 222
training institutions, and 1,498 training sessions.

1.5.5 Digital Economy

It is estimated that approximately 99% of all businesses in Indonesia (64 million units) are
micro businesses. The MSMEs provide income for the 109.8 million people in Indonesia
and contribute 61% of the nation’s GDP. The development of MSMEs is considered one
of the top priorities in RPJMN 2020-2024. However, based on a survey conducted by
Bank Indonesia in 2021, approximately 87.5% of MSMEs were adversely affected by the
pandemic (CMEA (2021)). Specifically, approximately 22.9% of MSMEs experienced a
decline in sales and demand, 20% had difficulties obtaining raw materials and capital,
and 18.83% experienced a delay in production (MCSME (2021)).

MSME Digitalisation Program

Ministry of Cooperatives and SMEs (KemenkopUKM) intends to digitalise 24 million

MSMEs in 2023, which is expected to increase to 30 million or 62% of the total MSMEs in
2024 ((MCSME (2021)). These digitalised MSMEs are expected to generate 1.7% more
economic growth and create 2 million new jobs (Ministry of Cooperatives and SMEs
(2022)). A key objective of the MSME digitalisation program is to accelerate the growth
of MSMEs in order to increase their access to markets and make them more competitive.
One of the major prongs of the MSME Digitalisation Program is implemented by
the Central Bank of Indonesia. This includes encouraging MSMEs to use payment
instruments and channels like QR Code Indonesian Standard (QRIS). During the
pandemic, MSMEs have been exempt from the QRIS processing fee and the Merchant
Discount Rate (MDR). As a result, about 5.1 million merchants, most of whom are small
and medium-sized enterprises, were using QRIS in 2020.

Proudly Made in Indonesia National Movement

The government seeks to optimise the potential and productivity of MSMEs through
the Proudly Made in Indonesia National Movement to accelerate the recovery of the
national economy after the pandemic. The Indonesian government has provided
various stimulus packages to both MSMEs that remain offline and MSMEs that have
been digitalised. These include coaching, promotions, loans from the State-Owned
Bank Association (Himbara), and placement on government procurement e-catalogues.
Through these efforts, MSMEs are expected to take their place in the digital world and
sell through various e-commerce platforms.
Furthermore, local governments support this program by holding MSME exhibitions
and bazaars to promote their local MSMEs and attract local consumers (Ministry of
Education (2022)). A key expectation is that the program will increase the capacity
24 Indonesia and its Digital Economy: A Sub-national Competitiveness Analysis

of MSMEs (supply side) and encourage Indonesians to purchase local products and
services from MSMEs (demand side).
 Year in Review: Indonesia in 2022 25

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