Worldbox: Indonesia on the Road to Becoming a Tech Giant

Indonesia has long been touted as holding the potential to become one of tomorrow’s giant economies. Now it finally appears to be fulfilling its promise – a trend that has not gone unnoticed by the world’s mega tech companies, which are starting to pour money into the country. Adrian Ashurst, CEO of Worldbox Intelligence, investigates just why Indonesia is so attractive.

Recent research from the US consulting firm Kearney reveals that artificial intelligence (AI) could contribute nearly US$1 trillion to Southeast Asia’s gross domestic product by 2030. Of this, Indonesia would “easily” capture US$366 billion. 1

The report follows the news that Microsoft will be investing US$1.7 billion in new cloud and AI infrastructure in Indonesia over the next four years. The tech giant will also skill 840,000 people in AI and support 10,000 Indonesian developers to become AI subject-matter experts. The investment will allow Indonesia to meet growing demand for cloud computing services, and, according to Microsoft, enable the country to “capitalize on the significant economic and productivity opportunities” presented by the latest AI technology.

Microsoft has highlighted the importance of the Indonesian market to the company, saying that Indonesia is projected to have the fifth-largest developer community on the company’s software-development platform, GitHub, by 2026. Over 3.1 million developers in Indonesia use GitHub, making the country home to the platform’s third-largest Asia-Pacific developer community, after India and China. The number of Indonesian developers on GitHub rose by 31% in 2023, while the number of public generative AI projects on the platform in the country jumped by 213%.

AI giant targets Indonesia

The AI chipmaker Nvidia also recently announced plans to expand in Indonesia, with a US$200 million investment in an AI centre in partnership with the local telco giant Indosat Ooredoo Hutchison. 2 The new facility will be based in the city of Surakarta, in the Central Java province, and will bolster local telecommunications infrastructure, human resources, and digital talent. Southeast Asia is developing into a major revenue driver for Nvidia. Around 15% of the company’s revenues flowed from the region in 2023, so the push into Indonesia makes considerable sense.

Meanwhile, Apple, which has already invested nearly US$100 million in its app-developer ecosystem in the country, is reportedly considering opening a factory in the archipelago. Such a move would fit with Apple’s strategy of reducing its heavy supply-chain reliance on China, where it still manufactures most of its phones and tablets. Apple currently has no manufacturing facilities in Indonesia, but CEO Tim Cook recently met President Jokowi and said “I think the investment ability in Indonesia is endless. I think that there is a lot of great places to invest, and we’re investing.” He added that opening a manufacturing facility was an option. 3

Chinese companies have also been investing heavily in Indonesia. Huawei, China’s leading tech company, has established partnerships with more than 100 local companies and more than 30 universities, and has created more than 20,000 jobs directly and indirectly.

The company has played a leading role in developing Indonesia’s telecoms infrastructure. Huawei equipment, for example, is used in the Palapa Ring project, a 35,000-kilometre national fibre-optic network that covers more than 500 regions and cities across the archipelago.

Indonesia’s promise

Indonesia’s appeal to these tech giants is easy to identify. The country has the largest population in Southeast Asia, at 276 million, and its economy is one of the fastest-growing in the world. It is projected to become one of the world’s seven largest economies by 2030 and to enter the top five by 2050.

The middle class is also growing rapidly and presents a vast, largely untapped market for technology companies. The government expects the middle class to account for 80% of the population by 2050, up from the current 20%. As Indonesians get richer, they will buy ever more sophisticated and costly devices, software and IT services, providing rich pickings for the likes of Microsoft and Apple.

Moreover, Indonesia has a young, tech-savvy population that is helping to drive the tech boom. With a median age of just under 30 years, the country has one of the youngest populations in the world. This demographic trend has fuelled the rapid adoption of smartphones and mobile internet, creating a huge market for online services and platforms.

Figure 1: Indonesia has one of the youngest age profiles in the world, 2020

Source: Savills Industrial Whitepaper, 2023

The digital economy is certainly developing rapidly, up from US$41 billion in 2019 to an estimated US$82 billion in 2023. It is forecast to grow to US$109 billion in 2025 and to reach US$360 billion by 2030. Nearly all young city dwellers use a smartphone and paying for purchases digitally is common. Moreover, the country has already spawned eight tech unicorns with an estimated enterprise value of at least US$1 billion, the highest number in the region after Singapore.

Thinking ahead

The Jokowi government has worked hard to make Indonesia attractive to foreign manufacturers – especially those that hold out the promise of skills transfers or raising the country’s technological capabilities. It has also introduced a series of policies and initiatives to encourage domestic innovation and entrepreneurship, including tax incentives, simplified business registration procedures, and funding support for early-stage startups. 4

The authorities have been keen to develop the digital economy. In 2019, Indonesia launched its “Making Indonesia 4.0” roadmap, which aimed to accelerate the country’s transition to a digital economy and promote the development of emerging technologies such as AI, the Internet of Things and blockchain. The government has also invested in the development of high-speed internet networks and digital payment systems, which have helped to spur the growth of e-commerce and online services.

There are challenges, however. These include a shortage of software engineers, although the growth of remote working means startups can supplement the local engineering workforce with talent from other countries, like India or China.

Overall, it is easy to see why major tech companies are excited by Indonesia. The country has vast potential. With a rapidly growing economy and the third-largest population in Asia, it could become an economic and technological superpower this century.

1 – https://www.linkedin.com/pulse/indonesias-new-chapter-growth-hyphenpartners-v3xqc/

2 – https://www.cnbc.com/2024/04/05/nvidia-to-build-a-200-million-ai-center-in-indonesia-amid-southeast-asia-push.html

3 – https://thediplomat.com/2024/04/apple-considering-opening-a-factory-in-indonesia-ceo-says/

4 – https://review.brunswickgroup.com/article/tech-startup-investors-indonesia/

Source: Worldbox Press Release

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