Innovate Indonesia: Unlocking Growth Through Technological Transformation

By Asian Development Bank

New technologies present governments with opportunities and challenges in a range of key policy areas such as employment, competitiveness, equity, and sustainability. A consensus is that the national government can play an important role in stimulating innovation. This report explores policy options to facilitate Indonesia's technological transformation and unlock its economic growth potential.

• Language: English
• Publisher: Asian Development Bank
• Release date: Mar 1, 2020
• ISBN: 9789292620400

Book preview

INNOVATE INDONESIA

UNLOCKING GROWTH THROUGH TECHNOLOGICAL TRANSFORMATION

MARCH 2020

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2020 Asian Development Bank

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Some rights reserved. Published in 2020.

ISBN 978-92-9262-039-4 (print); 978-92-9262-040-0 (electronic); 978-92-9262-041-7 (ebook)

Publication Stock No. SGP200085-2

DOI: http://dx.doi.org/10.22617/SGP200085-2

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Cover design by Mike Cortes.

CONTENTS

TABLES, FIGURES, AND BOXES

FOREWORD

By the Minister of Finance, Republic of Indonesia

I welcome this flagship report as a valuable knowledge asset to support policy makers in Indonesia. We are firm in our commitment to bring Indonesia to high-income status by 2045, and the government is building the foundation toward that goal. To achieve this, we must seek investment opportunities to boost our potential for growth. The Indonesian economy is already enjoying steady growth, but meeting our aspiration for greater national prosperity requires us to enhance our economic competitiveness. To this end, innovation and new technologies are crucial as they allow industries to become more productive by enabling better use of resources, the creation of new products, and the expansion of new markets.

As technological developments reshape industries, restructure markets, and redefine competitive advantage, it is not immediately clear who the winners and losers will be or the role that policy makers can play in fostering inclusive growth driven by technological changes. Some degree of consensus exists about the potential large-scale impact of emerging technologies in both advanced and developing economies. However, each nation has a unique mix of economic structures and areas of specialization. Its firms participate in activities within global value chains and use technologies at varying levels of sophistication. As such, the impact of new technologies will differ in different countries and in their various economic sectors.

For policy makers, the challenge is to understand the policy responses that are required to reap the benefits of new technologies, while anticipating any associated risks. To facilitate and accelerate Indonesia’s technological journey, it is crucial that we have sound information based on robust research. This enables us to understand the impact of new technologies and to devise and implement effective policies. Our policy making must be founded on solid knowledge and forecasts that help us identify where opportunities lie, and which investments can spur growth.

The Government of Indonesia has developed a number of initiatives to better equip the country to address opportunities and challenges arising from emerging technologies. We are committed to prioritize infrastructure development, particularly by improving connectivity across the country, and to accelerate the development of our digital economy. Our structural reforms focus on improving productivity and competitiveness, reinvigorating industrialization, and nurturing innovation.

This report is an important contribution to this effort. It identifies the potential impact of new technologies on the Indonesian economy and, importantly, analyzes differences across sectors, regions, and occupations, as well as opportunities to narrow the gender gap. Furthermore, the study offers insights from international policy initiatives adopted in countries around the world in their efforts to support technological transformation. Such insights are highly valuable to policy makers in Indonesia, not only to anticipate where investment can deliver value, but also to determine which sectors and workers are potentially vulnerable and may need additional support.

Particularly beneficial is the report’s cataloguing of policy options, bringing together findings from across the study. Deep analytical collaboration between the Ministry of Finance and the Asian Development Bank to produce this report has been a fruitful experience. The thorough and rigorous approach taken in this formative study will support policy makers in their efforts to make sound decisions toward more inclusive and accelerated economic growth in Indonesia.

Sri Mulyani lndrawati

Minister of Finance, Republic of Indonesia

FOREWORD

By the President, Asian Development Bank

Indonesia has made remarkable development strides over the last few decades, including sustained economic growth, reduction of the poverty rate to single digits, expansion of public services, improvements in doing business, and investments in infrastructure. At the cusp of becoming an upper-middle-income country, continued progress will require increasing productivity, reducing inequality, and lowering climate costs while also navigating megatrends such as demographic changes, climate change, rapid urbanization, and technological disruptions.

Changing technologies have reoriented how we produce, consume, and live and are accelerating the cycle of creative destruction. The shelf life of new technologies continues to shorten, and the gap between innovation incubation and market commercialization is narrowing. Harnessing the benefits of new technologies promises to improve the quality of life, but only if appropriate policy responses ensure that the benefits outweigh socioeconomic risks that are still far from fully understood. As new technologies reshape our economies and societies, we need innovation policies to guide national economies toward higher productivity.

Indonesia’s digital economy is projected to be worth $133 billion by 2025 and hosts one of the most vibrant e-commerce markets in the Association of Southeast Asian Nations region. Reflecting this entrepreneurial dynamism, Indonesia already hosts several unicorns, or start-up companies valued at above $1 billion, and even a decacorn, valued at above $10 billion. While, from this vantage point, Indonesia is already poised to reap the benefits of new technologies, a pertinent issue is how it can ensure that these benefits contribute to more inclusive and sustainable growth. What suite of policies will be required to deliver such desired developmental aims?

Here at the Asian Development Bank (ADB), our corporate Strategy 2030 steps up the focus on supporting our client countries as they address the development challenges emerging in Asia and the Pacific, not least by capitalizing on the benefits of global technological changes while mitigating associated risks. To help capitalize on the benefits of global technological change, ADB operations in Indonesia include support for developing human capital, accelerating investment and infrastructure development, and strengthening institutions and capacity.

We are pleased we could support the study on Innovate Indonesia: Unlocking Growth Through Technological Transformation in collaboration with the Ministry of Finance. We hope it will contribute to a deeper and more nuanced understanding of the economic impact that new technologies have on Indonesia, as well as related policy implications.

The process of preparing this report in itself was a journey. It not only was a humbling learning experience for the team, but it also helped nurture a network of Indonesian researchers, in government and academe, that are now well versed on the topic and available to support evidence-based policy discussion and programs going forward.

Given the fluidity of continuous and accelerating technological change, and the porous boundaries of a phenomenon with such pervasive impact, no single study of the topic at hand can claim to be conclusive. In that spirit, we hope that this country-focused analysis will be received as contributing to the broader national dialogue on developing technology and innovation policies, and as preparing the ground for future undertakings in this important area.

Masatsugu Asakawa

President, Asian Development Bank

ACKNOWLEDGMENTS

This report is the product of research collaboration over a year between national and international experts focused on developing an empirical understanding of the economic impact of new technologies on Indonesia in order