From e-commerce to AI, Indonesia’s evolving digital ambition

While Indonesia may be the biggest digital economy in Southeast Asia, the country’s AI journey is playing catch up to neighboring Singapore and Malaysia with new regulations and policies expected to drive innovation on the horizon.

As the largest digital economy in Southeast Asia, Indonesia’s e-commerce industry continues to experience incredible growth and profits every year. The fourth most populated country in the world has a huge appetite in the digital economy, which is expected to exceed US$130 billion by 2025, according to a report by Google, Temasek and Bain & Company.

The success of the country’s digital economy goes down primarily to the market demand. While local e-commerce companies like Tokopedia and Bukalapak continue to record increasing profits, international players like TikTok and Shopee have also manage to penetrate the Indonesian market successfully over the past few years.

At the core of this success is the technology and infrastructure that’s enabling the millions of transactions, sales and deliveries in an extensive supply chain. More tech companies are setting up their data centers in the country to cater to the growing demand not just in e-commerce but also in the country’s digitalization journey.

With a new administrative capital, Nusantara, on the horizon, the country is aiming to achieve more growth in its digitalization efforts. The success of the e-commerce industry only means that there are huge opportunities for businesses, especially with the increasing data they are having to.

AI in Indonesia

This is where Indonesia is hoping to capitalize with AI. Indonesia’s AI journey has been a rather unique one. In 2020, the Indonesian government announced the National AI Strategy to harness AI for economic and social development by 2045.

This was way before ChatGPT, and generative AI use cases started making headlines globally. The strategy focused primarily on improving AI adoption in healthcare, government services, education, mobility and smart cities.

According to data from Kearney, Indonesia’s AI contribution to its GDP could be up to US$366 billion by 2030. The e-commerce industry is expected to significantly contribute to this growth followed by online travel, transportation, the food industry and online media.

However, there was still one problem when it comes to implementing AI in Indonesian businesses. While some businesses have started implementing the technology, continued concerns on data regulatory especially on data and privacy cloud businesses.

To ensure a successful strategy, the country needs to ensure the right policies are in place, especially when it comes to data management. Going back to Indonesia’s e-commerce industry, there is an exponential amount of data that is being harnessed in the country but using it to generate insights is mostly confined within the industry only.

Businesses in Indonesia are realizing the potential of implementing AI into their processes, especially in improving productivity and efficiency. For example, some financial institutions in Indonesia are running pilots and proof of concepts with generative AI, according to a study by Boston Consulting Group in collaboration with AC Ventures and Kadin Indonesia.

The study also revealed that AI boom in Indonesia is lowering barriers to entry in the country’s financial services sector. Specifically, more fintech startups are now capable of challenging traditional banks by offering more digital banking and financial services to consumers.

Meanwhile in healthcare, there are challenges in implementing health data governance according to a study by Monash University. Indonesia’s huge and diverse population not only requires data quality standards but also improved data sharing regulations, patient privacy protection, health ethics guidelines and such, as the country progresses towards implementing AI in healthcare.

AI regulations in Indonesia

Just as the success of Indonesia’s e-commerce industry can be attributed to well established government regulations and policies, AI in Indonesia also needs to be implemented with a strong foundation.

For organizations in any sector and industry, using AI will be a gamechanger. However, with concerns on data security and privacy, a clear regulative policy on the use of AI in industries is imperative in Indonesia.

As such, the government has announced that preparations on data regulations in AI are ongoing to establish clear guidelines to address issues concerning ethics and data security with using AI by the end of 2024.

Once these guidelines are established, businesses in the country will have more confidence in implementing more AI use cases not only at work but also to improve the products and services offered to Indonesians.

There is no doubt that Indonesia has the potential be a leader in AI development in the region. With a tech savvy population and increasing demand for digital products and services, with the right policies and strategies, Indonesia’s AI journey can be a seamless one for everyone.