- 13/06/2024
- Category: Commentaries
Author: Alifian Arrazi
Editor: Rizka Khairunissa Herdiani
The General Election Commission of the Republic of Indonesia (KPU) has named Prabowo Subianto and Gibran Rakabuming as the legitimate president and vice president for the 2024-2029 term. Standing on the vision of policy continuation of the current administration, Prabowo Gibran will mostly share the same vision and potentially be left with the current problem. As the country prepares its presidential succession, one critical aspect that Prabowo- Gibran should be aware of is the state of Indonesia’s digital transition. Although the digital economy sector plays a significant role in Indonesia’s national economy, its discourse is relatively limited on their election runups as it is frequently overshadowed by the promises of meal lunch assistance and downstreaming policy. On paper, digital economies contribute approximately IDR 632 trillion (4% of the national GDP) in 2020 and are projected to grow to IDR 4,531 trillion by 2030 (18% of the national GDP). Thus, failure to optimize this sector could result in a significant economic loss for Indonesia. Interestingly, Prabowo-Gibran’s political vision documents state that they intend to create new economic growth sources, particularly in the digital sector. This commitment has been echoed on many occasions, including during the second presidential debate, when Gibran Rakabuming Raka stated that “pursuing a digital downstreaming policy could result in up to 19 million new jobs.”
However, reflecting on the past ten years of the Jokowi administration, four major issues still remain in the digital economy. This commentary identifies four strategic issues in the digital economy that the incoming administration should be aware of and address strategically. Such problems consist of (1) platform partnership and working schemes, (2) predatory digital marketplaces, (3) illegal digital economy activities, and (4) digital talent management. Addressing these issues could serve as quick wins for the upcoming government to maximize the digital economy’s potential.
Precarious Work and Labor Flexibility in Digital Platform
The first issue that still haunts the Jokowi administration is regulating labor on digital platforms. The past ten years have been a fertile ground for the growth of ride hailing technology companies that benefit from labor flexibility work. The notion of gig economy captures the phenomena of how digital platforms act as intermediaries for jobs performed by individuals. In Indonesia, the gig economy has become a trend due to the labor flexibility regime that is seized by digital platform companies.
A study by Permana et al. (2023) estimates that between 430,000 and 2.3 million individuals in Indonesia (0.3% to 1.7% of the total workforce) rely on gig work as their primary employment and ride hailing platform absorbs most of the gig workers. The issue arises when the gig economy platform characterizes the ‘gig work’ relationship as a partnership rather than an industrial relationship, therefore removing the worker from labor rights and regulations. Unfortunately, the present administration is unable to negotiate an agreement with digital platforms to better put gig economy workers in a more equitable industrial relations position. The recent proposal from Indonesia’s Ministry of Manpower for online motorcycle taxi drivers to earn religious holiday allowances (THR), as mandated by labor law, was greeted with opposition from ride-hailing companies. One ride-hailing business even claimed that these drivers do not have official employment contracts that would entitle them to such benefits. This scenario highlights the need for the new government to clarify working relationships for digital economy labor, effectively mediating the digital platform interest and workers rights.
Digital Marketplaces Predatory Behavior
The second issue that continues to pose a problem in the digital economy landscape is the predatory nature of digital markets. Although digital marketplaces are among the largest contributors to the technology sector’s share of the national GDP, their competitive conditions are far from healthy.
The early operations of a TikTok shop, for example, demonstrate the blurred distinctions between e-commerce and social commerce. Under the Jokowi administration, e-commerce must get authorization from the Ministry of Trade. However, TikTok shops initially only obtained permission from the Ministry of Communication and Information Technology (Kominfo) and continued to operate, even using predatory pricing to entice customers. Although the government prohibited TikTok businesses, it did not levy a fee and instead only restricted their operations. To soften the blow, eventually, Bytedance (TikTok parent’s company) acquired Tokopedia shares in order to legally function as an e-commerce company in Indonesia. This case demonstrates how blurred distinctions between e-commerce and social commerce may and will continue to exist, potentially breaking existing licensing regulations.
Furthermore, when discussing digital marketplace platforms, the issue of applying predatory pricing strategies should also be adressed. Although e-commerce often uses discounts as a common business strategy to gain new or retain existing users, it is well known that selling goods far below market price (predatory pricing discounts) can disrupt existing competitive markets. As such, the next administration needs to be more authoritative in addressing the blurry lines between e-commerce and social commerce and more stringent in regulating predatory pricing between digital marketplaces to foster healthy competition and innovation within the digital market landscape.
Illegal Digital Economy
The third strategic issue within the digital economy landscape is the massive presence of illegal activities. Rapid growth in the digital economy sector is being coupled by illegal activities and online crime, such as online loan shark and online gambling.
Online loan sharks, which often mimic legal online lending platforms, are prevalent in Indonesia. Unlike their legal counterparts, these predatory lenders trap consumers who have low digital and financial literacy by presenting a non-transparent and high-interest loan, exploiting the unmet high financing demands by conventional banking. Moreover, if borrowers fail to repay, the online loansharks expose the user’s private data with their close contacts without consent, breaching privacy and security. This condition frequently results in a never-ending loop of borrowing money from another online lender in order to pay off previous debts while accruing new ones. Data from The State Financial Services Authority (OJK) reported that 537 illegal online lending platforms are still operating, posing a significant threat to Indonesia’s digital economy potential.
Similarly, online gambling has also become a new opium for many Indonesians. Data from the Indonesian Financial Transaction Reports and Analysis Center (PPATK) indicates that between 2017 and 2023, over 3.29 million Indonesians engaged in online gambling, with transactions amounting to IDR 517 trillion. These gambling platforms, often hosted on foreign domains, entice users with unrealistic promises of big winnings that can potentially lead to unhealthy gambling addictions. This addiction harms financial health, social structure, and mental well-being. As the problem of the illegal digital economy looms, the next administration faces a significant challenge in combating these areas. Branding himself as a strong-military figure, Prabowo’s administration should prioritize policies and actions to combat online loan sharks and online gambling.
Digital Talent Management
Finally, there’s the question of digital talent management. Despite its massive population of 275.5 million (2022), Indonesia will face a shortage of 9 million digital talents by 2030. The country is struggling to find experts in critical digital fields such as software development, cybersecurity, and advanced internet technologies. One of the causes is due to a lack of alignment between the education system and the changing needs of the digital industry. While the Ministry of Education’s Merdeka Curriculum mandates ICT skills in K–12 education, its implementation remains uneven across schools. Even worse, at the university level, despite the availability of relevant technology programs, the quantity and quality of graduates still fall short of market demand.
Furthermore, as artificial intelligence threatens to replace many jobs, Indonesians face challenges in accessing and adopting the latest digital technologies. Although digital literacy skills are crucial in the era of AI, reports from Kominfo show that disparity of digital literacy score is still prevalent, especially in the eastern part of Indonesia. Incoming government must anticipate and provide fiscal as well as non-fiscal incentives in helping its citizens, especially in remote areas with limited digital infrastructure, to acquire digital literacy so that it can use and compete with AI.
Seizing Digital Economy Opportunities Post-2024 Administration
The upcoming Prabowo-Gibran administration faces significant challenges and opportunities in optimizing Indonesia’s digital economy. Four critical issues demand immediate attention: Precarious Work and Labor Flexibility in Digital Platform, predatory behavior in digital marketplaces, illegal digital economic activities, and digital talent management. In essence, the upcoming administration must clarify gig workers legal identity, enforce stricter regulations on digital marketplaces, combat illegal online activities, and invest in digital talent development.
It is understatement to call for a more proactive role from the upcoming government in creating a conducive and inclusive way to foster more sustainable digital economic growth. More policies regarding digital economies should balance key stakeholders interests while ensuring that regulations and policies do not stifle innovation and healthy competition in the digital sector.
