The e-commerce sector, in particular, is projected to grow rapidly in the years ahead on the back of expansion to the smaller Indonesian cities and rural areas, while an increasing number of Indonesians start using digital payment services (which make online transactions much more convenient). E-commerce logistics are currently still underdeveloped in the smaller cities and rural areas of Indonesia. However, they are improving, and therefore will give rise to a huge additional market.
Between 2015 and 2019, the e-commerce sector of Indonesia grew at a compound annual growth rate (CAGR) of 88 percent with a gross merchandise value (GMV) of USD $21 billion. By 2025, however, the country’s e-commerce sector is estimated to be worth USD $82 billion, thereby contributing two-thirds to the digital economy.
What is particularly interesting related to the novel coronavirus (COVID-19) crisis, is that this crisis in fact speeds up this digital revolution in Indonesia. While offline businesses and services have plunged due to the government’s business and social restrictions (and travel restrictions), many online players (including e-commerce) have done quite well; in fact, online sales have even managed, partly, to replace their offline counterparts.
Many offline sellers who previously were hesitant to sell products online have now been forced to go digital in order to make some earnings. And, once the crisis is over (whenever that may be), they are likely to remain active online (in addition to their offline sales). In fact, some may let go of their offline business model, and focus fully on online sales because the online business model tends to be more efficient in terms of operating costs.
Indonesia is particularly fertile soil for rapid development of the digital economy as the country is home to a big, young, and tech savvy population, and because it forms a rapidly growing developing economy. That also explains why over the past decade various big private equity funds have been investing in Indonesia’s digital start-ups.
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