How Digital Technologies in Indonesia are Bringing Inclusivity to 17,500 Islands

Eric Kutcher, a senior partner at McKinsey, talks to the leaders of two of Indonesia’s largest telecommunications providers—Ririek Adriansyah, president director of PT Telkom Indonesia Tbk (Telkom), and Vikram Sinha, president director and chief executive officer of Indosat Oredoo Hutchison (Indosat or IOH). Referencing the diversity of a country that consists of thousands of islands, they talk about the challenges of creating an inclusive society and how global digital trends and connectivity can be used to Indonesia’s advantage to create growth opportunities.

Individual interviews have been edited and combined to create “conversations” on pertinent themes.

Inclusivity, social growth thru digital connectivity. (Illustration insert by despardes.com)

McKinsey: What are the main obstacles—and possible solutions—to unleashing inclusive and sustainable growth in Indonesia?

Ririek Adriansyah: I see a great opportunity that comes with digitizing the nation. Indonesia comprises about 17,500 islands and the challenge is how to create connectivity for all of them. If we can do this, it could benefit all aspects of society. Take education, for example—it is difficult to build a school in a remote area and get a good teacher to work there. However, if people are connected to broadband, they can study from wherever they are. This applies to other sectors, too, such as healthcare. There are fewer doctors than are needed in remote areas and connectivity could help—imagine if one good doctor in Jakarta could start taking care of people in very remote areas. That could also aid businesses, big and small alike—for example, large agricultural product companies with remote operations that require connectivity to support their activities, or micro, small, and medium enterprises (MSMEs) that could become more productive and gain greater access to markets if they have increased connectivity. Overall, we at Telkom believe that boosting connectivity in remote areas is key in accelerating inclusive growth.

Vikram Sinha: The big opportunity for Indonesia’s future lies in what I term “growth beyond the metropolitan.” The country’s growth over the past decade has predominantly stemmed from the digital economy within metropolitan hubs, comprising just 15 percent of the nation’s population and contributing 30 percent to national GDP. The substantial opportunity that lies ahead now resides in Tier-2 and Tier-3 cities. Collectively home to approximately 124 million people and constituting 43 percent of GDP in Indonesia, these cities encompass 76 percent of the national urban population.

GDP per capita in these cities—although half that of the metros—is on a trajectory to surpass national growth, with digital technology acting as a primary catalyst. The digital economy in these areas is poised for expansion, buoyed by rising monthly incomes and enhanced digital infrastructure. Tier-2 and Tier-3 cities possess the potential to propel the nation’s overall growth. Another substantial opportunity lies in Indonesia’s backbone: the MSMEs. Numbering 64 million, they account for 60 percent of the nation’s GDP. Less than 12 percent of these enterprises have embraced digital solutions and a considerable majority lacks access to financial credit. The prospect here lies in facilitating their innovation and providing avenues to access global markets. Both the opportunities I mention are intricately interconnected, as a significant portion of these MSMEs hail from Tier-2 and Tier-3 cities, creating a symbiotic relationship between the two growth vectors…

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