Skills for the future: Capturing a Rp4,434 trillion opportunity for Indonesia in 2030 (insights from forthcoming research)
Indonesia is Southeast Asia’s largest and fastest growing digital economy. Despite its young and growing workforce, the country has been confronted with falling labour productivity over the years, which has decreased from 1.9% in 2011 to 0.9% in 2018. Currently, the country also faces a shortage of digital skills. A 2018 survey, for example, reflects that employers of small and medium-sized businesses (SMBs) cited difficulties in accessing digital talent.
Concerns over the lack of digital skills have become even more pronounced during the COVID-19 pandemic, which has forced businesses in all sectors to rapidly build the digital capabilities required to support business continuity amidst social distancing regulations and supply chain disruptions wrought by the pandemic. Indeed, a survey conducted in May 2020 – two months after Indonesia reached its first one thousand infection cases – showed that 82% of Indonesian SMBs had digitized their businesses, doubling the rate from a year ago (at 41%). This has fueled demand for an additional 600,000 workers in the tech sector annually but the number of digitally skilled workers in Indonesia falls short of the industry’s requirements. A 2018 survey has projected that Indonesia will face a shortfall of about 9 million skilled and semi-skilled tech workers between 2015 and 2030.
To tackle Indonesia’s productivity challenge as well as allow businesses to weather the current pandemic, digital skilling has become an imperative for the nation. This also makes it essential for policymakers to understand the size of the economic contribution of digitally skilled workers in Indonesia – and the necessary steps to realize it. While there has been extensive literature on the productivity benefits of digital technologies in Indonesia, none to date have attempted to quantify the value of digital skills in both the tech and non-tech sectors.
To address this knowledge gap, AlphaBeta is currently conducting a “first-of-its-kind” study (supported by Google) to examine the economic significance of digital skills in Indonesia, especially in non-technology sectors. This study finds that at an accelerated pace of skilling, digitally skilled workers can contribute Rp 4,434 trillion (US$303.4 billion) to Indonesia’s GDP in 2030.
Some key messages that have emerged from the research include:
- Digitally skilled workers are an important driver of Indonesia’s economy today – and not just in the technology sector. Today, digitally skilled workers in Indonesia contribute an estimated Rp 908 trillion (US$62.1 billion) to the country’s GDP annually. Contrary to conventional belief that much of this value is likely to be driven by the technology sector, almost three quarters (73%) of this value comes from non-technology sectors such as manufacturing and professional services.
- Sectors that are more resilient to the COVID-19 pandemic are also those with a stronger presence of a digitally skilled workforce today. The sectors that have been projected to be least impacted by the pandemic are also those that experience the highest relative GDP contributions from digitally skilled workers. In more COVID-resilient sectors such as the financial services, professional services and media and publishing sectors, such workers currently contribute 7-11% of overall GDP. On the other hand, in less COVID-resilient sectors such as the hospitality and transport sector, such workers – which make up a smaller percentage of the workforce – account for lower GDP contributions ranging from 3% (in the transport services and hospitality sectors) to 5% (in the retail sector). This indicates that digitally skilled individuals are potentially important in driving business resilience during the pandemic.
- Based on current digital skilling trends, the value of digital skills in the country is projected to reach Rp 1,965 trillion (US$134.5 billion) in 2030. However, there is an opportunity for the country to go even further. By 2030, if Indonesia accelerates its digital skilling rate, such workers could bring an estimated Rp 4,434 trillion (US$303.4 billion) worth of GDP contributions to the country’s economy in 2030, which is equivalent to approximately 16 percent of the country’s forecasted GDP.
The full research report will be released in early 2021.
A note on methodology and definitions:
AlphaBeta’s valuation of the economic value of digital skills is based on an estimate of the GDP contributions from three groups of workers: a) workers in the technology sector (e.g., AI developers working for digital companies or start-ups); b) digital workers in non-technology sectors (e.g., Building Information Modelling engineers in the construction industry); and c) non-digital workers in non-technology sectors who require digital skills to perform their jobs (e.g., factory workers in the manufacturing industry who require some level of IT proficiency to operate machinery).
The research follows the United Nations Educational, Scientific and Cultural Organization’s (UNESCO) definition of “digital skills”, which is defined as “a range of abilities that allow individuals to use digital devices, communications applications and networks to access and manage information”, digital skills are important for workers across all sectors of the Indonesian economy. These include workers in traditional sectors such as manufacturing and construction – particularly as companies in these sectors seek to adopt new technologies and improve their productivity.
 e-Conomy SEA 2019, Swipe up and to the right: Southeast Asia’s $100 billion Internet economy. Available at: https://www.blog.google/documents/47/SEA_Internet_Economy_Report_2019.pdf
 The Asian Development Bank (2018), innovate Indonesia: Unlocking growth through technological transformation. Available at: https://www.adb.org/sites/default/files/publication/575806/innovate-indonesia-unlocking-growth.pdf
 Asia Pacific Foundation of Canada (2019), 2018 survey of entrepreneurs and MSMEs in Indonesia. Available at: https://apfcanada-msme.ca/sites/default/files/2018-10/2018%20Survey%20of%20Entrepreneurs%20and%20MSMEs%20in%20Indonesia_0.pdf
 Sources include: International Data Corporation (2020), 2020 Asia Pacific SMB digital maturity study. Available at: https://www.cisco.com/c/dam/global/en_sg/solutions/small-business/pdfs/ebookciscosmbdigitalmaturity-withcountries.pdf; The Straits Times (2020), “Coronavirus: Infections in Indonesia surge past 1,000, fatalities climb to nearly 90.” Available at: https://www.straitstimes.com/asia/se-asia/coronavirus-infections-in-indonesia-surge-past-1000-fatalities-climb-to-nearly-90
 Sources include: The World Bank (2018), Preparing ICT skills for digital economy: Indonesia within the ASEAN context. Available at: https://blogs.worldbank.org/sites/default/files/preparing_ict_skills_for_digital_economy-revised_7mar2018.pdf; The Jakarta Post (2019), “Ministry offers scholarship program to address digital talent gap.” Available at: https://www.thejakartapost.com/news/2020/06/16/ministry-offers-scholarship-program-to-address-digital-talent-gap.html