Authors: Jamilatuzzahro, M.Si, Fauzan Ghazi Alaudin, S.E
Indonesia’s Digital Landscape and Current Challenges
In Indonesia with a population of over 270 million, the country faces challenges in ensuring marginalized groups can access the opportunities provided by digital advancements. According to Susenas Data 2023, internet penetration reveals disparities between urban and rural areas, 35.90% in rural regions compared to 64.10% in urban centers. The provinces with the lowest internet penetration rates in Indonesia are west sulawesi at 0.44%, gorontalo at 0.41%, north maluku at 0.35%, west papua at 0.32%, and north kalimantan at 0.30%. Addressing this digital divide is crucial for fostering equitable growth and empowering marginalized groups in Indonesia, and ensuring access to technology and digital services will help create more inclusive opportunities for all segments of society.
Sources: Susenas 2023, Analyzed by authors
The Transformative Role of Technology in Driving Economic Development
According to the 2021 World Report on Indonesia’s digital economy, digital technologies are reshaping how Indonesians work, consume goods and services, and interact with one another. A key benefit of digital technology in promoting financial inclusion is the rise of e-banking and e-commerce, which enhance access to financial services. However, e-commerce participation in rural users accounts for only 24.25% compared to 75.75% in urban. Increased e-commerce penetration can make cheaper goods available online and influence the prices of similar goods sold offline, potentially lowering overall inflation and benefiting the broader community. Another significant challenge in expanding e-commerce and the digital economy in Indonesia is the lack of trust in digital transactions, which leads to low adoption of digital financial services (DFS). Currently, 48% of the population remains financially excluded. Recent data further highlights this issue, revealing that only 13.73% of rural residents use e-banking, compared to 86.27% in urban areas. Building trust in digital transactions is crucial for increasing adoption and ensuring broader access to financial services. Greater internet access in Indonesia has disproportionately benefited higher-skilled workers compared to their lower-skilled counterparts. Between 2005 and 2019, individuals with college degrees earned nearly 80% more than those with less than six years of schooling. Although increased internet penetration positively impacts all workers, the benefits are notably greater for higher-skilled individuals. For instance, a 10% increase in internet access can elevate earnings for college educated workers by approximately 6 percentage points. This trend underscores a growing inequality, as higher skilled workers are better positioned to leverage digital opportunities, leaving lower-skilled workers at a disadvantage.
Greater internet access in Indonesia has disproportionately benefited higher-skilled workers compared to their lower-skilled counterparts. Between 2005 and 2019, individuals with college degrees earned nearly 80% more than those with less than six years of schooling. Although increased internet penetration positively impacts all workers, the benefits are notably greater for higher-skilled individuals. For instance, a 10% increase in internet access can elevate earnings for college-educated workers by approximately 6%. This trend underscores a growing inequality, as higher skilled workers are better positioned to leverage digital opportunities, leaving lower-skilled workers at a disadvantage. To foster equitable access to the advantages of digital technology, addressing this disparity is crucial.
Linking Low Digital Access to Macroeconomic Outcomes
|
Province |
Poverty (%) | Gini ratio | Unemployment rate |
Human development index |
| North Kalimantan |
6,45 |
0,277 | 4,01 |
72,49 |
| West Sulawesi |
11,49 |
0,351 | 2,27 |
67,55 |
| Gorontalo |
15,15 |
0,417 | 3,06 |
70,45 |
| North Maluku |
6,46 |
0,300 | 4,31 |
70,21 |
|
West Papua |
20,49 | 0,370 | 5,38 |
66,66 |
| National |
9,36 |
0,388 | 5,32 |
73,55 |
Sources: Badan Pusat Statistik (BPS), www.bps.go.id.
Limited internet penetration in Indonesian provinces such as North Kalimantan, West Sulawesi, Gorontalo, North Maluku, and West Papua is closely tied to several unfavorable macroeconomic indicators, including poverty, inequality, unemployment, and lower human development. These provinces, particularly West Papua (20.49%), Gorontalo (15.15%), and West Sulawesi (11.49%), experience significantly higher poverty rates than the national average of 9.36%. Income inequality is also notable, with Gorontalo reporting one of Indonesia’s highest Gini ratios at 0.417. In terms of unemployment, West Papua’s rate surpasses the national average, illustrating the challenges these regions face in creating job opportunities. Additionally, all five provinces fall below the national Human Development Index (HDI) of 73.55, with West Papua recording the lowest HDI at 66.66. This limited internet access restricts access to essential services, hindering educational, healthcare, and economic opportunities, thereby impeding improvements in HDI.
Low internet penetration perpetuates high poverty rates, income inequality, high unemployment, and lower HDI scores by restricting access to digital resources crucial for economic and personal growth. In the digital era, internet connectivity is vital for accessing information, education, job markets, and government services. Without it, individuals in these regions struggle to acquire digital skills, secure better-paying jobs, or start online businesses, factors that could help alleviate poverty and reduce inequality. In contrast, regions with higher connectivity have greater access to these opportunities, widening the gap between connected and underserved areas. Furthermore, limited internet access restricts education and skill-building opportunities that enhance employability, leading to elevated unemployment in low-penetration areas. The internet also facilitates access to healthcare resources, enabling individuals to learn about health practices and connect with providers, which positively impacts HDI. Without this connectivity, people face challenges in improving their well-being and economic prospects. Thus, low internet access serves both as a cause and a consequence of poor macroeconomic indicators, trapping these regions in a cycle of underdevelopment and limiting their ability to bridge the gap with more connected areas.
Barriers to Digital Inclusion
The digital landscape in Papua and Nusa Tenggara is hampered by a lack of mobile network providers, highlighting significant gaps in infrastructure. In regions like Sulawesi and Kalimantan, high mobile service costs further limit access, making it prohibitively expensive for many households. Even in more developed areas such as Java-Bali and Sumatra, low internet speeds hinder mobile access, suggesting that either the quality of service is lacking or that digital services are not yet viewed as essential. This disparity underscores the need for region-specific strategies to enhance digital inclusion. In less connected regions, improving infrastructure is crucial, while in areas with existing networks, addressing affordability and service quality is key. Many remote villages face challenges due to inadequate broadband infrastructure, limiting access to digital services and stifling economic and educational opportunities. Furthermore, insufficient investment in digital infrastructure, like data centers, affects internet quality and speed, impacting both individual users and businesses. Specific issues in Indonesia, cultural and social factors significantly influence the adoption of digital technology that impacts overall inclusion. Traditional norms and values can create resistance to new technologies, particularly among older generations, trust and privacy concerns also play a critical role, many users hesitate to share personal information online due to fears of misuse, which can hinder the growth of digital services.
Besides, income gaps in internet access are significant, with adults in families in the top decile of the income distribution being over five times more likely to be connected than those in the poorest decile, where only 14% have internet access. This sharp income gradient indicates a potential affordability constraint on internet access. Additionally, there are notable generational, educational, and gender divides, younger adults and those with higher education levels are significantly more likely to be connected.
Sources: World Bank Report, 2021
Lessons learned and Best practices Other Countries
Digital technology has transformative potential for promoting inclusion globally, as seen through various regional initiatives. In Africa, programs are focused on expanding access to digital services and fostering entrepreneurship, helping marginalized communities gain resources and opportunities previously out of reach (World Bank, 2021). The OECD (2020) highlights the importance of equitable access to digital technologies, advocating for policies that allow marginalized groups, including women and low-income individuals, to thrive in the digital economy. Similarly, UNCTAD (2021) underscores the role of digital tools in global economic dynamics, particularly in e-commerce and digital finance, emphasizing the need to address the digital divide for sustainable development.
In India, the Aadhaar biometric digital identity system has significantly improved access to government services and financial inclusion, demonstrating the importance of user trust and data privacy (Kumar & Singh, 2019). South Korea’s policies for digital literacy have effectively broadened inclusive access across demographics (Min, 2020). Rwanda’s Smart Rwanda Master Plan leverages ICT for national development, integrating digital solutions across sectors to empower citizens and improve service delivery (Rwanda Ministry of ICT and Innovation, 2021). Research by Alhassan and Adam (2021) shows that digital inclusion and ICT access positively impact quality of life, with technology use playing a mediating role. While ICT access is beneficial, digital inclusion more significantly influences quality of life, emphasizing the need to expand digital access to encourage broader technology use. In rural China, platforms like WeCountry have narrowed the digital gap, helping users build technical skills and promoting social, political, and economic inclusion (Ye & Yang, 2020). These findings highlight the critical roles of platform providers and government support in bridging digital divides in rural areas.
Danker et al. (2022) found that adults with intellectual disabilities benefit from mobile technology for social interaction, work, support, and entertainment, though they also face usage barriers. Education on digital safety and inclusive app design can further empower these individuals by addressing access and usability challenges.
Addressing Barriers to Digital Inclusion
Presidential Regulation No. 39/2019 on One Data marks a significant step in strengthening Indonesia’s data management policy. However, issues of fragmentation persist, and several implementation challenges need to be addressed. To ensure that no one is left behind in the digital landscape, several key policy principles must be prioritized. First, improving digital connectivity and universalizing access is essential. This involves expanding internet infrastructure and services, particularly in underserved and rural areas, to provide equitable access to digital resources for all citizens. Second, enabling the medium to generate economic opportunities is crucial, as it creates an environment where digital technologies can drive growth and job creation. Policies should support entrepreneurship and provide training programs that equip individuals with the necessary skills to capitalize on these opportunities. Lastly, harnessing the medium to upgrade citizen-state interactions is vital for effective governance. This principle emphasizes the need for digital platforms that enhance communication, transparency, and service delivery, ensuring that citizens can easily access essential services and engage with government processes.
In conclusion, digital technology holds vast potential for promoting economic and financial inclusion in Indonesia, yet significant barriers remain. Addressing issues like low internet penetration, limited trust in digital financial services, and digital skill disparities especially in rural areas—is essential. Learning from global examples, Indonesia can bridge these divides by investing in digital infrastructure, promoting digital literacy, and implementing region-specific policies. By enhancing digital inclusion, Indonesia can foster a more equitable, connected, and resilient society that benefits all citizens.