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Indonesia’s economy has benefited from a significant upswing in its e-commerce market in recent years. The market size is currently estimated at $62 bn as of 2023 but is expected to reach $160 bn by 2030, as per a Google, Singapore-based Temasek Holdings and consultancy Bain & Co report.
In 2022, Indonesia emerged as the largest e-commerce market in ASEAN, with a market size of $51.9 bn. In terms of mobile shopping, Indonesia is ahead of several established e-commerce markets as mobile commerce comprises a 64% share of all e-commerce transactions, a report on global e-commerce by JPMorgan found.
Five marketplaces that contribute the most to Indonesia’s Gross Merchandise Value (GMV) are Shopee, Tokopedia (acquired by TikTok in December 2023), Lazada, Bukalapak, and Blibli.
JPMorgan also suggests that with the largest Islamic population in the world, Indonesia is positioning itself to become the global leader in Muslim fashion. The Islamic wear market is expected to be $311 bn by 2024. Indonesian Trade Minister Zulkifli Hasan, under the mandate of President Joko Widodo, vowed to support Indonesian Muslim fashion exports through different trade cooperation programmes with partner nations and make it a global leader in the segment by 2024.
Domestic consumption and digital payments boost the e-commerce sector
In recent years, Indonesia has seen a massive growth in internet penetration, enabling more people to access the internet and use mobile devices. Hence, e-commerce portals in the country have been able to see a broader customer base.
The report by Bain & Co. & Temasek called “e-conomy SEA 2023” highlighted that Indonesia’s digital economy is expected to recover to its pre-pandemic levels, with e-commerce emerging as a leader in growth and profitability. The report indicated that the country’s e-commerce growth would largely be led by its success in taming inflation and the “sticky” behavior of Indonesian online consumers.
The report also predicted that the ASEAN region may achieve a GMV of $1 tn by the end of 2030, and Indonesia could contribute almost half of the value.
Much of the success of the Indonesian e-commerce sector is attributable to its domestic consumption growth story. Chief Economist at state-run Bank Syariah Indonesia (BSI), Banjaran Surya Indrastomo, told a local daily that the level of people’s consumption in 2024 is likely to remain high due to the upcoming parliamentary and presidential election-related activities. Indrastomo also stated that the growth in household consumption is set to boost business activities further.
Besides, the development of effective logistics and secure payment systems has been instrumental in the growth of e-commerce. Indonesia’s robust framework for digital payment, Quick Response Code Indonesian Standard or QRIS, has led to a rapid rise in the adoption of digital payment.
Moreover, the government has also made efforts to bring accountability and smooth functioning of the e-commerce sector by introducing relevant regulations. In November 2019, Indonesia’s government passed a much-awaited law to improve the governance of internet-based and electronic trading activities while ensuring tax compliance among online retailers.
Excessive regulation and lack of penetration can pose challenges
The report by Bain & Co. cautioned that regulators would heavily influence the growth of Indonesia’s digital economy. September 2023’s regulation prohibiting e-commerce imports below $100 and the government’s decision to ban e-commerce via social media to protect physical retailers could hurt the overall e-commerce market, as per the report. These physical retailers are the micro, small, and medium enterprises (MSMEs), which constitute 99% of Indonesia’s business.
It’s also important to note that while the Indonesian e-commerce market is expanding at a fast pace, it hasn’t yet outpaced traditional retail in the country. Despite an increase in internet penetration, a report by the Katadata Insight Center and Evermos revealed that 67% of Indonesia’s population is not active e-commerce users and purchases from brick-and-mortar stores. Hence, there is still a long way to go before the country realises its full e-commerce potential.
