Innovate Indonesia – Unlocking Growth through Technological Transformation

Yurendra BasnettADB Country Economist - Indonesia

Executing Agency:Fiscal Policy Agency (BKF), Ministry of Finance

Research Team:- Centre for Strategic International Studies- Institute for Manufacturing, University of Cambridge

ADB’s Knowledge and Support Technical Assistance (KSTA) to the Government of Indonesia

Focus:- Understanding the impact of new technologies - Identifying policy options to leverage the benefits of technology and mitigate risks

Supporting Technological Transformation in Indonesia

What is new about this report?

Global trends

Country context

Empirical understanding

Mixed methodology

• Multidisciplinary team of national and international experts.

• In-depth analysis of specific technologies and sectors.

• 13 Background analytical papers.

• Survey of 1,200 firms (manufacturing, financial and e-commerce).

• 5 focus group discussions with private sector representatives, government officials, and academia.

• International practical experiences.

Macro Analysis Manufacturing E-Commerce Gender & Labor

Finance Energy Urban Economy

Prof. Arief Anshory YusufProfessor of EconomicsPadjadjaran University

Dr. Haryo AswicahyonoSenior Economist

CSIS Jakarta

Dr. Yose Rizal DamuriHead of Economics Department

CSIS Jakarta

Dr. Medelina HendytioDeputy Executive Director

CSIS Jakarta

Dr. Raymond AtjeSenior Research Fellow

CSIS Jakarta

Dr. Teguh Yudo WicaksonoLead Data Analyst HP+

PalladiumProf. Komara DjajaHead of Urban Studies Program

University of Indonesia

Dr. Maxensius Tri SambodoSenior Researcher

Economic Research CenterIndonesian Institute of Sciences (LIPI)

Project Team – Indonesian Experts

Macro Analysis Manufacturing E-Commerce Gender & Labor

Finance Energy Urban Economy

Prof. Mari Elka PangestuProfessor of EconomicsUniversity of Indonesia

Dr. Dionisius ArdyantoSenior Economist,

ERIA

Dr. Titik AnasLecturer,

Padjajaran University

Dr. Arine UtomoLecturer,

University of Melbourne

Dr. Puspa D. AmriAssistant Professor,

Sonoma State University

Dr. R. Muhamad PurnagunawanLecturer,

Padjajaran UniversityDr. Mulya AmriProgram Advisor,

Jakarta Property Institute

Dr. Djoni HartonoLecturer,

University of Indonesia

Dr. Febrio KacaribuLecturer,

University of Indonesia

Project Team – Peer Reviewers

Project Team – International Experts

Dr Michele PalladinoIfM ECS Team Leader

Development Economics, Public Policy for Industry 4.0, Project Management

Ella WhellamsEngagement Coordinator

International Engagement, Event Management

Dr Yuta HiroseExpert facilitator

Strategic Technology Roadmapping, Innovation & Technology Management

Dr Eoin O’SullivanTechnology Expert

Industrial Digitalisation; International Policies for Industry 4.0

Dr Jaime Bonin RocaTechnology Expert

Techno-economic Analysis of Emerging Technologies, Industry4.0 Technologies

Dr Jagjit Singh SraiTechnology Expert

Manufacturing and Supply Chain Capabilities, Impact of Digital Technologies and e-commerce Platforms

Dr André CaberaSerrenhoTechnology Expert

Energy sector, energy and material flow, and stock analysis for bulk materials

Dr Chander VeluTechnology Expert

Business Models of Innovation, Innovation in Service Industries, Financial Services (including fintech)

Kieran GarveyTechnology Expert

Fintech, alternative finance, regulation and financial inclusion

Dr Timea NochtaTechnology expert

Urban Systems and Infrastructure

Dr Li WanTechnology Expert

Urban land-use and transport modellingSpatial equilibrium models

Dr Ajith ParlikadTechnology Expert

Engineering Asset Management & Maintenance, Digital Cities & Infrastructure, Urban Planning

Prof Mike GregoryAcademic supervisor

Global Value Chains, International Manufacturing, Innovation Policy

Far from consensus…

Predictions of the impact of automation on jobs worldwide

Conceptual – “new” technology, economic structure and society?

Longevity – separating the real from hype?

Measurement – “everywhere but in the statistics”

Policy coordination & selection

Issues

Governance domains – national, regional, multilateral

Public Policy in the Age of Fourth Industrial Revolution

Key Findings

Variety of new technologies driving change across economic

sectors and activities…

M O R E E F F I C I E N TINDUSTRIAL P R O C E S S E S

N E W G O O D SA N D SERVICES

N E W S O U R C E S OF VALUE A D D E D

▪

▪

▪

▪

▪

Level of Technology Adoption by Manufacturing Firms in Indonesia

Perspective on Industry 4.0 from the Automotive Sector

Perspective on Industry 4.0 from the Electronic Sector

Top 5 Benefits of Technology Adoption

1. Productivity

2. Energy efficiency

3. Planning & Budgeting

4. Product quality

5. Responding to customer need

Top 5 Barriers to Technology Adoption

1. High financial needs

3. Technical uncertainties

4. Resistance to change 5. Digital infrastructure

2. Skilled workers

Online commerce helps increase sales and profit

• For firms that used online commerce sales grew on average by 12.8%.

• Micro online firms observed significant increase in sales compared to non-online firms

• Irrespective of firms’ size, online firms believed that e-commerce increase their sales and profit.

• Offline firms view no effect on sales or profit from e-commerce.

-110

-60

-10

40

90

-110 -60 -10 40 90

pro

fit

sales

Impact on sales and profit after switching toonline commerce

Corporate loans and checking account

Deposits and term deposits

Home loans

Market segmentation

Payment services Micro & small loans Vehicle loans

According to banks, technology help increase financial returns

8

69

10

70

10

10

100

No effect

Increase

Decrease

Do not want to answer

What is the impact of technology adoption on Return on Assets (ROA)

Large Banks Mid Size Banks Small Banks

BA

NK

SFI

NTE

CH

Policy Implications

TO SUPPORT INDONESIA’S TECHNOLOGICAL TRANSFORMATION

©2019Policy Links, IfM ECS, University of Cambridge

Advanced innovation

infrastructure and

institutions

Awareness of the

business value of new

technologies

Technology

transfer and

technicalsupport

Low-cost

“plug-and-play”

technology solutions

A tech-savvy

workforce

Five Pillars for Policy Action

(1) Build Advanced Innovation Infrastructure and Institutions

✓ Address gaps in both “hard” and “soft” infrastructure

and develop advanced innovation institutions.

✓ Develop long-term R&D investment plans and adopt

international best practices for funding research.

✓ Assess needs for new extension services and

intermediate institutions such as research and

technology organizations.

✓ Ensure that regulatory frameworks reflect changes

brought about by new technologies.

(2) Raise Awareness of the Business Value of New Technologies

✓ Provide information to decision makers in SMEs.

✓ Create sector and cross-sector technology forums in cooperation with universities, research centers, and technology vendors.

✓ Establish mechanisms to share best practices across firms in value chains.

✓ Set up facilities to demonstrate technology in research centers and universities.

(3) Provide Technical Support for Technology Transfer

✓ Address the diverse needs of firms at different stages of technological sophistication.

✓ For the small group of leading firms, emphasize support in building capacity to invent and generate new technology.

✓ For the large group of intermediate followers, emphasize support that further develops absorptive capacity and ability to innovate.

✓ For the largest group, firms that have adopted only basic technology, emphasize support to improve basic management and technology practices.

(4) Support Low-cost Plug-and-Play Technology for Indonesian Firms

✓ Take advantage of technologies that are becoming cheaper and more widely available.

✓ Identify technology solutions that address common issues faced by Indonesian firms through, for example, industrial working groups.

✓ Develop a catalogue of affordable plug-and-play technological solutions that are easy to use.

✓ For wider technology deployment, provide access to funds through grants and loans.

(5) Develop Tech-Savvy Workforce

✓ Ensure a critical mass of workers trained in new technologies.

✓ Upgrade existing training centers to expand offerings in new technologies.

✓ Provide funding to new technology training programs for small and medium-sized enterprises.

✓ Encourage foreign firms to expand their training centers, as done in the automobile industry.

✓ Tap the potential for employing skilled women.

✓ Establish training programs in technological entrepreneurship.

▪ Factors constraining Indonesia’s growth potential include: tepid productivity growth and slowing expansion of manufacturing industries.

▪ Technology has a key role to play: Indonesia’s technological transformation could add $2.8 trillion to the economy by 2040.

▪ This study aims to inform policy responses by providing in-depth analyses of technologies and sectors.

▪ Indonesia has taken important steps but policy actions are required toaddress opportunities and challenges arising from new technologies.

▪ Five pillars of policy action: (1) advanced innovation infrastructure; (2) awareness; (3) technology transfer; (4) low-cost technology solutions; and, (5) tech-savvy workforce.

Key Take Home Messages

Thank you!