Indonesia E-Commerce Sectors
In 2021, the Indonesia e-commerce market became the ninth largest in the world with a value of US$43 billion.
Indonesia’s thriving e-commerce sector exhibited a 23% increase in online transactions and approximately 63 million new users. Covid-19 restrictions, including lockdowns, as well as a boost in internet users are driving this growth. As of February 2022, The Central Bank of Indonesia noted a growth of 12% in transaction value, reaching over US$2 billion, and a 27% YOY increase in transaction volume with a total of 222.9 million transactions.
During the pandemic, online purchases through e-commerce platforms increased for both business-to-consumer (B2C) and business-to-business (B2B). B2C dominates the Indonesian e-commerce market, as evidenced by the giant regional players such as Shopee (Singapore) and Tokopedia. Shopee leads the e-commerce market, representing US$14.2 billion of Indonesia’s total gross market value (GMV). In the first quarter of 2022, Tokopedia was the most visited e-commerce platform, accounting for 157 million visitors. The established second-tier platforms are Lazada (Singapore), Blibli, and Bukalapak. On the B2B side, the top companies are Ralali.com and Bhinneka. Even though the market trend for the past five years has mainly concentrated on B2C, Deputy Trade Minister Jerry Sambuaga stated that B2B’s market size is forecasted to grow to US$21.3 billion by 2023.
The rise of Indonesia’s e-commerce sector is supported by several factors. The proliferation of digital wallets such as GoPay, DANA, OVO, and ShopeePay positively contributes to a non-cash payment mechanism in e-commerce. These e-wallets are typically associated with specific e-commerce platforms as a non-cash payment mechanism; for instance, Shopee with its ShopeePay. Moreover, Indonesia has a large, young, and tech-savvy population. In 2021, Statistics Indonesia (BPS) reported that the young generation aged 15-29 comprises 24% of the total population of approximately 67 million people. In terms of socio-economic class, a considerable portion of the middle-class accounts for about 20% of the population, leading to increased smartphone and internet penetration rates. This is evidenced by the number of internet users reaching 73.7% of the total population in January this year. Additionally, the Government of Indonesia supports e-commerce development following President Joko Widodo’s agenda on Indonesia Vision 2045 in advancing the transformation of the digital economy. Particularly, the government encourages the micro-SMEs (MSMEs) to enter e-commerce through B2B channels.
According to Statista, the number of e-commerce users in Indonesia will go up to over 189 million, making up approximately 65% of the total population by 2024. It is also forecasted that Indonesia’s total e-commerce transactions will reach US$137.5 billion by 2025—the highest in the Asia Pacific region—representing 59% of the region’s accumulated transaction value. E-commerce revenue will also increase to US$56.4 billion in the same year.
Despite the opportunities, some risks still exist. Based on the World Economic Forum’s network readiness index, Indonesia ranks 105 out of 139 countries under the infrastructure and digital content pillar. Indonesia lags its neighboring Southeast Asian countries such as Thailand (67), Malaysia (71), and the Philippines (87). However, the Indonesian government has developed several internet-boosting programs, such as the Palapa Ring broadband network and a US$1.5 billion-satellite project. This project is expected to be operational by 2023 and will deliver 4G internet connection primarily outside Java in 149,000 locations. Another challenge of the Indonesian e-commerce market is maintaining customer loyalty. With the presence of several e-commerce service providers, customers can easily switch to platforms offering lower price levels and more benefits (e.g., promotions).
As e-commerce proliferates in the Indonesian market, the sector is regulated by Law No. 7/2014 on Trade; Government Regulation No. 71/2019 on e-commerce Transactions and Electronic System and Transactions Management; Government Regulations No. 80/2019 on e-commerce Transaction; and Minister of Trade Regulation No. 50/2020 on Business Licensing, Advertising, Advocating, and Supervision of Business in Electronic Commerce. The Ministry of Trade Law No. 50/2020 requires the foreign e-commerce platform (PMPSE) that have completed more than 1,000 transactions and deliveries within a year to appoint a Representative Office in Indonesia. Recently, The Directorate General of Taxes proposed a single stamp duty tariff of Rp10,000 on the T&C agreement and every transaction above Rp 5.000.000 on the e-commerce platform in accordance with Law No 10/2020 on Stamp Duty. With this additional fee paid by the customer, industry experts argue that this policy may hinder e-commerce use.
All things considered, Indonesia’s e-commerce market has a promising future, driven by its young demographics, increasing internet penetration, e-wallet boom, and digital economy-focused policies.
For more information, please kindly contact: Commercial Specialist Ms. Yulie Tanuwidjaja (Yulie.Tanuwidjaja@trade.gov)