Indonesia has shown a progressive recovery from the pandemic since 2021. Amidst the global economic uncertainties in 2022, Indonesia’s economy remained resilient, with GDP growth of 5.3%. The growth was primarily attributed to two factors: strong domestic demand and commodity exports. Due to the government’s decision to relax mobility restrictions (PPKM), domestic demand has increased, and private consumption has grown by 4.93% (y-o-y) in 2022. Meanwhile, the rise in global commodity prices and demand, aided by the implementation of a zero-tariff policy for Crude Palm Oil (CPO), has resulted in strong commodity export growth for Indonesia. As a result, the current account surplus reached a peak of US$ 13.22 billion in 2022, a record high since 2017.

In this tenth edition, we examine the competitiveness of the 34 sub-national Indonesian economies during the country’s recovery phase.

Key highlights:

• DKI Jakarta remained the top-ranked province in the competitiveness chart. Its dominance can be seen in its superior performance in all environments, except for Quality of Life and Infrastructure Development (QLID).
• East Kalimantan, the future home of the new capital city, has shown improvement in ranking, moving up from the fifth position in 2020 to the fourth position in 2021. This signals a solid foundation for moving the capital city in the near future.
• Central Sulawesi has emerged as the most improved province in 2021 by moving up eight places from 21st to 13th position. This improvement consistently occurred in the analysis of all the environments and sub-environmental levels, including Standard of Living, Education and Social Stability and Openness to Trade and Services.
• Bali showed a positive trend with the most consistent improvement over the years due to outstanding performance in terms of infrastructure and human capital indicators. However, Bali needs to move towards promoting sustainable tourism and improving its labour force quality.
• South Sulawesi experienced a deterioration in competitiveness ranking over the years. The province faces challenges from inadequate infrastructure and poor human development, which was due to insufficient funding to finance infrastructure projects.
• There is a significant disparity between the Western and Eastern Indonesian regions, with Java and Sumatra continuing to hold the top two positions, while Maluku-Papua remains at the bottom of the regional ranking since 2014.
• Kalimantan has performed well in productivity performance, competition, regulatory standards, and rule of law. Compared to Java, Kalimantan offers a higher quality of life, which may be a factor that might have influenced the Indonesian government’s decision to relocate its capital city to East Kalimantan.

Digital Competitiveness of the 34 Indonesian Sub-national Economies

Thematic research for this edition examines the digital competitiveness of the 34 Indonesian sub-national economies. This study seeks to provide insights into the aspects and regions that require particular attention to escape the digital divide trap. The index adopted in this study evaluates digital competitiveness as a composite of four broad environments, including (i) Digital Outputs, (ii) Digital Infrastructure, (iii) Core Inputs, and (iv) Digital Utilisation.

The pandemic-induced digitalisation has brought significant growth to Indonesia’s digital economy, with the Gross Merchandise Value (GMV) increasing from USD 41 billion in 2019 to USD 77 billion in 2022. Despite growing digital adoption and a thriving digital economy in Indonesia, the digital disparity is worsening, especially between Java and non-Java regions and between urban and rural areas.

The study found that provinces with better performance in ACI’s annual competitiveness rankings tend to have a higher ranking in digital competitiveness, except for Central Kalimantan and North Sulawesi. The connectivity infrastructure and quality of education are key issues that Central Kalimantan needs to tackle in order to improve its digital competitiveness. Meanwhile, North Sulawesi needs to realise the welfare effect of digitalisation by leveraging the potential of e-commerce activity and mobile payment services.

By ZHANG, Xuyao, Bima Satria, Hilda Kurniawati