McKinsey Expects Great Growth for Indonesia’s E-Commerce Market
The value of the e-commerce market in Indonesia is estimated to have grown to the range of USD $55 – $65 billion by 2022. This estimate stems from a new report, titled The Digital Archipelago: How Online Commerce is Driving Indonesia’s Economic Development, that was released by management consulting firm McKinsey earlier this month.
If McKinsey’s projection is accurate then it would mean the value of Indonesia’s e-commerce market is to rise nearly eight-fold between 2017 and 2022. In 2017 Indonesia’s e-commerce market was valued at USD $8 billion. This figure refers to the gross merchandise value (GMV) of goods and services that were purchased online from e-commerce and socio-commerce platforms. Meanwhile, Indonesia had only about 30 million online shoppers, or approximately 15 percent of its total adult population of 195 million individuals.
Through the formal e-commerce platforms McKinsey estimates the GMV at USD $40 billion by 2022 on the Indonesian market. Meanwhile, regarding the socio-commerce platforms (for example Instagram and Facebook) the GMV is estimated to reach up to USD $25 billion.
There are a couple of factors that support rapid growth of the e-commerce sector in Indonesia. Firstly, smartphone and Internet penetration is continuously rising. Secondly, Indonesia has a big population that sees its purchasing power strengthening amid robust macroeconomic growth. Thirdly, Indonesia has a young and tech savvy population, meaning they rapidly adjust to new technology.
However, McKinsey also detects several challenges for further growth of the e-commerce industry. Firstly, due to infrastructure bottlenecks logistics costs are high. Secondly, in terms of non-cash payment infrastructure Indonesia is still in the early stages of development (there is a lack of seamless, secure, and scalable payment opportunities). Thirdly, there is a strong need to enhance the nation’s talent pool. Fourthly, the investment climate has to be made more conducive.
Despite these challenges the e-commerce market of Indonesia is expected to take giants steps in the coming years. While currently e-commerce sales only account for 5 percent of the nation’s total retail sales, this figure is expected to rise to the range of 17 – 30 percent in the next five years.
This would be a great asset to the economy because it generates employment opportunities. According to McKinsey, by 2022, online commerce could directly or indirectly support up to 26 million full-time-equivalent jobs, representing around 20 percent of Indonesia’s total workforce.