Emerging markets will reap the greatest gains from the online economy, as shown by Indonesia’s experiences, writes Brian Caplen.

IMF delegates arriving in Bali for the annual meeting may be concerned about Indonesia's currency volatility as US interest rates rise and China's growth moderates. But longer term a much more significant development is the way in which this vast country of 250 million people and 6000 islands is embracing online commerce.

There are concerns everywhere about the failure of the digital revolution to translate into wider economic gains. In emerging markets there are particular worries about financial inclusion and the need to increase both exports and consumption. Indonesia's digital strategy, it seems, may have answers to all these problems.

While the IMF's latest World Economic Outlook was fairly downbeat and trimmed growth forecasts for both the global and the Indonesian economy, the country’s burgeoning digital economy is set to create an additional $150bn in GDP by 2025 – an average of 1.2 percentage points each year.

A study by McKinsey estimates that by 2022 online commerce sales will grow from $8bn to $65bn, of which one-third is completely new consumption.

It is also cheaper consumption, saving purchasers 10 cents in every dollar spent, with the largest gains going to the more remote and poorer consumers as distributors’
inventory costs are cut.

The McKinsey report highlights the positive impact on financial inclusion with online purchases providing a spur for consumers to open bank accounts in a country where more than half the population is unbanked.

The other big winner is small companies, which can broaden their sales and even exports, provided they can source sufficient technical talent (of which Indonesia is very short) to create online business models.

The digital revolution is a great opportunity for banks, and as The Banker reported in April 2017, Bank Rakyat Indonesia has invested in a private satellite to secure national payments coverage. With all this in mind, maybe the latest World Economic Outlook is a tad too pessimistic.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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