## E-commerce in Indonesia

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### Overview of global and Asian e-commerce dynamics
- Global retail e-commerce sales rose from US$1.3 trillion in 2014 to an estimated US$2.3 trillion in 2017.
- Global B2B e-commerce gross merchandise volume increased from US$6.4 trillion in 2014 to US$7.7 trillion in 2017.
- China’s share in global e-commerce retail transaction value rose from less than 1 percent about 10 years ago to more than 40 percent.
- U.S. share of the market is currently 24 percent, down from 35 percent in 2005.
- Asia’s share of retail sales that occurs via e-commerce is 12 percent, compared with 8 percent for Western Europe and North America.
- China alone hosts more than 700 million Internet users.
- Between 2013 and 2016, mobile payments in China increased from 25 to 68 percent of mobile Internet users.
- Consumption-related mobile payments in China totaled US$790 billion in 2016—11 times that of the United States, which has 262 million mobile Internet users.
- In Asia, the share of the online population that bought a product online (e-shopper penetration) remains below 50 percent.
- A large part of the Asian population remains offline in many countries, implying sizable potential for e-commerce growth.

### Indonesia-specific growth indicators and digital ecosystem
- The share of e-sales in total retail sales in Indonesia increased fourfold between 2014 and 2017, though it remains below 5 percent.
- Between 2014 and 2017, the share of online sales in total retail sales increased fourfold, from less than 1 percent to about 3 percent.
- Revenues from e-sales in Indonesia increased by more 20 percent in 2017.
- Between 2015 and 2017, the number of mobile Internet users increased by about 21 percent.
- Only a quarter of the overall population uses the Internet; Indonesia has one of the lowest Internet penetration rates in the ASEAN region.
- Only about half of the population has access to financial services, compared with regional benchmarks (Malaysia and Thailand) where more than 80 percent have access.
- Indonesia ranked 63rd out of 160 countries globally in 2016 on the World Bank’s Logistics Performance Index.
- Mobile data are cheap in Indonesia at about half the price of peer ASEAN countries.
- The share of digitally active users in the banked population increased rapidly between 2014 and 2017; the average consumer makes more transactions via smartphone than three years ago.
- Cyber-risk is a serious concern and could act as a disincentive to online commerce.

### Firm-level characteristics and heterogeneity (WBES sample and stylized facts)
- Data and definition:
  - World Bank Enterprise Surveys (WBES) sample: 77 developing economies; six Asian economies in sample: China, Indonesia, Mongolia, Nepal, the Philippines, and Vietnam; survey period 2006−12.
  - E-commerce indicator: dummy = 1 if firm uses Internet connection to order purchases or to deliver products/services to clients.
- Stylized facts:
  - E-commerce firms are more present in sophisticated manufacturing (chemicals, machinery) and certain services (retail, wholesale, IT services).
  - E-commerce firms are more innovative, have a more educated labor force, and have better access to finance than other firms.
  - E-commerce firms exhibit higher sales, value added, stock of capital, and exports than non-e-commerce firms.
  - In Asia, e-commerce firms’ median sales are about 73 percent larger and their exports almost twice larger than other firms.
- Reported constraints:
  - A higher share of e-commerce firms report telecommunication and transport issues as well as customs and trade regulations as obstacles (example: 14 percent of e-commerce firms in Asia perceive difficulties in transport as an obstacle compared to 8 percent for other firms).

### Selected firm-level statistics (percentages and medians preserved)
- Innovation and communication:
  - Firms owning a website: E-commerce 70.9, Other firms 53.6 (All Countries); E-commerce 76.0, Other firms 57.4 (Asia).
  - Communicate by e-mail with clients and suppliers: E-commerce 97.5, Other firms 82.9 (All Countries); E-commerce 94.0, Other firms 72.3 (Asia).
  - Use of technology licensed from a foreign company: E-commerce 21.2, Other firms 13.4 (All Countries); E-commerce 28.9, Other firms 10.4 (Asia).
  - Internationally-recognized quality certification: E-commerce 32.1, Other firms 24.0 (All Countries); E-commerce 62.9, Other firms 42.3 (Asia).
  - New products/services introduced during last 3 years: E-commerce 59.1, Other firms 45.0 (All Countries); E-commerce 51.2, Other firms 36.5 (Asia).
  - Improved process introduced during last 3 years: E-commerce 57.8, Other firms 46.6 (All Countries); E-commerce 71.1, Other firms 51.1 (Asia).
  - Did the firm spend on R&D during last fiscal year: E-commerce 50.4, Other firms 36.4 (All Countries); E-commerce 46.7, Other firms 33.0 (Asia).
- Human capital:
  - Workers with completed high school education: E-commerce 73.0, Other firms 63.7 (All Countries); E-commerce 61.8, Other firms 56.1 (Asia).
  - Workers with high university degree: E-commerce 10.4, Other firms 9.8 (All Countries); E-commerce 10.3, Other firms 9.8 (Asia).
  - Firms with formal training to employee last fiscal year: E-commerce 65.8, Other firms 59.9 (All Countries); E-commerce 88.1, Other firms 77.6 (Asia).
- Finance:
  - Firms with line of credit or loan: E-commerce 53.9, Other firms 42.8 (All Countries); E-commerce 36.8, Other firms 23.9 (Asia).
  - Firms with overdraft facility: E-commerce 59.4, Other firms 47.6 (All Countries); E-commerce 33.9, Other firms 27.2 (Asia).
- Performance (medians, US$ thousands):
  - Annual sales (median): E-commerce 1,743.0, Other firms 1,157.1 (All Countries); E-commerce 2,693.1, Other firms 1,552.5 (Asia).
  - Value added (median): E-commerce 562.6, Other firms 418.3 (All Countries); E-commerce 1,095.5, Other firms 619.4 (Asia).
  - Export in total sales: E-commerce 6.7, Other firms 4.2 (All Countries); E-commerce 7.4, Other firms 3.8 (Asia).
  - Stock of capital (median): E-commerce 536.7, Other firms 347.6 (All Countries); E-commerce 1,108.9, Other firms 712.9 (Asia).

### Productivity, exports, and empirical results
- Labor productivity:
  - Firms engaged in e-commerce have higher labor productivity on average.
  - In Asia, e-commerce firms are on average 50 percent more productive than other firms.
- TFP estimation (Cobb-Douglas residual):
  - VA_ijk = α L_ijk + β K_ijk + γ C_i + δ S_j + ε_ijk, with variables in logs; sales, value added, and capital stock in constant U.S. dollars; top/bottom 1 percent of productivity excluded in comparisons.
- Key empirical findings (preserved):
  - Participation in online commerce is associated with 14 percent higher total factor productivity (TFP) at the firm level.
  - In Asia, participation in e-commerce is associated with 30 percent higher TFP.
  - Firms engaged in e-commerce export 40 percent more than other firms on average.
  - In Asia, e-commerce firms export 50 percent more than other firms.
  - Instrumental-variable estimates magnify estimated e-commerce effects relative to OLS; firms engaged in e-commerce could have a productivity level up to two times larger than other firms when enabling conditions (reliable electricity, telecommunication, and transport) are in place.
  - About 12 percent of global goods trade is conducted via international e-commerce.
  - Other Asian economies such as India and Indonesia experienced e-commerce sales growth rates that exceeded 20 percent in 2017 alone.
- Empirical approach and robustness:
  - Regression: TFPijk = α Ecomijk + β Xijk + γ Ci + δ Sj + ηijk, where Xijk includes firm size, age, share of foreign capital, share of exports, education of labor force, and access to finance.
  - Instruments: country-region averages of perception of (1) electricity, (2) telecommunications, and (3) transport as obstacles; additional instrument for regional ease of export in export regressions.
  - IV estimators used: 2SLS, GMM, and limited information maximum likelihood; IV estimates larger than OLS, consistent with measurement-error attenuation in OLS.
- Heterogeneity:
  - Benefits particularly strong for small firms in Asia.
  - Impact varies by sector (e.g., larger for retail than mineral production).
  - Results robust when controlling for firm characteristics and when restricting sample to countries with population ≥ 10 million and per capita income ≥ US$1,500.

### Role of platforms and competition considerations
- Platforms magnify e-commerce benefits via network effects, delivery systems, customer services, and data-driven customization (same-side network effects).
- Platforms can enable access to finance (example given: Ant Financial Services Group using Taobao data) and provide merchant training, supply-chain and last-mile logistics solutions, and low-bandwidth applications (example given: Flipkart initiatives).
- Competition risks:
  - Exclusive access to platform data can create anti-competitive concerns when platforms become large.
  - Network effects can make it difficult for retailers/vendors to switch platforms, reinforcing market power and risk of anti-competitive practices.

### Enabling factors, gaps, and constraints
- Critical elements for e-commerce: Internet access, secure Internet servers, payment methods (credit card, e-wallet, mobile payment), and reliable delivery services.
- Gaps in developing Asian economies:
  - Less than 40 percent of individuals (aged 15+) have a financial account in Nepal, Bhutan, Bangladesh, Lao PDR, Myanmar, and Cambodia.
  - In many of these countries, less than 30 percent of individuals use the Internet.
- Postal and delivery system gaps are important bottlenecks, especially for cross-border e-commerce.
- Legal and institutional gaps:
  - Electronic-transaction laws, consumer protection, data protection, and cybercrime legislation are largely absent in Pacific island countries.
  - Enacting and enforcing appropriate legislation (including mechanisms to address anticompetitive practices) can lower legal barriers, raise consumer confidence, and expand domestic and cross-border transactions.

### Policy implications and priority actions (including Indonesia-specific measures)
- Infrastructure and logistics:
  - Expand reliable electricity, telecommunications, and transport infrastructure to enable regular use of e-commerce and realize larger productivity gains.
  - Strengthen postal and delivery systems to reduce bottlenecks for domestic and cross-border e-commerce.
- Financial inclusion:
  - Increase access to financial accounts and digital payment solutions (credit cards, e-wallets, mobile payments).
  - Leverage e-commerce to expand cashless payments and support lending, especially to smaller enterprises.
- Legal and regulatory frameworks:
  - Enact and enforce e-transaction laws, consumer protection, data protection, and cybercrime legislation.
  - Build capacity to address anticompetitive practices arising from large platforms and network effects.
- Platforms:
  - Encourage platforms’ positive externalities (training, logistics, data-driven services) to boost SME productivity and access to finance.
  - Monitor and regulate market power and data exclusivity to mitigate anti-competitive outcomes.
- Indonesia priority actions and measures already under way:
  - Expand quality Internet coverage (including in rural areas) to reduce the digital divide—Palapa Ring Project cited.
  - Expand reliable logistics infrastructure for pickups and deliveries—National Logistic System Development and ASEAN Logistic Service Integration cited.
  - Enhance human capital—Digital Talent Scholarship Program cited.
  - Encourage SMEs to go online—on-Boarding SME program cited.

### Distributional and labor-market implications (Indonesia)
- Firms engaged in online commerce in Asia, including Indonesia, are at least 30 percent more productive and export at least 50 percent more on average.
- A McKinsey study: shopping online helps consumers in non-Java regions save between 11 and 25 percent.
- Up to 35 percent of online revenue is generated by women, compared to 15 percent for offline retail.
- McKinsey projects that by 2022, online commerce will directly or indirectly support about 26 million jobs, compared with 4 million currently.

### Conclusion summary
- E-commerce presents substantial opportunities to boost firm productivity and exports, with particularly large effects in Asia.
- Empirical evidence summarized: 14 percent higher TFP overall; 30 percent higher TFP in Asia; 40 percent higher exports overall; 50 percent higher exports in Asia.
- Positive effects are larger under better enabling conditions (infrastructure, legal frameworks, financial inclusion) and in countries with sizable populations and moderate purchasing power.
- Addressing infrastructure, legal, and regulatory gaps can further expand e-commerce, support international trade, create business opportunities, and increase consumer welfare.

*Source: IMF Working Paper — "E-commerce in Indonesia" (wpiea2019135).*

### 1. E-commerce in Indonesia .............................................................................................

### 1. E-commerce in Indonesia

### Overview of global and Asian e-commerce dynamics
- Global retail e-commerce sales rose from US$1.3 trillion in 2014 to an estimated US$2.3 trillion in 2017.
- Global B2B e-commerce gross merchandise volume increased from US$6.4 trillion in 2014 to US$7.7 trillion in 2017.
- China’s share in global e-commerce retail transaction value rose from less than 1 percent about 10 years ago to more than 40 percent.
- U.S. share of the market is currently 24 percent, down from 35 percent in 2005.
- Asia’s share of retail sales that occurs via e-commerce is 12 percent, compared with 8 percent for Western Europe and North America.
- China alone hosts more than 700 million Internet users.
- Between 2013 and 2016, mobile payments in China increased from 25 to 68 percent of mobile Internet users.
- Consumption-related mobile payments in China totaled US$790 billion in 2016—11 times that of the United States, which has 262 million mobile Internet users.
- In Asia, the share of the online population that bought a product online (e-shopper penetration) remains below 50 percent.
- A large part of the Asian population remains offline in many countries, implying sizable potential for e-commerce growth.

### Indonesia-specific and regional growth indicators
- In Indonesia, the share of e-sales in total retail sales increased fourfold between 2014 and 2017, though it remains below 5 percent.
- Revenues from e-sales in Indonesia increased by more 20 percent in 2017, buoyed by a young and digitally savvy population.
- Studies on new consumption: in China, for every US$100 in Internet spending, close to 40 percent represents incremental (new) consumption (Dobbs and others 2013); in Indonesia, about 30 percent of online commerce spending is new consumption (Das and others 2018).
- A U.S. study estimates e-commerce spending reached 8 percent of consumption by 2017, yielding consumers the equivalent of a 1 percent permanent boost to their consumption, or over US$1,000 per household.

### Firm-level characteristics and heterogeneity (WBES sample)
- Data source and sample:
  - World Bank Enterprise Surveys (WBES), standardized firm-level data.
  - Comprehensive sample of 77 developing economies across all regions.
  - Six Asian economies in the sample: China, Indonesia, Mongolia, Nepal, the Philippines, and Vietnam.
  - Survey period for the sample: 2006−12.
- Definition of the e-commerce indicator:
  - Dummy variable equal to one if a firm uses an Internet connection to order purchases from other establishments or to deliver products and services to clients.
- Stylized facts: firms engaged in e-commerce tend to:
  - Be more present in sophisticated manufacturing (chemicals, machinery) and certain services (retail, wholesale, IT services).
  - Be more innovative, have a more educated labor force, and have better access to finance than other firms, including in Asia.
  - Exhibit higher sales, value added, stock of capital, and exports than non-e-commerce firms.
  - In Asia, e-commerce firms’ median sales are about 73 percent larger and their exports almost twice larger than other firms.
- Constraints: a higher share of e-commerce firms report telecommunication and transport issues as well as customs and trade regulations as obstacles. Example: 14 percent of e-commerce firms in Asia perceive difficulties in transport as an obstacle compared to 8 percent for other firms.

### Selected characteristics of e-commerce firms (Table 1; percentages and medians preserved)
- Innovation and communication:
  - Firms owning a website: E-commerce 70.9, Other firms 53.6 (All Countries); E-commerce 76.0, Other firms 57.4 (Asia).
  - Communicate by e-mail with clients and suppliers: E-commerce 97.5, Other firms 82.9 (All Countries); E-commerce 94.0, Other firms 72.3 (Asia).
  - Use of technology licensed from a foreign company: E-commerce 21.2, Other firms 13.4 (All Countries); E-commerce 28.9, Other firms 10.4 (Asia).
  - Internationally-recognized quality certification: E-commerce 32.1, Other firms 24.0 (All Countries); E-commerce 62.9, Other firms 42.3 (Asia).
  - New products/services introduced during last 3 years: E-commerce 59.1, Other firms 45.0 (All Countries); E-commerce 51.2, Other firms 36.5 (Asia).
  - Improved process introduced during last 3 years: E-commerce 57.8, Other firms 46.6 (All Countries); E-commerce 71.1, Other firms 51.1 (Asia).
  - Did the firm spend on R&D during last fiscal year: E-commerce 50.4, Other firms 36.4 (All Countries); E-commerce 46.7, Other firms 33.0 (Asia).
- Human capital:
  - Workers with completed high school education: E-commerce 73.0, Other firms 63.7 (All Countries); E-commerce 61.8, Other firms 56.1 (Asia).
  - Workers with high university degree: E-commerce 10.4, Other firms 9.8 (All Countries); E-commerce 10.3, Other firms 9.8 (Asia).
  - Firms with formal training to employee last fiscal year: E-commerce 65.8, Other firms 59.9 (All Countries); E-commerce 88.1, Other firms 77.6 (Asia).
- Finance:
  - Firms with line of credit or loan: E-commerce 53.9, Other firms 42.8 (All Countries); E-commerce 36.8, Other firms 23.9 (Asia).
  - Firms with overdraft facility: E-commerce 59.4, Other firms 47.6 (All Countries); E-commerce 33.9, Other firms 27.2 (Asia).
- Performance (medians, US$ thousands):
  - Annual sales (median): E-commerce 1,743.0, Other firms 1,157.1 (All Countries); E-commerce 2,693.1, Other firms 1,552.5 (Asia).
  - Value added (median): E-commerce 562.6, Other firms 418.3 (All Countries); E-commerce 1,095.5, Other firms 619.4 (Asia).
  - Export in total sales: E-commerce 6.7, Other firms 4.2 (All Countries); E-commerce 7.4, Other firms 3.8 (Asia).
  - Stock of capital (median): E-commerce 536.7, Other firms 347.6 (All Countries); E-commerce 1,108.9, Other firms 712.9 (Asia).

### E-commerce and productivity (TFP and labor productivity)
- Labor productivity:
  - Firms engaged in e-commerce have higher labor productivity on average.
  - In Asia, e-commerce firms are on average 50 percent more productive than other firms.
- Total Factor Productivity (TFP) estimation approach:
  - TFP is estimated as the residual from a Cobb-Douglas specification:
    - VA_ijk = α L_ijk + β K_ijk + γ C_i + δ S_j + ε_ijk
    - where VA_ijk is value added of firm i, country j, sector k; L_ijk is number of employees; K_ijk is capital stock; C_i and S_j are country and sector fixed effects; ε_ijk is the firm-level productivity residual.
  - All variables are in logarithm terms.
  - Sales, value added, and capital stock are converted into constant U.S. dollars.
  - Potential outliers (top 1 percent and bottom 1 percent of most/least productive firms) are excluded in comparisons to avoid distortion.

### Aggregate and macro links (tentative correlations)
- Tentative correlations suggest private consumption and private investment growth could potentially be positively correlated with e-sales (Figure 9).
- Caveat noted: while e-sales seem associated with higher consumption growth, the analysis does not find evidence that economies with higher e-sales have a higher share of private consumption to GDP.

### Policy-relevant observations and enabling factors (identified gaps)
- Platforms and network effects:
  - Platforms can magnify the benefits of e-commerce by enhancing network effects but may raise competition issues.
- Enabling environment:
  - Internet connectivity, mobile technologies, and digital payments are key enablers; many Asian countries have strong use of digital payments.
  - Logistics, transport, telecommunications, customs, and trade regulations are critical constraints for e-commerce, especially cross-border e-commerce.
- Areas for improvement for Asia (to better reap e-commerce benefits):
  - Infrastructure and delivery services (transport and logistics).
  - Regulatory environment that addresses customs and trade regulations.
  - Continued expansion of Internet access to reduce the offline population share, particularly in rural areas.

*Source: IMF Working Paper — "E-commerce in Indonesia" (chapter content provided).*

### Appendix Table 1 provides the results of the estimations. The cross-sectional dimension of the data does not

### wpiea2019135 - Appendix Table 1 provides the results of the estimations. The cross-sectional dimension of the data does not

### Key empirical findings
- Participation in online commerce is associated with 14 percent higher total factor productivity (TFP) at the firm level.
- In Asia, participation in e-commerce is associated with 30 percent higher TFP.
- Firms engaged in e-commerce export 40 percent more than other firms on average.
- In Asia, e-commerce firms export 50 percent more than other firms.
- Instrumental-variable estimates magnify the estimated e-commerce effects relative to OLS; firms engaged in e-commerce could have a productivity level up to two times larger than other firms when enabling conditions (reliable electricity, telecommunication, and transport) are in place.
- About 12 percent of global goods trade is conducted via international e-commerce (driven by platforms such as Alibaba, Amazon, eBay, Flipkart, and Rakuten).
- China’s share in global e-commerce retail transactions rose from less than 1 percent about a decade ago to more than 40 percent.
- Other Asian economies such as India and Indonesia experienced e-commerce sales growth rates that exceeded 20 percent in 2017 alone.

### Empirical approach and robustness
- Firm-level TFP is estimated and then regressed on an e-commerce participation dummy and controls:
  - Equation: TFPijk = α Ecomijk + β Xijk + γ Ci + δ Sj + ηijk
  - Ecomijk = 1 if a firm uses an Internet connection to order purchases or deliver products/services; 0 otherwise.
  - Xijk includes firm size, age, share of foreign capital, share of exports, education of labor force, and access to finance.
  - Ci and Sj are country and sector fixed effects.
- OLS results show the 14 percent TFP association (overall) and 30 percent (Asia).
- Export regressions use a similar model with dependent variable = share of exports in total sales.
- Addressing endogeneity:
  - Instruments: country-region averages (for small firms) of perception of how (1) electricity, (2) telecommunications, and (3) transport represent obstacles to operations. For export performance, an additional instrument captures regional ease of export.
  - Tests of overidentifying restrictions support instrument validity.
  - IV estimators used: 2SLS, GMM, and limited information maximum likelihood (robustness).
  - IV estimates produce larger coefficients than OLS, consistent with measurement-error induced attenuation in OLS.

### Size, sector, and heterogeneous effects
- E-commerce benefits are particularly strong for small firms in Asia (Figure 11 discussion).
- The impact of e-commerce participation may vary by sector (e.g., larger impact on retail than mineral production).
- Results remain after controlling for firm characteristics (age, size, foreign ownership, export status, education of labor force).
- Restricting sample to countries with population of at least 10 million and per capita income of at least US$1,500 confirms that availability of a large population with some purchasing power magnifies the positive impact of e-commerce on firm productivity.

### Role of platforms
- Platforms can magnify e-commerce benefits via network effects and by providing delivery systems, customer services, and data-driven customization (same-side network effects).
- Platforms can enable better access to finance (example: Ant Financial Services Group using Taobao data) and provide merchant training, supply-chain and last-mile logistics solutions, and low-bandwidth applications (example: Flipkart initiatives).
- Platforms also raise competition and antitrust concerns:
  - Exclusive access to platform data can create anti-competitive concerns when platforms become large.
  - Network effects can make it difficult for retailers/vendors to switch platforms, reinforcing market power and risk of anti-competitive practices.

### Enabling factors and remaining gaps
- Critical elements for e-commerce: Internet access, secure Internet servers, payment methods (credit card, e-wallet, mobile payment), and reliable delivery services.
- Significant gaps remain in many developing Asian economies:
  - Less than 40 percent of individuals (aged 15+) have a financial account in Nepal, Bhutan, Bangladesh, Lao PDR, Myanmar, and Cambodia.
  - In many of these countries, less than 30 percent of individuals use the Internet.
- Postal and delivery system gaps are important bottlenecks, especially for cross-border e-commerce.
- Legal and institutional gaps:
  - Electronic-transaction laws, consumer protection, data protection, and cybercrime legislation are largely absent in Pacific island countries.
  - Enacting and enforcing appropriate legislation (including mechanisms to address anticompetitive practices) can lower legal barriers, raise consumer confidence, and expand domestic and cross-border transactions.

### Policy implications and recommendations
- Improve infrastructure essential for e-commerce:
  - Expand reliable electricity, telecommunications, and transport infrastructure to enable regular use of e-commerce and realize larger productivity gains.
  - Strengthen postal and delivery systems to reduce bottlenecks for domestic and cross-border e-commerce.
- Enhance financial inclusion:
  - Increase access to financial accounts and digital payment solutions (credit cards, e-wallets, mobile payments) to enable broader participation in e-commerce.
- Strengthen legal and regulatory frameworks:
  - Enact and enforce e-transaction laws, consumer protection, data protection, and cybercrime legislation.
  - Build capacity to address anticompetitive practices arising from large platforms and network effects.
- Leverage platforms while managing risks:
  - Encourage platforms’ positive externalities (training, logistics, data-driven services) to boost SME productivity and access to finance.
  - Monitor and regulate market power and data exclusivity to mitigate anti-competitive outcomes.

### Conclusion summary
- E-commerce presents substantial opportunities to boost firm productivity and exports, with particularly large effects in Asia.
- Empirical evidence: 14 percent higher TFP overall; more than 30 percent higher TFP in Asia; 40 percent higher exports overall; 50 percent higher exports in Asia.
- The positive effects are larger under better enabling conditions (infrastructure, legal frameworks, financial inclusion) and in countries with sizable populations and moderate purchasing power.
- Addressing infrastructure, legal, and regulatory gaps can further expand e-commerce, support international trade, create business opportunities, and increase consumer welfare.

*Source: Author’s estimates using World Bank Enterprise Surveys.*

### Box 1. E-commerce in Indonesia

### Box 1. E-commerce in Indonesia

### Recent growth and scale
- Between 2014 and 2017, the share of online sales in total retail sales increased fourfold, from less than 1 percent to about 3 percent.
- Online sales increased by more than 20 percent just in 2017 over the previous year.
- Between 2015 and 2017, the number of mobile Internet users increased by about 21 percent.
- With only a quarter of the overall population using the Internet, Indonesia has one of the lowest Internet penetration rates in the ASEAN region.
- Only about half of the population having access to financial services, compared with regional benchmarks such as Malaysia and Thailand, where more than 80 percent of the population has access to financial services.
- Indonesia ranked 63rd out of 160 countries globally in 2016 on the World Bank’s Logistics Performance Index.

### Enabling factors and digital ecosystem
- Mobile data are cheap in Indonesia at about half the price of peer countries that are members of the Association of Southeast Asian Nations (ASEAN).
- The share of digitally active users in the banked population increased rapidly between 2014 and 2017, with the average consumer making more transactions via smartphone than three years ago.
- A large and digitally savvy youth population provides a sizable customer base for the digital economy.
- Cyber-risk is a serious concern and could act as a disincentive to online commerce.

### Economic impacts and distributional effects
- Firms engaged in online commerce in Asia, including Indonesia, are at least 30 percent more productive and export at least 50 percent more on average.
- A McKinsey study shows that shopping online helps consumers in non-Java regions save between 11 and 25 percent.
- Up to 35 percent of online revenue is generated by women, compared to 15 percent for offline retail, indicating e-commerce can help lower the persistent gender gap.
- McKinsey projects that by 2022, online commerce will directly or indirectly support about 26 million jobs, compared with 4 million currently.

### Constraints and bottlenecks
- Low Internet penetration (only a quarter of the population).
- One of the lowest postal reliability scores in the region.
- Large share of unbanked population relying mostly on cash.
- Logistics infrastructure lags regional peers, with issues of insufficient coverage and inconsistent service quality (World Bank Logistics Performance Index rank: 63rd out of 160 in 2016).
- Cyber-risk and gaps in financial inclusion and human capital constrain expansion.

### Priority policy actions and recent government measures
- Priority actions recommended:
  - Expand quality Internet coverage (including in rural areas) to reduce the digital divide.
  - Expand reliable logistics infrastructure for pickups and deliveries.
  - Leverage e-commerce to further expand cashless payments and support lending, especially to smaller enterprises.
  - Enhance human capital to meet demand from the emerging digital sector.
  - Encourage SMEs to go online, in particular through online marketplaces.
  - Large marketplaces could provide SMEs marketing analytics, inventory management, and access to credit to enhance productivity and export opportunities.
- Indonesian authorities’ measures already under way:
  - Expanding logistics infrastructure through the National Logistic System Development and ASEAN Logistic Service Integration.
  - Improving the quality of internet coverage through the Palapa Ring Project.
  - Enhancing human capital through the Digital Talent Scholarship Program.
  - Encouraging SMEs to go online through the on-Boarding SME program.

*Source: Box 1. E-commerce in Indonesia (wpiea2019135).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019135.pdf_