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A worker shows WarungSegar, a mobile app for online grocery shopping in
Pekanbaru, Riau on Feb 11, 2021. (Antara Photo/FB Anggoro)


GALVANIZE CLOUD ADOPTION TO POWER INDONESIA’S DIGITAL ECONOMY

OCTOBER 13, 2021



Despite the economic uncertainty caused by the Covid-19 pandemic, Indonesia
continues to be one of the fastest-growing digital economies in Southeast Asia.
By 2025, Indonesia’s digital gross merchandise value (GMV) will hit $124
billion, up from $44 billion in 2020.

Cloud technology, which allows for the delivery of different computing services
such as data storage, servers, and databases through the Internet, has catalyzed
Indonesia’s digital economic growth. In 2019, Indonesia’s public cloud market
was expected to grow from $0.2 billion in 2018 to $0.8 billion in 2023. 

It has supported the advancement of small and medium enterprises (SMEs) by
democratizing access to technologies and services that used to be available only
to large enterprises. It has also enabled the government to provide better
services such as the Cash-for-Training (Kartu Prakerja) program from
the Coordinating Ministry of Economic Affairs and online learning initiatives
from the Ministry of Education.



As more Indonesians come online and local businesses switch to cloud solutions,
demand for cloud services is growing exponentially. The private sector has
driven a significant part of this growth in cloud adoption. Grab, for instance,
has used cloud computing technology to rapidly accelerate the digitization of
SMEs by helping merchants with zero online presence get onboarded to the
platform, set up digital payment and delivery systems, and access business
analytics tools.

While the private sector has been the primary engine for cloud adoption in the
economy, there is a tremendous opportunity for digital transformation in the
public sector. The Covid-19 pandemic has helped governments realize the
potential of cloud solutions, especially as they are forced to deploy digital
services quickly to respond to citizens’ needs.

A recent survey by Alibaba Cloud found that 83 percent of executives in
Indonesia believe that cloud-based tools help them cope with their needs during
Covid-19, highlighting the uptick in
cloud service adoption in the country. 

To truly leverage the cloud to spur the growth of Indonesia’s digital economy,
it is imperative that the digital economy is empowered to embrace the cloud at
speed and scale easily. The government’s cloud-first policy must translate into
forward-looking regulations that promote, not hinder, cloud adoption. 



To ensure that the Indonesian digital economy reaps the full benefits that cloud
computing solutions have to offer, the government needs to address crucial
aspects of existing policies that may impede the ability of the digital economy
to adopt cloud solutions quickly, dampen innovation, and impact investments that
drive growth in this space.

A 2020 Ministerial Regulation on Private Electronic System Operators (MR 5),
2018 Government Regulation on E-Government (GR 95), and the Personal Data
Protection Bill all contain welcome improvements to the existing legal
framework. However, there are provisions within these that create an uncertain
and fragmented regulatory environment.

MR5, for instance, defines Electronic System Operators (ESOs) very broadly,
essentially encompassing most types of electronic system providers that may not
pose a risk to Indonesia’s national security, cause social and political unrest,
or personal data breaches.

Cloud service providers are equated with other ESOs, including the likes of
social media and search engines. That creates confusion over the responsibility
of the cloud, especially over personal data, and grants excessive access for law
enforcement and regulatory purposes. The potential inclusion of offshore
entities is also a concern, along with the onerous registration
processes involved, details of which are not clear.

The Personal Data Protection Bill (RUU PDP), which regulates personal data
processing in Indonesia, exempts data owners’ rights if their data are needed
for the purpose of national defense and security, law enforcement, state
administration, supervision of the financial or monetary sector, payment
systems, or financial system stability. These exemptions are concerning because
they provide the government with unfettered access to personal data.

In addition to RUU PDP, Indonesia also has restrictive data localization
policies that make the Internet less accessible and secure, more costly and
complicated, and less innovative. A recent study on cross-border data flows by
ITIF notes that over five years, Indonesia’s gross economic output dropped by
7.8 percent while experiencing lower productivity and an increase in prices due
to more stringent data restrictions from 2013-2018.

Specifically, for cloud service providers, data localization makes it impossible
for them to employ cybersecurity best practices, such as through “sharding,”
wherein data is spread over multiple data centers. This is particularly useful
to SMEs who cannot afford to implement a robust security program.

The National Data Centre initiative, part of the legal framework for
e-government services – GR 95, is an ambitious project intended to be a shared
infrastructure/managed service to ensure efficiency among the Central and Local
Governments. In preparation for the National Data Centre, which is targeted to
be completed in 2024, Kominfo has issued two circulars that seem to be
antithetical to supporting a holistic cloud computing environment for public
agencies.

First, Circular 5/2020 requires all public agencies to seek Kominfo’s clearance
before procuring data centers, including the ‘data center lease’ of cloud or
disaster recovery centers. A second Circular – 3/2021 on the Use of Cloud for
the Public Sector – indicated that cloud procurement does not require clearance.
This contradicts Circular 5/2020, as cloud services can be considered a ‘data
center lease’, and therefore would require Kominfo approval.

However, Kominfo’s stance for usage beyond 2021 is also unclear. Additionally,
Circular 3/2021 states that while ministries and agencies “must prioritize
integration into a National Data Centre, they may “use their own data centers
to increase the availability and capacity of cloud computing services.” This
implies that cloud is the second preferred option after the National Data
Centre, which contradicts the objective of leveraging cloud services
to strengthen the delivery of e-government services.

Unlocking the true potential of cloud to power Indonesia’s digital economy As
policymakers and regulators seek to reap the benefits of cloud technology while
managing its risks, it is
important to recognize that the legal and regulatory landscape for cloud is
highly complex and as broad as the scope of the technology itself, spanning
multiple industries and geographies.

Implementing a data classification policy that adheres to a risk-based data
classification framework is fundamental in helping governments adopt cloud
solutions. Recognizing the inherent security of the cloud architecture and the
evolving nature of this technology will be critical to responsibly unlock the
potential of cloud services for Indonesia’s public sector, businesses, and
society.

Consistent, cloud-friendly policies that recognize the unique model of cloud,
are aligned with industry best practices, and are harmonized with other
cloud-related policies can be achieved by working closely with industry to
develop regulatory frameworks that can effectively aid national efforts to
stimulate the country’s cloud ecosystem and strengthen trust and participation
by all stakeholders. Only then would the government be able to fully maximize
the potential of cloud computing to drive the growth of the country’s economy as
a whole.

Jeff Paine is managing director of Asia Internet Coalition, a trade association
co-founded by eBay, Google, Nokia, Skype, and Yahoo! in 2010 to promote public
policy issues about the Internet in the Asia Pacific region.



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