The AI Opportunity.
As Southeast Asia’s largest economy and home to a young, tech-savvy population, the country is poised to reap significant benefits from AI. AI can help accelerate the digital transformation of Indonesia: making it easier for the country to address skills gaps, improve productivity and move up the value chain. In our research, we found that Indonesians were already some of the most enthusiastic adopters of AI.
What is AI?
Artificial Intelligence (AI) encompasses computational systems designed to mimic or surpass human cognitive capabilities, including perception, reasoning, learning, decision-making, and adapting autonomously to new contexts. In the last few years, AI systems have seen rapid improvements in capability, driven by better algorithms, faster parallel processing chips and training on ever greater amounts of data.
AI will accelerate Indonesia’s digital transformation.
Every few decades, a new general purpose technology has helped power the next stage of world economic development. In 2019, researchers at Google invented the transformer model, which in turn made it easier to scale AI models and kicked off the current wave of innovation in AI we are seeing. Across Southeast Asian countries like Indonesia, with a mobile-first and young population, we are already seeing high levels of adoption, setting the stage for significant economic impact in the next few years as AI applications reach maturity. However, in order to maximise its AI opportunity, Indonesia will need to close infrastructure as well as skilling gaps.
In Indonesia, we expect AI to increase average growth rates for GDP per capita by 14% over the next five years.
In this report, we look at:
How AI will address Indonesia’s most pressing growth challenges, and support key industries.
Potential challenges arising from AI, including Indonesians’ greatest concerns and how to develop AI responsibly.
Which bottlenecks policy makers should prioritise addressing to take advantage of the AI opportunity.
How AI could support digital transformation in the public sector.
AI could help catalyse the country to becoming an advanced economy.
AI is a General Purpose Technology. That means both that it is likely to have use cases across most sectors and types of jobs, and that it can help accelerate the process of growth itself. Over time, we expect that its impact will continue to expand. In this report, we look at all four types of growth and how they can help overcome Indonesia’s growth challenges:
Saving time for workers.
In the short term, AI can help workers in getting their day-to-day tasks done. Goldman Sachs has estimated that AI could create around another 7% of world GDP in economic value over a decade through boosting labour productivity. In Indonesia, we estimate that AI-boosted labour productivity could create Rp 1,800 trillion (US$110 billion) of value.
Enabling new kinds of products and services.
If you think back to the invention of the Internet, what made it really transformative wasn’t just how it boosted efficiency in roles that already existed—but how it enabled entirely new types of products and services, from Google to Amazon to eBay. As Google’s Chief Economist Fabien Curto Millet noted in a recent article1, AI is likely to enable latent markets: helping meet currently unmet needs, and enabling a new generation of start-up companies to find a niche.
Increasing business efficiency.
Over time, AI will enable businesses to redesign their business processes and how they work: letting them be more proactive, reduce waste and increase efficiency. This could multiply again the total value created by AI. Last year, for example, Access Partnership2 looked at a range of AI use cases and estimated that AI could create over Rp 2,600 trillion (US$160 billion) of economic benefits for businesses.
Accelerating growth and innovation.
In the same way the invention of the steam engine enabled mechanised mass production, powered faster, more efficient transport, and unlocked new avenues of economic growth during the Industrial Revolution, AI could act as a new catalyst for wider social and economic transformation. In emerging economies like Indonesia, AI could help boost the skills base and improve the effectiveness of economic institutions, helping support catch-up and leapfrog growth. In our research we found digital transformation could prove a powerful driver of catch-up growth, more than doubling the overall potential from AI for Indonesia.
AI’s exponential economic impact.
AI could help Indonesia reach the next stage of economic development.
For decades, Indonesia has been at risk of falling into a middle income trap. While the economy has been growing steadily, it has not yet reached a takeoff level that would let it fully catch up with other advanced economies. Despite its strong economic potential, Indonesia has been held back by three key challenges, each of which AI could help overcome.
By embracing digital transformation — fundamental for driving AI adoption — Indonesia could more than double its economic potential from AI, serving as a powerful driver of catch-up growth.
Challenge.
AI Solution.
Workforce readiness
With a Human Capital Index of just 0.54, Indonesia lags behind regional leaders like Singapore (0.88). Educational outcomes in reading, math, and science remain below global averages.3
AI can help boost labour productivity & worker skills.
In our modelling, we found that the potential skills gains from AI could boost average worker productivity by over Rp 44 million (US$2,700) a year.
Sectoral imbalance
A large proportion of Indonesia’s workforce remains in the informal agricultural sector, while the share of the economy taken up by high-value manufacturing has fallen.
AI can help enable the next generation of Indonesian start-ups.
Indonesian unicorns like GoTo and Tokopedia, built on earlier digital revolutions, have already announced significant investments in AI.4
Inefficient institutions & regulatory bottlenecks
Burdensome regulations, barriers to competition, and lack of transparency have slowed progress in both the public and private sectors.
AI can help improve the effectiveness & transparency of institutions in Indonesia.
In the last section of this report, we explore in depth the potential of AI for the public sector in Indonesia.
Indonesia has the world’s second highest number of AI tool users.
AI is already a day-to-day reality for a majority of Indonesia’s citizens. Over half of Indonesians (63%) told us they now use an AI tool at least weekly in their personal lives, and over two-thirds do so at work (71%). Looking only at mobile platforms, data from SensorTower suggests that Indonesia has the world’s second highest number of AI tool users, behind only India.
Over the next five years, we expect a further 18% of workers in Indonesia to adopt AI for work.
Of the workers who use AI tools:
What Indonesians say about their own AI use.
Can you think of any ways you would use AI in your [personal/work] life?
Responses are edited for grammar and spelling, but otherwise unchanged. All responses taken from a Public Fist survey of Singaporean adults
How Google is contributing to Indonesia.
For over a decade, Google has been investing in AI to advance its mission to organise the world’s information and make it universally accessible and useful. From key language understanding techniques, to the Transformer architecture underlying today’s generative AI revolution, Google researchers have been behind a significant number of defining AI breakthroughs.
Today, Google is expanding access to AI for billions in Asia-Pacific through products like Maps, Search, Android, Gemini and NotebookLM while helping businesses be more productive and connect with new customers.
This value adds up. In total, we estimate Google’s products and services supported at least IDR 88 trillion (US$5.4 billion) for businesses in economic activity in Indonesia in 2024.
Google acts as a crucial economic catalyst: connecting businesses with customers worldwide, enhancing business productivity and giving Indonesian creators and developers new platforms through which they can reach the world.
From traditional to emerging industries, AI could help boost the productivity of businesses.
Combining the potential impact of AI on labour productivity with Indonesia’s most economically important sectors, we find the five sectors with the biggest AI potential are retail and wholesale, manufacturing, finance and insurance, mining and quarry and the Information and Communication Technology (ICT) sector. AI could be a significant accelerant to Indonesia’s already strong online retail sector and help significantly drive up productivity in manufacturing – but that doesn’t mean it can’t also help in other sectors, such as agriculture.
Relative AI potential for Indonesian sectors.
AI use cases in Indonesia by industry.
Use Cases:
Agriculture.
AI could help enable precision farming, earlier detection of pests, and smarter use of water. Pilot programs on Java and Sumatra show AI-powered smart farming can increase crop productivity by around 20%.
Manufacturing.
AI could help firms in the manufacturing sector optimise their supply chain, reduce downtime, and minimise defects.
Online retail & gig economy.
AI has many uses in the retail sector and gig economy, including helping with demand forecasting, dynamic pricing, job matching, personalised advertising and customer support.
Potential Impact:
Rp 89 trillion
We estimate that AI could help boost the productivity of the agricultural sector in Indonesia by Rp 89 trillion (US$5.5 billion), or around 3% of the total economic value of the sector.
Rp 570 trillion
In total, we estimate that AI could help grow the manufacturing sector in Indonesia by Rp 570 trillion (US$35 billion).
Rp 230 trillion
In total, we estimate that AI could help boost the productivity of companies in the online retail and gig economy sector in Indonesia by Rp 230 trillion (US$14 billion), or by around 16%.