Indonesia’s growth rate has been slowing in recent years. In the second quarter, GDP grew 4.7% over the same quarter of the previous year, the smallest gain since 2009. Part of that slowdown is due to global economic weakness that has hurt commodity exports. However, that only points out the need to find another, more sustainable engine for growth for the Indonesian economy.
President Joko Widodo, in office since October 2014, seeks to transform Indonesia from an economy that imports manufacturing products such as telecommunications equipment into one that produces them. Indeed, his administration’s emphasis on production has included domestic content rules for smartphones using advanced networks, as a way of allowing Indonesia to participate in the global mobile revolution as producer rather than a consumer.
In this paper we take another perspective on Indonesia’s economy. Rather than focusing on hardware, we examine the potential of the production of mobile applications (“apps”) as a source of growth and jobs for Indonesia. The App Economy, as it is sometimes called, is the whole ecosystem of jobs, companies, and in- come connected with the production and distribution of mobile apps.
Many people mistakenly think of mobile apps as simply games or chat programs or social media. Games and social media are important—but in reality, they are only a small part of the App Economy. Apps are used by major multinationals, banks, media companies, retailers, and governments. As of July 2015, there were 1.6 million apps available for Android, and another 1.5 million available on Apple’s App Store.
App development is one route to economic success for a country such as Indonesia that has a large internal market. Today, many countries try to develop their manufacturing sector as a means to growth, emulating China and Korea. However, such a strategy necessarily requires a large investment in physical capital, not just for the factories but for the transportation infrastructure and power grid as well. Building and improving highways, rail lines, and ports is expensive and time consuming.
By comparison, mobile app development requires far less physical capital, and has the potential for paying off much more quickly. Moreover, going forward, mobile apps could be a major source of value-added and growth. What’s required is a skilled workforce and good telecom connections, both domestically and internationally. But once these are in place, a country such as Indonesia can become part of the global App Economy, creating good jobs and growth at home.
