Eight pillars for Indonesia to emerge stronger from the crisis

16 November 2020 Consultancy.asia

Indonesia could use Covid-19 disruption as an opportunity to revamp its entire economy with a focus on digital. According to McKinsey & Company analysis, this could position the country stronger than ever before in the new normal.

The global pandemic has far from spared Indonesia. The impact on health has been severe, with nearly 150,000 reported Covid-19 cases in the country. Unraveling in the background is an economic squeeze. Already in April, Indonesia revised its 2020 GDP estimates from more than 5% to just over 2%. Of course, many economies including Indonesia have spent the remainder of the year reopening as much as possible.

At the same time, the cogs and wheels remain stuck if consumer confidence is low. The good news for Indonesia, according to McKinsey & Company researchers, is that consumer confidence in the country’s economic recovery is among the highest in the world. In fact, over half of Indonesians optimistically expect an economic rebound within three months at the very latest.

Indonesian confidence in economic recovery among the highest in the world

For the rest, it might take six months, or a year at most, while only 8% of Indonesian consumers expect a prolonged economic regression over the next few years. So the confidence is there, marking a strong foundation to build an economic response. Many businesses and economies are using the rebuilding process as a way to weed out any inefficiencies or structural issues, so as to emerge stronger than before. 

With its strong consumer sentiment, Indonesia has a real opportunity to do the same. According to McKinsey, this would be more than just a few quick fixes, it would mean comprehensive reform across healthcare, regulation, tech & innovation, energy & environment, supply chains, work habits, and society. 

“What’s next for Indonesia? Besides thinking about economic recovery and improving resiliency, we believe that the new normal era brought new potentials for the future,” said McKinsey Indonesia Senior Partner Khoon Tee Tan at a press conference. Digital will have a key role to play here.

A clear shift from offline to online

“From the technology and innovation perspective, consumers are rapidly moving into online platforms while businesses are also using online applications for work such as Zoom,” he added. If digitalisation was a reality before the pandemic, it has been thrown into the spotlight now, with most businesses turning to tech as a means of survival.

Customer expectations are only expected to grow more demanding in the new normal, and a strong digital offering will be key to competitiveness. Be it an online sales channel for retailers, or a payments tool at a FinTech or bank, digitalisation will have immense economic value to contribute over the next few years.

Other opportunities

While tech & innovation reform will have far-reaching influence, there are other opportunities to rebuild as well. The pandemic exposed gaps in the healthcare infrastructure, for instance, which needs addressing via better investments, regulation and planning. Regulatory challenges are also imminent in other areas, as businesses and consumers adapt to new norms.

Trends and opportunities in the new normal

A natural shift as a result of the pandemic has been to more environmentally friendly practices. Travel and commutes all but halted during lockdown, and have been slow to resume as virtual working remains a much-preferred option. The lull might just give the electric vehicle market time to position itself strongly when activity resumes.

Another opportunity lies in supply chain restructuring. Restrictions on transport disrupted supply chains across the world, causing many to consider either localizing their supply chain or at least moving it away from an increasingly risky Chinese market. Other Asian economies – Indonesia among them – are well positioned to capitalise on this exodus.

Outside of these trends, there is a range of social, behavioural and psychological changes to consider. According to McKinsey, taking all these factors into consideration could help Indonesia build economic resilience, accelerate growth, entice more tourism and enable far-reaching change in the economy.