Indonesia Data Centre Boom

Understanding How Indonesia Will Benefit from the ASEAN Data Centre Boom

  • Total data centre capacity in Indonesia reached 514MW last year
  • Indonesia is projected to have the largest digital economy in Southeast Asia by 2030
  • Foreign businesses are being offered several government-backed incentives to invest in Indonesia’s data centre sector

Data centres are big business across ASEAN. Skyrocketing mobile usage, rapid digital transformations, and a growing need for space have seen the sector take off. However, one country in the region seems to be flying under the radar. Asian Insiders’ partner in Indonesia, Primadi Soerjosoemanto, takes a closer look at why Indonesia is primed for a data centre boom.

Demand for data centres in Indonesia will not slow down anytime soon. The rise of the digital economy, alongside government-wide digitisation efforts, means the need for storage will continue to grow well into the foreseeable future.

First and foremost, the “Making Indonesia 4.0” strategy is changing how business is conducted. This plan aims to pivot the economy toward digital technologies that align with the younger population’s evolving online-centric habits. That, of course, leads to more data usage.

Estimates suggest Indonesia could see its digital economy Gross Merchandise Value reach upwards of US$360 billion by 2030. That would make it the largest digital economy in Southeast Asia.

The sheer size of the Indonesian market from a usage standpoint is often overlooked. There are 353.8 million active cellular mobile connections, more than Malaysia, Vietnam, and Thailand combined. The county also boasts more than 200 million internet users with this total expected to grow as internet penetration improves.

This is only one half of the equation, however. The government has been eager to speed up digital transformation across all ministries, government agencies, and state-owned enterprises. It remains to be seen if the process can be completed by the set target of 2025, but change is happening.

A significant increase in demand for data services from both the public and private sectors is why these are the early stages of an Indonesia data centre boom. Without more storage, the country will be unable to meet present targets.

Data centres remain an industry of opportunity in Indonesia. The government is offering incentives to foreign businesses opening new facilities as it looks to avoid a storage crunch in the future. According to the Indonesia Investment Authority, the country had a total data centre storage capacity of 514MW at the end of 2023.

A few major multinational cloud service providers, including Amazon Web Services, Google, Microsoft, and Alibaba, have already entered the market, but ample space remains for more firms.

Benefits of investing in the Indonesia data centre boom

Nearly every Southeast Asian country is offering incentives for foreign businesses to invest in the data centre sector. Indonesia is no different in that regard. Interestingly, it does have a clear framework in place.

As part of the previously mentioned “Making Indonesia 4.0” strategy, the Indonesian government rolled out a range of tax and non-tax incentives specifically focusing on the data centre industry.

Notable incentives:

  • Tax holiday of up to 10 years
  • Exemption from withholding tax on dividends
  • Easier process for repatriating profits
  • Foreign ownership restrictions lessened
  • Ability for foreign companies to own land for data centre projects

These are a massive boost for the sector and make the country as competitive as any in the region. While a lot of regional activity has focused on Malaysia and, to a lesser extent, Thailand, the Indonesian data centre market provides similar opportunities and benefits.

There are a few reasons for this. Connectivity is a big one as Indonesia has 59 international submarine cables, more than both Singapore and Malaysia. Energy prices in the country remain low, providing operators with another key benefit.

Where to invest?

When it is time to talk about where to invest, most attention turns to Jakarta and Java as a whole, and for good reason. In addition to being home to more than half of Indonesia’s population, this region has seen massive data centre growth over the past five years.

At the start of the decade, Jakarta had approximately 40 megawatts of storage capacity. Today, that amount is roughly 200 megawatts, with some projections state the current total could triple by 2028.

This is not the only location in Indonesia where data centres can flourish. Some have pointed to Batam Island as a potential hot spot given its close proximity to Singapore, a country that continues to search for further storage options beyond its borders.

In 2019, the Singaporean government enacted a moratorium on power and land for data centres. New activity flocked to Malaysia in the aftermath of that decision, with nearby Johor becoming a hub. While the moratorium was lifted in 2022, it is still possible for Indonesia to benefit from Singapore’s space and power constraints.

Nongsa, on the island’s eastern side, was designated a Special Economic Zone for digital economy and tourism in 2021. The goal was to establish a digital bridge between Singapore and Indonesia with data centres playing a crucial role in these efforts. Importantly, connectivity is not an issue as eight submarine cables operate between Batam and Singapore.

Batam has a few notable advantages over Johor. The cost of electricity during peak periods is cheaper, and more renewable energy projects are planned to come online in the coming years. What’s more, domestic opportunities in Indonesia are potentially greater than found in Malaysia given the former’s larger population, favourable age demographics, and digital demands.

Elsewhere, Surabaya in East Java and Bandung in West Java are a few of the other locations in the country with rising demand for data centres.

Challenges in the sector

Those considering investing in the Indonesia data centre sector should be aware of the existing challenges. The first is staying compliant with the relatively new Personal Data Protection Law. Navigating these regulations requires a certain amount of local knowledge.

Second, there is a lack of talent. The country has a wide-ranging skills deficit, and the data centre sector is no different. Some work has started on improving education and training programs, but it takes time for the impact of these to be felt. Competition for competent employees is fierce and may not improve in the short term.

Finally, a lack of renewable energy in Indonesia means those entering the market may struggle to source clean power. A potential workaround is to supply it yourself. The government allows landowners to build power plants to support their own usage, making it possible to install an on-site solar setup. Taking this route also reduces reliance on the country’s occasionally unreliable electricity supply.

An example of this can be found at Amazon, which signed an agreement with the Indonesian State Electricity Company to develop solar projects that help power its data centres.

Final thoughts on the Indonesia data centre boom

These are still the early days of the Indonesia data centre boom meaning companies have time to enter the market. Just how much time remains to be seen. The industry is becoming more competitive on a seemingly daily basis. Waiting too long could see opportunities slip away.

This is particularly true for overseas firms. The current incentives made available by the Indonesian government will not be on offer forever. While no changes are expected in the short term, acting quickly is the only way to secure them.

To know more about current data storage opportunities in Indonesia, please get in touch with Primadi Soerjosoemanto, Indonesia Partner: primadi.ws(at)asianinsiders.com or Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com.

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