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12 Jan 2023

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Indonesia Data Center Industry Poised for Growth

A generally optimistic report from The Tech Capital about data centers in Indonesia focuses on a growing “Internet economy” throughout Southeast Asia. The report says this economy across the region is valued at more than $100 billion at the moment, and destined to grow to $300 billion by 2025 – this would reflect annual growth of 44.2% per per year over the next three years.

Southeast Asia's overall economy is approaching $3.5 trillion, so this Internet economy figure represents only 3% of regional GDP overall. Indirect benefits are no doubt at least a magnitude higher.

Indonesia's data center industry is centered primarily within the Jakarta megalopolis and its more than 30 million people. The government's program to build a new capital in Eastern Kalimantan province on the island of Borneo has been estimated at costing $36 billion and is to be completed in 2024.

Focus On The New Capital
The focus on the new capital, to be called Nusantara, is the 800-pound gorilla lurking in the future of Indonesia's Digital Infrastructure. Indonesia's overall data center infrastructure “is regarded as one of the world's most primitive,” according to The Tech Capital article. IDCA research has found Indonesia's server and data center environment to be underdeveloped, trailing the Southeast Asian region overall. But it is growing rapidly, with a server density of 1,878 servers per million population that has risen 40% in over the past two years.

Indonesia also benefits from a growing submarine cable network, facilitated by relative proximity to Singapore and Australia. Indonesia is linked via 12 submarine cable systems to Singapore, and three cable systems to Perth, with at least two more new cable system planned. A total of thirteen submarine cable systems currently serve the country. Indonesia's cable connectivity is dispersed in 217 connections throughout its geography.

Cloud vendors include industry leaders AWS, Azure, Google Cloud, and Alibaba. Additionally, Singapore's leading operator ST Telemedia announced in May 2021 it is expanding into Indonesia, with its first hyperscale facility to be developed in eastern Jakarta. A wide variety of other companies, domestic and foreign, participate in Indonesia's current data center industry.

Notes to Investors
Investors in technology projects are now allowed to own 100% of their investments in Indonesia, per unspoken terms of a liberalized Telecommunications, Media, and Technology (TMT) policy announced in March 2021. This is a change from a previous limit of 67% for foreign investments.

Investors are permitted to participate only in projects of approximately US$700,000 or more; the minimum is waived in the 19 special economic zones (SEZs) located in all regions of the country. Increasing the investment to 100 billion rupiah brings 10-year corporate tax holidays and other benefits.

As today's The Tech Capital article and our ongoing research implies, Indonesia presents a classic half-empty/half-full situation. Given the country's status as having the world's fourth-largest population (with 82% of that of the US), and its membership as a G20 economic power, it should look at least half-full to Digital Infrastructure investors and operators.

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