Microsoft Eager to Build Data Centers in Indonesia

• Microsoft Corporation has shown interest in building data centers in Indonesia.
• The company joins a line of major multinational tech enterprises, such as NTT and Softbank who have invested in data centers in the country.
• The digital economy is identified as a priority sector by the Indonesian government for the country’s economic growth prospects.
• To support this sector, the government is investing in major IT infrastructure projects and improving regulatory standards.

Microsoft Corporation, the multinational technology company, has shown interest in building data centers in Indonesia, according to the country’s President Joko Widodo, after he attended the Digital Economy Summit 2020 on February 28.

The event coincided with the company celebrating 25 years of operations in Indonesia, with CEO Satya Nadella also present at the function. The President promised the company that his government would issue new regulations enabling them to fast-track their investments in data centers. It remains to be seen what these regulation(s) would be or the size of the potential investment.

Data centers can be a virtual setup or physical infrastructure used by businesses to house servers, networked computers, and networking systems for the company’s information and technology (IT) needs. This typically involves collecting, storing, processing, managing, and distributing large amounts of data. Given Indonesia’s digital economy is predicted to have a gross market value of US$133 billion by 2025,  the country offers a promising market for the development of data centers.

Indonesia’s IT infrastructure growth

With more than 170 million internet users in the country, the Indonesian government has prioritized the digital economy as an important sector for economic growth.

As such, the country has been courting foreign investors for a variety of digital infrastructure projects.

Softbank will invest some US$2 billion to ride-sharing app Grab to upgrade digital infrastructure in Indonesia and Google has said it will open its first data center in the country in 2020.

In September 2019, Japanese telecommunication company NTT announced it would invest US$500 million to build a data center in Indonesia; this would be the third it has built in the country. The data center would cover more than 18,000 square meters and accommodate 45 megawatts of critical load.

4G priority project completed

A crucial component for the continued growth of the ICT sector has been the completion of the Palapa Ring Project in late 2019.  The project will provide 4G internet access to more than 500 regencies in Indonesia, utilizing more than 21,000km (13,000 miles) of land cables at a cost of US$1.5 billion. Internet penetration across the vast archipelago was only 64 percent in 2018, below that of its ASEAN peers Singapore (84 percent), Brunei (94 percent), Malaysia (80 percent), and Vietnam (75 percent). 

A newly established regulatory framework for e-commerce

An important regulation GR 80, 2019 on e-commerce was introduced in November 2019, which provides governance on internet-based and electronic trading activities as well as ensuring tax compliance in the industry.

Foreign e-commerce businesses with a ‘significant’ economic presence in the country must have a permanent establishment in the country and must store their data (subscribers, payments, complaints, contracts, shipments etc.) in local data centers.

The legal framework laid out in GR 80,2019is the steppingstone for upcoming regulations aimed at encouraging foreign investments into Indonesia’s lucrative ICT sector.

The government hopes this sector can propel its Making Indonesia 4.0 roadmap, which seeks to move the economy away from its reliance on natural resources and into high-tech export industries.  

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