Indonesia’s Data Center Industry: Investment Outlook and Regulations

Posted by Written by Ayman Falak Medina Reading Time: 5 minutes

Indonesia’s data center industry offers promising investment prospects, particularly as the digital economy is expected to reach a gross merchandise value (GMV) of US$360 billion by 2030.

Foreign investment in Indonesia’s data center industry is picking pace due to the rapid growth of the country’s digital economy.

According to a report compiled by Google, Temasek, and Bain & Company, Indonesia’s digital economy had a GMV of US$77 billion in 2022. This is expected to increase to between US$220 and US$360 billion by 2030, making it the largest digital economy in Southeast Asia.

A report by Mordor Intelligence stated that Indonesia’s data center industry is expected to have a compound annual growth rate (CAGR) of 14 percent from US$2.06 billion in 2023 to US$3.98 billion in 2028. It is these growth prospects that encouraged multinational cloud service providers, such as Amazon Web Services, Google, Microsoft, and Alibaba, to establish data centers in the country; Indonesia already has over 90 data center providers.     

Further, the development of data centers in Indonesia is also part of the government’s efforts to accelerate digital transformation across all ministries, government agencies, and state-owned enterprises. Coupled with the huge domestic demand for digital services, Indonesia’s data center industry offers foreign investors an opportunity to profit from this relatively untapped sector.

Growth drivers for Indonesia’s data center market

Indonesia’s huge digital economy

An increasingly prosperous, tech-savvy consumer demographic is reshaping the way Indonesians consume, creating a wealth of opportunities for foreign investors.

The country’s digital economy is being facilitated by a vibrant technology sector, supported by one of the highest concentrations of startups in the world. There are currently over 2,100 startups in Indonesia, which is preceded only by the US, India, UK, and Canada. From this large number, several have reached unicorn status while one, the GoTo Group, is the country’s first decacorn.

Indonesia is Southeast Asia’s largest and fastest-growing internet economy – more than 200 million Indonesians had access to the internet in 2020. E-commerce is the driving force behind the transformation of Indonesia’s retail landscape, with the sector recording a GMV of US$59 billion in 202. This is estimated to increase to US$95 billion by 2025, making the sector one of the largest in the world.

Indonesia thus presents ample and scalable digital opportunities for foreign investors, particularly in e-commerce, fintech, and the Internet of Things (IoT).  

Government support

Tax incentives

The Indonesian government rolled out tax incentives under Minister of Finance Regulation 130 of 2020 which provides support in the form of tax reduction for 18 industries, including digital economy data processing, hosting, and its related activities. The period of the tax reduction and the amount is dependent on the minimum investment of the applicant.


Income tax reduction


100 billion rupiah (US$6.5 million) < 500 billion rupiah (US$32.8 million)

50 percent

5 years

500 billion rupiah (US$32.8 million) < 1 trillion rupiah (US$65 million)

100 percent

5 years

1 trillion rupiah (US$65 million) < 5 trillion rupiah (US$328 million)

7 years

5 trillion rupiah (US$328 million) < 15 trillion rupiah  (US$984 million)

10 years

15 trillion rupiah (US$984 million) < 30 trillion rupiah (US$1.9 billion)

15 years

≥ 30 trillion rupiah (US$1.9 billion)

20 years

Improving digital infrastructure

The government is also building four national data centers with tier-4 certification. Tier-4 data centers are built to offer the highest resistance against threats, including natural disasters, power outages, and equipment failures. Further, Tier 4 data centers deliver an uptime of 99.995 percent.

The first data center, located in West Java province, is expected to be completed in 2024. The remaining are in Batam Island, East Kalimantan province, and East Nusa Tenggara province. These data centers are aimed at accelerating the government’s efforts to digitalize all its services and systems by 2025.

Moreover, the government also completed the Palapa Ring project that provides 4G internet to more than 500 regencies across Indonesia. The project comprised more than 35,000km of undersea fiber-optic cables and over 21,000km of land cables, stretching from Indonesia’s most western town of Sabang to its most eastern, Maerauke—the distance between Sabang and Merauke is over 5,200km.

Through the Palapa Ring, the government can facilitate a network capacity of up to 100 Gbps in even the most outlying regions of the country.

The government hopes that the improved internet connectivity can significantly impact industries across the country and encourage economic development.

Schools that can now access high-speed internet can improve the digital literacy rate and produce engineers and other tech talents that can advance the Information and Communications Technology sector. Greater connectivity will also provide opportunities in the financial technology market and increase banking penetration – less than half the adult population owns a bank account.

Key regulation

Indonesia enacted its first data protection law in 2022, which has been closely based on the EU’s General Data Protection Regulations.

Under Indonesia’s new Personal Data Protection Law, local businesses as well as international companies will be liable for the way they handle the data of Indonesian consumers. The law imposes corporate fines of up to two percent of a company’s annual revenue for cases of data leaks, and individuals can also face a fine of up to 6 billion rupiah (US$400,000).

The number of cyberattacks against Indonesian citizens and institutions in the first quarter of 2022 alone was recorded at 11.8 million, an increase of 22 percent from the same period in 2021. Furthermore, according to a report by Interpol, Indonesia experienced more ransomware attacks than any other country in Southeast Asia.

Indonesia’s enticing prospects for data centers

With a moratorium in place on new data centers in Singapore due to a lack of space, many data center operators are exploring alternative operations in so-called ‘tier two’ countries like Indonesia and Malaysia. Indonesia has the potential to develop over 500,000 sq ft for data center usage by 2028. 

However, the country does pose risks for those looking to enter the data center sector. Bureaucratic inefficiencies make doing business expensive. Coupled with a lack of skilled labor, data center operators can find it difficult to compete with competitors operating in more developed regulations. Moreover, Indonesia is prone to natural disasters ranging from earthquakes to tsunamis to volcanic eruptions. 

Yet, Indonesia’s thriving technology sector, a digital economy expected to have a GMV of more than US$220 billion in 2030, a burgeoning startup ecosystem, and an increasingly tech-savvy consumer base of more than 215 million people, the country provides a fertile ground for investment opportunities in local data centers.

As such, partnerships between international investors and the local ecosystem will be crucial for Indonesia to fulfill its digital transformation.

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