Indonesia’s Innovation Paradox

Indonesia has one of the fastest-growing digital economies in Southeast Asia, yet most of its innovation still sits at the surface level, platforms that connect, match, and distribute rather than invent, engineer, and produce. From e-commerce to fintech, many startups thrive on connectivity and convenience. But the country still lags behind when it comes to deep-tech innovation, which requires heavy investment in research and development (R&D).

This innovation gap is not due to lack of talent or ambition, but because of how little the country spends on R&D. Indonesia allocates only around 0.28% of its GDP for R&D activities, among the lowest in the world. By comparison, South Korea and Japan spend about 4–5% of GDP on research, while China allocates around 2.4%. Even neighboring Malaysia spends close to 1%. At this level, Indonesia’s R&D system struggles to fuel high-value innovation or translate academic research into industry-ready technology. The country’s challenge, then, is not simply to create more startups, but to deepen the foundation of innovation itself.

The Shallow Tech Cycle

Most of Indonesia’s digital ecosystem has focused on solving logistical or transactional inefficiencies, connecting farmers directly with consumers, linking merchants with couriers, or helping workers access digital payments. While these solutions have improved inclusion and productivity, they remain within what innovation experts call the “shallow tech” cycle: low research intensity, fast market adoption, but limited intellectual property creation.

Faye Wongso, CEO and Co-Founder of Kumpul, argues that this cycle traps Indonesia in a low-complexity loop. She believes that with so little R&D spending, the nation’s innovation output remains stuck at “tech 1.0”, connecting instead of creating. For Wongso, deep-tech innovation, such as AI-driven agriculture, early disease detection tools, and industrial process automation, will only be possible when R&D becomes a national priority.

She points out that Indonesia’s R&D allocation has even slipped from 0.28% to 0.25% of the national budget, according to recent figures shared with her by Bappenas. With such minimal effort, she warns, Indonesia risks remaining dependent on imported technologies while missing the next wave of global innovation.

Why Indonesia Needs Its Own R&D Engine

In many developed and fast-growing economies, R&D is the backbone of competitiveness. According to UNESCO and OECD data, global leaders like South Korea and Israel invest up to 5% of their GDP in R&D. Even China, once a low-cost manufacturing hub, now channels over US$600 billion annually into research, fueling its rapid climb into deep-tech sectors such as semiconductors, AI, and biotech.

Former Minister of Communication and Information Rudiantara believes Indonesia’s current innovation model remains overly reliant on external technology. He highlights that most digital advancements in the country are adaptations of ideas born elsewhere, not locally developed technologies. In his view, Indonesia should first focus on maximizing the use of available global technology while gradually building domestic capacity through partnerships and talent development.

That gradual shift, he explains, must start with investing in people. Indonesia’s pool of research talent remains extremely limited — only 0.2 researchers per 1,000 population, one of the lowest ratios in Asia. Fewer than 10% of these researchers hold advanced degrees in fields critical to R&D, such as engineering, biotechnology, and computer science. Without a steady pipeline of skilled researchers and funding, the transition to deep tech will remain aspirational.

A Mindset Shift from Consumption to Creation

The private sector also plays a vital role in changing this trajectory. Grace Tahir, Board Member of Mayapada Hospital, emphasizes the need for Indonesia to move from being a technology consumer to a technology creator. She notes that while Indonesians are among the world’s most active users of social media and digital platforms, domestic innovation capacity remains low.

For her, this is not just a funding issue but a cultural one. Many companies prefer short-term efficiency improvements over long-term R&D investments. Tahir believes Indonesia’s young, tech-savvy population offers a golden opportunity to reverse that mindset. With the right incentives and policies, young innovators could drive breakthroughs in healthtech, agritech, and renewable energy, innovations that serve both domestic needs and export potential.

Building the Bridge: Collaboration as the Missing Link

Bridging this innovation gap requires more than government spending. It demands a strong ecosystem where universities, corporations, investors, and startups collaborate. This is where initiatives like Kumpul’s Connect for Change (C4C) Summit 2025 come into play.

The Summit serves as a platform connecting ecosystem enablers, from government agencies and investors to startups and academia, to co-create solutions for Southeast Asia’s “missing middle.” By activating local ecosystem builders, C4C aims to link smaller regional innovation hubs with larger markets and global partners.

Wongso sees events like C4C as a bridge between Indonesia and other innovation ecosystems. Through data-driven collaboration and cross-border partnerships, local entrepreneurs can learn, adapt, and apply best practices from more advanced markets while strengthening their own R&D ecosystem.

What Indonesia Must Do Next

To break out of the shallow tech cycle and unlock its deep-tech potential, Indonesia needs a structured, long-term approach. Key priorities include:

1. Raise R&D Spending - Increase the national allocation from 0.25% to at least 1% of the APBN within five years, and create fiscal incentives for private-sector R&D.
2. Develop a National Deep-Tech Strategy - Align R&D priorities with key industries such as healthtech, agritech, energy, and AI. Support translational research that connects universities with industry needs.
3. Empower Local Ecosystems - Build regional innovation hubs outside Jakarta to activate “local heroes” who understand local business challenges and can channel resources effectively.
4. Invest in Research Talent - Expand scholarships, exchange programs, and joint research projects to grow Indonesia’s pool of qualified researchers and scientists.
5. Foster International Collaboration - Encourage joint innovation initiatives with ASEAN partners and global research institutions, ensuring knowledge transfer and co-creation.

Indonesia’s digital economy has proven it can scale, but scaling is not the same as innovating. With only 0.28% of its state budget allocated to research and development, the country’s innovation engine remains underpowered. Both public and private sectors must recognize that without robust R&D, Indonesia’s growth will plateau at shallow tech.

Leaders like Faye Wongso, Rudiantara, and Grace Tahir represent a new wave of voices calling for structural change, a move from consumption to creation, from imitation to invention. If Indonesia commits to building its R&D foundation now, it can transform from a fast adopter to a true innovator, shaping technologies that serve not only its 270 million citizens but the entire region.