Indonesia’s technology narrative has long been about scale: from mobile payments to ride-hailing, from Southeast Asia’s largest economy to a growing digital consumer base. Yet, when the conversation shifts to deep technology, think AI research, advanced semiconductors, biotech, next-gen manufacturing, the country lags many peers. The underlying culprit: investment in research and development (R&D) remains strikingly low. According to the World Bank’s development indicators, Indonesia’s total R&D expenditure as a share of GDP was just 0.28 % in 2020. By contrast, countries like South Korea consistently invest around 4–6% of GDP in R&D; Japan and the United States also invest several percentage points each.

With limited resources to build out massive research labs or global-scale innovation ecosystems, Indonesia must look to smarter policy tools, and one of the most promising is the regulatory or innovation sandbox. A sandbox creates a controlled environment where firms can experiment with new technologies, business models or services under regulatory supervision, before full rollout. For a country constrained by budget, such an approach can be a lever to foster digital experimentation, accelerate commercialization and reduce wasted cost. The question: can Indonesia make sandboxes work, not just for fintech, but for deep tech?

Why an Innovation Sandbox Matters for Indonesia

Because Indonesia’s R&D intensity is so low, the challenge is two-fold: first, insufficient resources to fund high-risk, long-term research; second, weak linkages between experimentation, market adoption and scaling. In this context, a sandbox offers three advantages:

1. Lowering regulatory friction: Startups and firms hesitate when regulations are unclear or compliance costs are high. A sandbox means regulatory waivers or special conditions during the trial phase. This is crucial when each rupiah counts and firms cannot afford drawn-out legal battles. The Organisation for Economic Co‑Operation and Development (OECD) defines regulatory sandboxes as tools where businesses can test “innovative products or services that challenge existing legal frameworks” under supervision.
2. Enabling real-world testing at lower cost: Instead of building full-scale infrastructure upfront (which requires heavy capital), firms can test their ideas in a sandbox, gather data, validate business models, and then scale, or pivot. For Indonesia, where R&D budgets are tight, this allows a “fail fast/learn quickly” approach rather than high-stakes universal roll-outs.
3. Signalling commitment to innovation: While budgetary constraints persist, policy innovation sends a signal to investors, startups and global partners that Indonesia is open for advanced experimentation. That may attract private capital, talent, and international collaboration even when public R&D funds are limited.

In short: with limited budget, Indonesia cannot simply copy the investment model of South Korea or Japan, but it can build a smarter, leaner policy stack that stretches every innovation rupiah further.

Global Sandbox Evidence and Implications for Indonesia

There is growing empirical and policy-literature support for sandboxes. A working paper from the Bank for International Settlements (BIS) found that fintech firms that entered the UK’s sandbox raised more external capital and had higher survival rates than comparable firms. The OECD’s 2023 report on AI regulatory sandboxes highlights that sandboxes are becoming mainstream across sectors, not just fintech but AI, health tech, agritech—often in jurisdictions with high innovation aspirations.

Key design features and lessons derived from global practice include:

• Clear entry criteria, defined pilot objectives, time-limited phases, and regulatory oversight to manage risk (as the UK Financial Conduct Authority’s sandbox emphasised).
• Non-monetary support, data access, compute infrastructure, mentorship and investor linkages, often matter as much as regulatory relief. For example, Singapore’s sandbox ecosystem includes market access, data-sharing, and partnership facilitation.
• Clear exit/scale pathways: pilot outcomes must lead to commercialization, regulatory roll-outs or procurement opportunities; otherwise, sandboxes risk becoming “experimentation graveyards.” The OECD stresses the need for regulatory learning and adaptation, not just business trials.

For Indonesia, these lessons imply three practical imperatives:

• Sector-selective sandboxing: Start in domains where Indonesia has comparative advantage or pressing public need (e.g., agritech, health-tech, renewable energy AI) rather than trying to cover “all tech.”
• Match regulatory relief with infrastructure access: Since Indonesia lacks deep research labs, the government or regulators could negotiate partnerships with cloud providers, universities and global labs to give startups access to compute/data under sandbox terms.
• Embed commercialization and scaling: Link sandbox pilots to procurement by state-owned enterprises, government programmes, or public-private partnerships so that pilot results don’t stall.

Indonesia’s Current Position & Hurdles

Despite strong political rhetoric around digital transformation, Indonesia’s innovation metrics remain weak. According to the World Intellectual Property Organization’s Global Innovation Index 2024, Indonesia’s R&D spending at 0.28 % of GDP placed it among the lowest in the ranking. The country’s average R&D intensity from 2000–2020 was around 0.17 %. With global average R&D intensity around 1.18 % (based on TheGlobalEconomy data) and innovation leaders investing well over 2–3% of GDP, Indonesia’s gap is striking.

Key execution challenges include:

• Inter-agency coordination and bureaucracy: Sandboxes often require regulators, industry, universities and research institutes to collaborate. Without a clear institutional home or lead agency, pilots can stall. The OECD identifies institutional “regulatory learning” as a major challenge.
• Funding for supporting services: While sandboxes reduce regulatory cost, they still require resources – testbeds, data sets, mentorship, compute time. Indonesia’s limited R&D budget means these supporting services must be efficiently sourced or subsidised.
• Path to scale: Without credible pathways into commercialization, sandboxes can become one-off tests. Indonesia has many pilot programmes, yet turning them into scaled businesses remains difficult unless the market or government procurement pathway is clear.
• Talent and infrastructure gaps: Sandboxes reduce one barrier, but if firms still lack access to advanced labs, datasets, talent with PhDs or post-docs, and links to global research, the sandbox alone won’t bridge the deep-tech divide.

A Practical Agenda for Indonesia

To harness sandboxes effectively, Indonesia’s policy should incorporate the following steps:

1. Launch targeted pilot sandboxes in high-value sectors: Choose areas with strong public interest and where regulatory ambiguity is high: e.g., AI in agribusiness (precision farming, supply-chain traceability), health AI (telemedicine diagnostics), or clean-tech manufacturing. This ensures relevance and urgency.
2. Create a national “experiment stack”: Beyond regulatory relief, provide a bundled package: data access (possibly via open government data), cloud/compute credits (partner with global cloud providers), mentorship/investor link-ups, and procurement pathways. This helps compensate for limited public R&D capital.
3. Establish simple governance and one-stop entry point: To mitigate bureaucracy, create a single portal, perhaps via the Coordinating Ministry for Economic Affairs of the Republic of Indonesia or a dedicated Innovation Authority, where firms apply, regulators coordinate, and pilot oversight is streamlined.
4. Define measurable metrics and scale-up triggers: Use KPIs such as number of participants, amount of follow-on investment, conversion rate of pilot to commercial product, number of jobs created, and knowledge spill-overs (patents, publications). Reference studies (e.g., INDEF found 1% increase in R&D linked to ~16% GDP growth in some ASEAN developing countries) to justify measurement.
5. Secure seed funding for critical infrastructure: While the sandbox doesn’t need to replicate full research labs, some seed funding (public or philanthropic) is necessary for shared infrastructure, data sandboxes, compute clusters, testbeds. Partnering with foreign technology firms (e.g., cloud providers investing in Indonesia) can amortise cost. For example, Microsoft announced a US$1.7 billion investment in Indonesia’s AI/cloud infrastructure in 2024, signalling global interest.

From Startup Hype to Research-Driven Innovation Economy

Indonesia’s low R&D spending, at just 0.28 % of GDP, underscores the structural challenge the nation faces in aspiring to be a deep-tech hub. But deep tech is not solely about sprawling labs and massive budgets; it is also about experimentation, iteration, and enabling policy. For Indonesia, the innovation sandbox offers a viable, pragmatic route to unlock experimentation amidst fiscal constraints.

By designing sandboxes with clear goals, bundled support services, scaled pipelines and governance simplicity, Indonesia can begin to pivot from a “consumer of global tech” to a “creator of global tech.” The transition will not be immediate, but by leveraging policy innovation today, Indonesia lays the foundation for the research-driven economy of tomorrow.

Sources

• World Bank - Research and development expenditure (% of GDP), Indonesia.
• The Global Economy - “Indonesia: Research and development expenditure, percent of GDP.”
• OECD - “Regulatory Sandboxes in Artificial Intelligence” (2023).
• OECD - Regulatory Sandbox Toolkit.
• INDEF Working Paper - “Selected Cases of ASEAN 5 Plus 4 Asia Major Countries”.
• Lowy Institute - “R&D spending (% of GDP) – Indonesia”.
• Reuters - Microsoft invests US$1.7 billion in AI/cloud infrastructure in Indonesia.