Indonesia, Southeast Asia’s largest digital economy by population, is pushing to become a regional tech powerhouse. Under President Prabowo’s administration, the government has pledged support for the development of the data centre sector to accelerate digital transformation and drive a technology-based economy. However, despite the clear intent and significant market potential, Indonesia continues to trail its neighbours, particularly Malaysia and Singapore, in both capacity and investment attraction.

Infrastructure gap

As of the first half of 2024, Indonesia’s total data centre infrastructure capacity stood at 202 megawatts (MW). In contrast, Singapore had reached 973 MW, nearly five times more. In terms of facility count, Indonesia hosts 430 data centres, compared to 532 in Malaysia and 717 in Singapore. These figures reveal not just a gap, but a persistent lag in infrastructure development that could hinder Indonesia’s ability to compete in the digital economy.

Challenges hindering growth

Despite its vast market potential and digital ambitions, Indonesia’s data centre industry continues to face significant structural hurdles. These challenges have slowed its ability to compete with regional leaders - and neighbours - Malaysia and Singapore.

1. Bureaucratic bottlenecks

One of the most commonly cited obstacles is Indonesia’s slow and fragmented investment process, Infobanknews reported. Industry insiders point to the absence of a “single-window” investment clearance system, which forces companies to navigate complex layers of bureaucracy just to secure basic approvals. Unlike Singapore and Malaysia — where licensing, taxation, and land acquisition processes are streamlined — investors in Indonesia must coordinate with multiple government entities, often without a clear timeline.

2. Tax and fiscal disadvantages

While Malaysia aggressively courts foreign investors with tax holidays and duty exemptions on capital goods, Indonesia’s taxation policies remain ambiguous and, at times, burdensome. Companies looking to build hyperscale data centres often encounter delays in securing value-added tax (VAT) exemptions or corporate income tax relief, making Indonesia less attractive in cost-benefit analysis compared to its neighbours.

3. High energy costs

Electricity is one of the largest operational costs for data centres. In Malaysia, providers benefit from power rates as low as $0.08 per kilowatt-hour (kWh), while Indonesia’s rates are between $0.11–$0.12 per kWh, Kontan reported. According to Digital Data Centres (BDDC) President Commissioner Setyanto Hantoro, this pricing disparity significantly affects investor decisions. Moreover, each megawatt of capacity can cost upwards of $10–11mn in capital expenditure — making power costs even more critical.

4. Inadequate support infrastructure

Beyond electricity, Indonesia also lacks robust physical infrastructure such as underground cabling for internet connectivity, which increases vulnerability to outages caused by weather and natural disasters. The government has mandated improvements, but progress remains slow and uneven across regions.

5. Regulatory uncertainty

Local regulations, such as the requirement for ISO 27001 certification, are a step toward improving standards. However, they do not address broader issues like cloud data residency rules, redundancy protocols, or disaster recovery requirements. Investors and local operators alike have called for a more comprehensive, future-ready regulatory framework.

What Malaysia and Singapore are doing right

Singapore and Malaysia have taken decisive steps to dominate the regional market. Johor, in particular, has become a hotbed for hyperscale investment due to its proximity to Singapore, cheaper land, and government-backed incentives. Kontan reported that these countries not only offer lower energy costs and better infrastructure, but also a more predictable legal and regulatory environment — giving them a clear edge over Indonesia.

Local strengths, untapped potential

Despite these setbacks, Indonesia remains a compelling market. Chairman of the Indonesian Cloud and Hosting Association (ACHI), Rendy Maulana Akbar, expressed optimism about the sector’s outlook for 2025. He noted that while 2024 marked a recovery period post-pandemic, new digital-native businesses are emerging rapidly, as reported by Computer Security Incident Response Team. These businesses require reliable and scalable digital infrastructure — a demand that local providers are well positioned to meet.

Moreover, local players have strengths that global tech giants often lack. For instance, they offer more personalised customer support and are more attuned to the diverse cultural and geographical needs of Indonesian clients. While global firms may take days to respond to support requests, local providers typically respond within minutes, fostering trust and reliability.

Strategies for the future

To accelerate the growth of Indonesia’s data centre industry, the government must streamline investment procedures by adopting a one-stop-shop system that eliminates bureaucratic hurdles, Kontan says Simplifying licensing, tax incentives, and regulatory compliance would significantly improve Indonesia’s “ease of doing business” score and attract more foreign capital. Additionally, addressing the high cost of electricity—currently a key barrier—through targeted subsidies or special tariffs for data centre operators would help level the playing field with regional competitors like Malaysia, where energy is notably cheaper.

Beyond infrastructure and investment incentives, Indonesia should focus on building local expertise by promoting training programs in cloud computing, server management, and cybersecurity. A skilled domestic workforce will be critical to sustaining long-term growth in this sector. At the same time, local data centre providers should receive targeted support in the form of tax breaks, grants, or procurement preferences, enabling them to scale their operations and fill market gaps that foreign players may overlook. These combined efforts would not only enhance competitiveness but also strengthen Indonesia’s digital sovereignty and resilience.

Progress beckons

There are signs of progress, however. The Indonesian government is currently in discussions with Google to encourage the development of domestic data centre infrastructure, hoping to ensure that services for Indonesian users are housed locally. While Google launched its Jakarta cloud region in 2020, it recently announced a $1bn investment in Thailand — a signal that Indonesia still needs to do more to become the preferred destination.

To become a serious player in the regional data centre economy, Indonesia must urgently address its structural weaknesses. With clear policy reforms, infrastructure investment, and public-private collaboration, the country can unlock its full potential and compete alongside Malaysia and Singapore in the digital era.