Surabaya's service-based city transformation put to the test

 Surabaya, the capital of East Java, remains a hive of activity across its thoroughfares, ports, and shopping centers, further solidifying its status as one of Indonesia's major cities.

The city has evolved beyond its reputation as an industrial and port city, increasingly asserting itself as a service hub built on a foundation of trust, connectivity, and quality.

This transformation is no coincidence; it is born of both necessity and strategy. As the national economic structure shifts toward the service sector, major cities are being pushed to adapt. 

Surabaya, with its long-standing history as a commercial hub for eastern Indonesia, is in a strategic position to lead this transition.

Data shows that the wholesale and retail trade sector accounts for more than a quarter of the city's gross regional domestic product (GRDP), followed by the processing industry, accommodation, and food and beverages.

This means Surabaya's economy now relies heavily on service activities, facilitating the movement of goods, people, and experiences.

However, becoming a service-based city is about more than just statistics. It involves a shift in mindset: from a production-based economy to a service-based one. This is where Surabaya is being put to the test.

Transparency

In the shift to a service-based city, trust is the main capital. Without it, investment will not flow, transactions will slow down, and services will lose legitimacy.

In this regard, the Surabaya City Government has pushed digitalization as a tool for building transparency.

Digitalization in public services—ranging from hotel and restaurant tax monitoring to plans for cashless parking—demonstrates a systematic effort to plug leakages while improving accountability. The results are already beginning to show.

Revenue from the hotel sector, for instance, has increased significantly, indicating that a more transparent system can effectively bolster regional revenue.

Surabaya recorded that 75 percent of its regional revenue is sourced from its own capabilities.

While many regions are still highly dependent on transfers from the central government, Surabaya shows that fiscal independence can be built by optimizing the service sector, which is managed with a modern approach.

Nevertheless, digitalization comes with its own challenges. On the ground, shifting systems often clash with long-standing habits among both businesses and the public. The transition to cashless payments, for instance, requires widespread digital literacy and trust regarding the fairness and security of such systems.

Furthermore, digitalization also demands infrastructure and human resources readiness to ensure innovation can provide solutions.

This is why it is important to adopt an approach that is not only technological but also social—one that focuses on educating, mentoring, and ensuring no group is left behind.

Furthermore, transparency must go beyond the fiscal aspect. It needs to cover the entire service chain, from investment licensing to basic services like healthcare and education. When residents experience services that are fair and easily accessible, trust will grow on its own.

Inclusive economy

Surabaya's economic growth, consistently above the national average, demonstrates the city's robust economic engine. In 2025, its economic growth stood at 5.87 percent, higher than East Java's and Indonesia's national growth rates.

The vital question is not how fast the economy grows, but how widely its benefits are shared. To be an ideal service-based city, Surabaya must be more than just efficient; it must be inclusive.

The city government appears to be addressing this challenge through various social and economic programs. Significant progress is evident in the declining unemployment rate, which dropped from nearly 10 percent in 2021 to a projected 4.47 percent in 2026. Similarly, the poverty rate is targeted for a steady decline, estimated to reach 3.48 percent.

In the microeconomic sector, allocating a significant budget to micro, small, and medium enterprises (MSMEs) is a vital step.

MSMEs are the true backbone of the service economy. This includes the people running stalls, cafes, creative services, and community-based businesses. Without them, a service-based city would lose its social depth.

Challenges related to inclusivity are not merely about access to capital; they also involve access to markets, technology, and networks.

Many small businesses are not yet fully integrated into the digital ecosystem. If left unaddressed, this gap could widen, creating a bifurcated economy: one that is modern and another that is left behind.

Furthermore, the growth of the service sector brings its own consequences, where the rise of hotels, restaurants, and shopping centers must be balanced with sustainable urban planning. Without it, the city will be trapped by chronic traffic congestion, environmental strain, and spatial inequality.

In this context, Surabaya's development direction, which highlights social welfare, education, and healthcare, becomes relevant. Large budget allocations for these sectors show that the development of human resources—as the foundation of the service economy—remains a priority.

Moving forward, Surabaya is well-positioned to solidify its status as a trade and service hub. However, that opportunity can only be realized if the city successfully balances growth with equity. A strong service-based city is defined not just by its transaction volume, but by its fairness to all residents.

Surabaya is writing a new chapter in its history. Transitioning from a port city to a service-based hub, it is shifting from a goods-based economy to one driven by services. The road ahead may not always be easy, but the chosen path is clear.

To ensure Surabaya can evolve beyond becoming a service-based city, but also one that adds value to the lives of all its residents, there are three keys: consistent transparency, inclusive digitalization, and equity-oriented policies.

One simple yet fundamental question remains: is the city's growth reaching everyone, or is it reserved for the few? The answer will determine what kind of city Surabaya becomes.