Global Business Guide Indonesia

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Business Updates | Indonesia’s 14th Economic Policy Package to Kick-Start E-Commerce Industry

On 10th November 2016, President Joko Widodo’s government announced the launching of its 14th economic policy package following on from the roll out of 13 previous packages. Under the Coordinating Economic Affairs Ministry as well as the Ministry of Communication and Informatics, the latest package focuses on providing incentives to the e-commerce (See E-commerce Incoming; An Industry on the Rise) and creative industries to support this sector which offers significant opportunities among Indonesia’s youthful and tech-savvy population of more than 40 million internet users (See Indonesia and the Internet; Online & On the Move). Touted as a roadmap for the e-commerce sector in Indonesia, the 14th economic policy package is distinguished from its previous counterparts in its targeted focus on one specific industry and by its nature in providing guidelines to relevant government industries so as to synergize governmental institutions such as those within logistics (See Indonesia’s Logistics Sector; Making Connections), education (See Second Class: Indonesia’s Higher Education Sector In Need of Reform), financing, and public awareness surrounding cyber security. 

The 14th economic policy package aims at coordinating state bodies to better support digitally focused businesses as part of a wider blueprint to make Indonesia into a digitally focused economy; a sentiment that has been emphasised by President Joko Widodo in recent months. For example, new businesses in the technology sphere with turnovers of less than 4.8 billion IDR per year will now benefit from a lower corporate income tax rate. Other areas include cooperation with the education sector to ensure a pool of qualified local human resources and the charging of state postal provider PT Pos Indonesia (Persero) with the role of providing a nationwide logistics network for e-commerce deliveries. As Indonesia’s e-commerce sector is set to reach $130 billion USD in transactions by 2020, consumer protection and cyber security are also being addressed through a national cyber security system that lays the foundations for public education on cybercrime and the secure handling of customer data by e-commerce providers.

Following on from the success of a number of Indonesian smartphone applications (See Mobile Apps in Indonesia Clicking into Gear), Go-Jek being the most notable among them, the policy package specifically looks to dismantle hurdles to locally developed smartphone apps moving from concept to the public domain such as access to financing. The high-risk nature of new smartphone apps and the fact that new businesses in this arena are often SMEs lacking assets to secure financing has made them unattractive to Indonesia’s banking sector (See Indonesia’s Banking Sector; Under Pressure But Staying Strong) which tends to focus on more traditional industries; a trend reinforced by the increase in the rate of non-performing loans (NPL) as commodity prices have dipped. The new policy package will therefore see the Indonesian government playing a more active role in supporting digital start-ups such as through the distribution of subsidised loans or ‘People’s Credit’ that have not previously been earmarked for the digital industries, and through allocation of the proceeds from the Universal Service Obligation levied on telecommunication operators (See Indonesian Telecommunications – An Increasingly Mobile Market).

A crucial component underpinning the success of start-ups in other markets has been the linking of angel investors with nascent start-ups. Crowdfunding, another avenue to raising the necessary capital for rolling out a new application or digital business, has also been notably absent in Indonesia. The roadmap set out in the 14th economic policy package seeks to address this by seeing the state playing an intermediary role between investors and start-up businesses while supporting the development of crowdfunding initiatives.

As a roadmap for advancing Indonesia’s e-commerce sector, the 14th economic policy package sets out a more holistic approach to laying the foundations for Indonesia to become a truly digital economy in the future. However, as with previous roadmaps for the advancement of Indonesia’s economy, the coordination and implementing regulations as well as the monitoring of the initiatives’ success are the determining factor in seeing such plans come into fruition. A further factor is the willingness of the Indonesian government to be receptive and supportive of disruptive innovation (See Disruptive Innovation Challenging Business as Usual in Indonesia) which is the ultimate goal of many digital start-ups. The hand-wringing over how to regulate ride-sharing apps such as Uber has shown that the Indonesian government is not always willing to be on the side of disruptive innovation when it threatens traditional industries and monopolies; keeping tech talents and the best ideas in Indonesia will depend on a change in this attitude. 

Global Business Guide Indonesia - 14th November 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)