President Joko Widodo came to office with high expectations. Indonesia’s first President to make his way from the grass roots was a break from the “establishment” past in a country pressing for reform and growth. For quite a while he was a disappointment to optimists inside and out — but things are looking up.
Investors and entrepreneurs with an eye to ecommerce in particular should watch carefully, as Indonesia’s confusing and disruptive approach to trade and foreign investment shows signs of reform.
Last August, in response to criticism and under considerable pressure to improve economic growth, Jokowi (as the President is known) made changes to his main economic roles — bringing in a former central bank governor to the key economic post and a prominent Singapore-based investment banker to the trade job. One of the evident by-products of that change is that ecommerce is confirmed as a key opportunity for Indonesia.
In recent weeks the shape of things to come has emerged.
Indonesia has been plagued by a protectionist approach to foreign investment, and as late as 2014 had imposed a ban on foreign investment in its digital sector. Late last month, in a reform statement that is so far not detailed, the government announced that 35 of the 100 industries that were refused foreign investment would be released. One of those is ecommerce.
Shortly afterwards, the Communications and Technology Industries Ministry posted a “letter” on its web site that outlined proposed new laws for Internet-based services operating in Indonesia. The proposals would require ecommerce operators to incorporate in Indonesia. Content-based companies would need to self-censor in line with Indonesia’s existing regulation and use Indonesian payment gateways. Those with representative offices (Facebook, Google, Twitter among others) would have to upgrade to a local company.
In isolation, Indonesia’s proposals look like a toughening up and perhaps another version of the interventionist streak that has marred its past foreign investment performance. But there are reasons to think this might be different.
Two events are worth noting. When Jakarta’s cabbies staged a very aggressive protest recently against the appearance of Uber and Grab in the local scene, the Transport Minister is reported to have sought to ban the “disruptors”. The Communications Minister refused. This would appear to be a practical sign of new intent.
Just a few days ago, the Chinese ecommerce giant Alibaba paid about $US1 billion for a controlling stake in Lazada, the Singapore-based ecommerce business that operates in Indonesia. So it appears that Jack Ma is buying the foreign investment story.
These are early days in a long-awaited emergence of consistency in Indonesia’s regulation of ecommerce and foreign investment. But these are also quite strong signals. And for those who would venture, the opportunity is large.
Indonesia has a population of 255 million and its advancing economy is creating a growing middle class. Broadband has taken a while to take off, but a rise in competition and a sharp improvement in the mobile broadband rollout is seeing a rapid rise in smartphone distribution that is a great underpinning of innovation.
Watch this space.