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Giant on the move

The Edge Singapore
The Edge Singapore • 5 min read
Giant on the move
SINGAPORE (Oct 14): Last December, ahead of the presidential election, Indonesian President Joko Widodo (Jokowi) and his running mate Ma’ruf Amin presented nine “missions” as part of their ambitious manifesto. Titled “Indonesia Maju”, or Indones
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SINGAPORE (Oct 14): Last December, ahead of the presidential election, Indonesian President Joko Widodo (Jokowi) and his running mate Ma’ruf Amin presented nine “missions” as part of their ambitious manifesto. Titled “Indonesia Maju”, or Indonesia Moving Forward, first on the list was human development — programmes for the poor, children and women as well as health and sanitation services.

Second was infrastructure development — particularly urban and digital infrastructure — for Indonesia to be economically competitive. Also on the list of priorities were reforming the bureaucracy, including an e-government system, and improving relations between the central and regional governments.

To be sure, Jokowi has his work cut out for him. With Indonesia, the numbers are staggering: It has a population of 264 million, spread across 34 provinces; about a quarter of Indonesians are aged 10 to 24. There are 152 million active internet users. According to a recent report jointly produced by Google, Temasek Holdings and Bain & Co, the size of Indonesia’s internet economy in 2019 is estimated at US$40 billion ($55 billion), quadru­ple what it was in 2015, and 40% of the total Southeast Asian internet economy. The report’s authors estimate that, as the region’s largest and fastest-growing internet economy, expanding at a clip of 49% a year, Indonesia could cross the gross merchandise value threshold of US$130 billion by 2025. The hottest sectors in the business are e-commerce and ride-hailing.

Given the favourable demographics and massive consumer base, it is little wonder that Indonesia has managed to produce five unicorns — tech start-ups valued at US$1 billion or more based on private capital funding — in these sectors. There are local e-commerce marketplaces Tokopedia and Bukalapak; and online travel platform Traveloka, with investors that include Expedia Group and Singapore’s GIC.

And before Grab, there was Gojek, which went from call centre in 2010 to become the country’s go-to app for on-demand delivery, transport and mobile wallet services. It has since expanded to Singapore, Thailand, Vietnam and the Philippines. A recent Series-F funding of some US$2 billion from Mitsubishi Motors Corp and Mitsubishi Corp brought Gojek’s valuation to nearly US$10 billion, which would level it up to decacorn status. Most recently, digital payment services provider OVO, backed by Lippo Group, was reported to have had a US$2.9 billion valuation as at March.

Against this backdrop, however, the government is still struggling to overcome myriad challenges that are affecting Indonesia’s economic competitiveness. Indeed, even though its economy — at more than US$1 trillion and growing at more than 5% annually — is comparatively robust, the country has been ranked a rather lowly 73rd on the World Bank’s Ease of Doing Business Index — a considerably poorer performance than the 40th place Jokowi had been aiming for.

A major challenge is security. The country suffers terrorist attacks — on Oct 10, while visiting the Javanese province of Banten, the country’s chief security minister Wiranto was attacked by a man with a knife. Two suspects, identified by authorities as belonging to Islamic State-linked group Jamaah Ansharut Daulah, have been arrested.

Meanwhile, just getting around to do business is a hassle. On its own, Jakarta has a population of more than 10 million. The metropolis is congested, and apparently sinking, prompting the government’s plan to move the administrative capital to East Kalimantan, which is practically rural by comparison. Another major grouse among businesses is the complex, multilayered bureaucracy that they have to navigate.

Then, even as the digital economy grows, the country’s digital infrastructure is not quite keeping up. Observers whom The Edge Singapore spoke to for this issue note that much of the digital economy is still at the investment stage, that businesses “have yet to switch on the “monetisation engine”. Revenues have increased, but so have costs, leading to tight margins and even losses.

Nevertheless, this only means that the potential for growth is that much more. As it is, Jokowi has ambitious infrastructure plans that involve billions of dollars being poured into thousands of kilometres of road and rail links, airports and sea ports. The opening in March this year of the mass rapid transit system in Central Jakarta has been described as a minor miracle; network extensions are underway.

Financing all this would be signifi­cant capital investment from abroad, and what Jokowi’s government needs to do is to balance the needs of the domestic economy with the demands of foreign investment.

Indeed, amid all that development, another challenge needs to be tackled: the unequal distribution of income and economic opportunity across the sprawling archipelago. Observers point out that opportunity is limited for those who live outside the bustling cities. This drives young people into the cities in search of jobs, which worsens the demographic situation in the rural areas. The problem is compounded when these areas, typically rich in natural resources, attract foreign investors who find difficulty in hiring talent and end up bringing in foreign workers, further exacerbating the inequality.

Jokowi is clearly cognisant of this, placing the development of human resources as one of his priorities in his second and final term. But perhaps the country’s biggest challenge is yet to come: how it will sustain its pace of growth and development once Jokowi is out of office.

This story first appeared in The Edge Singapore (Issue 903, week of Oct 14) which is on sale now

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