Indonesia in focus: Asia Market Update Series
20 August 2020: Indonesia’s rising middle class and tech-savvy population is creating new opportunities for Australian companies in areas such as fintech, digital health and fast- moving consumer goods (FMCG).
These were some of the key messages from the latest online seminar in the Asialink Business Asian Market Update Series which was hosted in partnership with the Australia Indonesia Business Council (AIBC). The event placed a spotlight on the digital economy and considered opportunities against the backdrop of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).
The webinar was moderated by Asialink Business CEO Mukund Narayanamurti and featured a panel of speakers that included:
- Penny Burtt: Group CEO, Asialink
- Mark Fitzgerald: President Director and Country Head, ANZ Indonesia
- Dean Garvey: Managing Director, International, Blackmores
- Paul Gallow: Group CEO, PNORS Technology Group
- Phil Turtle: National President, Australia Indonesia Business Council
Impacts of COVID-19
Penny Burtt discussed the impact of the COVID-19 pandemic on the Indonesian economy, the growth of its digital economy and the opportunities presented for Australian business.
Indonesia has been hit hard by COVID-19 with more than 145,000 reported cases and over 6,000 deaths. This has undermined national plans for eliminating poverty and turning the country into a top five global economy by 2045. Economic growth in 2020 has been forecast at between -1.1 per cent and 0.2 per cent, which would be the weakest performance since the 1998 Asian Financial Crisis.
Indonesia’s digital economy
The fundamentals for long-term growth, however, remain strong, with a young population of 270 million, a growing middle class and rapidly expanding digital economy. Indonesia’s digital economy reached an estimated value of USD40 billion in 2019 – an increase of 400 per cent compared to 2015 – making it the largest in South-East Asia and more than three times that of Singapore’s digital economy.
Indonesia has produced four ‘unicorns’ – start-ups that have developed into companies with valuations exceeding USD1 billion – which include OVO, travel company Traveloka and internet marketplaces Tokopedia and Bukalapak. The country has also produced South-East Asia’s first ‘decacorn’ – a start-up valued at more than USD10 billion – in the form of ride-hailing platform Gojek.
Indonesia’s fintech sector was identified as a key area of opportunity for Australian companies, with more than 50 per cent of the Indonesian population unbanked and digital payment penetration at less than 20 per cent, despite the country having more than 175 million internet users, including 79 per cent of those aged 16-64 who have made online purchases via mobile devices.
Given the fractured financing landscape in a country as large and underdeveloped as Indonesia, technology-supported funding models have quickly gathered pace.
Different lending models such as peer-to-peer (P2P) microtransactions, offline to online (O2O), and others are being pursued by local fintech startups. Examples of high-performing fintech companies include:
- Crowdo, Investree, KoinWorks, and Modalku in the alternative lending and crowdfunding segment
- Go-Pay (operated by Gojek) which is Indonesia’s fourth biggest e-wallet service
- Amartha a P2P micro-lending platform
The challenges with Indonesia’s digital economy
Notwithstanding the opportunities across a range of areas in Indonesia, Australian companies need to understand and be aware of:
- Indonesia’s complex regulatory landscape for digital businesses
- Local partnership requirements for foreign companies
- A lack of skilled talent for digital jobs
- Weak logistics infrastructure for customer fulfilment in e-commerce
IA-CEPA is expected to support new opportunities for Australian technology businesses. Previously onerous local data storage requirements and the need to reveal source codes as conditions of doing business with Indonesia have for example been lifted.
Investing in Indonesia
ANZ has been in Indonesia for 50 years as an institutional bank and is amongst the largest investors in the country. Mark Fitzgerald said Indonesian President Jokowi is looking to attract more Foreign Direct Investment by simplifying investment processes and providing tax and labour incentives.
For example, infrastructure is one area of potential investment, with Indonesia’s infrastructure requirements over the coming years estimated at USD1-1.5 trillion. For businesses looking to engage in Indonesia, it was noted that overall, the financial sector is healthy, and banks were well-capitalised.
Education is another area of opportunity for Australian businesses and Mr Fitzgerald said the fact Gojek’s co-founder Nadiem Anwar Makarim was appointed Minister of Education and Culture by President Jokowi emphasised the government’s priorities in driving technological advancement in the Indonesian economy.
Enhancing relationships
Blackmores has been in Indonesia for six years and Dean Garvey provided insights into the company’s joint venture (JV) with Kalbe Pharma, a major Indonesian healthcare conglomerate.
One key learning from the partnership is the need to supplement formal meetings with less formal meetings and communication, to enhance relationships. Staggered shifts in the workplace have also proved useful to account for time zone differences.
The importation of products to Indonesia can also sometimes prove challenging given the local intricacies of the market. During festival seasons, for example, products may be left sitting in storage and run the risk of having shelf lives expire. The importance of hiring professionals familiar with the local regulatory environment was also emphasised.
Blackmores treated its JV with Kalbe Pharma as a start-up and tried to insulate it from the culture of its large corporate shareholders, to allow it to grow on its own and to minimise the formalities and bureaucracy associated with a major company.
Partnering with government
PNORS has provided ICT solutions for Indonesia’s timber and healthcare sectors. It has for example leveraged its experience in establishing digital marketplace solutions for the procurement of timber and healthcare products in Australia.
In this regard, PNORS has partnered with government agencies to establish the Indonesian Timber Exchange which provides Indonesian wood, lumber yards, merchants, retailers and suppliers with an online catalogue of products. The Indonesian Health Exchange was also established to connect hospitals with suppliers.
Other important lessons
Other key take outs from the online event, included the need for companies to take a long-term view when doing business in Indonesia, to engage domestic talent and partners to help negotiate the business landscape, and be well-represented on the ground.
It was also recommended that Australian companies should consider recruiting or seconding Indonesian employees into their Australian operations with these employees later returning to Indonesia to share learnings about business practices.
Australian businesses also need to invest more in legal teams to better understand the nuances of the Indonesian regulatory environment, particularly as it relates to exports from Australia.
Watch the online seminar here: