GOJEK, Tokopedia flourish under Indonesia’s almost hands-off approach

Go-Jek driver helmets are seen during Go-Food festival in Jakarta, Indonesia, October 27, 2018. REUTERS/Beawiharta

What does the communications minister of a vast, multi-ethnic and multi-religious nation do at work? Rudiantara kills fake news. Just ahead of the presidential election verdict in May, the Indonesian minister, who uses one name, had to deal with as many as 600 social-media hoaxes in a day. The usual average is about 100, he tells me.

But if the internet’s potential to act as a hate machine poses considerable risks to a democracy barely 20 years old that’s grappling with rising Islamist assertiveness, the rewards it offers the world’s fourth-most populous nation are also enormous. And that’s Rudiantara’s other day job: helping breed unicorns.

Don’t be surprised if over the next five years, more young firms valued at $1 billion or more are spawned in Indonesia than anywhere else in Asia outside China and India. Jakarta will have succeeded by letting the private sector lead the way, rather than build a protective moat around its digital champions, like China, or creating a bureaucracy to unsuccessfully pick winners, as Malaysia has done for decades of mediocre results.

Indonesia already has four unicorns, with ambitions embodied by homegrown ride-hailing giant Gojek’s plans for a “super app” for Southeast Asia, just like China’s Alipay and WeChat Pay. In May, Masayoshi Son’s SoftBank Group Corp. teamed up with other investors in a $200 million fund aimed at discovering other promising startups.

Son’s optimism is a telling indicator. That’s because, in many ways, the digital age dawned on Indonesia with the takeoff of PT Tokopedia, its No. 1 e-commerce site, which in 2014 secured a then-record $100 million funding from the likes of SoftBank and Sequoia Capital. Since Tokopedia’s smaller rival PT Bukalapak.com made the cut in late 2017, everyone’s waiting for the emergence of the fifth member of the $1-billion-plus valuation club, which also includes Expedia Group Inc.-backed Traveloka, a travel aggregator.

Indonesia’s size is part of its promise. The 267 million population is 47 times that of wealthier Singapore. That helps tilt the upside in Indonesia’s favor even though an average person in the city-state carries out 23 times more digital transactions in a year. Yet the country is fragmented and sprawls across 17,000 islands that are difficult to administer. Jakarta has a penchant for regulation but lacks the wealth for state investment beyond the basics.

When Indonesia got started on its digital journey in earnest after President Joko Widodo was first elected in 2014, the iPhone was already seven years old. Contrast this with the state-directed model of Malaysia, Indonesia’s much smaller and richer neighbor. Under the drive of then-Prime Minister Mahathir Mohamad, now in his second stint in power, Kuala Lumpur started planning a multimedia super-corridor just around the time Microsoft Corp. began shipping Internet Explorer 1.0. Even today, 80% of venture-capital funds come from the government, with three ministries and multiple agencies making more of a hash than world-beaters.

Indonesia’s financing was private from the start. It was the success that Northstar Advisors Pte’s Patrick Walujo had with his early backing of Gojek that is helping create a homegrown venture-capital industry.

In hindsight, it was a blessing in disguise that Indonesia took an unplanned, serendipitous course similar to India’s. Still, some planning is now needed. India, Vietnam, Mongolia and the Philippines are doing better at innovation than typically expected from lower-middle-income economies.

Indonesia is not in that overachievers’ club, according to the Global Innovation Index report released this week. Part of the problem is the education system, which has long resisted reform. Even here, technology could help. A high-speed internet satellite in 2022 will bring the web to all of Indonesia’s 324,000 schools, Rudiantara says. A more skilled workforce could lessen reliance on what has historically been the main economic driver, commodity wealth, and create economic growth and opportunities for startups.

If the country expands its stable of four unicorns, it won’t be entirely due to the private sector. Not long ago, networks were patchy and access was concentrated in Java, the most-populous island. Now, Telkomsel Indonesia, the dominant state-run player, offers download speeds of 11 megabits per second even in remote West Papua and Maluku, far better than in the capital, according to Opensignal. Thanks to the spread of mobile internet, about 65% of Indonesians are now online.

Violence briefly erupted around the May election decision and Rudiantara had to disable certain social-media features temporarily to contain it. There was little disruption, on the streets or the internet, in the weeks that followed, however, as losing candidate Prabowo Subianto’s challenge was adjudicated. With the fake news menace contained and two decades of democracy bolstered, it’s time now for Indonesia to harness the internet to breed unicorns, not hate.