Indonesia, southeast Asia’s largest economy, is seeing a rise of spending in its technology and communication sector, with 2,000 startups – the highest number in the region – trying to capture the country’s growing digital market.
A report by Castle Asia shows that Indonesia’s spending on the tech sector climbed to Rp 214.4 trillion ($16.4 billion) in 2016, compared with Rp 199 trillion ($15.2 billion) in 2015.
The rising trend is seen not only in large scale companies, but also in smaller businesses with a contribution of about 13 per cent, the report says. This makes Indonesia a very dynamic market, especially with tech-based startups predicted to balloon more than six-fold by 2020.
TelkomTelstra president director Erik Meijer believes it opens tremendous opportunities for international players to invest in Indonesia, accelerated by economic growth and president Joko Widodo’s commitment to implement reforms in the sector.
“Indonesia’s economic growth is giving very positive impact to digital and technology expansion. Its government has come to realize the big potential that can be derived from technology,” said Meijer.
Up until June, 28 Indonesian startups pocketed Rp 2.09 trillion ($160.7 million) in investment. This number shows a stable quarterly growth of more than 100 per cent within the last 12 months, with e-commerce and marketplace being the most sought-after sectors by global investors.
Indonesia Startup Report 2015 shows that Indonesia’s e-commerce is seen as the most attractive after China and India. The confidence is in line with the sector’s sales performance, which is predicted to increase a whopping 22 per cent, compared with 0.24 per cent in India and 0.15 per cent globally.
The transformation in digital and technology sphere has affected Indonesia’s overall economic performance. According to reports, the sector has become Indonesia’s second largest contributor to GDP after financial and insurance (11.4 per cent) during 2016’s first six months.
Even though there is a slight decline of 1.7 per cent compared to last year, the sector still holds a tremendous opportunity for both local and foreign players.
$14.6b predicted to pour into Indonesian startups
Indonesian association of venture capitals and startups (AMVESINDO) had earlier predicted that about Rp 200 trillion ($14.6 billion) of investments were expected to pour into the startup sector starting this year, as the government is carrying out a tax amnesty program which it says could bring Rp1,000 trillion ($73.2 billion) worth of evaded tax and assets back to the country.
The association said the money is likely to be invested in tech-based firms. One of the reasons is because conventional sectors are still recovering from the slowdown that hit global economy last year. Commodities, oil and gas, and property, for example, are suddenly less attractive now.
“OJK, the government, the Indonesian chamber of commerce (KADIN), everyone is preparing to welcome these hot funds,” Teddy Lee, Head of fintech department at AMVESINDO told DEALSTREETASIA recently.
More than 350,000 people have declared assets totaling 3,620 trillion rupiah (US$278 billion), which brought the government 97.2 trillion rupiah (US$7.46 billion) in revenue, according to finance ministry data.
In August, Indonesia’s popular ride-hailing app Go-jek attracted $550 million in funding, further enforcing the notion that Indonesian startups are fertile ground – thanks to is growing population of young internet users.
Fenox Venture Capital, one of the most active VC firms in Indonesia, is of the view that the on-demand sector is still quite enticing for investors, with much room for expansion. The venture firm has been investing and mentoring some of the on-demand platforms such as Belazee and AhliJasa.
“Go-Jek is the king of on-demand startups now. But I see there are some others that are very promising as well,” Fenox Venture Capital’s investment team Nazier Ariffin said.