Indonesia has always been resilient in times of financial hardship. According to a Canadian Trade Commissioner Service report, the archipelago weathered the 2008 global financial crisis particularly well. It outperformed its regional neighbors and even posted growth at a time when the rest of the world was in trouble.
This stability is attractive to overseas investors looking to take a bite out of an emerging market. As the fourth most populous country in the world – where half of its citizens are under 30 – Indonesia has started to generate interest from overseas backers. A few American and Japanese venture capital firms have already started to get their feet wet.
On a quest for real-world problems to solve, more investors from Europe and Mountain View are now exploring Southeast Asia, with Indonesia high on their lists. But before Jakarta can capture a larger investor spread, it needs to work on itself. In no particular order, here are three boxes that Indonesia should tick to make foreign investors start placing more bets on local startups.
1. Improve infrastructure
The World Bank’s International Finance Corporation (IFC) says Indonesia’s new push for infrastructure development came the hard way. The local government only realized Jakarta needed better roads and drainage systems after it failed to keep up with its economic expansion. This has resulted in costly business disruptions like power outages over the past decade. “Lack of infrastructure results in bottlenecks, hampering future growth opportunities,” says IFC senior investment officer Karsten Fuelster.
See: US-based Sovereign’s Capital sets up in Jakarta, welcomes early growth-stage companies
Local business portal Indonesia-Investments writes:
Lack of adequate infrastructure causes Indonesia’s logistics costs to rise steeply, thus reducing the country’s competitiveness and attractiveness of the investment climate. [...] The main problem for the Indonesian government to invest in the country’s infrastructure is the lack of financial resources. Therefore, private sector participation – both foreign and domestic – is needed.
See: 5 huge challenges any tech business faces in Indonesia
2. Open more business incubators
Forbes contributor Sylvia Vorhouser-Smith says Indonesia’s workforce is inadequate for the requirements of many 21st century jobs, and the local education system can’t pump out skilled graduates fast enough. “To be fair, they’re working on it,” she writes. “But the backlog is enormous and the forward orders are daunting. So talent management is fast getting elevated to critical business issue status.”
To Jakarta’s credit, the city is avidly fostering entrepreneurial education via initiatives like the Ciputra GEPI Incubator, Ideabox, StartupLokal, and the Jakarta Founder Institute. But at this stage of economic development – and with foreign money taking interest – this is no time to take the chips down.
3. Build friendlier investment policies
The Indonesian government has made a name for itself as an administration that actively makes it difficult for foreigners to invest locally. Earlier this year, president Susilo Bambang Yudhoyono issued the “negative investments list” – a set of rules that cut back on what foreigners can and cannot own in Indonesia.
According to Reuters, the government barred new foreign investment in retail stores that sell electronics, footwear, textiles, toys, and food – potentially making it difficult for firms like IKEA that are planning an expansion in Indonesia.
However, the newly elected Joko “Jokowi” Widodo will take office next month, and the media speculates he is likely to adopt friendlier market policies to attract foreign investment. For local firms, this is good news, as they may no longer need to register their businesses in Singapore just to let foreign money in.
Indonesian president elect, Joko “Jokowi” Widodo
So while a stable, resilient, and consumption-driven economy may be the element that first attracts investors to Indonesia, it’s unlikely to be the foundation that keeps them here. The country will need to see more vertical progress in a short amount of time.
Featured image via World Bank; image of Jakarta via Flickr user Anthony Whittingham; image of building project via Flickr user Charles Wiriawan; image of Joko Widodo via Flickr user Global Panorama.
3 ways Indonesia can become more attractive to foreign investors
