E-commerce should be scrapped from the country’s negative investment list to provide wider funding opportunities for start-ups willing to expand their businesses, a minister has said.
“We are now discussing the matter with the Investment Coordinating Board (BKPM) — whether to scrap e-commerce from the list or to open it up to foreign investment under certain conditions,” said Communications and Information Minister Rudiantara.
Blocking foreign investment in the local e-commerce marketplace would hamper local players’ efforts to expand their business and benefit optimally from the market, he told reporters during a recent event in Mataram, East Nusa Tenggara.
Rudiantara gave as an example local e-commerce giant Tokopedia, which eventually had to record a US$100 million foreign investment as loans — not equity — to maintain its place in the market.
Tokopedia secured the $100 million investment from Japanese SoftBank Corp. and US-based venture capital firm Sequoia Capital at the end of last year.
Under Presidential Decree No. 39/2014, the government included e-commerce among the industries closed to foreign investment, requiring e-commerce businesses to be wholly owned by local players.
The regulation is thought to have been motivated by acquisitions of key Indonesian e-commerce players over the last few years, such as that of Dealkeren.com by US-based LivingSocial Inc. and Disdus by US-based Groupon.
Rudiantara reiterated, however, that foreign investment in e-commerce businesses was still necessary as there was very limited domestic investment available for the sector at the moment.
“What the government can do is allow foreign investment in the business, while, for example, maintaining local ownership at between 70 and 89 percent,” he went on.
He explained that investment, be it local or foreign, was needed by local e-commerce start-ups, most of which had limited financial capability.
Indonesian E-Commerce Association (idEA) chairman Daniel Tumiwa, meanwhile, warned that the blanket ban on foreign investment for e-commerce would discourage people from trying to build startups.
“E-commerce players may opt to start their business overseas and accept orders from Indonesia. It should be recalled that e-commerce is a cross-border business where orders can be made anywhere in the world,” he said.
The e-commerce industry in the country is still in its infancy, but is forecast to surge in the near future.
Indonesia’s e-commerce market is projected to have a total value of Rp 295 trillion ($22.7 billion) next year, a huge increase from Rp 94.5 trillion in 2013, according to idEA.
The growth of e-commerce will be driven by the growing number of smartphone users in the country, predicted to skyrocket to 103.6 million people in 2017 from around 61.2 million last year, according to market research company eMarketer.
Apart from striving to open e-commerce to foreign investment, Rudiantara said that he aimed to collect $1 billion from local business tycoons to help start-ups develop their businesses.
“I’m thinking that the fund could be managed by a professional institution such as a venture capital firm. We aim to have that venture capital by the end of this year,” he said.