Indonesia

Southeast Asia: Startup Ecosystem 2.0

Indonesia: Economy Over view

INDONESIA - Real GDP and GDP Growth Rate (US$ Bn/US$), 2011-2020

INDONESIA - Digital Economy

Overview

The 4th most populous country in the world (2020). Indonesia’s robust GDP growth (5% during 2011-2019) is fueled by a large consumer base with rising middle-class and healthy labor market.

Economy Highlights

Agriculture has predominantly been the key contributor to the economy. The country also enjoys large mineral deposits and rich biodiversity.

Business & Investment Climate

Indonesia ranks 73rd in terms of ease of doing business. The country has effective competition law and low total tax rate, yet policy uncertainty, FDI restrictiveness and lagging inf rastructure remain as concerns.

Notable development priorities in recent years include: - Improve business ecosystem & investment climate. - Enhance economic value-added and job creation. - Accelerate industrial digitalization. - Reduce disparities across the archipelago through connectivity and inf rastructure projects. These initiatives are charging investors’ confidence, promising a more vibrant, business-f riendly environment in the future.

Digital economy

- Singapore and Vietnam are 2 countries that have maintained their double-digit growth since 2019, mainly driven by the e-Commerce sector. - Home to 5 SEA unicorns, including Bukalapak, Gojek, OVO, Traveloka & Tokopedia.

Source: MarketLine

Source: MarketLine; Google, Temasek, Bain & Company SEA E-conomy Report 2020

Southeast Asia: Startup Ecosystem 2.0

Indonesia: Government Suppor t

FOR STARTUP

● Corporate tax rate has been reduced f rom 25% to 22% for 2020/21 and will be lowered to 20% in 2022. ● Super Tax Deduction for labor-intensive industries, human development or R&D expenditure. ● Digitized and simplified business procedure such as business licensing, tax payment, export customs declaration

FOR INVESTORS

● Equal process for both domestic and foreign investors. ● Improved regulations on e-commerce, fintech, cybersecurity, electronic info & transactions and personal data protection. ● The “negative investment list” was loosened over the time and replaced by the “priority list” in 2021. ● Offering tax allowances for investors in 183 business lines.

INFRASTRUCTURE

Indonesia had 21 Science Techno Park (STP) as of 2019 according to the Ministry of Research and Technology.

Indonesia Investment Coordinating Board (BKPM)

Indonesia’s government agency responsible for regulating and promoting domestic and foreign investment. Notable initiatives includes: ● NSWi - National Single Window for Investment ● PTSP - a one-stop service for business & investment licensing. ● Tax Incentives such as Tax holiday for 18 eligible sectors (2020).

Ministry of Industry (Kemenperin) mapped out the Indonesia’s digitalization roadmap “Making Indonesia 4.0” in 2018, with two startup-related initiatives "Empower SMEs" and "Establishing Innovation Ecosystem". ● Startup 4 Industry (MOI): a range of startup-support programs, including Comptech, Hackindustry, Techlink, etc.

Ministry of Info & Comms Technology (Kemenkominfo)

● Palapa Ring: aims to improve Internet access for the whole nation, which creates more opportunities for digital economy players. ● 1001 Digital Startup Movement: an incubation-focused initiative with coverage over 15 cities and target of 5000 startups by 2025. ● NextICorn Foundation promotes Indonesia’s digital ecosystem and startups to international investors.

The Creative Economy Agency (BEKRAF) aims to promote the Indonesia’s creative economy. Its startup-support program is Bekraf for Pre-Startup (BEKUP).

Financial Services Authority (OJK) is in charge of regulating the FinTech sector and has licensed 146 P2P lending companies as of Apr 2021.

The Ministry of Micro, Small & Medium Enterprises (Kemen KUKM) established the Deputy of Entrepreneurship in 2021 to support entrepreneurs. The Ministry of Research and Technology (Kemenristek) launched the Technology-Based Startup Program (PPBT) to help startups get funding & coaching. 37

Southeast Asia: Startup Ecosystem 2.0

Indonesia: Key Industries

EMERGING INDUSTRIES

Medical Devices &

Pharmaceuticals

● Incentive to reduce dependence on imports of raw materials & medical devices. ● The industry gained momentum since the Universal Health Coverage (JKN) program in 2014 and benefited f rom rising middle class. ● Government’s initiatives such as accelerating licensing and reducing foreign ownership restrictions for companies in the sector.

Electric Vehicles (EV)

● Rich nickel reserves needed for EV batteries. ● Indonesia aims to be the global hub for EV industry supply and to sell only

EVs by 2050. The government issued regulations and incentives to accelerate the domestic EV industry. ● Increasing spending on technology R&D and inf rastructure to support the sector.

Digital Economy-based

Industries

Indonesia is expected to have the largest and fastest growing digital economy in the region, with mature sectors such as e-Commerce and FinTech. With an burgeoning Internet user base that still lags behind its huge population and favourable government initiatives in recent years, the digital economy still promises a lot of headroom for growth.

Key Pillars

● Indonesia has been one of the world’s major producers, exporters and consumers of agricul tural products. ● The mining, manufacturing and utilities sector has been the key contributor to

Indonesia’s economy, with prominent industries such as petroleum & natural gas,

F&B, textile & apparels, electronic appliances, transport equipment and chemical, pharmaceuticals. ● Wholesale and retail trade continues to be the key driver. Indonesia also witnesses the financial sector gain more traction in recent years while

Transportation, warehousing & telecoms continues to be the leading sector in FDI and DDI realization.

INDONESIA - Nominal GVA by Sectors, 2011-2020

Source: MarketLine