After their first face-off in 2014, the Indonesian president and incumbent Joko “Jokowi” Widodo and former general Prabowo Subianto will be going up against each other again this April. 

Voters will need to choose between Jokowi, the first leader elected without ties to the country’s military and political elite, and who has campaigned aggressively on his economic achievements, notably the hefty spending on once-neglected infrastructure projects; and Prabowo, who has promised a return to strongman politics and brought onboard a young former investor-entrepreneur as his running mate. 

In the five years since the candidates last matched up, local startups like Go-Jek, Tokopedia, Traveloka and Bukalapak have grown from apps providing basic services to high-profile unicorns. The once-burgeoning startup scene has exploded on the back of Indonesia’s fast-growing middle-class market – the largest in Southeast Asia – spawning a new generation of entrepreneurs and attracting US$3 billion in funding in 2017.

But as election day draws near, Indonesia may see a slowdown in startup investment, reflecting the uncertainty due to the prospect of a change in government. 

“Investors are waiting for the election to play out,” Samir Chaibi, Investment & Portfolio Head for GREE Ventures in Indonesia, told CompassList. 

“There might be some changes in the current public initiatives that the current government has supported. We've seen it in Malaysia recently,” he said. 

Relations between China and Malaysia have cooled considerably following the ousting in mid-2018 of then Prime Minister Najib Razak, who advocated a pro-China policy.  

Nationalism rising

For Indonesian startups, Jokowi’s first term as president was marked by his palpable eagerness to develop the sector. 

Notably, he had signaled that his administration welcomed foreign involvement, even personally traveling to the US a year into his presidency to invite Silicon Valley technology giants to participate in Indonesia’s e-commerce industry and share their technologies and skills with local startups. 

As is common in Indonesia, however, issues of national interest take center stage during election campaigning. Jokowi’s opponent, Prabowo, has promised, for example, to halt all food and fuel imports if he were elected, harking back to the rice self-sufficiency drive instituted by strongman president Suharto several decades ago and whose children are now strong Prabowo supporters.  

Prabowo also seems to have taken inspiration from US President Donald Trump’s own campaign in 2016, famously speaking at Jakarta’s Islamic Propagation Institute in what has come to be known as the “Make Indonesia Great Again” speech. 

Jokowi, too, has not shied from flexing his nationalist muscles. Last December, he concluded a highly publicized deal for the government to acquire a majority stake in a gold and copper mine in the restive Papua province from US company Freeport-McMoRan. 

"Today is a historic moment," Jokowi said of the deal. "We will use this majority ownership entirely for people's prosperity. Our income in tax, revenues and royalties will be bigger and better."

The move followed years of legal uncertainty, with the government stepping in to renegotiate a new deal that saw Freeport investing a further US$14 billion in the mine within five years while reducing its stake from about 90% originally.

Still, observers don’t expect Jokowi to show extreme nationalistic leanings, compared with Prabowo. According to Lina Gautama, an analyst at risk consultancy firm Control Risks, Jokowi will even “likely downplay nationalism rhetoric and open a wider door for foreign technological firms if he wins, not least because he remains strongly pro-FDI and business-friendly.” 

Economic nationalism also seems to have found new prominence in Indonesia’s startup ecosystem, which is heavily backed by foreign investors such as Tencent and Softbank. (See side story: Foreign Invaders. Or not.)

More state support wanted 

As Jokowi’s first term draws to a close, reactions to his administration’s effort to catalyze the startup sector has been mixed. 

“The main thing for [the Indonesian government] is figuring out how they can get involved” and “how to ensure that the startups provide benefits to society and the nation as a whole,” observed Arya Putra Ketut Masagung, a partner at Gobi Partners, a Shanghai-headquartered venture capital firm managing 11 funds across China and Southeast Asia.

He cited the examples of Nexticorn, a government program for nurturing select startups for faster growth and late-stage funding, and the state-supported 1,000 Startups Movement, which conducts community and capacity building programs across Indonesia.

In 2015, the Jokowi administration set up the Indonesia’s Creative Economy Agency (Bekraf), which was spun out as a department under the Ministry of Tourism and had its status elevated. Among other functions, Bekraf now provides funding to Indonesian-owned digital entrepreneurs up to a maximum of IDR 200 million per startup. 

Jefry Pratama, a startup consultant who has founded two startup communities, Indonesia Startup Founder and Tourism Tech, observes that government support has so far been unevenly directed across the various startup sectors. 

Tourism startups have been the biggest beneficiaries of government help, he said, while less attention has been paid to new markets or where there is less familiarity, such as agriculture and education. He is for stronger local adoption of technology in the farming sectors, hoping the government would take the lead in introducing startups and their tech solutions to farmers. 

And with sectors like fintech and e-commerce starting to mature, there are calls for the government to assert more oversight and not get caught on the back foot given the proliferation of new technologies. For example, Pratama noted, regulation needs to catch up in health- and medtech, specifically telemedicine. Indonesia currently does not allow the use of digitized medical records.

The Jokowi government has adopted a sandbox approach when it comes to regulating the startup sector, giving fledgling companies the freedom to explore boundaries while affording the administration the time and space to observe market developments before intervening.  

Likewise, Chaibi hopes that the new government propagates the “can-do, forward-looking attitude” that the current administration has displayed in fintech, to the up-and-coming education and healthcare technology sectors.  

Referring to new equity crowdfunding rules introduced by the Financial Services Authority (OJK) in 2018, Chaibi observed: “Not all regulation is bad… I praise the OJK for the clean-up they have done ... in the P2P lending segment.”

Jakarta+ strategy

While Jakarta remains the base for many Indonesian startups today, startup growth looks poised to spread beyond the capital. 

Practically, such a move would help relieve the crowded capital from further congestion while maximizing the strengths of different regions around the country. Politically, it could help the government promote a course of inclusive economic growth. 

“An emphasis toward entrepreneurship outside Jabodetabek (the greater Jakarta metropolitan area) would be welcomed,” Chaibi said.

According to Pratama, while Jakarta will continue to be the center of economic activities for startups, increasingly the emerging creative hub of Bandung (in West Java), Yogyakarta and Malang (both in Central Java) for web and software development work, and Bali, which is already a de-facto hub for local and foreign digital nomads, will come to complement the capital. 

In terms of deal flows, Arya noted that while a lot of capital is entering Indonesia, the money remains centralized around tier-one cities, including the capital. But as second- and third-tier cities develop, there will be less of a need for entrepreneurs to rely on Jakarta alone, he added, noting that the 1,000 Startup Movement was created precisely to spot startups and talent from other regions in Indonesia. 

For Galuh Koco Sadewo, co-founder of local chatbot startup Botika, decentralization has been a natural move. Botika already operates out of multiple locations, using Jakarta as its base for marketing and networking while taking advantage of Yogyakarta’s low costs and availability of talent for its development team. 

Future, fundings, fundamentals

Whether Jokowi or Prabowo gets elected as Indonesia's next president, players in the local startup ecosystem are generally optimistic of their long-term prospects. 

“There will be very big opportunities for technology businesses this year, because both candidates support the creative and digital economies,” Sadewo said. 

Chaibi is similarly upbeat: “There are still lots of opportunities to solve hard problems that affect enterprise and consumer alike.”

The state of funding, especially early-stage investing by VCs, also continues to see healthy growth. 

“Right now, there is a lot of money going around to be invested in startups, compared to the number of startups available for investment,” said Pratama. And “corporates are finding out that innovation does not happen in their offices but from startups.”

Indonesia’s startup investment scene has a good balance between corporate and more independent venture capital firms. Arya also noted: “There does not seem to be a strong trend toward politically influenced investing in Indonesia” and startups tend to run independently of political events, “with the exception of sectors like fintech, which is heavily dependent on regulations.” 

One key risk investors are wary of is political unrest in the months up to and after the election.  

While Indonesia has become generally less prone to the terrorist-related security events that were prevalent in the late 1990s and early 2000s, Antonius Herman Azwar, Senior Vice President of the Indonesia Clearing and Guarantee Corporation, cautioned that “high visibility events like riots or major protests can cause [investors] to pull their assets out or at least hold off on trading.” 

That aside, the future looks bright for the Indonesian startup ecosystem. As Chaibi put it, “the fundamentals haven’t changed for Indonesia.”