AS Indonesia celebrates this week her 76th independence anniversary on Aug 17 this year and Malaysia for her 64th independence anniversary on Aug 31 this year, it will be good to reflect on new cooperation possibilities between Penang and Indonesia. Beyond the areas of traditional trade, investment, tourism, agriculture, healthcare and education, we should explore new territories such as e-commerce and digital economy, the fastest growing economic sectors in ASEAN which is expected to generate US$300 billion in value by 2025.
Malaysia and Indonesia, as close neighbours sharing common heritage in ethnicity, language, culture and religion, have long enjoyed complementary differential advantages with each other. Penang, strategically located in North Malaysia in close physical proximity with Indonesia’s Medan and Aceh on Sumatra Island, has a strong mercantile culture inherited from five centuries’ history as a global trading hub. In fact, Penang has been sister city with Medan for 37 years and is the second oldest halal trading
port in the world after Rotterdam.
Since the turn of the 21st century, the global economy has been marked by slow and uneven growth in different countries. The Covid-19 pandemic started around 18 months ago jolted the global economy into a tailspin and forced all ASEAN countries into economic recession in 2020 with Indonesia, Malaysia, Singapore, Thailand registering negative GDP growth of -2.1%, -5.6%, -5.4% and -6.1% respectively.
However, the digital economy sector in Indonesia recorded robust growth of more than 10% during the same period. Home to four unicorns and one decacorn, Indonesia boasts the most vibrant startup ecosystem in the ASEAN with over 2,000 startups in Jakarta and Bandung alone. Last year, Indonesia overtook Singapore for the first time as the country to receive the largest venture capital investment at US$4.4 billion, more than half of the total, in Southeast Asia.
While the raging pandemic crisis presents the most visual disruption to the entire world, mega global trends two to three decades in the making have been actively at work to disrupt and transform the regional and global economy. For example, Artificial Intelligence (AI), Big Data, Internet-of-things (IoT) and other IR 4.0 technologies have fuelled the rise of transnational BigTech firms like Amazon, Alibaba, Google and Facebook that have become more powerful than many nation states. Rising socio-economic trends such as de-globalisation, nationalism and trade protectionism, as manifest in the US-China trade tensions, have forced violent decoupling of established global supply chains, while our global financial systems faces existential threat from the emerging crypto and financial technologies.
On the home front, Indonesia and Malaysia are members of ASEAN which has a combined population of more than 670 million people with a total GDP of US$3.08 trillion, representing the fifth largest economy in the world. In November 2020, all 10 ASEAN members signed the Regional Comprehensive Economic Partnership (RCEP), the most comprehensive free trade agreement (FTA) in human history which covers 30% of the global economy. RCEP, together with the five existing bilateral FTA’s signed between ASEAN and China, Japan, South Korea, India and Australia/New Zealand, is expected to provide much needed boost to speed up economic recovery from severe damages inflicted by the Covid-19 pandemic. Closer to Penang, there exists the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), a sub-regional G2G platform that promotes the Extended Songkhla- Penang-Medan Region as one of the five economic corridors. Together, RCEP, ASEAN-FTA’s and IMT-GT provide a strong foundation for
cooperation between government and private sectors.
With the exception of 2020 due to pandemic, Indonesia’s economy has been growing steadily at around 5% for the past 10 years. In line with his Vision 2045 for Indonesia to become the top 5 economies in the world with GDP of US$7 trillion when the country turns 100, President Jokowi signed into law last November the Omnibus Law, a “game-changing” piece of legislation that will significantly enhance the investment ecosystem for foreign investors. With amendment of 76 existing laws and elimination of 5,000 central and 16,000 regional government regulations, the Omnibus Law streamlines capital investment, business licensing, land acquisition, corporate taxation and employment rules with aim to boost Indonesia global ease of doing business ranking to 40 from the current 70 among 190 economies. Given the current favourable investment climate as evidenced by the Government’s strong commitment to economic reforms, its “sweet spot” demographics where 70% of Indonesia’s 276 million population is of prime working age, and boasting the largest digital economy in ASEAN that is expected to grow to US$124 billion by 2025 from US$44 billion in 2020, Indonesia today provides unprecedented business and investment opportunities for Penang and Malaysia based entrepreneurs and investors. Five possible areas to venture into are:
1. Startups and Digital Economy. Penang should proactively connect and collaborate with Indonesia’s dynamic and innovative start-up ecosystem to accelerate its own ambition to develop its own start-up ecosystem and fledgling digital economy sectors. Specifically, we could cooperate in the areas of joint start-ups, co-investment (angels and venture), IP sharing and market development. Indonesia’s 124% mobile penetration and huge e-commerce market audience of 185 million internet users present a market opportunity that is many times larger than their home market for Malaysia’s startups and businesses. While Indonesia’s over 2,000 start-ups concentrate in Jakarta and Bandung, Penang could also collaborate with the lesser developed provinces of Sumatra such as Medan to tap into new growth territories. Beyond the traditional e-commerce arena, many opportunities are available in the agro-tech, supply chain/logistics and creative arts and culture areas.
2. E-commerce (B2B and B2C). Penang and Indonesia could cooperate to set up physical and digital free trade zones in Penang to procure and process high value commodity and seafood products from Indonesia for export to third party countries in East Asia, Middle East, South America and Africa. The proposed cooperation will leverage on Penang’s superior international logistics infrastructure, mercantile expertise and international marketing capabilities, and provide a substantial business platform to help Penang achieve its ambition to become an international halal hub. Further, Penang entrepreneurs could set up e-shops at Tokopedia, Indonesia’s largest B2C e-commerce platform with 100 million monthly active users and 9.7 million merchants.
3. Electrical and Electronic (E&E) Sector. Penang, having one of the most developed E&E ecosystems in the world could help Indonesia develop her manufacturing and export industries given the rapidly improving investment conditions and incentives. Besides supplying talent to Penang, Indonesia has an abundance of key commodities to supply to our industries such as nickel, an important component of lithium-ion batteries which power electric vehicles.
4. Medical Services. Indonesia’s fast growing middle class and increased demand for quality healthcare, supported by the newly liberalised foreign investment rules, offers new possibilities for investment in the healthcare sector. Looking beyond the traditional business model of attracting medical tourists from Indonesia, Penang entrepreneurs should explore new business models that enhance access to health services including the setting up of local and remote medical care facilities, especially in the Sumatra provinces.
5. Regional and Integrated Tourism. Penang and Indonesia based entrepreneurs could work together to co-create regional tourism products and services such as eco-tourism and culture discovery by leveraging on the latest digital platforms to cross-promote tourism offerings to each other’s domestic tourists and third country tourists. As we reflect on the sweeping economic reforms taking place in neighbouring Indonesia, their amazing demographics consisting of over 60% millennials and generation Z digital natives and astounding achievement in digital economy, it is timely for us to shed dated knowledge and old prejudices and adopt a new and positive mindset about Indonesia. Penang/Malaysia entrepreneurs enjoy the distinct advantage of language and cultural skills over their counterparts from other countries and access to the Malaysia and Indonesia diasporas in both countries. Throughout the Covid-pandemic period, Indonesia Consulate General in Penang has been proactive in promoting the latest investment laws and cross-border trade and investment opportunities through a series of webinars with strong support at the ministerial level. However, I believe the remarkable “good news” story of the Omnibus Law will be more widely known through a more active promotion (of the Law) over the next two to three years. It’s time to hit the ‘Refresh’ button on Indonesia and enter into exciting opportunities right at our doorstep!
Aug 16, 2021
Stephen Lai
CEO, SEED Penang
About the writer: Penang-based Mr Stephen Lai is an international business and startup consultant who spent over 30 years overseas in the USA and Singapore. He has a varied career as founder of a few technology startups, ASEAN Rubber Conference, investment manager and consultant to government agencies in Singapore, Shenzhen and Malaysia. Stephen travelled extensively and conducted businesses in all ASEAN countries, China, Japan, and India for more than 20 years. He is currently CEO of SEED Penang promoting social entrepreneurship and social enterprise development in Penang.
The views expressed here are those of the contributor/author. They do not necessarily represent the views of Buletin Mutiara.