Indonesia e-commerce bracing for a year of regulatory debates and continued growth

By: Ardi Wirdana

As far as Indonesian e-commerce is concerned, the big question on everyone’s lips in 2016 will revolve around the issue of foreign capital. All eyes will be on the government to see to what extent, if at all, it will finally allow foreign investors to enter the industry, which is widely projected to see outstanding growth in 2016.

E-commerce is currently included in Indonesia’s Negative Investment List, which means that it is one of several industries that the government has decided will be closed to foreign investment. According to the Trade Ministry, the rationale behind the negative investment list was to give the opportunity for local entrepreneurs to dominate particular fields that are considered not to “require high technology and big capital”.

The inclusion of e-commerce in this list has been heavily criticised by online entrepreneurs who feel that the government does not understand the deep level of sophisticated technology and large amounts of investment to develop an e-commerce business in the country.

The complaints by e-commerce players have been heard loud and clear by the government and in November, following a meeting between Communications and Information Minister Rudiantara, Trade Minister Thomas Lembong and Investment Coordinating Board (BKPM) chairman Franky Sibarani, the government vowed to remove e-commerce from the negative investment list.

However, it stressed that only established e-commerce companies will be allowed to receive foreign investment, while start-ups and small-to medium-sized companies should be developed by local players first.

The negative investment list is to be reviewed every two years, meaning that the 2014 rule is scheduled to be reviewed in April 2016.

Regulating E-Commerce

Indonesia currently has very few regulations on e-commerce. 2016 is anticipated to be the year that the government sets rules and guidelines for e-commerce businesses in the country. The Trade Ministry is currently working on a government regulation on e-commerce – something players in the industry will be anxiously waiting for.

In June, the Trade Ministry circulated a draft of the e-commerce regulation to a number of industry players to test the waters and seek the responses from those concerned. Although the complete draft is not available to the public, the Indonesian E-Commerce Association (idEA) has shared some of the content of the 70-article draft and highlighted a few points of concern.

Indonesia Trade Minister Thomas Trikasih Lembong

Indonesia Trade Minister Thomas Trikasih Lembong. Photo courtesy wikimedia user Tian x-way

The first concern regarding the draft is how it views industry players and their responsibilities. According to idEA, the draft consists of an article that states all e-commerce players must be responsible for the delivery of products to customers.

This is problematic as not all e-commerce players operate in the form of e-retail businesses. Marketplaces like Tokopedia and OLX would object to this rule as they only provide a platform for sellers, and therefore has little control of products sold and its delivery.

Another issue highlighted by idEA is the numerous requirements and layers of licenses imposed on local e-commerce businesses. This, idEA says, will not only discourages local e-commerce players but also puts them at a disadvantage compared to their foreign counterparts.

Sari Kacaribu of idEA’s Public Policy department, explained that it will be difficult for the government to impose such tedious requirements to foreign e-commerce businesses that are already roaming freely and expanding their businesses all over Indonesia. Therefore, it is feared that such requirements imposed on local businesses may prompt them to take the simpler option of selling their products on foreign e-commerce platforms or social media.

The draft consists of other problematic articles which idEA has pointed out to the Trade Ministry. Following the discussions between the two parties, the government has decided to involve the association on future drafting of the e-commerce regulation which is still to go through a few lengthy stages to produce the best decisions, idEA says in its website.

Destined for Growth

Regardless of all the outcome of impending regulations, the e-commerce sector is still set to witness outstanding growth in terms of industry value and total transactions.

Indonesia’s e-commerce transactions hit US$12 billion in 2014 a surge from only $8 billion in 2013. The official figure for 2015 is yet to be released but the positive trend is expected to continue. By 2016, Indonesian e-commerce could be worth up to $25 billion, according to a joint report released by idEA, Google Indonesia, and Taylor Nelson Sofres (TNS).

The report also revealed that fashion items were the most were the most purchased e-commerce product, followed by mobile and consumer electronic goods. It also revealed that the number one reason more shoppers are moving online to carry out transactions is because of the comfort and convenience it offers compared to conventional offline shopping.

The growth of e-commerce will be driven by the country’s increasing number of smartphone users, predicted to hit 103.6 million people in 2017 from around 61.2 million in 2014, according to market research firm eMarketer.