Goodbye Foreign Investors For Indonesian Online Retailers?

A very bad-sounding news has come to Indonesia's e-commerce industry. It is said that the perpetrators online retail The government is now completely restricted or even PROHIBITED from accepting all forms of investment from foreign parties by the government as the party authorized to issue regulations. Like a big wave hitting a small boat, the Indonesian e-commerce industry may now be tossed about in future developments (especially for e-commerce startup activists). Why does this happen?

Previously, this case could actually be considered only experienced by offline retail industry players. This is because the government regulations regarding investment arrangements from foreign parties for the retail industry initially only regulates offline retail business actors (except for shops that have a building area of ​​more than 400 m²).², 1200 m², 2000 m^2, and depends on the type of retail as well). However, whatever the trigger, the online retail industry, which was previously free from these regulations, finally had to accept the consequences with regulations prohibiting investment from foreign parties.

It all started on June 28, 2013 yesterday. Through an official letter that came from the Secretary General of the Ministry of Home Affairs with the number 689/SJ-DAG/SD/6/2013 the unpleasant news actually happened. I will not discuss one by one the contents of the letter (because if you google, you will not find the contents of the official letter), but what is certain and very clear, in the letter it is stated that all restrictions imposed on the offline retail industry are also applied to online industry business actors.

If you're curious, maybe you can try checking the page 61 of Presidential Decree 36 of 2010. On that page, you can find a list of DNI (Negative Investment List) for retail business. If on the list your business name is not listed in the list, don't be happy yet, because the provisions of the Ministry state that every company that sells products directly to consumers is required to hold 100% Indonesian ownership status. So you are really insecure now.

It is ironic indeed, considering the growth of the Indonesian e-commerce industry which is currently experiencing "fertile" times in the Indonesian market with a very broad market potential. The funny thing is, a number of legal provisions imposed in Indonesia regarding this matter have indeed been implemented very clearly, but it is seen that none of these legal provisions are actually published to support the current trending business climate. In line with these provisions, the Indonesian Investment Coordinating Board (BKPM) in this case was directly appointed by the Ministry of Home Affairs to immediately carry out supervision related to this investment.

Whether this is a late step or a unilateral decision, like rice has turned into porridge, a number of Indonesian e-commerce industry players currently have many investment funds from foreign parties. Then what about their fate, both in terms of business people and in terms of investors?

Quoted from the blog of Tokobagus co-founder, Remco Lupker, at Very Spicy website. According to him, the exclusion principle should be applied to a number of foreign investors who have invested in Indonesian e-commerce as well as business people who have received investment from foreign parties. So, according to Remco, the two parties should not be too worried about responding to this because they had already shaken hands and agreed to a business agreement before this provision was enforced.

However, according to him, this provision will certainly cause a new problem in the future if Indonesian e-commerce players who in time will really need a supply of funds - of course after this provision is enforced - obtaining funds from foreign investors is a matter difficult to implement, even impossible to do.

Behind the chaos, there must be a little gap that might be able to relieve us all. Because basically, in the legal provisions it is explained for a number of business actors who have obtained foreign investment, it was decided to still be able to receive funds from foreign investors but with one special exception, namely: for e-commerce players who already have foreign funds are required for 2 years must fully owned by local parties for a period of at least 2 years. What is clear, this will certainly cause pros and cons that may be prolonged.

Until now, we have not received an official statement from the parties concerned regarding this matter, but it is clear whether from the side of the government that issued the policy, it has reasons to protect local retail business actors from attacks by foreign investors. However, the reality is currently very inversely proportional to the needs of small local business actors who need encouragement from foreign investors compared to local investors.

Along with this, of course, the most obvious impact will be on the development of the Indonesian e-commerce ecosystem which will certainly experience obstacles in its development in the years to come. The e-commerce industry in Indonesia is currently still in the early development stage with the need for education from a number of big players. What is clear is that an anticipation, both from a business and a creative perspective, is now really needed to at least restore the enthusiasm of the Indonesian e-commerce industry, which may decline if this regulation is implemented effectively.

[photo illustration by: Shutterstock]