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Business trends

Indonesia looks to ease foreign investment rules on startups

Jokowi aims to foster unicorns through supplement to omnibus law

Indonesia's digital economy is growing quickly and, at $44 billion, is the largest in Southeast Asia.   © Reuters

JAKARTA -- Indonesia is looking to ease rules on foreign investment in some of its startups by exempting them from minimum investment requirements, as the country aims to continue spearheading the growth of the digital economy in Southeast Asia.

The plan is being floated in a draft presidential regulation as a supplement to the "omnibus law," sweeping legislation that makes changes to more than 70 labor, tax and other key laws. The omnibus law was passed by parliament and later enacted following an acrimonious debate last year.

The law opened up nearly all of Indonesia's industries to foreign investment. The draft presidential regulation sets the minimum investment at 10 billion rupiah ($710,000) for foreign investors. However, it says that "in order to encourage the strengthening of the technology-based startup ecosystem," the minimum investment rules will not apply to money pumped into in startups in the country's special economic zones.

There are currently 15 such zones in Indonesia according to BKPM, Indonesia's Investment Coordinating Board. The governor of East Java, Khofifah Indar Parawansa, said recently that she hoped the zone in her province, the Singhasari SEZ, would become like Silicon Valley in the future, and that new Indonesian unicorns -- private companies valued at over $1 billion -- will be born there.

Indonesia's President Joko "Jokowi" Widodo is a keen advocate of the country's booming digital economy and has overseen the birth of some of Southeast Asia's most valuable startups during his time in office. The country's digital economy is worth $44 billion and is by far the biggest in the region, according to a report from Google, Singaporean state investment fund Temasek and Bain, an international consultancy.

While foreign direct investment in Indonesia has been hit by COVID-19, the startup sector has held up well, raking in $2.8 billion in the first half of 2020, compared with $1.5 billion for the same period a year before, according to Singapore-based Cento Ventures. Indonesian unicorns have attracted cash from global tech giants like Google, Facebook and Microsoft. Bukalapak, one of the country's leading e-commerce platforms, recently raised $200 million from Standard Chartered Bank, according to Bloomberg.

The president's ambition to make Indonesia a global digital powerhouse was already reflected in the omnibus law: Employers in established businesses are required to seek central government approval to hire foreign workers. But the law exempt startups, allowing them easier access to highly skilled people from overseas.

Aside from easing investment rules for startups, the draft presidential regulation also lists 246 priority sectors that are eligible for incentives such as tax cuts. They range from corn farming, to chipmaking, to the wood furniture industry.

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