Relocating Indonesian capital will impact nation’s startup ecosystem

Recently reelected, Indonesian President Joko Widodo announced a desire to move the nation’s capital from Jakarta to the East Kalimantan region, citing environmental concerns, the most exigent of these being the fact that Jakarta is literally sinking due to the uncontrolled extraction of groundwater. Widodo said he wished to separate Indonesia’s government from its business and economic hub in Jakarta.

However, what would a move from Jakarta do to Indonesia’s burgeoning startup economy?

Shifting administrative governmental hubs

According to Widodo, studies have determined that the best site for the proposed new capital is between North Penajam Paser and Kutai Kertanegara, both located in East Kalimantan. The basis of this selection is due to studies highlighting the region’s relative protection from natural disasters, especially when compared to other regions. This would definitely be a benefit for the governmental heart of Indonesia, ensuring continuous administrative functions in a disaster-prone region. Other governments have separated administrative centers from their economic hubs with varying degrees of success, with some examples being Brazil’s creation of Brasília, as well as Korea’s projected move from Seoul to Sejong.

What is most interesting to note from prior examples is that these newer branched-out cities are non-surprisingly, heavily government-centric. In Brasília, roles tied to the government make up nearly 40% of all jobs, while in Sejong, a lack of facilities like public transit and commercial mall space cause many to commute into Sejong for government work, instead of permanently settling in the area. Given the semi-undeveloped nature of East Kalimantan, these anecdotes are quite troubling if the government is actually moving to North Penajam Paser or Kutai Kertanegara.

These facts raise the question of economic impacts of such governmental moves. In fact, one may even opine that while these moves do allow for governmental growth, ultimately, they may hurt the country economically due to a divestment between both government and economic hubs. In this specific instance, it is most important to analyze the impact of such a move on Indonesia’s startup economy, as the nation is one the world’s leaders in startup growth.

Indonesia’s startup economy

Indonesia has emerged as a startup hub within Southeast Asia in recent years, with its population of over 260 million marking it as the world’s fourth-most populous country. Additionally, Indonesia’s mobile-first population has enabled the full embrace of the internet era, with 95% of all internet users in Indonesia connected to the web via a mobile device.

Similarly, startup growth has boomed in the island archipelago, with several Indonesian-based unicorns disrupting local, regional, and global economies. Softbank-backed ecommerce giant Tokopedia is currently in talks for a pre-IPO funding round, while emerging super-app Gojek controls significant portions of the ride-sharing industry in Asia, simultaneously expanding into separate industries to include digital payments, food delivery, and even video-streaming. Additionally, online travel portal Traveloka (in which Expedia has a minority stake) has recently entered the financial services space, furthering its impact within Asia. These specific examples of high-growth startups demonstrate a population hungry for innovation, further driving the developing startup economy.

While a move to a particularly rural region may be troublesome for specific economies, the potential transition to a government to East Kalimantan will only help to jumpstart the Indonesian startup economy, with specific sectors being highlighted due to this governmental transition.

Expanded growth through ecommerce startups

Indonesia currently ranks as the world’s fastest growing ecommerce market, with PPRO High-Growth Market Reports 2018 valuing the sector at $7.2 billion dollars. Simply put, Indonesia’s robust digital ecosystem has allowed for unparalleled growth, with a high participation rate from enterprises of all sizes ranging from giants such as Tokopedia, to more locally-based organizations like MatahariMall.

Ecommerce has also helped improve the quality of life for Indonesians, helping provide additional income to both merchants and consumers. This has resulted in McKinsey reporting projected growth rates at over eightfold from 2017 to 2022, further emphasizing the established synergy between ecommerce and Indonesia’s mobile-first population.

One difficulty that Indonesia does possess in terms of ecommerce growth is that of infrastructure development. The nation’s island status and a comparative lack of infrastructure development when compared to its peers has hurt its ecommerce expansion. This is where the potential move to East Kalimantan could benefit the ecommerce startup industry. New infrastructure growth in East Kalimantan would allow ecommerce a whole new sector of potential merchants and consumers, allowing for additional mobile penetration and subsequently, ecommerce participation.

Additionally, this type of growth could further contribute to Indonesia’s ecommerce startup economy as a whole, allowing for additional participants within the startup ecosystem, with one example of such participation in ecommerce coming from rural China, where increased Internet access has allowed for increased participation by both merchants and consumers.

Increase in sustainability-focused startups

Indonesia has attracted significant amounts of focus in sustainably-centered startups in recent years. This growth has been fueled primarily by these beneficial social enterprises, helping to improve quality of life for Indonesians, with the average resident surviving on less than $190/month. Therefore, growth in specifically sustainability-focused startups has risen significantly in the past several years. Additionally, given the relatively limited amount of participants in this specific startup ecosystem, the growth potential for this area is immensely large. The very fact that the proposed capital of East Kalimantan is heavily dependent on more environmentally-unfriendly natural resources such as natural gas and coal will further drive growth in these types of startups.

There have already been several startup successes in Indonesia focusing on sustainability; Kedai Sayur, an agritech startup, raised $4 million in a funding round led by East Ventures in the past several weeks. Kedai Sayur, which translates to “vegetable kiosk” in Indonesian, helps partner farmers with vegetable hawkers through mobile apps. Startups such as Kopernik have further contributed to the idea of social enterprise-focused startups, with its well-known Wonder Women program helping to distribute low-cost and environmentally-friendly technologies to empower Indonesian women. There have also a variety of other startups that have seen limited success in the social enterprise and sustainability sector, thus providing concurrence that there is a growing demand for such types of companies.

All in all, a move of Indonesia’s capital from Jakarta to East Kalimantan would only help boost the startup economy.

While initial reports after such a move may be indicative of negative or zero growth, ultimately, a move to East Kalimantan would allow for further development in the startup industry, with a focus on ecommerce and sustainability-focused enterprises that Indonesians have shown utilization of. Indonesia’s mobile-first economy has truly helped to ingrain the idea of startups within the mindset of all Indonesians, ensuring a healthy and vibrant startup ecosystem.