Indonesia’s e-commerce sector shows no signs of abating despite today’s global economic uncertainty. Regulations issued recently should further cement Indonesia’s place as one of the world’s center for e-commerce and online marketplaces.
The year 2019 was not a good year for the global economy. The IMF is projecting a 2.9% growth for the year, down 0.8 percentage points compared to 2018. Accounting for the various challenges faced by the global economy in 2020, such as the US-China Trade War, Brexit and, more recently, the spread of COVID-19, many economists are expressing pessimism about any sort of surge in global economic activity this year as well.
Indonesia was not immune to the downturn, reporting a contraction in the national economy in 2019 of 5.02% – down from 5.17% in 2018 due to weakening investment and exports. Based on a tax income report from the Ministry of Finance, the mining sector took the brunt of the slowdown as tax income from the sector shrunk dramatically to -19% in 2019 (y-o-y) from 50.7% in 2018 (y-o-y), followed by tax income from the manufacturing sector, which shrunk to -1.8% in 2019 (y-o-y) from 10.9 in 2018 (y-o-y).
That same report however also revealed an interesting phenomenon. While tax income for the major contributing sectors of manufacturing, trade, financial services and insurance, construction and real estate, and mining slowed down, tax income from the transportation and warehousing sector grew to 18.7% in 2019 from 14.4% in 2018. This is likely due, according to Finance Minister Sri Mulyani at a recent speech at Indonesian Investment Coordinating Agency, to the vibrancy of Indonesia’s e-commerce sector.
Indonesia, the largest economy in ASEAN, has been on the crosshairs of global e-commerce platforms for a long time. Being the fourth largest nation in the world in terms of population – more than 265 million, of which a large majority is at a young and productive age – Indonesia’s e-commerce sector seems to be playing a major role in propping up the national economy. This is supported by various reports issued last year, such the e-conomy SEA 2019 from Google and Temasek which projects a growth rate in excess of 40% annually for Indonesia’s internet economy – to US$130 billion by 2025 from the projected $40 billion in 2019.
Mrs. Mulyani also touched on an insignificant factor that also played a role in the growth of the logistic and manufacturing sector: that of the fast-tracked growth of infrastructure under the administration of President Joko Widodo. As described in the President’s four-year report issued at the end of his first term and further illustrated in EKONID’s Indonesia Quick Guide 2019 edition, Mr. Widodo oversaw major infrastructure improvement, such as the development of 741km of roads – more than any other preceding Presidents during their full term – 41km of bridges, 754km of railways completed or reactivated, and various other developments.
Both the vibrant e-commerce sector and the improvements to Indonesia’s infrastructure seemed to have naturally led to the growth of the warehousing sector. One major example was the launch of the first e-commerce dedicated Bonded Logistic Center (PLB) by PT Uniair Indotama Cargo. Sanctioned by the Indonesian government, the warehouse was touted as a one-stop solution for Indonesian businesses looking to export their products overseas. Another recent example was the partnership of local logistic company LODI with German company Schenker struck in February of 2020, in which the former – a technology-based logistic company that provides solutions for fulfillment and delivery requirements – would be provided e-commerce warehousing services in its 10,500sqm warehouse located in Marunda, North Jakarta.
So where does Indonesia go from here? Taking into account the country’s miniscule role in the global supply chain, on December 31, 2019, the Ministry of Finance issued regulation No. 199/PMK.010/2019 on Provisions on Customs, Excise and Taxes of Consignment Goods, which is aimed at lowering the threshold for import duty exemption and, ultimately, encourage the export of goods rather than imports. The rule, in combination with the controversial Omnibus Bill that is currently being deliberated by the Indonesian parliament, is expected to increase foreign investment and the manufacturing sector. With these developments, the Indonesian government is clearly hoping that Indonesia will not simply be a “market” for e-commerce players worldwide, but also an active participant.