fangs a lot

A Digital Policy With Teeth

The nation's pay-to-play digital policy combines nationalism with pragmatism.
Photographer: Mohd Rasfan/AFP/Getty Images
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Nationalism minus chauvinism. That's how Indonesia wants to deal with FANG.

Facebook, Apple, Netflix and Google -- the four horsemen of the digital economy -- will get to play freely in the archipelago's 260-million-strong consumer market, according to Communications and Information Technology Minister Rudiantara. The minister, who uses only one name, has no airy-fairy notions about national digital champions who'll help keep Indonesian money at home.

The nation's pragmatic approach to its small but growing digital economy is in stark contrast to "a particularly durable brand of resource nationalism," which, according to Eve Warburton, a research scholar at the Australian National University, "has become a permanent feature of Indonesia’s political economy."

A tax on unprocessed copper, meant to prod U.S. companies Freeport-McMoRan Inc. and Newmont Mining Corp. to add more value to their exports from Indonesia, may have caused billions of dollars in revenue losses for the government since 2014. While the levy has now been scaled back, Freeport is still stuck in a messy quibble with Jakarta over its license to operate at Grasberg, the world’s second-largest copper mine.   

The FANG, by contrast, have a far more open field. They just have to pay to play for the country's 113 million Internet users.

Going Online

Mobile has helped Indonesia increase Internet penetration threefold in four years

Source: McKinsey & Co., "Unlocking Indonesia’s Digital Opportunity"

Some of them already are writing checks. Just last month, Alphabet Inc.’s Google settled a long-running tax dispute with Indonesia.

Rudiantara refused to tell me what the Mountain View, California-based company has agreed to cough up because Finance Minister Sri Mulyani Indrawati has sworn him to secrecy. More important than the money, however, is the change in law that his ministry will push for this year, allowing overseas companies to sell web services.

At present, foreigners need to commit at least $7.5 million in local investment before they can operate an online marketplace or sell digital ads. That's an unrealistic hurdle. As long as the service provider nominates a telco (or another agent) to collect -- and pay -- business taxes on its behalf, there's really no need for it to maintain an office in Jakarta.

Or make phones locally, for that matter. While a bigger economy like India can threaten to raise the cost of market access for Apple Inc. unless iPhones are made locally, Indonesia is perfectly happy with the U.S. company's research center in Banten province. Those 400 jobs, plus the center, put Indonesia on the map whenever Apple CEO Tim Cook makes a presentation. That publicity alone is worth a lot of new investment in other fields.

The urge to rein in foreign control over resources stems perhaps from a desire to create muscular state-owned national champions in extractive industries. Government-controlled mining company PT Aneka Tambang Persero has a market value of $1.3 billion, compared with $17.2 billion for Freeport. Luckily, there are no such plans to bulk up the state's presence in e-commerce, which is why Indonesia can afford to be relaxed about sharing consumers with FANG.

That doesn't mean a smaller market for local startups. If anything, the opposite is true. It's almost impossible today to imagine life in Jakarta without Go-Jek, a bike-hailing app that delivers everything from passengers and food to booze and masseurs. Alongside Jakarta, Bandung and Surabaya are also emerging as innovation hot spots, according to McKinsey & Co., which estimates digitization will boost Indonesia's economy by $120 billion by 2025. 

How the Prize Stacks Up

Digitization could see Indonesia's $932 billion economy swell by $120 billion, or 13 percent, by 2025, with all industries witnessing productivity enhancements

Source: McKinsey & Co., "Unlocking Indonesia’s Digital Opportunity"

Like their counterparts in many other countries, authorities in the world's most-populous Muslim nation are getting a little impatient with what they view as Facebook Inc.'s slow and inadequate response to requests to take down offensive content and fake news. But nobody is talking about banning the service, which is used by more than 100 million Indonesians. Meanwhile, PT Telekomunikasi Indonesia is negotiating a partnership agreement with Netflix Inc., Reuters reported in April.

When it comes to designing and implementing policy for business, nationalism minus chauvinism has much to recommend it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Andy Mukherjee in Hong Kong at

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