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Private Equity in Indonesia

The famed archipelago has always been one of the powerhouses in economy in Southeast Asia. Now, in 2018, its continued rise provides opportunities for foreign investments such as private equity in Indonesia.

An Overview

Indonesia is the largest economy in Southeast Asia, and it continues to grow with an emerging market economy. It is currently the 16th largest economy in the world by nominal GDP. It ranks 7th worldwide in GDP (PPP).

The archipelago covers a total of 735,358 square miles and boasts more or less 17,000 islands. Indonesia presently holds a population of about 266.8 million. It is part of the G-20, and is expected to reach the rank of 7th in terms of economy by 2030.

Despite its high ranking, Indonesia’s average per capita is $13,162, which makes it lower than the world average.  The US presently has an average per capita of $62,152.

Indonesia is rich with resources and is also an industrial country. Its major industries include palm oil, petroleum and natural gas, textiles, automotive, mining, jewelry and tourism, to name a few.

Major Economic Moves

The presence of Javanese and Sundanese ethnic groups, as well as a rich variety of religious belief, pave the way for cultural diversity in the country. It also provides a wealth of demographics for business penetration.

The growing presence of Internet has created a culture of a ‘mobile first’ market in Indonesia. A large number of transactions in the country are web or app-based. Combined with the low presence of traditional banking, a large domestic market and a young population, Indonesia has opened the doors of opportunity for the e-commerce industry. E-commerce is penetrating services, transactions, and even finance in Indonesia.

Meanwhile, foreign direct investments rose by 8.5% between 2016 and 2017. Indonesia netted a total of Rp430.5 trillion in banking, oil and gas sectors. Domestic investment increased by Rp262.3 trillion with investments focused mainly on food, telecommunications, and construction sectors.

Notable transactions in Indonesia’s economy include:

Alibaba

The multi-national e-commerce, internet, tech and retail conglomerate has been named one of the most admired companies by Fortune. It provides business-to-business, consumer-to-consumer, and business-to-consumer sales and electronic services. Alibaba made a 1.1 billion dollar investment in Tokopedia last August 2017. The platform gained investors such as Softbank, Sequoia, and East Ventures.

Traveloka

The airline ticketing and hotel-booking service recently received a funding of $350 million from Expedia. This makes Expedia its present largest investor. Other companies who invested in the company are East Ventures, Sequoia Capital, Hillhouse Capital Group, JD.com and Global Founders Capital.

Go-Jek

The transport, logistics and payments startup has raised $1.2 billion last year, with a reported valuation of $2.5 to 3 billion. Since its foundation, the ride-sharing app has evolved to include car rides, delivery, and home-delivered services in Indonesia.

The said company also develop Go-Pay – a fintech solution payment gateway which introduces peer-to-peer credit transfers. Furthermore, it acquired Loket to further develop its ticketing service, Go-Tix.

The relatively young giant attracted major investors such as Warburg Pincus, KKR, Capital Group Private Markets, Farallon Capital, Northstar and Sequoia.

Indonesian Central Bank

The bank has recently lightened its strict rules and regulations for fintech companies. The reason lies in the purpose of promoting a rich fintech landscape in the country.

Expectations on Private Equity Investment in Indonesia

Indonesia provides plenty of room for growth in the healthcare industry. There had been low allocation of GDP on health facilities and services, but the government is currently improving their focus. A 2014 mandatory state healthcare program was made with that intention.

The government also opened the general hospital sector for foreign investment. Specialist hospitals used to be the only option for foreign investment. After this change, investments rose to $14.3 million in the first half of 2017 alone. Major investors include Netherlands, who invested $10 million in a Jakarta hospital, as well as the US and South Korea.

Indonesia also welcomed foreign investment for the medical device sector. Direct investment reached $343 million in 2017 along with the arrival of new companies focusing on medical devices.

As of 2018, infrastructure and power remain in demand. Historically relevant commodities and materials, however, are receiving a decline in focus. The presence of large state owned entities can pose difficulty in investments in these fields. Companies that can invest in more mature assets with stable cash flows will be find more advantage in the said sectors.

 

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