An update from Indonesia

Photo by  Appai  on  Unsplash

Photo by Appai on Unsplash

We returned to Jakarta last week and found it much as we had left it – buzzing with life and teeming with energy. The familiar combination of mosquito-buzzing motorbikes (plus actual mosquitoes) and the stifling humidity welcomed us as we set about our business.

We arrived at our base at The Best Western Senayan at around 11pm Sunday night after travelling for way too many hours via Doha (looking down at the dusty expanse it was hard to imagine the mechanics of a World Cup there) and expecting a fairly standard 3 star experience from our startup budget.

It was a change of location from our usual choice of the Thamrin area, given the latter’s proximity to the constitutional court from which the final endorsement of President Jokowi’s election win was expected. We checked in and went into our rooms where we were unamused to discover that there was a mirror behind the curtains instead of a window! As our COO, Lupo, joked via Whatsapp, we smiled and waved to the secret police.

A subtle shift in sentiment.

Since our February trip there has been a subtle shift in sentiment. The optimism of an expected Jokowi victory from most in the business community which preceded the elections has given way to the reality that post his resounding victory (despite some ongoing protest), his government continues its interventionist approach to business and is fairly limited by practical circumstances in terms of further major reform. A new friend mentioned to us that Indonesia is caught between permanently trying to juggle Islamism and socialism which are both powerful historical and cultural forces in the country. This is an interesting take and worthy of further thought.

While the government's infrastructure programme has yielded definite results, the question of how to sustainably elevate Indonesia’s growth back up towards the 6-7% needed to make headway is firmly back on the agenda. It's not inconceivable that profit may be sacrificed for political pragmatism in the final term of the current president and this may not bode well, in particular for state-owned enterprises that may face similar pressures to those we have seen in other emerging countries. Investors seeking higher returns in many of these names may be sorely disappointed, returns continually get redistributed from equity holders to the general public. Better infrastructure may well render Jakarta a more pleasant city to live in, but the cost of such investments – including the textbook “crowding out” of private investment and returns – have to be paid.

A boost in productivity.

Speaking of infrastructure spend, one notable change has been the completion and commencement of Jakarta’s MRT (mass rapid transport) system. Thanks to this flagship Jokowi initiative, we found we were early for most of our meetings due to less cars being on the road. Make no mistake, we are speaking incrementally here, as the traffic is still the worst of pretty much any city we’ve been to, but there is a definite improvement in travel time. It gives a different spin on one of our core themes, “competition for time” but let’s assume there's an extra 10-15 minutes available to the average Indonesian commuter each way and it can only bode well for productivity levels.

The highlight of the week outside of the business angle was our Meiso experience. "Meiso" in Japanese means contemplation and the name could not be more perfect. Meiso is a chain of reflexology centres situated mostly in shopping malls. It's always full, and we were lucky to get the slots we did. One hour of massage costs the princely sum of $7, roughly 10 times cheaper than the UK and a far better experience if you don’t mind sharing your space with up to 20 other customers all taking time out of their days to reflect or snooze or fiddle on their smartphones, or all of the above while being pummelled to smithereens by Meiso-trained masseurs.

Tech, tech and more tech.

Another highlight was a serendipitous attending of CIMB’s Indonesian startup conference where a dozen or so emerging tech companies were on hand to educate attendees on their plans. Companies ranged from P2P lenders, to a gamified stock trading app, to AI-driven healthcare and data companies. One less recent graduate which was not at the conference is WIR, an AR/VR and AI software company which media reports suggest is ready to progress to the Jakarta Stock Exchange in the coming months. This would be Indonesia’s first sizeable business of this nature to hit the stocks market and is surely a sign of things to come.

What was poignantly noticeable about this conference was the apparent lack of frenzy by investors. The conference was well attended for sure, but there was by no means the army of VCs and investors one would expect if one were in Silicon Valley or London. There are sizeable opportunities here for those willing to leave their comfort zone and travel to learn.

The harvesting of e-wallets continued at a pace and with even more aggression as the wallet providers compete with each other and the traditional banks to attract customers. With the interest rate policy seemingly peaking and possibly inflecting, our banking idea from our "Finance 2.0" theme may be nearing an attractive cyclical entry point.

Our investment meetings covered some fascinating topics, from the merits of investing in e-sports to the possible existence of aliens. From quantum mechanics’ double slit experiment to whether Bitcoin is an exit door from the current financial system. From daily sprint triathlons (yes, one new friend does that every single day) to the budding opportunity of marijuana tours in California, we covered much ground. Our journey ended with a final nip to the nearest Meiso for a catnap and a foot massage.

Again, we thank everyone who took the time to engage with us and we look forward to being back again in the coming months.

Edward Rhys