Indonesia to create state fund for startups, pundits say it’s not that easy

• Wants to beat Thailand at its own game ‘so we will not be left behind’
• Administrative and legal challenges, ecosystem needs other funding sources

 
INDONESIAN President Joko ‘Jokowi’ Widodo (pic above) has instructed his administration to allocate a special state fund for startups, the first such initiative in the country, saying that it would make Indonesia more competitive.
 
Even Thailand has such a fund, he said in his speech at the Indonesia E-Commerce Summit and Expo (IESE) 2016 in Tangerang, West Java, on April 27.
 
The Thai Government plans to create a Bt20-billion (US$571-million) fund to finance an existing 2,500 startups in the country, according to the Bangkok Post.
 
This fund will be divided evenly between the Ministry of ICT and Ministry of Finance, and aims to increase the number of startups to 10,000 by 2018, the paper said.
 
“We need to exceed the fund the Thai Government is giving its startup community,” Jokowi meanwhile urged, although he was spare with details.
 
He later told the media that he wants this to be discussed carefully “so we will not get left behind.”
 
A difficult proposition
 

 
The idea of such a state fund may be laudable, but the reality would be fraught with challenges, according to pundits Digital News Asia (DNA) spoke to.
 
Indonesia’s former Trade Minister and also former Tourism and Creative Economy Minister Mari Elka Pangestu said the idea is “institutionally very difficult, but not impossible.”
 
Mari (pic above), who is also professor of international economics studies at the University of Indonesia, said the regulatory regime for grants in Indonesia is very complicated.
 
Even she had to give up on her film industry grant plan back when she was serving in her Creative Economy portfolio.
 
“One of the requirements is that the grant recipient needs to be a non-profit, voluntary, or social institution. There might be a need to change the Constitution to meet this demand,” she told DNA on the sidelines of IESE 2016.
 
The former head of Indonesia’s Investment Coordinating Board and former Finance Vice Minister, Mahendra Siregar, concurred.
 
He told DNA that the administrative and legal challenges to create such a state fund would be “painful.”
 
“As far as I know, the fund must either be a permanent part of the state budget or an investment made by the Government,” he said.
 
He said the qualification criteria for either model would be very complicated, adding that “it is not going to be as easy as expected.”
 
Help from SOEs
 

 
Even if it goes through, creating such a fund would take some time, and rather than wait, the Government has already been making some moves to help startups, according to Mahendra (pic above).
 
“The Government has been allocating money to state-owned enterprises (SOEs), especially those whose business is related to the digital sector such as banking and telco, to help build the startup ecosystem” he said.
 
Recently, the state-owned PT Telekomunikasi Indonesia (Telkom), through its venture capital arm Metra Digital Innovation Ventures, opened an office in Silicon Valley in the United States, in partnership with Plug and Play, which describes itself as an innovation platform.
 
“Telkom has committed to injecting US$100 million into MDI Ventures in the next four years to build the startup ecosystem, US$25 million for 10 to 12 startups each year,” Telkom innovation and strategic portfolio director Indra Utoyo said then in an official statement.
 
In January, Bank Mandiri, also an SOE, launched a subsidiary called Mandiri Capital Indonesia, with a commitment of up to Rp500 billion (US$38 million) to invest in startups.
 
As a bank, “it had to create a new subsidiary to accommodate high-risk investments,” Mahendra explained.
 
He also advised startups not to wait for this proposed state fund to be established, because it would take some time for the regulatory issues to be resolved.
 
“Let us not envy China and Singapore for the generous funds their governments give their startups, nor should we compare governments,” Mahendra urged.
 
“Our government has tried, and is still trying, but I know for sure that the challenges are not going to be easily overcome.
 
“It is good that we now have SOEs coming into the ecosystem, but we need more, and we have to think of other alternatives to help grow startups in the country,” he added.
 
Related Stories:
 
Jokowi: Digital economy vision is about helping the underprivileged
 
Indonesia’s vision: 1,000 startups by 2020
 
 
Malaysia and Indonesia in startup ecosystem partnership
 
 
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