Interview: Nadiem Makarim

How do you evaluate the role of apps in bridging Indonesia’s prevalent rural-urban divide?

NADIEM MAKARIM: Indonesia has not yet bridged the divide between rural and urban populations, although the quality of living has improved in rural areas. Given that most of the population live in major cities, the country still faces huge demographic and infrastructure challenges that will take decades to solve. Unlike China, we missed our infrastructure investment window some 20 years ago. As a result, congestion, pollution and transportation issues emerged as complicated challenges. Ride-hailing apps can help solve these problems and in turn drive economic productivity. For example, GOJEK’s ecosystem opens up job opportunities for around 5m-7m people, directly or indirectly.

Apps are also working to support small and medium-sized enterprises, facilitating greater financial inclusion. Our food delivery app GO-FOOD sources at least 80% of its orders from local independent stores, ensuring that small businesses benefit.

However, one of the requirements of sustainable economic growth is access to credit. Many consumers need credit to mitigate cash flow risks as they get paid at the end of each month. Therefore, this is one method by which digitalisation can widen financial inclusion.

What roles do the different consumer segments play in spurring growth in the digital economy?

MAKARIM: Higher-income groups, despite making up a smaller proportion of the population than lower-income consumers, are set to spur growth in the digital economy through their use of mobile apps. In turn, the middle-income group – which consists primarily of consumers, merchants and providers of services – are able to capitalise on increased smartphone penetration rates and growing interest in apps, particularly as household incomes rise. Lower-income consumers, meanwhile, are likely to benefit from widened financial inclusion as a result of the services provided by financial technology (fintech) players, particularly for those who are excluded from the formal banking system. It is within this particular consumer group that the fastest growth has been experienced in the past few years.

What are the most significant hindrances facing Indonesia’s tech start-ups that are looking to enter other ASEAN markets?

MAKARIM: The biggest obstacle is the limited availability of talent in engineering, product management, data science and design. Across ASEAN we do not have open borders that allow us to admit engineers and product managers from all over the world. Therefore, these new skill sets are in short supply, as talent has to be imported to transfer knowledge to the local level.

Additionally, regulatory problems and vested interests can often be two sides of the same issue. However, in Indonesia, the government is particularly progressive in terms of its digital economy, which is certainly past its infancy stage. Tech companies, banks, financial institutions and start-ups all want to get involved in this market, particularly the fintech segment.

Over the next few years the majority of investments are likely to be poured into fintech products. This segment is continuing to become highly competitive, but it may not be a winner-takes-all market. It is essential that the investment environment is simplified. There remains a huge influx of capital to be distributed, and in light of the trade relations between the US and China, South-east Asia is poised to become one of the most popular destinations for investment. This could be accomplished several ways: by relaxing the regulatory climate, abolishing foreign ownership restrictions and facilitating initial public offerings.

To some extent, this has already happened over the last few years in Indonesia, but it requires more focus to ensure that Indonesia remains digitally competitive. At the same time major reforms have to be implemented in order to increase the flexibility of regional labour laws.