Indonesia’s Digital Economy Attracts Investments from US Tech Giants

Posted by Written by Ayman Falak Medina Reading Time: 3 minutes
  • US tech giants Tesla, Google, and Amazon have shown interest in investing in Indonesia, in particular, in its digital economy and electric vehicle industry.
  • The government has been actively trying to attract more US companies to establish in Indonesia, especially those shifting all or part of their operations from China.
  • Google has injected funding into local e-commerce giant Tokopedia, while Amazon will develop data centers in the country.
  • Tesla has been personally invited by the President to establish a plant for electric vehicle manufacturing, as well as to take advantage of Indonesia’s vast deposits of nickel for its lithium batteries.

US tech giants Tesla, Google, and Amazon are keen to invest in Indonesia’s digital economy as well as its electrical vehicle component industry, showcasing the country’s potential to attract multinational firms.

The government has also been actively trying to accommodate more businesses from the US, in particular those looking to shift all or part of their operations from China. Up to 4,000 hectares of land in Central Java province in the Batang Industrial Park have been allocated for US firms, especially businesses engaging in the pharmaceutical sector.

Further, Indonesia is continuing to improve its investment environment through regulatory reforms. Its parliament has just approved the issuance of the Omnibus Law, which includes amendments to labor laws – often a sticking point for foreign investors looking to establish in Indonesia.

Tesla’s personal invitation from the President

Indonesia’s President Joko Widodo sent a high-level team to meet with Tesla executives in the US in early November 2020, as part of the government’s efforts to promote the Job Creation Law under the Omnibus Law.

The president hopes Indonesia can join the global supply chain for the burgeoning electric vehicle (EV) industry, with the company showing potential interest in building a plant in Central Java province. Moreover, the president touted Indonesia’s potential for rocket launch sites for future SpaceX missions.

The government also plans to woo international investors to make Indonesia the biggest producer of lithium batteries. The country is the world’s largest producer of nickel – a key component of lithium-based batteries for EVs – exporting more than 30 million tons in 2019. The country also has the world’s largest nickel reserves, which are estimated at 21 million tons.

Coordinating Investment Minister Luhut Binsar Pandjaitan said in July last year that Tesla was part of a consortium building a US$4 billion mining plant in Central Sulawesi province – Indonesia’s nickel mining hub – in cooperation with South Korea’s Lg Chem and Chinese battery manufacturer Contemporary Amperex Technology Co., Limited (CATL).  CATL supplies batteries to Tesla vehicles in China.

Google pushing into Indonesia’s e-commerce industry

Google and Singapore’s government-owned holding company, Temasek, have agreed to invest some US$350 million in an Indonesian e-commerce company, Tokopedia.

The investments will help Tokopedia with its expansion program since, like many of its counterparts worldwide, it has seen a surge in activity due to lockdowns caused by the pandemic. Tokopedia has over 100 million monthly users and over nine million Indonesian e-commerce retailers. The platform is available in 98 percent of districts across the archipelago.

Google’s recent investment in Tokopedia highlights Indonesia’s growing e-commerce landscape, which is predicted to be valued at US$83 billion by 2025. Moreover, the government issued its long-awaited e-commerce law, which provides legal guidelines for the country’s e-commerce industry. The law addresses specific setup requirements for businesses as well as the framework for online contracts and transactions.

This is Google’s second investment in an Indonesian unicorn, having injected an undisclosed sum in a multi-service digital platform, Gojek. Its 6.9 percent stake makes the US tech giant the second-largest shareholder in Gojek after Singapore company, Gamvest.

Amazon to develop data centers

Another US tech giant, Amazon, will invest US$2.85 billion to build three data centers in Indonesia’s West Java province by end of 2021 and early 2022. According to the Minister of Industry, this will be the biggest investment in the country’s information and technology sector.

These data centers will be located in an Amazon Web Services (AWS) ‘region’, which consists of multiple, and physically separate, Availability Zones.  These Availability Zones are locations from which public cloud services originate and operate. The capital, Jakarta, will have three Availability Zones.

The government hopes that the development of an AWS region can accelerate the digitization of the country’s SMEs who make up 99 percent of businesses in the nation. Amazon’s investment will help spur the country’s position as a digital economic hub in the region – Indonesia’s digital economy is expected to be valued at US$130 billion by 2025 – in addition to fueling growth in Indonesia’s startup ecosystem.

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