INDEF Explains Root of Weak Investments in Digital Startup Industry

6 December 2022 11:25 WIB

TEMPO.CO, Jakarta - The Institute for Development and Finance (INDEF) researcher Nailul Huda in a discussion on Monday said there is a possibility for Indonesia to be free from recession but at the cost of slower economic growth in 2023, a recession forecasted to affect every industrial sector including the digital and startup industries. 

"This slowdown has made optimism for gross merchandise value (GMV) expectations decrease in 2025," said Nailul in the Redefine Business Strategy for Sustainable Transformation discussion forum at the Sotis Kemang Hotel, South Jakarta, Monday, December 5.

He continued to elaborate on a report “The reports for 2021 and 2022 that I took from data released by Google, Temasek and Bain stated that the potential for GMV in 2025 would reach USD 146 billion. However, in 2022 it will decrease to USD 130 billion.”

Investment in the digital technology sector in Indonesia, Nailul continued, also recorded a decline. In 2021, investment in this sector will reach Rp 144 trillion. Whereas in November 2022 it was only Rp 53.58 trillion.

The downward trend in investment in the digital technology sector is inseparable from the Fed's policy regarding the trend of increasing benchmark interest rates. This is due to investors viewing the benchmark interest rate as an indicator for investing money in digital companies

"When the cost of investment rises, investors will think again. For example, we will calculate what profit you get if you invest money in a startup while investing money in a bank can be higher (profit)," he said.

The decline in digital investment, said Nailul, was also being felt by the startup line. Because of this, not a few startup companies have laid off their employees. Although he said, the layoff was also caused by other factors, such as decreased expectations of decreased digital adoption or the level of Internet utilization.

Meanwhile, he explained, startups in Indonesia have been living off of investor funding, especially foreign investors. This is because the portion of domestic investors is only 10 percent. While Asian investors reached 57 percent, USA 17 percent, Europe 4 percent, unknown investors 11 percent, and other sources amount to 1 percent.

"When facing a tech winter, we could only hope the domestic investment will increase. Whether driven by SOEs or others. That can be a driving force for startup funding in Indonesia so that they can compete and remain operational," said Nailul.

RIRI RAHAYU

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