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Unicorns and the Ease of Doing Business in Indonesia

Author: Indra Krishnamurti, Center for Indonesian Policy Studies

This article had been featured in: Koran Sindo

“Unicorns are one of those online things, isn’t it?” replied Prabowo Subianto in response to a question addressed by his opponent, President Joko Widodo, during a presidential debate on 17 February. His reply triggered an onslaught of jokes by netizens on social media.

Indeed, the term ‘unicorn’ is not so well-known among Indonesians, regardless of the fact that the presence of ‘unicorn’ companies is all around us. Who doesn’t know Go-Jek and the services they provide to help cope with the chaos of Jakarta? And who has never accessed and benefitted from Tokopedia’s flash sale? Or book flight tickets and hotel rooms through Traveloka?

Unicorn and the Ease of Doing Business in Indonesia

Yet still, not so many Indonesians don’t really know what a ‘unicorn’ is. The term ‘unicorn’ itself refers to startups that hold a current valuation of US$1 billion or more. It’s no small amount, and it’s not easy for many companies to reach such a valuation. Here in Indonesia, it is only 3 companies mentioned above, with Bukalapak running in fourth, that owns the right to call themselves a ‘unicorn’.

In fact, Indonesia at the moment has a long way to go if we want to boast a long list of entrepreneurs. According to 2018 data published by the Ministry of Cooperatives and SMEs, only 3.1% of the Indonesia’s total population are entrepreneurs. Although higher than the international standards (2%), this figure is still far below neighboring countries such as Malaysia which has 5% of entrepreneurs and Singapore with 7% of entrepreneurs out of their total population respectively.

One factor that hinders Indonesia from keeping up with the neighbors is the difficulty of starting businesses in Indonesia.

One factor that hinders Indonesia from keeping up with the neighbors is the difficulty of starting businesses in Indonesia. In the World Bank’s Ease of Doing Business Index of 2018, Indonesia ranked 72nd out of 190 countries globally. Although this achievement showed an improvement from the year before where Indonesia ranked 114th, this rank is still far from this year’s target set by Indonesian President Joko Widodo at 40th. Even at the regional (ASEAN) level, Indonesia ranks lower than Singapore, Malaysia, Vietnam, Thailand, and Brunei Darussalam.

In addition, Indonesia’s ranking in the starting a business indicator lags well behind at 144th place. There are at least 11 procedural steps that take 23 days and takes a cost of almost 11% of Indonesia’s per capita income for one entrepreneur to start a formal business (Freddy and Saputri 2018). This, again, is still far from the government’s effort reduce procedures down to 5 steps within a period of 7 days.

In the meantime, our neighboring countries have accomplished higher. Take Singapore, for one, who ranks 6th in which any aspiring entrepreneur only needs to go through 3 steps over 2.5 days with a cost of less than 1% of Singapore’s per capita income to start a new business (Freddy and Saputri 2018). Under such conditions, it comes as no that Singapore is now home to at least 3 unicorns: Grab, Sea Ltd (Garena), and Lazada. This figure is expected to grow as more startups—such as Klook, 99.co, Chope, Paktor, and Carousell—are now emerging as potential ‘unicorns’.

However, this doesn’t mean that the Indonesian government is not doing anything to support the practice of businesses here. The government has launched Online Single Submission (OSS), a portal that allows registration and licensing processes of businesses to be simplified and effective. As stated in Government Regulation No.21/2018, the implementation of OSS was kickstarted with the removal of 51 provincial regulations that were seen to be restricting the growth of investment in areas of taxation, training, education, and SMEs.

The lifting of those regulations and the use of OSS can cut time up to two weeks from the start of the business registration process. With this, it is expected Indonesia can improve its ranking in the ‘starting a business’ indicator to 75th place. This would bring Indonesia closer to its target of rank 40th in the Ease of Doing Business Index overall.

Certainly, it’s not going to be easy to achieve all of that anytime soon. The government’s efforts to facilitate entrepreneurs are not doing much to help. There are still 11 procedural steps to be taken that should be simplified into 5. The number of steps that have to be taken is also what causes the registration process take up as many as 23 days when it actually should be 7. The lack of efficiency in this particular aspect acts as a barrier to entrepreneurs.

There are a couple of things that need to be evaluated when it comes to the nationwide OSS implementation. For one, the overlapping regulations between central and provincial levels need to be addressed. As an example, there are still a number of provincial regulations asking for certain points that are not addressed in the PP 24/2018. This is due to the fact that some provinces are yet to apply new standard operating procedures recently issued by the central government, forcing them to refer to previous regulations that still complicate things for starting a business.

Let’s take a look at DKI Jakarta as another example. The mandatory manpower report (wajib lapor ketenagakerjaan or WLK) is still applied to the capital region, even though it’s no longer mandatory based on the Regulation of the Minister of Manpower No. 14/2006 regarding business registration procedures. The data recorded for WLK can actually be obtained from data owned by BPJS Ketenagakerjaan. Similarly, some regulations hail back from colonial days, like the requirement to have a hinder ordonantie (surat izin gangguan). Thus, effective coordination between the central and provincial governments is needed in order to ensure that all requirements for starting a business are adjusted to the central regulations that apply.

Additionally, Indonesian entrepreneurs face the difficulties of not understanding the digital process of registration through OSS. In general, not every member of society is digitally savvy with online system. If this happens, then it becomes the government’s task to help familiarize the new system to all layers of society so that everyone understands and becomes willing to register their business online.

According to 2017 data by the Central Bureau Statistics, 93% of the biggest businesses in Indonesia are informal. This prevents businesses to access business development opportunities and formal financial services, creating not only stagnancy to businesses, but holds them back in the opportunities that could make them have ‘unicorn’ status. The unicorn status can only be achieved by being a formal business with wide access to business development and financial services.

Unicorn companies in real life only appear in a business climate that supports the growth of formal businesses with access to financial service so that entrepreneurs can access greater opportunities to capital from investors.

According to the legend, unicorn is a creature is hard to be captured, and only those with the purest of hearts can capture them. Just like how it’s portrayed in the legend, unicorn companies in real life only appear in a business climate that supports the growth of formal businesses with access to financial service so that entrepreneurs can access greater opportunities to capital from investors. Not to mention that in order for entrepreneurs and investors to be connected and built trust, we need to ensure that entrepreneurs are running a legitimate, formal business.

All of these points mentioned are reasons why it’s crucial for the central government to ease registration procedures for entrepreneurs. With this, the central government is supporting the birth of a array of businesses, as well as transforming informal businesses to formal ones. Thus, entrepreneurs will have the opportunity to access financial facilities in order to develop their business, later enabling the potential birth of many new unicorns from Indonesia.

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