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April 30, 2019

The two biggest ride-hailing companies in Southeast Asia are going head-to-head in Indonesia, a tech-fuelled competition that is the latest signal of growing confidence in the region’s biggest economy.

Fresh off a US$1.46 billion funding round, Singapore-based Grab is intensifying its efforts in Indonesia, home to local firm Go-Jek.

At stake for the two companies: 150 million users, and growing.

“Indonesia is hugely significant due to its scale – it’s the fourth most populous country in the world,” says James Taylor, Head of Research, JLL Indonesia. “There’s a rapidly growing middle class, and a large young population, with over half of the 260 million people under the age of 40.”

The country is fast becoming a powerhouse in the digital economy, which is expected to triple from US$27 billion in 2018 to US$100 billion by 2025, according to research done by Google and Temasek.

“Start-ups and technology companies are already extremely active here,” Taylor says. “Technology companies were responsible for more than half of the office space leased in Jakarta’s Central Business District in the last quarter of 2018.”

Tech and the economy
Both Grab and Go-Jek are playing up their contributions to the Indonesian economy. It is estimated that Gojek generated US$3.12 billion in 2018, while Grab added US$3.46 billion last year.

Indonesia accounted for 70 percent of all tech investment in Southeast Asia last year. The smooth proceedings of the most recent election, in which incumbent Joko Widodo is expected to win, has also soothed investors’ confidence.

For investors, two fast-growing hotspots are co-working and mobile payments, Taylor says. Mobile payments, in particular, have become more widely used over the last six months or so.

Even mid-sized banks like Bank Mega have thrown their hat in the online payments ring with a recent announcement it is launching next month, pending approval from authorities.

Infrastructure, Security and Talent Needed
The potential for Indonesia is immense. But as an archipelago of more than 17,000 islands, stretching across three time zones, its geography could prove challenging, with Internet connectivity limited in large swathes of the country.

The government is aiming to address this. The Palapa Ring project, initiated by the government to lay fibre-optic cable network across the country, is targeted to be completed this year. The government also has pledged to support the growth of more start-ups in their quest to become unicorns through funding as well as improving infrastructure and upskilling its people.

A relatively small talent pool is another stumbling block, so much so tech giants like Alibaba and Microsoft have taken it upon themselves to train Indonesia’s workforce.

“At the end of the day, these developments and more competition are good for the consumer and the economy – there will be more service offerings, increased sophistication and more resources and employment to fuel the growth,” Taylor says.

As for Grab and Go-Jek, they’re betting Indonesia will indeed take off in the new economy.

“There’s plenty of room to grow and it’s an obvious place for Grab to invest in,” Taylor says. “Grab and Go-Jek will continue to battle it out.”

Click to read more about why real estate firms are focussing on tech.

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James Taylor

Head of Research, JLL Indonesia

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