Why technological innovation should top Indonesia’s agenda

2015 was a good year to be living and working in Indonesia.

After a promising year for tech companies, we’ve seen how technological changes drive social and economic disruption – from value-added services to digitization models that has allowed us to do more with less. But when it comes to the institutional infrastructure dimension to support Indonesia’s growing digital footprint, it may not be all that pretty.

A flourishing digital landscape fraught with legal pitfalls

Last month, the Transportation Ministry convened to ban all app-based ojek and motorcycle taxi services. At a time when the potential for digital technologies is poised to drive economic growth in emerging markets, it was appropriate that President Joko “Jokowi” Widodo cancelled Transportation Minister Ignasius Jonan’s circular ban on such transportation apps. I think President Jokowi’s move was significant because it brought enormous public support and the government together in the wake of consistent funding and growth in Indonesia’s tech ecosystem.

With a smartphone penetration of 40 percent, the opportunity exists to connect the remaining 60% with a smartphone providing more advanced capabilities; hence, opening new possibilities for the digital economy.

In 2015, Indonesia saw unprecedented change, particularly with the government’s confrontation of legacy policies in its support of entrepreneurship and the public’s ease of access to venture capital firms and incubator facilities.

But even as we see such tremendous growth, it is imperative to recognize that we still face a problem of rigidity in our institutions, both in the social structure shaped over time and the collective expectations of our society. Jeffrey Sachs once said in an interview that “an economy may need some tender loving care, not just the so-called hard truths, if it’s going to get by.” Conveniently, Indonesia is in an era of significant change and relatively “good” volatility across politics, economics and social infrastructure.

In too many cases we question the credibility of our government, whether supporting the growing digital infrastructure for the unconnected customers or otherwise. It is true that the challenge to providing, say, access and connectivity to unconnected customers is best addressed through a collaborative approach between the private and public sector.

But more worrying, in my view, is Indonesia’s institutional infrastructure, particularly in making room for flexibility while capturing political stability and in increasing overall country productivity.

Many think sound institutional infrastructure is a by-product of economic growth and prosperity. And we focus so much on the ‘accumulation’ of productivity factors—from venture capital funding and market valuation of startups to increased competitive rivalry in the startup ecosystem—that we forget about the ‘accommodation’ of productivity factors. Indonesia, for example, faces a challenging transition period towards the ASEAN Economic Community as it aspires for economic and financial integration.

Commitment and negotiation is key

While local-bred startups are driving digital transformations in almost every industry we can think of, I believe the key in maintaining the momentum in Indonesia (and in other emerging markets, for this matter) is a concerted commitment to this cultural shift. Recognizing that in the age of globalization – whether as a country, a politician, a business owner or an individual – the quality of institutions as a whole is a necessary precondition of growth and increased efficiency in the digital economy.

For many of us in Indonesia especially, there is little doubt of the cause and effect between economic growth and increased adoption of digital technology. With a smartphone penetration of 40 percent, the opportunity exists to connect the remaining 60% with a smartphone providing more advanced capabilities; hence, opening new possibilities for the digital economy. As many startups work towards reaching the unconnected customers through value-added services, we reasonably question whether these services meet the official definition of the law.

It is true that we need to have the institutions of our government to enforce legal rules. But I think it is a fair assumption to say that new innovations call for a new approach towards legal laws and norms. In a business environment as dynamic and complex as Indonesia’s, the government must work together with businesses, despite potentially different views on standard regulations.

To drive growth and innovation, the institutional infrastructure of an economy – and in this context, of Indonesia – needs to remove, not create, frictions that reduce the potential of new business models for economic development. Many startups doing business in Indonesia have an unparalleled opportunity to impact the 250 million people, to better the lives of the unconnected and drive positive citizen engagement.