Indonesia’s e-commerce growth faces multiple obstacles

Subject E-commerce outlook. Significance Indonesia’s e-commerce sector is booming. The government is adopting business-friendly regulations, but the sector’s future growth still faces multiple constraints. Impacts Jokowi’s recent re-election as president promises continuity to investors and policy inertia in areas such as personal data legislation. The lack of personal data protections makes Indonesia a laggard in South-east Asia. Bricks-and-mortar businesses, facing unequal tax burdens, will pressure the government for a level playing field.

Significance This follows the June 23 'Brexit' referendum, in which 52% of those voting called for the government to organise the United Kingdom's exit from the EU. The vote and subsequent leadership transition pose a foreign policy watershed. Impacts South-east Asian states will seek trade deals with the post-Brexit United Kingdom. The diplomatic importance of UK defence and intelligence aid to South-east Asia will grow. France may become more important for the EU to project its influence in South-east Asia.


Significance The case’s progress will be watched carefully in South-east Asia, especially in Thailand and Vietnam. In recent years, both countries have imposed increasingly stiff fines and criminal sentences on political activists criticising the government online or using the internet to organise political activities. This downward turn in Thailand is due to continued military rule and the royal transition, while the Communist Party of Vietnam (CPV) finds it increasingly difficult to contain criticism of one-party rule as public discourse moves from print to online outlets. Impacts South-east Asian demand for effective encryption services will grow. Global brands can expect more intensive monitoring of their online advertising in South-east Asia. These brands may, therefore, need to devise alternative forms of advertising, appropriate to local political conditions. Thai internet controls will not ease significantly even after elections likely in mid-2018.


Subject Palm oil sector in South-east Asia. Significance Indonesia, the world's largest palm oil producer, said in August that it would accelerate efforts to impose sustainable environmental practices in vulnerable wetlands, following a weak response from growers. The government fears that the industry may be shut out of advanced markets as international certification systems develop, and new plantation areas begin to challenge South-east Asia's dominance of supply. Impacts Utilising new palm oil plantation areas will require new transport infrastructure. Moves to increase use of biofuels will not necessarily benefit the palm oil sector. Global pressure will grow for rigorous certification systems, but this could hit smaller growers with higher operating costs.


Significance This came after pro-Damascus troops yesterday attacked the Syrian Democratic Forces (SDF), a US-backed, Kurdish-led outfit that has taken much of the territory east of the Euphrates river from IS. It underlines the paradoxes of Washington's new Syria policy, which plans an indefinite military presence that relies on -- but does not fully support -- the Kurds; and opposes -- but does not intend to fight -- the government of President Bashar al-Assad. Impacts Washington's attack on pro-Damascus forces could lead to a longer-term escalation. Reported IS resurgence south of Idlib could potentially force an expanded US scope of operations. US actions in Syria will not stamp out IS ideology elsewhere, particularly in South-east Asia.


Subject Indonesia's infrastructure plans. Significance Indonesia will need over 416 billion dollars for infrastructure development between 2015 and 2019, according to the National Development Board's mid-term development plan published late last year. To that end, President Joko 'Jokowi' Widodo's government is planning to treble public infrastructure spending to 26 billion dollars in 2016, from about 9 billion dollars in 2015. For 2016, the government has pledged to streamline further the planning and funding systems of infrastructure projects, offering increasingly better regulatory and financial terms to private investors. Impacts Cancellation of the Bandung-Jakarta rail project has hit Chinese-Indonesian infrastructure cooperation, but only temporarily. A repeat of such a political debacle, however, could have a more lasting impact on Chinese and Japanese investors' appetite. To make 'new friends' in South-east Asia, Russia will probably invest in Indonesian infrastructure, especially in the energy sector.


Subject Islamic State threat in Indonesia. Significance The attack against a police post and a Starbucks on Thamrin Road in Jakarta on January 14 has resulted in tighter counterterrorism measures, including arrests of suspects and a crackdown against media outlets promoting Islamic State group (ISG). More controversially, the government is considering harsher counterterrorism laws. Impacts The ISG threat in South-east Asia exists independently of a future wave of returning fighters. Greater powers for security forces will be unpopular as these agencies have previously been accused of human rights abuses. Security agencies are likely to be under-resourced.


Significance Thailand is a treaty ally of the United States and occupies an important geostrategic location in mainland South-east Asia, a key theatre of US-China rivalry. Bangkok has burgeoning relations with Beijing. Impacts Thailand’s military-backed government will refuse to give in to popular demands for political reform. As the government struggles to cope with the fallout of COVID-19, the outlook for the Thai economy will remain bleak. Domestic problems will prevent Thailand from exercising leadership in regional forums such as ASEAN.


Significance She addressed two key issues during her trip: tensions in post-coup Myanmar and China’s growing regional footprint. Shortly after she left the region, the United States announced that it would donate unused COVID-19 vaccines abroad, including to South-east Asia. Impacts Washington will tighten its sanctions on the Myanmar military while supporting ASEAN’s five-point plan to ease the country’s crisis. The National Unity Government, a parallel administration to Myanmar’s junta set up by its opponents, will try to attract greater US backing. Manila and Washington may extend negotiations over renewing their Visiting Forces Agreement to prevent the pact expiring in August.


Significance It is the only country in South-east Asia with a large-scale nuclear plant, although this was never loaded with fuel. Other countries in the region have tentative plans to develop nuclear power programmes. Impacts The current absence of nuclear power programmes will help avert the diversion of capital from renewable energy development in the region. South-east Asian countries with small, non-power reactors, built for research, will try to maintain these facilities. Across the region, the need for electricity grid investment will increase as more decentralised generation sources are deployed.


Significance The United Kingdom eyes a strategic tilt to the Indo-Pacific, with South-east Asia a key focus because of its economic dynamism and the convening power of ASEAN. The aircraft carrier HMS Queen Elizabeth will deploy to the Indo-Pacific for six months later this year. Impacts The United Kingdom’s view of China as a systemic challenger makes a trade pact between the two countries unlikely. UK efforts to conclude a trade deal with India will be frustrated by Delhi’s protectionist approach. London will pursue closer defence cooperation with Tokyo.


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