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Jakarta Post

Warning on unicorn IPOs

  • Editorial Board

    The Jakarta Post

Jakarta   /   Mon, March 4, 2019   /   09:25 am
Warning on unicorn IPOs Initial public offering (IPO) (Shutterstock/File)

We fully agree with Jahja Setiaatmadja, the CEO of Indonesia’s largest private bank Bank Central Asia (BCA), who sternly cautioned the government on Thursday to be careful about allowing technology start-ups to conduct an initial public offering (IPO).

The government seemed so confident and enthusiastic about the astronomical growth of start-ups in the country that Communications and Information Minister Rudiantara recently hinted that he would ask the Financial Services Authority (OJK) to ease the IPO requirements for start-ups.

Indonesia has indeed been lauded as ASEAN’s largest incubation center for start-ups, boasting four of the region’s seven unicorns: ride-hailing service company Go-Jek, online travel agency Traveloka, and e-commerce platforms Bukalapak and Tokopedia.

Reportedly, we also have the world’s fourth-highest number of start-ups. With a population of 260 million largely composed of young people with over 100 million smartphones, the number of start-ups vying to capitalize on that huge potential has mushroomed. But most of these start-ups are funded by foreign venture capital firms and have yet to book net profits, even though their annual revenues exceed US$1 billion.

Jahja, who was addressing an economic conference, warned that if publicly traded start-ups suffered losses or collapsed, Indonesia’s investing public would be the main victims. While he did not allude to the dot-com bubble ( crash) in the United States, he cited last year’s Bitcoin Crash, when the cryptocurrency fell from $20,000 in December 2017 to about $3,000 today.

However, we assume that the US tech crash was implicit when he warned the public and the government. The dot-com bubble burst in the US in 2000-2002 after a boom in the market value of most internet-based companies in the 1990s, leading to the collapse of the technology-dominated NASDAQ index from its peak of 5,000 and causing trillions of dollars in losses to investors.

The dot-com bubble grew from a combination of speculative or fee-based investing. Investors, afraid of not being able to cash in on the growing internet use, abandoned caution and poured money into internet start-ups in hopes that these companies would one day become profitable.

The government has made the right decision in fully supporting Industry 4.0. With the confluence of avant-garde technologies like the Internet of Things and big data, the move is indeed a step in the right direction.

But the blunt fact is that, since the manufacturing industry’s contribution to gross domestic product has declined to as low as 20 percent today from more than 27 percent two decades ago, automation is less urgent for the millions of workers who are either unemployed or have no other option but to work in the informal economy.

We should bear in mind that the countries that are able to thrive in Industry 4.0 are those that already have a very robust manufacturing industry, like China and South Korea.