Heaptalk, Jakarta — Indonesia’s growth is on track to become the world’s 14th-largest economy in the next three years. Joji Thomas Phillip, Founder and Editor-in-Chief at Deal Street Asia, made this prediction at the beginning of 2024, and it has been proven true.
However, Joji recognized several challenges the country faces, one of which is its middle class shrunk by about 9.5 million to 48 million. This can be derived from the lingering effects of covid-19 and the fact that manufacturing has not yet developed. “There are several other factors like inflation and lack of social support schemes. But the fact that the middle class is declining, the numbers have come down, is a cause for concern,” Joji said in his opening remarks at Indonesia PE-VC Summit 2025 in South Jakarta (01/16).
For the investor community, the declining purchasing power of the international middle class propels the private equity and venture capital (PE-VC) community to reassess their investment strategies. Some have concentrated on the premium segment, while others focus on the mass market segments.
In the EV supply chain, Joji admitted that Indonesia has a monopoly on nickel, but its overall foothold is still very low. Globally, more than 400 battery plants have announced they are already functioning, with only two major battery plants in Indonesia. He said, “When it comes to job creation in the EV space, the numbers have not shot up as they were projected to be.”
Scandals, accounting frauds among tech companies
The other major challenge is the country’s tech status, as a severe funding crunch currently exists. Simultaneously, some tech companies have confronted scandals, accounting frauds, and other issues in Indonesia and Southeast Asia. Joji saw that this issue had a significant impact on investor confidence, which in the long term could also influence the country’s path to becoming the world’s 14th-largest economy.
Moreover, many of the listed companies demonstrated somewhat disappointing financial performance. GoTo’s share price is about 80% down from its listing price, while Bukalapak‘s is over 90% down. Similar to the funded startups, many late-stage companies exhibit disappointing financial performance. These findings occur not only in Indonesia but throughout Southeast Asia.
On top of that, most of the investors are still skeptical about the ability of Southeast Asian and Indonesian AI startups to build scalable models that can compete with the rest of the world. “If you look at all the announcements in the last couple of months, Southeast Asia has seen or will see about $60 billion in data center AI investment from global technological giants. But very little of that is going into local startups in this region, or AI startups in this region,” Joji explained.
IPO market to rebound
Despite the challenges, Joji acknowledged five opportunities Indonesia has to keep on the path to becoming the world’s 14th-largest economy in the next three years. The IPO market is expected to rebound in 2025. As IDX mentioned, approximately 66 IPOs are expected to occur this year, with 22 already in the pipeline. The stock exchange also aims to expand the retail base it is trading by about $2 billion. However, the outcome of IPOs will still depend on many global factors, including interest rate cards and geopolitics.
The digital space offers startups and investors a wide range of opportunities. Indonesia’s internet penetration is 77%, but only 2% of the population has done online stock trading. Only 30% of the population has used ride-hailing, 20% have used food delivery, and 60% have not done an e-commerce transaction, and 75% do not use OTT services.
The third big opportunity to achieve the world’s 14th-largest economy is that valuations are corrected. Many companies have raised funding at less than 50% of their past valuation at some of the latest funding rounds in the last few months. The other thing that has changed over the last couple of years is that the talent of both engineering and founders in Southeast Asia and Indonesia has increased significantly.
SEA VCs have over $5bn in dry powder
Joji voiced, “When it comes to founder talent, we’re now seeing the next wave of founders who have completed stints and exited some big companies. You have GoTo, Tokopedia, Grab, and Bukalapak. All of them are now coming back to do their second and third companies. Finally, this region and Indonesia have very good founder talent, which will be exciting and interesting for investors.”
The fourth opportunity is that Southeast Asian VCs have more than $5 billion in dry powder, providing plenty of capital for exciting companies. Finally, in private equity (PE), Indonesia had a great year last year, marked by several acquisitions worth billions of dollars.
Gummy bear maker Yupi was acquired by Affinity Equity Partners, an Indonesian company, in a billion-dollar transaction. The Columbia Hospital deals led by TPG were also $1.2 billion. The other was Lippo Karawaci, who sold Siloam International Hospitals to CVC Capital Partners for a 65% stake for about $1.6 billion. “When it comes to PE deals, there is still a lot of assets available in the market. Southeast Asia and Indonesia have had a good year,” Joji concluded.
