Indonesia bans e-commerce on social media

Jakarta — Indonesia has banned e-commerce transactions on social media platforms, the trade minister said on Wednesday.

This deals a blow to short video app TikTok, which is doubling down on Southeast Asia’s biggest economy to boost its e-commerce business.

The government said the move, effective at once, is aimed at protecting offline merchants and marketplaces. Predatory pricing on social media platforms threatens small and medium-sized enterprises.

The move comes just three months after TikTok pledged to invest billions of dollars in Southeast Asia, mainly in Indonesia, over the next few years in a big push to build its e-commerce platform TikTok Shop.

TikTok, owned by China’s ByteDance, has 125-million active monthly users in Indonesia and has been looking to translate the large user base into a major e-commerce revenue source.

The company did not respond immediately to a request for comment. On Monday, it said the government should consider “the livelihood of more than six million” local sellers active on TikTok Shop.

Trade minister Zulkifli Hasan told reporters on Wednesday the regulation is intended to ensure “fair and just” business competition. It is also intended to ensure data protection of users.

He warned of letting social media become an e-commerce platform, shop, and bank all at the same time.

The new regulation also requires e-commerce platforms in Indonesia to set a minimum price of $100 for certain items bought directly from abroad, according to the regulation document reviewed by Reuters. All products offered should meet local standards.

Zulkifli said TikTok had one week to comply with the regulation or face the threat of closure. His deputy Jerry Sambuaga earlier  in September named TikTok’s “live” streaming features as an example of people selling goods on social media.

Research firm BMI said on Wednesday that TikTok will be the only business affected by the transaction ban. The move is not likely to harm the digital marketplace industry’s growth.

Indonesia’s e-commerce market is dominated by outfits such as homegrown tech firm GoTo’s Tokopedia, Sea’s Shopee and Chinese e-commerce giant Alibaba’s Lazada.

E-commerce transactions in Indonesia amounted to nearly $52bn  in 2022 and of that, 5% took place on TikTok, according to data from consultancy Momentum Works.

Indonesia is among the few markets  in which TikTok has launched TikTok Shop, as it seeks to leverage its large user base in the country.

Its 125-million monthly users in Indonesia is almost on par with its user figures for Europe and slightly behind US users of more than 150-million. TikTok launched an online shopping service in the US earlier in September.

Reactions from retailers were mixed. Fahmi Ridho, a vendor selling clothes on TikTok, said the platform was a way for stores to recover from the blow dealt by the  Covid pandemic.

“Sales don’t have to be necessarily through (brick and mortar) shops, you can do it online or wherever... everything will still have a portion,” he said.

But Edri, who goes by one name only and sells clothes at a large wholesale market in Jakarta, agreed with the regulation, emphasising that there should be limits on items sold online.

Reuters