Unlocking Economic Potential through Danantara

Despite its potential, Danantara faces several structural and operational challenges, particularly in growth stagnation, talent management, and corporate governance.

Indonesia is undertaking a major transformation of its State-Owned Enterprises (SOEs) with the establishment of Daya Anagata Nusantara Investment Management Agency, known as Danantara. This new superholding entity aims to streamline, optimize, and enhance the performance of Indonesia’s largest SOEs, following the successful models of Singapore’s Temasek Holdings and Malaysia’s Khazanah Nasional. However, despite its potential, Danantara faces several structural and operational challenges, particularly in growth stagnation, talent management, and corporate governance.

Danantara: Indonesia’s SOE Superholding Initiative

Danantara is expected to consolidate and manage assets worth approximately $600 billion, encompassing major Indonesian SOEs such as Bank Mandiri, Bank Rakyat Indonesia (BRI), PLN, Pertamina, BNI, Telkom Indonesia, and MIND ID. The holding company aims to improve financial performance, global competitiveness, and long-term sustainability of these enterprises.

However, many of these SOEs have shown limited growth in recent years:

• PLN (State Electricity Company):

  While electricity demand in Indonesia is rising, PLN’s profitability remains stagnant. In 2023, PLN recorded a net profit of IDR 14.4 trillion ($930 million), but growth was only 3.6% year-over-year, significantly lower than energy SOEs in neighboring countries.

  
  

• Pertamina

  The state-owned oil and gas company saw declining margins due to high subsidy burdens. In 2022, Pertamina posted a net profit of $3.8 billion, a 16% decline from 2021, despite global oil prices rising.

  
  

• Telkom Indonesia

  Despite dominating Indonesia’s telecom market, revenue growth has slowed. Telkom’s revenue only grew by 1.2% in 2023, lagging behind regional competitors such as Malaysia’s Axiata and Singapore’s Singtel.

  
  

• MIND ID (Mining Industry Indonesia)

  The holding company overseeing Indonesia’s mining SOEs, including PT Freeport Indonesia and PT Antam, struggles with operational inefficiencies and low global competitiveness.

  
  

• BRI and Bank Mandiri

  While profitable, both banks have struggled to expand regionally, in contrast to Singapore’s DBS or Malaysia’s Maybank, which have aggressive international strategies.

Comparison with Asia’s Leading Holding Companies

Danantara is modeled after Temasek Holdings (Singapore) and Khazanah Nasional (Malaysia), both of which have successfully transformed their respective SOEs into global players:

• Temasek Holdings (Singapore) manages a global portfolio worth SGD 389 billion ($290 billion), with 68% of investments outside Singapore in high-growth industries such as technology, healthcare, and sustainability.

  
  

• Khazanah Nasional (Malaysia) oversees assets worth MYR 124 billion ($26 billion) and has played a key role in revamping Malaysia’s aviation, banking, and digital economy sectors.

  
  

• China’s SASAC (State-owned Assets Supervision and Administration Commission) governs over 96 major SOEs with total assets exceeding $10 trillion, driving China’s dominance in industries such as high-speed rail, telecommunications, and clean energy.

  
  

Compared to these models, Indonesia's SOEs remain heavily domestically focused, underperforming in global markets and struggling to diversify revenue streams.

Gaps and Challenges for Danantara

1. Slow Revenue Growth and Operational Inefficiencies

• Many SOEs under Danantara have not kept pace with industry growth rates. For instance, while Temasek’s portfolio has grown at an annualized rate of 7% over the last decade, Indonesia’s SOEs average only 3%-4% annual revenue growth.

  
  

• Cost structures remain high, especially in industries like energy (PLN, Pertamina) and telecommunications (Telkom Indonesia), making them less competitive compared to regional players.

2. Limited Global Expansion

• Unlike DBS Bank (Singapore) or Maybank (Malaysia), which have significant operations in ASEAN and beyond, Indonesia’s financial SOEs have largely remained within domestic markets.

  
  

• Telkom Indonesia has struggled to compete regionally, whereas Singtel (Singapore) has major stakes in India’s Bharti Airtel and Thailand’s AIS.

  
  

3. Weak Corporate Governance and Decision-Making

• In Temasek and Khazanah, board members are appointed based on meritocracy and global expertise. Temasek’s board includes former CEOs of leading global firms, while Khazanah’s leadership includes experienced technocrats and finance professionals.

  
  

• In contrast, Indonesian SOEs often face bureaucratic inefficiencies and slow decision-making processes, limiting their ability to adapt to market changes.

  
  

4. Talent Gaps and Leadership Development

• Lack of globally experienced executives: Many of Indonesia’s SOE leaders have limited international experience, making it difficult to compete on a global scale.

  
  

• Slow adoption of innovation: Temasek invests in high-growth sectors like AI, biotech, and fintech, while Indonesian SOEs remain concentrated in traditional industries with slow innovation cycles.

  
  

5. Insufficient Investment in Research & Development (R&D)

• China’s SASAC-backed enterprises spend up to 5% of revenues on R&D, allowing them to dominate 5G technology, electric vehicles (EVs), and AI.

  
  

• In contrast, Indonesian SOEs invest less than 1% of revenues into innovation, leading to lower productivity and competitiveness.

Path Forward: What Danantara Must Do

For Danantara to succeed, it must implement key strategies:

1. Adopt a Merit-Based Leadership Model

   • Appoint executives with proven international experience in finance, technology, and global markets.

   • Implement transparent board selection criteria to reduce political interference.

     
     

2. Drive Global Expansion

   • Encourage Telkom, BRI, and Bank Mandiri to expand regionally and compete with ASEAN’s top financial and telecom players.

   • Promote SOE-backed infrastructure projects in emerging markets to establish a global presence.

     
     

3. Increase R&D Investments

   • Set a minimum 2%-5% revenue allocation for innovation in industries like renewable energy, AI, and digital banking.

   • Establish partnerships with global research institutions to accelerate knowledge transfer.

     
     

4. Enhance Operational Efficiencies

   • Implement Temasek-style cost optimization programs to reduce inefficiencies in sectors like energy, transport, and mining.

   • Digitize SOE operations to improve efficiency and service delivery.

Conclusion

Danantara has the potential to be a game-changer for Indonesia’s economy, transforming underperforming SOEs into global powerhouses. However, for this vision to materialize, stronger leadership, a focus on international competitiveness, and greater investment in innovation are critical. By addressing these gaps, Danantara can position Indonesia as a key economic player in the ASEAN region and beyond.