Indonesia has banned e-commerce transactions on social media platforms, the trade minister said on Wednesday, in 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, which takes effect immediately, is aimed at protecting offline merchants and marketplaces, adding that predatory pricing on social media platforms is threatening small and medium-sized enterprises.
The move comes just three months after TikTok pledged to invest billion of dollars in Southeast Asia, mainly in Indonesia, over the next few years in a major 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.
A TikTok Indonesia spokesperson said it would pursue a constructive path forward and was "deeply concerned" with the announcement, "particularly how it would impact the livelihoods of the 6 million" local sellers active on TikTok Shop.
Indonesia Trade Minister Zulkifli Hasan on Wednesday told reporters that the regulation is intended to ensure "fair and just" business competition, adding that it was 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 that are directly purchased from abroad, according to the regulation document reviewed by Reuters, and that all products offered should meet local standards.
Zulkifli said TikTok had one week to comply with the regulation or face the threat of closure. Indonesia Deputy Trade Minister Jerry Sambuaga earlier this month named TikTok's live streaming features as an example of people selling goods on social media.
Research firm BMI said TikTok would be the only business affected by the transaction ban and the move was unlikely to harm the digital marketplace industry's growth.
Indonesia's e-commerce market is dominated by the likes of 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 $52 billion last year and of that, 5% took place on TikTok, according to data from consultancy Momentum Works.
Indonesia is among the few markets where TikTok has launched TikTok Shop, as it seeks to leverage its large user base in the country.
Its 125 million active monthly users in Indonesia is almost on par with its user figures for Europe and behind US users of more than 150 million. TikTok launched an online shopping service in the United States earlier this month.
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-19 pandemic.
"Sales don't have to be necessarily through [brick and mortar] shops, you can do it online or wherever," he said "Everything will still have a portion."
But Edri, who goes by one name only and sells clothes at a major wholesale market in Jakarta, agreed with the regulation and stressed that there should be limits on items sold online.