Editor's Note: This article has been adapted for The Gulf-ASEAN Exchange with additional regional context.

The Historical Pattern‍

As a former colony of the Netherlands for more than 300 years, Indonesia is all too familiar with the perils of "Dutch Disease" - the term used to describe an influx of capital into a certain sector at the cost of impeding a diversified and self-sustaining economy. The term originated in the 1960s when the Netherlands discovered natural gas reserves in the North Sea, but it explains a paradox that extends far beyond that moment.

The history of Holland in the East Indies - what Indonesia was called in colonial times - was built on enormous profit generation through resource extraction: spice including nutmeg, clove, pepper and cassia in the 1600s, cash crops like tea, coffee, sugar and rubber in the 1800s, then minerals, oil and gas in the 1900s. At its peak, the East Indies contributed as much as one-third to the Dutch state coffers.

The colonial playbook was straightforward: pile into a booming sector, co-opt local allies to execute on the ground, and harvest profits while markets were good. Infrastructure was built only to transport commodities from the countryside to ports for export. Little effort went into fostering educational institutions, healthcare systems, or environmental management that might enable long-term economic development. The local populace - aside from a minuscule mercantile class and officeholders - were left relatively no better off.

Not much changed after Indonesia secured independence in 1945. Local elites inherited an unjust system so entrenched that it was the only one they knew. Only after turbulent periods of political strife and near bankruptcy due to mismanagement of the petroleum sector in the 1970s did Indonesia attempt to balance its economy. At that time, Indonesia exhibited classic Dutch Disease symptoms: capital ploughinginto a favored sector, diversion of developmental resources away from other sectors, loss of competitiveness in other exports, and risk exposure to global price fluctuations.

Fortunately, in the 1980s and 1990s, professionally trained civil servants brought the economy roaring back through monetary, industrialist and export-oriented policies, elevating Indonesia to an archetypal high-growth Asian Tiger. But progress marches two steps forward, one step back. After the 1998 monetary and fiscal crises, Indonesia's natural resources fueled its recovery. Quick fixes are tempting. Defeating Dutch Disease requires discipline to build a broader-based economy that seeds resilience over a long-term horizon.

Digital Economy, Same Old Playbook

There was a rush of optimism that the economy would equilibrate with the rise of Indonesia's technology sector in 2015. This outlook was shaped by Silicon Valley's notion - another society distant from the political economy of emerging markets - that technological innovation transforms markets at dizzying speeds as a net positive for society. With projected growth from $8 billion in 2015 to $360 billion in 2030, the assumption was that Indonesia's rising technology sector would lift all other sectors, catalyzing the wider economy to leapfrog to high-income status.

This techno-optimism isn't unique to Indonesia. The Gulf is running a similar playbook - sovereign wealth funds pouring billions into AI infrastructure, with Abu Dhabi alone committing $3.5 billion to its digital strategy. But the question remains: does throwing concentrated capital at frontier tech actually build capability, or just create new dependencies that look a lot like the old resource economies?

History shows that concentrated capital flows can have adverse consequences. Nearly 60% of venture capital in Southeast Asia goes to finance, commerce and, more recently, artificial intelligence and machine learning - technologies meant to lubricate finance and commerce. Finance alone accounts for 40% of deal equity value, with wealth management, lending and payments making up 77% of financing within this vertical during the first half of this year.

The concentration isn't just sectoral - it's geographic. Singapore captured $1.3 billion in AI funding in the first half of 2025 alone. That's more than half of Southeast Asia's total. Capital clusters in mature hubs while early-stage ecosystems across emerging ASEAN markets scramble for scraps. The Gulf shows the same pattern: institutional money gravitates to established sectors and proven geographies.

An argument could be made that it makes sense that venture capitalists back the creation of digital networks that allow market activity to occur efficiently. The reasoning is that removing transactional frictions would push consumption higherand unlock opportunities for market participants to respond to induced demand. But how could consumption-driven development take place when people fall ill due to their environment? How would they recover when healthcare systems are overwhelmed? Where could they find dignified work that doesn't risk their health, or obtain skills to secure those jobs?

Channelling capital to make goods and services better, faster, and cheaper works if purchasing power is supported by labor productivity gains. Otherwise, investing in the productive capacity of local markets represents the more strategic first-order problem to solve.

The Productivity Gap

Indonesia, as a proxy for large Southeast Asian economies, shares many characteristics: high pollution, low education and skills attainment, low healthcare penetration, high share of subsistence-level small and medium businesses, and low female workforce participation - the last creating a 10% economic drag. From 2019 to 2024, 16% of Indonesians fell out of the middle class - equivalent to Switzerland's entire population - as wage increases failed to keep pace with rising living costs.

Why do venture capitalists - especially local firms that grasp these developmental challenges - fail to invest in productivity in equal measure to consumption? Less than 10% of deal equity value during the first half of this year went to environment, healthcare and education. Education took less than 1.5% of all financing. Doesn't it make sense that supporting new digital interfaces to raise productive capacity is equally important if the end game is to grow markets and drive prosperity? Production and consumption are co-dependencies in the same equation.

The problem, as Peng Ong at Monk's Hill Ventures points out, is the increasingly short-sighted worldview among technology sector participants. Leading value metrics like active users are measured in months if not days. Lagging metrics like lifetime customer value are measured annually if not monthly. If value creation in emerging markets demands structural change, and technology can deliver that and radically scale growth, then venture capitalists should balance their portfolios with investment in productive capacity oriented to a more appropriate time horizon - perhaps measured in decades.

Look across ASEAN and the Gulf - the gap between capital allocation and actual developmental needs is hard to miss. Both regions brand themselves as future AI hubs and tech powerhouses. Yet less than 10% of Southeast Asian VC money flows into healthcare, education, or environmental sustainability. Jakarta's air quality ranks among the world's worst, yet climate tech gets a fraction of fintech funding. Institutional capital, whether it's coming from Silicon Valley, regional sovereign wealth funds, or family offices, keeps chasing late-stage consumption plays instead of the longer, harder work of building productive capacity.

This goes beyond venture capital. Gulf sovereign wealth funds are positioning their countries as AI leaders. ASEAN capitals are pulling in record digital economy funding. But the fundamental question doesn't change: are these investments actually building the capabilities needed for long-term development? Or are they just extracting value from markets as they exist today - a familiar pattern playing out with new technology.

It is the role of local firms to identify where value creation in emerging markets lies, because upstream capital providers are far removed from ground realities. These local allies know what constrains economies from making developmental leaps. They shouldn't rely on playbooks said to have worked elsewhere. Take Indonesia. More than one-fifth of children under 5 years old are stunted - a developmental disorder preventing people from reaching their full potential. Labor productivity is lower than in Laos, yet wages are higher than in Vietnam, whose skilled workforce is a relatively stronger draw for global investors.

These are binding constraints. With dry powder surpassing $15 billion, why isn't investment flowing into sectors that would enhance productive capacity? Venture capitalists and their local allies could help lift hundreds of millions in the region out of hardship by triggering structural change, accelerating growth trajectories, and strengthening consumer purchasing power - setting in train the growth loop they all seek to compound benefits across their portfolios.

Instead, capital piles into booming sectors, facilitated by local firms looking to partake in transactions, and infrastructure is built to extract value from markets as they are, without deeper thought given to how resources could be directed to unleash competitiveness over a longer arc, inclusive of local populations. History is rhythmic, but it also evidently sometimes rhymes.
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Gita Wirjawan

Gita Wirjawan is an entrepreneur, former Indonesian Trade Minister, and founder of the Ancora Group, known for his work in education, policy, and the arts.

Ray Pulungan

Ray Pulungan is the founder and CEO of Pintar, leading efforts to expand access to skills, learning, and workforce development across Southeast Asia.

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