Investing in Indonesia:

invest in INDONESIAN EMBASSY IN WARSAW

Supporting SME’s in South East Asia markets Seminar Warsaw, 24 April 2014

Investing in Indonesia: Opportunities for Growth EMBASSY OF THE REPUBLIC OF INDONESIA IN WARSAW MASAGUS SALMAN ISFAHANI Head of Economic Section © 2013 by Indonesia Investment Coordinating Board. All rights reserved

4th

World’s Most Populous Country

248 17,508 islands million

Population (in 2013)

Biggest Archipelagic Nation

IND 16

NESIA

th

1

World’s Largest Economy

trillion

USD GDP (PPP)

4,876

USD GDP

per capita (PPP)

Member State

G20

“Investment Grade” (Moody’s, Fitch and R&I) The Investment Coordinating Board of the Republic of Indonesia

2

3 000

5.8%

2 500 2 000

GDP Growth in 2013

1 500 1 000

Indonesia’s GDP In the last 10 years

500

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

-

at 2000 Constant Market Prices by Expenditure 2004-2013 (IDR Trillion)

2nd fastest

Growing Economy Among G-20 Countries (After China, in 2013)

“Indonesia’s Growth

Beats Estimates…” Indonesia’s GDP growth in 2013 beats all estimates in a Bloomberg News survey of 25 economists, where the median was 5.34 percent. (Bloomberg, 2014)

The Investment Coordinating Board of the Republic of Indonesia

3

3

rd

Unity in Diversity

248 million population 300 ethnic groups 700 languages various faiths 17,508 islands

World’s biggest

democracy

(after India and US)

The highest

Direct Election

The third National Elections will be held in 2014 after peaceful elections in 2004 and 2009.

democracy Index in ASEAN Indonesia scored 6.76, higher than average in Asia (5.56) and in Latin America (6.36). (The Economist, 2013)

The Investment Coordinating Board of the Republic of Indonesia

4

The 3rd Investment Destination in Asia (The Economist, 2013)

33.9

Vietnam

37.7

32.8

25.2 3.3

Singapore

34.8

26.2 0.7 10.6

53.9 3.1

South Korea Philippines Australia Japan Hong Kong Taiwan

28.9

46.1

21.9 0.8

28.1

45.5

25.6 5.6

27.0

47.6

19.8 3.1

26.2

55.4

15.4 1.5

21.4

58.8

18.3 3.2

15.2

51.2

(Bloomberg, 2013)

32%

2013

38.6

2012

Thailand

Total Investment (% GDP)

2011

2.4

55 50 45 40 35 30 25 20 15 10

2010

16.3

2009

38.5

2008

43.0

2007

2.2

Malaysia

2006

27.1 0.8 18.6

2005

53.5

13.9

2004

Indonesia

32.0

2003

54.1

Growing Investment’s Share to Total GDP

2002

India

0.7 5.0

20.6

2001

73.8

2000

China

30.4

Investors’ Plan in Asia (%) Increase their level of investment Still in the market, but will not invest more Reduce their investment Have no plans to invest

Brazil

China

India

Indonesia

Korea

Russia

The Investment Coordinating Board of the Republic of Indonesia

5

55% of FDI flowed to secondary sectors,

6 000 5 000

mining got the biggest share

4 000 3 000

FDI Realization in Indonesia by Sector

2 000

Top-10 Sectors Based on Capital Expenditure 1 000 (USD million) in 2013 Excl. oil, gas, and financial sectors 2009

Component of FDI Realization Based on Group of Sectors in 2013

40% 60%

4% 2009

22%

61% 35%

35%

28%

48%

55%

21% 19%

25%

24%

23%

2010

2011

2012

2013

Primary Sectors Secondary Sectors Tertiary Sectors

Rank

Sector

2009

2010

2011

2012

2013

2010

2011

2012

2013

1

Mining

333

2,201

3,619

4,255

4,816

2

Transport Equipment Industry

583

394

770

1,840

3,732

3

Metal, Machinery & Electronic Ind.

655

590

1,773

2,453

3,327

4

Chemical & Pharmaceutical Ind.

1,183

793

1,467

2,770

3,142

5

Electricity, Gas & Water Supply

349

1,429

1,865

1,515

2,222

6

Food Industry

534

1,026

1,105

1,783

2,118

7

Food Crops & Plantation

143

751

1,222

1,602

1,605

8

Transport., Storage & Telecom.

4,152

5,072

3,799

2,808

1,450

9

Paper & Printing Industry

68

46

258

1,307

1,169

10

Non Metalic Mineral Industry

20

28

137

146

874

10,817

16,215

19,475

24,565

28,616

Total (All Sectors) The Investment Coordinating Board of the Republic of Indonesia

Source: BKPM, 2014.

6

The most promising country for overseas business (Japan Bank for International Cooperation Survey 2013)

Rank

2005

2006

2007

2008

2009

2010

2011

2012

2013

1

China

China

China

China

China

China

China

China

Indonesia

2

India

India

India

India

India

India

India

India

India

3

Thailand

Vietnam

Vietnam

Vietnam

Vietnam

Vietnam

Thailand

Indonesia

Thailand

4

Vietnam

Thailand

Thailand

Russia

Thailand

Thailand

Vietnam

Thailand

China

5

US

US

Russia

Thailand

Russia

Brazil

Indonesia & Brazil

Vietnam

Vietnam

6

Russia

Russia

US

Brazil

Brazil

Indonesia

-

Brazil

Brazil

7

Korea

Brazil

Brazil

US

US

Russia

Russia

Mexico

Mexico

8

Indonesia

Korea

Indonesia

Indonesia

Indonesia

US

US

Rusia

Myanmar

9

Brazil

Indonesia

Korea

Korea

Korea

Korea

Malaysia

US

Rusia

10

Taiwan

Taiwan

Taiwan

Taiwan

Malaysia

Malaysia & Taiwan

Taiwan

Myanmar

US

Positive Factors 1. Future growth potential of local market 2. Inexpensive source of labor 3. Current size of local market 4. Supply base for assembler 5. Industrial cluster development

Issues of Concern 1. Rising labor costs 2. Underdeveloped infrastructures 3. Execution of legal system unclear (frequent changes) 4. Intents competition with other companies 5. Difficult to secure management-level staff 6. Labor problems

The Investment Coordinating Board of the Republic of Indonesia

Source: JBIC, November 2013

7

Top-4 Most Prospective Host Economies for 2012-2014

United Nations Conference on Trade and Development

Indonesia rising two places to enter the top five destinations for the first time. (Results from UNCTAD’s World Investment Prospects Survey which polls TNC executives on their investment plans)

The Investment Coordinating Board of the Republic of Indonesia

8

ASEAN’s Most Attractive Investment Destination

The ASEAN Business Advisory Council Survey on ASEAN Competitiveness 2012

“Half of 405 businesses surveyed intended to invest in

Indonesia over the next years (2011-2014).” Source: ASEAN-BAC, 2012

Notes: (1) Value next to each bar reflects the percentage of respondents that plan to invest or increase investments while value within the bar shows respondents’ average rating on the investment attractiveness of each country. (2) Each respondent was allowed to select multiple responses. Percentages do not sum up to 100%. The 2012 ASEAN-BAC Survey on ASEAN Competitiveness collated responses from businesses across all ten ASEAN ountries, comprising a mix of small, medium and large firms. A majority of the businesses had been in operation for more than ten years, had trade/investment linkages within ASEAN and had at least general knowledge of ASEAN policy initiatives. The Investment Coordinating Board of the Republic of Indonesia

9

4

170 million

th

134 81

Covering more than

World’s Most Populous Country

93

45

Population in

Middle Income with per capita expenditure per day USD 2-20

1999 2003 2009 2010 2015

Source: Bank Indonesia and Indonesia Statistics Agency, 2012 (Projection)

39

%

total population of South East Asia

More than

% 70 60% Population in

working age

2015 Population (projected) in Middle Income with per capita expenditure per day USD 2-20

The Investment Coordinating Board of the Republic of Indonesia

10

110.5% 174%

Middle class growth in Southeast Asia 2012-2020

Middle class growth in Indonesia 2012-2020

Middle Class Growth in ASEAN 2012-2020

The highest middle class growth & consumer confidence index

Source: AC Nielsen, 2013.

120

Nielsen Consumer Confidence Index Source: AC Nielsen, 2013.

Indonesia The Investment Coordinating Board of the Republic of Indonesia

11

Indonesia: Consumer Economy All consumer segments is growing, no better place to invest in! 85%

7,0%

6.1%

Ever Bought on the Internet

6,0%

68%

5,0%

3.8%

4,0%

32%

3,0% Have a mobile phone Have a smart phone

1,0%

2011

0,0% Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

2013

Motorcycle

2008

2009

2010

2011

2012

2013

Car

71%

82%

58%

2008

2010

2011

2012

Mar

Dec

Jun

Sep

Mar

Dec

Sep

Jun

Mar

Dec

Jun

Sep

Mar

Dec

Jun

2009

Jun

10%

4% Sep

4% Mar

90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2012

Dec

2010

Jun

2009

Sep

2008

1.7%

2,0%

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun

90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2013

The Investment Coordinating Board of the Republic of Indonesia

Source: Roy Morgan, 2013

12

McKinsey: Indonesia today and in 2030

Source: McKinsey Global Institute, September 2012. The Investment Coordinating Board of the Republic of Indonesia

13

One of the world’s major producer of a broad range of commodities

Source: Coordinating Ministry For Economic Affairs RI, 2011

The Investment Coordinating Board of the Republic of Indonesia

14

Labor issues Skilled workforce

Infrastructure & logistics Ease of doing business

Investment climate

Global competitiveness

Incentives & facilities

The Investment Coordinating Board of the Republic of Indonesia

15

Economic policies for improving

investment climate

Streamlining investment licensing • BKPM simplifies business start up and licensing procedures, including 60% reduction of application forms.

Revising the “negative investment list” 17 action plans package to improve the ease of doing business includes… • Starting a business • Getting electricity • Paying taxes and insurance premium • Enforcing contract • Resolving insolvency • Registering property • Dealing with construction permits • Getting credits

• National Interest Priority: Increasing national competitiveness • Maintaining Economic Growth • More open, friendly, and simple and give certainty to Investors

Tax incentive for reinvestment (to be implemented soon) • Aimed at encouraging investors to reinvest their profits. • Tax would be reduced to approximately zero percent (MoF in Antara, 4/2/2014).

The Investment Coordinating Board of the Republic of Indonesia

16

TAX ALLOWANCE (Government Regulation No.52/2011)

30

% of investment value Reduction of corporate

net income tax for 6 years, 5% each year.

129

business segments

TAX HOLIDAY

IMPORT DUTY FACILITY

(MoF Regulation No.130/PMK.011/2011)

(MoF Regulation No.176/PMK.011/2009)

5-10 50

years

Under certain requirements among others: minimum amount of investment value and workforce, and certain project location (especially outside Java island).

from the commencement of commercial production.

% for a further 2 years

Reduction of income tax after the expiration of the tax holiday and can be extended by MoF.

Eligible for tax

allowance, expanded from 38 segments in the previous regulation.

Tax relief facility, starting

Pioneer industry 1. Basic metal industries; 2. Oil refinery industries and/or basic organic chemicals; 3. Machinery industries; 4. Industries of renewable resources; 5. Communication devices industries.

IDR

1

trillion

Machines, goods, materials for production 2 years import duty exemption or 4 years for

companies using locallyproduced machines (min.30%).

Industries

Which produces goods and/or services, including: 1. Tourism and culture 2. Public transportation 3. Public health services 4. Mining 5. Construction 6. Telecommunication 7. Port

Minimum investment plan.

The Investment Coordinating Board of the Republic of Indonesia

17

Enrollment Ratio

Skilled workforce % years

20

Share of state budget dedicated to education since 2004.

12

Top-5

Compulsory

schooling since 2013.

Number of higher education graduates in 2020, covering 6% of world’s total. (OECD, 2012)

(Comparison between the number of students and people at the school age) 80,0 70,0

From agrarian to industrialized economy

2. Higher level of skills

1. Higher enrollment

67.9%

60,0 50,0

50.9%

40,0 30,0 20,0

1. Great number of employees

High school

10.8%

University

18.5%

10,0 0,0

2. Relevance & quality improvement

Education Facilities 35 000

• Partnership between vocational schools and companies operating in Indonesia to produce graduates with specific skills. There are 850,000 vocational school graduates a year.

• 273 learning centers (balai latihan kerja) managed by Ministry of Manpower are available across Indonesia.

• Establishment of “university of professions”, dedicated for the needs of various professions, by and for the professions.

28,600

30 000

High school

25 000 20 000

13,000

15 000 10 000 5 000

• Tax incentive for companies who conduct R&D programs.

1,900

University

3,800

-

The Investment Coordinating Board of the Republic of Indonesia

18

Roadmap of Indonesia Investment

More than 15 years 10-15 years Development of Big-Scale Industry

5 years Acceleration of Infrastructure Development

1-2 years Quick wins and low hanging fruits Encouraging and facilitating readyto-invest investors

Developing soft infrastucture (education and health facilities) and hard infrastructure (bridge, port, etc) through PrivatePublic Partnership Scheme

Developing big-scale industrials through industry cluster (e.g. Petrochemical, transportation means, and national defense)

Knowledge-Based Economy Developing economy by innovation and high-technology

The Investment Coordinating Board of the Republic of Indonesia

Source: BKPM

19

Quality Investments

Sectors Focused in BKPM’s Plan Export-oriented sectors: downstream industry of palm and rubber, electrical equipment, metal, paper, textile.

Industrial sectors with increasing domestic

consumption trend: cement and building material industries.

Import substitution of capital goods and raw materials: machinery, iron and steel, automotive and spare parts, and basic chemical.

Import substitution of

consumer goods: food and beverages, home appliances, and oil refinery industries.

Downstream industries of

mining, agriculture, fisheries and forestry: smelter, CPO and cocoa industries, paper, furniture.

Infrastructure

sector encouraged through PPP: energy, air and sea ports, roads, water supply, waste management and railways.

Tourism and creative industries.

The Investment Coordinating Board of the Republic of Indonesia

20

25 high priority infrastructure projects Ready for Ground Breaking Between 2015 and 2017 ( No.

Sumatra

= Potential for PPP)

USD Mio.

No.

Kalimantan

USD Mio.

1

Toll Road: Medan–Binjai (15.8 km)

210

1

Toll Road: Balikpapan-Samarinda (99.02 km)

1,261

2

Toll Road: Palembang–Indralaya (22 km)

180

2

Railway: Purukcahu–Bangkuang– Mangkatip (290 km)

2,277

3

Toll Road: Pekanbaru–Kandis–Dumai (135 km)

1,530

3

Coal-Fired Power Plant: Asamasam 5-6 (2x100 MW)

4

Toll Road: Bakauheni–Terbanggi Besar (150 km)

2,372

5

Toll Road: Tebing Tinggi–Kisaran–Rantau Prapat (178 km)

1,396

No.

6

Toll Road: Panimbang–Serang (83 km)

1,191

1

7

Toll Road: Lubuk Pakam–Tebing Tinggi (43.5 km)

8

Seaport: Hub Kuala Tanjung

9

Seaport: Tanjung Sauh, Batam Total Sumatra (9 projects)

No.

Java

Bali-Nusa Tenggara Water Supply: South Bali

2,795

No.

3,869 USD Mio. 282.2

Total Bali-NT (1 project)

708

Sulawesi

282 USD Mio.

1

Road: Palu–Parigi (37.4 km)

104

10,382

2

Toll Road: Manado–Bitung (46 km)

353

USD Mio.

3

International Hub: Bitung

71

4

Railway: Makassar–Pare-Pare (136.3 km)

211

5

Hydro Electric Power Plant: Karama (4x112.5 MW)

1,376

Total Sulawesi (5 projects)

5,662

N/A

1

Access Road: Purwakarta Industrial Area (7.8 km)

2

Water Supply: Umbulan

3

Port and Access Road: Cilamaya (30 km)

4,176

4

Airport and Access Road: Karawang

3,747

5

Railway: Madiun–Surabaya (165 km, Double Track)

430

6

Coal-Fired Power Plant: Indramayu 4 (1x1000 MW)

2,116

Total Java (6 projects)

Total Kalimantan (3 projects)

331

No.

1

3,208

Maluku-Papua

621

USD Mio.

Road: Enarotali–Tiom (240 km)

174

Total Maluku-Papua (1 project)

174

10,750 The Investment Coordinating Board of the Republic of Indonesia

Source: Coordinating Ministry for Economic Affairs, 2013

21

Potential Projects : tall road, energy, water supply, solid waste & sanitation ( Potential for PPP) No.

Sumatra

USD Mio.

No. 1

Pontianak Municipal Water Supply, West Kalimantan

2

Sukadana Water Supply, West Kalimantan

3

Development of Singawang Airport, West Kalimantan

4

Railway Tumbang Samba-Nanga Bulik Railway, Central Kalimantan

No.

Bali-Nusa Tenggara

1

Energy: Jambi Coal Fire Steam Power Plant (2x400MW)

1,040.00

2

Energy: South Sumatra Mine Mouth HVDC Coal Fired Steam (2x600 MW)

1,560.00

3

Development of Karya Jaya Integrated Terminal , Palembang, South Sumatra

134.00

4

Development of Shipping Lane Development of Belawan

47.77

No.

Java

USD Mio.

1

Solid Waste : Final Disposal and Treatment Facility- Putri Mojosongo, Surakarta Municipal, Central Java

2

Solid waste Final Disposal and Treatment Facility – Bogor& Depok Area, West Java

N/A

3

Water Treatment Plant of Cimahi City, West Java

4 5

30.00

Kalimantan

USD Mio. 25.00 4.32 42.03 1,858.0 USD Mio.

1

Water Supply: Metaum Water Supply, Tabanan Bali

282.2

2

Central Lombok Water Supply, West Nusa Tenggara

18.00

No.

Sulawesi

USD Mio.

1

Energy: Coal Fired Steam Power Plant (2x55MW)

3.79

2

Maros Regency Water Supply , South Sulawesi

11.50

Water supply: West Semarang City Water Supply, Central Java

82.40

3

Imporvement of Water Supply Palu Municipal, Central Sulawesi

13.55

Jakarta, Monorail, DKI Jakarta

475.0

No.

Maluku-Papua

1

USD Mio.

Development of Pekanbaru Cargo Terminal, Riau

The Investment Coordinating Board of the Republic of Indonesia

165.00

140.00

Source: Coordinating Ministry for Economic Affairs, 2013

22

Thank You Terima Kasih

Indonesia Investment Promotion Centre (IIPC)

Badan Koordinasi Penanaman Modal (BKPM) Indonesia Investment Coordinating Board Jln. Jend. Gatot Subroto No. 44 Jakarta 12190 - Indonesia t . +62 21 5292 1334 f . +62 21 5264 211 e . [email protected]

www.bkpm.go.id