Why Invest in Indonesia

1/9/2015

 

 

Why Invest in Indonesia
 
1.  SOUND ECONOMY

 
Indonesia is an emerging global powerhouse in Asia. With the GDP expected to reach US$ 1 trillion in 2012, Indonesia is the largest economy in Southeast Asia. Much less affected by the global financial crisis compared to its neighboring countries, Indonesia’s economy grew by 5.7% in 2013, making “The World’s Most Stable Economy in the Last Five Years” according to The Economist Magazine.
 
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Indonesia grew by 6.2% in 2012 and in 2014, stronger economic growth is expected around the lower end of the 5.8-6.2% range. Future economic expansion is expected to include more inclusive growth as nominal per-capita GDP is expected to quadruple by 2020, according to a Standard Chartered report.
 
A large part of our economic success is a result of growing middle class and stable economic growth. Indonesia is in list of MINT economies (Mexico, Indonesia, Nigeria and Turkey), namely those that were the most attractive to long-term investors due to their favorable demographic profiles.
 
Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to be less than 26% by the end of 2013, the lowest among ASEAN countries, aside from Singapore, which has no government debt. 
 
As a result, the Republic continued to receive good reviews. The rating reflects Indonesia’s resilience to the global financial crisis, improving government and external credit-metrics, and an ability to manage domestic political challenges to the reform agenda.
·         Fitch Ratings (November 15, 2013): affirmed Indonesia's sovereign credit rating at BBB- level with stable outlook.
·         Rating and Investment Information, Inc (October 11, 2013): affirmed Sovereign Credit Rating of the Republic      of Indonesia at BBB-/stable outlook.
·         Japan Credit Rating Agency, Ltd (July 22, 2013): affirmed Indonesia’s foreign currency long-term senior debt at         BBB- with stable outlook.
·         S&P (May 2, 2013): affirmed Indonesia’s sovereign credit rating, at BB+ level for long-term.
·         Moody’s Investors Service (January 18, 2012): upgraded Republic of Indonesia’s foreign and local-currency bond    ratings to Baa3 with stable outlook.
 
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2.  POLITICAL STABILITY


 
One of Asia Pacific’s most vibrant democracies that has maintained political stability…”
(The World Bank, 2013)
 
Underlying Indonesia’s vibrant economy is political stability.  A decade ago, many analysts envisaged that certain break-away provinces would bring about Indonesia’s “balkanization”.  In 2001, Indonesia embarked on an ambitious and challenging decentralization effort.  While it has been challenging journey, today Indonesia is one of the most decentralized countries in the world with substantial funds and authorities devolved to the regions.
 
Significantly, Indonesia is the only country in Southeast Asia that has bucked the trend of a democracy in trouble. Democracy is blossoming in a country that was once ruled with an iron hand for 30 years. Indonesia has gracefully transformed from an authoritarian state to a regional role model.

For a third time in a row, Indonesia completed another round of peaceful and successful legislative and presidential elections. Indonesia is going to
hold general elections this year 2014. President Susilo Bambang Yudhoyono, now in his second term. The government will work extra hard to maintain political stability ahead of the general elections, so that the possible escalation of political tensions does not effect business
 

3.  INVESTMENT CLIMATE


 
This updated investment law redefines “capital investment” as all investments, whether by domestic or foreign investors, for the first time offering equal treatment to all investors. There is no longer a limit of 30 years on foreign investment permits, and gone is the provision in Law 1/1967 for they’re to be divestment. Additionally, the new law allows for the unimpeded reparation of capital.
No later than February 2014, all Indonesian citizens who want to do a business should enjoy the faster and easier process. This is the main target of the Policy Package to Improve the Ease of Doing Business. The government sets a target of eight areas of improvement to increase the ease of doing business, namely:
1.     Starting a Business
2.     Getting Electricity
3.     Paying Taxes and Insurance Premium
4.     Enforcing Contract
5.     Resolving Insolvency
6.     Registering Property
7.     Dealing With Construction Permits
8.     Getting Credits
 
In these areas, the Government sets a total of 17 actions. Each area covers one or more actions. However, all action must be implemented by February 2014.
 
On 23rd August 2013, the Government of Indonesia announced economic policy packages, among others aimed at increasing investment.
1.  Streamlining investment licensing
·   Cutting barriers, particularly licensing procedures.
2.  Revising the “negative investment list”
·   To make the investment law more and more investor-friendly.
·   The new updated list of sectors open for FDI will be announced soon in within this year.
3.  More tax incentives
·   Tax dispensation to labor-intensive industries: textile, apparel, footwear, furniture, and toys industries.
·   Additional tax deduction to firms with at least 30 percent export-oriented products.
 

4.  NATURAL RESOURCES


 
ABUNDANT NATURAL RESOURCES:
Indonesia is a renowned market for resource extraction, seen as even more attractive than for instance, South Africa, Australia and Canada in terms of mineral prospectivity, as per Pricewaterhouse Coopers.
The country is home to a biodiversity that is only second to Brazil. Rich with natural reserves, Indonesia has become a commodities powerhouse and a leading commodities exporter in a number of resources, including:
 
Abundant Natural Resources: The Key Indicators
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Indonesia is one of the world’s major producer of a broad range of commodities.   
Source: Coordinating Ministry For Economic Affairs RI, 2011
Please click here for key opportunities in natural resources.

 

5.  DEMOGRAPHICS


 
Indonesia is the 4th most populous nation in the world. Apart from its remarkable fiscal and political transformations during the last decade, Indonesia is also undergoing a major structural shift in terms of demographics. This provides for dynamic labor market participation, growing at 2.3 million per year. A rapidly urbanizing population also provides for strategic pools of labor force in centers of investment.
 
Demographic advantage of the 251 million people:
§  Over 50% of the population is under 29 years old
§  60% of the population is under the age of 39
§  Around 52% of the population living in urban areas
§  Indonesia’s population covers more than 39% of total population of 10 Southeast Asian countries (Source:    ASEAN Community in Figures 2011)
 
 
World’s Top-5 Population by Country (million people)  
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 Source: Central Intelligence Agency US, 2013 (Estimation)
 
Coupled with this demographic bonus is Indonesia’s commitment to improve productivity and the education level of its youth, with 20% of total government expenditure on education. This expenditure is higher than any other sector. Currently, the majority of university graduates are trained in technical fields such as finance and economics (28%) or engineering and sciences (27.5%).
§  In the period of 2020-2030, the dependency index will reach its lowest point.
§  More than 60% of the population is in the working age, providing a dynamic workforce which is one of the highest    in the region.
 
 
Indonesia’s Demographic Bonus
 
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Source: Coordinating Ministry For Economic Affairs RI, 2011
 

6..  DOMESTIC MARKET


 
Having the 4th largest population in the world, Indonesia has a large domestic market to offer, over 53% of which lives in urban areas and adopts a modern lifestyle.  A growing and affluent middle class supports GDP growth with approximately 56.7% of GDP accounting for private consumption in 2010. Number of Indonesia’s Population in Middle Income per capita expenditure per day USD 2-20 (million people). In 2010, 56.5% of the total population is in the middle-income class, growing from 37.7% in 2003. This figure is projected to increase to be 70% in 2015.
 
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7. GLOBAL INFLUENCE


 
Indonesia lies at the intersection of the Pacific Ocean, along the Malacca Straits and the Indian Ocean. Over half of all international shipping goes through Indonesian waters. Increasingly, Indonesia is playing a more dominant role in global affairs. It is Southeast Asia’s only member of the G-20 and an active voice for developing world’s concerns.  Standard Chartered sees Indonesia’s inclusion in the G-7 by 2030, projecting that Indonesia’s economy could be the 10th largest in 2020 and the 5th largest in 2030.
 
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Being the leading member of ASEAN, Indonesia shapes integrative approaches in the region for security, trade and commerce, and will be the integral part of the ASEAN Economic Community in 2015. The 2012 ASEAN-BAC Survey on ASEAN Competitiveness collated responses from businesses across all ten ASEAN countries, 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 Most Attractive Investment Destination in ASEAN
 
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Finally, Indonesia is emerging as a key player on cross-cutting international policy issues as climate change and the global financial architecture, which will have direct and indirect impacts on business and investment decisions.