WHY INVEST IN INDONESIA ?

3/22/2012

 
WHY INDONESIA
 
Indonesia is your investment destination. Abundant natural resources, a young and technically trained work force and a large and growing domestic market, combined with an improving investment climate and a higher global profile, are just a few of Indonesia’s salient strengths. With stability firmly planted after 13 years of vibrant democratic rule, Indonesia’s vast economic potential is primed for takeoff.

Invest in remarkable Indonesia.
 
SOUND ECONOMY
 
Having a GDP size of nearly US$ 707 billion in 2010, Indonesia is the largest economy in Southeast Asia.  Much less affected by the global financial crisis than its neighboring countries, Indonesia’s economy grew by 4.5% in 2009, 6.1% in 2010 and is expected to reach 6.4% this year, providing a case for Indonesia’s inclusion in the so-called BRIC economies.  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 prudent fiscal stewardship that focused on reducing the debt burden.  Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to 26% by the end of 2010; the lowest among ASEAN countries, aside from Singapore which has no government debt.
 
As a result, in April 2011, Standard & Poor’s had improved Indonesia’s credit rating to BB+, the last of the three major credit rating agencies to upgrade sovereign debt to one notch below investment grade. The rating reflected 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.
 
These achievements have increased the frequency with which Indonesia is being compared to middle-income developing nations like Brazil, India and Mexico.  Economically strong, politically stable, reform minded, Indonesia is an emerging global powerhouse in Asia.
 

POLITICAL STABILITY

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.
 
Recently, and for a third time in a row, Indonesia completed another round of peaceful and successful legislative and presidential elections. The election confirmed the people’s confidence in President Susilo Bambang Yudhoyono’s leadership, who won more than 60% votes from 176 million registered voters. President Yudhoyono’s party, Partai Demokrat, controls over 25% of plenary votes, providing him with a stronger mandate to lead Indonesia in the next five years.
 
 
INVESTMENT CLIMATE

Stronger Investment Climate
Indonesia’s economic policies are on a firm footing. So are its measures to attract foreign investment.  Below are a few of Indonesia’s latest improvements to our investment climate:

Investment Law No. 25/2007:
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 there to be divestment.  Additionally, the new law allows for the unimpeded reparation of capital.
 
One-stop-shop (PTSP) and National Single Window (SPIPISE)
BKPM has launched a one-door integrated service (PTSP) and an electronic automation platform for investment licenses and non-licensing services (NSWi) to not only reduce the number of procedures and amount of documentation needed to invest in Indonesia, but also to bypass the need to physically come to our offices to apply for certain services. The new system has revamped internal processes and rectified human resource constraints to increase the speed and improve the quality of investor services.
 
The system was first launched in January 2010 in the Free Trade Zone and Free Port of Batam.
 
Global Profile 
All the improvements that have been and continue to be applied have placed Indonesia as #1 country for entrepreneurship in the recent 2011 BBC survey. It has also managed to jump 10 places to 44th from a total of 139 ranked countries in the World Economic Forum’s Global Competitiveness Report in 2011.
 
Moreover, Indonesia has also been listed as one of the top 10 most attractive destinations for FDI in UNCTAD’s World Investment Prospects Survey in 2010.
 

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, just to mention a few. These resources provide tremendous investment opportunities.  Moreover, development potential is far from saturated, particularly in renewable energy.
 
 
 
DEMOGRAPHICS

Dynamic Demographic Base
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.   Of the 240 million people, over 50% of the population is under 29 years old, and 60% of the population is under the age of 39, with around 52% of the population living in urban areas.  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.
 
Indonesia’s Demographic Dividend
Coupled with this demographic bonus is Indonesia’s commitment to improve productivity and the education level of its youth, with 16% 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%).
 
 
Labor cost is still relatively low in urban centers, even as compared to urban centers of investment magnets China and India.
 
DOMESTIC MARKET

Burgeoning 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; while Consumer Confidence in Indonesia is at an all-time high, consistently reaching over 110 points until May 2011.
 
The service sector in Indonesia has also grown over 16% points from 1998 to 2009 and continued to grow at a pace of 6% in 2010 from the previous year.
 
These statistics fare well for many industries, including retail and consumer products, food processing, as well as the automotive industry.
 
GLOBAL INFLUENCE

Strategic Location and Expanding 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.
 
Indonesia has also become part of a new grouping called “Growth Markets” by Goldman Sachs’ Jim O’Neill, the man who coined the term BRIC. The Growth Markets grouping includes four countries (Indonesia, South Korea, Mexico and Turkey) each representing 1% of the total world’s GDP. 
 
Being the current chair and a 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.
 
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.
 
For more information regarding invest in Indonesia please visit the Indonesia Investment Coordinating Board (BKPM) website.