Having a GDP size of nearly US$ 550 billion in 2009, Indonesia is the third fastest growing economy in Asia and 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% last year and is forecast to climb to 5.6% in 2010 and further still to 6% in 2011, 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 29% by the end of 2009; the lowest among ASEAN countries, aside from Singapore which has no government debt. The country is ranked 1st among Asia-Pacific sovereigns by Standard & Poor’s for best fiscal balance.
In January 2010, Fitch ratings upgraded Indonesia’s credit rating to BB+ with a stable outlook. The rating upgrade is in line with Indonesia’s strong and sustained growth, and improving fiscal position. It is especially an enormous vote of confidence for investments in Indonesia - putting us only 1 notch below investment grade. Indonesia is on the right path towards attracting larger pools of fixed income and capital flows, as well as drawing in those funds which have so far been precluded from investing in non-investment grade countries.
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.
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 a 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.
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.
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.
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, with the same percentage 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.
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.
BURGEONING DOMESTIC MARKET
With a population of 240 million people, Indonesia has a large domestic market to offer, over 50% of which lives in urban areas and adopt a modern lifestyle. A growing and affluent middle class supports GDP growth with approximately 70% of GDP accounting for private consumption.
These statistics fare well for many industries, including retail and consumer products, food processing, as well as automotive industry.
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, the latest global grouping for transnational economic policy. Standard Chartered sees Indonesia’s inclusion in the G-7 by 2040, provided that growth achieves its potential by 2012, moving the economy ahead of South Korea by 2016 and Japan by 2024.
Indonesia is also a leading member of ASEAN, shaping 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, which will have direct and indirect impacts on business and investment decisions.