Indonesia has been one of the best investment destination in the world. With its GDP of USD 1.21 trillion (Purchasing Power Parity), economic growth of 6.5%, a population of more than 240 million people, and huge reserves of energy and natural resources, are just a few of Indonesia’s salient strengths. Indonesia’s political stability and sound economy continue to bear fruit in attracting more and more foreign direct investments (FDI) and have transformed Indonesia into becoming an expanding global influence. Pro growth, pro job, pro poor, and pro environment are the four clusters of the pro-people program of the Indonesian Government under President Susilo Bambang Yudhoyono to assure Indonesia’s economy will not only grow but also reduce poverty.
Because of its rapid economic development, rating agencies have improved Indonesia’s credit rating. Fitch Ratings has rated Indonesia with BBB- (positive outlook), Moody’s with Ba1 (stable outlook), and Standard & Poor’s with BB+ (positive outlook). 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.
To expedite the process of sustainable economic growth in Indonesia, on 27 May 2011, the Indonesian Government developed and implemented the Masterplan for Acceleration and Expansion of Indonesia Economic Development (Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia - MP3EI) to drive the realization of high, balanced, fair and sustainable economic growth and provides the building blocks to transform Indonesia into one of the 10 major economies in the world by 2025. It contemplates a high degree of cooperation between the central government, local governments, state owned enterprises, and the private sector. The Government will act as a regulator, a facilitator and a catalyst to support economic growth and will provide fiscal and non-fiscal incentives. The private sector will be given a major role in economic development, particularly in the area of infrastructure.
MP3EI has two key factors: acceleration and expansion. Through acceleration, it is hoped that Indonesia is able to accelerate the development of various existing key development programs, whereas expansion is intended so that the positive effects of Indonesia’s economic development can be felt by all components of the community across Indonesia.
The Masterplan identifies six economic corridors to boost economic development:
1. Sumatra, as a “center for production and processing of natural resources and as the nation’s energy reserve”
2. Java, as a “driver for national industry and service provisions”
3. Kalimantan, as a “center for production and processing of national mining and energy reserves”
4. Sulawesi, as a “center for production and processing of national, agricultural, plantation, fishery, oil and gas, and mining”
5. Bali – Nusa Tenggara, as a “gateway for tourism and national food support”
6. Papua – Maluku Islands, as a “center for development of food, fisheries, energy, and national mining”
The Masterplan focuses on 8 main programs which consists of 22 main economic activities. The eight primary programs are: agriculture, mining, energy, industrial, marine, tourism, telecommunications, and the development of strategic areas. The strategic initiative of the Masterplan is to encourage large-scale investment in 22 primary activities: shipping, textiles, food and beverages, steel, defense equipment, palm oil, rubber, cocoa, animal husbandry, timber, oil and gas, coal, nickel, copper, bauxite, fisheries, tourism, food and agriculture, the Jabodetabek area, the Sunda Straits strategic area, transportation equipment, and information and communication technology.
Large scale investment of the 22 main economic activities:
The shipping industry in Indonesia has shown good progress. In March 2010, Indonesia had a fleet of 9,309 units (11.95 million Gross Tonnage). Most shipping yards in Indonesia can only build ships of 500 deadweight ton (DWT) or less. There are currently 10 shipyards in Indonesia than can build ships above 10.000 DWT. As a maritime country, Indonesia’s shipping industry is in need of investment for construction of shipyards with a capacity above 5.000 DWT.
This industry has highest level of employment in Indonesia (more than 1.3 million people with about half working in the labor-intensive textile garment industry), and is the only non-oil manufacturing export industry with a positive net export. Textile products contribution to national GDP is significant, amounting to IDR 90 trillion (USD 10 billion) in 2007. The amount decreased due to the economic crisis in 2009, but is expected to continue its increased contribution in the future.
3. Food and beverages
In 2008, the industrial production value of food and beverage reached USD 20 billion, and has grown at an average of 16 percent every year thereafter. This industry absorbs the largest labor force among other manufacturing industries. In 2010, it absorbed a labor force of 3.6 million people, an increase of 3.8 percent from 2009. Milk is a product of the food and beverage industry that has potential to be developed further as the consumption of dairy products per capita in Indonesia is relatively low. This can be considered as an opportunity and therefore, sales of dairy products in Indonesia are projected to grow by 17 percent annually.
The production capacity of domestic steel and crude steel amounts to 6,5 million tons, with an average utility rate of 50%. Indonesia steel consumption is still very low at 29 kg/capita, compared to the average of 170 kg/capita. Thus, steel industries in Indonesia need to be further developed.
5. Defense equipment
It is very important for Indonesia to have the ability to maintain security and to create conducive atmosphere for economic development. The task of maintaining national security will be easier if there is guaranteed technological capability support from the national strategic industry. The national technological capability should be able to produce defense equipment products as well as commercial products that are highly competitive.
6. Palm oil
There has been continuous expansion of the palm oil plantation area, with the last five years seeing an increase of approximately 40% for areas of cultivation. The figure rose from 5.4 million hectares in 2005, to 7.8 million hectares in 2010. Given this expansion was recent, further growth in production is anticipated as plantations reach maturity and yields grow.
Indonesia is the second largest producer of rubber in the world (28% of world rubber production in 2010). Indonesia produced 522.300 metric tons of natural rubber in 2009, and 585.400 metric tons in 2010.
Indonesia is the world’s second largest cocoa producer, contributing 18 percent annually to the global market. In 2009, foreign exchange from cocoa reached USD 1.38 Billion. Indonesia targets a capacity of producing 2.5 million tons of cocoa beans in 2025 with an estimated export value of USD 6.25 Billion.
9. Animal husbandry
The type of animal husbandry with the most potential for development is beef cattle. The biggest challenges in the development of farm activities include the limited infrastructure that can support the distribution of cattle products, lack of venture capital and weak human resources and animal husbandry institutions.
Forestry contributed between 8-9 percent of National Gross Domestic Product (GDP) between 2005 to 2009, with a total production valued at IDR 36.1 trillion in 2007 and IDR 44.9 trillion in 2009. Investment plans of timber industry for short and medium terms planning include commercial scale Industrial Plantation Forest Estate (HTI) and Wood Production and Primary Timber Industry (IPHHK).
11. Oil and gas
This sector is the largest contributor to the Indonesian economy. Of the total revenues amounting to IDR 235 trillion (USD 26,11 billion) in the energy sector and mineral resources in 2009, the contribution of oil and gas amounted to IDR 182.63 trillion (USD 20,29 billion). The acceleration strategy for oil and gas development in Indonesia is to increase national oil and gas production to 1 million bpd by 2025. Currently the average level of reserves lifting in December 2010 to February 2011 is only approximately 893,000 bpd. In the near future, oil and gas exploration will be directed to areas with more difficult conditions such as deep sea exploration, which would require higher investment.
Indonesia is rich in coal, and is the largest thermal coal exporter in the world (26% of world exports). From 1996 to 2010, Indonesia’s coal production grew by an average of 14.8 percent per year with an average growth of coal exports at 15.1 percent per year. The level of domestic coal consumption experienced an average growth of 13.8 percent per year within the period of 1996-2010. In 2010, the amount of coal used for domestic consumption is 60 million tons or 18 percent of the total national coal production of 325 million tons, most of which is consumed for domestic electricity generation.
Indonesia is the fourth largest nickel producers and contributes 60 percent of world nickel production. Indonesia’s nickel production alone reach 190.000 tons per year. Indonesia has eight percent of world nickel reserves, and therefore, nickel mining and its processing industry is eligible for further development.
From 2004-2009, the overall Indonesian copper export increased by an average of 0.24 percent annually. The highest average increase was by cathode copper exports at 14.32 percent.
Currently, Indonesia is ranked 7th in the world in bauxite reserves, and ranked 4th as bauxite producer. Indonesia’s bauxite reserve is estimated to reach 24 million tons. With the importance of bauxite for the processing of aluminum, the development of an industry to process bauxite into alumina should be seriously considered
As an archipelago, Indonesia’s geographical condition strongly supports the development of fishery activities. Indonesia has access to abundant fishery resources in both marine fishery and freshwater fishery, where 76 percent of Indonesia’s surface area is sea-waters, in addition to the 5,500 rivers and lakes found throughout Indonesia. Fishery production growth reached 7 percent per year, placing Indonesia as the largest producer of fishery products in Southeast Asia.
The increasing number of foreign tourists visit in 2010 has consequently increased the value of tourism’s contribution in the amount of USD 7.6 billion compared to the USD 7.3 billion in 2008. The National Tourism Development Master Plan 2011 - 2025 targets foreign tourists visit will increase to 20 million per annum by 2025.
18. Food and agriculture
Food Agriculture activities in Indonesia are mostly the production of rice, corn, soybean, and cassava. Food agriculture activities, especially rice and corn, are very important, particularly for domestic consumption. Indonesia is the third largest rice producer in the world, most of which is used for domestic consumption. Indonesia imported 800,000 tons of corn in 2010 to meet its domestic demand of 5 million tons.
19. The Jabodetabek Area (Greater Jakarta)
The total population residing in the Greater Jakarta area is approximately 28 million inhabitants (2010) or more than 12 percent of the national population. It is estimated that more than 30 percent of Greater Jakarta residence has income of more than IDR 50 Million (USD 5.000) per year.
20. The Sunda Straits Strategic Area
Currently, Sumatra and Java are connected only by ships and aircrafts which are heavily influenced by weather conditions, and technical condition of transportation modes. The Government plans to build the Sunda Straits Bridge which will connect the island of Sumatra and Java. This bridge will provide efficient transportation that will shorthen the travel time to only 30 minutes compared to ferry services that take on average of 2-3 hours. Moreover, it will be provided with railway access which enables passengers and freight to use train services to cross Sunda Straits.
21. Transportation Equipment
In the industrial sector for equipment and machinery, the transportation equipment segment is the largest contributor, e.g. 93 percent of equipment and machinery sector in Jakarta comes from transportation equipment segment.
22. Information and communication technology (ICT)
The ICT in Indonesia market is growing from year to year. In 2009, markets included hardware products valued at USD 979,9 million, consulting USD 211,7 million and software USD 110,3 million. The Indonesian government has targeted the development of the National Broadband Network (NBN) for the period 2010-2015. Every 10 percent increase in broadband penetration can enhance economic growth by 1.38 percent.
Negative Investment List
List of business fields closed to investment:
Agriculture - Marijuana Cultivation
Forestry - Capturing of Fish Species as Stated in Appendix I (CITES), The use (removal) of coral/atoll from nature for construction material
Industry - Alcohol Beverage Industry, Mercury processed Chlorine Alkali Maker, Chemical Material Industry that can damage the environment, Chemical Material Industry Schedule 1 Chemical Weapon Convention
Transportation - Providing and Implementation of Land Terminals, Implementation and Operation of Weight Stations, Implementation of Motor Vehicle Type Tests, Implementation of Motor Vehicle Periodic Tests, Telecommunication/Supporting Facility of Shipping Navigation, Vessel Traffic Information System (VTIS), Air Traffic Guiding Service
Communication and Informatics - Management and Implementation of Radio Frequency and Satellite Orbit Spectrum Monitoring Stations
Culture & Tourism - Public Museums, Historical and Ancient Heritage, Residential/Traditional Environment, Monuments, Gambling/Casinos
Italian Investments in Indonesia
Italian investments in Indonesia for the period of 2000-2010 has shown a gradual increase with a total amount of USD102,316 million for 78 investment projects. In 2010, Italy was ranked 7th biggest European investor in Indonesia reaching USD 23,4 million with 18 projects, behind Czech Republic (6th with USD 33,4 million) and above Belgium (8th with USD 15,9 million).
Most Italian investments in Indonesia work within the following sectors: hotel and restaurant, food industry, oil and gas, automotive, health equipment, iron and steel industry, leather products and footwear, textile industry, chemical industry and medicine, transportation and telecomunications. There are currently more than 120 Italian-Indonesian joint venture companies.
In addition, Indonesia-Italy total trade in 2011 reached USD 4,4 billion, up 33% from the total of USD 3,2 billion in 2010. Indonesia’s main exports to Italy are coal, textile and textile products, footwear, palm oil, video recorder components, furniture, rubber and rubber products, tin, coffee, cocoa, and paper. Whereas Indonesia’s main imports from Italy are light machinery, heavy machinery, automotive parts and accessories, leather (further prepared after tanning), taps, valves, and other plumbing appliances, telephone sets.
Indonesia Investment for 2012
For 2012, the Indonesian Government is preparing the ground-breaking for 110 projects related to the MP3EI program valued at Rp 368,6 trillion (USD 40,95 billion). All of these projects are divided among six corridors, with 34 projects in the Sumatera corridor worth Rp 71,3 trillion (USD 7,92 billion), 31 projects in the Java corridor worth Rp 216,5 trillion (USD 24,5 billion), 10 projects in the Kalimantan corridor at Rp 5,9 trillion (USD 665 million), and nine projects in the Sulawesi corridor at Rp 3,8 trillion (USD 442 million). The Bali-Nusa Tenggara corridor has eight projects worth Rp 15 trillion (USD 1,66 billion), and the Papua-Maluku corridor has 18 projects worth Rp 56 trillion (USD 6,22 billion).