Emerging Issues for Growth(in Industry)

Presented by

Agus Tjahajana

Director General for International Industrial Cooperation

Ministry of Industry

2

1. Macro Economy

2. Progress of Industrialization

3. Opportunities

4. Challenges

5. Industrial Development policy

6. EU’s participate

7. Incentive Policy for industry

8. Conclusion

Topics

3

MACRO ECONOMY

PART 1

4

1. Global Flash

• Economic growth in the emerging market economies has far

outstripped growth in the advanced economies.

Growth Rate of Output

-6,00

-4,00

-2,00

0,00

2,00

4,00

6,00

8,00

10,00

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

Period

Gro

wth

Rat

e (%

)

Emerging marketeconomies (4-quarterpercent change)

Advanced economies(4-quarter percentchange)

(Advanced economies :AU, CA, EU,JAP, SWE, SWZ, UK, USA; Emerging market economies : ARG, BRA, CHI, CHN, COL, HK,

IND, INA, ISR, MAS, MX, PHI, RUS, SAR, SNG, KOR, ROC, THA, and VEN)

Source: Federal Reserves

5

• Some countries condition and the prediction (World Bank)

Global Flash (2)

Growth and Growth Prediction of Some Countries

-6

-4

-2

0

2

4

6

8

10

12

2008 2009 2010 2011 2012

Year

Gro

wth

(%) USA

EU

Japan

China

India

6

Some Highlights

• Japan : export growth has slowed for the eight month in a row, grew 7,8% in October, the country suffered from the strong yen.

• Germany : domestic demand is now contributing more than half of the country's economic growth, and predict that next year 90% of growth will come from the domestic economy". (Germany is the world's second-largest exporter).

• USA : the current-account deficit increased US$14,1 billion to US$123,3 billion in the second quarter of 2010 (deficit US$109,2 billion in 1st quarter).

• The Irish Republic : is negotiating with the European Union and the International Monetary Fund over a rescue package expected to be worth about 85bn euros ($113bn; £72bn)

Global Flash (3)

7

2. Indonesia Economy (1)

2009 2010

GDP Growth by Quarter (YoY)

(percent)

2. Indonesian Economy

Qt

8

Indonesian Economy (2)

• Macroeconomics Indicators

Indicator Description

Exchange Rate Rp8.958/US$ (25/11/2010)

Reserve Assets US$ 91.799 billions

Inflation (y-o-y) 5,67% (October 2010)

BI Rate 6,5% (4/11/2010)

GDP Growth 3,5% (q-to-q) and 5,3% (y-o-y) in

Q3:2010

Export US$ 110,81 billions (Jan-Sep

2010) or increase 38,27%

compare to the same periode in

the previous year.

Import US$19,44 billions (Jan-Sep

2010) or increase 47,95%

compare to the same periode in

the previous year.

Unemployment 7,41% (Feb 2010)

9

Since the 2009 leading international rating institutions increasing

Indonesia's Sovereignity rating (regardless of global economic

uncertainty) to be only 1-2 more levels below investment grade

and classified as having a future and stable / positive

•Moody’s on September 2009 and July 2010 from Ba3 to

Ba2/positive.

•Fitch’s In the end of January 2010 from BB to BB+/stable

•Standard and Poor’s on March 2010 from BB- to BB/stable

3. Improved Global Confidence towards Indonesia

10

PROGRESS OF INDONESIAN

INDUSTRIALIZATION

PART 2

11

4. Economy Development Progress Vs IndustrializationS

ect

ors

S

ha

res

To

wa

rd I

nd

on

esi

an

GD

PG

row

th

Legends: ■ = Economic Growth�= Industrial Growth

12

5. Shifting from Resource Base to Knowledge Base

13

6. Policy Development

Rehabilitationand Stabilization

(1967-1972)

Oil Boom Period

(1973-1981)

Fall of Oil Price Period

(1986-1997)

Crisis and Recovery

Period (1998-now)

Policy

Import Substitution

Industries

Fall of Oil Price Period

(1982-1985)

•Import substitution

industry through

industrial deepening

and strengthenin

g•Industrial development

by technological

mastery in many aspects

(airplane, machinery,

and shipping)

•Industrial Revitalization

, consolidation

restructurization., and Priority

Cluster Development

Program

•Import

substitution industry through

industrial deepening and

strengthening•Industrial

development by technological mastery in many

aspects (airplane, machinery, and

shipping).•Industrial

development that export-oriented

14

OPPORTUNITIES

PART 3

15

Indonesia’s Huge Potencies

Fact :√ Indonesia has huge market potential for capital utilized as a basis for further development of their industry

Huma n Primary, Secondary,

and Tertia ry Needs

- Transportation

- A communi cation tool

- Entertainment gadgets

- Supporting tools

-Clothing

- Educational tool

- Electrical e quipme nt

- Energy equi pment

- Services RBPI

- Packaging

- Agro- Agricultural equipment

- Fertilizer & Other support

- Food

- Medical devices

250 Mill. 250 Mill.

PopulationPopulation

Needs for I nfrastr ucture,

Roads, and Bridge

- Buildi ng materials

- Construction equipment

- Transport e qui pment

- Steel construction

Huge of SizeHuge of Size

RegionRegionArchiArchi--

pelagopelagoFarmingFarming ForestryForestry MiningMining SeaSeaGeographyGeography

-Steel construction

- Construction

equipment

- Services RBPI

- Transportation

- Construction equipme nt

- Electrical e quipme nt

- Energy equi pment

- The machines process

- Supporting tools

-Telecommuni cations

-Satellite & peripherals

- Steel construction

Rich of Natural resourcesRich of Natural resources

Infrastructure needs of process

machinery, and other equipment

OthersOthers

7. Huge Potency

National Potencies

16

“Demographic Bonus" this period have a better quality due to abundant

skilled workers (assumption: higher average education rate)

Note:The smaller Dependency Ratio � The larger productive age proportion �The higher economic productivity

Demographic Bonus Benefetting Domestic Market Size Development and Economic Capacity Enhancement

“Demographic Bonus"

Huge Potency (2)

17

About 40% is assumed feasible �12 GW. Up to now, 1.200 MW has been

developed.

Must be (at least) partially processed

domestically by 2013

(New Mining Law: No. 4/2009)

• Abundant resources for gas energy and petrochemical industry.

• Not including nonconventional gasses from Coal Bed Methane (CBM) and Coal Gassification

Will encourage downstream

industries

Rich of Natural Resources

Natural Gas

Thermal Coal

Geo-thermal Palm Oil Cocoa Tin Nickel Bauxite

Key metrics About 165 TCF of

reserves at production rate ± 3 TCF per

year

World 2nd

largest exporter

Have 40% of world reserve

(largest in the world)

Worlds largest

exporters: >19 mil ton/year

at 770 thousands ton/year, worlds 2nd

largest in the world

65 thousands ton/year, worlds 2nd

largest in the world

own ± 12% of world reserves (the 4th

largest)

World 7th

largest reserves; world 4th

largest producer

Huge Potency (3)

18

CHALLENGES

PART 4

19

8. Global Challenges

• Contagious Effects of US Financial Crisis

• Uncertainty of Energy Supply

• Negative Impacts from Free Trade Areas

• Green Industry Vs Growth and Employment (a

difficult choice)

20

9. Micro Economy Challenges

세계적세계적세계적세계적환경변화환경변화환경변화환경변화

1. Incomplete structure in some industry branches, e.g

chemical, automotive component, steel, non-ferous

metal industries; etc

2. GDP of the SMI is too small compared to GDP of Big

Industry;

3. Unbalanced situation between the level of

industrialization of Java compared to the outside of

Java.

1. Incomplete structure in some industry branches, e.g

chemical, automotive component, steel, non-ferous

metal industries; etc

2. GDP of the SMI is too small compared to GDP of Big

Industry;

3. Unbalanced situation between the level of

industrialization of Java compared to the outside of

Java.

Internal of Industry

21

DEVELOPMENT POLICY

PART 5

22

10. Road Map of Development

Income per cap US$ 4,000 –4,500 (by 2014)

The 16th largest economy in

the G20 (US$ 1,000 bill)

High Competitiveness

Industry.

GDP will be 4 times compared to 2014 (more than US$ 4 trill)

Income per capita is

predicted to be around US$ 12,450 (classified as a high

income country)Industrial Country

GDP will be around US$ 23.5 trill (G-Sachs prediction)

Predicted to be the 7th largest

economy in the world (Standard Chartered Bank’s Prediction

Income per capita would be

around US$ 55,000 – 65,000

Income per capita around US$

2,668GDP around US$ 639.1 bill

Strengthening the competitiveness of

manufacturing industries. [structure, interlinkages, population distribution, cost ]

23

11. Selection of Industries to be developed

1. Basic Capital

2. Company Size3. Ownership Structure4. Spesialization5. Diversiv ication6. Output7. Value Added8. Labor Cost9. Fixed Assets10. Productiv ity11. Exports Scope12. Import Independency 13. FDI and Export Scope14. Intensity Factor15. Technology

16.16. Export ValueExport Value17.17. Share in World MarketShare in World Market18.18. ImportImport19.19. Intra Industry TradeIntra Industry Trade

20.20. Comparative Comparative Advantages(RCA)Advantages(RCA)

21.21. Dynamism ExsportDynamism Exsport22.22. WorldWorld’’s Import Market s Import Market

StructureStructure23.23. WorldWorld’’s Competitiveness s Competitiveness

StructureStructure

Industry Organization

Demand SideDemand Side

(Export(Export’’s Trigger)s Trigger)

Organization Capability

Branch Industry Contribution

Competition

International

Classification Factor

Export StructureExport StructureCompetitiveness Competitiveness

RankingRanking

Competitiveness Competitiveness PositionPosition

Supply Side

Competitiveness Approach

24

34 Priority Industries

from 365 industries, covered

�78% of total output

�83% of total export

Focus

Prior ity Industry

1.Basic Material 2.Machinerres3.Labor

Intensive Manufactures

1.1.Basic Material Basic Material 2.2.MachinerresMachinerres3.3.LLabor abor

Intensive Intensive ManufacturesManufactures

I. I. Base of Base of Manufacturing Manufacturing

IndustryIndustry 1. Palm Oil2. Rubber and Rubber Products3. Cacao and Coc oa Products4. Coconut5. Coffee6. Sugar7. Tobacc o8. Fruits I ndustr y9. Wood a nd W ood Products10.Fisherries and Sea Products11.Pulp & Paper12.Milk Pr oduc ts

1.1. Palm OilPalm Oil2.2. Rubber and Rubber ProductsRubber and Rubber Products3.3. Cacao and Coc oa ProductsCacao and Coc oa Products4.4. CoconutCoconut5.5. CoffeeCoffee6.6. SugarSugar7.7. Tobacc oTobacc o8.8. Fruits I ndustr yFruits I ndustr y9.9. Wood a nd W ood ProductsWood a nd W ood Products10.10.Fisherries and Sea ProductsFisherries and Sea Products11.11.Pulp & PaperPulp & Paper12.12.Milk Pr oduc tsMilk Pr oduc ts

IIII. A. Agro Basedgro Based

1. Gems & Jewelry2. Farmer Salt Industries3. Craft & Ornament

Ceramics 4. Essential Oils5. Snacks

1. Gems & Jewelry2. Farmer Salt Industries3. Craft & Ornament

Ceramics 4. Essential Oils5. Snacks

VVII. . Specific SMISpecific SMI

*) Creative Industry

is a procces of increasing value added by intelectual property exploitation such as creativity, skil ls, and individual talents for producing goods that can be sold in order to incerase the community

wellfare mainly those who are involved in the process.

1.Automotiv e2.Shipbuilding3.Aeronauticals4.Railways Vehicles

1.1.Automotiv eAutomotiv e2.2.ShipbuildingShipbuilding3.3.AeronauticalsAeronauticals4.4.RRailways Vehiclesailways Vehicles

IIIIII. . Transport Transport

EquipmentEquipment

V. V. Specific Creative Specific Creative Industry*) and its Industry*) and its

SupportingSupporting

1.1. Software & multimedia Software & multimedia

contentscontents

2.2. Handicraft and ArtsHandicraft and Arts

3.3. FashionFashion Pr oductsPr oducts

4.4. ICT Creativ e Industr iesICT Creativ e Industr ies

12. The Selected National Priority Industral Clusters

25

13. Regional Industry Core Competence Development

26

Strategy

�Diversification of industry�Increasing competitiveness ba sed on regional competency�Increasing value-added in regional core competence commodity�Developing uniqueness in every region�Developing inter-regional cooperation

Regional Industry Core .........

27

14. Some Promoted Industries

1. Crude Palm Oil downstream industry in Sei Mangke, North Sumatera; Dumai and Kuala Enok, Riau; and Maloy, East Kalimantan;

2. Oil and gas based industry in Gresik and Tuban, East Java; in Bontang, East Kalimantan; Cilegon, Banten; and Tangguh, West Papua;

3. Steel industry in Batu Licin, South Kalimantan;

4. Nickel industry in Soroako, South Sulawesi;

5. Aluminium industry in Menpawah, West Kalimantan, and Kuala Tanjung, North Sumatera;

6. Shipbuilding industry in Karimun, Riau Islands; and in Lamongan,East Java;

7. Cocoa, Seaweed down stream manufacturing;

8. Automotive and electronic component industry.

28

EU PARTICIPATION…..WHY NOT?..

PART 6

29

15. Indonesia-EU Trade Balance

Trend of Trade Balance Indonesia-EU

(in thousands US$)

Source: pusdatin-kemenperin

30

16. Trade Indonesia-EU

• Share of Indonesia’s export to EU has reached 13% of total export to the world and import has reached 11% of total import from the world.

• For 2010 (until August), the export destination of the main industrial goods in EU are Netherlands, Germany, Italy, Spain and the United Kingdom which covers more than 75% of Indonesia Export to EU with total value of trade around US$ 8 billion.

• For the same period, the main importing partner countries for industrial goods from EU are Germany, France, United Kingdom, Italy, and Sweden which cover almost 70 % of Indonesia Imports from EU with total value of trade around US$ 4 billion.

31

17. Trade Indonesia-EU

• The main export of industrial products to EU are (1) Palm Oil Processing, (2) Textile, (3) Electronics, (4) Rubber Processing, and (5) Wood Processing which covers more than 60% of Indonesia Industrial Product Exports.

• The main import of industrial products from EU are (1) Steel, Machine and Automotives, (2) Electronics, (3) Basic Chemical, (4) Pulp and Paper, and (5) Food and Beverages which covers almost 80% of Indonesia Industrial Product Imports

32

18. Industrial Sectors Indonesia – EU Trade Balance

Surplus Deficit

33

19. Investment Relationship EU-INA

• In 2009, EU’s Investment in Industry realization had reached US$2 billion or 19% of total FDI in Indonesia.

Main European Investment by Industrial Sectors

United Kingdom

Netherlands France Germany

• Food• Textile• Wood• Machi

nery and electronic

• Food crops

• Food

• Food• Chemical and

pharmaceutical• Machinery and

electronic• Textiles

• Machinery and electronic

• Food• Nonmetal

Mining• Chemical

and Pharmaceutical

Source: BKPM

34

20. EU Concern

• Acceleration of infrastructure development

• Streamline export-import regulation

• Continuously reform of the legal and tax system

• Public consultation over new regulation

• Continuation of anti-corruption action

• Bureaucracy ease

• Manpower regulation reform

35

1. Indonesia need Assistances from EU to increases IND

exports, in the areas of so called Focal Industries*)

(‘’Transtec, July 2010’’):

a. Consumer Electronics (EU growth 2 % a year);

b. Furniture (EU growth 2 % a year );

c. Natural Cosmetics (EU growth 5-6 % a year;

d. Agri-foods ( EU growth 3,5 % a year);

e.Fisheries (EU growth 8 % a year).

-----------------------------*) Related with dynamic growth market in the EU, and important for Indonesia, according to criteria

of factor related to : national development objective, foreign market determinants, and to inter –

national competitiveness and internal factors.

21. Cooperation Expected with EU

36

2. Indonesia need investment in the areas

of:

a.Manufacture for:

– Textiles machinery

– Metal machine tools

– Leather and shoes processing machine

– Medical Equipments

b.Pharmaceutical industry

Cooperation with EU (1)

3. Indonesia need capacity building :

a. In order to comply and harmonized with EU requirements

in the areas of security, technical, sanitary, phyto-sanitary,

environmental, and other regulations;

b. In order to be able to meet EU EQI Limitation in import

standards and requirements, certification of products and

management system, competence of laboratories related

to export, accreditation of laboratories, metrology and

inspection.

c. Strengthening the basic manufacturing and for future

development :

• Mold and dies manufacture

• Energy conservation on industry

• Green Industry Development

• Entrepreneurship and SMI Developments

Cooperation with EU (2)

37

38

4. EU can also participate in Indonesia infrastructure

development through Public Private Partnership

(PPP):

1. 24 Toll-road in 13 Province with estimated value US$

15 Billion in Jakarta, Banten, West Java, Central Java,

Yogyakarta, East Java, North Sumatera, Riau, Riau

Islands, West Sumatera, South Sumatera, Lampung,

and North Sulawesi.

2. 4 Water-Supply Management Development with

estimated value US$ 1,2 Billion

3. 11 sanitation and waste processing with estimated

value US$ 41,62 Million

Cooperation with EU (3)

39

INCENTIVE POLICY BASED ON GOVERNMENT DECREE NO.62

PART 7

40

22. Framework of Fiscal Incentives

40

EXTERNAL CONSIDERATION

•Strategy competitor countries, how other

countries do

•The intensity of competition to get FDI

•International Best Practice

•International Commitment

INTERNAL CONSIDERA TION

•Strategy / policies to develop economic

and sectoral

•Interests of regional development

•The purpose of the provision of

incentives

•Influence (importance) of the relevant

sectors � linkages with other sectors, the

amount of economic sectors,

employment, etc.

•Synchronization with other related

policies

DETERMINA TION OF POLICY

INCENTIVES FOR INVESTM ENT

DETERMINA TION OF POLICY

INCENTIVES FOR INVESTM ENT

BASIC PRINCIPAL

•Administration Efficiency

•“Fairness”

•Cost-Benefit Analysis

•Time Period

GENERAL SCHEM E

OF INCENTIV E

PROVISION

REGIONAL

CLASSIFICA TION

•Developed Region

•Developing Region

•Less Develop Region

PROJ ECT CRITERIA

•Pioneer

•High PriorityINCENTIVES BA SED ON

PROJ ECTS

•Pioneer

•High Priority

COMBINA TION

INCENTIVE BASED ON

REGIONS

•Developed Region

•Developing Region

•Less Develop Region

41

23. Proposal for Incentive Provision (Tax Holiday & Tax Allowance)

TAX HOLIDAY*)

(free for

individual PPH or

PPh Psl 25 DTP)

INDUSTRY/PIONEER PROJECT

1.Have a wide linkage

2.Give added value and high positive externality

3.Introduce new technology4.Have a strategic value for economy

TAX ALLOWANCE

(30% divide by 6

years)

INDUSTRY/PROJECT WITH HIGH PRIORITY

1.Promote Economic Diversification2.Strengthening national industrial structure

3.Have a high prospect to compete in international market

4.Provide a lot of employment and promote transfer technology5.Located outside of Java, Bali, and Batam

(remote area & KTI)

Example:

• Petrochemical industry

integra ted with oil

refinery

• Coa l-Gas Processing

• Upstream S teel integ ra ted

with downstrea mHig h

content technology

Example:

• Strengthening THE

sTRUCTURE (Industria l T ree)

•Process ing ag riculture ra w

material to finished good,

•Process ing minera l raw

material (primary),

•Process ing pha rma cy ra w

material

*) Being discussed and finalized among relevant institution (MoF, MoI, The

Coordinating Investment Board

42

CONCLUSION

PART 8

43

26. Conclusion

1. Indonesian Industries still need :

a. To increase its National Capacity;

b. To complete and deepen its industrial structure;

c. To encourage the balanced of its industrial GDP growth across the country;

d. To encourage the balanced of growth between

e. SMI and Big industries.

2. Transition to Low-Carbon and Green Economiessubject not to sacrifice the industrial growth;

44

Conclusion (2)

3. Indonesia need assistances from EU to increases IND exports, in the areas of consumer electronics, furniture, natural cosmetics, agri-foods, and fisheries (focal industries)

4. EU investment are expected particularly in the areas of manufacturing of:

-- Textiles machinery

-- Metal machine tools

-- Leather and shoes processing machine

-- Medical Equipments

-- Pharmaceutical industry, etc.

45

Conclusion (2)

5. Capacity building projects with EU are expected in the areas of:

• Mold and dies manufacture

• Energy conservation on industry

• Green Industry Development

• Entrepreneurship and SMI Developments

6. Indonesia also invite EU to participate in infrastructure development such as toll-road, water supply management, as well as sanitation and waste processing project. In the form Public-Private-Partnership which the project amounted to US$ 16,24 Billion

46

THANK YOU