indonesia at a crossroads

Prepared for:

Date:

Indonesia at a Crossroads

Copyright © Tractus Asia Ltd. 2015

13 November 2015

The Road to the AEC & Mekong Region 2015 and Beyond

2


Diverse Markets with Increasingly Sophisticated Economies

ASEAN 2014 GDP: US$2.57 trillion

GDP Growth average: 5.5%

Population: 618 million+

Total 2013 FDI: US$131.57 billion

33


Indonesia – a String of Pearls

44


ASEAN’s elephant in the room

Population: 250+ million

GDP growth 2014: 5%

GDP: US$888 billion

Local consumption

makes up 60% of GDP

888

Gross Domestic Products 2014

374

308327

64

Myanmar

186

Vietnam Thailand Indonesia

17

Cambodia

285

Philippines Singapore Malaysia

55


Abundance of people with fattening wallets S

ou

rce

: W

orld

Ba

nk

Indonesia

Vietnam

Philippines

Thailand

Myanmar

Malaysia

Cambodia

Singapore

Total Labor Force by Country 2013

(Millions)

3.07

8.61

13.04

31.43

39.65

42.25

53.74

120.29

Tertiary Enrolment Rate (%)

Myanmar

Cambodia

China

Vietnam

Indonesia

Philippines

13.8%

15.8%

24.3%

24.4%

27.2%

30.9%

Malaysia36.0%

Thailand52.6%

So

urc

e: W

orld

Ba

nk

7% 26% 42% 25%

2014 Household Incomes(IDR per Year)

>36 million 36-60 million 60-120 million >120 million Source: BPS

66


But slowed by underdeveloped infrastructure

77


Indonesia building to decongest and expand

0 1 2 3 4 5 6 7

Singapore

China

Thailand

Indonesia

Vietnam

Cambodia

Myanmar

Quality of Infrastructure

Airports

Ports

Roads

88


Economy fueled by services and industry

Services

• Trade, hotel & restaurants

• Transport & communication

• Business services

Industry

• Construction

• Mining

• Automotive

Agriculture

• Palm Oil

• Cocoa

• Rubber

43.3(% of GDP)

13.7(% of GDP)

42.9(% of GDP)

99


With growing participation in the global economic community

Agreement Year

ASEAN Free Trade Area 1992

ASEAN-China Free Trade Area 2003

ASEAN-New Zealand-Australia Free Trade Area 2004

ASEAN-Japan Free Trade Area 2008

ASEAN-South Korea Free Trade Area 2008

Indonesia-Japan Economic Partnership

Agreement (IF-EPA) 2008

Indonesia-Pakistan Free Trade Agreement 2013

Trans Pacific Partnership TBD

Regional Comprehensive Economic Partnership TBD

1010


Significant importer of capital goods and components while a heavy exporter of base commodities

Source: TradeMap

25%

14%

10%5%

4%4%

4%2%

2%2%

28%

Top Imports 2014: Total US$178.1 Billion

Fuels, oils, etc

Machinery

Electronic equipment

Iron & steel

Plastics

Organic chemicals

Vehicles

Iron or steel products

Cereals

Residues, wastes,animal fodder

Other products

29%

12%

6%4%3%

3%3%

2%2%

2%

34%

Top Exports 2014: Total US$176 Billion

Fuels, oils, etc.

Fats

Electronic equipment

Rubber products

Machinery

Vehicles

Precious stones,metals, etc.

Misc. chemicalproducts

Footwear

Wood products

Others

1111


Southeast Asia investment – competing for FDI

0

10000

20000

30000

40000

50000

60000

70000

Mil

lio

ns U

SD

FDI Into Southeast Asia

2009

2010

2011

2012

2013

Source: UNCTAD

1212


Investors bullish on Indonesia

Investment Realization 2010 – Q3 2015 (trillions IDR)

Source: BKPM

FX: 1 USD = 13,500

1313


With investment edging towards added value

Source: BKPM

14%

13%

10%

8%

7%7%

7%

7%

5%

22%Mining

Transport, Storage &Communication

Metal, Machinery & ElectronicIndustry

Electricity, Gas & Water Supply

Motor Vehicles & OtherTransport Equip. Industry

Real Estate, Ind. Estate &Business Activities

Chemical and PharmaceuticalIndustry

Food Crops & Plantation

Food Industry

Other

FDI Realization by Sector 2015 (through Q3)

1414


From a diversity of nations

Source: BKPM

14%

16%

12%

2%4%4%3%

45%

FDI Realization by Country 2015 (through Q3)

Malaysia

Singapore

Japan

China

Netherlands

USA

British Virgin Islands

Other

15

15

TAX HOLIDAY

TAX ALLOWANCE

IMPORT DUTY

FACILITY

(Government Regulation No.18/2015) (MoF Regulation No.176/PMK.011/2009)(MoF Regulation No MK

159/PMK.010/2015)

143 business

segments eligible for tax

allowance

30% of investment value

reduced from corporate net

income over 6 years

Requirements Apply

5-15years tax exemption

Potential for 20 years

exemption for “strategic” industries

10-100% reduction in

tax in 9 pioneer industries

IDR1trillion minimum

investment plan (US$ 100

million)

0% import duty on

machines, equipment, and

raw materials for

production

1.Tourism and culture 2.Public health services3.Mining 4.Construction5.Telecommunication 6. Port

Applicable Industries include:

Government looking to attract further investment

Source: BKPM

1616

While trying to increase the tax base


25%Corporate income tax

15%Dividends, interests, royalties

20% Withholding on remittance

5%-

30% Personal income tax

10% Value Added Tax

20%Withholding tax from

bank deposits

0

2

4

6

8

10

12

14

16

18

Tax Collection Rate (%)

1717

20%

12.50%10% 9.50% 8%

6.20% 6% 5.60% 5% 4.80%

0%

5%

10%

15%

20%

25%

2011 2012 2013 2014 2015F

National Modern Retail Revenue Growth

Modern Retail Growth Revenue GDP Growth

12

0.2

11

9.8

12

0.6

12

0.1

11

6.5

12

0.2

12

0.2

11

6.9

10

7.4

11

2.8

11

1.3

10

9.9

11

2.6

97

.5

Au

g-1

4

Se

p-1

4

Oct-

14

Nov-1

4

Dec-1

4

Ja

n-1

5

Fe

b-1

5

Mar-

15

Ap

r-1

5

May-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Consumer Confidence Index(100 in 2010)


Economy faces a number of near-term challenges

0

5000

10000

15000

20000

20-year History of IDR to USD

Source: Bank of Indonesia

Source: Bank of IndonesiaSource: Indonesia Retailer Association

1818


And is gradually reforming

Note: Data not available for Brunei. Ranking is out of 174

Source: Transparency International

Note: Ranking is out of 189

Source: World Bank

1

18

49

84

90

103

109

127

134

167

0 20 40 60 80 100 120 140 160 180

Singapore

Malaysia

Thailand

Brunei

Vietnam

Philippines

Indonesia

Cambodia

Laos

Myanmar

Ease of Doing Business Ranking 2016

7

50

85

85

107

119

145

156

156

0 20 40 60 80 100 120 140 160

Singapore

Malaysia

Thailand

Philippines

Indonesia

Vietnam

Laos

Cambodia

Myanmar

Global Corruption Perception Index

1919


Numerous challenges deter investment

2020


The archipelago walks the line of openness and protectionism

2121

Jokowi hoping to stimulate the economy


First Package

September 9

• Deregulation

and

bureaucratic

reform

• Accelerating

strategic

projects

• Increasing

property

sector

investment

Second Package

September 29

• Simplificatio

n of

investment

license

• Progress on

fiscal

incentive

• Tax cut for

exporters’

deposit

Third Package

October 7

• Lower cost

of fuel, gas,

and

electricity

• Expansion of

micro loan

recipients

• Simplifying

land

clearance

Fourth Package

October 15

• New formula

for UMP

wages

• Further

expansion of

micro loan

recipients

• Measures to

prevent

layoffs

Fifth Package

October 21

• Tax

reduction for

asset

reevaluation

• Double tax

removal for

infrastructure

and real

estate

investment

trust

2222


To build the road forward

Thank you

Shanghai

Hong Kong

Pondicherry

Jakarta

Yangon

Singapore

Bangkok

Ho Chi Minh City


2424


Daniel Bellefleur – Indonesia Country Representative

Daniel Bellefleur

Daniel is the

Indonesia

Country

Representative

and Consultant

for Tractus Asia,

overseeing both

domestic and

ASEAN based

projects

Contact:

Daniel.bellefleur@tr

actus-asia.com

+62.21.29492272

Mr. Bellefleur joined Tractus in 2012 to establish the Tractus Indonesia corporate entity, roll out business development activities, consult on Indonesia based initiatives and cooperate on regional projects.

As the Chief Country Representative to Indonesia, Mr. Bellefleur is responsible for all in-country operations. Aside from implementing local and regional projects and building the Tractus network in-country, Daniel manages local staff to support client needs in the archipelago. With the expanding economy and emerging middle class, Tractus expects ample opportunities for foreign investors in Indonesia. Below are a number of projects Daniel has worked on:

Ecofys – Supply chain analysis of used cooking oil in Indonesia

Emerging Markets Consulting – Market research on Indonesian preparedness for the ASEAN Economic Community 2015

Minerals Technologies – Facilitating the company’s human resources in-country

Gentherm – Analyzed Indonesia sites for potential manufacturing investment

US Chamber of Commerce and AmCham Hong Kong – Supported two trade missions to Myanmar

Two international law firms – Southeast Asian site selection analysis for BPO operations

AKW – Analysis of Indonesian market for mineral processing technology and customer outreach

Nova-Tech Engineering – Indonesia contracting, tax, and import export regulatory analysis and customer liaison

Fredskorpset – Project manager for Asia expansion

AmCham Indonesia – Vice-chair AmCham ASEAN Committee

Prior to joining Tractus, Mr. Bellefleur worked at the American Chamber of Commerce Indonesia as a Policy Advisor conducting analyses with local advisors at the Indonesian Chamber of Commerce (KADIN) and the Indonesian Employers Association (APINDO). The team researched and delivered comprehensive papers to USAID on subjects such as renewable energy, entrepreneurship, and local manpower laws. Daniel has a Master’s Degree in International Affairs from the University of Wisconsin, Madison with a focus on Southeast Asian Economics. Daniel also has significant experience in Thailand where he researched numerous topics at the U.S. Consulate and worked as a Peace Corps community development advisor in Northern Thailand.

indonesia at a crossroads

Economy & Finance