indonesia investment outlook and policy development

INDONESIA INVESTMENT COORDINATING BOARD (BKPM)

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INDONESIA INVESTMENT OUTLOOK AND POLICY

DEVELOPMENT

Jakarta, 2 September 2014

The Investment Coordinating Board of the Republic of Indonesia

2

World’s Most Populous Country

4th 248 million

Population (in 2013)

17,508

islands

Biggest Archipelagic Nation

16th World’s Largest Economy

G20Member State

1trillio

n USD GDP (PPP) 4,876 USD GDP

per capita (PPP)

“Investment Grade”

(Moody’s, Fitch and R&I)

I N D N E S I A


3

Indonesia’s GDPIn the last 10 yearsat 2000 Constant Market Prices by Expenditure 2004-2013 (IDR Trillion)

GDP Growth in 2013

5.8% 2nd

fastestGrowing Economy Among G-20 Countries (After China, in 2013)

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-

500

1,000

1,500

2,000

2,500

3,000

“Indonesia’s Growth

Beats Estimates…”

Indonesia’s GDP growth in 2013 beats all estimates in a Bloomberg News survey of 25 economists, where the median was 5.34 percent.

(Bloomberg, 2014)


4

Investment Realization in IndonesiaBased on Capital Expenditure (USD Billion) Excl. oil, gas, and financial sectors

Assumption: Q1-Q2 rate USD 1 = IDR 9,300Q3-Q4 rate USD 1 = IDR 9,600

Source: BKPM, 2014

23.4

27.9

34.8

42.2

Sustainable Investment Growth

total investment realization in Jan - June 2014 (IDR 222.8 trillion),48.8 % achievement of the 2014 target,IDR 456.6 trillion.

USD 21.7 billion

15.6% increasefrom Jan - June 2013 (IDR 192.8 trillion)

13.5 % increasefrom Jan – June 2013

67.3 % shareof total investment realization

20.2 % increasefrom Jan - June 2013

32.7 % shareof total investment realization

FDIJan –June

2014

DDIJan - June

2014

2010 2011 2012 2013 Jan-June 2014

6.8 8.4 10.213.6

7.5

16.619.5

24.6

28.6

14.2

21.7


5Source: BKPM, 2014.

FDI Realization in Indonesia by Origin CountryTop-10 Countries Based on Capital Expenditure (USD million) in Jan –June 2014 Excl. oil, gas, and financial sectors

Rank Country 2010 2011 2012 2013 Jan-June 2014

1 Singapore 5,565 5,123 4,856 4,671 3,393

2 Japan 713 1,516 2,457 4,713 1,541

3 Malaysia 472 618 530 711 717

4 US 931 1,488 1,238 2,436 663

5 South Korea 329 1,219 1,950 2,205 654

6 UK 276 419 934 1,076 646

7 Netherlands 608 1,354 967 928 604

8 Australia 214 89 743 226 449

9 Mauritius 23 73 1,059 780 430

10 British Virgin Islands 1,616 517 856 786 368

11 China 173 128 140 296 231

Total (97 Countries) 16,215 19,475 24,565 28,616 14,287

Singapore, Japan and Malaysiaon the Top-3 Biggest Investors in January – June 2014

2010 2011 2012 2013 Jan - June 2014

0

1000

2000

3000

4000

5000

6000

Singapore Japan Malaysia USSouth Korea China

24%

11%

5%5%5%

51%

FDI Realization by Origin Country in Jan – June 2014


6

FDI Realization in Indonesia by SectorTop-10 Sectors Based on Capital Expenditure

(USD million)Excl. oil, gas, and financial sectors

Rank Sector 2010 2011 2012 2013 Jan-June 2014

1 Mining 2,201 3,619 4,255 4,816 2,739

2 Food Industry 1,026 1,105 1,783 2,118 2,064

3 Transport., Storage & Telecom. 5,072 3,799 2,808 1,450 1,649

4 Food Crops & Plantation 751 1,222 1,602 1,605 1,141

5 Transport Equipment Industry 394 770 1,840 3,732 1,027

6 Chemical & Pharmaceutical Ind. 793 1,467 2,770 3,142 979

7 Metal, Machinery & Electronic Ind. 590 1,773 2,453 3,327 859

8 Paper & Printing Industry 46 258 1,307 1,169 535

9 Non Metalic Mineral Industry 28 137 146 874 522

10 Electricity, Gas & Water Supply 1,429 1,865 1,515 2,222 429

Total (All Sectors) 16,215 19,475 24,565 28,616 14,287

Source: BKPM, 2014.

47% of FDI flowed to secondary sectors in Semester I 2014, while mining still got the biggest share

Component of FDI RealizationBased on Group of Sectors

2010 2011 2012 2013 Jan-June 2014

19% 25% 24% 23% 28%21%

35% 48% 55% 47%

61%40% 28% 22% 25%

Primary Sectors Secondary SectorsTertiary Sectors

2010 2011 2012 2013 Jan-June 2014

0

1000

2000

3000

4000

5000

6000


7

FDI Realization in Indonesia by LocationBased on Capital Expenditure (USD million) in 2013 Excl. oil, gas, and financial sectors

Rank Economic Corridor 2009 2010 2011 2012 2013

1 Java 9.371 11.499 12.325 13.660 17.325

2 Sumatra 777 747 2.077 3.729 3.395

3 Kalimantan 284 2.011 1.919 3.209 2.773

4 Maluku & Papua 9 596 1.487 1.333 2.735

5 Sulawesi 142 859 715 1.507 1.498

6 Bali & Nusa Tenggara 234 503 953 1.127 889

Total (All Locations) 10.817 16.215 19.475 24.565 28.616

Source: BKPM, 2014.

2009 2010 2011 2012 2013

87%71% 63% 56% 61%

7%

5%11%

15% 12%

3%

12% 10% 13% 10%

4% 8% 5% 10%5% 4% 6% 5%3% 5% 5% 3%

FDI is still concentrated in Java Island,incentives are offered to improve investment

distribution

Jakarta


8

World’s biggest democracy (after India and US)

3r

d The third direct Presidential Elections

has been held in July 2014.

Direct Election

The highest

democracy Index in ASEAN Indonesia scored 6.76, higher than average in Asia (5.56) and in Latin America (6.36).(The Economist, 2013)

Unity in Diversity248 million population

300 ethnic groups700 languagesvarious faiths17,508 islands


9

“Remarkable progress over the

past 15 years - economically, socially,

and politically...” (UNDP, 2013)

In 2001, transformed from an authoritarian state to a regional role model.

Decentralization

34 provinces500 districts

Provinces and districts provided with greater autonomy.

Vision 2025

MP3EI as the master plan (2011-2025) to transform Indonesia into one of the world’s top 10 economies.


10Source: PwC

APEC CEO Survey, 2013

APEC CEOs: Indonesia has capacity to surprise

with greater business opportunities than expected...


11

Rank 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 China China China China China China China China Indonesia

2 India India India India India India India India India

3 Thailand Vietnam Vietnam Vietnam Vietnam Vietnam Thailand Indonesia Thailand

4 Vietnam Thailand Thailand Russia Thailand Thailand Vietnam Thailand China

5 US US Russia Thailand Russia Brazil Indonesia & Brazil Vietnam Vietnam

6 Russia Russia US Brazil Brazil Indonesia - Brazil Brazil

7 Korea Brazil Brazil US US Russia Russia Mexico Mexico

8 Indonesia Korea Indonesia Indonesia Indonesia US US Rusia Myanmar

9 Brazil Indonesia Korea Korea Korea Korea Malaysia US Rusia

10 Taiwan Taiwan Taiwan Taiwan Malaysia Malaysia & Taiwan Taiwan Myanmar US

The most promising country for overseas business

(Japan Bank for International Cooperation Survey 2013)

Source: JBIC, November 2013

Positive Factors1. Future growth potential of local market

2. Inexpensive source of labor3. Current size of local market

4. Supply base for assembler5. Industrial cluster development

Issues of Concern1. Rising labor costs2. Underdeveloped infrastructures3. Execution of legal system unclear (frequent changes)4. Intents competition with other companies5. Difficult to secure management-level staff6. Labor problems


12

Indonesia stable at the top five destinations.

(Results from UNCTAD’s World Investment Prospects Survey which polls TNC executives on their investment plans)

Top-4 Most Prospective Host Economies for 2013-2015

United Nations Conference on Trade and

Development


13

World’s Most Populous Country

4th

70 %

2015 Population (projected)in Middle Income with per capita expenditure per day USD 2-20

Covering more than

total population of South East Asia

39% More than

Population in working age

60%

Population in Middle Income with per capita expenditure per day USD 2-20

Source: Bank Indonesia and Indonesia Statistics Agency, 2012 (Projection)

1999 2003 2009 2010 2015

45

8193

134

170 million

Middle class growthin Indonesia

2012-2020

174% Source: AC Nielsen, 2013


14

Asia and World PopulationSource: Coordinating Ministry For Economic Affairs RI, 2011

Global Economic Growth for Each Decades(Average percent per year)

Source: World Bank, 2011

Beyond Indonesia:In the heart of the world’s economic growth


15

Investment Opportunities The most promising sectors

Export-oriented sectors: downstream industry of palm and

rubber, electrical equipment, metal,

paper, textile.

Import substitution of capital goods and

raw materials: machinery, iron and

steel, automotive and spare parts, and basic

chemical.

Import substitution of consumer goods:

food and beverages, home appliances, and oil refinery industries.

Downstream industries of

mining, agriculture, fisheries and forestry:

smelter, CPO and cocoa industries, paper,

furniture.

Industrial sectors with increasing domestic

consumption trend: cement and building material

industries.

Infrastructure sector encouraged

through PPP: energy, air and sea ports, roads, water supply, waste management and

railways.

Tourism and creative

industries.


16

Infrastructure & logistics

Investment climate

Incentives & facilities

Ease of doing businessCommitment & What have been done


17

Investment Climate Development:

The New Negative List (Presidential Regulation Number 39 of 2014)

Background for amendment of the negative list– ASEAN Economic Community 2015

• Economic integration – single market and production base• Free movement of goods, services, investment, skilled labour and

free flow of capital• ASEAN Comprehensive Investment Agreement (ACIA), 2012

– Towards a free and open investment in 2015– 16 reservation sectors for Indonesia

– National interest: preparation of future national economic development• Boost national competitiveness• Support specific sectors that can still benefit from foreign

investment (healthcare, national logistical system...)


18

The New Negative List

What changes– Liberalisation of certain sectors

• New sectors» Ex: treatment and disposal of non-hazardous waste open to 95% foreign

ownership, previously closed under “private cleaning management”• Ease restrictions on foreign investment

» Ex: Public-Private-Partnerships• New opportunities for ASEAN investors

» Ex: Specialist and subspecialist hospital services (throughout Indonesia, maximum of 67% for foreign investors; capital cities of Eastern Indonesia, except Makassar and Manado, maximum of 70% for ASEAN investors)

– New restrictions in other sectors• New restrictions on foreign investment

– New sectors open only to domestic investment» Ex: retail of certain goods and E-commerce and via post

– Reduction of permitted foreign investment» Ex: from 95% to 30% foreign ownership for horticulture (in accordance with

Horticultural Law)– Introduction of new limitations

» Ex: Distribution limited to 33% foreign ownership


19

Indonesia Ease of Doing Business Improvement

Ease of Doing Business Improvement has achieved:

8 Area of Improvement inEase of Doing Businessconsist of…

• Starting a Business

• Getting Electricity

• Paying Taxes and Premium Insurance

• Enforcing Contract• Resolving Insolvency• Registering Property

• Dealing with Construction Permits

• Getting Credit

1. Business entity (Limited Liability/PT) establishment by online system.

2. Simplification on the issuance of Permanent Business Trading License (SIUP) and Company Registration Certificate (TDP).

3. Expedite workers registration.

4. On line registration for Workers Social Security Program.

5. Simplification on procedures, reducing cost and time for electricity connection.

6. Tax report by online.

7. Online system for payment of social insurance provided (BPJS) by e-payment mechanism.

8. Accelerate the settlement of commercial disputes in enforcing contract.

9. Accelerate the judicial procedure in resolving insolvency.

10. Time reduction for land certificate examination and transfer of land rights.

11.Building construction permit (IMB) by online.

12. Accelerate water connection services (PDAM).

13. Accelerate telephone connection services (PLN).

14. Regulation for Private Credit Bureau (LPIP) establishment.

15.Collateral Registry Administration System by online.


20

25 high priority infrastructure projectsReady for Ground Breaking Between 2015 and 2017 ( = Potential for PPP) No. Sumatra USD Mio.

1 Toll Road: Medan–Binjai (15.8 km) 210

2 Toll Road: Palembang–Indralaya (22 km) 180

3 Toll Road: Pekanbaru–Kandis–Dumai (135 km) 1,530

4 Toll Road: Bakauheni–Terbanggi Besar (150 km) 2,372

5 Toll Road: Tebing Tinggi–Kisaran–Rantau Prapat (178 km) 1,396

6 Toll Road: Panimbang–Serang (83 km) 1,191

7 Toll Road: Lubuk Pakam–Tebing Tinggi (43.5 km) 708

8 Seaport: Hub Kuala Tanjung 2,795

9 Seaport: Tanjung Sauh, Batam N/A

Total Sumatra (9 projects) 10,382

No. Java USD Mio.

1 Access Road: Purwakarta Industrial Area (7.8 km) 71

2 Water Supply: Umbulan 211

3 Port and Access Road: Cilamaya (30 km) 4,176

4 Airport and Access Road: Karawang 3,747

5 Railway: Madiun–Surabaya (165 km, Double Track) 430

6 Coal-Fired Power Plant: Indramayu 4 (1x1000 MW) 2,116

Total Java (6 projects) 10,750

No. Kalimantan USD Mio.

1 Toll Road: Balikpapan-Samarinda (99.02 km) 1,261

2 Railway: Purukcahu–Bangkuang– Mangkatip (290 km) 2,277

3 Coal-Fired Power Plant: Asamasam 5-6 (2x100 MW) 331

Total Kalimantan (3 projects) 3,869

No. Bali-Nusa Tenggara USD Mio.

1 Water Supply: South Bali 282.2

Total Bali-NT (1 project) 282

No. Sulawesi USD Mio.

1 Road: Palu–Parigi (37.4 km) 104

2 Toll Road: Manado–Bitung (46 km) 353

3 International Hub: Bitung 3,208

4 Railway: Makassar–Pare-Pare (136.3 km) 621

5 Hydro Electric Power Plant: Karama (4x112.5 MW) 1,376

Total Sulawesi (5 projects) 5,662

No. Maluku-Papua USD Mio.

1 Road: Enarotali–Tiom (240 km) 174

Total Maluku-Papua (1 project) 174

Source: Coordinating Ministry for Economic Affairs, 2013


21

TAX HOLIDAY TAX ALLOWANCE

IMPORT DUTY FACILITY

(Government Regulation No.52/2011) (MoF Regulation No.176/PMK.011/2009)(MoF Regulation No.130/PMK.011/2011)

129business

segments

Eligible for tax allowance, expanded from 38 segments in the previous regulation.

30 % of investment value Reduction of corporate net income tax for 6 years, 5% each year.

Under certain requirements among others: minimum amount of investment value and workforce, and certain project location (especially outside Java island).

5-10

years

Tax relief facility, starting from the commencement of commercial production.

Pioneer industry1. Basic metal industries;2. Oil refinery industries and/or basic

organic chemicals;3. Machinery industries;4. Industries of renewable resources;5. Communication devices industries.

50 % for a further 2

years

Reduction of income tax after the expiration of the tax holiday and can be extended by MoF.

IDR 1

trillion

Minimum investment plan.

2 years import duty exemption or 4 years for companies using locally-produced machines (min.30%).

Machines, goods, materials for production

Which produces goods and/or services, including:

1. Tourism and culture 2. Public transportation 3. Public health services 4. Mining 5. Construction 6. Telecommunication 7. Port

Industries

ONE-STOP SHOPFOR

INVESTMENT Establishing an Investor Relation Unit for information, facilitation and inqueries handling from existing and potential investors.

Rolling-out the Electronic Information Services and Investment Licensing (SPIPISE) in 105 regions throughout Indonesia.

Helping contain various obstacles and giving consultation.

Facilitating foreign workers permit.

Providing online investment tracking system.

Providing online application process for the principal license. Other steps needed would be moved online later in 2014.

We provide “one-stop shop” (PTSP) licensing provision and our

services for investors include…

Badan Koordinasi Penanaman Modal (BKPM)

Indonesia Investment Coordinating BoardJln. Jend. Gatot Subroto No. 44Jakarta 12190 - Indonesiat . +62 21 525 2008f . +62 21 525 4945 e . [email protected]

www.bkpm.go.id

Thank You Terima Kasih

Indonesia Investment Promotion Centre (IIPC)

indonesia investment outlook and policy development

Economy & Finance