Foreign Direct Investment in Indonesia

Transcription

1 Foreign Direct Investment in Indonesia Michael S. Carl SSEK Legal Consultants LawAsia Sydney October 2017

2 Indonesia - Challenges Administration of President Joko Widodo (Jokowi) is trying to improve the ease of doing business in Indonesia and mitigate the challenges commonly faced when investing in Indonesia What we need to do is improve ease of doing business in this country. Ministerial regulations should always refer to the objective. They should not scare investors away President Jokowi in a cabinet meeting on July 24,

3 Indonesia - Challenges Little impact from Jokowi s 2016 economic policy reform packages Corporate profitability down Despite new regulations, few PPP projects have materialized SOEs remain dominant Growth rate in Indonesia down from 6.4% in 2010 to 5.0% in 2015 and 2016 SSEK 4 LEGAL CONSULTANTS 3 2

4 Indonesia - Opportunities Some quiet signs that government recognizes greater need for foreign investment Sri Mulyani Indrawati returned as Indonesia s Finance Minister in 2016 Sri Mulyani slashed US$10.1 billion state spending off the 2016 state budget due to a US$16.2 billion tax revenue shortfall World Bank said in its Indonesia Economic Quarterly report that improved fiscal management was helping the economy grow resiliently amid global risks 4 3

5 Indonesia - Opportunities Tax amnesty program (July March 2017): US$366 billion worth of assets declared (equal to nearly 40% of Indonesia s GDP); US$10.9 billion worth of assets were repatriated into investment instruments prepared by Indonesia (target was US$75 billion), according to the Indonesian Tax Office Debt to GDP is 35% (the figure for OECD countries in 2015 was about 100%, according to World Bank data) Infrastructure investment is inching forward - $30 billion annually, expected to rise as government continues infrastructure development push 5 4

6 Why Invest in Indonesia Economic Growth Global economic growth will be driven by emerging markets and developing countries (with E7 economies including Indonesia) By 2030: Indonesia is predicted to be the 5 th largest economy; Large Population - Workforce Rising Middle Class - Large Consumer Base Abundance of Natural Resources Sound Macroeconomic Policy Currently: 261 million By 2045: 309 Million Working Age: 52% by 2045 Forecast to be 135 million by 2020 Forecast to be 80% of the population by 2045 Large reserve s of minerals: bauxite, nickel, iron ore Large reserve s of coal Large reserve s of natural gas Plantation commodities Ocean resources Return of Sri Mulyani Indrawati as Minister of Finance Public debt management (28% of GDP) Budget deficit (3% of Government expenditures) SSEK 5 LEGAL CONSULTANTS 6 5

7 Current Policies on Foreign Investment Simplified foreign investment procedure One-Stop Integrated Services in Investment Coordinating Board (BKPM) Priority for infrastructure development Deregulation 6

8 Indonesia Australia CEPA Ongoing process for Indonesia Australian and Indonesian Trade Ministers reactivated negotiations in March 2016 after they were launched in 2010 Ninth round of negotiations scheduled for Jakarta in October The two countries reaffirmed their commitment in July to complete IA-CEPA by the end of 2017 IA-CEPA is based on the existing Asean-Australia-New Zealand free-trade agreement (AANZ FTA) * ** *** 7

9 Indonesia Australia CEPA IA-CEPA to rule out tariffs for more than 10,000 types of goods Points negotiated: Trade in goods Rules of origin Custom procedures and trade facilitation Technical barriers to trade (tariff and non-tariff) IA-CEPA negotiations have already resulted in progress in Indonesia-Australia Business Partnership Group, the Red Meat and Cattle Partnership, and cooperation on Financial Services and in the Creative Industries (fashion and jewelry * ** *** 8

10 GDP Growth Across Asean Source: Asian Development Outlook April 2017; ADOS July

11 Investment Trends Realization of Foreign Direct Investment in Indonesia (in trillion IDR) New Expansion Total Source: Indonesian Investment Coordinating Board 10

12 Investment Trends Realization of FDI in Indonesia (by sectors) January December 2016 Source: Indonesian Investment Coordinating Board SSEK 2 LEGAL CONSULTANTS 12 11

13 FDI Realization in Indonesia based on Country of Origin January December 2015 January December 2016 Source: Indonesian Investment Coordinating Board SSEK 3 LEGAL CONSULTANTS 13 12

14 Infrastructure Development Under Jokowi Indonesia 62nd out of 140 economies in terms of infrastructure development in World Economic Forum Global Competitiveness Report In January 2015, GOI removed the subsidy for premium gasoline to generate funds for infrastructure development PR 38/2015 issued to create investment interest in PPP projects by expanding the types of infrastructure that can be developed through PPP scheme PR 30/2015 issued to ease the land acquisition process by authorizing GOI to partner with private entities to secure the necessary funding to conduct land acquisition SSEK 4 LEGAL CONSULTANTS 14 13

15 Infrastructure Development Under Jokowi PPP Incentives and Supportive Policies: Higher foreign ownership (100% foreign ownership during concession period) Infrastructure Guarantee under PT Indonesia Infrastructure Guarantee Fund (IIGF) Viability Gap Fund (VGF) from MOF Electricity Incentives and Supportive Policies: Cooperation with other license holders to develop comprehensive electricity generation capacity Joint Utilization of Transmission and Distribution Networks SSEK 4 LEGAL CONSULTANTS 15 14

16 Infrastructure Budget (USD Billion) Source: Budgetary Note 2018 August 2017 SSEK 4 LEGAL CONSULTANTS 16 15

17 Public vs. Private Investment (YoY%) 45 Public Investment Private Investment Source: IMF February 2017, Ministry of Finance, Haver Analytics SSEK 4 LEGAL CONSULTANTS 17 16

18 Infrastructure Access in Asean Source: IMF February 2017, World Bank, OECD SSEK 4 LEGAL CONSULTANTS 18 17

19 Rise of Chinese Investors in Indonesia One Belt One Road initiative Investments in various sectors such as e-commerce, power, mining, mineral processing, real estate, port and other infrastructure Key investments include: China Hongqiao Group - First alumina smelter in Indonesia China Shenhua Group - Several major IPP projects such as Jawa-7 and Sumsel-1 China Fortune Land Development s - Indonesian township development project Country Garden - Hotel and other property developments Virtue Dragon Nickel Industry - Nickel smelter project Alibaba - Lazada Group Didi Chuxing - Grab Tencent - Go-Jek Xiaomi - Joint venture for manufacturing of smartphones SSEK 4 LEGAL CONSULTANTS 19 18

20 Chinese Investment in Asia (% of GDP) Public Investment FDI Tourism Export 0 Source: Bloomberg, August 2016 SSEK 4 LEGAL CONSULTANTS 20 19

21 Value of Chinese Investment and Construction Contracts (USD Billion) Source: American Enterprise Institute and The Heritage Foundation, ANZ Research, August 2017 SSEK 4 LEGAL CONSULTANTS 21 20

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