invest in INDONESIAINVESTMENT OUTLOOK AND POLICY DEVELOPMENT Jakarta, 16 September 2014 INDONESIA INVESTMENT COORDINATING BOARD (BKPM) 2014 by Indonesian Investment Coordinating Board. All rights reserved
Contents 1 Why Indonesia? 2 Indonesia Economy and Investment Overview 3 Indonesia Competitiveness 4 Invest in Indonesia 2
1 Why Indonesia
4 th World s Most Populous Country 248 million Population (in 2013) 17,508islands Biggest Archipelagic Nation IND NESIA 16 th World s Largest Economy 1 trillion USD GDP(PPP) 4 Member State G20,876 USD GDP per capita (PPP) Investment Grade (Moody s, Fitch and R&I) 4
Why Indonesia Strategic Location: Gateaway to ASEAN Market 5
Why Indonesia Growing Middle Class: Higher Demands for Better Services and Products Number of population in middle income (per capita expenditure per day $2-20) Sources: Bank Indonesia & BPS-Statistics Indonesia, 2012 (projection) Proportion of the population based on per capita expenditure per day Note: Per capita expenditure per day is adjusted to the 2005 purchasing power parity terms. Source: SUSENAS and World Bank staff calculations. 5.5% 18.0% = 40 million people = more than the total population of Malaysia and Singapore combined. 6
2 Indonesia Economy and Investment Overview
3,000 2,500 1,500 2,000 1,000 500-2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Indonesia s GDP In the last 10 years at 2000 Constant Market Prices by Expenditure 2004-2013 (IDR Trillion) 5.8 % GDP Growth in 2013 2 nd fastest Growing Economy Among G-20 Countries (After China, in 2013) Indonesia s Growth Beats Estimates Indonesia s GDPgrowth in 2013 beats all estimates in a Bloomberg Newssurveyof 25 economists, where the median was 5.34 percent. (Bloomberg, 2014) 8
Sustainable Investment Growth 23.4 27.9 34.8 24.6 42.2 19.5 16.6 14.2 6.8 8.4 10.2 28.6 13.6 21.7 7.5 USD 21.7 billion total investment realization in Jan -June 2014 (IDR 222.8 trillion), 48.8 % achievement of the 2014 target, IDR 456.6 trillion. 15.6 % increase from Jan -June 2013 (IDR 192.8 trillion) FDI Jan June 2014 13.5 % increase from Jan June 2013 67.3 % share of total investment realization 2010 2011 2012 2013 Jan-June 2014 Investment Realization in Indonesia Based on Capital Expenditure (USD Billion) Excl. oil, gas, and financial sectors Assumption: Q1-Q2 rate USD 1 = IDR 9,300 Q3-Q4 rate USD 1 = IDR 9,600 DDI Jan -June 2014 20.2 % increase from Jan -June 2013 32.7 % share of total investment realization Source: BKPM, 2014 9
47% of FDI flowed to secondary sectors in Semester I 2014, while mining still got the biggest share 6000 5000 4000 3000 Component of FDI Realization Based on Group of Sectors 61% 40% FDI Realization in Indonesia by Sector Top-10 Sectors Based on Capital Expenditure (USD million) Excl. oil, gas, and financial sectors 28% 22% 25% 35% 48% 55% 47% 21% 19% 25% 24% 23% 28% 2010 2011 2012 2013 Jan-June 2014 Primary Sectors Tertiary Sectors Secondary Sectors 2000 1000 0 2010 2011 2012 2013 Jan-June 2014 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. 10
Singapore, Japan, Malaysia, US, and South Korea on the Top-5 Biggest Investors in January June 2014 6000 5000 4000 FDI Realization in Indonesia by Origin Country Top-10 Countries Based on Capital Expenditure (USD million) in Jan June 2014 Excl. oil, gas, and financial sectors 3000 2000 1000 0 2010 2011 2012 2013 Jan -June 2014 Singapore Japan Malaysia US South Korea China FDI Realization by Origin Country in Jan June 2014 51% 24% 11% 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 4% 5% 5% Source: BKPM, 2014. 11
Jakarta FDIis still concentrated in Java Island, incentives are offered to improve investment distribution 3% 7% 87% 3% 5% 5% 3% 5% 4% 6% 5% 4% 8% 5% 10% 12% 5% 71% 10% 13% 10% 11% 15% 12% 63% 56% 61% 2009 2010 2011 2012 2013 FDI Realization in Indonesia by Location Based 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. 12
Investment Realization Progress Quarter II2014 Quarter II 2014 q-o-q y-o-y DDI 10.3% 15.4% FDI 8.3% 16.9% Total 9.0% 16.4% Investment Realization in Indonesia Based on Capital Expenditure (IDR Trillion) Excl. oil, gas, and financial sectors Exchange rate of USD1 = IDR10,500 based on State Budget 2014 Source: BKPM, 2014 13
3 Indonesia Competitiveness International perspectives
The most promising country for overseas business (Japan Bank for International Cooperation Survey 2013) 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 6 Russia Russia US Brazil Brazil Indonesia - Brazil Brazil Vietnam 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 Positive Factors 1. Future growth potential of local market 2. Inexpensive source of labor 3. Current size of local market 4. Supply base for assembler 5. Industrial cluster development Issues of Concern 1. Rising labor costs 2. Underdeveloped infrastructures 3. Execution of legal system unclear (frequent changes) 4. Intents competition with other companies 5. Difficult to secure management-level staff 6. Labor problems Source: JBIC, November 2013 15
APEC CEOs: Indonesia has capacity to surprise with greater business opportunities than expected... Source: PwC APEC CEO Survey, 2013 16
110.5% Middle class growth in Southeast Asia 2012-2020 174 % Middle class growth in Indonesia 2012-2020 Indonesia will enjoy the highest middle class growth & consumer confidence index Middle Class Growth in ASEAN 2012-2020 Source: AC Nielsen, 2013. 120 Nielsen Consumer Confidence Index Source: AC Nielsen, 2013. Indonesia 17
Investment Climate: the world embrace Indonesia s economic performance World Economic Forum(WEF) Global Competitiveness Index(GCI) 2014 2015 and 2013 2014 Countries Ranking 2013-2014 2014-2015 Swiss 1 1 Singapore 2 2 USA 5 3 Japan 9 6 Malaysia 24 20 China 29 28 Thailand 37 31 Indonesia 38 34 Philippines 59 52 Russia 64 53 Brazil 56 57 Vietnam 70 68 India 60 71 o This year, GCI survey was followed by 144 countries. There are about 100 indicators used in the survey, which are reflected in the 12 pillars of competitiveness, namely: institutions, infrastructure, macroeconomic stability, health and basic education, higher education and training, goods market efficiency, labor market efficiency, market size, business efficiency, and innovation. o Indonesia's ranking in the GCI is still better than Brazil, Russia and Vietnam, with the exception of China, knownasgroupofbric. Source: The Global Competitiveness Report 2014 2015, World Economic Forum Geneva, Switzerland 2014 18
Indonesia Ease of Doing Business Improvement 8Area of Improvement in Ease of Doing Business consist of Starting a Business Ease of Doing Business Improvement has achieved: 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. Getting Electricity Paying Taxes and Premium Insurance Enforcing Contract Resolving Insolvency Registering Property Dealing with Construction Permits 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). Getting Credit 14. Regulation for Private Credit Bureau (LPIP) establishment. 15. Collateral Registry Administration System by online. 19
4 Invest in Indonesia Investment Opportunities, Policies, and Incentives
Quality Investments Sectors Focused in BKPM s Plan 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 consumergoods: 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. 21
Challenges and progress in infrastructure Poor distribution systems: The price of commodities in eastern Indonesia (Nabire) are 3 times higher than in Java. (Basri and Rahardja, 2010) Inefficiencies at Indonesia s numerous harbours make transport costs more expensive. (Patunru et.al, 2007) The combination of over-lapping regulations and highdomestic transport costs reduce Indonesia s trade competitiveness. (LPEM-AF, 2009) 14 % 10 % 2013 Share of logistic cost to product cost 2014 (Target) 2014/2015: 34 th out of 144 2012/2013: 50 th out of 144 Indonesia s Global Competitiveness Rank 2014-2015 (Source: WEF, 2014) Indonesia posts the biggest progression among G-20countries. Infrastructure leapfrogs 17 places (improved the most). Infrastructure Budget 2005-2013 (IDR trillion) IDR190 trillion IDR755 trillion Infrastructure budget in 2011-2014. 6% 2% 1%2% 14% 38% 18% 19% Power Road Railway Telecom Seaport Airport Water supply Others Source: National Planning Agency, 22 2014.
25 high priorityinfrastructure projects Ready 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 TotalSumatra (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 TotalJava (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: Asamasam5-6 (2x100 MW) 331 TotalKalimantan (3 projects) 3,869 No. Bali-Nusa Tenggara USD Mio. 1 Water Supply: South Bali 282.2 TotalBali-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 TotalSulawesi (5 projects) 5,662 No. Maluku-Papua USD Mio. 1 Road: Enarotali Tiom (240 km) 174 TotalMaluku-Papua (1 project) 174 Source: Coordinating Ministry for Economic Affairs, 2013 23
Investment Policy and Facility INVESTMENT LAW (UU No.25 Year 2007) Mandate equal treatment for foreign and domestic investors No minimum capital requirement, freedom to repatriate capital. All business sectors or business types shall be open to investment activities, except for business sectors or business types that are declared to be closed and open with requirements. INVESTMENT FACILITIES Simplification of business start up and licensing procedures, including the one-stop shop (PTSP) licensing provision at the Investment Coordinating Board (BKPM). Assesing Integrated Investment Services in Indonesia. Online application process for principal license using National Single Windows on Investment. Investment Tracking System InvestorRelation Unitforinformation facilitation and queries handling from existing and potential investors. 24
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...) 25
Example of Business Fields More Open to Foreign Capital Ownership No. Business Fields KBLI A. Energy & Mineral Resources Sector Presidential Regulation 36/2010 1. Power Plant > 10 MW 35101 ForeignCapital Ownership maximum 95% Presidential Regulation 39/2014 Foreign Capital Ownership maximum 95% (butcan be 100% in Public Private Partnership (PPP) scheme during concession period) 2. Power Plant Transmission 35102 ForeignCapital Ownership maximum 95% 3. Electricity Distribution 35103 ForeignCapital Ownership maximum 95% Foreign Capital Ownership maximum 95% (butcan be 100% in Public Private Partnership (PPP) scheme during concession period) Foreign Capital Ownership maximum 95% (butcan be 100% in Public Private Partnership (PPP) scheme during concession period) B. Transportation Sector 1. Providing port facility (pier building,container delay terminal, liquid bulk terminal, dry bulk terminal and Ro-Ro terminal) 52221 52222 52223 ForeignCapital Ownership maximum 49% Foreign Capital Ownership maximum 49% (but can be 95% in Public Private Partnership (PPP) scheme during concession period) 2. Implementation of Motor Vehicle Periodic Tests 71203 Closed for investment ForeignCapital Ownership maximum 49% with recommendation from Ministryof Transportation 3. Providing and Implementation of Land Terminal: Closed for investment ForeignCapital Ownership maximum 49% with recommendation from Ministryof - Land terminalfor passenger (limited for public facility) 52211 Transportation - General cargo terminal 26
Example of Business Fields More Open to Foreign Capital Ownership No. Business Fields KBLI C. Health Sector Presidential Regulation 36/2010 1. Pharmaceutical IndustrialBusiness: ForeignCapital - Raw material medicine Industry 21011 Ownership maximum 75% - Patent medicine Industry 21012 D. Tourism and Creative Industry Sector 1. Film promotional facility (advertisement, poster, stills, photo, slide, negative, banner, pamphlet, giant banner, folder, etc) E. Finance Sector 73100 Only for local capital 100% 1. VentureCapital 64991 ForeignCapital Ownership maximum 80% Presidential Regulation 39/2014 ForeignCapital Ownership maximum 85% Open forinvestor from ASEAN countries maximum 51% ForeignCapital Ownership maximum 85% 27
TAX ALLOWANCE TAX HOLIDAY IMPORT DUTY FACILITY (Government Regulation No.52/2011) (MoF Regulation No.130/PMK.011/2011) (MoF Regulation No.176/PMK.011/2009) 30 % of investment value Reductionof corporate net income tax for 6 years, 5% each year. 129 business segments Eligible for tax allowance, expanded from 38 segments in the previous regulation. Undercertain 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. 50 % for a further 2 years 2 yearsimport duty 50Reduction of income tax after the expiration of the tax holiday and can be extended by MoF. Pioneer industry 1. Basic metal industries; 2. Oil refinery industries and/or basic organic chemicals; 3. Machinery industries; 4. Industries of renewable resources; 5. Communication devices industries. IDR1 trillion Minimum investment plan. Machines, goods, materials for production exemption or 4 years for companies using locallyproduced machines (min.30%). Industries Which produces goodsand/or services, including: 1. Tourism and culture 2. Public transportation 3. Public health services 4. Mining 5. Construction 6. Telecommunication 7. Port 28
Investment Licenses Procedures PREPARATION STAGE INVESTORS Principle license application Principle License Establishment of Legal Entity CONSTRUCTION STAGE Regional license (Regional Government) 1. Location permit 2. Building Construction Permit(IMB) 3. Nuisance Act Permit (UUG/HO) 4. Registration certificate(tdp), etc Non Fiscal Facilities (BKPM) 1. Import Identity 2. Foreign worker permit 3. VISA recomendation Fiscal Facilities (BKPM) 1. Approval of Capital Goods Importation facilities 2. Approval of Raw / Auxiliary materials importation facilities 3. Corporate Income Tax (PPh) Recommendation COMMERCIAL STAGE Business License application Business license Business License application 29
Investment Licenses Procedures License Procedures Investment Principle License Permit of Investment Expansion Investment Principle amandement SOP (Days) 1 2 3 4 5 6 7 15 Foreign Company Representative Office Permit(KPPA) Business License Business License for Expansion Business Licensefor Company Merger Business License amandement Producer Importer Identification Number(API-P) Approval for Facilities Exemption of Import Duty Corporate Income Tax (PPh) Recommendation Tax Holiday Recomendation 30
Thank You Terima Kasih Indonesia Investment Promotion Centre (IIPC) Badan Koordinasi Penanaman Modal (BKPM) Indonesia Investment Coordinating Board Jln. Jend. Gatot Subroto No. 44 Jakarta 12190 - Indonesia t. +62 21 525 2008 f. +62 21 525 4945 e. info@bkpm.go.id www.bkpm.go.id