invest in Taipei, 30 May 2014 INVESTING IN INDONESIA Investment Policy & Opportunity Mohamad Faizal Director of Investment Dept., IETO 2014 by Indonesian Investment Coordinating Board. All rights reserved
4 th World s Most Populous Country 248 million Population (in 2013) 17,508islands Biggest Archipelagic Nation IND N E S I A 10 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) 2
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3,000 2,500 1,500 2,000 1,000 500 - 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 GDP growth in 2013 beats all estimates in a Bloomberg News survey of 25 economists, where the median was 5.34 percent. (Bloomberg, 2014) 3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 China India Indonesia Malaysia Thailand Vietnam Singapore South Korea Philippines Australia Japan Hong Kong Taiwan The 3 rd Investment Destination in Asia (The Economist, 2013) 21.4 15.2 28.9 28.1 27.0 26.2 43.0 38.6 37.7 34.8 54.1 53.5 73.8 32.0 0.7 20.6 5.0 13.9 18.6 27.1 0.8 2.2 38.5 16.3 2.4 33.9 25.2 3.3 32.8 26.2 0.7 53.9 10.6 3.1 46.1 21.9 0.8 45.5 25.6 5.6 47.6 19.8 3.1 55.4 15.4 1.5 58.8 18.3 3.2 51.2 30.4 Investors Plan in Asia (%) Increase their level of investment Still in the market, but will not invest more Reduce their investment Have no plans to invest 55 50 45 40 35 30 25 20 15 10 Growing Investment s Shareto Total GDP Total Investment (% GDP) (Bloomberg, 2013) Brazil China India Indonesia Korea Russia 32% 4
Sustainable Investment Growth DDI FDI 23.4 27.9 34.8 24.6 42.2 28.6 42.2 billion USD total investment realization in 2013 (IDR398.6 trillion), 2.1% above the 2013 target, IDR390.3 trillion. 27.3 % increase from 2012 (IDR313.2 trillion) 15.0 10.8 4.2 16.6 19.5 6.8 8.4 10.2 13.6 FDI 2013 22.4 % increase from 2012 67.8 % share of total investment realization 2009 2010 2011 2012 2013 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 2013 39.0 % increase from 2012 32.2 % share of total investment realization Source: BKPM, 2014 5
Taiwan is the 10 th biggest investor in Indonesia in 2013 Japan, Singapore & US are on the Top-3 Biggest Investors 6,000 5,000 4,000 3,000 2,000 1,000-2009 2010 2011 2012 2013 47% 47% 4% 4% 16% 16% 8% 8% 16% 9% 16% 9% FDI Realization in Indonesia by Origin Country Top-10 Countries Based on Capital Expenditure (USD million) in 2013 Excl. oil, gas, and financial sectors Rank Country 2009 2010 2011 2012 2013 1 Japan 685 713 1,516 2,457 4,713 2 Singapore 1,429 5,565 5,123 4,856 4,671 3 US 100 931 1,488 1,238 2,436 4 South Korea 613 329 1,219 1,950 2,205 5 UK 288 276 419 934 1,076 6 Netherlands 1,195 608 1,354 967 928 7 British Virgin Islands 293 1,616 517 856 786 8 Mauritius 159 23 73 1,059 780 9 Malaysia 123 472 618 530 711 10 Taiwan 28 47 243 647 403 Total (Top-10 Countries) 4,914 10,580 12,570 15,493 18,708 Total (97 Countries) 10,817 16,215 19,475 24,565 28,616 Source: BKPM, 2014. 6
55% of FDI flowed to secondary sectors, mining got the biggest share 6,000 5,000 4,000 3,000 Component of FDI Realization Based on Group of Sectors in 2013 FDI Realization in Indonesia by Sector Top-10 Sectors Based on Capital Expenditure (USD million) in 2013 Excl. oil, gas, and financial sectors 2,000 1,000-2009 2010 2011 2012 2013 Rank Sector 2009 2010 2011 2012 2013 1 Mining 333 2,201 3,619 4,255 4,816 60% 61% 35% 4% 21% 40% 35% 28% 22% 48% 55% 19% 25% 24% 23% 2009 2010 2011 2012 2013 Primary Sectors Secondary Sectors Tertiary Sectors 2 Transport Equipment Industry 583 394 770 1,840 3,732 3 Metal, Machinery & Electronic Ind. 655 590 1,773 2,453 3,327 4 Chemical & Pharmaceutical Ind. 1,183 793 1,467 2,770 3,142 5 Electricity, Gas & Water Supply 349 1,429 1,865 1,515 2,222 6 Food Industry 534 1,026 1,105 1,783 2,118 7 Food Crops & Plantation 143 751 1,222 1,602 1,605 8 Transport., Storage & Telecom. 4,152 5,072 3,799 2,808 1,450 9 Paper & Printing Industry 68 46 258 1,307 1,169 10 Non Metalic Mineral Industry 20 28 137 146 874 Total (All Sectors) 10,817 16,215 19,475 24,565 28,616 Source: BKPM, 2014. 7
FDIis still concentrated in Java Island, incentives are offered to improve investment distribution 3% 7% 87% 3% 5% 5% 3% 5% 4% 4% 6% 5% 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. 8
3 rd World s biggest democracy (after India and US) The third National Elections will be held in 2014 after peaceful elections in 2004 and 2009. 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) Direct Election 9
Remarkable progress over the past 15 years - economically, socially, and politically... (UNDP, 2013) Vision 2025 MP3EI as the master plan (2011-2025) to transform Indonesia into one of the world s top 10 economies. Decentralization In 2001, transformed from an authoritarian state to a regional role model. 34 provinces 500 districts Provinces and districts provided with greater autonomy. 10
APEC CEOs: Indonesia has capacity to surprise with greater business opportunities than expected... Source: PwC APEC CEO Survey, 2013 11
Taiwan Research 2013 on FDI Destination Countries for Taiwan Investors 12
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 13
Top-4 Most Prospective Host Economies for 2012-2014 United Nations Conference on Trade and Development Indonesia rising two places to enter the top five destinations for the first time. (Results from UNCTAD s World Investment Prospects Survey which polls TNC executives on their investment plans) 14
ASEAN s Most Attractive Investment Destination The ASEAN Business Advisory Council Survey on ASEAN Competitiveness 2012 Half of 405 businesses surveyed intended to invest in Indonesia over the next years (2011-2014). Source: ASEAN-BAC, 2012 Notes: (1) Value next to each bar reflects the percentage of respondents that plan to invest or increase investments while value within the bar shows respondents average rating on the investment attractiveness of each country. (2) Each respondent was allowed to select multiple responses. Percentages do not sum up to 100%. The 2012 ASEAN-BAC Survey on ASEAN Competitiveness collated responses from businesses across all ten ASEAN ountries, comprising a mix of small, medium and large firms. A majority of the businesses had been in operation for more than ten years, had trade/investment linkages within ASEAN and had at least general knowledge of ASEAN policy initiatives. 15
45 81 93 134 1999 2003 2009 2010 2015 170 million Population in Middle Income with per capita expenditure per day USD 2-20 Source: Bank Indonesia and Indonesia Statistics Agency, 2012 (Projection) 4 th 70 % World s Most Populous Country More than 60 % Population in working age Covering 39 more % than total population of South East Asia 2015 Population (projected) in Middle Income with per capita expenditure per day USD 2-20 16
Beyond Indonesia: In the heart of the world s economic growth Global Economic Growth for Each Decades (Average percent per year) Source: World Bank, 2011 Asia and World Population Source: Coordinating Ministry For Economic Affairs RI, 2011 17
110.5 % 174 % Middle class growth Middle class growth in Southeast Asia 2012-2020 in Indonesia 2012-2020 The highestmiddle 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 18
McKinsey: Indonesia today and in 2030 Source: McKinsey Global Institute, September 2012. 19
Abundant opportunity from growing consuming class 71 % Population in cities, producing 86% of GDP in 2030 90 million Consumer Additional consumers by 2030 7.7 % p.a. USD1.1 trillion spend growth in urban areas Market opportunity in consumer services by 2030 Estimated annual revenue in 2030 (USD billion, 2010-11 price) Urban Households Expenditure in 2011 and 2030 (USD billion, 2010 price) 20
One of the world s major producer of a broad range of commodities Source: Coordinating Ministry For Economic Affairs RI, 2011 21
Roadmapof Indonesia Investment 1-2 years Quick wins and low hanging fruits Encouraging and facilitating readyto-invest investors 5 years Acceleration of Infrastructure Development Developing soft infrastucture (education and health facilities) and hard infrastructure (bridge, port, etc) through Private- Public Partnership Scheme 10-15 years Development of Big-Scale Industry Developing big-scale industrials through industry cluster (e.g. Petrochemical, transportation means, and national defense) More than 15 years Knowledge-Based Economy Developing economy by innovation and high-technology Source: BKPM 22
Labor issues Skilled workforce Infrastructure & logistics Ease of doing business Investment climate G l o b a l c o m p e t i t i v e n e s s Incentives & facilities 23
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 high domestic transport costs reduce Indonesia s trade competitiveness. (LPEM-AF, 2009) 14 % 2013 Share of logistic cost to product cost 10 % 2014 (Target) 2013/2014: 38 th out of 148 2012/2013: 50 th out of 144 Indonesia s Global Competitiveness Rank 2013-2014 (Source: WEF, 2013) Indonesia posts the biggest progression among G-20 countries. 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, 2014. 24
TAX ALLOWANCE (Government Regulation No.52/2011) 30 % of investment value Reduction of corporate net income tax for 6 years, 5% each year. 129 business segments TAX HOLIDAY IMPORT DUTY FACILITY (MoF Regulation No.130/PMK.011/2011) (MoF Regulation No.176/PMK.011/2009) 5-10 50 years Under certain requirements among others: minimum amount of investment value and workforce, and certain project location (especially outside Java island). Reduction 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. IDR 1 Machines, from the commencement of commercial production. % for a further 2 years Eligible for tax allowance, expanded from 38 segments in the previous regulation. Tax relief facility, starting Goods, materials for production 2 years import duty exemption or 4 years for companies using locallyproduced machines (min.30%). Which produces goods and/or services, including: 1. Tourism and culture 2. Public transportation 3. Public 0 0 1 oh, rv(t)5son trillion Minimum investment plan. 25 4. Mining 5.
Economic policies for improving investment climate Streamlining investment licensing BKPM simplifies business start up and licensing procedures, including 60% reduction of application forms. 17 action plans package to improve the ease of doing business includes Starting a business Getting electricity Paying taxes and insurance premium Enforcing contract Resolving insolvency Registering property Dealing with construction permits Getting credits Revising the negative investment list National Interest Priority: Increasing national competitiveness Maintaining Economic Growth More open, friendly, and simple and give certainty to Investors More tax deduction (MoF Regulation No.124/PMK.011/2013) Tax dispensation to labor-intensive industries: textile, apparel, footwear, furniture, and toys industries. Additional tax deduction to firms with at least 30% export-oriented products. Tax incentive for reinvestment (to be implemented soon) Aimed at encouraging investors to reinvest their profits. Tax would be reduced to approximately zero percent (MoF in Antara, 4/2/2014). 26
More and more business fields are openfor FDI (Presidential Regulation No.39 of 2014) 63 business sectors More opened for FDI in 2014revision. Revision More open business fields Port facility (pier, building, container delay terminal, liquid bulk terminal, dry bulk terminal and Ro-Ro terminal) passenger terminal, and airport services. Drinking water and toll road. Power plant > 10MW, electric power transmission and electricity distribution. Pharmaceutical industry. Advertising. More restrictive business fields Trade services (distributor, warehouse, and/or cold storage). All business field related to horticulture. Alternative trade. OPEN OPEN with conditions CLOSED Certain business fields may conduct investment activities under certain requirements, such as: Partnership with local partner, Capital ownership, Location and Special permits. Any investment activities are closed for certain business fields producing goods/services that: Prohibited by Indonesian law, Dangerous, Polluting, Strategic for national security and/or heritage. 27
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 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. 28
We provide one-stop shop (PTSP) licensing provision and our services for investors include INDONESIA INVESTMENT COORDINATING BOARD Establishing an Investor Relation Unit at BKPM 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. PLAY Launching the online investment tracking system.
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 5292 1334 f. +62 21 5264 211 e. info@bkpm.go.id www.bkpm.go.id