Investing in Indonesia:

invest in Prepared for Indonesia Investment Seminar, ASEAN-Japan Centre Fukuoka, 10 July 2014 Investing in Indonesia: Opportunities for Growth INDONESIA INVESTMENT COORDINATING BOARD Rudy Salahuddin Director of Promotion Development 2013 by Indonesia Investment Coordinating Board. All rights reserved

Growing Investment s Share to Total GDP 55 50 45 40 35 30 25 20 15 10 Total Investment (% GDP) (Bloomberg, 2013) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 32% Brazil China India Indonesia Korea Russia 2

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 3

Japan The biggest investor in 2013, but the number is declining in Q1-2014 6,000 5,000 4,000 3,000 2,000 1,000 0 2009 2010 2011 2012 2013 Q1-2014 19% 14% 52% 6% 5% 4% FDI Realization in Indonesia by Origin Country Top-10 Countries in Q1-2014 (USD million) Excl. oil, gas, and financial sectors Rank Country 2009 2010 2011 2012 2013 Q12014 1 Singapore 1,429 5,565 5,123 4,856 4,671 1,281 2 Japan 685 713 1,516 2,457 4,713 952 3 Mauritius 159 23 73 1,059 780 396 4 South Korea 613 329 1,219 1,950 2,205 350 5 Australia 80 214 90 744 226 318 6 US 100 931 1,488 1,238 2,436 262 7 Netherlands 1,195 608 1,354 967 928 217 8 China 22 566 135 310 376 191 9 British Virgin Island 293 1,616 517 856 786 157 10 Thailand 51 45 87 68 107 154 Total (Top-10 Countries) 4,914 10,580 12,570 15,493 18,708 4,279 Total (103 Countries) 10,817 16,215 19,474 24,565 28,616 6,856 Source: BKPM, 2014. 4

>90% of Japan s investment flowed to secondary sectors, Transport equip. industry covered 64% of investment in 2013 Japan s Investment in Indonesia by Sector Top-10 Sectors in Q1 2014 (USD million) Excl. oil, gas, and financial sectors 3500 3000 2500 2000 1500 1000 500 0 2009 2010 2011 2012 2013 Q1 2014 Component of Japan s Investment Based on Group of Sectors in Q1 2014 0.6% 1.7% 3.1% 0.1% 0.1% 2.7% Rank Sector 2009 2010 2011 2012 2013 Q1 2014 1 Transport Equipment Industry 370 133 465 1,510 3,001 420 2 Metal, Machinery & Electronic Ind. 83 158 306 459 580 156 3 Textile Industry 23 74 70 56 216 1.7 92.7% 70.6% 94.1% 93.4% 92.9% 80.6% 4 Chemical & Pharmaceutical Ind. 38 5 430 65 172 68 5 Paper & Printing Industry - 7 88 139 6.4 6 Food Industry 56 85 39 46 136 94 27.7% 16.7% 6.7% 2.8% 6.5% 7.0% 2009 2010 2011 2012 2013 Q1 2014 Tertiary Sectors 7 Electricity, Gas & Water Supply 7-56 111-8 Trade and Repair 38 177 34 44 86 23 9 Rubber and Plastic 28 45 85 34 83 19 10 Housing, Industrial Park and Office 0.2-0.4 38 71 35 Secondary Sectors Primary Sectors Total (All Sectors) 685 713 1,516 2,457 4,713 Source: BKPM, 2014. 5

89.7% 98.5% 96.6% 95.6% 98.5% 97.2% Jakarta 96% of Japan s total investment in the last 5 years is concentrated in Java Island Japan s Investment in Indonesia by Location in Q1 2014 (USD million) Excl. oil, gas, and financial sectors Rank Economic Corridor 2009 2010 2011 2012 2013 Q1 2014 1 Java 675 689 1,450 2,205 4,643 925 2 Kalimantan - 2 0.05 153 45 26 3 Sumatra 0.4 14 17 95 11 1 2009 2010 2011 2012 2013 Q1 2014 4 Bali & Nusa Tenggara 5 8 45 4 8 0.3 5 Sulawesi 4-1 1 5-6 Maluku & Papua - - 3 - - - Total (All Locations) 685 713 1,516 2,457 4,713 952 Source: BKPM, 2014. 6

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3,000 2,500 2,000 1,500 5.8 % GDP Growth in 2013 1,000 500 - Indonesia s GDP In the last 10 years at 2000 Constant Market Prices by Expenditure 2004-2013 (IDR Trillion) 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) 7

Unity in Diversity 248 million population 300 ethnic groups 700 languages various faiths 17,508 islands 3 rd World s biggest democracy (after India and US) 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 The third National Elections will be held in 2014 after peaceful elections in 2004 and 2009. 8

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. 9

APEC CEOs: Indonesia has capacity to surprise with greater business opportunities than expected... Source: PwC APEC CEO Survey, 2013 10

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 11

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) 12

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. 13

Positive Outlook From Credit Rating Agency Oct 15 th 2013, R&I (Credit Rating Agency from Japan) reported that Indonesia s position in BBB- rating is stable. Oct 24 th 2013, Moody s issued Credit Anslysis : Indonesia s Report which mentioned Indonesia s Investment Grade Rating (Baa3) with a stable outlook. November 15 th 2013, Fitch Ratings reported that Indonesia still maintain its Investment Grade Rating (BBB-) with stable outlook. Indonesia's foreign debt rating Indonesia s current position Investment grade In general, Credit Rating Agencies gave positive review on Indonesia s strong and stable economic growth, strong fiscal position and a relatively low debt to GDP ratio compared to peers. Specifically, Fitch Rating gave positive reviews on Indonesia s effort in maintaining financial market stability amid the volatile global financial market due to The Fed tapering issue. IndonesiaInvestment Coordinating Board 14

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 World s Most Populous Country More than 60 % Population in working age Covering 39 more % than total population of South East Asia 70 % 2015 Population (projected) in Middle Income with per capita expenditure per day USD 2-20 15

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 16

Huge Population and Demographic Bonus: Big Market and Workforce World s Top-5 Population by Country (million people) 1,350 1,221 317 251 201 China India US Indonesia Brazil In 2013, Indonesia ranks the 4 th most populous country in the world. Source: Central Intelligence Agency US, 2013 (Estimation) Indonesia s population covers more than 39% of total population of 10 Southeast Asian countries. Source: ASEAN Community in Figures 2011 Indonesia s Demography In the period of 2020-2030, the dependency index will reach its lowest point. More than 60% of the population is in the working age, providing a dynamic workforce which is one of the highest in the region. 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 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 18

Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Sep Dec Mar Indonesia: Consumer Economy All consumer segments is growing, no better place to invest in! 90% 80% 70% 60% 50% 68% 85% 7.0% 6.0% 5.0% 4.0% Ever Bought on the Internet 3.8% 6.1% 40% 30% 20% 10% 32% Have a mobile phone Have a smart phone 3.0% 2.0% 1.0% 1.7% 0% 0.0% 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Motorcycle Car 71% 82% 58% 4% 4% 10% 2008 2009 2010 2011 2012 2013 Source: Roy Morgan, 2013 19

McKinsey: Indonesia today and in 2030 Source: McKinsey Global Institute, September 2012. 20

One of the world s major producer of a broad range of commodities Source: Coordinating Ministry For Economic Affairs RI, 2011 21

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 22

Labor issues Wage is no longer a single life support Wage = Productivity National Social Security Program (Law No.4/2011) Health Insurance (BPJS Kesehatan) Universal health care Minimum wage is also based on productivity, besides the criteria of decent living (KHL) and economic growth (Presidential Instruction No.9/2013). Wage increase < KHL is directed to fulfill the criteria of decent living with clear plan and timeline. Wage increase KHL is designed to be in line with productivity and approved by employer and employees. Improving certainty and transparency Workforce Insurance (BPJS Tenaga Kerja) Pension, old-age savings, death benefits and worker accidents Applied in January 2014 Applied in July 2015 BKPM recommends that wage increase refers to multiyear formula although the increase may be implemented annually. BKPM urges measurement mechanisms to monitor and evaluate wage policies. 23

Skilled workforce 20 % 12 years Share of state budget dedicated to education since 2004. From agrarian to industrialized economy Compulsory schooling since 2013. 1. Great number of employees 2. Higher level of skills Top-5 Number of higher education graduates in 2020, covering 6% of world s total. (OECD, 2012) 1. Higher enrollment 2. Relevance & quality improvement Partnership between vocational schools and companies operating in Indonesia to produce graduates with specific skills. There are 850,000 vocational school graduates a year. 273 learning centers (balai latihan kerja) managed by Ministry of Manpower are available across Indonesia. Establishment of university of professions, dedicated for the needs of various professions, by and for the professions. Tax incentive for companies who conduct R&D programs. 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Enrollment Ratio (Comparison between the number of students and people at the school age) 50.9% 10.8% Education Facilities 13,000 1,900 High school University High school University 67.9% 18.5% 28,600 3,800 24

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, 25 2014.

25 high priority infrastructure 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 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 26

Indonesia Ease of Doing Business Improvement 8 Area 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. 27

The New Negative Investment List (DNI) (Presidential Regulation No.39 of 2010) Increasing national competitiveness as well as maintaining economic growth More open business fields Port facility (pier, building, container delay terminal, liquid bulk terminal, dry bulk terminal and Ro-Ro terminal), max 95% foreign investment under PPP Scheme. Power plant > 10MW, electric power transmission and electricity distribution, 100% open under PPP Scheme. Pharmaceutical industry, max 85% foreign investment. Advertising, max 51% shares for ASEAN investors More restrictive business fields Telecommunication services, max 49% foreign investment. Small-scale power plant (1-10 MW), max 49% of foreign invetment. 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. 28

Sustainable Development Goals and middleincome trap GDP per Capita USD12.616 Entering High-Income (target) Entering Middle-Income USD1.036 Demographic Bonus: 2010-2030 1996 2025 Year GDP Growth Mid-Term Development II (2010-2014) Mid-Term Development III (2015-2019) 6-7% p.a. Mid-Term Development IV (2020-2025) GDP per capita 2014: USD5.000 2019: USD8.000 2025: >USD12.000 Poverty Rate 6-8% Source: Ministry of Finance, 2013 and Bappenas, 2014 29

Quality Investments: Creating added value, increasing productivity and improving competitiveness Downstream industries of mining, agriculture, fisheries and forestry: smelter, CPO and cocoa industries, paper, furniture. 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. Export-oriented sectors: downstream industry of palm and rubber, electrical equipment, metal, paper, textile. Tourism and creative industries. Infrastructure sector encouraged through PPP: energy, air and sea ports, roads, water supply, waste management and railways. 30

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