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Economic
overview
World Bank: Economic and
Social Update of Indonesia, April 2008
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Despite a
slowing global economy, Indonesia’s economic growth accelerated
to a ten-year high of 6.3 percent in 2007.
This growth rate was sufficient to reduce poverty from 17.8 to
16.6 percent based on the Government’s poverty line and reversed
the recent trend towards jobless growth, with unemployment
falling from 10.3 to 9.1 percent. The drivers of growth shifted
over the course of the year. During the first half, the economy
drew strength from external demand, whereas in the second half
the driving force was investment and consumer demand. High
commodity prices continued to play an important role, with coal
and palm oil exports growing rapidly. Inflation ended the year
at the upper end of the government’s inflation target, at 6.6
percent, but has since risen further to 7.4 percent on rising
food prices. The Government budget deficit was 1.3 percent of
GDP, while the debt-to-GDP ratio continued to decline rapidly,
falling to below 35 percent by the end of 2007 (down from 80
percent in 2000). The nominal exchange rate weakened in 2007,
but the rupiah remained within the Rp 9,000 to Rp 9,500 range
and strengthened again in early 2008.
-
Global
financial turmoil is beginning to have an effect.
The
commodity heavy Indonesian stock market enjoyed one of the
world’s best performances in 2007, during which it grew by 52
percent, and continued to perform well until March 2008 when
along with global financial markets — it saw a significant
correction. Similarly, despite an upgrade in Fitch’s sovereign
long-term foreign debt rating for Indonesia to BB (speculative
grade) in February 2008, the financial turmoil raised
international risk premiums (up from a low of 130 bps mid-year
2007 to over 300 in 2008), and increased domestic interest rates
for Government borrowing (from well under 9 percent mid-year to
well over 10 percent in 2008 for a 10-year bond).
-
High
commodity prices make the state of the economy in early 2008
difficult to read.
On the one hand high prices in energy, mining and agriculture
are positive for the Indonesian economy as a whole. For example,
net oil and gas exports were estimated to be US$6.6 billion in
2007, while exports of coal, copper and CPO were US$6,7, US$7.3
and US$7.4 billion, respectively. All are growing at double
digit rates. These commodities contributed to a current account
surplus of 2.6 percent in 2007. But on the other hand, high
commodity prices also have downsides. Most immediately, high
agricultural commodity prices are feeding through into domestic
food prices with food inflation year-on-year in February 2008
running at 10.4 percent, far higher than overall inflation at
7.4 percent. These higher food prices affect the poor, although
the rice price, the largest single item in the consumption
basket of poor, was virtually constant over the past year.
-
Another
important area of growing concern is the central government
budget.
With fixed domestic prices for gasoline, transportation diesel
and kerosene, (between them accounting for over 2/3 of fuel
sales), subsidies have grown rapidly and will reach Rp 130
trillion (US $14.3 billion) in 2008 based at the Government’s
estimate of US$95 a barrel. At this level, total energy
subsidies (for electricity as well as fuel) will be equivalent
to total central government capital and social spending. Driven
by the increase in subsidies, measures are proposed to cut
spending in line ministries, reduce subsidies on electricity,
and ration kerosene to ensure that it only goes to the poor.
With these measures the Government expects the budget deficit to
rise from 1.7 percent of GDP to just over 2 percent of GDP.
-
Investment picked up substantially in 2007,
reaching 24.8 percent of GDP, there was reform progress and
business perceptions showed some improvement. In fact, in its
upgrade Fitch attributed this pick-up in investment to the
Government’s efforts to improve the investment climate. It also,
hopefully, reflects the beginning of a turnaround in perceptions
of Japanese global investors who returned Indonesia to the 8th
most desirable investment location from 9th in 2006, still down
substantially from 4th in 2002.
-
Looking
ahead, the slowdown in the world economy and increasing risks
make projecting outcomes for 2008 and 2009 more difficult than
usual. Indonesia is expected to weather the global slowdown
reasonably well, with growth slowing to 6.0 percent in 2008
before returning to 6.4 percent in 2009. These projections see
export growth slowing from 8.0 percent in 2007 to 7.0 percent in
2008 but foresee domestic demand and especially investment and
consumption remaining robust as the economy’s momentum carries
into 2008. With higher international fuel prices and subsidies
the budget deficit is projected to widen to over 2 percent of
GDP with the debt-to-GDP ratio falling further to under 32
percent by the end of 2008.
Trade
The population of Indonesia is estimated at around 220
million with a growth rate of 1,5% annually. Almost half of the
population or 99 million people are the labor force in Indonesia.
This labor force is working in the field of agriculture 45%,
industry 16% and services 39%. Indonesia itself covered an area of
1.919.440 consisting of around 17.000 islands. It has an abundant
natural resource such as petroleum, tin, natural gas, nickel,
timber, bauxite, copper, coal, gold and silver. Only 10% of the land
is arable land, where the agricultural sector produces rise, cassava
(tapioca), peanuts, rubber, cocoa, coffee, palm oil, copra, poultry,
beef, pork, eggs, among others. Although Indonesia is still very
much an agriculture based country, but this sector's contribution to
GDP has drop. Now days, manufacturing industry has taken the lead.
With industries like petroleum and natural gas; textiles, apparel
and footwear; mining, cement, chemical fertilizers and plywood;
rubber; food and of course tourism.
Bilateral trade Indonesia - United Arab Emirates
2004-2007 ( in million US$)
|
Year |
Export |
Import |
Change |
|
2004 |
744.6 |
340.4 |
404.2 |
|
2005 |
903.5 |
96.5 |
807 |
|
2006 |
1,012.7 |
120.1 |
892.6 |
|
2007 |
1,324.8 |
118.3 |
1206.5 |
Source: Ministry of Trade
of the Republic of Indonesia
Doing business in Indonesia
Making the effort
to understand Indonesian culture may be the difference between
success and failure in business dealings. See
Living in Indonesia which provides abundant practical
information and tips, and in particular the following pages
Doing Business in Indonesia and
Cross Cultural Training.
The website of the
Indonesian Investment Coordinating Board (Badan Koordinasi
Penanaman Modal – BKPM) provides an excellent source of information
on rules and regulations surrounding joint ventures and foreign
direct investment. It also provides information about the national
and provincial government roles in investment approvals.The
Indonesian Chambers of Commerce and Industry website is an
important source of advice on doing business in Indonesia.
BATAM is one of the key locations in Indonesia, that has been
designated by the Government as an industrial growth centre.
In order to
implement an orderly, fair, and efficient capital market activities
and protect the interests of investor and public, guidance,
regulation, and day-to-day supervision of Indonesian capital market
is provided by
Capital Market Supervisory Agency
BUSINESS COMMUNITY
.
Indonesian Chamber of Commerce and Industry (KADIN)
.
HIPMI, Indonesia Junior Chamber
.
Indonesia Investment Forum
BANKING AND FINANCIAL
.
Bank Indonesia (Central Bank - The Indonesia's Monetary Authority)
State Owned Banks
.
Bank BNI
.
Bank Mandiri
.
Bank Rakyat Indonesia (BRI)
Private Banks
·
Bank International Indonesia, (BII)
·
Bank Central Asia
·
Bank Duta
·
Bank Niaga
·
Bank Lippo
STOCK & FINANCIAL MARKET UP-DATER
·
Jakarta Stock Exchange
·
Surabaya Stock Exchange
·
Indonesia Net Exchange : In
Conjunctions with the Indonesian Capital Market
Society
SERVICES TRANSPORTATIONS
· Garuda
Indonesia
· Merpati
Nusantara Airlines
· Jakarta
Convention Center (Convention Facilities)
· Manggala
Wanabakti
· Pos
Indonesia P.T. :Indonesian National Postal Services
· TELKOM
P.T. : National Telecommunication Company
· INDOSAT,
P.T. - (International Telecommunication Services)
· Indonesian
Yellow Pages
· Satelindo,
P.T. : Satelite and GSM Celular Phone operator
· Komselindo,
P.T.: Indonesian Celular phone operator ( AMPS & CDMA System)
· Telkomsel
: Indonesian GSM Celular Phone Operator
· Astra
Graphia
Business opportunity in
Indonesia
Agribusiness
-
Opportunities exist in the forestry sector, including provision of
pulp and paper, joint ventures in establishment of timber estates,
consultancy and forestry insurance services. Indonesia is looking to
attract new investment in fish processing and palm oil. The
Indonesian government also invited Australian companies to
participate in egg powder development.
There are also
considerable opportunities for the continuing supply of breeder
stock, feeder and slaughter cattle; feedlot management; abattoir,
meat handling and butchering equipment; and education and training
programs. Other opportunities include dairy cattle, beef and
poultry, game meats and other meats (offal, mutton, goat and lamb).
Automotive
- Opportunities in the Indonesian automotive industry include in the
areas of: automotive industry; automotive components; and provision
of alternative fuel technology, tooling design, moulds, training and
technology transfer. The Australian Government is seeking Indonesia
to shift the basis for assessing luxury tax on foreign vehicles from
engine size to import value.
Business and Financial Services -
Ongoing economic reform is generating opportunities in
restructuring, good governance issues (such as due diligence) and
forensic accounting.
Construction and Infrastructure - Opportunities exist in airport infrastructure, road maintenance,
toll-road construction, toll-road operation, seaport development,
and engineering services.
Information
and Communication Technology
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Opportunities exist in system integration, support systems,
training, professional services, outsourcing and internet services.
The telecommunication sector is expected to expand in line with the
economic recovery and present opportunities for consultancy,
engineering, equipment supply and training.
E-commerce
- Opportunities exist in provision of online services and
value-added services especially for software and Internet Security.
Foreign investors are free to invest in internet-related industries
including internet portals, internet service providers, and internet
content providers.
Education and Training -
Indonesia is a major market for Western Australian education
services. Studies undertaken by Indonesian students in Western
Australia range from: short courses, university degrees, higher
education, vocational education, school education and English
language courses.
Environmental Products and Services - Best prospects are in pollution control, including low cost water
treatment equipment and spare parts, training and ISO14000
accreditation services. Other opportunities include support systems
for sustainable resources management (eg. spatial data), solid
waste, urban water and sanitation management. Opportunities exist
for composting technology, recycling technology, landfill
technology, waste to energy technology and medical waste treatment.
Food &
Beverages - New
areas of opportunity are expected to include: new lines of processed
food and dairy products such as breakfast cereals, biscuits and
flavoured milk; ingredients for the food services sector; technology
transfer (eg. in packaging and processing); and consultancy services
to the dairy industry. Opportunities for small-goods (jams, health
food), non-alcoholic beverages, pre-prepared food, transfer of
technology and services, and joint venture or licensing arrangements
for food products
Dairy
Products
- Opportunities exist for products such as milk, butter (retail and
bulk) and cheese. Yoghurt and industrial dairy inputs such as milk
powder are also supplied to Indonesia. The local dairy industry
requires expertise in dairy farming, processing, distribution and
marketing, development and management of integrated facilities.
Fresh
Produce
- Fruit exported to Indonesia include apples, pears, oranges and
table grapes, as well as smaller quantities of exotic fruits such as
kiwi fruit, plums, nectarine and cherries. Indonesia also requires
agricultural equipment (irrigation, nursery, greenhouses).
Health
and Medical
- Opportunities exist in private hospital development and
management; alliances with specialist providers and clinics; private
health insurance; hospital staff training; export of medical
equipment; and health care treatment in Western Australia.
Mining
and Mineral - The
Indonesian mining sector presents opportunities for consultancy and
engineering services; conveying and stockpiling equipment; coal
beneficiation/preparation plants; instrumentation and monitoring;
control systems; and servicing existing and new developments.
Oil and
Petroleum
-In addition to oil and gas extraction there are opportunities for
drilling equipment, engineering consultants and other mining
equipment and services.
Transport and Storage
- There are opportunities for recreational and industrial
shipbuilding and sales; ship repairs; and freight and passenger
transport services. Opportunities in the railway industry include
passenger and freight transport services and railway equipment
manufacture. In line with the change in consumer demand for higher
quality and more perishable products, there is expected to be an
increase in the need for cold storage facilities.
Science
and Technology
- In the renewable energy sector there are opportunities for solar
hot water systems, solar street lighting, solar systems for village
houses and clinics, mini hydro-power systems, and consultancy,
training and education.
Business directory
Yellow Pages (www.yellowpages.co.id) / (www.infobel.com/teldir/)
NAFED (nafed.go.id)
Titles on
business cards
The use of educational titles on business cards and elsewhere is
more common in Indonesia.
Dr = PhD in any field including
medicine. dr = doctor of medicine
(without PhD). Drs is a superseded
title indicating a graduate degree in a non-technical field (male).
Dra is the female equivalent of
Drs. Ir indicates a graduate degree in a technical field such as
agriculture, animal husbandry or engineering.
Often the letters for the specific degree are used after the name as
well, e.g. Drs Suherman SE. SE =
Sarjana Ekonomi (economics degree).
Business initials
The initials ‘PT’, ‘CV’ etc (before or after the name of the firm)
indicate the legal status of the firm.
- ‘PT’ is an abbreviation of ‘Perseroan Terbatas’ and indicates a
limited liability company.
Note that ‘PT
(Persero)’ denotes a government-owned limited liability company.
- ‘CV’ is an abbreviation of ‘Commanditaire Venootschap’ and
indicates a limited
partnership.
- ‘FA’ is an abbreviation of ‘Firma’ which is the short form of
‘Venootschap Onder Firma’
and indicates a
limited partnership enterprise similar to a ‘Commanditaire
Venootschap’
(CV).
- ‘UD’ or ‘KUD’ is an abbreviation of ‘Unit Desa’ or ‘Koperasi Unit
Desa’ and indicates a
village
cooperative.
- PMA = ‘Penanaman Modal Asing’ or ‘foreign investment’
Agreement
between Indonesian and UAE
. Memorandum of
Understanding between Chamber of Commerce & Industry of Indonesia
and UAE (1987)
. Agreement on Air
Transportation Cooperation (signed in Jakarta 1989)
. Agreement on
Avoidance of Double Taxation (signed in Jakarta 1995)
. Agreement of
Cooperation between IPTN and GHQ UAE Armed Forces (1995)
. Agreement of
Cooperation between IPTN and GAMCO (signed in Jakarta 1996)
. Memorandum of
Understanding of Bilateral Consultation Indonesia – UAE (1997)
. Memorandum of
Understanding between Chamber of Commerce and Industry of Jakarta
and Dubai (1998)
 Investment
Indonesia remains
among the most attractive destinations as an investment center owing
to the vast natural resources, its landmass, and availability of
relatively cheap labor as compared to other countries in the region.
Deregulation and the reduction in bureaucracy has made it much more
convenient than in the past. At the same time, these newer
regulations mean that 100 percent foreign ownership is permissible
in certain sectors.
A moot point is that Indonesia does not impose any restrictions on
the transfer of foreign exchange and in several sectors there are
attractive tax incentives. In encouraging and seeking foreign
investment, the government is guided by the principle that the
national economy needs such investment to maintain the momentum of
growth. It thus actively promotes investments that create job
opportunities for its citizens, brings in capital, technology and
management skills that are currently lacking in the country.
Before even considering investment in Indonesia, one should have a
copy of what is known as the "Negative List of Investment" (Daftar
Negative Investasi/DNI). This contains the full list of those
business sectors that are absolutely closed to all foreign as well
as domestic investments, and those sectors that are closed to
foreign investments.
The special provisions or terms for certain fields of business open
to capital investment must be observed by investors, both in
applying for and in conducting capital investment activities in the
country as outlined in the Capital Investment Implementation
Technical Guidance (Pertunjuk Teknis Pelaksanaan Penanaman Modal/PTPPM).
Approval for foreign investment can be obtained either in Indonesia
through the Office of the State Minister/Board of Investment and
State-Owned Enterprises Development (BPM-PBUMN) in Jakarta or
through the Regional Investment Coordinating Board (BKPMD) in each
of the provinces of the Republic. It may also be obtained through
the Representative Offices of the Republic of Indonesia, Indonesian
Embassies, Consulate Generals or Consuls. There are a total of 156
offices in various parts of the world.
In the case where investments are to be located in Bonded Zones,
applications must be submitted to the Office of the State Minister/BPM,PBUMN
through the respective Bonded Zone Authority.
From a legal stand point, Foreign Direct Investment (FDI), which is
referred to locally as Penanaman Modal Asing (PMA), is governed by
the Foreign Capital Investment Law of 1967 that was further amended
in 1970.
Under the rules, a PMA company is granted a 30-year period to
operate after its legal formation. During this period, if an
additional investment to the original is undertaken, then a further
30-year period would be granted for the project. It is also possible
for this term to be extended by another 30 years.
A PMA company is generally considered to be a joint venture (JV)
between foreign and Indonesian partners. Such a partnership can
involve corporations or individuals. The law states that the joint
venture should take the form of a Limited Liability company (denoted
as Perseroan Terbatas - PT) and is subject to Indonesian Corporate
Law. There are no specific requirements on the minimum amount of
investment as the parties concerned are left to determine their
required sums. In practice though, the investment approval board
requires a minimum capital of US250,000.
A PMA company may also be established as wholly owned by the foreign
investor. However, no later than 15 years of commercial operation,
some of its shares must be divested to Indonesians (individuals) or
business entities by direct or indirect placements through the local
stock exchange.
In a PMA joint venture company, the foreign and national
shareholders are free to choose members of the supervisory and
management board. The employment of foreign operational directors,
managers, technicians and even specialized workers is allowed as
long as Indonesians are not available or qualified to fill these
positions. The Department of Manpower issues regular directions on
those positions that are available for expatriate employment.
However, an expatriate even those who are directors wishing to take
up or continue employment in Indonesia must possess a work permit.
Potential investors should also be aware of the Board of Investment
and State-Owned Enterprises, which was established following the
merger of two government bodies, the Investment Coordinating Board (BKPM)
and the Board of State-Owned Enterprises. This is a Non-Departmental
Government Agency responsible directly to the President of the
Republic.
The Board is also charged with the task of determining policy on
direct investment in accordance with the overall guidelines of the
Government. It also plays a coordinating role on all investment
activities through promotion, usage of foreign technical assistance,
the development of national entrepreneurial capabilities and the
effective usage of investment funds both domestic and foreign.
Apart from its routine tasks, the Board of Investment and
State-Owned Enterprises also assists investors in feasibility
studies and in seeking potential and qualified local partners.
There are several other local government agencies whose task is to
assist in foreign investment. Among them are Indonesian
Representative Office (Indonesian Embassy, Indonesian Consulate
General and Indonesian Consulate) who can be approached for foreign
capital investment (PMA).
The Regional Investment Coordinating Board (BKPMD) is headed by a
chairman and is responsible to the provincial Governor whose task is
to assist investors in the regions.
The Province National Land Agency (BPN Province) Office - the agency
for land affairs at the first level region and responsible directly
to the Head of the National Agency for Land Affairs. It deals with
such matters as land titles and the like.
Regency National Land Agency (BPN Kabupaten/Kota) Offices - the land
affairs agency at the second level regions and is responsible to the
BPN Province. Their task is to assist the investor in obtaining land
for the location of the investment project.
Regency Public Works (Dinas PU Kabupaten/Kota) Offices - The Dinas
PU Kabupaten/Kota is the local government at the second level
regions, whose task is to ensure that all construction tasks are
carried out on behalf of the investor.
The Executive Secretary of the Second Level Regions issues the
Nuisance Act Permit for the investment projects.
Regional Environment Impact Management Agency (BAPEDALDA) - the
agency responsible for assessing environmental impact studies and
monitoring environmental issues.
PT Superintending Company of Indonesia (SUCOFINDO) - a state owned
enterprise, which is responsible for verifying the Master list of
capital goods and raw materials.
Foreign investors should also be aware that Indonesia does not
recognize the free-hold concept with regards to land. In its place,
there are various rights placed on land that are divided into
separate elements and subject to separate titles. The Basic Agrarian
Law recognizes several types of rights to land.
Hak Milik, the right of ownership, which is an inheritance right
that can only be held by an Indonesian. Thus only Indonesian
companies have legal rights to own land.
However, foreign investors have some leeway as well, mainly in three
areas. These rights authorize the use of land in some way, the
duration of the validity, its utilization, opportunity to mortgage
and proof of title.
With the hak guna usaha (right of exploitation), one has the right
to use state-owned land of not less than 25 hectares for
agriculture, including plantations, fishing and cattle rearing.
Here, the title is normally used for a 35-year period, but an
extension of 25 years can be obtained provided the land has been
properly maintained and managed. Under this proviso, a foreign joint
venture company can hold the land, which can be transferred with
government approval and can even be used as collateral.
The hak guna bangunan (right of building) gives the rights to
construct and own buildings. Usually the title is for 30 years and
can be renewed with local government approval. This too can be held
by a PMA company.
The third area of interest to the foreign concern that has obtained
mining rights, or forest exploitation rights from the relevant
ministries, is the hak pakai (right of use). In this case, they
automatically have the right to use the land within their concession
boundaries for purposes linked to the operation of their businesses.
While this may appear to be a cumbersome structure, it has been
necessary to have various bodies and approvals to ensure the smooth
operations of any foreign investment. It must be borne in mind that
in the outlying provinces because of the ethnic diversities in the
country and certain regional aspirations, only the local government
office will be in the best position to deal with such matters. A
certain amount of patience and adherence to the rules and
regulations are traits that would go well in this country.
Investment Policy
Investment policy in Indonesia is very open to foreign
investment access. This, among others, is indicated by only a small
number of sectors are restricted, the availability of fiscal
incentives to attract foreign investors, no limitation on the value
of investment, the possibility for foreign investors to wholly own
their investment in almost all sectors and simplified investment
approval process. The Indonesian Government realizes that investment
is one of the most important factors in driving economic growth and,
thus, tries hard to improve investment procedures in the future in
order to stimulate a more favorable investment climate.
In this
section you will find information about investment in Indonesia,
which consists of the following topics:
-
Investment
Policy Statement, a statement that sets forth newly adopted and
current policies of the Indonesia Government for promoting and
facilitating private sector investment in Indonesia in
accommodating the ever changing development in global as well as
domestic economy.
-
Direct
Investment, defines the types of direct investment in Indonesia.
-
Approval,
License and their Procedures, describes the application
procedures for approvals and licenses needed in order to
implement investors' interest to invest in Indonesia.
-
Investment
Sector Restrictions specifies a small number of sectors of
business that are still regulated in Indonesia.
-
Investment
Incentives, describes a series of incentives offered by the
Government of Indonesia in order to attract foreign as well as
domestic investors to invest in Indonesia.
-
Special
Locations for Investment, explains some location options for
investors in the real sector to carry out their activities.
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