On 4 March 2019, Indonesia and Australia signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). Indonesia, which is expected to be the world’s fifth-largest economy by 2030, was Australia’s 13th largest trading partner in 2018.
The purpose of IA-CEPA is to reduce non-tariff barriers to trade and increase investment between the two countries. The newly signed agreement would allow 99% of Australia’s exports to enter Indonesia duty free or with significantly improved preferential arrangements by 2020. Indonesia will guarantee automatic issue of import permits for key products such as live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots and potatoes. All Indonesia’s exports will enter Australia duty free.
Market access outcomes on services and investment will provide increased certainty to Australian businesses and services suppliers in the Indonesian market, including guaranteed levels of Australian ownership. Indonesia will not be able to limit the level of Australian ownership – or require that ownership be divested – below the percentages agreed (with limited exceptions).
The IA-CEPA builds on commitments under the existing free trade agreement, the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). Further steps are required to to bring IA-CEPA into force. For Australia, this will include tabling the text of the agreement in Parliament and an inquiry by the Joint Standing Committee on Treaties (JSCOT).
The Indonesian Chamber of Commerce and Industry (KADIN) predicts that textile and footwear industries in Indonesia will benefit most. In turn, Australia will be able to see an increase of wheat, fruits, vegetables, dairy and cattle export. Beyond free trade in goods, IA-CEPA would also open up the service industry in Indonesia, such as education, mining, power plant, hospital, telecommunications, tourism, construction, wastewater, transport and power plant, with possible Australian ownership up to 100%.
(Source: Reuters; Department of Foreign Affairs and Trade, Australia)
Batam island plans to develop two special economic zones (SEZs), on top of its free trade zone (FTZ) status. The proposed zones may be approved as early as June this year, contingent on Indonesia’s election results in April. The two proposed enclaves under the SEZ are the Hang Nadim International Airport for logistics and the island’s upscale north-eastern Nongsa area for tourism. Potential investment, including those in the pipeline, could be as high as USD 60 billion.
The proposal comes as Batam is facing flat growth and declining investments. The island hopes to revive growth through additional fiscal incentives including exemption from value-added taxes, removal from Indonesia’s negative-investment list and income-tax holidays. The island is also looking to boost cooperation with neighboring countries, making Batam the main entry and exit point for goods into Indonesia.
Recently large companies, such as Taiwanese electronics Pegatron Corporation and Apple have also considered relocating their factories in the island as a consequence of the United States – China trade war.
Currently, Indonesia has twelve SEZs, four of which – North Sumatra, Banten, Central Sulawesi and Lombok – have started their commercial operations.
(Source: The Straits Times)
Indonesia and the European Free Trade Association (EFTA) signed the Comprehensive Economic Partnership Agreement (CEPA) on 16 December 2018. The agreement was reached between Indonesia and the EFTA countries – Switzerland, Liechtenstein, Norway and Iceland – after eight years of negotiations. The discussion on market access for Indonesia’s palm oil to EFTA countries was the main concern in the delayed negotiations.
The CEPA provides market access of goods from Indonesia and EFTA, as well as increase economic cooperation and investments between the countries. Through EFTA, Indonesia will obtain market access in terms of:
In addition, Indonesia will receive opportunities in cooperation and capacity building in fisheries and marine, export promotion and tourism, small and medium enterprises (SMEs), cocoa, sustainability, maintenance, repair and overhaul (MRO) and vocational education.
According to the data by the Central Statistics Agency (BPS), trade between Indonesia and EFTA reached USD 2.4 billion, while investment of EFTA to Indonesia stood at USD 621 million. Indonesia’s exports to EFTA include jewelry, optical devices, gold, telephone devices and essential oils. Indonesia imports gold, turbo jet machines, medicines, fertilizers and raw industrial materials from EFTA.
(Sources: The Jakarta Post; Nikkei Asian Review)
The Indonesian government launched the 16th economic package focused on relaxing regulations to stimulate investment. The package consists of steps in three areas: tax holiday expansion, adjustments to the negative investment list (DNI) and the provision of tax incentives for the mandatory saving of export earnings in Indonesian bank accounts. The new economic stimulus measures aim to help Indonesia weather external shocks, such as the tightening of monetary policy in the United States and reduce the country’s dependency on imports.
Tax Holiday: The economic stimulus expands the categories, duration and amount of tax holiday. The new tax holiday will benefit smaller industries in the country’s special economic zones (SEZs) and target two industrial sectors, agriculture-based manufacturing and digital economy. The benefits can easily be accessed in the Online Single Submission system.
New Sectors Open To Foreign Investment: DNI has been revised to exclude 87 business sectors. Out of the 87, 54 are open to foreign capital. The newly-opened sectors are offshore oil and gas drilling, clove and white cigarette production, certain categories of medical equipment production, dairy farming and fabric printing. This goes to promote Indonesia’s openness to foreign investors, as foreign ownership in 54 business sectors can now be up to 100% compared to only 30-67% currently.
Incentives For Export Earnings: Exporters who deposit at least 90% of earnings for more than six months, either in US dollars or Indonesian Rupiah, can enjoy zero percent final income tax cut. The new law mandates exporters to save their earnings directly in Indonesia’s domestic banking system. Otherwise, they might face sanctions such as export restrictions, fines and even permit revocation. Indonesia plans to grow its foreign exchange reserves from export revenues.
(Sources: The Jakarta Post; Straits Times)
The Finance Ministry of Indonesia is rolling out regulations this year to mandate online merchants to have tax identification numbers, known as NPWP. This is part of the country’s ongoing effort to improve tax compliance in the booming e-commerce industry. The government targets its tax-to-gross domestic product ration to grow from 11.6% to 13% by 2020.
Among the e-commerce companies implementing the rule are the nation’s two giant marketplaces, PT Tokopedia and PT Bukalapak.com. Sellers will need to input their NPWP as a condition to operate on these e-commerce platforms. The platforms will then submit a monthly transaction report to the government. The government has yet to determine ways to enforce e-commerce tax on merchants selling on social media channel such as Instagram.
According to McKinsey & Co.’s estimate, e-commerce sales in Indonesia are projected to reach USD 65 billion in 2022, a 700% growth from 2017. Vendors enjoy the online boom; however, they often shy away from declaring incomes, despite the government’s recent efforts to lower final income tax for micro, small and medium enterprises by half from 1%.
The Indonesian government has been taking multiple steps to curb imports and support the weakening currency, which dropped to a 20-year low of nearly 14,800 (IDR/ USD) in early September 2018. While the central bank is intervening in the foreign exchange and bond markets and has raised benchmark interest rates four times since May 2018 to shore up the Rupiah, the government has been taking steps to curb imports. Indonesia has been among the most severely affected countries, apart from Turkey, Argentina and South Africa, by the emerging-market selloff, as investors move funds to the US to benefit from the US rates hike.
On 5 September, Indonesia’s Finance Minister Sri Mulyani Indrawati approved tax increase on imported goods. The Income Tax (Pph 22) increase for imported goods will impact 1,147 items, with rates rising to a maximum of 10% from the prevailing range of 2.5% to 7.5%.
For 210 items, rates rose from 7.5 % to 10%. Included in this category are luxury items such as CBU (Completely Built Up) cars, and large motorbikes. The import of luxury cars with engine capacity of 3.000 cc and above will be put to a halt. For a further 218 items, rates have been increased from 2.5% to 10%. This category includes consumer goods that can be produced domestically, such as electronic goods (water dispensers, air conditioners, lamps), daily necessities such as soap, shampoo, cosmetics, and cooking utensils / kitchen items. Taxes on 719 items rose from 2.5% to 7.5%. This includes building materials (ceramics), tires, audio-visual electronic equipment (cables, speaker boxes ), textile products ( overcoat , polo shirts , swim wear etc.
The move by the Indonesian government is to complement other measures which have been put in force to narrow the current-account deficit, including using palm oil biodiesel to reduce imports of crude, delaying infrastructure investment and rescheduling shipments.
(Sources: Ministry of finance, Indonesia; Bloomberg; The Jakarta Post; Straits Times; Nikkei Asian Review)
The $6.92 billion Bilateral local Currency Swap Agreement (BCSA) between Indonesia and Australia has been renwed and extended to December 2021. Previously due in December 2018, the deal is renewed to reduce the dependency on both countries to trade with the United States dollar amidst the recent currency swings. The renewed agreement is valid for 3 years and allows value exchange up to IDR 100 trillion (USD 6.92 billion).
The agreement is designed to promote bilateral trade, and in particular, help to ensure that trade between the two countries can be settled in local currency even in times of financial stress. This reflects strong financial ties between Indonesia and Australia.
Currently, Indonesia's foreign exchange reserves stand at USD 118 billion. It receives a USD 66.6 billion loan facility from the International Monetary Fund (IMF), while the remaining amount is from currency-swap agreements with Japan, China, South Korea and a multilateral deal with ASEAN countries under the Chiang Mai Initiative (CMI). CMI is a multilateral currency swap arrangement among the ten ASEAN members, the People's Republic of China (including Hong Kong), Japan, and South Korea. It draws from a foreign exchange reserves pool worth expanded to USD 240 billion in 2012.
(Sources: Jakarta Globe; The Jakarta Post; Bank of Indonesia)
According to the National Development Planning Minister Bambang Brodjonegoro, the government of Indonesia is committed to creating new centres of economic growth outside Java in the effort to reduce economic disparities between Java and other regions. In the past two decades, economic growth has largely been concentrated in western Indonesia - Java and Sumatra – which contributes around 80% of the country’s gross domestic product. 60% of the country’s economy is currently based in Java, while only 20% is in Sumatra and the remaining 20% in other regions.
The government now aims to develop new growth centres in other regions through developing infrastructure, connectivity and metropolitan areas outside Java. The government has reported having three main programmes to improve economic activities in regions outside Java.
(Sources: Jakarta Globe; The Jakarta Post)
On 31 May 2018, Indonesia's President Joko “Jokowi” Widoko has signed Presidential Regulation No. 44/2018 on the Indonesia National Single Window (INSW), which is tasked with integrating export and import services, in order to boost exports.
Under the regulation, the submission and the processing of data and information will be managed through a single process by the INSW. The regulation is expected to help the Indonesian economy compete internationally by allowing the handling of various documents related to the quarantine, customs, licensing processes as well as documents on seaports and airports through a single window system. Export and import documents will be submitted to relevant ministries and other government institutions through the INSW system on www.insw.go.id, which will provide information in both Indonesian and English.
To access the INSW system, users must obtain Hak Akses (Access Rights), which are issued by INSW system management based on a finance ministerial regulation, according to Article 7 of the presidential regulation. The system will be also equipped with a steering council, which will be tasked with harmonizing policy and synchronizing processes in ministries and government institutions to improve efficiency.
ASEAN countries have developed or are in the process of developing National Single Windows, which are being connected with the ASEAN Single Window (ASW), a regional initiative which aims to expedite cargo clearance and promote economic integration among member states by enabling the electronic exchange of border documents. This will reduce cost and time of doing business, and enhance trade efficiency and competitiveness. ASW is now operational among five member states – Indonesia, Malaysia, Singapore, Thailand and Vietnam and the other members are expected to join.
(Sources: The Jakarta Post; Tempo.co)
According to Indonesia's Statistics Agency (BPS), the country's Gross Domestic Product (GDP) grew by 5.06% y-o-y during the first quarter of 2018. GDP grew by 5.1% y-o-y during 2017. Household consumption increased by 4.93% y-o-y during the quarter, marginally higher than the 4.93% growth in the first quarter of 2017. The increase was lower than expectations. Exports grew by 6.2% during the quarter, while imports surged by 12.8%, driven by primarily capital goods and raw materials. Investment accelerated from 7.27% (yoy) to 7.95% (yoy), representing the highest rate recorded in the past five years, with growth underpinned by improving non-building investment to fuel increasing production. Strong building investment was maintained in line with ongoing government infrastructure projects.
Regionally, economic gains were reported in Java, Bali Maluku and Papua. Java Island accounted for 58.7% of Indonesia's GDP for the quarter, followed by Sumatra with 21.5% and Kalimantan with 8.2% and Bali and Nusa Tenggara at 3.03%. Bank Indonesia projects national economic growth to remain in the 5.1-5.5% range for 2018.
The current account stood at a deficit of USD 5.5 billion deficit (2.1% of GDP) in the first quarter of 2018 compared with a USD 6.0 billion deficit (2.3% of GDP) in the last quarter. The smaller current account deficit was attributable to a smaller services trade deficit together with a larger secondary income account surplus. Meanwhile, the capital and financial account surplus stood at USD1.9 billion in the first quarter of 2018, supported by an influx of direct investment. Bank Indonesia expects current account deficit to stay in the range of 2.0-2.5% of GDP range, below the 3% of GDP threshold.
The Indonesia rupiah depreciated in the first quarter of 2018, sparked by global USD appreciation. It depreciated 1.47% in the first quarter of 2018 and 1.06% in April 2018. Following interest rate cuts since the beginning of 2016 to stimulate growth, Bank Indonesia raised its benchmark rate by 25 basis points on 17 May.
Fitch Ratings upgraded Indonesia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'BBB', from 'BBB-' in December 2017, which is expected to support capital inflows. Campaign spending will be ramped up during the approach to the local elections to be contested this year. The 2018 Asian Games in Indonesia is also expected to have a multi-billion dollar impact.
(Sources: Bank Indonesia, Indonesia Investments, Bloomberg, Badan Pusat Statistik)
In April 2018, the Indonesian government officially launched the industry roadmap called “Making Indonesia 4.0”. The roadmap details the country’s vision for the growth of the manufacturing industry’s competitiveness through the use of technology, such as Internet of Things (IoT), Artificial Intelligence (AI), human-machine interface, robotics and sensor technology, and 3D printing. The roadmap aims to incentivize the fourth industrial revolution in Indonesia and focuses on the growth of innovations in five key sectors, namely, food & drinks, automotive, textile, electronics, and chemicals.
Improvements in these sectors are projected to improve the competitiveness of the country’s manufacturing industry and boost Indonesia’s exports. The government also expects that new initiatives under the roadmap will lead to creation of around 10 million new jobs and will pave way for Indonesia to enter the list of top 10 biggest economies by 2030.
The Industry Minister Hartarto said that the Industry 4.0 roadmap is expected to be key for encouraging valued added and high-technology downstream industries to become competitive in the global economy. According to the Ministry of Industry, the new roadmap envisions development and integration of connectivity, technology, information and communication across various industry sectors.
The country’s “Making Indonesia 4.0” roadmap delineates ten cross-sectional priorities, which will drive the fourth industrial revolution:
1. Improve the flow of goods;
2. Develop a roadmap for comprehensive and cross-sectional industrial zones;
3. Improve sustainability standards;
4. Empower the small and medium-sized entrepreneurs;
5. Build national, digital infrastructure;
6. Attract foreign investment;
7. Boost the quality of local human resources;
8. Boost the development of ecosystem innovation;
9. Design incentives for investment in technology;
10. Harmonise regulations and policies.
The design of the roadmap involved various stakeholders, including the government, industry players, industry associations, tech companies, as well as research and educational organisations.
If successful, the roadmap is expected to boost the real economy of Indonesia by 1-2%, keeping the GDP growth rates for the period of 2018-2030 between 6-7%. Meanwhile, the manufacturing industry is expected to contribute between 21-26% to the nation’s GDP by 2030.
(Sources: Indonesia Investments; The Conversation)
The recent downturn in commodity prices has provided an opportunity for Indonesia to shift away from its dependence on commodity-driven growth towards higher value-added activities in manufacturing and services. The country is now pushing for investment in value-added manufacturing and services, and focusing on more on creative industries such as films, fashion and handicrafts, which accounted for about 7.4% of Indonesia’s GDP, or about IDR 1,000 trillion (USD 73 billion) in 2017.
The Indonesian Agency for Creative Economy, an agency created in 2015 to nurture the growth and investment in these sectors, is targeting to raise it to 9% by 2020. Some of its initiatives are already paying off. In 2016, the Indonesian government revised its 2014's investment Negative list (DNI) - allowing foreign investment in film production, exhibition and distribution. Within three years, the number of movie screens in Indonesia jumped 50% to 1,500 while ticket sales soared to 42.7 million last year from 16 million in 2015. The agency is also pushing for exports of Indonesian designer goods such as batik clothes and handicrafts by aggressively marketing at global exhibitions. It is also helping Indonesian designers and artisans find buyers through e-commerce platforms.
(Sources: Bloomberg; World Bank)
According to Indonesia's Central Statistics Agency, Jakarta's economy grew 6.22% year-on-year in 2017, higher than the 5.88% recorded in the previous year. Growth in Jakarta was also higher than growth at the national level, which was recorded at 5.07%. Most of the economic growth came from a surge in infrastructure construction projects and household spending in 2017.
Jakarta has special status as the capital of Indonesia, and has a population of over 10 million people. Officially, it is comprised of five administrative cities (Central, North, East, West and South Jakarta) plus the Kepulauan Seribu administrative-regency (also known as the Thousand Islands).
Greater Jakarta, on the other hand, encompasses urban development extending into Tangerang, South Tanerang, Borgor, Bekasi (Jabodetabek) and Karawang. Serving as home to 31.3 million residents makes Greater Jakarta the world’s second-most populated metropolitan area behind Tokyo-Yokohama according to Demographia metrics.
(Sources: Central Statistics Agency; Jakarta Post; World's Capital Cities)
The Industry Ministry hopes that 13 industrial zones in the country will attract IDR 250.7 trillion (USD 18.7 billion) worth of investment worth of investment in 2018. The 13 industrial zones are the Morowali in Central Sulawesi, the Sei Mangkei in North Sumatra, the Bantaeng in South Sulawesi, the JIIPE Gresik in East Java, the Kendal in Central Java and the Wilmar in Serang, Banten. Others are the Dumai in Riau, the Konawe in Southeast Sulawesi, the KEK Palu in Sulawesi Tengah, the KEK Bitung in North Sulawesi, the KI Ketapang of West Kalimantan, the KEK of Lhokseumawe in Aceh, and the KI Tanjung Buton of Riau.
Indonesia enjoys increasing investment in various sectors. In 2017, investment in the manufacturing sector reached IDR 352 trillion (USD 26.5 billion). Investment in non-oil and gas processing sector reached USD 114.67 billion, and the export of non-oil and gas processing industry amounted to USD 153.9 billion up to November 2017. In a bid to boost investment and grow exports, the Indonesian government is currently negotiating various comprehensive economic cooperation agreements with Europe, the United States and Australia.
(Sources: Antaranews; Tempo)
Bank Indonesia (BI) estimates a year-on-year economic growth of 5.1% for Indonesia in 2017, which was boosted by increasing exports and investment. Stable economic conditions in 2017 helped the country with its recovery. GDP growth in the first, second and third quarters of 2017 ranged between 5.01% and 5.06%, which reflect slightly better growth compared to the corresponding periods of 2016.
Indonesia has ramped up its investment in public infrastructure since 2015 with funds being partially sourced from households in the form of energy subsidy cuts and increased taxes. Correspondingly, savings and consumption growth have been soft for the past years. However, household spending saw stable growth throughout 2017, with sales of consumer durables, such as passenger car and motorcycles rebounding, with the latter jumping double-digits in the third quarter, after three years of consecutive contractions. Consumption is also expected to gradually pick up as burden to households is projected to ease in the coming months due to the increase in the social welfare budget.
Investment growth in 2017 was at its highest in more than four years. FDI recorded the largest net inflow in over seven years. Indonesia’s key export commodities and other manufactured goods exports surged in the third quarter of 2017. Export and import volumes both registered double-digit growth for the first time since 2012.
Upcoming political events including the finalisation of the presidential and vice-presidential candidates for the 2019 elections are also being closely monitored as it will have an impact on business conditions and policy continuity.
(Sources: Bank Indonesia; Singapore Business Review; World Bank; Jakarta Post)
Indonesia's positioning in the World Bank's ease of Ease of Doing Business Index rose to 72 from 91, out of 190 nations reviewed. The chief of the World Bank Representative for Indonesia lauds the government for the steps it has taken to enhance the business atmosphere in Indonesia. Since President Jokowi began his term in 2014, the country is amongst the world’s top 10 reformers, with 39 reforms related to the indicators included in Doing Business adopted in 15 years.
The reforms implemented in the past year in Jakarta and Surabaya, the two cities covered by the report, are:
(Source: World Bank)
Indonesia and Australia are in the midst of negotiations to lift tariffs for specific products traded by the two countries. On Indonesia's part, the country is requesting Australia to lift import tariffs on textiles, clothing and footwear products. Australia, on the other hand, wants Indonesia to remove import tariffs on skim milk and skim milk powder; copper cathode and hot rolled coil (HRC) and cold rolled coil (CRC) steel. Indonesia has already expressed that lifting tariffs for the Australian products would be possible if Australia would also agree to invest in Indonesia in return for the user-specific duty-free scheme.
Previously, both countries have agreed on tariff schemes for other products exported into each country. Indonesia has lowered the import tariff for sugar exported by Australia to 5% while Australia granted a zero import tariff on Indonesian agrochemicals such as herbicides and pesticides.
(Source: The Jakarta Post)
Indonesia has issued its 16th economic policy package, which aims to create an integrated licensing system for businesses. Indonesia has a complex business licensing structure in addition to a large number of business licenses - the Ministry of Trade alone administers as many as 122 types of licenses. Many of the licenses have overlapping functions, while others have become redundant. Companies complain of various bureaucratic challenges relating to the implementation of business licenses due to a lack of government capacity and resources. The new economic policy package is now set to address these issues.
The new policy reiterates strict supervision on the transition from manual licensing system to the online system. There will be two stages to implement the 16th economic policy package. First, ta task force will be set up to “implement business licensing processes and to oversee the application of licensing checklists at special economic zones (KEK), free-trade zones (FTZ) industrial and tourism areas using data sharing guard”. Second, there will be regulatory reformation and a single-submission system.
(Sources: The Asia Foundation; Indonesia Investments; Tempo; Antara News; The Jakarta Post)
Indonesian President Joko Widodo has proposed to parliament a 2018 state budget that focuses on addressing inequality and assumes the growth rate in South East Asia's largest economy will accelerate next year. Widodo said Indonesia's GDP will likely expand 5.4% in 2018, faster than his target of 5.2% in 2017. Based on faster growth and other assumptions, Widodo said the government could probably collect 1,878.4 trillion rupiah (USD 140.44 billion) in revenue in 2018, a 8.2% increase from this year's target. He set 2018 spending at 2,204.4 trillion rupiah, a 3.3% rise from the total approved for 2017 but about 5% higher than what the government actually expects to spend this year.
Due to the restrained spending of the Indonesian middle-class sector, household consumption in Indonesia has faced a minor bump in growth in the second quarter of 2017, according to Indonesia's Central Bureau of Statistics (BPS). Increased saving, declining check card exchange, and slower car deals are some of the signs that resulted in the slowing down of consumer spending. Furthermore, the declining real value of farmer and labor compensation have also affected the middle class sector's spending habits.
However, the BPS Minister said that the Indonesians’ purchasing power is still high, given that for the second quarter of the year, the household consumption grew to 4.95%, pushed mainly by the Ramadhan, Eid al-Fitr and other minor and major holidays in the country, thus consumers still highly consumed food and beverages, booked in restaurant and hotel, and utilized transportation and communication.
Indonesian President Joko Widodo now urges multinational companies that operate in Indonesia but are listed abroad to go-public on the Indonesia Stock Exchange. He particularly targets those companies that generate more than 50% of their revenue from Indonesia, or have more than 50% of their total assets in Indonesia.
The Director of the Indonesia Stock Exchange said there are 52 companies that are on the radar of the authorities. All these companies have market capitalization that exceeds IDR 400 trillion (USD 30 billion). It mainly involves companies engaged in mining, property and plantations. These companies will be invited by the Indonesia Stock Exchange for a meeting
(Source: Indonesia Investments)
Both foreign ministers of Indonesia and Maldives are discussing an opportunity to expand bilateral relationships in trade, tourism and fisheries. Key highlights of the bilateral cooperation include the Maldives sharing its expertise with Indonesia, particularly in the tourism sector; Indonesia to provide training sessions to the Maldives on disaster management; good governance and television broadcasting; transfer knowledge know-how and technical cooperation.
Cooperation in trade between Indonesia and the Maldives has resulted in a positive outcome for both countries, amounting to nearly USD 39 million in total and increasing by 12% annually on average. Also, almost 1,400 Indonesians currently work in the Malvides, with the majority in the tourism sector.
(Source: Jakarta Globe)
BKPM, an investment service agency of the Indonesian government, has set a direct investment target of around USD 56.69 billion (IDR 795 trillion) for 2018, with 62.7% share for foreign investors and 37.3% share for domestic investors.
The sectors that are believed will attract most investors are minerals, mining, agriculture, manufacturing and fisheries. Also, there are upcoming infrastructure projects such as power plants, toll roads, and ports.
Records from 2016 show that Singapore, Japan, China, Hong Kong and the Netherlands are the biggest investors in Indonesia. It is expected that Singapore, China, Japan, South Korea, Taiwan and Malaysia will be the biggest investors in Indonesia over the next few years.
(Sources: Jakarta Globe, BKPM)
Premiums in the Indonesian life industry soared by 28.15% to IDR 35.19 trillion (USD 2.64 billion) in the first quarter of this year, compared to the corresponding quarter last year. Indonesia’s robust economic evironment and an increasing awareness on the part of its citizens on the importance of life insurance, have directly contributed to the growth in profit in the sector.
The Chief of Asosiasi Asuransi Jiwa Indonesia (AAJI) expects that the sectors achievement in Q1 can be maintained throughout the year, and that insurance penetration will be given a boost by the government’s infrastructure development program. Currently, less than 5% of the total population of Indonesia have life insurance.
(Sources: Antaranews, Detik, Middle East Insurance Review)
According to the World Bank, Indonesia’s potential trade is more promising in its services sector rather than trade in goods. Based on the World Bank report, Indonesia’s services sector rate has grown by 6.8% since 2001, and contributes around 45% to GDP. In addition, around 64.7 million Indonesian workers worked in services sector in 2016, which represents more than half of the employed Indonesians. Thus, the World Bank recommends that Indonesia liberalizes its trade in services.
Currently, various barriers hinder foreign companies’ opportunities in the services sector. An example of a barrier in the legal sector is a prohibition on foreign lawyers setting up a a commercial presence or practice in the country. The only possibility to tap into overseas legal expertise is by hiring foreign lawyers to provide advice on foreign law to Indonesian advocates. Businesspeople have pointed out that the current government is actually open to investment by foreign investors, but it would need sustainable economic policy reforms that could engage them closely to ensure better implementation on the ground.
(Source: The Jakarta Post)
KLIK is an accelerated construction program, and is a new licensing service from BKPM, the investment service agency of the Indonesian government. It includes any project regardless of capital size and manpower numbers as long as they are located within stipulated industrial areas.
Investors can immediately start construction after obtaining the principle and investment permits from BKPM or the one-stop integrated service (PTSP), while the practical licenses, such as the license to build (IMB) can be registered on an ongoing basis in tandem with the construction project.
Indonesia Investment Coordinating Board (BKPM) launched its first KLIK licensing services which covered 18 industrial area facilities. It subsequently added 18 additional industrial areas which are located throughout Indonesia, making it a total of 32 industrial areas. The additional 18 estates are in 10 provinces throughout Indonesia, namely in Jakarta, West Java, Central Java, East Java, Riau Islands, Riau and East Kalimantan.
(Sources: BKPM, Antaranews)
Although Indonesia experienced a tough 2016, overall the country has grown at a stable rate over the past decade. It recorded an average economic growth rate of 5.7% between 2006 and 2016. Public consumption has also increased close to 5% within the period, signalling a steady demand in the market. Investment rate grew to 6.8% in the last 10 years, while government consumption recorded 6.3% over the same period.
In 2016 Indonesia experienced various economic pressures, including falling commodity prices, one of its major export drivers. The government has decided to reduce its dependence on natural resources in carrying on with its development program in 2017, focusing instead on three main sectors to drive forward the economy. The three sectors it has identified are the manufacturing sector; the services sector including tourism, communications and information service, financial services, among others; and the infrastructure sector.
Bank Indonesia confirmed that the loan growth would be kept in the earlier predicted range of 7% to 9% in 2016 despite the growing demand. A small increase in the loan disbursement was shown in the fourth quarter of the year, while credit growth is reported to improve from month to month as evident through the year-on-year bank loan growth of 8.5% in November compared to 7.5% in October.
The growth for loan demand was revised from between 11% and 14% earlier of the year to the single-digit targets on the brink of weaker outlook for credit needs. The situation is expected to be better in 2017 as banks had increased their loan provisions to brace for climbing non-performing loans, to record between 10% and 12% of credit growth.
(Source: The Jakarta Post)
According to the East Asia Forum, Indonesia is expected to grow at around 5% in 2016, slightly below the official estimate of 5.3% but much lower than the 7% the new government had targeted. However, compared to continued downward global growth, including that of China and its ASEAN neighbours, Indonesia’s stable growth looks quite respectable. It is widely anticipated that Indonesia’s economic growth in 2017 will improve as the government’s economic policy packages launched throughout the past year begin to take effect on the Indonesian economy.
(Sources: East Asia Forum, Global Business Guide)
Indonesia’s economic growth for the third quarter of 2016 matched forecasts to record 5.02% from a year earlier, slightly lower than the revised record of preceding quarter at 5.19%. With President Jokowi’s plan to boost investment by 10% and growth of over 6% in 2018, the country is planning to spend on an extensive infrastructure agenda involving construction of roads, seaports and railways. Additionally Bank Indonesia has also announced six interest rate cuts to stimulate spending in keeping inflation rate within 3% to 5% target band, which is viewed positively in supporting the growth outlook.
Even though the government is cutting its expenditure, consumer spending remains strong in the third quarter from a year ago. The household consumption increased by 5% whereas the government spending recorded a 3% decline during the reviewed period. At the same time investment recorded an increase of 4.1% while exports dropped by 6% and imports declined by 3.9%.