March 23, 2017 | Consulate General of Indonesia
REVIEW OF INDONESIAN ECONOMY
The Republic of Indonesia is a nation blessed with almost all of the prerequisites for transformation into a great economic power. With its abundant natural resources, large, productive and young population, and strategic access to the global mobility network, these assets and access empower Indonesia to be among the leading economies of the world.
Indonesia is an emerging global powerhouse and member of the prestigious G20. In 2015, with a Gross Domestic Product or GDP (Product Domestic Bruto or PDB) growth rate of 4.79%, Indonesia was the group’s third fastest-growing economy, only behind India and China. Today, Indonesia is the largest economy in Southeast Asia and the world’s 16th largest economy with almost a trillion dollar of GDP.
Underlying Indonesia’s vibrant economy is political stability. Indonesia has succeeded maintaining political stability as the world’s third-largest democracy.
Indonesia ranks the fourth most populous country in the world. Its 250 million population and the rapidly increasing buying power of its population is creating a significant market. Moreover, the young population is also increasing in the quality of its human resources, thus providing a desirable competitive edge.
Indonesia has an abundance of renewable (agricultural products) and un-renewable (mining and minerals) natural resources. It is the world’s largest producer of palm oil, and the world’s second largest cocoa and rubber producer. The country also produces tin, nickel, coal, natural gas, bauxite, copper and gold in large quantities. It must be able to optimize the handling of its natural resources by increasing a processing industry that will provide high added value.
Following the abundance opportunities Indonesia has to offer, the government continues reforming investment climate to make a safer and more attractive investment destination. President Joko Widodo has mandated the implementation of far-reaching fundamental reforms to create a solid foundation for businesses to grow and prosper for the long-term. Indonesia is at the beginning of a promising new era.
The strength of Indonesian economy rest on the country’s enormous natural resources (oil and gas, coal, copper, gold, forestry and plantation products) and manufacturing for the domestic and export markets (textiles, footwear, electronics, automotive, pulp and paper). Major sector of the economy include oil and gas, mining, agriculture, plantations, fisheries, transport and communications, banking and financial services and tourism.
Economic Stimulus Packages of the Indonesian Government:
Since September 2015 the Indonesian government has unveiled fourteen thirteen economic stimulus packages. These packages aim to boost economic growth in Indonesia through deregulation, tax incentives and by opening room for foreign investment.
Indonesia’s Foreign Policy
Indonesia’s foreign policy in the next five years will be based on the following priorities: 1). Maintaining Indonesia’s sovereignty: Indonesia diplomacy will protect the territorial sovereignty of the Republic of Indonesia. 2). Enhancing the protection of Indonesian citizens and legal entities: Protection of Indonesian citizens (including migrant workers) and legal entities will be further improved 3). Intensifying Economic Diplomacy : Regional and international cooperation in the fields of maritime infrastructure, energy, fishery and the protection of the marine environment will be intensified.
Indonesia’s New Government - Economic and Security Challenges
Indonesia’s new president, H.E. Mr. Joko “Jokowi” Widodo, wants to tackle Economic and Security challenges and embrace Indonesia’s geography as an asset. Maritime policy will be a top priority for Indonesia’s new government for first few years, which offers other countries opportunities for cooperation on maritime security. Indonesia’s new President have made reference to his vision for Indonesia as a “global maritime nex-us”.
Indonesia being an archipelagic state will develop marine-based economic activities through bilateral, regional and global co-operations. Will encourage FDI in maritime infrastructure development, dockyards, fisheries industries, improvement of maritime connectivity that will support logistical movement.
Indonesia will boost bilateral cooperation aimed at among other : Transfer of Technology and know-how, research and capacity building in the field of ship industry, fishery industry.
Indonesia will improve fishery products to meet international standard through the establishment of mutual recognition arrangement
Indonesia will promote Trade, Tourism and Investment (TTI) including inward investment and outward investment.
Foreign Direct Investment in Indonesia
Investment has a large multiplier effect in boosting economic growth, creating job opportunities, and shifting the current consumption-based economy to an economy driven by production. Therefore, as a government agency and primary interface between the government and investors, as well as service provider related to investment, it is the roles of The Indonesia Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM) to improve investment climate and to invite “smart investment” to the archipelago. Government of Indonesia has a strong reform agenda and since January 2015, several policies have been implemented. First, the One-Stop Service-Center (Pelayanan Terpadu Satu Pintu or PTSP) at BKPM aimed at providing a faster, simpler, and more transparent investment licensing service. Second, an end-to-end service for investors, starting from earlier until commercial stage, including facilitation during the process of investment realization. And finally, improvements of investment climate, among others by providing more attractive incentives and facilities for investors.
International recognition regarding Indonesia's economy are the recent upgrades of the country's credit ratings by international financial services companies such as Standard & Poor's, Fitch Ratings and Moody's. Resilient economic growth, low government debt and prudent fiscal management have been cited as reasons for the upgrades and are key in attracting financial inflows into Indonesia: both portfolio flows and foreign direct investment (FDI).
Foreign Direct Investment (FDI) in Indonesia in 2016
Foreign Direct Investment Realization for year 2016 : US $ 28.9 billion
The FDI realization (five leading countries) : Singapore (US$ 9.2 billion); Japan (US$ 5.4 billion); People’s Republic of China (US$ 2.7 billion); Hong Kong (US$ 2.2 billion); and Netherlands (US$ 1.5 billion).
FDI realization (five leading sectors) : Metal, Machinery and Electronic Industry (US$ 3.9 billion); Chemical and Pharmaceutical Industry (US$ 2.9 billion); Paper and Printing Industry (US$ 2.8 billion); Mining (US$ 2.7 billion); and Transport Equipment and Other Transport Industry (US$ 2.4 billion). Meanwhile if the industrial sectors are combined, it can be seen that the industrial sectors contribute US$ 16.7 billion atau 57.6% to the total FDI realization.
State Visit of President Joko Widodo to India
H.E. Mr. Joko Widodo, President of the Republic of Indonesia paid a State visit to India from 12-13 December, 2016 at the invitation of Prime Minister of India H.E. Mr. Narendra Modi. President Joko Widodo and Prime Minister Modi held talks and reviewed the scope to increase the bilateral relations.
Three agreements were signed during the visit: MoU on Youth Affairs and Sports Cooperation; MoU on Standardization Cooperation; and Joint Communique on Illegal, Unregulated and Unreported (IUU) Fishing and To Promote Sustainable Fisheries Governance.
The two sides also issued a Joint Statement; A Statement on Maritime Cooperation which mandates both sides to draw up a MoU for cooperation in this area; and agreed to annual meetings of the leaders. The two sides agreed to commence Strategic Dialogue, Security Dialogue and to negotiate a new Comprehensive Defence Cooperation Agreement.
India and Indonesia also agreed that the following mechanisms will meet within the first six months of 2017: Joint Ministerial Commission; Defence Ministers Dialogue and Joint Defence Cooperation Committee; Biennial Trade Ministers Forum and Energy Forum at Ministerial level.
The First Meeting of the Bilateral CEO’s Forum comprising about 40 CEOs of top corporates from both sides met during the occasion and made recommendations to the two Leaders.
The India-Indonesia Eminent Persons Group submitted its report to H.E. Ms. Retno Marsuki, Foreign Minister of the Republic of Indonesia and H.E. Mr. M.J. Akbar, Minister of State for External Affairs on 12 December 2016.
Garuda Indonesia launched its flight from Jakarta to Mumbai on 12 December 2016 to mark the occasion.
Launching of Garuda Indonesia Airlines
On 12th December 2016, Indonesia’s flag carrier, Garuda Indonesia officially inaugurated its flight to Mumbai, India connecting Asia’s sub-continent with the sprawling Indonesian archipelago. Aircrafts operated for this route are Boeing 737-800 NGs that have a total capacity of 156 passengers. Garuda Indonesia’s Jakarta-Mumbai flight GA 862 via Bangkok operates three times weekly on Mondays, Wednesdays and Fridays. The opening of the Jakarta-Mumbai via Bangkok flight is expected to boost connectivity between India and Indonesia.
INDIA-INDONESIA BILATERAL RELATIONS
Indonesia and India has the long standing relations, history has made Indonesia and India particularly close to each other. This relation is endorsed with unique characteristics. Both countries share much in common-geographical expanse, size and diversity of the population, culture, history and a colonial past as well as the similar direction of foreign policies in the post-independence era. History informed us that the India-Indonesia relation dates back to first century AD (anno Domini). The start was made by Indian traders, who were the first to arrive in Indonesia in 1st Century. Henceforth both nations have been having trade and cultural links for the last 2000 years.
However the bilateral trade relation between two countries has not been satisfying yet in other sectors apart from Coal and Crude Palm Oil (CPO) which is dominating while other potential commodities from both the countries have not been traded yet significantly instead of Coal and CPO. However, concrete plans have to be effective to overcome this issue. The close economic cooperation between India and Indonesia could also be reflected in both our capacities as member countries of the G20 where our common economic interests could be brought to attention. After all, both India and Indonesia has proven their economic strength through their ever increasing GDP which puts us both in the one trillion dollar club.
Despite the large size and rapid growth, the trade and investment between India and Indonesia remains modest. There is a need to synergize our efforts in the areas of economy and business to correct the sectoral and directional imbalance of our trade and to further diversify it. The vast consumer market, youthful and skilled human resources and expertise in the field of information technology of India coupled with Indonesia’s natural resources, youthful population and strategic location would provide a platform for enhanced economic engagement. The innovative spirit of Indian industry, backed by a strong government research and development push and a network of quality education institutions, make India and the Indian companies the most promising business partners today.
There is a considerable potential for expanding trade in the areas of automotive components, automobiles, engineering products, IT, pharmaceuticals, bio-technology and healthcare sectors. Given their strategic significance, Infrastructure development and energy, both traditional and renewable, are key areas for enhancing the bilateral cooperation.
Both the countries should put in place suitable policies to encourage private sectors to make investments in infrastructure and manufacturing sectors and for this the two governments must be willing to provide a predictable and comprehensive legal and taxation frame-work.
Direct trade between the two countries would automatically result in a win-win situation. Trade through third countries had an added cost, hence while taking note of same the business communities of both the countries should be encouraged to have direct trades between the two countries.
Both countries should work together to bridge the knowledge gap about investing in each other’s countries by facilitating more frequent exchange of delegations.
More discussions between stakeholders need to take place, especially in the business sector. While taking note of the significance increase of international trade of both countries, we have always urged business leaders from India and Indonesia to come forward to explore trade opportunities, especially in filling gaps in both countries. Direct trade between the two countries would automatically result in a win-win situation.
India is one of the most important engines of the world’s economic growth. The “Make in India” move is considered as a breakthrough to open the country’s economy for investment. Indonesian companies are expected to invest in India to strengthen ties between both countries. The business partnership in sectors such as financing, automotive and textile must be increased and strengthened as both countries have such huge markets in those sectors.
There has been general ignorance among the Indian people about Indonesian and vice versa. Both the countries have yet to see the urgency of intensifying cooperation particularly in the economic, scientific and technological, and social and cultural.
India’s Investment in Indonesia
India’s investment in Indonesia is continuously increasing in various sectors such as textiles, metal, automotive, machinery, coal and electronics. Indian investors operating in India are among others Tata, Reliance, Bajaj and TVS. While targeting the origin of the ASEAN countries, Japan, South Korea, and Taiwan which has been the main investment sources, BKPM now targets new investors from the Middle East region, China, and India. In regards to potential investment, Indonesia offers investment opportunities in various sectors such as energy (conventional as well as renewable energies), Food, Infrastructure, Mining, Automobile, Power, Manufacturing, Agriculture, Textile and Information Technology.
Indonesia’s investment in India
The Indonesia’s investment in India for the period from 2010 to 2016 (Sep) = US$ 20.50 million . While under the jurisdiction of Indonesian Consulate General, Mumbai was US$ 20.25 million. (Source : Foreign Investment Promotion Board of India, Ministry of Finance)
Indonesia’s investment in India especially under the jurisdiction of Indonesian Consulate General, Mumbai are Samudra Shipping, Mumbai for Logistics Cargo Services, Tanindo Seeds, Bangalore for Seeds and Agricultural Products, Inbisco India, Ahmedabad for Biscuits, Coffee, Candies, Chocolate, Japfacomfeed for production of poultry feed and breeding, Garuda Food, Bangalore for Food & Beverage, Indofood, Kerala for food products (noodles), Quantum Select Indonesia, Mumbai for placement services and Anabatic Technologies, Bangalore for Information Technology, Garuda Indonesia Airlines, Mumbai for Airlines.
Scope for India-Indonesia bilateral relations
Main items of India’s Exports to Indonesia Petroleum products, telecommunication equipment’s and parts, hydrocarbons and derivatives, oil seed, motor vehicle for goods transportation, animal feed, cotton, flat rolled product, alloy steel.
Main items of India’s Imports from Indonesia Fixed vegetable fats & oils, Coal, Copper ores, natural rubber, pulp & waste paper, alcohols & phenols, hydrocarbon, machine tools, medicinal and pharmaceutical products, fertilizers, paper and paperboard, carboxylic acids, dyeing/tanning extracts, other chemical products
Potential Areas of Synergy Machine tools and hand tools. Forging, foundry and dies, Electric motors and switches, Pumps and Compressors, Transmission towers, Cement, sugar and fertilizer plants, Power generating machinery, Computer software, Wood, paper & pulp, Palm oil, LNG & Gas
Further there is immense scope for both countries to increase their ties and cooperation in the fields of science and technology, agriculture, ecological conservation, information technology, biotechnology and other areas of common interest.
India can offer to Indonesia Acknowledging India’s all round development, we do agree that India has a lot to offer to Indonesia especially in the areas of IT, Education, Health and Pharmaceutical, Machineries and automotive sectors. The Indonesian businessmen will definitely look at the vast opportunities in these sectors and work with their Indian counterparts. On other hand Indonesia can also learn from strong industrial sector in India particularly at inter-mediatory and downstream processing industries. Both countries should work together to bridge the knowledge gap about investing in each other countries as well as in processing industries by facilitating more frequent exchange visit of delegations including participation in focused trade fairs and in various business conferences and comparative studies exchange programmes.