INDONESIA. Darmawan Djajusman. invest in. Investment Policy and Opportunity in Indonesia. Investment Committee Member. Seoul, 28 th Sept 2011

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1 Invest in remarkable indonesia Invest in indonesia Invest in remarkable indonesia Invest in remarkable indonesia Invest in Invest in remarkable indonesia Invest in indonesia Invest in remarkable indonesia Invest in remarkable indonesia Invest in indonesia remarkable indonesia able indonesia Invest invest in INDONESIA Investment Policy and Opportunity in Indonesia Darmawan Djajusman Investment Committee Member Seoul, 28 th Sept 2011 Invest in remarkable indonesia Invest in 2011 by Indonesian Investment Coordinating Board. All rights reserved

2 Contents I. Introduction: Indonesia at a glance II. Why Indonesia: Remarkable Indonesia III. Investment Updates: reform and maintaining growth

3 I. INTRODUCTION: Indonesia at a glance

4 Introduction : Indonesia at a glance Country Snapshot: the biggest archipelago I N D O N E S I A GDP Size US$ Bi Land Area 1,904,443 sq km GDP percapita US$ 3,005 Sea Area Total Area 3,116,163 sq km 5,020,606 sq km Coastal Line 81,000 km Population 242 Million people (4 th biggest population) Main Towns Jakarta (Capital) Surabaya Bandung Semarang Medan Samarinda Makassar Population ( 000) 9,558 2,584 2,393 1,553 2, ,339 Jakarta (Capital) East Java West Java Central Java North Sumatera East Kalimantan South Sulawesi Languange Indonesian (Bahasa Indonesia) As well as some 7500 other regional languanges and dialects. GDP Share (%) ,2 2.3 Source: various GDP/Capita (US$ 000) The rising population share of Indonesia s middle class (% of Pop) % % Source: World Bank 4

5 Introduction : Indonesia at a glance Dynamic Youth Population: social networking penetration Indonesia internet user : 45 million people (2010) US (150 mn people) Indonesia (38 mn people) UK Turkey India (30 mn people) (29 mn people) (29 mn people) Facebook users in Indonesia 38 Mn people, 2nd rank in the world as per June 2011 (source: Indonesia (5.6 mn people) Japan India (3.5 mn people) (2.3mn people) Singapore (2.1 mn people) Philipines (2.0 mn people) Twitter users in Indonesia 5.6 Mn people, 1st rank in Asia per 20 April 2011 (source: 5

6 Introduction : Indonesia at a glance BRICs & Growth Market: comparison on selected indicators Indonesia BRIC Brazil Rusia India China South Africa South Korea Turkey Mexico TRANSPORTATION ( ) Roadways (km) 437,759 1,751, ,000 3,320,410 3,583, , , , ,095 Railways (km) 8,529 28,857 87,157 64,015 77,834 20,872 3,381 8,697 17,516 Waterways (km) 21,579 50, ,000 14, , ,608 1,200 2,900 Airports 684 4,072 1, ,819 COMMUNICATION ( ) Telephones mobile cell (ooo) 159, , , , ,000 46,436 47,944 62,780 83,528 Internet hosts (000) 1,269 19,316 10,382 4,536 15,251 3, ,329 3,433 12,854 Internet users (000) 20,000 75,982 40,853 61, ,000 4,420 39,400 27,233 31,020 ELECTRICITY (2008) Installed capacity (mn KW) Electricity cons. (bn kwh) , ENVIRONMENT (2009) CO 2 emission (MMT) , , , INDUSTRY Crude steel prod. (000 mt) / ,600 32,900 66,900 68, ,700 7,600 58,400 29,100 16,700 Cement prod. (000 ton) / ,000 53,000 55, ,000 1,400,000 n/a 53,000 51,000 45,000 Source: USGS, World Steel Association, CIA Fact book, EIA-US Energy Information Administration 6

7 II. WHY INDONESIA: Remarkable Indonesia

8 Why Indonesia : Remarkable Indonesia 1,200 1, Sound Economy: sustainable growth Nominal GDP (US$ bn), Real GDP Growth (%) Source: EIU dan Min. of Finance % Public debt and budget deficit (% of GDP) Public Debt (% of GDP) (LHS) Source: Central Bureau of Statistics, Bank Indonesia, CIA World Factbook Budget Deficit (% of GDP) (RHS) % Having a GDP size of more than US$ 700 billion in 2010, Indonesia is the third fastest growing economy in Asia and the largest economy in Southeast Asia. Indonesia s economy grew by 6.1% last year (2010) and is forecast to climb to 6.5 to 6.9% in 2012, providing a case for Indonesia s inclusion in the so-called BRIC economies. In terms of fiscal and monetary conditions, Indonesia is much better than European countries as Indonesia fiscal burden lighter. In monetary policy for example, Indonesia needs to raise SBI only once while China, Singapore and India need to raise central banks rates 7-9 times in the past 19 months. 8

9 Jan-06 Apr Jul Okt Jan-07 Apr Jul Okt Jan-08 Apr Jul Okt Jan-09 Apr Jul Okt Jan-10 Apr Jul Okt Jan-11 Apr Jan-06 Apr Jul Okt Jan-07 Apr Jul Okt Jan-08 Apr Jul Okt Jan-09 Apr Jul Okt Jan-10 Apr Jul Okt Jan-11 Apr Why Indonesia : Remarkable Indonesia Sound Economy: sustainable growth Indonesia economic indicators looks even better over time BI Rate (%) Consumer Price Inflation (%) Exchange Rate (Rp to USD, YEN (100), EURO) Total international reserves (US$ bn) 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6, EUR YJP (100) USD Des-06 Des-07 Des-08 Des-09 Des latest

10 천 Why Indonesia : Remarkable Indonesia Sound Economy: sustainable growth Recorded unemployment (av; %) E Reducing unemployment and poverty level are among the main targets of the Government of Indonesia Source: Bappenas The Realization of Manpower Absorption 574E 681E E

11 Why Indonesia : Remarkable Indonesia Investment Climate: the world embrace Indonesia s economic performance o International rating agencies like Moody's Investors Service has revised the outlook for Indonesia's foreign debt rating from Ba2 to Ba1, one level below 'investment grade'. o Citibank Analyst estimates that Moody's will conclude Indonesia as investment grade in second semester of o The Japan Credit Rating Agency, Ltd. (JCR) has raised Indonesia s rating to investment grade Indonesia s current position Investment grade 11

12 Why Indonesia : Remarkable Indonesia Investment Climate: the world embrace Indonesia s economic performance World Investment Prospects Survey the most attractive economies for the location of FDI No. Countries Ratings (Period of Year) China India Brazil USA Russia Mexico United Kingdoms Vietnam Indonesia Germany Thailand n/a Poland Australia France Malaysia n/a Japan n/a Canada Chile n/a South Afrika n/a Spain n/a 20 Indonesia was ranked 9 th as major destination for FDI. This result was based on UNCTAD survey whose respondents are executives of Transnational Corporations (TNC) from developed and/or developing countries. UNCTAD consists of 193 member economies or countries. Source: World Investment Prospects Survey , UNCTAD 12

13 Why Indonesia : Remarkable Indonesia Investment Climate: the world embrace Indonesia s economic performance World Economic Forum (WEF) Global Competitiveness Index (GCI) and Countries Ranking Swiss 1 1 USA 2 4 Singapore 3 3 Japan 8 6 Malaysia China Thailand Indonesia India Brazil Russia Vietnam Filipina o This year, GCI survey was followed by 133 countries. There are about 100 indicators used in the survey, which are reflected in the 12 pillars of competitiveness, namely: institutions, infrastructure, macroeconomic stability, health and basic education, higher education and training, goods market efficiency, labor market efficiency, market size, business efficiency, and innovation. o Indonesia's ranking in the GCI is still better than Brazil, Russia and India, with the exception of China, known as group of BRIC. Source: The Global Competitiveness Report , World Economic Forum Geneva, Switzerland

14 Why Indonesia : Remarkable Indonesia Investment Climate: the world embrace Indonesia s economic performance Indonesia is the best place for entrepreneurs to start a business Supporting New Businesses Index Indonesia USA Canada India Australia Russia Italy Turkey Egypt Colombia Mean Index, 2010 Source: BBC/Globescan The results come from a survey of more than 24,000 people across 24 countries. The poll was undertaken for the BBC World Service by the international survey firm Globescan together with the Program on International Policy Attitudes at the University of Maryland. Index derived from the mean scores (on a scale from 1 to 4) of four questions: valuation of creativity/innovation in own country difficult to start own business in country valuation of people who start own business ease of putting ideas into practice 14

15 Why Indonesia : Remarkable Indonesia Natural Resources: need more value added Coal Natural Gas Indonesia is a major player in the global coal market The world s second largest thermal coal exporting country, third largest exporter of steaming coal Production of around 275 million tonnnes of 2010 and 5,529 million tonnes proved reserves of coal Around trillion cubic feet of proven natural gas as at the end of 2010 and is the single largest holder of proven natural gas reserves in the Asia Pacific region Oil 4.23 billion barrels stock tank of proven oil reserves at the end of 2010 Renewable Energy Holds 40% of the world s geothermal resources, equivalent to 28.1GW of power generation potential Others Palm oil, cocoa, and other minerals Source: Ministry of Energy and Mineral Resources (MEMR), BP Statistical review of world energy 2011 The country is home to a biodiversity that is only second to Brazil, just to mention a few. These resources provide tremendous investment opportunities. Moreover, development potential is far from saturated, particularly in renewable energy. 15

16 Why Indonesia : Remarkable Indonesia Natural Resources: need more value added No Commodity Production Location World Rank 1 Crude Palm Oil 20.8 million tons (2010) Sumatera, Kalimantan, Sulawesi, Papua. 2 Tin 105 thousand metric tons (2009) Sumatera 3 Rubber 2.4 million tons (2010) Kalimantan 2 nd 1 st 2 nd 4 Cocoa 792 thousand tons (2008) Sulawesi, Sumatera, Java, Kalimantan, East Nusa Tenggara 5 Copper 868 thousand metric tons (2009) 6 Nickel 189 thousand metric tons (2009) Papua, Maluku, Nusa Tenggara Sulawesi, Sumatera, Maluku, Papua 7 Gold 105 metric tons (2009) Kalimantan, Sumatera, Maluku, Papua 2 nd 5 th 2 nd 7 th Source: BKPM, FAO, US Geological Survey,

17 Why Indonesia : Remarkable Indonesia Demographic: dynamic demographic base The Big 5 : Indonesia is the 4th most populous nation in the world. China 1,3 Bi India 1,2 Bi US 310 Mn Indonesia 242 Mn Brazil Of the 240 million people in Indonesia, over 60% of the population is under 39 years old, providing a dynamic workforce. Age 100+ Year 2010 Year 2030E Year 2050E Age 0 17

18 Why Indonesia : Remarkable Indonesia Workforce: at competitive advantages Labor cost, 2009 (USD per hour) 2.11 Source: EIU China India Indonesia Malaysia Philipines Thailand Minimum Regional Wages (Rp) Province NAD 1,300,000 1,350,000 North Sumatra 965,000 1,035,500 West Sumatra 950,000 1,055,000 Riau 1,016,000 1,120,000 Riau Island 925, ,000 Jambi 900,000 1,028,000 South Sumatra 927,830 1,048,440 Bangka Belitung 910,000 1,024,000 Bengkulu 780, ,000 Lampung 767, ,000 West Java 671, ,000 Banten 1,118,010 1,290,000 Jakarta (Special Region) 955,300 1,000,000 Central Java 660, ,000 Yogyakarta 745, ,000 East Java 630, ,000 Bali 829, ,000 West Nusa Tenggara 890, ,000 East Nusa Tenggara 800, ,000 West Kalimantan 741, ,500 South Kalimantan 1,024,500 1,126,000 Central Kalimantan 986,590 1,134,580 East Kalimantan 1,002,000 1,084,000 Maluku 840, ,000 Noth Maluku 847, ,000 Gorontalo 710, ,500 North Sulawesi 990,000 1,080,000 Southeast Sulawesi 860, ,000 Central Sulawesi 777, ,500 South Sulawesi 1,000,000 1,100,000 West Sulawesi 944,300 1,006,000 Papua 1,316,500 1,403,000 West Papua 1,210,000 1,410,000 Source: BPS,

19 Why Indonesia : Remarkable Indonesia Domestic Market: burgeoning domestic market With a population of 240 million people, Indonesia has a large domestic market to offer, over 50% of which lives in urban areas and adopt a modern lifestyle. A growing and affluent middle class supports GDP growth with more than 50% of GDP accounting for private consumption. These statistics fare well for many industries, including retail and consumer products, food processing, as well as automotive Source: Bank Indonesia, Bappenas, BPS industry. 19

20 Why Indonesia : Remarkable Indonesia Strategic Location: gateway to ASEAN market Moscow (11 hrs) New York (21 hrs) London Berlin (15 hrs) 15hrs 30mnt Dubai (8 hrs) New Delhi (8 hrs) Beijing (9hrs) Tokyo (7 hrs) Singapore (1hr 42 min) Ria De Janeiro (24hrs) Johannesburg (14 hrs) Jakarta Darwin (3hrs 20mnt) Sydney (6hrs 50mnt) Melbourne (6hrs 30mnt) Strategic Location and Expanding Global Influence Indonesia lies at the intersection of the Pacific Ocean, along the Malacca Straits and the Indian Ocean. Over half of all international shipping goes through Indonesian waters. 20

21 Investment Updates : reform and maintaining growth Investment Performance: overall investment realization Investment Realization *, US$ bn Sem * DDI FDI Investment Realization by origin country First Semester 2011 (US$ Billion) Others (US$ 4.5 B) 49% South Korea (US$ 0.3 B) 3.7% Netherland ( US$ 0.7 B) 7.9% Singapore (US$ 1.9 B) 20.8% US (US$ 0.9 B) 10.2% Japan ( US$ 0.7 B) 8.0% Source: BKPM Total Domestic and Foreign Direct investment realization in 2010 reached US$ 23.4 billion (IDR trillion) % increase from 2009 (US$ 15.2 billion or IDR trillion) % higher than target (US$ 17.9 billion or IDR trillion) Total Domestic and Foreign Direct investment realization in Q reached IDR 62.0 trillion (US$ 6.9 billion) For First Semester of 2011 period, total investment realization reached IDR trillion (US$12.9 billion) or 48.2 % from the target of IDR 240 trillion (US$ 26.9 billion) 21

22 Investment Updates : reform and maintaining growth Investment Performance: realization by sector (top 5), 1 st semester Foreign Direct Investment - FDI (US$. Billion) Domestic Direct Investment - FDI (US$. Billion) Others (US$ 3.1 B) 34% Mining (US$ 2.6 B) 28% Others (US$ 1.4B) 39% Food Industry (US$ 0.5 B) 14% Food Crops and Plantation (US$ 0.5B) 14% Food Crops and Plantation (US$ 0.7 B) 8% Basic Metal Industry, Metal Products, Machinery and Electronic Industry (US$ 0.8) 9% Transportation, Storage, and Telecommunicati on (US$ 1.1 B) 11% Basic Chemical and Pharmaceutical Industry (US$ 0.9 B) 10% Basic Metal Industry, Metal Products, Machinery and Electronic Industry (US$ 0.4B) 10% Non Metallic Mineral Industry (US$ 0.4B) 10% Transportation, Storage, and Telecommunicati on (US$ 0.5B) 13% Source: BKPM 22

23 Investment Updates : reform and maintaining growth Investment Performance: realization by location (top 5) 1 st semester Foreign Direct Investment - FDI (US$. Billion) Domestic Direct Investment - DDI (Rp. Billion) Others US$ 3.6B 39% South Sumatera US$0.5B 5% Banten US$ 0.8B 9% Papua US$0.8B 9% West Java US$ 2.0B 21% Jakarta Capital Teritory US$1.5B 17% Others US$ 1.5B 42% South Sulawesi US$ 0.2B 6% Central Kalimantan US$ 0.3B 7% West Java US$ 0.6B 16% Jakarta Capital Teritory US$0.6B 15% East Java US$0.5 B 14% Source: BKPM 23

24 Investment Updates : reform and maintaining growth Investment Performance: realization in Indonesia six corridor 1 st semester FDI in six corridors 60.0% Papua and Maluku: Rp.9,6 T (8,3%) Sulawesi: Rp.8,2 T (7,1%) Bali and Nusa Tenggara: Rp.5,6 T (4,8%) Java: Rp.58,9 T (50,9%) 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% US$.4,7 M US$.1,3 M US$.1,2 M US$.0,9 M US$.0,6 M US$.0,5 M Kalimantan: Rp.16,5 T (14,3%) DDI in six corridors 60.0% Rp. 16,9 T 50.0% 40.0% Sumatera: Rp.16,8 T (14,6%) 30.0% 20.0% 10.0% 0.0% Rp.5,8 T Rp. 4,9 T Rp. 3,6 T Rp. 1,4 T Jawa Sumatera Kalimantan Sulawesi Maluku dan Papua Rp. 0,3 T Bali dan Nusa Tenggara 24

25 Investment Updates : reform and maintaining growth South Korea Investment Performance: realization in Indonesia South Korea investment in Indonesia ranked #7 for period year with US$. 3.3B Canada Brazil Bahamas China France Swiss Germany Australia Sychelles Taiwan Malaysia Hongkong South Korea United States Netherland England Japan Mauritius Singapore 25

26 Investment Updates : reform and maintaining growth South Korea Investment Performance: realization by sector Year

27 Investment Updates : reform and maintaining growth South Korea Investment Performance: realization by location Year

28 III. INVESTMENT UPDATES: reform and maintaining growth 28

29 The Way Forward: within improvement, comes greater responsibility The Way Forward: stepping up the global influence Indonesia s positioning in Global Economy From 16 th (2010) to 8 th (2050) largest economy in the world with USD 6.2 trillion of GDP Will be the 5 th largest economies by decade (2030) with USD 9.3 trillion economy Under the National Long Term Development Plan , Indonesia will be the 12 th largest economy (2025) with USD trn of GDP and become the 8 th largest economy (2045) with USD trn of GDP 29

30 Investment Updates : reform and maintaining growth Target: BKPM Strategic Plan Investment Realization Target (Rp. Trillion) Total Investment Realization to achieved in : US$ Bn (Rp Trillion) * 2012* 2013* 2014* TOTAL ( ) FDI ,126.4 DDI TOTAL ,629.2 (US$ Billion) Assumption: US$ 1 = Rp 8,900,-) *) Target Source: BKPM 30

31 Investment Updates : reform and maintaining growth On going reforms in investment climate... PPP BKPM as front office and clearing house agent for PPP Projects Presidential Regulation No. 13/2010 : streamlining the tender process, participating foreign legal entities in tender process, and determination criteria for unsolicited projects. Presidential Regulation No 12 of 2011: BKPM participation on the Committee for the Acceleration of Infrastructure Provision. Presidential Regulation No. 78 of 2010: Government guarantee on PPP projects through BUPI has already established. Land Law: Streamlining land acqusition process for public facilities, expected to be issued in third quarter of 2011 PTSP on PPP projects: facilitation on license and non license of PPP projects will be conducted through the One Stop Service. The successful implementation of Coal Power Plant 2 x MW in Central Java could be a model for accelerating other PPP projects in Indonesia. 31

32 Investment Updates : reform and maintaining growth PPP on Infrastructure in Indonesia: Ready for Offer Projects No PROJECTS CONTRACTING AGENCY INVESTMENT ESTIMATION (US$ MILLION) 1 Central Java Coal Fired System Power Plant* PT. PLN 3, Soekarno Hatta Airport Manggarai Railway* Ministry of Transportation 1, Umbulan Water Supply * Provincial Government of East Java Source: BAPPENAS 4 Purukcahu Bangkuang Coal Railway* Provincial Government of Central Kalimantan 2, Jakarta Monorail* Provincial Government of DKI Jakarta Southern Banten Airport Provincial Government of Banten Expansion of Tanjung Priok Port, Kalibaru, DKI Jakarta Minister of Transportation 1, Tanah Ampo Cruise Terminal Ministry of Transportation Medan - Kuala Namu - Tebing Tinggi Toll Road* Ministry of Public Works Sunda Strait Bridge Ministry of Public Works 25, Bandar Lampung Municipal Water Supply, Lampung City Government of Bandar Lampung Jatiluhur Water Supply Ministry of Public Works Pondok Gede Water Supply City Government of Bekasi Surakarta water Supply, Bekasi, West Java City Government of Surakarta Southern Bali Water Treatment Facility Provincial Government of Bali Maros Water Supply Municipal Government of Maros Bandung Solid Waste Management City Government of Bandung Surakarta Solid Waste Management City Government of Surakarta *) already tendered Source: PPP Book

33 Investment Updates : reform and maintaining growth Indonesia Economic Corridors: masterplan Basically MP3EI is based on these strategic initiatives: 1. Encourage a large scale investment realization in 22 main economic activities 2. Synchronization of national action plan to revitalize the real sector performance 3. The development of center of excellence in 6 (six) economic corridors Main strategy of MP3EI: 1. Economic potential development through economic corridor 2. Strengthening the national connectivity 3. Strengthening national human resources capability and science and technology 33

34 Investment Updates : reform and maintaining growth Indonesia Economic Corridors: main potential Sumatera Corridor Central of Production and Manufacture of National Natural and Energy Resources" Kalimantan Corridor Central of Production and Manufacture of National Mining and Energy Resources" Sulawesi Corridor ' Central of Production and Manufacture of National Agriculture, Plantation, Fishery, and Nickel Mining'' Papua Maluku Corridor Central of Development of National Food, Fishery, Energy, and Mining Java Corridor Supporting the National Service and Industry" Bali - Nusa Tenggara Corridor ' Gate of Tourism and Supporting Provider of National Food and Agriculture'' Source: Coordinating Ministry for Economic Affairs,

35 Investment Updates : reform and maintaining growth Indonesia Economic Corridors: main economic activities Main Economic Activity Sumatera Java Kalimantan Sulawesi Bali Nusa Tenggara Papua Maluku Islands Steel Food and Beverages Textile Transportation Equipment Shipping Nickel Cooper Bauxite Palm oil Rubber Food agriculture Tourism ICT Coal Oil and Gas Jabodetabek Area Sunda Straits National Strategic Area Defence Equipment Animal Husbandry Timber Cocoa Fishery 35

36 Investment Updates : reform and maintaining growth On going reforms in investment climate... INVESTMENT LAW (UU No.25 Year 2007) Mandate equal treatment for foreign and domestic investors No minimum capital requirement, freedom to repatriate capital NEGATIVE INVESTMENT LIST (Presidential Regulation No.36 Year 2010) The regulation come into force as of May 2010 The Negative Investment List is reviewed every year 44 business sectors are more open for investors INVESTMENT FACILITIES Simplification of business start up and licensing procedures, including the one-stop shop licensing provision at the Investment Coordinating Board (BKPM) Launching of the National Single Windows for Investment Establishing an Investor Relation Unit at the Investment Coordinating Board for information facilitation and queries handling from existing and potential investors. Implementing a regional champion program to help select local governments accelerate investments in their respective regions 36

37 Investment Updates : reform and maintaining growth On going reforms in investment climate... TAX REFORMS An acceleration of the VAT refund system for exporters Establishment of a complaint management system and a code of conduct for tax officials TAX INCENTIVES Revision of Government Regulation No.62 year 2008, regarding Income Tax facilities is currently being finalized. Incentives granting mechanism should be simplified and is expected to support the One Stop Investment Service. Government of Indonesia recently launch tax incentive scheme, which offers corporate income tax exemption for a period ranging from 5 to 10 years after a company or project begins commercial production. Following this period, the tax facility could offer an additional 50% (fifty percent) corporate income tax reduction for 2 (two) years after the tax holiday period. 37

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