Indonesia Investment Landscape:

Progress and Outlook

Thomas Trikasih Lembong Trade, Tourism, Investment Seminar on TEI 2019

Jakarta, October 17th 2019
Chairman of BKPM
Why Indonesia?

$1 trillion
GDP
Indonesia’s EODB ranking
has improved significantly
over the last 5 years
Sovereign credit rating
GDP of more continues to trend
than $1 trillion higher
(Nominal)

4th most prospective

investment
destination
Population of 260 2nd most biodiverse
million, country in the world,
with 44% under 25 which helps the tourism
sector
5th highest number
of internet users
globally
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Indonesia has a big economy and many opportunities..

Top-20 United States $20.494

GDP Current Prices China $13.407
in 2018 Japan $4.972
(USD billion) Germany $4.000
France $2.829
United Kingdom $2.775
WHERE
India $2.717
ON EARTH
Italy $2.072
Brazil $1.868
Canada $1.711
Russia $1.631 The largest economy
Korea $1.619 in SE Asia &
member of G20
Spain $1.426
Australia $1.418
Mexico $1.223
Indonesia $1.022 16th largest economy
Netherlands $913
Saudi Arabia $782
Turkey $766
Switzerland $704
GDP: Gross Domestic Products
Source: IMF, 2019
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..and is now fully rated as investment grade country

Rating Agency Ratings Upgrade Update

S&P BBB May 31, 2019
Moody’s Baa2 April 13, 2018
Fitch BBB March 14, 2019
JCRA BBB April 26, 2019
R&I BBB April 26, 2019

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Indonesia Economic Growth: The New Normal?

Indonesia economic growth has remained at about 5 percent since 2014, down from more than 6 percent previously. This slowdown
in growth can be traced to the end of the commodity boom, which has weighed on Indonesia’s key exports (including coal, palm
oil, base metals, natural gas, crude oil, and rubber), while indirectly affecting investment and government spending. Initially, some
analysts saw the slowdown as temporary, being either a cyclical phenomenon or otherwise easily corrected by minor policy tweaks.

Source: Lowy Institute

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 Indonesia’s economy is expected to shift towards service sector

Total GDP by Sector: Historical and Forecast

in % contribution
Resources Manufacturing Service Sector GDP
driven driven driven CAGR
(2015-2030)

Other services 14,1 17,8 19,3

Transport, storage and communications 27,5 11.9
5,0
5,4
8,9
Trade, retail, hospitality 18,6
19,7 10,0 10.1
17,0
Construction 4,8
5,0 18,3 9.8
Manufacturing industry 12,4 9,8
25,2 10,2 9.6
21,7
Primary sector 16,3 7.2
45,1
27,0 23,3 17,7 7.3
Service industry
1980 2000 2015 2030 (E)

Source: World Bank, Reserve Bank of Australia, United Nations, Indonesia Statistical Agency (BPS), A.T. Kearney
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 Since 2015, 16 economic policy packages have been introduced to attract
more investment

 

  
Predictable Tax incentives for Shorter Easier visa and work
regional minimum Negative list
wages labor intensive dwelling times permits processing
of investment
industries reform


Transport industry

Improvements to
 
Lower electricity

incentives rates for Property
infrastructure and 3-hour licensing
electricity grids industries incentives

 EODB  e- commerce Logistics OSS

Land Improvements Affordable housing Incentives for e- INSW and Online Single
aquisition in Ease of commerce lower logistics Submission
acceleration Doing Business Industry costs

Sources: Ministry of Economic Affairs, 2018

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 Online Single Submission (OSS), an integrated online system with data sharing

A. NEW INVESTOR Monitoring

(New Registration)
B. EXISTING INVESTOR
(Re-registration)
National
TASKFORCE

Company OSS

www.oss.go.id
Obtaining Investment Ministry
TASKFORCE
Licenses and Permits

 Single Business Number Provincial/

 Business License Municipality
TASKFORCE
 Commercial/Operational
Individual License
Promising sector: lifestyle industry

Indonesia Middle Class Spending

(USD Billion)
growth

+564.7%
The shift:
+165.8% from goods-based to leisure consumption
+303.8%

+159.1%

+200.0% Consumer From goods to Travel to relieve

lifestyle experiences stress
+130.8%

+136.4%

+137.5%

+166.7% More economical

E-travel effect
tourism

+225.0%
Source: Canback Global Income Distribution database; Indonesia Central Bureau of Statistics, Mckinsey Consumer and Shopper Insight Indonesia Study, 2011,
Mckinsey Global Growth Model; Mckinsey Global Institute analysis
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Supported by booming consumer class

Indonesia Population, 2030 in 5-6% 2030 in 7% of

2010 2020
in millions of GDP scenario GDP scenario

280 280
265
240

+120
+90
+40

Source: Mckinsey Global Institute

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Tourism sector also shows promise

• Travel & tourism industry grows 50% faster than global GDP growth
• International tourist arrivals grew by 7% in 2017

“We believe in the next 6.4% pa 3.1% pa

twenty years, one of
every four new jobs will
be in the tourism sector”

President Joko Widodo

Contribution Travel & Contribution Travel &

Tourism to Indonesia GDP Tourism to Employment
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Investment in Indonesia’s digital economy continues to grow rapidly

• The highest number of unicorns in SE Asia • The digital economy is expected to reach
USD 150 billion by 2025

6x
USD
24.7mil
growth in the 5.6bil people
number of digital value of e- purchasing via e-
finance apps commerce commerce in
since 2010 markets in 2016 2016

• Massive “tech savvy” population • Regional hub for investment from

venture capitalists
143 million 106 million
active social media
internet users users

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 Our startups are proven to attract considerable amounts of investment

Company Latest Funding

Valuation Note
Round
Investment from Softbank &
US$ 3billion (2018) US$ 11billion Didi Chuxing

Tencent is the largest

US$ 1.5billion (2018) US$ 4 billion investor

Alibaba is the largest

US$ 1billion (2018) US$ 7billion investor

US$ 0.5billion (2017) US$ 2 billion

Investment from ANT
US$ 0.1billion (2019) US$ 0.75billion Financial

Indonesian 4th unicorn, after

US$ 50million (2019) US$ 1 billion Gojek, Tokopedia and
Traveloka

Investment from East

US$ 27.5million (2018) Ventures, LINE

US$ 30million (2018)

Source: Bisnis Indonesia, Fintechnews.sg, Reuters
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Tourism focus on developing 10 new Bali’s – Target of 20 million foreign
tourists in 2019

1 9

2
8
4
3 5 6 10
7

Lake Toba Tanjung Kelayang Tanjung Lesung Kepulauan Seribu Borobudur

Mount Bromo Mandalika Labuan Bajo Morotai Islands Wakatobi

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Human capital investment is key

Indonesia still needs to continuously and consistently improve its human capital

Indonesia’s HDI 2013-2017

Comparison of HDI 2017

Singapore 0.932
0.694
0.691 Brunei Drslm 0.853
0.689
0.686
0.682 Malaysia 0.802
Turkey 0.791
Mexico 0.774
2013 2014 2015 2016 2017 Brazil 0.759
Thailand 0.755
China 0.752
Indonesia’s HDI 2017
Philippines 0.699
12.8 8.0 South Africa 0.699
E x p e c t e d y e a r s of Me a n years of Indonesia 0.694
schooling schooling
Vietnam 0.694

69.4 10.846* India

Cambodia
0.640
0.578
Life expectancy GNI p e r C a p i t a
* In t h o u s a n d
at birth Myanmar 0.582
Source: UNDP, 2019

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 Rising need for vocational schools: preparing Indonesia’s future workforce

Where are vocational

Revitalization graduates needed?
of Vocational
Education

Food and Energy Tourism and Maritime

Univ. graduates 5.4% agriculture creative
industry
of educational
do not match institutes are
industries’ needs vocational, compared
to 50% in developed
countries
What can industry do?
Regulation
Establishment of
Presidential
Instruction No. 9/2016
on revitalization of Develop Arrange Provide Provide
vocational schools
vocational the joint- lecturers internships
education curriculum

Source: Ministry of Research, Technology, and Higher Education, 2017

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With energy imports pushing trade balance deficits, Indonesia needs to boost
exports

17
Development of Banten-Jakarta-West Java corridor to boost exports

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 THANK YOU

Indonesia Investment Promotion Centre (IIPC)

Badan Koordinasi Penanaman Modal (BKPM)

Indonesia Investment Coordinating Board
Jalan Jenderal Gatot Subroto No. 44
Jakarta 12190 - Indonesia
t +62 21 525 2008 | f +62 21 525 4945 | e info@bkpm.go.id

bkpm.go.id | investindonesia.go.id
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Top 10 investors in Indonesia (2014- 2019 S1)
by country, excluding upstream oil & gas, and financial sectors

In USD Million

Rank Country 2014 2015 2016 2017 2018 S1 2019 Total

1 Singapore 5,832.1 5,901.2 9,178.7 8,441.6 9,193.2 3,431.7 41,978.5

2 Japan 2,705.1 2,877.0 5,400.9 4,996.2 4,952.8 2,358.7 23,290.7

3 China 800.0 628.3 2,665.3 3,361.2 2,376.5 2,289.9 12,121.3

4 Malaysia 1,776.3 3,077.0 1,115.6 1,213.6 1,774.9 1,046.9 10,004.2

5 Hong Kong, China 657.3 937.2 2,248.3 2,116.5 2,011.4 1,312.8 9,283.5

6 Netherlands 1,726.3 1,307.8 1,475.2 1,489.4 943.1 738.5 7,680.4

7 South Korea 1,126.6 1,213.5 1,065.8 2,024.6 1,604.7 544.4 7,579.6

8 United States 1,299.5 893.2 1,161.9 1,992.8 1,217.6 631.7 7,196.8

9 British Virgin Islands 624.0 730.5 1,157.3 844.8 1,043.3 385.4 4,785.3

10 United Kingdom 1,588.0 503.2 307.3 774.8 271.1 65.3 3,509.6

Total Top-10 18.135,3 18.068,8 25.776,2 27.255,6 25,388.7 6,491.5 127,429.8

Total (145 countries) 28,529.7 29,275.9 28,964.1 32,239.7 29,307.9 14,186.9 162,504.3

Source: BKPM, July 2019

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Five common challenges faced by investors in Indonesia

1 2 3 4 5

Tax & Land Skilled labor & Public
Regulation foreign worker
Incentives Acquisition Infrastructure

Issues: Issues: Issues: Issues: Issues:

•Uncertainty •Complicated •Long time to acquire •Limited skilled labor •Slow dwelling time
•Complicated •Fiscal incentive not land •Complicated procedure •Lack of infrastructure
•Lack of coordination attractive •Speculative rising price to obtain Foreign
of land Worker Permit

Government Efforts: Government Efforts: Government Efforts: Government Efforts: Government Efforts:
•Accelerated doing •Tax data integration •Spatial plans •Incentives for industry •Implemented “post-
business (Presidential system to improve data (Government that support vocational border” system for
Regulation No. 91 Year transparency Regulation No. 13 year and training program certain restricted goods
2017). •Revised tax incentives 2017 •Ease of foreign worker •alternative financing
regulation for more •The Ministry of Industry permit (Gov. Regulation for infrastructure i.e.
•Single submission wide range of business to set a price ceiling for No. 20/2018) PINA (Non State Budget
system sectors. industrial land Financing)
•New Tax Holiday
mechanism

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 Where to invest? 11 Special Economic Zones (SEZ)

Fiscal incentives in SEZ are regulated under

Arun Lhoksemawe
Petrochemical, Logistics, Oil & Gas
Food & Paper Manufacture
Sei Mangkei
Palm Oil & Rubber
Industry, Fertilizer,
Logistics, Tourism
Tanjung Api-api
Kelayang
Palm Oil, Rubber,
Petrochemical Industries
Minister of Finance Regulation No. 104/PMK.010/2016):
Bitung
Morotai
Fishery, Coconut Oil &
Tourism, Fishery
Herbal Pharmacies
Industry, Manufacturing & Logistics
Industries, Logistics
Sorong
Maloy Batuta Shipyard, Fishery &
Palu
Palm Oil, Coal and Tourism
Manufacture, Agro
Tourism Mining
(Rubber, Cacao, Seaweed,
& Rattan) Nickel & Ore
Industry, Logistics

Tanjung Lesung
Tourism Mandalika
Tourism

Tax Incentives: Facilities:

• Income tax reduction ranging from 20% to • Property ownership and residence permits for foreigners
100% for maximum 25 years • Integration of investment, land, immigration and work
• Free VAT for import on raw materials licensing in SEZ

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