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Indonesia: Eastern promise | Business Gulf News

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Jokowi visit

His Highness Sheikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces of the United Arab Emirates, and Joko Widodo, President of Indonesia, present the energy award to Electricians Without Borders during Abu Dhabi Sustainability Week held on January 13. this year
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Corporate tax cuts, new business incentives and special economic zones are part of a series of reforms aimed at attracting new investment to Indonesia as the country prepares to take its place among the top ten economies of the world by 2030

Amid the lush green rice fields of the north coast of Central Javas is the integrated industrial area of ​​Batang. According to President Joko Jokowi Widodo, the Special Economic Zone is one of many that has brought billions of dollars in investment to Indonesia. Visiting the 4,368 hectare plant in June, he announced an influx of $ 850 million (3.11 billion dirhams) as seven foreign companies, including LG and Panasonic, confirmed their intention to relocate production facilities. in the Asian archipelago, many of them in Batang. About 30,000 new jobs come with the investment, according to the country’s Investment Coordination Council (BKPM).

Although Batang Park takes up to two years to develop, Widodo told the event that 17 other multinationals are close to 100% commitment. These companies are expected to create 12,000 additional jobs and a total foreign investment of $ 37.8 billion in Batang and 26 new industrial parks, according to data from the BKPM. The new activity is attributed to a special task force aimed at companies seeking to diversify their supply chains following recent events such as the coronavirus pandemic and the trade war between China and the United States. U.S. lighting manufacturer Alpan is reportedly moving from Xiamen, China to Kendal, also in Central Java, due to a new 25% import tariff on products from China, the Jakarta Post. On the other hand, LG wants to build a regional hub in Indonesia to serve its Australasian markets, with half of all business activity in Asia now taking place in the region, according to management consultant McKinsey’s estimates.

Batang Fields

Batang Integrated Industrial Estate sits in the middle of green paddy fields in Batang, Central Java in Indonesia
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Widodo has promised to roll out the red carpet for investors with cheaper land prices and faster processing times. If there is a difficulty with the permit processing, I have ordered the director of BKPM to take care of it, from A to Z, so that investors can feel taken care of, he said. If other countries ask for 1 million land, we can offer it for 500,000, the Nikkei Asian Review said on the tour. Likewise, if other countries offer business permits within a week, he said Indonesia should be able to grant them within a day or two. FDI currently accounts for 30 percent of Indonesia’s gross domestic product (GDP), just behind household spending.

The new business parks are part of a broader strategy to improve the business climate in Southeast Asia’s largest economy while improving employment prospects across the country. In February, the Widodos government introduced a 1,028-page pro-business omnibus bill that aims to attract foreign funds by revising 79 laws and over 1,200 articles. The bill would aim to simplify regulations, make it easier to acquire land and ensure greater flexibility in the labor market, although critics say it will hamper workers’ rights and labor protection. ‘environment.

The country currently ranks 73rd on the World Bank’s Ease of Doing Business Index; Widodo wants to bring that figure to 40 by the end of this year, which he reiterated in a nationwide speech ahead of the country’s 75th independence anniversary on August 17. In April, the government accelerated planned corporate tax reforms to help businesses hit by the effects of the coronavirus. He cut the corporate tax rate to 22% from 25% this year to 20% in 2022, a year earlier than expected.

Meanwhile, BKPM data shows that the investment made created 263,109 jobs between April and June, up 3% from the same period last year.

Fight the coronavirus

However, like all other countries, Indonesia must first combat the effects of the pandemic. The country signaled its first economic contraction in more than two decades this month. Second-quarter GDP fell 5.32 percent from last year, but the government expects a significant rebound in the third quarter. Finance Minister Sri Mulyani Indrawati expects economy to grow 0.5 percent in third quarter, revised GDP forecast for the year to shrink 1.1 percent range at 0.2 percent growth.

Nonetheless, Indonesia balances favorable medium-term growth prospects and a low public debt-to-GDP ratio against a high reliance on external financing and low public revenues, rating agency Fitch Ratings told Beginning of the month. Fitch forecasts a rebound to 6.6% growth in 2021, in part due to a weak base effect, and expects growth momentum to continue at 5.5% in 2022, supported in part by governments renewed on infrastructure development, he said in a statement. declaration. In contrast, pre-pandemic GDP growth was 5% in 2019.

The figures are in line with government estimates: the Widodos 2021 budget assumes GDP growth of 4.5% to 5.5% next year.

Investors should therefore take a long-term view, says Vijay Valecha, chief investment officer at Century Financial, a Dubai-based investment and research adviser. Having doubled its GDP in the last decade, Indonesia is now a trillion dollar economy. Despite the challenges associated with Covid-19, it is fair to expect Indonesia to double its GDP again over the next decade as it grows from a weak base, he said. told GN Focus. The Covid 19 Black Swan event made businesses aware of the need for a diverse supply chain. Indonesia is expected to be one of the main beneficiaries of this trend, which is expected to accelerate over the next decade.

According to most accounts, Indonesia is expected to become one of the world’s top 10 economies by the end of this decade, rising to fifth place with a GDP of $ 5.4 trillion (power parity of purchase, PPA) by 2030, according to the PWCs. Report on the world in 2050. By 2050, the consulting firm predicts that demographics and productivity will propel the country to become the world’s fourth-largest economy by 2050.

Although the figures are from before the coronavirus pandemic, they correspond to the broader realities of the market. As the Chinese population ages and real labor costs rise, we are likely to see global multinationals shifting some of their offshore jobs from China to other relatively cheaper economies, such as Vietnam. , Bangladesh and Indonesia, says the PWC report.

In other words, the coronavirus and the tariff wars between the United States and China may well have simply accelerated an inevitable change in the supply chain to markets such as Indonesia. Widodos 27 business parks may not be enough for Indonesia.

Rising Sun: Main Investment Sectors in Indonesia

The relocation of Indonesia’s new capital of Jakarta to East Kalimantan Province on the island of Borneo will cost around $ 34 billion, of which more than 80% will be funded through public-private partnerships and direct private sector investment. Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan has agreed to personally head a committee to oversee the construction of the new capital.

Indonesia’s National Medium Term Development Plan (RPJMN) 2020-2024 prioritizes the development of sustainable infrastructure with the aim of building an integrated industrial network to improve logistics, citizen mobility and distribution of goods and services. Better connectivity is crucial on the 17,000 islands of the archipelagos. The plan specifically targets opportunities for foreign investors in the sector.

In a state-of-the-nation televised address last week, Widodo pledged to improve the health sector by accelerating fundamental reforms in the wake of the coronavirus pandemic. As of 2017, changes to the country’s negative investment list give foreign investors greater stake in sub-sectors such as hospitals, specialist clinics and medical equipment. Currently, some 1.2 million Indonesians spend around $ 2 billion on health care abroad each year.

Although Saudi Arabia accounts for nearly 50 percent of Indonesia’s crude oil imports, the UAE and other countries have recently invested in the sector. Abu Dhabi’s national oil company and Indonesian state-owned company Pertamina recently entered into a memorandum of understanding to develop refining facilities, while Mubadala has been involved in oil and gas production activities in Indonesia since 2004. .

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