We wrote a blog just after President Jokowi won the last election, to look at what was being touted as Indonesia’s Golden Age. It was an upbeat piece, full of hope and optimism, and now as we’re approaching Indonesia’s 77th birthday, and the year the country holds the presidency of the G20, it seems like a good time to see how things have actually been working out and whether Indonesia really is in a Golden Age.
Many unforeseen global events have happened since that first blog though; pandemics, lockdowns, war, climate catastrophe, soaring inflation, political controversy, riots, and a shift in the world order, you know, all of the stuff that feeds the fear. But we don’t think it’s all been doom and gloom. Here’s why we think Indonesia’s glass is half full and the region’s economic tiger is finally awake and doing business.
World Bank: State Revenue
Recent World Bank reports have an overall positive outlook for Indonesia. They explain that Indonesia’s economic planning follows a 20-year development plan; the last phase, which ends in 2025, aims to further strengthen the economy by improving the country’s human capital and competitiveness in the global market. In addition, Fitch Ratings has assigned Indonesia’s proposed US-dollar sovereign global certificates (sukuk), a ‘BBB’ rating, further strengthening investment confidence, opportunities and the ease of doing business.
The government announced a 45.6-percent increase (Year-on-Year) in state revenue in the first four months of 2022, totalling IDR 853.6-trillion, which is almost 46-percent of the targeted revenue for the year. Finance Minister Sri Mulyani Indrawati said “the growth is remarkable.” According to government data, tax revenues surged by 51.5-percent to IDR 567.7-trillion; income from excise and import duties rose by 37.7-percent to IDR 108.4-trillion, and non-tax revenues saw a 35-percent rise to IDR 177.4-trillion.
BKPM: Record High Investments
The Omnibus Law, also known as the Job Creation Law, aims to create more jobs and raise foreign and domestic investments by reducing regulatory requirements for businesses. This is supported by the Online Single Submission (OSS), system, introduced to cut red tape and speed up the licensing process, which are now all centralized under the Investment Coordinating Board (BKPM.)
BKPM recently announced Foreign Direct Investment (FDI) reached IDR 163.2-trillion in Q2, 2022, which is an almost 40-percent Year-on-Year increase and more than a 30-percent increase on Q1, 2022.
According to the Jakarta Globe, Domestic Direct Investment (DDI) “also increased, albeit at a slower pace of 30.9-percent, to IDR 139-trillion from the same period last year. In total, BKPM recorded IDR 302.2-trillion of investment in the second quarter, up 35.5-percent from IDR 223-trillion last year. BKPM data exclude investments in oil and gas, finance and banking, home industries, or small and medium enterprises.”
In the first half of 2022, the total amount of investment reached IDR 584.6-trillion, which is almost USD 40-billion and almost half of the total target set for 2022.
Arguably one of the most significant recent bi-lateral agreements is the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which has now been officially ratified by both countries and presents great opportunities for both Australian and Indonesian businesses.
Four more bilateral agreements were signed between Indonesia and Switzerland as well as an agreement between Indonesia and the UK on the side-lines of the recent World Economic Forum (WEF) meeting in Davos, according to The Ministry of Foreign Affairs.
In July, local news wires reported the start of closer collaboration between Indonesia and Vietnam in developing electric vehicles (EVs) and on a bilateral cooperation between Indonesia and the United Arab Emirates related to the pharmaceutical and medical device industries.
There has also been the Indonesia-United Arab Emirates Comprehensive Economic Partnership Agreement (IUAE-CEPA), which Antara News suggest is being fast-tracked to be ratified as quickly as possible. The value of Indonesia’s exports to the UAE reached USD 1.9-billion (IDR 28.56-trillion) in 2021, an increase of 52.15-percent compared to 2020.
Sovereign Wealth Fund
Nikkei Asia are reporting that China’s Silk Road Fund (SRF) has committed to invest USD 3-billion into Indonesia through Indonesia’s Sovereign Wealth Fund, which has been designed to attract foreign firms as co-investors and channel funds in to strategic projects across the country. A second round of financing has just been announced following the realization of the initial tranche of USD 15-billion. The Edge Markets are claiming President Jokowi “is planning to raise his target … to as much as USD 100-billion. Southeast Asia’s largest economy is betting on big-ticket projects to drive a turnaround in the economy.”
The Future is Electric
In June, local press were excited by a recent visit by President Jokowi to attend the ASEAN-US Special Summit in Washington DC where he met with prominent business leaders to promote Indonesia’s enormous potential for investment in industrial raw materials, green energy, and the digital economy.
He spent time with Elon Musk at the Space X rocket production plant, who expressed his interest in the positive energy surrounding Indonesia’s future, saying “I think Indonesia has great potential, and I think we through Tesla and Space X will try some collaborations with Indonesia.” It’s worth remembering that Indonesia is one of the world’s largest producers of nickel, a core component of the stainless steel and lithium-ion battery cells essential for the Electric Vehicle (EV) industry. Toyota, Hyundai, Volkswagen and Mitsubishi are already developing EV facilities and products here, while Reuters report that Nickel miner Vale Indonesia, China’s Zhejiang Huayou Cobalt and Ford Motor company signed a non-binding memorandum of cooperation to build a plant in Indonesia to extract nickel chemicals.
Booming Digital Economy
Indonesia is currently the fifth largest country in the world for start-ups, with 2,346, including 2-decacorns and 8-unicorns. According to Jokowi, Southeast Asia’s digital economy is expected to reach USD 330-billion in value by 2025 and is forecast to enjoy a 20-percent annual growth, and will likely reach USD 146-billion by the same year.
Bank Indonesia BI is currently working on developing the Central Bank Digital Currency (CBDC), which will be called the “Digital Rupiah,” to provide the public financial sovereignty, support the central bank’s mandate regarding the digital economy sector, as well as increase financial innovation and efficiency.
Indonesia is also positioning itself as an international peacekeeper with recent visits to Russia and Ukraine, indicating Jokowi is adopting a neutral geo-political position on the world stage. This is a strong sign of political stability and will also encourage investor confidence.
These are exciting times for those who believe in Indonesia’s future. At Seven Stones Indonesia, we do and we believe in the power of a positive and creative mindset. We try to help businesses grow; we encourage investment and are forging relationships with like-minded organisations and we encourage you to do the same. If you’d like to learn more get in touch with us at Seven Stones Indonesia through email@example.com
Sources: Antara News, The World Bank, Nikkei Asia, The Edge Markets, Jakarta Globe, BKPM, Bank Indonesia
This blog was first published in Indonesia Expat.