INDONESIA INVESTMENT HIGHLIGHT 2016

INDONESIA INVESTMENT HIGHLIGHT 2016. At the end of 2015, there are two important events in the world, especially Southeast Asia regian region. First, the US central bank, the Federal Reserve announced a rate hike for the first time in more than nine years (since 2006). The increase was an important step that signifies the United States eventually move out of the crisis of 2008. Second, the start of the Asean Economic Community. And Indonesia certainly affected from these two events.

However, the positive sentiment began to envelop and there are positive indications related to Indonesia’s economic recovery after the slowdown in 2015.

Indonesia is Southeast Asia’s largest economy with 252 million people, and GDP growth above 4,7% in 2015* and projected to remain above 5% for the next five years. During the difficult global conditions of 2015, Indonesia’s economy was among the top worldwide performers, due to a number of factors, including strong domestic demand and rich natural resources. Solid macroeconomic fundamentals, a stable currency and recent upgrades in bond ratings have made in Indonesia an economy to watch in the coming decade.

1. The consumer market continues to lead growth in the world’s fourth-largest country with 252 million citizens, 50% of whom are under the age of 30.

2. GDP per capita of $3,500 exceeds many of its ASEAN neighbors such the Philippines and Vietnam.

3. Indonesia is a thriving democracy with significant regional autonomy. It is located on the world’s major trade routes and has extensive natural resources spread over an area the size of the United States and comprising over 17,000 islands.

4. It is a top-ten market for U.S. agricultural products and within the top 30 overall markets for U.S. exports.

5. The number of households in Indonesia with US$5,000 to US$15,000 in annual disposable income is expected to expand from 36% of the population to more than 58% by 2020.

6. More than 60 million low-income Indonesian workers are projected to join the middle class in the coming decade, significantly increasing the already strong consumer demand.

Market Challenges
a. The business environment in Indonesia is challenging, currently ranked 128 out of 183 for Ease of Doing Business by the World Bank. U.S firms often find it complex and time consuming to enter the market and to negotiate through the regulatory and industrial landscape.

b. Indonesian infrastructure and service networks have not been developed or maintained in accordance with the booming consumer led economy, causing multiple transaction costs and inefficiencies that hamper exporters and investors.

c. Deregulation has successfully reduced some barriers by creating more transparent trade and investment regimes, but the bureaucracy can still be cumbersome. Laws are often opaque or conflicting and some Ministries may have very different regulations regarding similar actions.

d. Although measures have been undertaken by the Indonesian government, Corruption is still active at all levels of society, and is a concern for many businesses looking to operate within Indonesia. Companies are suggested to have a solid due diligence process in place and to consult with local partners prior to signing up agents and distributors.

e. Although improving, significant rule-of-law issues persist. Dispute settlement mechanisms are not highly developed and business and regulatory disputes.

f. Competition from companies from Singapore, China, Japan, Malaysia, Korea, and other regional players is intense.

Market Entry Strategy
1. Foreign Investors must visit the Indonesian market in order to properly choose an appropriate agent or distributor. Appointment of a representative requires care, since it is difficult to get out of a bad relationship. Patience and presence are key success factors.

2. Key factors affecting purchasing decisions in Indonesia are pricing, financing, technical skills, and after-sales service. Firms should be prepared to invest capital and manpower into making their local representative a first-class service provider.

3. Indonesian non-financial firms obtain nearly 50% of their financing from abroad via loans, bonds, and other credit thus Indonesian exports often depend on trade financing. ExIm Bank, OPIC and SBA are all suitable providers of export-related trade financing.

4. Although it may be possible in some cases to sell directly to the government or state-owned companies, local services of agents, local offices or distributors are often critical to successful project development and to assure timely delivery, installation and follow up service needs. Most government procurement decisions favor proven providers or assurance of service based on long-established relationships.(*/sources: duniaindustri.com compile data)

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