Indonesia Investment Climate Development What’s Next for Indonesia? Deputy Chairman for Investment Climate Development

Indonesia Investment Coordinating Board (BKPM)

Euromoney Conferences Grand Hyatt Jakarta, 26 November 2014 © 2013 by Indonesian Investment Coordinating Board. All rights reserved

Contents 1

Investment Overview

2

Indonesia Competitiveness

3

Investment Policies

The Investment Coordinating Board of the Republic of Indonesia

2

1

Investment Overview

Investment Projection (FDI + DDI)

Investment Strategic Planning 2015 -2019 Working Cabinet (2015 - 2019)

Share Average FDI : 69,2% DDI : 30,8% Growth Average 28%

Share Average FDI : 63,7% DDI : 36,3% Growth Average 15,4%

Investment Realization (Rp Trillion)

2nd United Indonesia Cabinet (2010-2014)

1000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0

Target of Investment Realization

Increasing 17,7%

933,0 Increasing 16,7% Increasing 14,1% Increasing 14,5% 678,8 Increasing 14,6% Increasing 27.3% Increasing 24.7% 398.6*) Increasing 21.6% 313.2*) Increasing 51.9%

PMA FDI DDI PMDN

206.6*) 70,6%

251.3*)

69,8%

67,8%

Increasing 13,8%

456,6**)

792,5

594,8

61,1%

519,5

62,4% 63,7% 65,0%

67,3%

66,2%

70,6% 36,3%

37,6%

38,9%

30,2%

29,4%

32,7%

33,8%

29,4%

32,2%

35,0%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

145.9

175.3

221.0

270.4

307.4

343.7

386.4

432.5

494.7

569.9

60.6

76.0

92.2

128.2

149.2

175.8

208.4

246.3

297.8

363.0

Note: -2005-2012, the currency rate US$1 = Rp 9,000 -2013 (Q I and Q II), the currency rate US$1 = Rp 9,300 (based on State Budget 2013) -2013 (Q III and Q IV), the currency rate US$1 = Rp 9,600 (based on State Budget 2013) *) Realization **) Revised 2014 Investment Target The Investment Coordinating Board of the Republic of Indonesia 4

Why Indonesia?

Growing Middle Class: Higher Demands for Better Services and Products GDP Size

USD 916 Bi

GDP percapita

USD 3,562.6

Land Area

1,904,443 sq km

Sea Area

3,116,163 sq km

Total Area

5,020,606 sq km

Coastal Line

81,000 km

Population 252.1 Million people (4th biggest population) Number of population in middle income

(per capita expenditure per day $2-20)

Proportion of the population based on per capita expenditure per day

 Sources: Bank Indonesia & BPS-Statistics Indonesia, 2012 (projection) Note: Per capita expenditure per day is adjusted to the 2005 purchasing power parity terms. The Investment Coordinating Board of the Republic of Indonesia Source: SUSENAS and World Bank staff calculations.

18.0% = 40 million people more than the total population of Malaysia and Singapore combined. 5

Investment Realization

Progress Quarter III2014

Quarter III 2014

q-o-q

y-o-y

DDI

24.2%

8.9%

FDI

16.9%

0.3%

Total

19.3%

3.2%

Jan - Sept 2014

y-o-y

Investment Realization in Indonesia

DDI

21.6%

Based on Capital Expenditure (IDR Trillion)

FDI

14.6%

Total

16.8%

Excl. oil, gas, and financial sectors Exchange rate of USD1 = IDR10,500 based on State Budget 2014

Reached

The Investment Coordinating Board of the Republic of Indonesia

Source: BKPM, 2014

6

Sustainable

Investment Growth

USD

35.7 billion Total investment realization From Jan – Sept 2014 (IDR 342,7 trillion), 75.1 % achievement of the 2014 target (IDR 456.6 trillion)

42.2 34.8

32.6 27.9

Compare to Jan – Sept 2013 (IDR 293.3 triliun)

28.6

23.4

16.8% increase

24.6

21.7

19.5 16.6

FDI

6.8

8.4

2010

2011

10.2

13.6

10.9

Jan – Sept 2014

14.6

% increase Compare to Jan – Sept 2013

66.6 % share

of total investment realization

2012

2013

Jan-Sept 2014

Investment Realization in Indonesia Based on Capital Expenditure (USD Billion) Excl. oil, gas, and financial sectors Asumption: For 2014 Realization, USD1 = IDR 10,500 based on State Budget 2014

DDI Jan – Sept 2014

21.6

% increase Compare to Jan – Sept 2013

33.4 % share

of total investment realization

The Investment Coordinating Board of the Republic of Indonesia

Source: BKPM, 2014

7

47% of FDI flowed to secondary sectors in

6000

Januari –September 2014,

4000

whileminingstillgot thebiggestshare

3000

5000

2000

FDI Realization in Indonesia by Sector Top-10 Sectors Based on Capital Expenditure (USD million) Excl. oil, gas, and financial sectors

40%

35%

48%

55%

47%

21% 19%

25%

24%

23%

28%

2010

2011

2012

2013

Jan - Sept 2014

Primary Sector Tertiary Sector

Secondary Sector

2012

2013

Jan - Sept 2014

2013

Mining

2.201

3.619

4.255

4.816

2

Food Industry

1.026 1.105 1.783 2.118

3

Transportation, Warehouse and Telecommunication

5.072

4 5

1

61%

2011

2012

Based on Group of Sectors 25%

2010

2011

Rank

22%

0

2010

Component of FDI Realization

28%

1000

6 7

Sector

2.808

2.547

1.450

2.803

Food Crops and Plantation

751 1.222 1.602 1.605

1.622

Chemical and Pharmaceutical Industry

793

1.467

2.770

3.142

1.978

394

770

1.840

3,732

1.601

590

1.773

2.453

3.327

1.542

Transportation and other transport industry Metal, Machinery and Electronic Industry

3.799

Jan – Sept 2014 3.792

8

Housing, Industrial Park and Offices

1.050

198

401

677

805

9 10

Non Metal Industry Electricity, Gas and Water

28 1.428

137 1.900

145 1.514

874 2.221

763 684

Total (all sector)

16.215

19.475

24.565

28.616

21.745

The Investment Coordinating Board of the Republic of Indonesia

Sumber: BKPM, 2014.

8

Singapore, Japan, Netherlands, Great Britain and Malaysia on the Top-5 Biggest Investors in January–September 2014 6000

FDI Realization in Indonesia by Origin Country

5000

Top-10 Countries Based on Capital Expenditure (USD million) in Jan –Sept 2014 Excl. oil, gas, and financial sectors

4000 3000

Rank

2000

Country

4.899

Japan

713

1.516

2.457

4.713

2.041

3

Netherlands

608

1.354

967

928

1.510

4

Great Britain

276

419

934

1.076

1.446

5

Malaysia

472

618

530

711

717

6

USA

931

1.488

1.238

2.436

663

7

South Korea

329

1.219

1.950

2.205

654

8

Hong Kong

566

135

309

376

498

9

Australia

214

89

743

226

449

10

Mauritius

23

73

1.059

780

438

Other Countries

5.468

7.059

8.975

10.084

8430

Total (97 countries)

16.215

19.475

24.565

28.616

21.745

2

Singapore Netherlands Malaysia

Jan - Sept 2014

Japan Great Britain

FDI Realization by Origin Country January – September 2014

23% 49%

11%

Jan – Sept 2014

4.671

0 2013

2013

4.856

Singapore

2012

2012

5.123

1

2011

2011

5.565

1000 2010

2010

7% 3%

7% The Investment Coordinating Board of the Republic of Indonesia

Source: BKPM, 2014.

9

2

Indonesia Competitiveness International perspectives

The most promising country for overseas business (Japan Bank for International Cooperation Survey 2013)

Rank

2005

2006

2007

2008

2009

2010

2011

2012

2013

1

China

China

China

China

China

China

China

China

Indonesia

2

India

India

India

India

India

India

India

India

India

3

Thailand

Vietnam

Vietnam

Vietnam

Vietnam

Vietnam

Thailand

Indonesia

Thailand

4

Vietnam

Thailand

Thailand

Russia

Thailand

Thailand

Vietnam

Thailand

China

5

US

US

Russia

Thailand

Russia

Brazil

Indonesia & Brazil

Vietnam

Vietnam

6

Russia

Russia

US

Brazil

Brazil

Indonesia

-

Brazil

Brazil

7

Korea

Brazil

Brazil

US

US

Russia

Russia

Mexico

Mexico

8

Indonesia

Korea

Indonesia

Indonesia

Indonesia

US

US

Rusia

Myanmar

9

Brazil

Indonesia

Korea

Korea

Korea

Korea

Malaysia

US

Rusia

10

Taiwan

Taiwan

Taiwan

Taiwan

Malaysia

Malaysia & Taiwan

Taiwan

Myanmar

US

Positive Factors 1. Future growth potential of local market 2. Inexpensive source of labor 3. Current size of local market 4. Supply base for assembler 5. Industrial cluster development

Issues of Concern 1. Rising labor costs 2. Underdeveloped infrastructures 3. Execution of legal system unclear (frequent changes) 4. Intents competition with other companies 5. Difficult to secure management-level staff 6. Labor problems

The Investment Coordinating Board of the Republic of Indonesia

Source: JBIC, November 2013

11

Global Competitiveness Index (GCI) 2014 - 2015 Ranking No.

Indonesia rank 34 from 144 Economies in Global Competitiveness Index (GCI) 2014 - 2015.

“Up four notches to 34th rank, Indonesia continues its overall progress. Related to 12 pillars of GCI, Indonesia continue to improve in Infrastructure and connectivity, government efficiency and fighting corruption. However, there is still growing concern on labor market, public health, and technological readiness in particular the use of ICTs.”

Countries

2009 2010

2010 2011

2011 2012

2012 - 2013

2013-2014

2014-2015

1.

Swiss

1

1

1

1

1

1

2.

USA

2

4

5

7

5

3

3.

Singapura

3

3

2

2

2

2

4.

Jepang

8

6

9

10

9

6

5.

Malaysia

24

26

21

25

24

20

6.

China

29

27

26

29

29

28

7.

Thailand

36

38

39

38

37

31

8. Indonesia

54

44

46

50

38

34

9.

India

49

51

56

59

60

71

10 . 11 . 12 . 13 .

Brazil

56

58

53

48

56

57

Russia

63

63

66

67

64

53

Vietnam

75

59

65

75

70

68

Filipina

87

85

75

65

59

52

--

Source: World Economic Forum (WEF) 2014

Total (Countries)

131

139

140

144

148

144

The Investment Coordinating Board of the Republic of Indonesia

12

Indonesia Rank with other Countries in Ease of Doing Business (EODB) 2015

 Indonesia Ranked 114 from 189 economies for Ease of Doing Business 2015.  New Methodology: IFC WB conduct the survey in 2 large cities for economies with population over 100 million. Indonesia is one from 11 economies with population over 100 million.  As noted by IFC WB, Indonesia implemented 3 reforms in reducing regulatory complexity and cost, by made:  Starting a business easier by allowing the Ministry of Law and Human Rights to electronically issue the approval letter for the deed of establishment. This reform applies to both Jakarta and Surabaya.  Getting electricity easier by eliminating the need for electrical contractors to obtain multiple certificates guaranteeing the safety of internal installations (though it also increased the cost by introducing a security deposit for new connections).  Paying taxes less costly for companies by reducing employers’ health insurance contribution rate. This reform applies to both Jakarta and Surabaya.  However there is also insufficient reforms on certain indicator, noted by IFC WB, such as:

× Trading across borders became more difficult Source: EODB, IFC World Bank Group Report 2015

because of insufficient infrastructure at the Tanjung Priok Port Jakarta. This change applies to both Jakarta and Surabaya.

The Investment Coordinating Board of the Republic of Indonesia

13

Indonesia Ease of Doing Business Improvement 8 Area of Improvement in

Ease of Doing Business C consist of…

• Starting a Business

Ease of Doing Business Improvement has achieved: 1. Business entity (Limited Liability/PT) establishment by online system. 2. Simplification on the issuance of Permanent Business Trading License (SIUP) and Company Registration Certificate (TDP). 3. Expedite workers registration. 4. On line registration for Workers Social Security Program.

• Getting Electricity

5. Simplification on procedures, reducing cost and time for electricity connection.

• Paying Taxes and Premium Insurance

6. Tax report by online. 7. Online system for payment of social insurance provided (BPJS) by e-payment mechanism.

• Enforcing Contract • Resolving Insolvency • Registering Property • Dealing with Construction Permits

8. Accelerate the settlement of commercial disputes in enforcing contract.

9. Accelerate the judicial procedure in resolving insolvency. 10. Time reduction for land certificate examination and transfer of land rights. 11. Building construction permit (IMB) by online. 12. Accelerate water connection services (PDAM). 13. Accelerate telephone connection services (PLN).

• Getting Credit

14. Regulation for Private Credit Bureau (LPIP) establishment. 15. Collateral Registry Administration System by online. The Investment Coordinating Board of the Republic of Indonesia

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3

Investment Policies

GOVERNMENT’s NAWA CITA – 9 Priorities Agendas 1

Returning the state to its task of protecting all citizens and providing a safe environment

Developing clean, effective, trusted and democratic 2 governance 3 Developing Indonesia’s rural areas

KEY PROGRAMS

• Construct 2,000 kilometers of roads • Develop 10 new airports and 10 seaports • Construct 10 Industrial Estates

4 Reforming law enforcement agencies

• Build 5,000 traditional markets

5 Improving quality of life

• Provide One-Stop Services for Investment

6 Increasing productivity and competitiveness 7

Promoting economic independence by developing domestic strategic sectors

8 Overhauling the character of the nation 9

• Set up infrastructure development bank, farmer Bank, and Fisherman Bank • Build regional science and techno parks, academies and vocational schools

Strengthening the spirit of “unity in diversity” and social reform

Source: http://kpu.go.id/koleksigambar/VISI_MISI_Jokowi-JK.pdf

Indonesia Investment Coordinating Board

Economic Agenda 2014 – 2019 1

Development of human resources

2

Strengtening food and agribusiness sector

3

Improving energy sector

4

Enhancing mineral resource for national benefit

5

Empowerment of labor

6

Improving national financial sector

7

Strengthening domestic investment

8

Increasing national fiscal capacity

9

Strengthening national infrastructure

10

Development of national maritime economy

11

Improving forestry sector

12

Sustainability of spatial planning and environment

13

Balancing regional development

14

Development of character and potential tourism destination

15

Improving national trade capacity

16

Development of manufacturing industry

Source: http://kpu.go.id/koleksigambar/VISI_MISI_Jokowi-JK.pdf

Indonesia Investment Coordinating Board

One of Investment Opportunities in the Economic Agenda 2014 – 2019 1

Developing safe, efficient and reliable mass rapid transportation

2

Increasing road/toll road capacity connecting main city, cities/suburbs

3

Connecting airport/seaport to downtown with monorail

4

Developing new railways, such as double-track railways connecting cities in Sumatera, Kalimantan dan Sulawesi

5

Increasing the number of passenger and cargo vessel/ships

6

Extend the runway of pioneer airport

7

Develop main airport for cargo

8

Increasing inter-island route for vessels or air transport

9

Development of shipbuilding industry

10

Revitalize/Upgrading the main port such as Tanjung Priok, Tanjung Perak, Belawan, Makassar and Sorong as International Hub Port

11

Development of dryport, increasing the number of container port and new port in remote areas especially in East Indonesia

12

Develop dam/irrigation for agriculture irrigation, road, bridge, industrial areas and power plants.

Source: http://kpu.go.id/koleksigambar/VISI_MISI_Jokowi-JK.pdf

Indonesia Investment Coordinating Board

We provide “one-stop shop” (PTSP) licensing provision and our services for investors include…

INDONESIA INVESTMENT COORDINATING BOARD  Establishing an Investor Relation Unit at BKPM for information, facilitation and inqueries handling from existing and potential investors.  Rolling-out the Electronic Information

Services and Investment Licensing (SPIPISE) in 105 regions throughout Indonesia.  Helping contain various obstacles and giving consultation.

 Facilitating foreign workers permit.  Launching the online investment tracking system. PLAY

Investment Opportunity of

19

BUSINESS LICENSES REFORM

Presidential Reg. No. 97 Year 2014 regarding the Implementation of One Stop Integrated Services

Presidential Reg. No. 98 Year 2014 regarding the Licensing for Micro and Small Business

Standard Services Electronic Services (Online & Tracking system) ONE STOP INVESTMENT SERVICES

Simplification of procedure National license integration/otomation

“Increasing Ease in Doing Business and Improving National Competitiveness”

One Page License Free of Charge or Retribution Greater Access to Financial Institution Ease for Obtaining Govt. Empowerment Programs The Investment Coordinating Board of the Republic of Indonesia

20

Investment Licenses Procedures PREPARATION STAGE

INVESTORS Principle license application

CONSTRUCTION STAGE

Principle License

Establishment of Legal Entity

Regional license (Regional Government) 1. 2. 3. 4.

Location permit Building Construction Permit(IMB) Nuisance Act Permit (UUG/HO) Registration certificate (TDP), etc

1. 2. 3.

Import Identity Foreign worker permit VISA recomendation

Non Fiscal Facilities (BKPM)

Fiscal Facilities (BKPM) 1. 2. 3.

Approval of Capital Goods Importation facilities Approval of Raw / Auxiliary materials importation facilities Corporate Income Tax (PPh) Recommendation

COMMERCIAL STAGE

Business license Business License application

Business License application

The Investment Coordinating Board of the Republic of Indonesia

21

Most of business fields are open to investment “Any business fields or types

are opened to investment activity, except for those declared as being closed and open with certain conditions”

OPEN

Article 12 Paragraph (1) Law No. 25 of 2007 concerning Investment

(Presidential Regulation No.39 /2014) Certain business fields may conduct investment activities under certain requirements, such as: • Partnership with local partner, • Capital ownership, • Location and • Special permits.

OPEN

with conditions

CLOSED

Any investment activities are closed for certain business fields producing goods/services that: • Prohibited by Indonesian law, • Dangerous, • Polluting, • Strategic for national security and/or heritage.

The Investment Coordinating Board of the Republic of Indonesia

22

Example of Business Fields More Open to Foreign Capital Ownership No. A.

Business Fields

KBLI

Presidential Regulation 36/2010

Presidential Regulation 39/2014

Energy & Mineral Resources Sector

1.

Power Plant > 10 MW

35101

Foreign Capital Ownership maximum 95%

Foreign Capital Ownership maximum 95% (but can be 100% in Public Private Partnership (PPP) scheme during concession period)

2.

Power Plant Transmission

35102

Foreign Capital Ownership maximum 95%

Foreign Capital Ownership maximum 95% (but can be 100% in Public Private Partnership (PPP) scheme during concession period)

3.

Electricity Distribution

35103

Foreign Capital Ownership maximum 95%

Foreign Capital Ownership maximum 95% (but can be 100% in Public Private Partnership (PPP) scheme during concession period)

B.

Transportation Sector

1.

Providing port facility (pier building, container delay terminal, liquid bulk terminal, dry bulk terminal and Ro-Ro terminal)

52221 52222 52223

Foreign Capital Ownership maximum 49%

Foreign Capital Ownership maximum 49% (but can be 95% in Public Private Partnership (PPP) scheme during concession period)

2.

Implementation of Motor Vehicle Periodic Tests

71203

3.

Providing and Implementation of Land Terminal: - Land terminal for passenger (limited for public facility) - General cargo terminal

52211

Closed for investment

Foreign Capital Ownership maximum 49% with recommendation from Ministry of Transportation

Closed for investment

Foreign Capital Ownership maximum 49% with recommendation from Ministry of Transportation

23

Example of Business Fields More Open to Foreign Capital Ownership No.

Business Fields

C.

Health Sector

1.

Pharmaceutical Industrial Business:

Presidential Regulation 36/2010

Presidential Regulation 39/2014

Foreign Capital Ownership maximum 75%

Foreign Capital Ownership maximum 85%

73100

Only for local capital 100%

Open for investor from ASEAN countries maximum 51%

64991

Foreign Capital Ownership maximum 80%

Foreign Capital Ownership maximum 85%

KBLI

- Raw material medicine Industry

21011

- Patent medicine Industry

21012

D.

Tourism and Creative Industry Sector

1.

Film promotional facility (advertisement, poster, stills, photo, slide, negative, banner, pamphlet, giant banner, folder, etc)

E.

Finance Sector

1.

Venture Capital

24

TAX ALLOWANCE

TAX HOLIDAY

IMPORT DUTY FACILITY

(Government Regulation No.52/2011)

(MoF Regulation No.130/PMK.011/2011 jo. No. 192/PMK.011/2014)

(MoF Regulation No.176/PMK.011/2009 jo. No. 76/PMK.011/2012)

30

5-10 50

% of investment value Reduction of corporate

net income tax for 6 years, 5% each year.

129

business segments Eligible for tax

allowance, expanded from 38 segments in the previous regulation.

Under certain requirements among others: minimum amount of investment value and workforce, and certain project and/or location.

For example:

 Shipbuilding industry and boats (KBLI 30111) all provinces, min. investment ≥ IDR 50 Billion, workers ≥ 300 people, and for ship above 50,000 DWT

years

Tax relief facility, starting from the commencement of commercial production.

% for a further 2 years

Reduction of income tax after the expiration of the tax holiday and can be extended by MoF.

Pioneer industry 1. Basic metal industries; 2. Oil refinery industries and/or basic organic chemicals; 3. Machinery industries; 4. Industries of renewable resources; 5. Communication devices industries.

IDR

1

trillion

Machines, goods, materials for production 2 years import duty exemption or 4 years for companies using

locally-produced machines (min.30%). Application approval or rejection being given maximum 7 days after verification completed.

Industries

Which produces goods and/or services, including: 1. Tourism and culture 2. Public transportation 3. Public health services 4. Mining 5. Construction 6. Telecommunication 7. Port

Minimum investment plan.

The Investment Coordinating Board of the Republic of Indonesia

25

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