Q: What is the most pressing investment opportunity in Indonesia?
A: Indonesia is in the G20 and our economy is the world’s 16th largest. With GDP growing at 5.6% in the past nine years, and a population [of 270 million], we need to develop in a sustainable way. As an emerging country, we are still behind in terms of infrastructure quality and quantity. Upgrades to the power sector, transportation, water and waste management are very critical. Investment from the private sector is critical, especially from foreign players. We need $1000bn of investment in infrastructure over the next five years, and the government can only provide less than 40%.
Q: Why have FDI flows into Indonesia been falling recently?
A: Indonesia suffered negative growth in FDI during 2018 until early 2019, because of the general election, which caused uncertainty. [However], foreign investment to Indonesia has been progressing very well in the areas promoted by the government, such as industrialisation and the manufacturing sector, which are critical. Indonesia’s middle class is growing rapidly, so investment in the manufacturing sector will be important for growing domestic demand, [as well as supplying] the rest of the world.
Q: How are you improving Indonesia’s readiness for FDI?
A: Indonesia is rich in natural resources. Mining is always an easy point of investment attraction. It is a blessing, but is not always translated into good practice. We’re looking for good quality, sustainable investment to Indonesia, not just exploiting or destroying natural resources.
Our young and competitive labour force is critical, but we also recognise that the quality of labour skill must be improved. Indonesia wants to be second after Thailand in becoming a hub for electric cars.
Regulatory certainty is very important for investors in a country as big as Indonesia, and this is something that needs to be addressed. Our president is introducing what we call ‘one single submission’, to reduce regulatory hassles for investors dealing with our many different local ministries.
Q: Is Indonesia gearing up fast enough for Industry 4.0 and increased renewable energy production?
A: Regarding technology and Industry 4.0, the US-China trade war really creates an opportunity for Indonesia for those relocating away from China. However, with much manual repetitive work [being] replaced by automation, we need to upgrade our population’s skills. So, investment in today’s education is critical. The existing traditional manufacturing sector in Indonesia is strong. From the food sector and automotives to electronics, we’re big when you compare us with [other] Asean countries.
We’re blending these strengths with Industry 4.0 automation. The heavy industry can help improve our balance of payments deficit, [especially in] petrochemicals. In the past, we just exported all the raw material; it is time for Indonesia to build a downstream industry.
Indonesia’s demand for energy is only growing, and our ratio of electrification is not 100%. We have lots of remote small islands, and for many locations off-grid, renewable energy is a natural fit. For an industrially heavy region such as Java island, you definitely need to move away from fossil fuels. [However], price distortion between renewable and non-renewable energy has discouraged many investors. If the price is giving the signal that non-renewable is cheaper, then it is very difficult to promote renewable energy. The Ministry of Finance is addressing this issue by guaranteeing a subsidy.