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 Rp853.6-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 Rp567.7 trillion; income from excise and import duties rose by 37.7 percent to Rp108.4 trillion, and non-tax revenues saw a 35 percent rise to Rp177.4 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 is now all centralised under the Investment Coordinating Board (BKPM.)
BKPM recently announced Foreign Direct Investment (FDI) reached Rp163.2-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 Rp139 trillion from the same period last year. In total, BKPM recorded Rp302.2 trillion of investment in the second quarter, up 35.5 percent from Rp223 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 Rp584.6 trillion, which is almost US$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 sidelines of the recent World Economic Forum (WEF) meeting in Davos, according to the Foreign Affairs Ministry.
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 US$1.9 billion (Rp28.56 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 US$3 billion into Indonesia through Indonesia’s Sovereign Wealth Fund, which has been designed to attract foreign firms as co-investors and channel funds into strategic projects across the country. The second round of financing has just been announced following the realisation of the initial tranche of US$15 billion. The Edge Markets are claiming President Jokowi “is planning to raise his target … to as much as US$ 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, the 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 two decacorns and eight unicorns. According to Jokowi, Southeast Asia’s digital economy is expected to reach US$330 billion in value by 2025 and is forecast to enjoy a 20 percent annual growth, and will likely reach US$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.