121024 aibc murdoch university
DESCRIPTION
A presentation delivered in Perth on the bilateral business relations between Indonesia and Australia.TRANSCRIPT
AIBC – Murdoch UniversityPerth, October 24, 2012
NOKE KIROYAN
Australia – Indonesia Business Relations:
An Indonesian Perspective
2
The World’s Largest Archipelago• Population: 241 million• Land area: 1.9 million square km
(25% of Australia)• 17,500 islands• 300 ethnic groups
Population: 140 million, thereof approx. 90 million ethnic Javanese (largest ethnic group in Southeast Asia).
Size: 126.700 km2 (50% the size of New Zealand). 1000-km northern route (great post road/groote postweg) constructed by Governor General
Herman Daendels in 1808 – 1810 in the service of France the island’s main artery to date that produces 26% of Indonesia’s economy.
Center of power and economy since colonial times. Javanese culture dominant, particularly during President Soeharto’s 32-year reign.
Center of the Indonesian Universe
3
“Ask anyone in Indonesia about the country’s future and most likely you will get an optimistic answer. This is no surprise. The third largest democracy and fourth most populous country in the world has transformed itself from a low-income country in the 1960s into a fast-growing emerging market.”
“Doing Business in Indonesia 2010” – The World Bank and IMF 4
Perennial Optimists
“A large majority (79%) of Indonesians are optimistic about their economic outlook over the next five years, and most (68%) say their country is going in the right direction. They are also increasingly likely to say globalisation, especially the connection of Indonesia’s economy with others around the world, is mostly good (67% up from 61% in 2006 .”
“Lowy Institute Indonesia Poll 2012: Shattering Stereotypes, Public Opinion and Foreign Policy” – Fergus Hanson 5
Perennial Optimists
National Policy-making Process
Perception of Good of Community
Public Opinion
Ideology
Economic, Social and Political
Circumstances
Governments
Political Attitude
POLITICAL WILL
GOAL: GOOD OF
COMMUNITY
Policies and Strategies
6(“Negotiating Mining Agreements: Past, Present and Future Trends,” Danièle Barberis, 1998)
Article 33 of Indonesian 1945 Constitution
1. The economy shall be organized as a common
endeavor based upon the principles of the family
system
2. Sectors of production that are important for the country and affect the life
of the People shall be controlled by the State
3. The land, the waters and the natural riches
contained therein shall be controlled by the State and
exploited to the greatest benefit of the people
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Year Era Economy
1945-1950 Revolution (War against the Dutch)
Non-existent
1950-1957 Proto-democracy In shambles
1957-1966 Guided Democracy (Revolution Ch. 2)
In ruins – inflation 650%
1966-1998 New OrderExcellent: 7- 8% growth
1998-2005 Reformation – seeds of democracy In the Doldrums
2005- now Nascent DemocracyRespectable: 6% + growth
Political and Economic Overview
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9
PROSPECTSSECTOR
CHARACTERISTICS SECTORS
High growth, low risk
Servicing retail consumers directly and indirectly
Automotive, cigarettes, cement, leasing, pharmaceuticals, packaging, air transport
High growth, high risk
Heavily regulated, strong parliament roles, need government guarantees
Infrastructure: toll roads, electricity, ports, tap water
High potential, low risk Exported commodities
Palm oil, rubber, cocoa
High potential, high risk
Heavily regulated, legal uncertainty, regional autonomy issues
Oil & gas, mining
Low growth, low risk Steady “annuity” business
Trade, insurance
Low growth, high risk
Labor-intensive, competing with China, India and Vietnam
Textiles, shoes, toys, low-end electronics
“Indonesia: The Road Ahead,” Fauzi Ichsan (June 2005)
Indonesian Business Sectors and Their Characteristics
9
7
Economic Nationalism is not a new phenomenon
It is enshrined in the ConstitutionOnly during a very brief
period in its history did Indonesia ideologically deviate from economic
nationalism (1950 – 1957)
Economic nationalism was the driving force even in the reign of
President Soeharto that was hailed as the era of economic development
The Contract of Work is a legal construct to
accommodate foreign participation within a
nationalistic framework (Article 33 of Constitution)
Economic growth will strengthen, rather than
weaken economic nationalism, at least in
the medium termEconomic nationalism
mainly affects the resources industries, in
other sectors many foreign companies are
doing very well10
Outside mining, many foreign companies are doing well
AUTOMOTIVEToyota (market share
> 50%), Honda, Mercedes
11
It definitely is, but you can do (good) business in Indonesia without promoting and resorting to bribery or being otherwise involved in corruption.
Is Corruption an Issue?
12
Middle class group: 50 million +
27th biggest exporter in 2010
Inflation 5.4% (2011)
Economic growth in 2011 6.5% - 2012 revised
downward to 6.3%Size of economy : US$
846 billion in 2011, projected to be a trillion dollar economy in 201416th largest economy in
the world
Some Stats ………
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A few Snippets
Growth of air travel in 2011
22%
Double track railway
between Jakarta – Surabaya
ready in 2013
Jakarta Airport served
52.4 million passengers in
2011
New car sales in 2012
projected at 1 million units
Mobile telephone
subscriptions in Q1/2012 255
million numbers
Accor to double number of
hotels to 100 by end 2015
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1200 air traffic
controllers needed
Aston Hotels to add 73 new
hotels (20 thereof this
year) to existing 45
800 new pilots
needed annually
US$ 2 billion commuter line from airport – Jakarta
operational 2014
15(“The archipelago economy: Unleashing Indonesia’s Potential – Executive Summary” – McKinsey Global Institute, September 2012)
• 16th-largest economy in the world• 45 million members of the
consuming class• 53% of the population in cities
producing 74% of GDP• 55 million skilled workers in
the Indonesian Economy• $0.5 trillion market opportunity
in consumer services, agriculture and fisheries, resources, and education
• 7th-largest economy in the world
• 135 million members of the consuming class
• 71% of the population in cities producing 86% of GDP
• 113 million skilled workers needed
• $1.8 trillion market opportunity in consumer services, agriculture and fisheries, resources, and education
Indonesia Today …..and in 2030
The Archipelago Economy: unleashing Indonesia’s Potential
16(“The archipelago economy: Unleashing Indonesia’s Potential – Executive Summary” – McKinsey Global Institute, September 2012)
Misperceptions about Indonesian economic performance
Indonesia had the lowest volatility in economic growth compared to OECD and BRIC countries.
The fastest growing urban centers are cities with more than 2 million people (Medan, Bandung, Bogor and Surabaya).
The main drivers of growth are domestic consumpt-ion and services.
Indonesia’s economy is becoming more advanced, so its large endow-ments of natural resources no longer drive econ. developmt.
Indonesia’s productiv-ity gain has come mostly from improve-ment within sectors and not at the expense of employ-ment.
MYTH # 1The
Indonesian Economy is
unstable
MYTH # 2Economic
growth centres on
Jakarta
MYTH # 3Indonesia
follows export-driven
modelfor growth
MYTH # 4Resources
are the economy’s main driver
MYTH # 5Growth has come mainly
from an expanding workforce
Main Challenge to IA-CEPA from Indonesian Perspective
17
Stereotypes•Australia is a small country•It is difficult to do business with/in
THANK YOU
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