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  • Professor Jorma Larimo

    Indonesia as an Investment Target

    Country: Finnish Viewpoint

    and Evidence

    Seminar on "Cooperation and Business Opportunities

    Between Southeast Asia and Finland"

    at the University of Vaasa, Nissi auditorium, Tritonia

    25.9.2014

  • GOAL OF THE PRESENTATION

    To give a short overview of some key issues related to the

    investment environment in Indonesia as well as of

    the investment behavior of Finnish and other Nordic

    firms in the country

    1.10.2014 2

  • COUNTRY FACTS AND OVERVIEW

    (INVESTING IN INDONESIA 2013)

    1.10.2014 3

  • INVESTMENT ATTRACTIVENESS/CLIMATE IN

    INDONESIA

    Overall performance

    Competitiveness

    Country risk/political risk

    Easiness of doing business

    FDI restrictions

    Acquisition freedom

    Investment incentives

    Geographic distance

    Cultural distance

    1.10.2014 4

  • INDONESIA OVERALL PERFORMANCE

    (IMD WORLD COMPETITIVENESS ONLINE 2014)

    1.10.2014 5

  • COMPETITIVENESS LANDSCAPE OF INDONESIA

    (IMD WORLD COMPETITIVENESS ONLINE 2014)

    1.10.2014 6

  • COUNTRY RISK 2010 & 2005:

    (EUROMOMEY)

    RANK COUNTRY 2010

    1 Norway 93,33

    2 Switzerland 90,22

    3 Sweden 88,93

    4 Denmark 88,80

    5 Finland 88,55

    6 Luxembourg 88,27

    7 Canada 88,26

    8 Netherlands 88,20

    9 Hong Kong 87,18

    10 Australia 86,18

    61 Indonesia 58,75

    7

    RANK COUNTRY 2005

    1 Norway 99,45

    2 Switzerland 99,15

    3 Luxembourg 99,10

    4 USA 96,93

    5 Denmark 95,63

    6 Sweden 94,58

    7 UK 93,55

    8 Finland 93,52

    9 Austria 93,43

    10 Ireland 93,26

    85 Indonesia 41,88

  • EASE OF DOING BUSINESS 2012:

    (IMD WORLD COMPETITIVENESS YEARBOOK 2012)

    How doing of business is hindered by regulations or supported by regulations

    RANK COUNTRY Score

    TOP 5 COUNTRIES

    1 Honk Kong 8,53

    2 Singapore 8,36

    3 Switzerland 7,44

    4 United Arab Emirates 7,41

    5 Malaysia 7,16

    NORDIC 7 Sweden 6,95

    10 Finland 6,68

    14 Denmark 6,19

    18 Norway 5,97

    32 Indonesia 4,78 8

  • FDI RESTRICTIVENESS INDEX (0=Open, 1=Closed)

    (OECD INVESTMENT DIVISION)

    1.10.2014 9

  • ACQUISITION FREEDOM 2012:

    (IMD WORLD COMPETITIVENESS YEARBOOK 2012)

    How free are foreign firms to acquire control in domestic companies

    RANK COUNTRY Score

    TOP 5 COUNTRIES

    1 UK 9,25

    2 Ireland 9,23

    3 Chile 9,20

    4 Sweden 9,12

    5 Belgium 9,00

    NORDIC 11 Finland 8,56

    12 Denmark 8,55

    22 Norway 8,10

    36 Indonesia 6,80

    10

  • INVESTMENT INCENTIVES

    (Ali Budiarbjo, Nugroho, Reksodiputro: Guide to Doing Business in Indonesia)

    Incentives are regulated in Law No. 25 of 2007.

    Investments that are eligible for incentives:

    labor intensive

    highly prioritized investments

    infrastructure construction

    involve technology transfers

    in a pioneer industry

    located in a remote area, a less-developed area, a contigous area, or another area deemed needy

    keep the environment sustainable

    involve research, development, and innovation activities

    in partnership with micro, small and medium enterprises or cooperatives

    In an industry that uses domestically-produced capital goods or machinery and equipment.

    Reduction of net income tax and import duty excepmtion

    1.10.2014 11

  • FINLAND & INDONESIA ON THE WORLD MAP

    1.10.2014 12

  • CULTURAL DIMENSION VALUES BY HOFSTEDE

    HOFSTEDE

    POWER DISTANCE

    INDIVIDUALISM MASCULINITY UNCERTAINTY AVOIDANCE

    LONG-TERM ORIENTATION

    INDULGENCE VS. RESTRAINT*

    FINLAND 33 63 26 59 38 57

    SWEDEN 31 71 5 29 53 78

    GERMANY 35 67 66 65 83 40

    MALAYSIA 104 26 50 36 41 57

    THAILAND 64 20 34 64 32 45

    INDONESIA 78 14 46 48 62 38

    SINGAPORE 74 20 48 8 72 46

    S-KOREA 60 18 39 85 100 29

    CHINA 80 20 66 30 87 24

    1.10.2014 13

    *Indulgence/Restraint = Tendency to allow relatively free gratification of basic and natural human desires related to enjoying life and having fun

  • FDI INFLOWS IN INDONESIA

    (BANK OF INDONESIA)

    1.10.2014 14

  • FDI LIBERALIZATION IN INDONESIA

    (OECD 2011)

    1.10.2014 15

  • DIRECT INVESTMENT STOCK IN INDONESIA 2010

    (IMD WORLD COMPETITIVENESS YEARBOOK 2012)

    RANKING COUNTRY US billions

    1 USA 3451,41

    2 Honk Kong 1097,62

    3 UK 1086,14

    4 France 1008,38

    5 Germany 674,22

    6 Belgium 670,01

    7 Spain 614,47

    8 Netherlands 589,83

    9 China 578,82

    10 Canada 561,11

    11 Switzerland 538,95

    12 Australia 508,12

    13 Singapore 483,02

    14 Brazil 472,58

    15 Russia 423,15

    16 Sweden 348,67

    24 Norway 171,83

    27 Denmark 139,21

    38 Finland 82,71 1.10.2014 16

  • DIRECT INVESTMENT FLOWS IN INDONESIA 2011

    (IMD WORLD COMPETITIVENESS YEARBOOK 2012)

    RANKING COUNTRY US billions

    1 USA 227,87

    2 China 185,08

    3 Belgium 91,84

    4 Hong Kong 83,18

    5 Brazil 66,66

    6 Singapore 64,00

    7 UK 54,26

    8 Russia 52,88

    9 France 42,88

    10 Canada 41,15

    11 Germany 40,29

    12 Italy 32,62

    13 Australia 30,58

    14 Spain 26,56

    15 India 26,19

    22 Denmark 15,17

    29 Sweden 12,28

    30 Norway 11,75

    56 Finland -0,03 1.10.2014 17

  • FINNISH DIRECT INVESTMENT FLOWS ABROAD, EUR million

    (BANK OF FINLAND)

    Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

    TOTAL 26,082 9,354 7,832 -2,020 -869 3,395 3,830 5,263 6,347 4,089 7,677 3,605 5,871 3,039

    ASIA

    of which 346 462 174 150 555 309 6 296 265 1,092 2,196 -1,115 -555 -421

    China 34 170 -103 315 450 90 39 572 -53 845 1,481 -1,479 -581 -186

    Hong Kong -200 18 58 -71 1 25 -27 -65 19 24 10 -3 -30 22

    India -7 28 18 6 11 20 119 93 222 243 157 185 -31 -469

    Indonesia 1 -4 -5 -7 6 29 28 -82 41 33 -38 5 -7 -8

    Japan 70 59 -15 -105 32 41 -28 -12 -23 -55 38 -9 -9 68

    Malaysia 9 8 7 -16 12 25 25 -8 -27 -1 33 15 -5 -5

    Philippines 3 4 4 -11 2 0 0 -3 0 1 3 -2 0 2

    Singapore 260 62 61 -81 72 40 132 10 87 210 419 75 129 16

    South Korea 189 86 -8 113 -16 14 -138 -129 27 -151 21 34 -13 19

    Thailand 34 26 26 8 11 -41 -40 -22 -16 -17 0 -1 3 -3 18

  • FINNISH MANUFACTURING INVESTORS IN

    INDONESIA

    - Only some 10 Finnish companies including e.g. Kone, Metra and Outokumpu have made manufacturinf investments in Indonesia

    - Some of the firms do not have the units anymore

    1.10.2014 19

  • INVESTMENT STRATEGIES AND PERFORMANCE OF FINNISH

    FIRMS IN INDONESIA

    Timing of the investments

    Most in the 1990s, very few in the 2000s

    Ownership strategies

    - Majority joint ventures (minority, 50-50-owned and majority owned),

    - Some wholly-owned units (some changed original IJVs later on to WOSs)

    Establishment mode strategies

    - Greenfield investment the main mode, only few acquisitions

    Performance

    - Several divestments of units later on

    - Some of the units have been sold to other foreign units

    - In some cases the Finnish parent firm or business sector has been sold

    1.10.2014 20

  • INVESTMENT STRATEGIES AND PERFORMANCE

    COMPARED TO THE OTHER NORDIC COUNTRIES

    Amount of investments

    - Very few manufacturing investments also by other Nordic firms

    - Examles: ABB (swiss-swedish); Sandvik, SKF, Dyno Industrier, Jotun, Ecco, Grundfors

    Timing of investment

    - As well mainly in the 1990s only few in 2000s

    Ownership strategies

    - Majority joint ventures, less WOSs at entry

    Establishment mode strategies

    - Majority greenfield investments

    Investment performance

    - Several divestments especially by Norwegian firms

    1.10.2014 21

  • EVENTS IN 2012-2014

    Joint Finnish Estonian minister and business delegation visited Indonesia discussing investment agreements and potential projects in 2012 & roundtables discussion in 2013

    Wrtsil corporation has several project in Indonesia

    delivery of 155 MW gas engine based power plant (16Wrtsil 34SG engines) located in Bangkanai in Central Kalimantan

    delivery of 184 MW gas engine based power plant (19Wrtsil 34SG engines running on liquefied natural gas) to be located in Lhokseumawe (in Aceh Special District) in northern Sumatra

    1.10.2014 22

  • EVENTS IN 2012-2014

    Kone corporation has also received projects like

    high speed elevator deliveries to 38-storey 5-star Mulia Hotel and 50-storey Wisma Mulia office building in Jakarta

    New investment with Finnfund participation/financing : SaraRasa

    Bioindo Pte. Ltd /Dovre Group

    pellet production from biomass (first pellet prodcution unit in Indonesia, located in Riau Province in Sumatra; estimated production 100 million tonnes per year; uses agricultural biowaste)

    1.10.2014 23

  • SWEDISH FIRMS IN INDONESIA 2014

    Swedish Ambassador to Indonesia Ewa Polano: a wide range of business had made

    firm commitments to do business in Indonesia estimated to reach at least US$400 million within the next few years.