Interview: Sukwoo Hong
What is your assessment of Indonesia’s current investment climate, especially regarding technology and manufacturing?
SUKWOO HONG: With a population of some 240m, Indonesia is an enormous market, and the country has abundant natural resources and a capable workforce. With an annual average growth rate of 5.9% over the past five years, the Indonesian economy is performing well. Furthermore, the government has expressed a strong willingness to nurture the manufacturing sector, such as with the initiatives it has mapped out as part of the master plan for national economic development, known as MP3EI. Korean businesses are aware of the immense growth potential of the Indonesian manufacturing sector and are investing in large-scale steelmaking, petrochemicals and tire production projects.
We have high hopes for sectors such as steelmaking, auto parts, petrochemicals and shipbuilding. Experts expect foreign investment in Indonesia’s manufacturing sector to continue to grow. To make the manufacturing sector more competitive and help it acquire needed technology, Indonesia will have to invest actively in research and development and human resources. The country will also have to upgrade its infrastructure and improve its investment environment.
How will the Comprehensive Economic Partnership Agreement (CEPA) reach a $100bn trade volume between South Korea and Indonesia by 2020?
HONG: The bilateral trade volume between Korea and Indonesia has grown an annual average of 19.9% over the past five years. According to a recent study carried out by Korea’s nationally owned research institution, bilateral trade volume should total almost $110bn by 2020, if current trends continue.
To maintain this impressive pace, the focus of the trade relationship will have to shift. Up until this point, Korean exports to Indonesia have focused mainly on the manufacturing sector. Meanwhile, energy and resources are a large proportion of Indonesia’s exports to Korea. Considering the rapid growth in demand for energy and metal resources in Indonesia, it will be difficult to expand trade if the trade structure between the two countries remains so heavily focused on natural resources. CEPA will help diversify trade and will eliminate obstacles to investment and exchange. In this way, it will promote sustainable growth in trade by changing the overall structure of the relationship.
In which sectors are South Korean firms looking to develop stronger business ties with Indonesia?
HONG: Korean businesses are focusing on sectors with the most potential to capitalise on the two countries’ complementary economic structures. Recently, Korean companies have been actively investing in steelmaking, petrochemical plants, and the development of energy and metal resources – all areas where there is enormous potential for cooperation. Additionally, many Korean companies are seeking opportunities to invest in environment-related industries and agriculture, which would help Indonesia unleash its potential as a country with rich natural and human resources.
What steps can Indonesia take to guarantee the sustainable transfer of knowledge gained from South Korean investments in the country?
HONG: Knowledge transfer does not always accompany foreign investment. A number of factors influence the likelihood of a successful knowledge-sharing partnership, including an investor’s effort to share knowledge, a local partner’s willingness and capabilities to embrace new methods and approaches, and the level of trust between the two sides.
For these reasons, Indonesia should work not only on improving its overall investment climate, but also on acquiring technology and knowledge. We should also establish more effective communication lines between these two countries. As an optimal partner, South Korea is ready to offer both support and advice so that Indonesia can embrace new technologies and knowledge.
Read More from OBG
