Interview: Yasuo Fukuda

What are your projections for Japanese investments in Indonesia over the next 18 months, and how long can the bullish investment rate be sustained?

YASUO FUKUDA: In cumulative terms, since 1990 Japan has been the largest investor in Indonesia after Singapore, with a particularly dynamic shift in 2011. In that year, foreign direct investment from Japan to Indonesia doubled from 2010, reaching $1.52bn and going on to reach $2.46bn in 2012. The 2013 figure had already surpassed that by the end of the third quarter, at $3.64bn. Though I cannot predict whether Japanese companies can sustain such a bullish pace, I am confident that such inbound investments will continue solidly in the coming years, since Japanese companies have an extremely positive view of Indonesia’s market potential and political stability in the medium and long term. A testament to this sentiment is the 2013 report by the Japan Bank for International Cooperation (JBIC) on Japanese manufacturers’ overseas operations, in which Indonesia was evaluated as the most promising destination for investment in the medium term (about three years) followed by India, Thailand and China.

At present, 70% of Japanese investment projects are in manufacturing. How likely is a shift into services and where specifically would this take place?

FUKUDA: After the success of investments in cars, motorcycles and electronic household devices, Japanese companies are now expanding into consumer goods such as cosmetics and beverages. This trend is a direct reflection of the growth of Indonesia’s middle class, which accordingly requires more extensive investment in services. From a Japanese perspective, we see service opportunities everywhere, but especially in retail, where we are seeing significant new investments.

UNIQLO opened its largest shop in South-east Asia in Jakarta in the spring of 2013. AEON is opening shopping malls in the country. Japanese regional banks are increasing their cooperation, and Japanese insurers will continue to operate in the Indonesian marketplace.

To what extent are Japan and Indonesia collaborating on infrastructure realisation and where else must Indonesia seek to make improvements?

FUKUDA: Infrastructure is obviously essential for efficient business activities, and its development facilitates economic growth. The Indonesian government’s Masterplan for Acceleration and Expansion of Indonesia’s Economic Development, announced in 2011, is a very important step forward. To speed implementation, Indonesia and Japan, among others, are cooperating extensively to strengthen the infrastructure of Jakarta and its neighbouring Jabodetabek area through the Metropolitan Priority Areas project.

Under this plan, the two countries have identified 45 projects to be completed by 2020, at a total cost of around Rp411.3trn ($41.13bn). The five flagship projects include the Jakarta mass rapid transit system, the development of Cilamaya port, expansion of Soekarano-Hatta International airport, creation of new academic research clusters and the Jakarta sewerage project.

As for improvements in other areas, the JBIC reports that Japanese companies are facing challenges in the form of increased labour costs and legal uncertainties.

What affects, direct or indirect, will Japan’s new monetary policy have on Indonesia, and how will this affect their relationship?

FUKUDA: Japan’s new economic policy, often referred to as Abenomics, consists of three “arrows” and aims to spur economic recovery by ending deflation and promoting sustainable growth. The effects, most strongly brought on by the first arrow, are already showing the policy’s merits. Confidence in Japan’s private sector has visibly increased, and is further reflected in economic indices and encouraging signs at the Tokyo stock exchange. The recovery of Japan’s economy will doubtless help stimulate the world economy, especially in Asian. Indonesia, with long-standing ties to Japan, is excellently placed to reap the rewards of its recovery, which will see both countries prosper in the long term.