Interview: Johnny Darmawan
What are the main competitive advantages that put Indonesia ahead of other regional countries in terms of foreign investment in the auto industry?
JOHNNY DARMAWAN: The first thing is the size of Indonesia’s domestic market. If you look at it, the country has more than one-third of ASEAN’s total population. Second, Indonesia is a country rich in commodities and natural resources. Third, in the political arena, the transition period from Suharto’s era is finally consolidating and providing the stability that investors need. It took more than 10 to 12 years for this process. And finally, Indonesia is located in a geographically strategic area, which represents a natural competitive advantage for the country. Further, the Indonesia Investment Coordinating Board (BKPM) has positively communicated these advantages to rating agencies, governments, investment institutions and private companies in general. This is also a fundamental part of Indonesia’s current attractiveness. Now it is not only about how good you are, but also about how successfully you can communicate it, and BKPM has proved to be an integral player in marketing the sector over the past few years. When it comes to challenges, and considering that most of the growth will come from the domestic market, I am concerned that infrastructure development is not coping with the country’s car sales, which are about to surpass 1m units a year – more than double the amount eight years ago. I am not saying that Indonesia is not doing anything in this field, but the pace is slower than in other countries like Malaysia, Thailand and China.
How is the government incentivising new and existing foreign automobile companies to establish manufacturing plants in Indonesia?
DARMAWAN: If you take a look at Toyota, we are planning to invest around Rp26trn ($2.6bn) for the next seven years, starting in 2013. This equals the company’s total investment in Indonesia over the past 40 years. Needless to say, this investment would not have been possible without the support of the government.
Overall the government has performed very well in terms of inviting investors to the country to explore potential investment opportunities, but what they are ultimately lacking is the final step to firmly engage them and actually improve the foreign investment realisation figures. We need to increase the “sweeteners” in terms of incentives and subsidies. Furthermore, policy stability is needed in this and other sectors.
Just by taking a look at the down-payment obligation imposed in 2012 to cars and motorcycles: it is clear this is not a positive move for the investment climate in the sector. While it may not have a damaging impact on car manufacturers, it will most likely affect the two-wheeler segment. The government has to work on the elaboration of a long-term programme rather than just short-term planning. It seems like they always think of incentives and payback from a short-term perspective.
Finally, choosing the right investor is important, and we are fortunate that Indonesia is at present in a situation whereby the country can select the particular investments and investors it wants.
What opportunities exist in the automotive parts and components industry, and how can Indonesia become as competitive as Thailand in this area?
DARMAWAN: With reference to data from the Association of Car and Motorcycle Equipment Industries, the number of components companies in Thailand stands at over 2300, whereas in Indonesia it is currently just above 600. However, the industry has positive momentum and we aim to catch up with Thailand.
Capitalising on the growth of the automotive sector should help drive up demand for Indonesian auto parts and components. To continue to expand our production locally and be price-competitive, we need to localise.
The country lost traction long ago when we focused on the national car project and became less attractive than Thailand, but in recent years the government has pushed ahead with a stronger components industry, thus improving the health of the automotive sector.
You have reached the limit of premium articles you can view for free.
Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.
If you have already purchased this Report or have a website subscription, please login to continue.