Trade & Investment
From The Report: Indonesia 2014
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Despite a 6.7% contraction in net exports in 2012, the value of Indonesia’s trade has expanded significantly over the past decade, with a doubling of exports between 2006 and 2011 to $203.50bn. Rising demand from Asian markets for Indonesia’s key commodity outputs has spurred a redirection of trade. Yet, with most foreign direct investment flowing to sectors linked to consumption, trade has been a smaller growth driver than household spending. This comes despite ASEAN-wide trade liberalisation that has encouraged conglomerates to expand their supply chains to Indonesia. By the first half of 2013, Indonesia’s 10 largest export markets accounted for 73.6% of its total exports, roughly 70% of which stay in Asia. In the first half of 2013, FDI accounted for 68.57% of total investment, while the total stock of inward FDI grew tenfold from 2000 to 2012, reaching $205.66bn. US Investment in oil, gas and mining grew 11% in the eight years to 2012, while manufacturing saw a rise of 21%. By 2012, 52.2% of US FDI was in extractive industries and 46.1% in manufacturing. As investment in Indonesia’s non-commodity sectors continues to grow, the authorities will need to expand access to credit and export finance for its small and medium-sized enterprises, which are key to reducing Indonesia’s reliance of commodity exports.

This chapter contains interviews with Muhammad Lufti, Minister of Trade; Le Luong Minh, Secretary-General, ASEAN; Sri Mulyani Indrawati, Managing Director, World Bank; Paul Wolfowitz, former US Ambassador to Indonesia, and Visiting Scholar, American Enterprise Institute; and Wishnu Wardhana, Chair, APEC Business Advisory Council (ABAC) 2013, and President Director and Group CEO, Indika Energy.

Articles from this Chapter

Overview

In it for the long term: Investors are committing to the country for the long haul
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A significant actor in global trade and investment, and a member of the G20 group of the world’s largest economies, Indonesia has achieved a strong record of attracting foreign direct investment (FDI) and rebalancing its trade patterns toward high-growth markets. The authorities have developed new markets for exports while encouraging investment in import-substitution industries. Their key priorities heading into the 2014 elections remain speeding up infrastructure development, improving labour…

Analysis

Easing access: The government helps to reduce bottlenecks in finance
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As part of its strategy of boosting non-oil exports to new markets, the government is seeking to expand the availability of trade finance for its exporters, particularly small and medium-sized enterprises (SMEs). “If we want to prevent the ongoing volatility from disrupting our export growth, then we should not focus on exporting goods only to the US and China; we must diversify our exports,” the minister of finance, M. Chatib Basri, told a Jakarta seminar on trade finance in September 2013.…

Interview

Muhammad Lutfi, Minister of Trade: Interview
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Interview:Muhammad Lutfi To what extent will China’s economic slowdown and lower commodity prices impact Indonesia’s goals? MUHAMMAD LUTFI: China is an important trade partner for us as it is our second-largest partner in the world. Despite China’s economic slowdown, the growth in trade between our two nations continues to reach double digits and we enjoyed about a 16% growth in trade in 2013. On a wider scale, although Indonesia is maintaining a trade deficit, trade with both traditional…

Analysis

Consumer strength: A rise in spending power should promote ASEAN-wide growth
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Growing prosperity, improved wealth distribution and a burgeoning middle class are set to fuel a rapid rise in private consumption within the ASEAN bloc countries in the coming years, a trend that will be given further impetus by the greater regional integration that will follow the launch of the ASEAN Economic Community (AEC) in 2015. According to a report by ratings agency Moody’s from late 2013, the ASEAN economies should average growth of 5% in 2014, in part driven by firming global demand.…

Interview

Le Luong Minh, Secretary-General, ASEAN: Interview
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Interview:Le Luong Minh What challenges do ASEAN countries face before inaugurating the Economic Community in 2015? LE LUONG MINH: We have already accomplished many of the tasks on the ASEAN Economic Community (AEC) Blueprint and intend to track remaining priorities via the AEC Scorecard system. While we are currently at a healthy implementation rate of 80%, as we approach the 2015 deadline, enhancing the implementation of these measures will become more critical. By 2015 all ASEAN member…

Viewpoint

Sri Mulyani Indrawati, Managing Director, World Bank, on the region’s economic outlook
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The global economy appears to be moving into a new phase, in which output in advanced economies is firming, albeit probably not as strongly as we would have liked. Developing country growth appears to be slowing, including in the Asia-Pacific region. Our retreat, of course, came in the wake of the decision by the US Federal Reserve to defer its tapering of quantitative easing (QE). It is a positive move in the short term for both developing and high-income economies. We know governments have now…

Analysis

Striking deals: Leveraging bilateral and multilateral agreements to boost trade
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Indonesian authorities are making moves to liberalise commerce by leveraging existing bilateral and multilateral trade agreements and moving ahead with closer integration with traditional partners. While its trade policy has not always been consistent in its liberalisation in recent years, eliciting complaints through the World Trade Organisation (WTO), the authorities seek to balance the priorities of import-substitution, populist pressures for protectionism and the opportunities of greater integration…

Interview

Paul Wolfowitz, Former US Ambassador to Indonesia, and Visiting Scholar, American Enterprise Institute: Interview
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Interview:Paul Wolfowitz While continuing on its path to reform, what key areas should Indonesia focus on improving? PAUL WOLFOWITZ: Indonesia has undertaken significant economic and political reforms since my time as ambassador there 25 years ago, and is now the world’s third-largest democracy. That it has done so successfully is nothing short of remarkable. Just 15 years ago Indonesia was in the midst of an Asian financial crisis and the country’s real GDP had fallen by some 14% in…

Interview

Wishnu Wardhana, Chair, APEC Business Advisory Council (ABAC) 2013, and President Director and Group CEO, Indika Energy: Interview
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Interview:Wishnu Wardhana How is ABAC prioritising the deepening of economic integration in the Asia-Pacific region? WISHNU WARDHANA: First, I should highlight two important shifts which shape the way ABAC thinks today. In a global macro-economic context, we are now entering what economists call “the new normal”. Following the 2008-09 financial crisis our economic performance was based on two factors: commodity prices and cheap money stemming from the quantitative easing (QE) policy.…

Analysis

Diversifying sources: Attracting investors to a wider range of industries is a priority
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While foreign direct investment (FDI) has sustained 22% average annual growth over the past six years, according to statistics from HSBC, the composition of investment has broadened beyond the traditionally dominant extractive industries. As part of a regional rebalancing of FDI, the focus of investment into Indonesia is shifting from purely resource extraction to services and manufacturing, in both low-end, labour-intensive industries and end-stage production of automotives and electronics. Both…