Indonesia at a glance

Indonesia at a Glance

The Republic of Indonesia, or abbreviated to RoI or simply Indonesia is a country in Southeast Asia, located on equator and situated between two continents namely Asia and Australia and between Pacific Ocean and Indian Ocean. Due to its location which is between two continents and two oceans, it is also called as the Nusantara (Intermediary Islands) or the Archipelago. Consisting of 17,508 islands, Indonesia is the world’s largest islands country which comprises the land areas of 2 million km2 and waters area which width almost doubles the land size. The Indonesian territory lies between 6008’ north latitude and 11015 south latitude and between 94045’ and 141045’ east longitude. Its big islands cover Java, Bali, Sumatra, Kalimantan, Sulawesi, and Papua. There are also two groups of smaller islands namely Maluku and Nusa Tenggara.

In order to provide a more comprehensive description about Indonesia along with its potencies distributed in some islands, this book provides the description of nineteen largest cities which are considered as the representatives of Western Indonesia and Eastern Indonesia. Jakarta as the capital city of the Republic of Indonesia which is situated in the north-western part of Java Island is Indonesia’s governmental and economic centre. Bandung is the capital of West Java Province and Semarang is the capital of Central Java Province. Yogyakarta is famous for its Borobudur which is a part of the World Heritage. Surabaya is Indonesia’s second largest city, situated in East Java and constitutes a prominent centre and industrial centre. Medan in North Sumatera, which is the third largest city, is situated near Singapore. With a total population of 248.8 million people in 2013, making the country the world’s 4th largest population, Indonesia has an attractive domestic market in which more than 53% of its people live in urban areas and already adopted modern lifestyle. With its growing middle class, the economy will support the growth of Gross Domestic Product (GDP), around56.67% of GDP of which originate from personal consumption in 2010.

The total expenditure per capita each day from Indonesia’s middle class is made by about 2-20 million people. In 2010, 56.5% of the total population were the middle class which grew from the figure 37.7% in 2003. This figure is estimated to continue growing to 70% in 2015. Supported by its natural wealth, Indonesia is a profitable place for investment. In addition to its competitive workers, potential domestic markets and maintained social stability, Indonesia offers opportunity to consumer-oriented companies. As the world’s commodity supplier, Indonesia offers several commodities which give contribution to the world’s market among other things: Agriculture Indonesia is the world’s largest Crude Palm Oil (CPO) producer with the production of 27.5 million tons, around US$2.5 billion of which is invested to build palm oil industry which will double the total capacity to 47.39 million tons or 80% of the world’s total output. More than 90% of Indonesia’s palm oil is for export needs. The largest consumer countries for Indonesia’s palm oil are China and India.

As the world’s largest CPO producer, Indonesia has a strategic position in the market. Other than for Indonesia’s consumption and demand, increasing global demands for vegetable oil and palm oil are big opportunities for Indonesia’s economy. In 2012/13, the global production of palm oil reached more than 55 million tons. It was an increase by 200% compared to the previous decade. During the period of 2010-2014, Indonesia was predicted to earn revenue of US$80.9 billion from CPO export. To achieve this purpose, several actions have been taken such as amending regulations, investment

arrangements for investors, and offering investment incentives. The investment opportunities which are ready to be offered are as follows:

  1. Cooking oil industry in East Kutai area. The Provincial Government of East Kalimantan developed a land in a total area of 1 million Ha for oil palm plantation;
  2. Palm oil downstream industries in Bengkulu.

Indonesia is the world’s second largest rubber producer after Thailand, with the production of 3 million tons. This year the production rather decreased due to rainfall. However, the decreased production was compensated by such an increasing demand from the tire producers which contributed to about 21% of the rubber production. To maintain the stability of industrial growth, the government has taken some actions to maintain the conducive investment climate, particularly in the aspect of regulation; providing investment opportunity to investors and investment incentives. Some regions in Indonesia are included in the list of investment opportunities, among others:

  1. Tanjung Api-api, Banyuasin in SouthSumatra Province for auto parts and pillows latex opportunities;
  2.  Surabaya in East Java Province for footwear opportunity.

Food and Agricultural Organization (FAO) stated that the world’s cacao production grew at the level of 2.2% each year, from the year 2000 to year 2010 achieving 3.7 million tons compared to the previous decade with the growth level of 1.7%. It is estimated that the world’s cacao demand will increase with the same level in the future years which would place Indonesia in the strategic position as the world’s third largest cacao producer after Ghana and Ivory Coast. The current competitive excellence of this country lies on its ability to supply in a great amount but cheap (low quality) of cacao seeds. However, the cacao consumption in Indonesia is still low. Indonesia needs more innovation in cacao’s downstream industry, therefore Indonesia prioritizes to stimulate the additional value of national processing industry. One of the important actions is ratifying the export tax of crude cacao seed in 2010 (Decree No. 67/2010) totalling to between 5 up to 15% depending on the world’s price fluctuation. Previously, the export tax only applied to the processed seeds. This new export tax is an incentive to establish fermentation industry to be more domestic or as the signal to process the company to encourage more cacao’s seed processing in Indonesia, so that Indonesia will obtain benefits from the marketing of the products with additional value. The Indonesia’s cacao main production locations are Sulawesi,

North Sumatra, West Java, Papua, and East Kalimantan. Sulawesi contributes about 75% of Indonesia’s total cacao production. There are investment opportunities in the cacao downstream industry which are ready to be offered such as cacao cultivation in Berau, Kutai Kartanegara in East Kalimantan Province. Mining Indonesia is the world’s second largest producer of tin production with the production of 60,000 tons, 70% of the production capacity of which is produced in Bangka Belitung. This Indonesia’s tin production supplies 40% of the global market. Indonesia is the bauxite major exporter to several countries in Asian region. Bauxite as the aluminium basic material is usually exported in raw material form then processed overseas into alumina and aluminium. Such great potential national bauxite resources of 2011 achieved 700.34 million tons, with reserves of 2.80 billion tons, while national bauxite production in 2011 is about 37 million tons, however, after being made exploration there is the increase of resource or its potency. West Kalimantan Province in 2012 reported that the potential bauxite ore resources achieved 3.27 billion tons while its reserves are recorded at 1.13 billion tons of ores. Trend of the global increased demand for bauxite as the raw material either alumina or aluminium as the consequence of increasing development in the developing countries as well as the developed countries, is certainly a benefit for Indonesia. If to date our country only exports bauxite ore production results then it will be very wise if we can process them to enhance its sales value. The provisions in Law No. 4 Year 2009 concerning Mineral and Coal Mining Articles 102, 103, 104 and Chapter XXV (Transitional Terms) and Article 170 mandates that in national mineral and coal mining exploration the company is obliged to carry out domestic processing and refining. This processing and refining can be performed in cooperation with a business entity or company which has obtained IUP or IUPK, and this is a part and an attempt to enhance the added value of domestic mineral and coal production results. Further, pursuant to the provisions in Law No. 25 Year 2007 concerning Investment, the mining business sector is fully open to foreign or domestic investors, however, more emphasized to enhance its added value and the national product.

Therefore BKPM as the Non-Ministerial Government Institution which is in charge of coordinating the preparation of investment policy has interest in increasing investment in the mineral resources sector. Indonesia is one of the developing countries with a global economic power in Asia. With the estimated GDP of over US$1trillion in 2012, Indonesia has become the Southeast’s largest economy.

By its resistance against global financial crisis compared to neighbouring countries, Indonesia’s economy grew by 5.7% in 2013 and turned it as “the Country with the most stable economy for the last five years” by the world’s prominent publication, The Economist. Indonesia grew by 6.2% in 2012 and in 2014, and stronger economic growth is expected to be able to achieve the figures of 5.8-6.2%. The next economic expansion is estimated to be able to cover more inclusive growth with the GDP figure per capita which is estimated to be able to grow 4 times in 2020 based on the report of Standard Chartered Report. One of the Indonesia’s economic success factors are triggered by the growth of middle class and stable Indonesian macro economy. Indonesia is now included in the MINT countries (Mexico, Indonesia, Nigeria, and Turkey), namely: countries with the most attractive economy for long-term investors for its demographic characteristics. The debt ratio against Indonesia’s GDP has stably decreased from 83% in 2001 to less than 26% in the end of 2013. Indonesia has the lowest value among ASEAN countries, other than Singapore which has no government debts. Based on the record from the Investment Coordinating Board (BKPM), the total Foreign Investments (FDI) and Domestic Investments (DDI) in quarter II-2014 (April-June) has re touched the highest record of IDR 116.2 trillion. The figure increased by 16.4% if compared to the same period of 2013, which is totalling to IDR 99.8 trillion.