Business Advantage Indonesia 2008/9 by Business Advantage International

Business Advantage

Indonesia 2008/9 BusinessAdvantage INTERNATIONAL

BusinessAdvantage INTERNATIONAL

Business Advantage INTERNATIONAL

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BusinessAdvantage INTERNATIONAL

1 Indonesia’s International Business & Investment Guide

CONTENTS Business climate INVESTING IN INDONESIA Feature interview: Miranda Goeltom, SENIOR Deputy Governor of Bank Indonesia TRANSPORT & Infrastructure MINING & ENERGY Map: Indonesia’s provinces AND THEIR POTENTIAL Trade, manufacturing & AGRICULTURE Tourism development REGIONAL DEVELOPMENT Focus on West Java PROFILE OF BKPM, INDONESIA’S INVESTMENT COORDINATING BOARD directory of useful contacts Business travel guide to Indonesia

Business Advantage Indonesia is published by Business Advantage International Pty Ltd (ABN 95 121 161 126), Level 27, Rialto South Tower,  525 Collins St , Melbourne, Victoria 3000,  Australia Tel +61 3 9935 2977  Fax +61 3 9935 2750  Email: info@cmmc.com.au www.businessadvantageinternational.com

WELCOME TO

4 7 10 11 14 18 20 25 28 29 32 33 34

BUSINESS ADVANTAGE

INDONESIA

Foreword by Muhammad Lutfi, Chairman of Indonesia’s Investment Coordinating Board (BKPM)

ndonesia has come along way since the 1997 Asian currency crisis. Our democracy is stable as we look ahead to elections in 2009, our economy is robust, and there has been major progress in the area of economic reform. Indonesia’s economy continues to grow at rates double that of the developed world and there are tremendous opportunities for investors across all sectors, and especially in resources, energy, agribusiness, infrastructure, manufacturing and tourism. As far as foreign investors are concerned, Indonesia is moving from red tape to a red carpet. The Indonesian Government, actively encouraged by the BKPM, has introduced significant reforms that make investment in our country more attractive and simpler. Further efficiencies and incentives can be expected, with the planned introduction of a ‘national single window’ for imports and exports, and the creation of new Special Economic Zones across the country. Our reforms are already delivering significant growth in foreign direct investment: investment realization in the first quarter of 2008 was up by an enormous 104% on the same period in 2007. The continued development of Indonesia’s 33 provinces presents a major opportunity for overseas investors. Provincial governments are looking for partners to work on hundreds of critical development projects across a wide range of sectors. This year’s edition of Business Advantage Indonesia includes a significant focus on Indonesia’s regions. As the first point of contact for international investors, the BKPM looks forward to assisting you, either from our head office in Jakarta or from one of our five international offices in Tokyo, Taiwan, Melbourne, Los Angeles and Singapore.

© Copyright 2008 Business Advantage International Pty Ltd Project Director: Robert Hamilton-Jones (rhj@cmmc.com.au) Publisher: Andrew Wilkins (aw@cmmc.com.au) Editorial: Jo Shiells, Jacqueline Bennett Design: Michael Renga, Adrian Murphy Front cover images: BKPM, PT Citra Tubindo, Pertamina, Batam Industrial Development Authority, Ministry of Public Works

SPECIAL THANKS

Business Advantage International would like to thank the following individuals for their invaluable assistance with this project: Ir. Darmawan Djajusman, Dr Ir. Rudy Salahuddin, Aloysia Endang Wahyuningsih, Arya Putubaya and Leidy Surianingrat from BKPM; Mila Sudarsono (AustralAsia Centre), Iman S Pramudji and Vidya Kartika Ayuningtias (BIDA), Nani H Pollard, Evita H Legowo (Ministry of Mining & Energy), Raj Kannan (Tusk Investments).

Produced in partnership with BKPM, the Investment Coordinating Board, Republic of Indonesia

ORDER COPIES OF BUSINESS ADVANTAGE INDONESIA Business Advantage Indonesia is produced regularly to promote the Indonesian economy internationally. It provides a reader-friendly overview of economic conditions, assesses business opportunities and imparts practical advice. It is published in magazine form and online (www.businessadvantageinternational.com/ indonesia.shtml). If you would like to obtain copies of the printed edition, email info@cmmc.com.au.

DISCLAIMER Business Advantage Indonesia is a general guide to some potential business opportunities in Indonesia and is not designed as a comprehensive survey. The opinions expressed herein are not necessarily those of the publisher and the publisher does not endorse any of the business or investment opportunities featured, nor does it accept any liability for any costs or losses related to dealings with entities mentioned in this publication. Readers are strongly advised to pursue their own due diligence and consult with investment advisors before making any investment decisions.

STRATEGICALLY POSITIONED FOR GROWTH Special economic zones, such as Batam Island near Singapore, will play a larger role in Indonesia’s future economic development

After 10 years of reform, the world’s third-largest democracy is ready to play a more prominent role in the global economy, and offers significant business and investment opportunities.

ith a population of 237 million people, Indonesia is currently ranked by the World Bank as the world’s 20th largest economy, and is moving in the right direction after a decade of challenges, including the 1997 Asian currency crisis, secessionist pressures, SARS, the 2004 tsunami and, lastly but certainly not least, its embracing of democracy. Such is the country’s progress, however, that a December 2005 Goldman Sachs report predicted that Indonesia will be the 14th largest economy by 2025, and the 11th largest by 2050, ranked behind only China, Japan and India in Asia. As early as 2001, Goldman Sachs grouped Indonesia in its ‘Next 11’—part of the group of growing economies most likely to join Brazil, Russia, India and China (the ‘BRIC’ countries) as economic powerhouses. With its strong natural resources, sympathetic investment laws and competitive labour market, could we be looking at Brazil, Russia, India, China and Indonesia—‘BRICI’—before too long? Even with the impact of increased global fuel prices, Finance Minister Sri Mulyani Indrawati has said she expects the economy to grow by over 6% in 2008 on the back of strong resources exports.

Strategically positioned ‘The dominant economic fact of the 21st century is the rise of Asia. Indonesia is strategically positioned where growth is going to be over the next 100 years,’ Kenneth Courtis, former Vice Chairman of Goldman Sachs Asia, told an investment conference in May 2008. ‘There has never been a time where things are more favourable for the Indonesian economy.’ ‘Our current growth is being caused by the expansion of existing investors who understand the way to manage risk in Indonesia,’ Mahendra Siregar, Deputy Minister at the Coordinating Ministry for Economic Affairs, told Business Advantage. While existing

Bank Indonesia’s headquarters in Jakarta

INDONESIA IN BRIEF Area Population Capital city

1.9 million sq km 237 million Jakarta (9.5 million)

GDP US$948bn (purchasing power parity, 2006) Inflation

11.9% (July 2008)

Official languages Bahasa Indonesia

Exchange rate US$1.00 = 9221 rupiah (IDR), as of August 2008

People

Major export markets

Javanese 45% Sundanese 14% Madurese 7.5% Coastal Malays 7.5%

Japan (22.3%) USA (13.9%) China (9.1%) Singapore (8.9%)

Major import markets

Japan (18%) China (16.1%) Singapore (12.8%)

Head of State Susilo Bambang Yudhoyono (President) Distances by air

Singapore (1h 35m), Hong Kong (4h 40m), Tokyo (7h 25m) Sydney (7h 15m)

Business climate investors are reaping the rewards, there are also clear signs of new investment in Indonesia. ‘There are a lot more players coming in from Australia, China, India and the Middle East,’ notes Joseph Abraham, President Director of PT ANZ Panin Bank (ANZ’s 85%-owned joint venture bank). ‘Other Asian countries are really looking here,’ agrees Stephen Humphries, Senior Technical Advisor to PricewaterhouseCoopers’ Indonesian operation. ‘The West generally doesn’t know about Indonesia. Asians understand the risks because they are already handling those risks elsewhere in the region.’

government Reforms In recent years, the Indonesia Government has undertaken significant reforms to make the country more attractive to foreign investors, the most significant of which is the Investment Law passed in April 2007. Muhammad Lutfi, Chairman of the Investment Coordinating Board (BKPM), explains: ‘When I came to office we were facing four major issues: the labour law; infrastructure; tax, customs and excise issues; and excess bureaucracy for licensing. Since then we have passed a new law on customs and excise. The tax law is in a finalised form ready to go to Parliament [see page 8 for more on recent tax reform]. We have cut half of our expenditure and put it into infrastructure. With licensing, we have the new investment law with its single system, where there used to be a lot of red tape.’ The next stage, Lutfi suggests, will be to promote value-adding in all sectors: ‘The second part and the most important part is how we are going to industrialise the nation. We are not going to sell raw material anymore. We are going to build value chains for our commodities.’ (One example of this is the burgeoning automotive manufacturing industry in Indonesia—major players such as Nissan, Toyota, Isuzu and Daihatsu all now have plants in Indonesia.) Industry certainly approves of this reform. ‘The Government is more pragmatic and inventive on how to attract foreign direct investment,’ notes John A Prasetio, Vice President of Indonesia’s International Chamber of Commerce and Industry. The development of Special Economic Zones modelled partly on the country’s successful free trade zone in Batam, near

Singapore, is also likely to stimulate further investment. As well as offering investment incentives, these zones are likely to be partially exempt from existing labour laws, which should deliver greater flexibility for businesses looking to take on or shed workers.

Regional development Another significant strategic reform is desentralisasi—the decentralisation of the Indonesian economy—through which the country’s 33 provinces will have a greater role in generating investment and business activity (see page 29 for more on the opportunities in regional development). ‘I think there are some teething issues with the implementation of regional autonomy. Some regions came up with new local laws and regulations that are not investment-friendly, but in the long run I believe the regions are going to be the strongest pillar of the Indonesian economy,’ suggests Sandiaga S Uno of Saratoga Capital, also Chairman of the Permanent Committee for Small & Medium Enterprises of the Indonesian Chamber of Commerce and Industry (KADIN). A series of high-profile initial public offerings, particularly in the resources sector, is making the Indonesia Stock Exchange (the result of the merger of the Jakarta and Surabaya exchanges) an attractive place to invest, particularly as a first step into the country. Indeed, at the time of writing, the ISX was actually outperfoming the world-leading Shanghai Stock Excbange.

Strong financial system The reforms certainly appear to be having a positive effect. Foreign direct investment is surging, with a 73% rise in 2007, and a further 56.2% rise between January and June 2008. The Indonesian economy is also proving strong: foreign reserves are the highest ever, as is GDP per capita. One major challenge facing Boediono, the respected former minister appointed Governor of Bank Indonesia in May 2008, is inflation. Faced with the global fuel price rises, the Indonesian Government has greatly reduced fuel subsidies to consumers, which in turn has nudged inflation over 9%. Overall, however, there is confidence that the Indonesian financial system is strong enough to cope with recent ripples in the world economy, as Senior Deputy Governor of Bank Indonesia, Miranda Goeltom explains:

Business climate ‘One very important thing to note is that our economy in general isn’t affected so much by subprime issues, or rising commodity prices. Firstly, because we are the producers of some of the commodities that are benefiting from increased prices and, more importantly, our banking system is very strong, it is very resilient. We have learnt the lessons from the 1997 crisis.’ (A longer interview with Miranda Goeltom appears on page 11.) ‘Bank Indonesia is a stand-out regular in Asia,’ agreed Symon Brevis-Weston, former President Director of the Commonwealth Bank’s Indonesian operation, when he spoke at an August 2008 investment conference in Melbourne, Australia. ‘They have built a very stable and very safe banking system ... It’s encouraged our board to make a substantial investment in Indonesia.’ New Governor Boediono will also preside over the ongoing reform of the banking sector, which is undergoing a series of mergers under new regulations that are designed to make the sector more resilient. The recent merger of Malaysian-owned Bank Lippo and Bank Niaga is just one of many expected as the number of banks is reduced from 130 to 70 by 2010. ‘The banking market is relatively open to foreign banks in terms of market access and branch expansion,’ observes ANZ Panin’s Joseph Abraham. ‘In terms of technology use, it’s very developed.’

The fight against corruption Indonesia’s international image has been tarnished over the years by widespread and often high-profile corruption. While no-one denies that corruption exists, the Indonesian Government is making a concerted and very public effort to enforce what President Susilo Bambang Yudhoyono has called a ‘no tolerance’ approach to graft through its recently established Anti-Corruption Commission (KPK). The KPK has already been responsible for the indictment of thousands of individuals, and the recovery of US$43 billion in misappropriated funds. Several business people Business Advantage spoke to confirmed that there has been significant improvement in this area, most notably in the tax office and customs services.

Indonesia a ‘normal country’ The combination of reforms and economic stability has lead to many experts around the world arguing for a re-evaluation of Indonesia’s image. ‘Indonesia in 2008 is a stable, competitive electoral democracy, with a highly decentralised system of governance, achieving solid rates of economic growth, under competent national leadership, and playing a constructive role in the regional and broader international community,’ wrote the authors of the recent Australian Strategic Policy Institute report, Seeing Indonesia as a Normal Country. An improved security situation has also led to the recent lifting of the US Government’s advisory against travel to Indonesia, a move that can only encourage bilateral trade between these two traditional trading partners.

Elections in 2009 The next challenge for Indonesia will be the legislative assembly elections set for April 2009, followed by presidential elections in July 2009. Business is expecting some slowdown in the reform process as political considerations take precedence during the election campaigns, but no-one Business Advantage spoke to was expecting major social disruption. ‘Our problems are complex,’ asserts John A Prasetio. ‘Yet we are still doing alright.’ The enormous strides Indonesia has taken in the last decade have taken place in the context of a commitment to democratic process, and an understanding that economic growth has to benefit more than just the few. As Mahendra Siregar puts it, ‘as long as we honour the democratic process and include small landholders and small and medium-size enterprises in the process, then we can succeed.’ n

Indonesia’s competitive labour market

Credit: Mitrais

For any foreign company seeking to establish a presence in Indonesia, human resources (HR) is a vital issue. According to Chris Wren, CEO of the British Chamber of Commerce in Indonesia, cultural differences make it important for companies from countries such as the UK to hire local expertise, and not rely solely on expats who may not have an equal grasp of how things are done. But just how easy is it to find the skills you need on the ground? ‘There is a rapidly increasing number of talented, welleducated Indonesian staff available,’ says Nathan Verity, whose company, Verity HR, specialises in search and selection for foreign firms operating in Indonesia. At the same time, skills shortages are emerging in certain areas, particularly those experiencing very fast expansion, such as financial services or resources.

Wren, whose professional background is in HR, illustrates the point: ‘I was recently talking to one bank that is just entering the Indonesian market. They will need 20,000 new staff over the next 24 months.’ The chances are they will find them, but will they be able to hang on to them? Professional salaries in Indonesia are still very low by international standards (although not the lowest in the region) but the rapid globalisation of the economy is pushing them up quite briskly. This is leading to high rates of attrition among major blue-chip employers, as employees shop around for the best package. At least employers can rest assured that the regulatory environment is fairly sound. ‘Indonesia’s Industrial Relations Laws have progressed significantly over recent years’, explains Nathan Verity, although he adds a cautionary note: ‘at the same time, companies should always proceed with care and remember that this is not a Common Law system.’

investing in indonesia

PERSPECTIVES ON INDONESIA Credit: Global Initiatives

‘There are plenty of signs that Indonesia is roaring again as the lion it used to be.’ —Indonesian President Susilo Bambang Yudhoyono (pictured left)

SUSILO BAMBANG YUDHOYONO

‘Bring your knowledge, bring your capital, and you’ll do well.’ —Muhammad Lutfi, Chairman, Indonesian Investment Coordinating Board (BKPM)

‘There’s no question that the top leadership is aware and proactive regarding the needs of foreign investment.’ —Tun Musa Hitam, Chairman, World Islamic Economic Forum

Sandiaga S Uno

‘Get a good local partner. There are a lot of instances where the local partner selected hasn’t provided solutions, but has instead become a drag to a project. Do a background check. [The currency crisis of ] 1998 provided a good litmus test. The businessmen who came through that time will settle their debts even while restructuring, and don’t run away from

‘A huge challenge for Britcham is to tackle the negative perception some companies in the UK have about Indonesia. We highlight those UK companies who are well-established in Indonesia, because Indonesia is a place of opportunity, no doubt about it. If that wasn’t the case, those companies would have pulled out years ago, rather than re-tendering or renewing contracts. They have been here a very long time and have learnt how to do things. You have to be a little bit brave, to take time to get the most out of Indonesia and to understand that you will make mistakes. The most important thing is to be prepared to invest in in-country experience: not just expat in-country experience, but also in-country experience from Indonesians.’ — Chris Wren, Chief Executive Officer, British Chamber of Commerce (Britcham) ‘Can you imagine 230 million people with a headache?’ —Debnath Guharoy, Regional Director Asia, Roy Morgan Research, on the opportunities to sell goods, including basic pharmaceuticals, to Indonesia’s enormous domestic market ‘There are issues but the opportunities far outweigh these ... we remain very confident about Indonesia and its economic future.’ —Rob Crawford, President Indonesia & Malaysia, PT BlueScope Steel Indonesia n

their commitments.’ —Sandiaga S Uno, Chairman, Permanent Committee for Small & Medium Enterprises of the Indonesian Chamber of Commerce and Industry (KADIN) ‘The country welcomes genuine investors, and has several schemes to help make projects feasible and attractive ... Any serious investor should spend a few weeks here, to get the feel of the real situation on the ground.’ —Mukesh Arora, Chief Executive Officer, PT NVision Indonesia

FOREIGN DIRECT INVESTMENT IN INDONESIA 2007 (BY SECTOR) SECTOR

INVESTMENT (US$M)

PROJECTS

1. Logistics & communications

3305.2

2. Chemical/ pharmaceuticals

1611.7

3. Metal, engineering & electronics

714.1

4. Food

704.1

5. Paper & printing

672.5

Source: BKPM

investing in indonesia

TAX REFORM FOR A BETTER INVESTMENT CLIMATE Robertus Winarto, Technical Director with PricewaterhouseCoopers’ Indonesian tax services, provides an update on tax reform measures in Indonesia.

he tax reform initiated in 2005 keeps on going. After the enactment of a new set of tax administration laws, Parliament was expected to pass into law the proposed income tax bill in July 2008. Another proposed bill on VAT is currently under Parliamentary discussion. Optimism abounds that the discussion will be completed before year-end so that the whole tax reform package will take effect starting in 2009. Along with some other tax incentives packages, the tax reform aims at improving the investment climate in Indonesia.

Income tax The approved income tax bill will bring about the following changes: n Reduction of income tax rates. A flat corporate tax rate of 28% will apply starting in 2009 and will be further reduced to 25% in 2010. Public companies, subject to a minimum listing of 40% and other conditions, will have an extra tax cut of 5% from the prevailing rate giving them an effective tax rate of 23% in 2009 and 20% in 2010. The top individual income tax rate will be reduced from 35% to 30% starting in 2009. n Intercompany dividends. Dividends received by an Indonesian limited-liability (PT) company from another PT company will be exempt from income tax, subject only to a minimum share ownership of the dividend recipient in the company paying dividends of 25%. Hence, the ‘active business’ requirement is omitted. n Dividends received by individual residents. Final income tax at the maximum rate of 10% will apply to dividends received by individual taxpayers from PT companies. n Venture capital. Venture capital companies will no longer enjoy any privileges given that bond interest income received by them is assessable in their hands. n Deduction contributions. Certain contributions will be treated as deductible expenses, e.g. contributions for scholarships, national disasters, social infrastructure, R&D, and educational facilities.

Tax incentives Several tax incentives are offered to companies under certain circumstances.

n Income

tax cut for public companies. A 5% corporate tax cut from the top rate for qualifying public companies is effective starting in 2008. Currently with the top rate of 30%, they can enjoy a discounted rate of 25%. Later, when the normal rate is reduced to 28% in 2009 and further down to 25% in 2010, they will still enjoy a tax rate of 5% lower. To be eligible, a public company must have at least 40% of the outstanding shares owned by at least 300 persons, each holding less than five percent, and this condition must be maintained for at least six months in a year. n Tax-neutral business mergers. The Directorate General for Tax (DGT) has clarified the procedures for obtaining approval for tax-neutral business mergers. The requirement to liquidate dissolving companies is omitted. While a tax-driven arrangement is prohibited, the business-purpose test proves to be a simple procedure under the new rule. n Investment allowance. Companies that invest in certain regions or business areas may enjoy an investment allowance up to 30% of the qualifying investment amount. The allowance is claimable as a deduction from the taxable income and must be prorated for six years, i.e. 5% per year for six years.

Tax Administration The new tax administration law (TAL) has brought about the following changes: n Shortening the statute of limitation to five years. Except in the case of tax crime, the TAL prohibits the DGT from issuing a tax assessment letter beyond the statute of limitation. n ‘Pay first, argue later’ rule abolished. The new TAL allows a taxpayer who does not agree with the assessment to pay only the amount he believes to be correct. He can then bring an objection to the remaining balance with the DGT. n Sunset Policy. The Government has announced a Sunset Policy under which taxpayers who revise their annual income tax returns for pre-2007 years are exempt from an interest penalty in respect of all the underpaid tax amounts. n

Robertus Winarto can be contacted by email at robertus. winarto@id.pwc.com

investing in indonesia

SETTING UP AN INDONESIAN SUBSIDIARY

Laksmi Djuwita, a Partner in PricewaterhouseCoopers Indonesia, outlines the steps involved in setting up a foreign subsidiary in Indonesia.

t the very beginning, a foreign investor must check if their proposed line of business is open to foreign investment. The Indonesian Government issues what it calls the Negative List of Investment (NLI), which describes in detail which business lines are open to foreign investors. Businesses can be 100% owned by foreign investors, or can involve an Indonesian business party, or there can be other investment requirements such as location or minimum level of investment. The NLI also describes business lines that are reserved for domestic investors only.

Investment technical guidelines The next important step is to check if there are any additional investment requirements for the permitted proposed business line. For example, investment technical guidelines require investments in international freight forwarding businesses to have a minimum investment of US$2 million, and two new branches outside Java island.

Letter of approval The first important paper the foreign investor must obtain is a letter of approval issued by the Investment Coordinating Board (BKPM). The submission of the application form Model I/PMA to the BKPM should be accompanied by the following attachments: n Power of attorney from each shareholder to the individual signing parties; n Articles of incorporation of both Indonesian and foreign parties; n Tax registration number (NPWP) of the Indonesian party; n Flow chart of the companyâ&#x20AC;&#x2122;s production process, or a description of business activities for service companies. The letter of approval will serve as a temporary operating licence and is valid for periods of one to three years, depending on the type of industry. Once the licence is issued, you can establish your foreign investment (or PMA) company, which is done through the

process of signing up articles of incorporation and having them executed as a notarial deed. These articles of incorporation must be approved by the Ministry of Law and Human Rights (MoLHR) before the company has limited liability. It normally takes three-tosix months to obtain final approval.

Period of establishment During this period, a PMA company is allowed to conduct preoperating activities, including establishing its business. After the establishment of the PMA company, the company is also required to lodge an investment progress report (LKPM) with the BKPM on a biannual basis until the permanent licence is issued. The PMA company must submit a master list for imported capital goods and raw materials, and a manpower plan to the BKPM for approval. Furthermore, a PMA bank account must be opened to facilitate monitoring by the central bank, Bank Indonesia. The master list comprises items that the company wishes to import into Indonesia. Listed approved items obtain duty and value-added tax concessions.

Licences and permits Prior to commencing commercial operations, your PMA company is required to obtain the following licences and permits: n permanent operating licence n approval of master list for imported capital goods and raw materials (where relevant) n importer registration number (APIT) (where relevant) n approval of manpower plan n work permits for expatriates The permanent operating licence (IUT) is issued by the BKPM on behalf of the relevant minister. If you are required to form a joint venture with a local party then it is suggested that you have a joint venture agreement. n

Laksmi Djuwita can be contacted at laksmi.djuwita@id.pwc.com

Interview

REAPING THE BENEFITS OF REFORM Business Advantage asked Miranda Goeltom, Senior Deputy Governor of Bank Indonesia—the country’s central bank—for her perspectives on the banking sector and the outlook for economy.

he Indonesian Government has cut its subsidy of domestic fuel prices. Clearly, this will affect growth in the Indonesian economy. What are Bank Indonesia’s predictions? The economy will grow by 6.1% this year. It is lower than predicted earlier in the year, but it has grown by quite a remarkable amount since the 1997 crisis. Only last year we had 6.5%. It has gone down, but other countries in the region have had to revise down their GDP more harshly. We are struggling very hard to keep inflation to the lower teens. The central bank is required to retain price stability. The Indonesian economy is still performing strongly? On the exchange rate side, if we look at the balance of payments, we are still posting a surplus. Our liquid reserves are still a handsome US$558.7 billion. The central bank is trying to recycle some of the foreign exchange receipts from oil back to the market to reduce the pressure, and yet our exchange rate on average is still appreciating. This situation—soaring food prices and commodity prices in the world, plus a decline of the subsidy from the Government—means inflationary pressures are mounting. The central bank will have to respond to give a signal that we are concerned, and that we want to reduce inflationary expectations. BI’S MIRANDA GOELTOM

Oil and commodities get the headlines, but how are other areas of the Indonesian economy performing? Q1 growth this year was 6.3%, due not only to mining but transportation, telecommunications, agriculture, manufacturing and trade. It remains to be seen whether the secondary wave of inflation and increasing fuel prices will temporarily halt the speed of growth. I don’t see a decline, however. The world economy has also been affected by the US subprime mortgage crisis. How will this impact on Indonesia? One very important thing to note is that our economy in general isn’t affected so much by subprime issues, or rising commodity prices. Firstly, because we are the producers of some of the commodities benefiting from increased prices and, more importantly, because our banking system is very strong, very resilient. We have learned the lessons from the 1997 crisis. We have imposed a very prudent regulatory framework. Given the increased supervision, are Indonesian banks lending? Banks are lending—the credit growth was 28% until March 2008 on a year-on-year basis. A growth of 28% in the midst of this global meltdown is quite alarming, so we have already given a warning to banks that they will have to be careful with lending. Luckily, our bankers and the banking system are still way behind in product innovation compared to the banking system in the western world. Our products are very traditional and the risk is less. That is one of the reasons we are quite optimistic that we won’t have too much of a problem. That doesn’t mean that we won’t be hit if the slowdown

in the world economy is prolonged and the oil price rise continues. But we have done a stress test on the banking system, a very severe stress test, and we haven’t seen that the bank will be affected. Reducing the number of banks is a stated goal in reforming Indonesia’s banking sector. How is this progressing? We have made quite a bit of progress in cutting the number of banks in half from 253 banks to 130, and now 118 banks. We want to reduce it as much as possible so that it is manageable for supervision and also because we think that competition is going to be fierce in the future. Banks are going to have to have a strong capital base, good quality in human resources and high IT infrastructure. Mergers have already started. What opportunities are there to invest in the banking sector? We are classed as one of the most liberalised countries as far as openness of the banking structure is concerned. We allow foreigners to own 99% of any Indonesian bank. We have seen some of our small banks bought by foreign banks. They are aiming to grab lucrative, solid and strong businesses. Their non-forming loans are very low—about 2%. We welcome owners of foreign banks because we hope they will bring money, networks, businesses and good people to work here.

‘I am extremely positive about the Indonesian economy. We have seen growth of 5.5% over the last five years... We could be running much faster.’ Finally, how do you see the prospects for the Indonesian economy in the medium term? I am extremely positive about the Indonesian economy. We have seen growth of 5.5% over the last five years—not due to any authoritarian or dictatorial ruling but in the midst of democracy, with all its benefits and disadvantages. We could be running much faster. Firstly, the Anti-Corruption Commission (KPK) is something that we have to welcome. Secondly, the Government has been very determined to improve infrastructure. In 2005 we had this infrastructure summit, but only a few projects have been implemented since. Will this be the case in five years? I don’t think so. We’ll see regions that have proper funding. They will recruit professionals and good bureaucrats to run the economy. Given their power, their money and authority, I think the regions will grow stronger than they are today. Thirdly, we have ample, very diversified natural resources. I foresee there will be better regulations and these resources will better benefit the whole economy. Fourthly, but not least, democracy is going to be more mature and more balanced, in terms of understanding not only rights but also responsibilities. Hence, I am looking forward to a world where most of the sectors in Indonesia are very much open to market price mechanics. Although all these factors will only work if the last is there: political stability. And I think we now have that. n

CREDIT: Ministry of Public Works

transport & InfrastructurE

INFRASTRUCTURE OPENS FOR BUSINESS Indonesia is seeking billions of dollars of private investment in infrastructure projects across the archipelago.

nfrastructure has been the subject of two major national summits in the past three years in Indonesia, and it’s clear why it is seen as such a high priority. Indonesia currently lags behind most of its Asia neighbours in the provision of essential infrastructure such as water, sanitation, roads, ports, power and telecommunications. In many sectors, poor infrastructure is acting as a brake on much-needed economic growth. It was estimated in 2007 that the country would require a massive US$145 billion to finance critical infrastructure projects over the following five years. Yet even with Indonesia planning to spend 7% of its GDP on infrastructure, estimates from the country’s Investment Coordinating Board, the BKPM, indicate that only about 17% of this amount is likely to be available from public coffers. Thus, the Indonesian Government and its provincial counterparts are turning to the private sector—both inside and outside the country—to provide an estimated US$120 billion in infrastructure investment. In effect, this means conducting many infrastructure projects under public-private partnership (PPP) arrangements (toll roads, for example) and encouraging private investment with incentives and guarantees.

BANKABILITY THE KEY The over-riding concern, as identified by several business people Business Advantage spoke to for this edition, is ensuring that the projects offer bankability—a guarantee of profitability that can be used to raise funds from financiers—to potential investors. While some infrastructure projects are being completed, many others are being stalled due to tenders falling short of international standards. While this remains a challenge, the number of projects on offer, especially in regional Indonesia, continues to grow. As provincial governments develop more expertise in project scoping and tendering processes, we can expect faster growth in infrastructure areas such as the ones listed below. (For a summary of infrastructure projects currently on offer from Indonesia’s provincial governments, see page 29.)

Ports & sea transportation Sea freight is vital not only to Indonesia’s international trade, but also to trade within the Indonesian archipelago, with its 81,000 kilometres of coastline. There are over 2100 ports in Indonesia. The Indonesian Government has moved to end the monopoly of state-owned ports operator Pelindo (which operates 111 main ports), opening the market for private port builders and operators, and separating the dual functions of regulating and operating ports. The three ports of Jakarta (Tanjung Priok), Surabaya (Tanjung Perak) and Bitung in North Sulawesi are considered to have the potential to be major regional hubs. Opportunities also exist to upgrade Indonesia’s ageing shipping fleet.

Roads ‘We have about 237 million people and we only have 335,000 kilometres of road,’ notes Muhammad Lutfi, Chairman of the BKPM, Indonesia’s Investment Coordinating Board. ‘We have tripled what we had in 1968, but by now we should have at least a million kilometres of road. That is something we are going to look at.’ Two major national arterials earmarked for investment are the 1316 km North Java Coastal Highway (Pantura) and the 5276 km Trans-East Sumatra Highway. Both are major routes of road haulage, the Pantura carrying between 20,000 and 70,000 vehicles a day, but are currently plagued by congestion and flooding. The Java Ring Highway System is also a priority for upgrading. The toll road model is an accepted model for financing new roads and upgrades in Indonesia. In June 2008 alone, 10 toll roads worth 3800 billion rupiah (US$414 million) went up for tender.

Rail On the rail side, the main driver for growth is freight demand. The government is planning to substitute the use of costly imported oil in electricity generation with coal sourced domestically. That coal still has to be moved from where it is mined (Sumatra and Kalimantan) to where it is required (Java in particular), via a combination of rail and sea.

Power Power generation continues to lag behind the country’s needs (only two-thirds of the population have access to electricity), while powers cuts are frequent enough to have business groups complaining vociferously. With the Government committed to providing 100% access to power by 2020, there are many opportunities for independent power producers to get involved in this critical sector. (See section on mining and energy on pages 15 to 17 for more).

Toll roads are an established mode of fast-tracking transport infrastructure

transport & InfrastructurE The challenge is not only to add new infrastructure but also to upgrade the decaying existing network operated by under-funded state railway company Kereta Api Indonesia. Indonesia’s Parliament recently revised the 1992 railway law, which should pave the way for some form of privatisation and, at some stage, the involvement of foreign players.

Aviation Of about 230 airports throughout the country, only about 35 can currently accommodate planes of the size of a Boeing 737 or larger. While national carrier Garuda Indonesia is pushing for further airport upgrades (see interview on page 14), PT Angkasa Pura II has already commenced work on a new terminal at Jakarta’s Soekarno-Hatta Airport. This will not only enable the airport to accommodate the new Airbus 380, but will also add four million passengers to its annual capacity. Post 1999, the number of aircraft and airlines operating in Indonesia has increased and there has been free competition. The sector’s expansion has not come without its problems, however. Safety—actual and perceived—remains an issue.

The total number of mobile—or ‘handphone’—subscribers is predicted to rise to around 140 million by 2011, from 60 million in 2007. Mobile call costs are falling sharply and service levels are respectable. The healthy state of Indonesia’s telecommunications industry is in one sense a case study on the benefits of deregulation. In 2001, the Indonesian Government opened up the sector to competition and now there are 10 mobile players—compared to just three in China and India—although state-owned Telkomsel (which recently announced a 16% rise in profits for 2007) still dominates, with 50% market share. Telkomsel has also recently affirmed its strategic intention to spread its business outside Indonesia.

WATER SUPPLY Indonesia has set itself a target of reaching 60% coverage of piped water supply in urban areas by 2015 (it is currently around 50%), and 40% coverage in rural areas in the same timeframe. The Water Supply Development Supporting Agency (BPP SPAM) oversees the water supply at a national level, acting as a promoter and mediator in the PPP process. n

Telecommunications Indonesia’s telecommunications industry is in good shape. That may seem like an optimistic statement, given that only 4% of the population have fixed-line telephones, but the rapid growth in mobile telephony and the emergence of new technologies is rendering that statistic increasingly irrelevant. Indonesia’s archipelagic geography makes the provision of new fixed-line infrastructure very costly (a hefty US$500 to set up each subscriber). In this environment, the country’s carriers are embracing ‘fixed wireless’ as a more feasible solution (at around 10% of the cost). This involves a traditional phone being provided via a wireless local hub.

Jakarta’s new mass transit bus system has greatly improved the daily travel times of thousands of city workers

CONSTRUCTION: PACIFIC PLACE PROVIDES DEVELOPMENT BENCHMARK Any visitor to Jakarta over the past few years could hardly have failed to notice the city’s building boom. A surge of investment in construction projects has seen the creation of many new prestige retail developments, office towers and residential apartments. The demand for building materials, especially concrete and steel, as well as construction equipment, continues to rise. While some commentators have expressed concern that the capital being ploughed into the retail sector might be better invested elsewhere, the relative ease with which finance can be obtained for major retail projects has led to the creation of some extraordinary, world-class developments. Undoubtedly the most architecturally interesting and impressive of these is the new Pacific Place, situated in Jakarta’s Sudirman Central Business District. Pacific Place confirms Indonesia’s construction sector is capable of developments of the highest quality and complexity. It is effectively a city within a city: not only home to hundreds of premium shops, a 10-storey office tower, and 76 cafes and eateries, but also the site of Jakarta’s newest five-star hotel, the Ritz-Carlton Pacific Place (Ritz-Carlton’s second five-star hotel in Jakarta.) As well as a traditional hotel, with one of Jakarta’s best

restaurants and a state-of-the-art health and fitness centre, the Ritz-Carlton Pacific Place also includes premium longerstay executive apartments. The hotel faces two residential apartment blocks across a striking roof garden (pictured), built around the giant glass dome that sits atop the shopping centre below. The Ritz-Carlton Pacific Place also has a massive convention space, featuring a 3600 square metre ballroom—the largest hotel ballroom in Asia. The ability to host conventions, concerts and corporate events in worldclass facilities is undoubtedly helping to reaffirm Jakarta’s standing as a location for major events.

transport & InfrastructurE INTERVIEW: GARUDA LOOKS FORWARD TO IPO A poor recent safety record has hampered national airline Garuda in its efforts to develop Indonesia’s aviation industry and promote Indonesia as a business and tourism destination. The airline is turning its fortunes around, however, as Business Advantage discovered when we spoke with Garuda President Director Emirsyah Satar. Garuda recently successfully completed the International Air Transport Association’s Operational Safety Audit (IOSA). What are the implications of this and when do you expect to be able to recommence flights to Europe? We achieved our IOSA registration in May. This is a very rigorous process, featuring some 900 different standards that an airline must be audited for. Not only is this achievement a testimony to our commitment to safety, but it also makes cooperation with other airlines much easier. In the last couple of months we have signed agreements with both Singapore Airlines and Korean Air, which not only bring considerable commercial benefits but can also act as a stepping stone to becoming part of an alliance. For instance, Korean Air is a member of the Skyteam alliance that also includes members such as KLM, Air France, Delta and Northwest Airlines. The ban on flying to the European Union (EU)—we hope it can be lifted as early as October or by the end of 2008 at the latest. Although Garuda itself is in direct communication with the EU, the fact that there is currently a blanket ban in place on all Indonesian airlines essentially makes it a government-to-government issue. Although the global airline industry appears to be entering a challenging period, the outlook for Garuda appears positive, especially given the Indonesian economy is likely to continue to grow strongly. Where does Garuda go from here?

We are currently preparing the company for an IPO sometime next year. We will finalise our debt restructuring this year to provide a solid foundation going forward. I am happy to report that we made a profit in 2007 and expect to do likewise in 2008. Over the next five years we anticipate our fleet growing from its current size of 54 aircraft to about 130 aircraft. What developments will be required in Indonesia’s airport infrastructure to achieve such high growth? We expect to have the new terminal at Jakarta airport completed by the end of the year. A major new international airport is due for completion at the end of 2009 in Medan, in the province of North Sumatra, and a new airport at Makassar (South Sulawesi) is opening this month (August 2008). It is not just about new airports, however. We need to upgrade most existing airports—for instance, by extending runways to cater to larger aircraft, and upgrade equipment and facilities. From Garuda’s point of view, we also need most airports in the provincial capitals to remain open later at night in order to optimise our aircraft utilisation. Of course, Garuda is also a key stakeholder in Indonesia’s tourism industry. What do you see as the key to developing this sector? You can sense strong growth in the tourism sector at present and this should be maintained, on the proviso that we continue to have political stability. There is no doubt that Bali is the gateway to Indonesia in terms of tourism, but the country has so many potential destinations. I believe we have a comparative advantage in eco-tourism, with the opportunity to provide new experiences to markets such as Japan and Korea.

Garuda’s EmirSyah Satar accepts the airline’s IOSA registration from iata

Credit: Antam

Mining & Energy

THE RESOURCES BOOM AND BEYOND

With the world still riding the resources boom, Indonesia—with its abundant reserves of coal, oil and gas—is strategically well placed, and may soon be a major hub for renewable energy.

‘I

ndonesia is a resource-rich country,’ states John A Prasetio, Vice President of the country’s International Chamber of Commerce and Industry. ‘If you look at the statistics, in spite of the global slowdown, there will be no way in the world that fossil fuel can meet demand, so there are opportunities here.’ Resources companies agree. According to a 2006/2007 Fraser Institute survey of 333 mining companies around the world, Indonesia ranked in the top 10 countries in the world in terms of geological prospectivity.

lack of exploration activity. While greenfield exploration in Indonesia rose from US$9 million in 2005 to US$48 million in 2006, exploration spending in Indonesia is still only about 2% of total global exploration expenditure—far less than it should be. As the December 2007 PricewaterhouseCoopers survey MineIndonesia 2007 puts it succinctly: ‘Indonesia needs to attract more investment in greenfields exploration and/or production expansion in the near future if it wishes to benefit from the continuing upturn in the global mining industry.’

Exploration improving slightly

Minerba Bill still pending

While resources companies are enjoying record market capitalisation on the Indonesia Stock Exchange and the average profitability of Indonesian mines is in line with global benchmarks, there is a major challenge facing the resources sector in Indonesia: a

There is a general consensus that an uncertain regulatory environment is the major reason for the lack of investment in new sites. In 2007, Business Advantage reported that the long-awaited Mineral and Coal (‘Minerba’) Bill was before the Indonesia

PRIVATE POWER PRODUCERS NEEDED Electricity demand in Indonesia is expected to rise by an an average of 7.1% per annum until 2026, and the country’s power sector is struggling to keep pace with this extra demand. Power cuts are not uncommon. Currently only about 21% of Indonesia’s power needs is supplied by independent power producers (IPPs). However, over the next 10 years, the Indonesian Government would like to see greater involvement from the private sector in power generation, as it sets about its goal of providing 75% of Indonesian households with electricity by 2015. ‘In the longer term, we need around US$50 billion invested in the power sector over the next 10 years,’ explains Bambang Praptono, Director of Planning and Technology for state energy company PT Perusahaan Listrik Negara (Persero)—or PLN for short. ‘That’s a lot for us. We need maybe 60–70% of this to come from the private sector.’ Development of Indonesia’s private power sector was stalled due to the 1997 Asian currency crisis, but is now getting back on track. As of March 2008, there were 48 private power plants in the pipeline, representing a potential total output of about 4300 megawatts. Of these, 75% will be based

on coal, with a further 13% based on geothermal energy. PLN is actively looking for foreign participants in the energy sector. Both equity participation and debt financing are options. Power projects in 17 locations across the Indonesian archipelago are currently open for investment. While the opportunities are significant, there are matters that still need to be addressed if the targets for private investment in the power industry are to be met, as Muhammad Lutfi, Chairman of Indonesia’s Investment Coordinating Board (BKPM), explains: ‘About 75% of electricity is fuelled by oil, so the price to generate 1 kilowatt hour of electricity is about US$0.12. However, it is being sold to the people for US$0.07.’ The gap between the production price and the retail price is currently being financed by Government subsidy to PLN, but clearly private producers will want to know that they can sell the power they generate at a profit before committing to large investments in the sector. It is expected that private investments will be protected by Government regulation. Further information

www.pln.co.id

Mining & Energy Parliament. At the time of writing, the industry is still waiting for Parliament to work its way through this complex legislation, which is necessary to resolve the inconsistencies in current national and provincial legislation and provide an alternative system to the previous Contracts of Work for mining operations.

Oil Indonesia’s largest oil producers are Chevron Pacific, state-owned Pertamina, France’s Total and ConocoPhillips. Due to reduced exploration, red tape and declining reserves (currently estimated at 8.9 billion barrels), Indonesian oil production is in long-term decline. From a peak of 1.6 million barrels per day in 1995, the country now produces less than a million barrels per day and, as a net importer, Indonesia recently signalled its intention to leave the Organisation of Petroleum Exporting Countries, OPEC. That said, in a recent survey 73% of oil companies active in Indonesia said they believed there were still significant oil reserves yet to be discovered, most especially in Papua, Maluku and Sumatra. At the time of writing, another 25 oil and gas blocks were due to come up for auction in October 2008. Indonesia’s only major recent discovery, the Pertamina/ExxonMobil-run Cepu Oil Field in Central and East Java, is expected finally go into production by the end of 2008, with annual production expected

to rise to almost 200,000 barrels a year by 2011. Overall, upstream regulator BPMigas statistics indicate that $US10.08 billion was invested in the oil and gas sector in 2007—a record. With Indonesia still needing to refine 300,000 barrels per day, there are also significant opportunities in the area of refinery construction, and Government incentives in place to encourage it.

Coal Indonesia is the world’s eighth-largest coal producer. With an abundance of coal reserves, and with oil prices so high, the Indonesian Government has mandated a switch from oil- to coalfired power generation, and made it clear to coal producers that their first duty is to supply local power needs. (Even so, Indonesian coal exports are expected to continue to grow by around 11% annually until at least 2012.) Coal production has soared along with the coal price, as existing producers expand current mine production. This increase has been accompanied by a spate of listings on the Indonesian Stock Exchange: PT Bayan Resources, PT Indika Energy Tbk, PT Indra Sapta Sejati and PT Adaro Energy Tbk (the latter two subsidiaries of Indonesia’s largest coal mining company, PT Adaro Indonesia) were all expect to list in 2008 at the time of writing, with speculation that the IPOs would raise as much as US$1.9 billion.

INDONESIA EMBRACES GREEN POWER

‘We have to diversify our resources—it’s a must,’ says Dr Evita Legowo, until recently First Secretary of the National Team for Biofuels Development at Indonesia’s Ministry of Energy and Minerals. Under the country’s 2007 Energy Law, both central and local government in Indonesia have an obligation to increase supply and utilisation of renewable energy— biofuel, geothermal power (Indonesia has about 40% of the world’s geothermal reserves), biomass, hydro, solar and wind power. The benefit of having a large, dispersed agrarian population is that renewable resources may well be a better way of delivering energy—and prosperity—to rural and remote communities than existing fossil fuel power. Due to the geography of Indonesia, there is no national power grid, and it will require a vast number of small regional power stations to help the country meet its target of 100% electrification. Biofuel feedstock such as cassava, sugar cane, palm oil and jatropha can be grown and processed locally, often on land abandoned after logging, creating jobs. The Indonesian Government has itself the target of creating 1000 energy self-sufficient villages by 2010, and 12 Special Biofuel Zones. As such, the renewable energy sector in Indonesia presents a major opportunity. One international investor already

heavily involved in the sector is biodiesel producer NVision Green Energy Solutions. ‘I personally believe that Indonesia will develop to be a hub for renewable energy in the next 10 years, and the opportunities available here are in abundance,’ NVision’s CEO, Mukesh Arora told Business Advantage. NVision is building a global supply chain for biofuels, while pioneering the science, planting and production of inedible jatropha oils. ‘We are looking for partners who share our belief and vision, and are willing to work together for a better, greener world,’ says Arora. ‘Recently, we have been getting a lot of interest from overseas investors, mainly based in Europe, the US and the Middle East.’ The biggest challenges facing the biofuel sector are acquisition of sufficient land, accessibility to plantation labour, and the higher costs associated with working in remote areas. NVision notes, however, that it has received plenty of cooperation from government in overcoming some of these hurdles, as it has a good track record in this sector.

Credit: NVision

‘Growth in Indonesia is not sustainable environmentally,’ Adam Sack, Country Manager at the International Finance Corporation (the World Bank’s private sector arm), told an investment conference in Jakarta in May 2008. At around the same time, at the G8 meeting in Kobe, Japan, Indonesia’s Environment Minister Rachmat Witoelar was confirming plans to cut greenhouse gas emissions in the country’s energy sector by 17% by 2025.

Biofuel source jatropha not only has a high yield but can also be grown on marginal land, thereby reducing pressure on food-producing arable land

Mining & Energy One notable side effect of Indonesia’s switch to coal is a major shortage of infrastructure for domestic coal transportation. ‘It is an infrastructure issue,’ agrees Sukrisno, President Director of one of Indonesia’s largest coal companies, PT Tambang Batubara Bukit Asam Tbk. ‘In our case, there is a bottleneck between the mine site and the port. We are upgrading 460 km of railway which will add an additional 20 million tonnes a year to our production.’ The US$1.2 billion project should be complete by 2013. Sea freight is also feeling the strain. In June 2008, the Indonesian Department of Transportation also estimated that an additional 390 ships with a capacity of 90 million tonnes per year were needed simply to meet current demand, with more needed as the coal power plants come on line. Another clear opportunity lies in providing technology that will allow Indonesia coal to make the most of lower grade coal.

IRON & steel Iron ore, coal and power are inextricable linked due to their use in the manufacture of steel. Indonesia currently uses about 7 million tonnes of steel each year and demand is booming (PT BlueScope Steel Indonesia reported a 40% rise in sales in 2007 alone). Indonesia currently only has capacity to manufacture about 4 million tonnes itself. State-owned PT Krakatau Steel is the major player, and is expected to announce an IPO by the end of 2008. It has ambitious plans to double production by 2011.

Gas In May 2008, the Indonesian Government signed the country’s first contract in 30 years for the supply of coal-bed methane. According to Stephen Humphries, Senior Technical Advisor to PricewaterhouseCoopers’ Indonesian operation, there are ‘significant opportunities’ in this relatively undeveloped area. The most recent estimates suggest there may be as much as 453 trillion cubic feet of methane reserves, mainly in South Sumatra and Kalimantan’s Barito Basin. The deal, expected to be the first of several, will involve Indonesia’s largest private energy company PT Medco Internasional and Energi Pasir Hitam. Indonesia has been a strong exporter of liquefied natural gas (LNG) since the 1970s and the sector continues to look promising. Advance orders meant that the LNG in BP Indonesia’s Tangguh LNG plant in Papua was effectively sold out before production has started, while there are further discoveries in that province at Wiriagar, Muturi and Berau. Other major LNG developments include the Senoro and Toili blocks in Central Sulawesi, Japanese company Inpex’s Abadi field in the Timor Sea, and finally, the massive Natuna D Alpha field in the South China Sea. This latter field is claimed to be the largest ever discovered, with 46 trillion cubic feet of recoverable reserves. n

CASE STUDY: PT FREEPORT INDONESIA Freeport Indonesia’s massive Grasberg open pit copper and gold mine has been a contributor to the Indonesian economy since 1990. Situated in the highlands of the most easterly of Indonesia’s provinces, Papua, the mine produced 1.3 billion pounds of copper in 2006, and 1.7 billion ounces of gold. Estimated reserves as of the end of 2005 were 56.6 billion pounds of copper, 58 billion ounces of gold, and 180.8 million ounces of silver. The importance of Freeport’s mining in Papua to the national and provincial economy is hard to overstate. PT Freeport Indonesia estimates that its total operations contributed 2.5% of Indonesia’s GDP in 2006, and about half of Papua’s GDP. Add to that 19,700 direct employees and contractors, and one can see why the Indonesian Government and Papua Province are keen to attract more mining operations to the region.

Freeport began a successful 10-year project to double the number of Papuans in its workforce back in 1996, and in 2003 opened a mining training institute to create apprenticeships and upgrade the skills of local workers. An additional community development fund has so far assisted 1600 local businesses make the most of the economic activity the mine has engendered. These kind of investments, together with direct funding of important infrastructure such as roads, bridges and hospitals, and a commitment to environmental best practice, mean that the benefits of the Grasberg mine will hopefully continue long after its reserves are exhausted. It should also ensure that new investors in this sector are welcomed.

In order to do so, it’s necessary not only to guarantee life-of-mine certainty to the mining investor, but also to ensure that mining activity leads to sustainable development for the surrounding communities. While an original 30-year Contract of Work and two subsequent 10-year extensions mean the long-term prospects of Freeport and its minority partner Rio Tinto are secure, in the past decade or so more emphasis than ever before has been placed on ensuring the mine delivers long-term benefits to the people of Papua.

Developing the next generation of skilled mine workers

Mining & Energy REAPING THE REWARDS OF THE RESOURCES BOOM Antam is a vertically-integrated diversified mining and metals company whose shareholders are benefiting from the high prices for nickel and gold, as well as the company’s recent nickel expansion. As its own company report states, 2007 was an ‘amazing year.’ Antam’s income from nickel increased by a massive 275% in 2007, partly thanks to the addition of a third ferronickel smelter, FeNi III. Nickel now represents well over 90% of its business. That said, its gold income still increased by over 60% between 2006 and 2007. In 1997, the Indonesian Government—the company’s majority shareholder—listed 35% of the company’s shares on the then Jakarta Stock Exchange to raise money for a ferronickel expansion. In 1999, Antam listed its shares in Australia as a foreign exempt entity and then in 2002 augmented its status to the more stringent ASX Listing. Compound net revenue growth has been consistently impressive. With low debts and high cash holdings, the company is now looking to further expand, recently signing international joint venture deals to develop nickel and bauxite reserves through value-added downstream projects. While its recent attempted takeover of Australia’s Herald Resources ultimately failed, it was a clear sign of intent.

With substantial reserves of nickel, bauxite and gold spread throughout the Indonesian archipelago and a stable, globallydiversified an antam nickel smelter customer base, the company is bullish about its prospects, even though it is unlikely the company will experience another year like 2007. ‘While our net income has decreased in the first quarter of 2008, this was not unexpected,’ Antam’s President Director, Alwin Syah Loebis, said recently. ‘We were able to maintain our nickel ore prices despite softening spot prices for nickel throughout the quarter. Our gold division performed well in terms of revenue growth and prices of gold increased significantly. We are still optimistic we will achieve our volume targets for this year. We are also now focused on our next significant growth investment.’

Indonesia’s provinces SOUT

M A L AY S Aceh

H CHIN A SE

Mining, agriculture, fisheries

North Sumatra

SINGAPORE

Coal, industry, palm oil, rubber, cocoa, coffee

Riau Island Batam Free Trade Zone, gas

East West Kalimantan

West Sumatra

Bauxite, coal, gold, agriculture/citrus, fisheries

Jambi

Mentawai Islands a potential ‘new Bali’ palm oil, coal, rail

Bangka-Belitung

Plantations, coal, oil & gas

Riau

Central Kalimantan

Tin, fisheries, plantations

Palm oil/biodiesel, rubber

South Sumatra Energy, tin, palm oil, coal, fisheries

Bengkulu

Oil & g

Lampung

Plantations, fisheries, coal

Coal, gold

IND

South K

ONES

East Java

Coffee, aquaculture

Petrochemicals, logistics, agriculture, fisheries

Banten

Petrochemicals, energy-based industry, steel

West Java Energy, cocoa, technology-based industry, services, fisheries

Central Java Manufacturing, textiles, automotive, agrilculture, fisheries

Yogyakarta

Bali

Tourism, Handicrafts

Tourism, handicrafts

Jakarta Technology-based industry, services

Coppe

Business Advantage INTERNATIONAL

Business Advantage

and their potential INTERNATIONAL

SPECS Univers ExtraBlack 44pt – Optical -30 Univers 45 Light 44pt – Optical -30 Univers 55 13pt/13 – Optical 10 LOGO colour – 100m0y0k70

BusinessAdvantage INTERNATIONAL

SULU SEA

BusinessAdvantage www.businessadvantageinternational.com INTERNATIONAL

BusinessAdvantage INTERNATIONAL

PA CIF

Oil & gas, petrochemicals, palm oil, cocoa, fisheries, coconut

OCE

Central Sulawesi

North Sulawesi

CELEBES SEA Oil & gas, petrochemicals, palm oil, cocoa

Kalimantan

North Maluku

Gorontalo

gas, coal, gold. forestry

Gold, nickel, copper

Agriculture/corn, fisheries

West Sulawesi

West Papua Forestry, palm oil, gold, copper, fisheries

CERAM S EA

Agriculture, forestry, tourism

Kalimantan

oal, gold

South Sulawesi Oil & gas, petrochemicals, nickel, cotton, palm oil, cocoa

West Nusa Tenggara

er, gold, cocoa, tourism, fisheries

South East Sulawesi Oil & gas, coal, nickel, petrochemicals, palm oil, cocoa, coffee

Maluku

Papua

Gold, nickel, copper, fisheries, forestry

Forestry, palm oil, gold, copper

BANDA SEA

SAVU SEA

TIMOR SEA East Nusa Tenggara Copper, cocoa, fisheries, Arafura Sea hydrocarbons

ARAFURA SEA N 0

200KM

trade, manufacturing & agriculture

A WEALTH OF PRODUCE

Indonesia, which recently overtook Malaysia to become the world’s number-one exporter of palm oil, is the world’s number-two producer of rubber, and the second-largest exporter of cocoa. As a large and diverse economy with low labour costs, it is also well-placed to export a wide variety of manufactured goods. Textiles & footwear

Handmade goods

Currently, the textiles and garment industry in Indonesia employs about 15% of all workers in the formal economy, and is responsible for US$8 billion in exports—about 8% of the value of the country’s total in 2006. Footwear is another major export earner. There are about 300 shoe factories in Indonesia found mainly in Batam, Java and North Sumatra. Sportswear giant Nike sources many of its shoes from Indonesian factories, as do other brands such as Rockport and Lacoste. Indeed, Indonesia is the world’s second-largest exporter of sports shoes, with 23% of the world market.

Indonesia is also renowned for the quality of its handmade goods, many of which draw on traditional techniques. Products includes leather goods, jewellery, silver and gold crafts, woven cloth, ceramics and handicrafts. The value of craft exports was US$168.8 million in 2006. Another area that draws on traditional skills in Indonesia is the area of wooden furniture manufacture. While traditional furniture is in demand all over the world, the plentiful supply of timbers such as teak, mahogany, pine and fast-growing sengon has led to more modern furniture designs.

Automotive & electronics

Agriculture & aquaculture

Another sector that has grown in recent years is automotive parts. Companies such as Nissan, Toyota, Isuzu and Daihatsu have all set up plants in Indonesia, and Indonesian-made automotive parts are now exported around the world. Electronics manufacture is another strong area. Indonesia is the world’s number two exporter of office printers, for example, and many global brands, such as Samsung, LG, TEAC and Panasonic now operate plants in Indonesia.

In the area of agriculture, palm oil dominates, but Indonesia’s warm climate, large land area and reliable rainfall lends itself to a wide variety of agricultural produce (see page 22). Being an archipelago, there is no shortage of sea surrounding Indonesia and the country is the fourth-largest exporter of prawns (shrimp), after Vietnam, Thailand and India. Most Indonesian prawns are exported frozen. n

TRADE EXPO SHOWCASES INDONESIAN EXPORTS As a major economy, Indonesia produces an enormous variety of goods for export as well as local consumption. For importers looking to source goods and services from Indonesia, NAFED’s regular Trade Expo Indonesia is an excellent place to start. In 2008, the event will be held from 21–25 October in Jakarta’s extensive fairgrounds. In 2007, Trade Expo Indonesia attracted well over 7000 buyers from 109 countries. Transactions totalled US$208 million, with Indonesian furniture accounting for over half of all business conducted at the event, followed by gifts/craft and automotive components. The business-to-business event showcases the enormous range of Indonesian goods for export, including: n agricultural products n automotive components n building materials n chemical products

n n n n n n n n n n n n n n n

electronics & electrical equipment leather products food & beverages furniture glassware handicrafts heavy machinery & equipment household goods healthcare, herbal and medicine jewellery paper products & stationery rubber products sporting equipment textiles & garments wooden products Further information

www.tradexpoindonesia.com

trade, manufacturing & agriculture

PROMOTING INDONESIA’S GOODS TO THE WORLD The role of promoting Indonesia’s exports around the world—with the exception of oil and gas—falls to the National Agency for Export Development (NAFED). Business Advantage spoke with its Chairman, Bachrul Chairi. NAFED’s Bachrul Chairi

f Indonesia is to achieve GDP targets of 6% or more, it must export more, and also diversify its exports beyond oil and gas by building on the success of palm oil and cocoa. This is why the country’s National Agency for Export Development (NAFED), an agency under Indonesia’s Ministry of Trade, has such a crucial task. ‘NAFED’s role is to help Indonesian products find markets, and also the niches within those markets,’ explains the organisation’s Chairman, Bachrul Chairi.

A global promotional network In addition to 10 Indonesian Trade Promotions Centres around the world (see box below), Indonesia also has trade representative offices attached to 25 of its embassies and consulates. Bachrul told Business Advantage that the organisation has ambitious plans to build on this network: ‘In 2008, I am going to add 11 new offices in the emerging markets. In Asia: in Busan (Korea), Shanghai (China), and industrial centres in India. Santiago in Chile, Lagos in Nigeria. In North America: Vancouver and Chicago. In Europe, we’ll have one in Barcelona.’

Broad range of activities As well as providing a ‘shop window’ for Indonesian goods around the world, NAFED also provides a first port of call for those seeking to import Indonesian goods, as well as gathering useful market data, running export training centres for small and medium-size enterprises to develop export knowledge, and coordinates attendance at international trade fairs. It also runs the massive Trade Expo Indonesia (see box on page 20).

STRATEGIC FOCUS ON KEY SECTORS

‘We have identified our major export markets and our potential export markets. We can’t go into them all, we have to decide which ones to go into,’ Bachrul explains. ‘We have 10 priority product lines: textiles and garments, electronics, travel, palm oil, forest products, shoes, automotive, cocoa, coffee and shrimp. These accounted for 48.6% of our total exports in 2007, worth US$24 billion.’ A further 10 categories have been identified as having significant export potential, including handicrafts, medicinal herbs, spices, jewellery and leather. Also on NAFED’s radar is Indonesia’s burgeoning IT industry, creative design services and the export labour market.

Branding for export Bachrul is mindful that products that work in the Indonesian domestic market may not necessary be successful internationally. NAFED is therefore also focusing on how to brand Indonesia’s products overseas. ‘From 2010, we are targeting to promote about 200 Indonesian brands around the world. We are helping some products and branding them for international recognition.’

Customs reform One major hurdle remains if Indonesia is to achieve its export potential: the need for swifter processing through Indonesia’s customs system and ports. The mining industry already has single process for clearances, and Bachrul welcomes the pilot ‘single window’ import/export gateway currently being trialed in the Batam Free Trade Zone (see page 24). ‘At a national level we are introducing a national single window. This is a gigantic leap. It has to coordinate about 40 institutions. Previously, you had to go to Customs and the banks, now you will go to one place. It is much more efficient. The pilot project started in Batam last year. By 2009 all export ports will be implementing cuts to bureaucracy.’ n

With such a broad-based economy, NAFED has had to be strategic in selecting which sectors it promotes.

Further information

www.nafed.go.id

INDONESIA’S TRADE PROMOTIONS CENTRES AROUND THE GLOBE In addition to 25 trade representative offices sited in embassies and consulates, NAFED manages Indonesian Trade Promotions Centres in 10 countries: n

Australia (Sydney)

Brazil (Sao Paolo)

Germany (Hamburg)

Hungary (Budapest)

Italy (Milan)

Japan (Osaka)

South Africa (Johannesburg)

Taiwan (Taipei)*

United Arab Emirates (Dubai)

United States (Los Angeles)

*Indonesia Economic and Trade Office

INDONESIA’S

AGRICULTURE POTENTIAL

‘T

his country has the potential to be a powerhouse for agriculture,’ noted Kenneth Courtis, former Managing Director of Deutsche Bank Group, at an investment forum in Jakarta in May 2008. Certainly, at a time when the world is experiencing both fuel and food shortages, Indonesia has plenty of both resources. ‘We have an obvious strength in agriculture because of a combination of fertile land, [large] population and a farming tradition,’ agrees Mahendra Siregar, Deputy Minister at the Coordinating Ministry for Economic Affairs.

Palm oil Versatile palm oil, with its uses as a food, fuel and manufacturing additive, is Indonesia’s leading agricultural export. In 2006, the country produced 16.5 million tonnes of palm oil, the vast majority for export to countries such as India, the Netherlands, Singapore, Malaysia, Pakistan and China. It now produces about six times as much palm oil as it did in 2000. Encouragingly, refined and processed palm oil product accounts for 57% of all exports. Riau Province, close to Malaysia, alone accounts for about 30% of Indonesia’s palm oil production. Currently, an industrial estate specifically dedicated to palm oil is being built there in the city of Dumai. Value-adding to Indonesia’s palm oil production creates higher value exports and more jobs. There are now 46 palm oil refineries (for more on biofuel, see pages 15–17), seven oleochemical factories and seven biodiesel factories in Indonesia but there is a declared need for much greater refining capacity to keep up with increases in production. The Government, along with the Indonesian Palm Oil Board, has instituted a number of measures in response to concerns that clearance burning and unsustainable practices may be damaging the sector. These include a ‘zero burning policy,’ sustainability training according to the principles set out by the Roundtable on Sustainable Palm Oil (RSPO), waste management and recycling of nutrients. In 2007, about 80% of palm oil plantations met the Forest Stewardship Council’s High Conservation Value Forest criteria.

Cattle & livestock The feedlot industry in Indonesia has grown markedly in recent years, although breeding is not yet up with demand. Cattle are currently being imported in record numbers from countries such as Australia. ‘We want to bring the success of crude palm oil and plantations to the beef industry,’ Juan Permata Adoe, Chairman of the Standing Committee for Food Security and Primary Industry at KADIN (Indonesia’s influential Chamber of Commerce and Industry), told Business Advantage.

Coffee In the United States, the word ‘Java’ is synonymous with coffee, and its use goes back to the 19th century, when the US imported much of its coffee from what is now Indonesia’s most populous island. Coffee is still a mainstay of the Republic’s economy. In 2007, it was the world’s fourth-largest exporter of coffee, exporting to the United States, Germany, Japan, Italy, Singapore, Algeria and the United Kingdom. While beans remain by far the most common form of coffee export, Indonesia now also exports coffee husks and skins, coffee powder, and roasted and decaffeinated coffee. A recent development is the entry of worldwide consumer coffee chains into Indonesia. US chain Starbucks now buys direct from primary producers, ensuring the coffee meets its own very stringent quality standards.

Cocoa Indonesia is the world’s third-largest producer of cocoa beans, accounting for about 10% of the world market. In 2007 it produced 770,000 tonnes, with major export destinations being Malaysia, USA, Singapore and Brazil. Export growth has been steady, at around 8% per annum since 2001. As well as beans, the country also exports processed products such as cocoa butter, powder and chocolate. Plantations and processing factories are based primarily in Sulawesi, Sumatra, Java, Maluku, Kalimantan and Papua.

Food crops In the words of President Susilo Bambang Yudhoyono, ‘Indonesia can become a major food producer with the right investment.’ In addition to six major food crops (see box), Indonesia produces a wide variety of foods, not the least of which is a broad range of tropical fruits, such as bananas, papaya, guava, the famously smelly durian, mangos, starfruit and pineapples. Vegetables such as chillies, cabbage, eggplant, tomatoes and potatoes are also staples, while the country is a notable source of tea, vanilla, pepper, cloves, cinnamon, cashews and nutmeg. n

INDONESIA’S SIX MAJOR FOOD CROPS n Cassava n Corn/Maize n Rice n Peanuts n Soybean n Sweet potato

Credit: Ministry of Agriculture

trade, manufacturing & agriculture

BATAM FREE TRADE ZONE LEADS THE WAY

Free trade zones are part of the Indonesian Government’s strategy for attracting foreign direct investment. Business Advantage visited Indonesia’s first free trade zone, on Batam Island near Singapore, to see the model working first hand.

ravelling to the island of Batam in Indonesia’s Riau Islands Province takes just an hour by high-speed ferry from Singapore, one of the world’s busiest ports. On the way, you pass along the Straits of Singapore. About 55,000 ships pass through here each year, carrying approximately 25% of the world’s trade volume and half the world’s oil consumption. As the tall buildings of over-crowded Singapore recede into the distance, and the buildings of Batam Center ferry terminal approach, it’s easy to understand why the Indonesian and Singapore Governments, combined with many shrewd private Indonesian, Singaporean and international investors, have invested US$13.08 billion in turning Batam and its five neighbouring islands—now linked by bridge—into a major manufacturing, trade, transshipment and tourism hub.

Zone benefits Land and labour in Batam is cheap and plentiful, compared not only to Singapore, but also to Indonesia’s Asian neighbours generally. Infrastructure is mostly in place, and most convenient of all, goods and raw materials can be brought in and out of Batam (and adjoining islands, Rempang and Galang) free from

Government taxes, and with minimal delays. ‘It takes only half a day to clear goods from Singapore to Batam—no problems,’ Yoshio Takayama, President Director of Japanese-owned manufacturer PT Tomoe Valve Batam, told Business Advantage.

Rapid growth It has all happened quite quickly. Back in the 1970s, Batam was home to a population of just 6000 people, most relying on fishing for a livelihood. Thirty-six years on, the Batam free trade zone has a population of over 700,000, about 40% of whom work in one of the zone’s 22 industrial parks or 71 shipyards. The island archipelago is now home to almost 1000 foreign companies from 38 countries, and almost 10,000 local ones. Its free port status, shared in Indonesia only with Sabang in the province of Aceh, makes it particularly attractive to those companies bringing in raw materials and exporting finished goods.

Long-term certainty In August 2007, Indonesian President Susilo Bambang Yudhoyono signed instruments declaring Batam and parts of neighbouring Bintan and Karimun islands as a free trade zone, exempt from import and export taxes, customs and excise charges and sales tax. ‘The declaration is really a continuation of Batam’s existing status,’ Mustofa Widjaja, Chairman of the Batam Industrial Development Authority (BIDA), told Business Advantage. ‘However, the declaration’s guarantee of free trade zone status for 70 years will guarantee that business conditions here are stable.’

Credit: BIDA

Key industry sectors The 22 industrial parks dotted across Batam provide a broad range of facilities and rental rates, and also allow companies in similar industries to cluster together to achieve efficiencies. Key

CASE STUDY: LOGISTICS GIVES TEAC AN ADVANTAGE If you use a laptop computer, there’s a reasonable chance that its optical CD or DVD drive was assembled in Batam. Japanese electronics giant TEAC, which manufactures optical drives for most of the major computer manufacturers around the world, is one TEAC’s Ota Kenshi of a number of electronics companies situated in Batam. In operation since 1994, PT TEAC Electronics Indonesia now manufactures all TEAC’s optical drives out of Batam. The company employs about 1700 people at its plant in the Batamindo Industrial Park. According to President Director

Ota Kenshi (pictured), Batam’s proximity to the major port of Singapore was a key benefit to a business heavily reliant on importing components and exporting finished goods. ‘Singapore is the number-one country for logistics. We export drives to the US, China, the United Kingdom, Japan and Taiwan—to Dell, Hewlett Packard and Toshiba, among others. It’s very easy here. Customs checks are kept to a minimum and we can make same-day shipments.’ The flexibility and affordability of the workforce is another factor: up to 90% of TEAC’s Batam workforce, mainly women, are contractors. TEAC Electronics Indonesia’s business looks set to grow. Ota Kenshi is already making plans to commence manufacture of the next generation of optical disk drives, Blu-Ray.

trade, manufacturing & agriculture CASE STUDY: TOMOE VALVE BATAM Since the 1970s, when Indonesia’s state energy company Pertamina first established a presence in Batam, the free trade zone has built a reputation as a centre for the provision of services and equipment to the coal, oil and gas industries.

where safety is paramount, the workforce was also a factor.

PT Tomoe Valve Batam, the Japanese-owned manufacturer of high performance valves for use in oil and gas pipelines and refineries, commenced business in Batam in 2006 and now exports its equipment to Japan, Southeast Asia, the USA and Saudi Arabia.

Takayama told Business Advantage that setting up in Batam had been a straightforward matter: ‘They have many advantages for newcomers on this island.’ Established industrial parks and cheap land meant a suitable building could be found and leased quickly, while affordable and available labour meant a workforce could also be assembled without delay.

Like many other export-focused companies, Tomoe Valve chose Batam because of its proximity to Singapore. But for a company that manufactures critical parts for an industry industry sectors include oil and gas (and related services), shipyards electronics, manufacturing, engineering, logistics, construction, plastics and consumer goods.

Infrastructure keeps pace Such has been the pace of change in Batam, it is hardly surprising that the island’s infrastructure has at times struggled to keep up with industrial growth. However, companies Business Advantage spoke with during our visit in June 2008 seemed to think most of the zone’s growing pains were in the past. With four cargo ports, six passenger ferry terminals, a freight airport with Indonesia’s longest runway, and a modern road and bridge network, the zone is well-served with transportation infrastructure, although a US$330 million bridge network linking Batam with Bintan Island—considered by BIDA to be a vital next stage in the region’s expansion—is currently stalled due to the lack of a regulatory structure under which it could be built by private capital. Water, energy and telecommunications are areas where there have been capacity issues. Regular power cuts imposed by state power company PLN due to natural gas shortages continue to be a very sensitive issue, with backup power supplies proving essential for most businesses. BIDA is encouraging the building of new coal-

‘We have experienced managers here, and the skills for manufacturing here are higher than in Singapore,’ notes President Director Yoshio Takayama (pictured). ‘Much higher even than in Japan or China.’ Costs are lower too: Takayama estimates that labour costs are about 90% of those in China.

fired power stations in Batam to help overcome these problems. A new reservoir will soon add about 16% more fresh water to Batam’s existing supply, while a permanent link to Bintan Island— if and when it eventuates—will ensure better access to water in the longer-term.

Placed for future growth With Singapore’s thirst for space, Malaysia experiencing labour shortages, and labour costs in China rising, Batam is strategically placed for growth. ‘Over the next five years, we want to attract another 400 foreign companies to Batam,’ explains Mustofa Widjaja. Further investment incentives, such as tax holidays, have already been signalled for free trade zones by the Indonesian Government, and there are also advanced plans to create a fully electronic ‘single window’ clearance system for customs and quarantine in Batam—a pilot scheme for the rest of Indonesia. All this is likely to further assist BIDA—or its successor agency (a national free trade zone authority is currently being established, which may incorporate Batam’s administration)—in achieving its ambitious targets. n Further information

Batam Industrial Development Authority: www.batam.go.id

CITRA TUBINDO: ENABLING THE OIL AND GAS SECTOR ‘When we set up in 1983, there were only two or three companies here, and one or two fisherman looking for crabs among the mangroves,’ reminisces Independent Commissioner Sri M Srimardji of PT Citra Tubindo Tbk, Indonesia’s leading supplier of seamless pipes, and related services, to the oil and gas industry. Situated in a 500-hectare site in the Kabil Integrated Industrial Estate—a centre for the energy sector—Citra Tubindo is a pioneer in Batam. In 1989, it became the first company in Riau Islands Province to be listed on what is now the Indonesia Stock Exchange (trading code: CTBN). ‘We supply logistics to all the major oil and gas companies. By sourcing locally energy companies can improve their recovery costs here,’ Srimardji explains. Citra Tubindo has its own port and this, combined with the Batam’s customs efficiencies and the availability of most components locally, means the company can benefit from a ‘just-in-time’ approach to stock control.

Export is also a priority, with 50% of business coming from exports to the Middle East, the USA, Malaysia, Japan, Canada and Venezuela. Peters Vincen, Director of parent company PT Citra Agramasinti Nusantara, says the Indonesian Government is attracting foreign investment to the country’s oil and gas sector, but ‘the next challenge is whether there are enough supporting companies to help them achieve that goal.’ He encourages more entrants into the sector: ‘oil and gas specialists are the best businesses to come to Batam.’ Citra Tubindo is certainly reaping the benefits of its strategic positioning in Batam. Turnover has grown from US$72 million just five years ago, to US$279 million in 2007. Profits have grown by over 1000% over the same period, and the company’s share price has never been higher.

Tourism development

AN ARCHIPELAGO OF NATURAL ASSETS

Borobudur in Central Java

Bali aside, Indonesia is yet to fulfil its immense tourism potential. There are, however, encouraging signs that this is set to change.

008 has been designated ‘Visit Indonesia’ year, and yet the widely dispersed archipelago, covering 1.9 million square kilometres, and 55,000 km of shoreline, will only attract some six million overseas visitors in that year. Indonesia’s tourism sector has not received the level of government support that has enabled arguably less well-endowed neighbours to leave it in their wake over the past two decades. Even today the country has no stand-alone tourist board, with the Ministry of Tourism and Culture shouldering responsibility for promotional activities. This task is made harder by inadequate funding and the absence of international representative offices.

Excellent resources, lagging infrastructure A recent survey by the World Economic Forum (WEF) on tourism competitiveness ranked Indonesia 26th (out of 130) in terms of its ‘natural resources’, acknowledging that it has several world heritage listings and particularly rich fauna. Overall, though, Indonesia only ranked 80th, weighed down by a raft of infrastructure deficiencies.

The result of years of indifference is summed up by Debnath Guharoy, Regional Director—Asia for consumer market research specialists Roy Morgan Research: ‘With tourism growing rapidly in Asia, Indonesia is lagging way behind its neighbours. The world knows little about Indonesia beyond Bali … It could be argued that the number of underachieving locales in Indonesia rivals the combined total of all other ASEAN countries.’ To compound matters, the sector endured a truly horrible few years at the beginning of this decade, with two Bali bombings, a spate of air crashes and the December 2004 tsunami savaging the industry.

National strategy unfolds There is no real doubt about this sector’s potential to become a key foreign exchange earner, as well as a primary source of employment for the country’s 237 million people. What is needed is a wholehearted, rigorous and sustained government commitment to develop key tourism infrastructure in strategic localities around the country.

CASE STUDY: NUSA DUA, BALI’S INTEGRATED RESORT With Indonesia seeking to expand its tourism industry beyond Bali, the latter’s Nusa Dua concept provides an excellent example of how to attract investment into this sector. Nusa Dua is a pristine integrated resort, spread over 350 hectares in the south of Bali. It comprises five-star resorts, luxurious villas, an international golf course, restaurants and a retail complex. It boasts over 4000 hotel rooms, managed by brands such as Hyatt, Westin and St Regis, and 7km of beach. The concept was conceived in 1973 and developed by the state-run Bali Tourism Development Corporation (BTDC), which still manages the site. From an investor’s point of view, the key attraction of Nusa Dua is that the vital infrastructure requirements are already taken care of. Working from a masterplan stipulating that all buildings would be low-rise, low density, and in harmony with Balinese architectural practices, BTDC set

about creating a water supply system, electrical power supply system, sewage treatment and waste disposal plants, storm drainage and irrigation systems, telecommunications, landscaping and roads. As hotel investors arrived on site, BTDC was also on hand to assist them with their own specific infrastructure requirements. With an increased global awareness of the need for sustainability in tourism development, the success of the Nusa Dua model also contrasts starkly with other parts of Bali, where development has occurred on an ad hoc basis, resulting at times in the deterioration of the very environment upon which the industry depends. Today the vision devised by the BTDC 35 years ago is nearly complete. A St Regis resort will open in late 2008, and BTDC’s own on-site offices will make way to allow for a small villa development to neatly round things off.

Tourism development Encouragingly, there are signs this is beginning. Indonesia actually ranked 11th in the WEF survey for ‘national prioritisation of travel and tourism’ (although it was noted that implementation of policies can be problematic), reflecting the recognition of the sector’s importance by the current Yudhoyono Administration. Moreover, the state-run Bali Tourism Development Corporation signed a landmark joint-venture with Dubai-based property giant Emaar in March 2008 with a view to creating a very large integrated resort on the island of Lombok (see opposite page). Meanwhile, on the other side of the archipelago, the Indonesian

Government has nominated the development of the Mentawai Islands off the western coast of Sumatra as a long-term goal. Already a popular destination for surfers, many feel the islands have the potential to become a ‘second Bali.’ While all this bodes well for the medium-to-long term, the sector has also been rebounding strongly over the past two years and investment levels have increased sharply. Nearly 2000 hotel rooms were expected to open in Jakarta alone in 2008, and the number of visitor arrivals is at least experiencing double digit annual growth. n

MEETINGS, INCENTIVES, CONFERENCING & EXHIBITIONS When Bali hosted the United Nations climate change conference (pictured) in late 2007 under the unflinching gaze of the world’s media, few outside of Indonesia would have queried the choice of venue. Bali’s global reputation as a tropical tourist destination is well established. And yet, within Indonesia, the event was viewed as a watershed for the country’s tourism industry in general, and for Bali’s MICE (Meetings, Incentives, Conferencing and Exhibitions) sector in particular. To place this sentiment in context, Indonesia’s tourism industry was in the doldrums in the first half of this decade after a series of major setbacks (see main text) and even Bali has never managed to realise its full potential in the lucrative MICE market. So when 10,000 visitors, from 190 countries, descended upon the Bali International Convention Centre (BICC), in the elegant integrated resort of Nusa Dua, to discuss the hot topic of climate change, the sense of optimism was understandable. Bali’s potential in the MICE area is certainly irrefutable. It has a diverse, rich culture, outstanding natural beauty and sound infrastructure. The consensus among industry

Useful resources: n

www.balimice.com/destination.asp

professionals is that a lack of coordinated promotion has been the main obstacle. Indonesia faces fierce competition from neighbours Singapore, Malaysia and Thailand, which have traditionally benefited from concerted government support as they bid for major international conventions. Encouragingly, the Indonesian Government established a Jakarta-based MICE Directorate in 2007. The private sector is also sharpening its focus in this area, with the newly established Bali Chapter of the Association of Indonesian Conferences and Conventions (INCCA) stating that its ‘first priority was to improve the skills of professionals involved in MICE, such as event organisers, hotel managers, public relations agencies, translators and transportation.’ Bali has also been the recent recipient of some noteworthy MICE-oriented investments. Weeks before the climate change conference, the Grand Hyatt opened a massive ballroom to provide the island with a second large-scale meeting venue, and the new 40-hectare Bali Safari & Marine Park will include a 1500 person state-of-the-art performance venue, plus underwater conference rooms surrounded by marine life.

www.baliconvention.com

Tourism development MASSIVE NEW TOURISM PROJECT SLATED FOR LOMBOK

Credit: BKPM

An extensive feasibility study is now underway and, according to BTDC’s President Director, I Made Mandra, ‘a formal commencement of the project is expected in late 2008 or early 2009’.

Lombok’s Mount Rinjani, Indonesia’s second-highest volcano

Indonesia’s long-term tourism prospects took a significant turn for the better in March 2008 when a joint venture was signed between the Bali Tourism Development Corporation (BTDC) and Dubai-based Emaar Properties PJSC to create a US$600 million tourism development project on the Indonesian island of Lombok, immediately to the east of Bali. Emaar is one of the world’s leading property developers, with a global investment portfolio, and brings both capital and world-class expertise to the table.

The first phase will involve the construction of two fivestar hotels and a number of villas. While this should be completed within three years, the whole project is expected to take 10 to 20 years. The main market focus will be on the Middle East. The project area will cover 1175 hectares located on Lombok’s Kuta Beach and will consume a stretch of seven kilometres of beach front. The project site is a 90-minute drive from Lombok’s main city of Mataram, and just 15km from Lombok’s new international airport, currently under construction. With its 4.5km long runway, the airport is expected to provide a cornerstone for the future development of the island’s tourism industry, which is currently constrained by a lack of direct international flights. There can be little doubt that if this project proceeds as scheduled it will usher in a new era for Indonesia’s tourism industry, and make a powerful statement that Indonesian tourism need not be synonymous with Bali.

The island of Lombok is located close to Bali but is still very much undeveloped. It has an exceptional combination of spectacular unspoiled scenery, wonderful beaches and exotic culture.

Bali

Regional development

PROVINCES PROVIDE NEW OPPORTUNITIES Indonesia’s provinces will play an increasingly important role in the nation’s economic development.

ith 33% of all Government revenues now disseminated through Indonesia’s 33 provinces under the country’s policy of desentralisasi, more political and financial power is being devolved across the Indonesian archipelago and away from the central Government in Jakarta. The intent is to stimulate economic growth across the country, and thereby maintain both financial and political stability in the Indonesian republic. Intent is one thing; generating real business activity on the ground is another. At present, the most populous island of Java still receives 10 times more direct foreign investment than either Riau or Banten provinces, the next two most popular regions for overseas investors.

There are signs that change is occurring, however. In May 2008, Indonesia’s House of Regional Representatives (DPD)—the parliamentary assembly that represents the country’s provinces— hosted a regional investment forum at which hundreds of investors were briefed on over 200 regional development projects worth an estimated US$19 billion. The event, the Indonesia Regional Investment Forum, was opened by Indonesian President Susilo Bambang Yudhoyono, who reminded the assembly that ‘the role of regional governments and the private sector are utterly critical to the growth of Indonesia.’ Indonesia’s decentralisation strategy was affirmed by leading Asian economist Kenichi Ohmae, who memorably told the assembly: ‘It’s the regions, stupid!’, in an adaptation of the famous Bill Clinton campaign slogan, 'It's the economy, stupid!'n

REGIONAL DEVELOPMENT PROJECTS Below is a list of regional development projects for which investors were actively being sought in 2008. They were presented by the following Indonesian provincial governments at the May 2008 Indonesia Regional Development Forum in Jakarta. (See provinces map on pages 18 and 19.) Province Projects Aceh Ports, bioethanol Banten Green mussel cultivation, agribusiness terminal, port, dam/water supply, toll road, industrial estate, oil refinery, tourism development Central Java Prawn fishpond, seaweed, wood plantation/manufacturing, Jatropha biodiesel, livestock breeding, coconut sugar, sheep, fish-based food, freshwater crayfish farming, coconut growing/processing, jasmine essence oil processing, organic fertiliser, silk weaving, rubberised coir processing, fish processing, industrial zones, corn plant, sports centre, water supply, port, grandiorite tiles, cement, geothermal power plant, hydrated lime factory, mortar factory, PCC factory, cement, natural stone, tourism development, markets, shopping malls, hospital, apartments, aquarium, rubber Central Kalimantan Rice production, mining, coal power Central Sulawesi Seaweed processing, cattle breeding/farming, cocoa processing, fish processing, toll roads, airport expansion, ferry services, port expansion, charcoal briquet manufacture, nickel mining, hydrothermal power, tourism development East Java Container terminal, waste processing, teak plantation East Kalimantan Fisheries, plantation forest, coast reclamation, industrial estate, bridge, Special Economic Zone, airport, non-oil power, tourism development East Nusa Tenggara Development zone, geothermal power, tourism development Jakarta Geothermal power plants Jambi Cinnamon processing, port, water, markets, coal power, tourism development Lampung Cattle husbandry, palm oil, rubber, sugar refineries & plantation, rice processing, toll road, mining, electricity, new city development, tourism development, botanical gardens Maluku Coconut oil processing, fisheries, seaweed, public transport, mining, hotel/shopping centre North Sulawesi Fish processing, port, geothermal power, eco-tourism development, industrial estate, hotel/marine park North Sumatra Oranges processing, animal feed, limestone & granite, cable car Riau Agribusiness terminal, industrial parks, port, rail, toll road, artificial lake Riau Islands Bridge, fish processing South East Sulawesi Industrial areas, coal power, port/logistics West Java Coconut processing, quinine plantation, tea, vetiver oil, geothermal power, tourism development, hospital, mushroom cultivation West Kalimantan Airport West Nusa Tenggara Jatropha cultivation, gold mining, tourism development West Sumatra Tuna, fisheries, bridge, hotel, cement, kaolin mining/processing, cable car, tourism development Yogyakarta Toll road, water supply, apartments, five-star hotel, tourism development

FOCUS on west java

WEST JAVA

West Java is Indonesia’s most populous province, and is only a few hours by rail or road from Jakarta. Business Advantage travelled there to discover a diversity of commercial opportunities.

ndonesia’s most populous province of West Java (or Jawa Barat in Bahasa Indonesia) enjoys a strategic location on Java Island, adjacent to the capital, Jakarta. In fact, it has many of the capital’s advantages (infrastructure, large workforce, access to services) without suffering the latter’s congestion and pollution problems. It supplies the metropolis with much of its food and its population with convenient weekend escapes, but there is more to this US$30 billion economy than just agriculture and leisure. It is also the country’s industrial heartland, with a wide range of manufacturing as well as oil, gas and mineral facilities.

Rapid diversification & potential Over the past three decades, the West Java economy has diversified rapidly and attracted foreign investment into sectors such as iron and steel, chemicals, textiles, the food industry, and oil and gas. What does the future hold? The provincial government is committed to developing the twin engines of agriculture and manufacturing through modernisation and an emphasis on downstream processing. However, perhaps the greatest unknown is tourism. This sector has immense potential that is thus far largely untapped, and has scarcely been marketed internationally.

Java Sea BANTEN

Tangerang

JAKARTA Bekasi

Karawang Indramayu

Bogor Husein

Cianjur

SULU SEA

M A L AY S

Sukabumi

Sastranegara Airport

Cirebon

BANDUNG Kuningan Tasikmalaya

IND

ONES

CENTRAL JAVA

Pangandaran

Indonesian Ocean 29

FOCUS on west java WEST JAVA’S KEY COMMERCIAL SECTORS

Agriculture West Java is one of Indonesia’s most important agricultural provinces, thanks to its favourable climate and fertile land. It is Indonesia’s largest rice producer and is also famous for its tea plantations, which also double as a tourist attraction. Other important commodities include rubber (also processed locally), palm oil, sugar cane, cocoa, coffee and fruit/vegetables.

Other 11% Construction 3%

Manufacturing 40%

Trade, Hotel Restaurant 18%

Services 8% Mining & quarrying 7%

Agriculture 13%

West Java in brief Population

39,066,700

Surface area

34,736km²

GDP

US$30.5 billion (2004)

GDP growth

6.0% (2006)

Exports

US$660 million (2005)

Administrative structure Governor Capital

17 regencies and 9 municipalities Ahmad Heryawan

Bandung (pop. 2.1 million)

The province also has a reputation as a centre for learning, playing host to a large number of important educational institutions, including the renowned Bandung Institute of Technology (ITB).

Natural assets West Java’s landscape is attractive and varied, featuring volcanic mountains, forest, rivers, fertile agricultural land (its rice paddies and tea plantations are quintessential West Java vistas), nearly 1000 km of coastline and natural sea harbours.

Manufacturing West Java is Indonesia’s manufacturing centre, contributing nearly 25% of all Indonesia’s non-oil and gas output. It is particularly renowned for its modern textile and garment industry, which generates more than half of the province’s exports. Bandung also has a fledgling fashion industry. Another sign of progress in terms of value-adding is the emerging local electronics industry. Other significant local industries include food processing, pharmaceuticals and aeronautics. There are 29 dedicated industrial zones in the province.

A West Java rice paddy

Mining & petroleum This is another important sector for West Java, and one with significant potential for growth. The Pongkor mine, run by PT Aneka Tambang (ANTAM) is Indonesia’s only underground gold mine. Other minerals currently extracted include limestone, marble and clay, while coal, phosphate and quartz are also all believed to exist in substantial quantities. The province also possesses some 61 oil and gas facilities, operated by state-owned Pertamina in partnership with major international companies.

Tourism West Java’s tourism industry currently caters primarily to a domestic market—mainly weekenders escaping from the smog of Jakarta to the fresh air and factory outlets of either Bandung, the province’s many seaside resorts (most notably Pangandaran), or the rural retreats that dot the province. West Java also offers some remarkable set-pieces such as the offshore volcano of Krakatau, as well as opportunities for activities such as surfing, cycling, hiking and white-water rafting. The provincial government of West Java has rightly identified this sector as a priority for future development and opportunities for the provision of ancillary tourism services abound.

Maritime The West Java fishing industry benefits from nearly 1000 km of coastline on the Java Sea to the north and the Indian Ocean to the south. It exports frozen and canned tuna, mackerel and shrimp. In 2004 the total quantity of fish output was 441,584 tonnes. With a major upgrade being made to the key Cirebon port, there is significant potential for new investment in this sector.

FOCUS on west java Infrastructure may not be Indonesia’s strong point, but West Java is at least as well-appointed as any part of the country. This is underscored by the fact that the state telecommunications and rail companies have their head offices in the region. West Java’s comparative advantage n

Sound infrastructure (see below)

Close proximity to national capital Jakarta

n Abundant

natural resources: fertile land, minerals, forest, fisheries, tourism potential

n Varied

landscape—close to 1000 km of shoreline and a temperate climate.

Major companies in West Java The following major Indonesian enterprises are located in West Java: n PT

Telekomunikasi Indonesia (state telco)—national headquarters pictured

PT Kereta Api (state rail company)

PT Dirgantara Indonesia (aerospace)

Metro Garment (textiles)

Sanbe (pharmaceutical)

PTPN VIII (tea plantations)

PT Ceres (chocolate manufacturer)

Power West Java’s electricity system forms part of the Java-Bali network. There are four geothermal power plants in the province. With demand for electricity expected to continue to rise sharply, further development of the province’s considerable geothermal potential is anticipated.

Sea West Java relies mainly on the Tanjung Priok port in north Jakarta, but this is supplemented by the port at Cirebon in the east of West Java, which provides passenger and vehicle ferry connections as well as a container handling facility. Cirebon is in the process of being significantly upgraded with a view to becoming the main sea hub for West Java. Improved road and rail access forms part of its longterm development strategy.

Roads Indonesia is woefully undersupplied with modern highways, but West Java’s high population density and the size of its economy have made the construction of toll roads more feasible than elsewhere in the country. As a result, it enjoys a modern and efficient road network. For instance, the recently completed Cipularang expressway linking Bandung to Jakarta dramatically reduced journey-times between the two cities (to around two and a half hours, traffic conditions permitting). At 164 km long it is Indonesia’s longest highway.

Rail West Java is also well-served by its rail network. The trip from Jakarta to Bandung is three hours, with freight demands driving the expansion and upgrading of the Java-wide network.

Air The main airport serving West Java is Jakarta Soekarno-Hatta— about three hours by road from Bandung. There is also a smaller airport at Bandung offering scheduled domestic flights. This could eventually be superseded by a major new international airport that is being mooted. Majalengka Airport would be located 100 km east of Bandung and also ease the load on Soekarno-Hatta. n

Information for investors West Java Promotion and Investment Board (BPPMD) Jl.Sumatera No 50 Bandung, Indonesia Tel +62 22 423 7369 Fax +62 22 423 7081 Email bppmd@jabar.go.id or bppmd@westjavainvest.com Web www.westjavainvest.com

PROFILE

BKPM: INDONESIA’S INVESTMENT PROMOTION AGENCY

ndonesia’s official investment promotion agency is the Investment Coordinating Board, commonly referred to as BKPM (short for ‘Badan Koordinasi Penanaman Modal’). A non-departmental government agency reporting directly to the President of the Republic of Indonesia, its function is to implement government policy in the area of investment. The agency is currently headed by Chairman Muhammad Lutfi, a well-known Indonesian businessman. BKPM’s head office is located on the edge of Jakarta’s Golden Triangle business district, but anyone seeking to do business outside the capital should note that it also has a presence in all of Indonesia’s main regional economic centres.

Investment promotion a priority Given the Indonesian Government’s commitment to lifting investment levels, and foreign direct investment in particular, it is unsurprising that investment promotion is the BKPM’s major priority. BKPM is assisted in this task by a network of five international representative offices (see details below), created with the express purpose of promoting Indonesian business opportunities to key target markets and regions.

BKPM Head Office, Indonesia

Jalan Jend. Gatot Subroto No. 44, Jakarta 12190 Tel: +62 21 525 2008, +62 21 526 9832 Fax: +62 21 525 4945 Email: sysadm@bkpm.go.id

International Offices Australia Level 42 South Tower Rialto, 525 Collins Street, Melbourne, Victoria 3000 Tel: +61 3 9611 4905, +61 3 9611 4988 Fax: +61 3 9611 4911 Mobile: +61 420 274 434 Email: aloysia@bkpm.go.id

One-stop shop According to Darmawan Djajusman, Deputy Chairman for Investment Promotion, BKPM aspires to provide a one-stop shop for investors: ‘Our priority is to promote investment in order to create more jobs in the Indonesian economy. So we are involved in coordinating investment policy, promotion, licensing and also continue to provide support to new investors.’

New investment law Naturally, BKPM has been heavily involved in the implementation and promotion of Indonesia’s new Investment Law (also know as UU No. 25/2007). ‘The new Investment Law will make Indonesia’s investment climate more attractive,’ says Darmwan Djajusman. ‘It will provide a guarantee to foreign investors that their investments will be safe, taxation incentives, and the right to use land for much longer periods.’ The new Investment Law also dictates that BKPM will have a greater role in the actual facilitation of investment, as well as its promotion. n Further information

www.bkpm.go.id

Japan Wakatsuki Building 3rd Floor 5-7-1 Nishishinjuku, Shinjuku-ku, Tokyo 160-0023 Tel: +81 3 3320 7692 Fax: +81 3 3320 7693 Email: Bkpm521@bkpm-jpn.com www.bkpm-jpn.com Singapore 250 North Bridge Road # 05-01 B Raffles City Tower Singapore 179103 Tel: +65 6334 4410 Fax: +65 6334 4891, +65 6334 4170 Mobile: +65 9651 8174 Email: nurulichwan@bkpm.go.id Taiwan Indonesian Economic and Trade Office to Taipei 6F, No.550, Rui Guang Road, (Twin Head Building) Neihu District, Taipei 114, Taiwan Tel: +886 2 8752 6170 ext 31, +886 2 8752 6084 Fax: +886 2 8752 3706 Email: guyub@bkpm.go.id USA 3530 Wilshire Boulevard, Suite 1120 Los Angeles, CA 90010 Tel: +1 213 384 0241 Fax: +1 213 384 0789 Email: heldy_sp@bkpm.go.id

Credit: BKPM

DIRECTORY OF

USEFUL CONTACTS The following directory provides contact details for organisations referred to in this edition, plus some other useful contacts. MINING Ministry of Energy and Mineral Resources +62 21 3383 1307 www.esdm.go.id PT Bumi Resources (Arutmin/Kaltim Coal) +62 21 5794 2080 www.bumiresources.com PT Antam +62 21 789 1234 www.antam.com Diversified mineral exploration PT Freeport Indonesia +62 21 259 1818 www.ptfi.co.id PT Chevron Pacific Indonesia (Caltex) +62 21 351 2151 www.chevron.com PT. Tambang Batubara Bukit Asam (Persero) +62 21 525 4014 www.ptbukitasam.com PT Timah +62 21 344 4001 www.timah.com The world’s largest tin producer

ENERGY PT PLN (Perusahaan Listrik Negara) +62 21 725 1234 www.pln.co.id State electricity company PT Perusahaan Gas Negara (Persero) +62 21 633 4838 www.pgn.co.id State gas company

PT Energi Mega Persada +62 21 5290 6250 www.energi-mp.com Upstream oil and gas company BP Migas +62 21 5290 0245 www.bpmigas.com Executive agency for upstream oil and gas business activities PT Pertamina +62 21 7917 3000 www.pertamina.com PT Indonesia Power +62 21 526 7666 www.indonesiapower.co.id PT Medco Energi Internasional +62 21 250 5459 www.medcoenergi.com Major oil and gas exploration company

INFRASTRUCTURE PT Telekomunikasi Indonesia (Telkom) +62 22 250 0000 www.telkom.co.id PT Jasa Marga (Persero) +62 21 841 3630 www.jasamarga.com PT Indosat +62 21 230 2211 www.indosat.com

BUSINESS SERVICES Santa Fe www.santaferelo.com Relocation Services

Ali Budiarjo, Nugroho, Reksodiputro Tel +62 21 250 5125 www.abnrlaw.com Law firm specialising in foreign investment Nathan Verity +62 21 526 4706 www.recruitment-indonesia.com Human resources consultants PT Petrosea +62 21 718 3255 www.petrosea.com Engineering, construction and mining company PT PriceWaterhouseCoopers FAS +62 21 521 2901 www.pwc.com

BANKING, FINANCE, CAPITAL MARKETS PT ANZ Panin Bank +62 21 575 0300 www.anz.com/indonesia Bank Indonesia www.bi.go.id Indonesia’s central bank PT Bank Mandiri www.bankmandiri.co.id PT Jamsostek +62 21 520 7797 www.jamsostek.co.id Indonesia’s social security provider Indonesia Stock Exchange +62 21 515 0515 www.idx.co.id

TRANSPORT PT Arpeni Pratama Ocean Line +62 21 350 5350 www.apol.co.id Garuda Indonesia www.garuda-indonesia.com National flag-carrier PT Kereta Api www.kereta-api.com State rail company

MISCELLANEOUS Bali Tourism Development Authority www.balinusaduaresort.com Batam Industrial Development Authority (BIDA) +62 21 8590 0814 www.batam.go.id BKPM (Investment Coordinating Board) +62 21 5252008 / 5269832 www.bkpm.go.id Indonesian Chamber of Commerce and Industry (KADIN) www.kadin-indonesia.or.id/en National Agency for Export Development (NAFED) www.nafed.go.id

USEFUL ENGLISH-LANGUAGE BUSINESS RESOURCES These two embassy websites provide timely updates on trade and investment news:

Tempo (local current affairs magazine) www.tempointeraktif.com

US Embassy, Jakarta www.usembassyjakarta.org

Invest (produced by Indonesia’s Investment Coordinating Board) investmagazine@yahoo.com

Indonesian Embassy, Canberra www.kbri-canberra.org.au

Indonesia Today (business & political news & comment) www.yosefardi.com/web/page.php

The Jakarta Post www.thejakartapost.com

Petromindo (Indonesian oil, mining and energy news) www.petromindo.com/

GlobeAsia Magazine (regional business magazine) www.globeasia.com

Australian Dept of Foreign Affairs & Trade Country Profile www.austrade.gov.au/ default.aspx?FolderID=2137

CREDIT: BKPM

BUSINESS TRAVEL GUIDE TO INDONESIA

BUSINESS TRAVEL GUIDE TO INDONESIA Some practical tips and advice for the business traveller. Recommended Reading Before you travel: Lonely Planet Indonesia, ‘Living in Indonesia: A Site for Expatriates’ (http://www.expat.or.id) Upon arrival: Expat Directory published by Indomultimedia (tel +62 21 7918 7008).

Getting there & away Jakarta’s international airport, Soekarno-Hatta, is located 35 km from the CBD and linked via a toll road. If you require transport from the airport, there is a taxi rank, or for a more comfortable ride go to the Golden Bird limousine counter in the arrivals foyer. Upon departure, you will need to pay 100,000 Rupiah (US$10.60) departure tax in cash at the airport.

Visas Citizens of 11 countries, including Hong Kong, Malaysia, the Philippines, Singapore, Thailand and Vietnam, are able to receive a free tourist visa for a stay of up to 30 days. Citizens of 52 other countries may obtain a visa for a stay of up to 30 days upon arrival from specified ports of entry (including Jakarta International Airport). At the time of writing these include the USA, the European Union, Australia, New Zealand, Japan, South Korea and Taiwan. If you are collecting a visa upon arrival you will need to present the appropriate amount in cash (from US$10; major foreign currencies accepted) at the bureau located shortly before Immigration. For a longer visit you should apply prior to departure.

Getting around Jakarta In Jakarta, taxis from the Blue Bird Group, in particular Silver Bird taxis, are recommended and can be booked from most hotels or at the airport. These are safe, generally clean and have meters.

Prambana Temple in Yogyakarta, Central Java

If you have a tight program or are going to out-of-the-way locations, it is often a good idea to book a taxi for the full day. The cost is less than a standard hire car and driver. These all have meters and you should round up the fare by around 10%. Useful online resources: www.yellowpages.co.id and www. streetdirectory.co.id

Taxis Blue Bird taxis: Tel +62 21 794 1234 or 798 1001 Silver Bird ‘executive taxis’: Tel 798 1234, 794 1234 or 798 1001 Golden Bird ‘limousines’: Tel 794 4444 Email: businessdev@bluebirdgroup.com

Domestic flights Indonesia is well serviced with domestic flights between the major cities. Surabaya has an hourly shuttle service (from SoekarnoHatta) and there are frequent services to Bandung (from Halim Airport). Overbooking is a problem, so it is important to reconfirm and check in promptly.

Climate Indonesia has a tropical climate, with a wet season from December to March.

Time/business hours There are three time zones in Indonesia. Jakarta/Java is seven hours ahead of GMT. Office hours for businesses are generally 8am to 5pm, Monday to Friday. A lunch hour is typically taken from 12 to 1pm. Banks and government departments may close at 4pm. Ramadan: It is worth noting that the period of Ramadan is not the best time of year for doing business in Indonesia. In 2008, this month of fasting commences on 1 September and in 2009 on 21 August.

BUSINESS TRAVEL GUIDE TO INDONESIA Language The Indonesian language is Bahasa Indonesia. Although English is fairly well spoken in business circles, at least among more senior executives, you should establish whether you may need an interpreter for any business you intend to carry out in Indonesia.

Safety Indonesia is currently subject to travel advisory warnings from many international governments. Although these often err on the side of caution, it is worth checking what advice your own government is issuing at the time you travel. Jakarta is a surprisingly friendly city, but you should still exercise caution if you leave your hotel or office building, most of which have a strong private security presence. You should avoid walking alone at night.

Health You should drink only bottled water (this is provided in most hotel rooms). Although Java and Bali are considered malaria free, there is malaria in other parts of Indonesia. If travelling to other areas, ask your doctor whether malaria exists and what medication is best to bring with you. In any event, travel insurance is highly recommended. JTA International provides clinical, management and strategic health services to a range of clients. Tel +62 21 526 1156, www.jtai. com.au.

Communications Mobile phone: Mobile phone coverage in Indonesia’s main economic centres is good. If you bring your GSM mobile with you it will work but the roaming charges are likely to be much higher than if you obtain a local SIM card. Even on a pre-paid basis, call rates are modest and you will also gain a local number (although possibly one with more digits than you’d wish for!). Internet: Business standard hotels in Jakarta all have in-room broadband internet service, which tends to work fairly well.

Hotel Mulia: www.hotelmulia.com JW Marriott: www.marriott.com Ritz-Carlton Jakarta: www.ritzcarlton.com Shangri-La: www.shangri-la.com The Dharmawangsa Hotel: www.the-dharmawangsa.com

RITZ-CARLTON JAKARTA and PACIFIC PLACE Ritz-Carlton has now opened its second property in the dazzling new Pacific Place shopping mall, opposite the Indonesia Stock Exchange (see page 13). It has 62 luxurious hotel rooms, as well as spacious residences for extended stays. With state-of-the-art amenities and excellent service there is no better place to stay in Jakarta. www.ritz-carlton.com

Sport/exercise Major hotels all have gyms and swimming pools. If you start to feel claustrophobic, running or walking in Monas Park on a Sunday morning is a popular pastime. There is a large selection of golf courses in and around Jakarta, most of which will charge a reasonable fee, as well as a large driving range facility right in the CBD (off Jl. Sudirman). Outside of Jakarta, there are opportunities to go mountain biking in West Java.

Tourism in Indonesia For information on the vast array of tourism opportunities available within Indonesia a good place to start is the Indonesian Tourist Board’s website: http://my-indonesia.info n

Electricity Indonesia’s power supply is 220 volts, 50Hz. Outside Jakarta, however, it is sometimes 110 volts. Plugs vary but are generally two-pin, European type. Business standard hotels will typically lend guests an adaptor.

Eating, drinking & socialising Business visitors to Jakarta tend to confine themselves to the larger hotels. The following are interesting stand-alone options. Café Batavia: A Jakarta institution, located in the old town (Taman Fatahillah, Jakarta-Kota). www.cafebatavia.com Aphrodite: Smart expat bar, which also serves a wide range of ‘comfort food’. Bugils (www.bartele.com) and Cazbar: Popular Dutch-style café bars under the same ownership. Cazbar (located on Mega Kuningan close to the Ritz-Carlton Jakarta) also offers free wi-fi internet. Jl.Kemang Raya is the main thoroughfare of the expat enclave of Kemang—it is full of upmarket Western-style retail outlets. For more information, try to find a copy of Jakarta 24 Magazine (www. jakarta24.com) or visit the website www.whatsnewjakarta.com.

Accommodation Jakarta itself is very well-catered for in terms of accommodation and offers excellent value by international standards. Here is a selection of leading hotels in central Jakarta. Crowne Plaza: www.crownewplaza.com Four Seasons Hotel: www.fourseasons.com Grand Hyatt Jakarta: www.jakarta.grand.hyatt.com

indonesia is the world’s most populous islamic country. when conducting business in indonesia, it is advisable to observe Appropriate etiquette. see websites such as www.cyborlink.com/besite/indonesia.htm for advice

It’s time to invest in Indonesia

Experience the new investment climate in one of the world’s largest democracies

Invest in Indonesia with the assistance of BKPM, the one-stop investment promotion agency of the Indonesian Government. Why it’s time to invest in Indonesia: • New Investment Law, passed in 2007 • Domestic market of more than 235 million people • Vast and varied natural resources • Abundant skilled and cost-effective labour • Competitive tax incentives and special economic zones • Free trade zone in Batam, Bintan and Karimun islands

For further information contact: Investment Coordinating Board of Indonesia/ Badan Koordinasi Penanaman Modal (BKPM) Jl. Gatot Subroto No. 44, Jakarta 12190, Indonesia T +62 21 525 2008/526 9832 F +62 21 525 4945 E sysadm@bkpm.go.id