Indonesia

Consumer Companies Invest in Indonesia

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indonesiaIndonesia has become quite the hub for consumer firms. As the region becomes increasingly middle class (closet to 250m of its residents are in that category), the high-tech buzz around Indonesia seems to have caught on to a whole slew of e-commerce startups.

One such company that clearly finds Indonesia an attractive region is SoftBank and thus it recently invested $100m in Tokopedia – the online venue for Indonesian citizens and companies to open and maintain their online stores for free.

So apart from the increase in the middle class population in Indonesia, what is making the region so attractive to foreign investors? A change in the law could be one factor. Until April 2014, many businesses were closed to foreign investments, with others posting incredibly high restrictions. Since then however, the Negative Investment List came into effect, changing this. Perhaps this was why the country’s GDP expanded by 5.12 percent between April and June. And with this change, businesses saw a change in attitude from the region’s government that has since then been seeking to develop a far more open economy.

Added to that factor is the Asean Economic Community that is due to come into play at the end of next year.

First Asia Capital analyst David Nathanael Sutyanto, recently said that due to the sharp increase in subsidized oil fuel price, there has been a review of Indonesia’s fundamentals. While eventually this will result in an improvement of Indonesian economic fundamentals, there still needs to be government anticipation of the potential short-term negative impacts.

Real Estate Sector Attracts Investors to Indonesia’s Capital

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China’s real estate market has been booming for quite some time, but new speculations are now pointing investors towards more southern regions.

A real estate forecast by PriceWaterhouseCooper and Urban Land Institute has revealed that Indonesia’s capital, Jakarta, will be the top place to purchase property in 2013, with the market surpassing even Hong Kong, Singapore and Sydney.

International investors have taken an interest in the region thanks to Indonesia’s remarkable economic turnaround over the past several years.

The survey says:

“Interest rates and inflation are under control, and while GDP is growing at around 6.5% annually, foreign direct investment is increasing at a much higher rate- 39% in the first half of this year. Driven by increased demand from foreigners and locals alike, office rents shot up 29% year-on-year in the third quarter, according to DTZ.”

The city’s growth and rising demand have bumped Jakarta up ten spots since its 2011 ranking. However, PwC warns that the market still has its risks. Inexpensive bank loans are a rarity, and it can be difficult to find a trustworthy partner. Disputed land may also pose a challenge.

 

Firms Lured by East Java’s Infrastructure

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East Java has been attracting investments as a result of its good infrastructure. The country’s economy grew more than 7% in last year’s third quarter, with two commercial and four pioneer airports.

Now, ten Korean and Japanese companies are relocating their plants from Southeast Asia to East Java, pulled in by the quality of its infrastructure. The firms deal in labor-based industries including furniture, footwear, industrial waste management and fertilizer.

Chairman of East Java’s Investment Coordinating Board (BKPMD) Warno Harisasono welcomed the newcomers and their plans.

“They earlier had their plants in the Philippines, Thailand and Vietnam,” he said. “Now we will encourage those firms to realize their investment in middle parts of East Java, such as Madiun, Mojokerto, Kertosono and Jombang, as trans-Java toll roads, slated to be built in 2012, will pass through the areas.”

According to government data, foreign investment in East Java reached $4.02 billion last yearly, double the amount listed in 2010.

Indonesian Investments

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Indonesia and Malaysia Join Forces

There have been substantial efforts made to encourage companies from Indonesia to make investments in Malaysia which, has also resulted in a re-balance of “bilateral investment between the two friendly neighbors.” According to Datuk Seri Mustapa Mohamed (International Trade and Industry Minister for Malaysia), various companies from Indonesia have been discussion four memorandums of understanding (MoUs) with four companies in Malaysia for possible investment opportunities there. He pointed out that once negotiations are completed, there will be a signing ceremony in Malaysia.

Business Summit

The Asean-EU Business Summit takes place today along with the Asean Economic Ministers’ Meeting, which Mustapa is attending. He is using these meetings to meet up with various figures in the Indonesian corporate world who are involved in these possible investments.

Origins of Success

The way it all started was when Tan Sri Muhyiddin Yassin, Deputy PM of Malaysia, came to Indonesia and met with industry “captains” in the industry a year ago. This was what led to such an optimistic response from investors in Indonesia. This led to Malaysian companies inviting “Indonesian Chinese corporate figures from the Indonesian Chinese Chambers of Commerce and Industry to Malaysia in February to explore investment prospects in Malaysia particularly in projects slated under the Economic Transformation Program.”

The good news for Indonesia is that the economy has grown so fast. But this has resulted in the country’s businessmen looking for investment possibilities outside of the republic. Now Malaysia has invited Indonesians to use its country “as the platform to set a basin foreign investment.” These days Malaysia is definitely doing better vis-à-vis investments between the two countries as trade is up to over $2bn and Indonesia’s is $600m in Malaysia.

Mitsubishi develops LNG Joint Venture

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lngJapan’s largest investment house, Mitsubishi Corp., plan to invest in a liquefied natural gas (LNG) project valued at $2.8 billion through an Indonesian joint venture.

The investment will produce 2 million tons of LNG per year, starting in 2014. This project will bolster a decline in Indonesian LNG exports. Mitsubishi and Indonesia will share the expensive resource development costs.

Mitsubishi will have a 45 % stake in project. The joint venture will bring in another partner, Kogas, Korea Gas Corp, the largest purchaser of LNG, which will receive a 15 % stake. The name of the joint venture will be Donggi-Senoro LNG.

Donggi-Senoro project leader at Medco E&P in Indonesia, Lukman Mahfoedz, said that “The total investment includes infrastructure and land acquisition.”

Japanese Banks Target Malaysia and Indonesia

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Japanese banks are focusing on developing lending agreements In Malaysia and Indonesia, the fastest developing economies. Southeast Asia has a large population, a developing infrastructure and a many natural resources. Moody’s, noting Indonesia’s better debt position and it’s healthy economy, has acknowledged Indonesia’s potential by raising its rating.

Therefore, Japanese banks are creating deals with local lenders and are also enlarging their offices to increase their loan business in Malaysia and Indonesia. One of Japan’s largest banks, Sumitomo Mitsui Financial Group, will be expanding its employees in Malaysia from about 30 to approximately 100. In addition, it expects to increase employees in Indonesia from the present level of 200.