Deputy Investment Minister Indra Darmawan, who is also deputy head of the Investment Coordinating Board (BKPM), pointed out that the greatest challenge to address in 2023 was how to respond to lower demand, exacerbated by the high inflation rate.

“The high inflation rate will affect currencies, as big and small corporations with bad debts in US dollars will have to be very cautious. The tone in Indonesian is ‘optimis tetapi wasada (optimistic but cautious),’” he said at the “Spotlight 13: Expanding Investment Amid Geopolitical Conflicts” hybrid discussion on Monday, November 21.

Referring to McKenzie’s survey on CEOs worldwide, Indra revealed that geopolitics was topmost in their minds. Geopolitical conflict was the hottest issue among CEOs, followed by the gas crisis in Europe, high inflation in the United States and COVID-19 in China.

Bank Mandiri chief economist Andri Asmoro was of the view that geopolitics had changed everything, which in turn had driven business players to make adjustments.

Indonesia had seen relatively stronger economic growth in the last five years, however, thanks largely to the government’s policies on maintaining purchasing power and managing inflation.

“Before, some analysts and economists predicted that inflation could go up to 6.5 percent or 7 percent, but it turned out that it [stayed] below 6 percent and in 2023, the inflation rate will go down to just 4 percent,” Andri added.

Continuing, he said the government had established good policy coordination with Bank Indonesia this year, which was also instrumental to curbing inflation.

In 2023, the economies of some countries would experience recession, while slower growth would be seen in emerging economies, including Indonesia and fellow ASEAN member states like Malaysia and Thailand.

“But I think the inflation rate in the second half [of 2022] will fall again, and [it] will also go down in 2023,” said Andri. “This will actually offer opportunities, instead of the possible crisis that every major country is experiencing.”

Meanwhile, Andri said, the direct impact of the economic slowdown would be on trade and investment.

“But what we are actually seeing, like I motioned before, [is] we still have positive indicators compared to other countries,” he said.

“In fact, in the next five to 10 years, we will see Indonesia’s economy grow. The inflation rate will be manageable at around 3 percent.

“I think this situation will not be prolonged. It will [last] around six months to one year and after that, it will return to normal. So if investors invest this year, they will [reap a] harvest next year.

“Right now, we have to manage the first half of 2023,” Andri underlined.

According to him, the businesses to be impacted the most would be those that were hardest hit during the pandemic, including those in the export sector.

“The ‘losers’ actually won’t be quiet for long. They have to manage the situation within six months to a year during the lower demand. The most affected industries include cement, fertilizer, [manufacturers using] imported raw materials like pharmaceuticals, as well as industries that experienced lower demand like textiles, garments and furniture,” he said.

Meanwhile, the industries that would record positive growth included the downstream, nickel, industrial estates and manufacturing.

Indra affirmed that to attract investment to cope with the challenges ahead, the BKPM would carry out continuous reforms by simplifying business procedures.

“But in addition to attracting new investors, getting new investments, we have to pay attention to the existing ones,” he said. “For that reason, we have to stay with them, whether in bad times or good times, in the sense that we extend our facilities, assistance, to those that encounter problems.”

He added that included among the major challenges investors faced, as reflected in past complaints, were issues related to land and licensing.

“Now, we are trying to implement policies in a consistent manner, which have helped solve [these] issues,” Indra said. “So that’s what the government will continue to do to lessen the impacts of hardships that investors may encounter next year.”

The BKPM was currently focusing on added value after several years of struggling with competitiveness.

“Of course, incentives are very important to attract investment. In addition to traditional incentives like tax holidays, import duties and others, we are also offering non-fiscal incentives that make it easier for them to operate,” he said.

Indra added that the BKPM was also tailoring incentives and assistance to match the particular phase of each business. “By identifying them, we know exactly what they need at each [stage]. So, we will be with them along the way from end to end.”

He also stressed the crucial role the Omnibus Law on Job Creation played in attracting investment.

“To start a [company] today is so much easier because of the OSS electronic platform,” Indra said, referring to the government’s Online Single Submission one-stop licensing facility. “The risk in doing business is categorized. You just fill out the basic data and go ahead with your business and license.

“Thousands of regulations have been integrated into one simple platform.

To date, the BKMP had issued around 7,000 business registration numbers (NIBs). “[The figure] is quite huge,” said Indra, and while the system was not perfect, “at least we can issue [NIBs] on a daily basis”.

“It shows that people like that it’s easier to enter into business,” he added.

“The biggest challenge regarding mindsets is how to change the culture toward a more open and better licensing process. With the implementation of the Omnibus Law, many people and parties lost power. It is not easy for people to lose power,” Indra noted.

This had also somewhat dampened entrepreneurs’ motivation “to move forward and create a better environment. We have to have similar motivation to move forward together. That’s the greatest challenge in 2022”.

Looking at conditions three years ago, Indra continued, Indonesia’s macroeconomic situation was not bad at all, with growth not far below 5 percent.

“We have bounced back, and compared to other countries, we have made good improvements, as Indonesia recorded growth at 5 percent in 2022.”

Green economy

Despite the unfavorable global conditions arising from the COVID-19 pandemic, which has been exacerbated by the Ukraine-Russia war, Indonesia is set to go ahead with developing a green economy, particularly as the country needs to meet its net-zero target.

According to Mandiri economist Andri, the government had set up all relevant regulations and supporting facilities to push investors to comply with Indonesia’s green economy policy.

“I believe the green economy will be a source of growth in Indonesia,” he said, emphasizing that Indonesia had one of the biggest green economy potentials in the world through geothermal, wind and solar energy.

But he also noted that the country needed to be aggressive in dealing with its lack of data and improving its reporting system, especially on environment, social and governance (ESG) issues, which would not be costly.

The ESG movement was very important, strategic and timely, Andri said, as Indonesia had committed to reducing its carbon emissions by 41 percent by 2030. And most recently, the country had received a US$20 pledge from the Group of 20 countries, with the fund to be earmarked for funding the early retirement of coal-fired power plants toward supporting Indonesia’s net-zero target.

“We also signed many investment agreements with various G20 countries. We also showcased electric vehicles, buses and motorcycles, the results of collaboration with member countries, which also generated concrete transactions,” Andri added.

“We do not expect the geopolitical situation to spread, [...] as this would disrupt the [global] supply chain and trade, which would affect businesses in many countries, including Indonesia,” he said.