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Jakarta Post

Indonesia to benefit from foreign investment, trade

  • Grace D. Amianti

    The Jakarta Post

Jakarta   /   Thu, December 18, 2014   /  09:21 am

Indonesia is predicted to enjoy higher foreign direct investment (FDI) and trade volume when the ASEAN Economic Community (AEC) is implemented at the end of next year as it stands as the largest economy in the region, a professional accountants group said in recent research.

The quarterly research, titled Economic Insight: Southeast Asia, was conducted by UK-based accounting body the Institute of Chartered Accountants in England and Wales (ICAEW) in collaboration with independent UK consultant the Centre for Economic and Business Research Ltd (CEBR). The fourth-quarter research'€™s scope includes a focus on Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam as the leading economies in the region.

Douglas McWilliams, chief economist at the ICAEW and executive chairman at the CEBR, said the AEC aimed to increase free trade and regional integration, which would create a market situation with more open cross-border capital and workforce exchanges.

The AEC'€™s goal of regional interdependence has been built gradually through the ASEAN organization as the region'€™s intra-FDI amount grew 17 percent in 2013, higher than the 13 percent increase in 2000.

'€œAmong its ASEAN counterparts, Indonesia recorded the highest FDI growth with 36.8 percent between 2000 and 2013,'€ he said in a press statement recently.

The group also emphasized that better condition of the banking system as well as legal framework may help the country to increase the FDI scale in the future. Indonesia'€™s realized FDI reached Rp 342.7 trillion (US$26.57 billion) between January and September this year, increased by 16.8 percent from Rp 293.3 trillion in the same period last year, according to Investment Coordinating Board (BKPM) data.

Mark Billington, regional director at the ICAEW'€™s Southeast Asia Office, added the economic integration would be more effective if ASEAN members committed to developing advanced infrastructure, such as high-speed trains between Kuala Lumpur, Malaysia and Singapore.

'€œBetter connections will help smoothen exchanges of knowledge and skills, which will also boost the creation of innovative industries with added values,'€ he said.

Indonesia'€™s Finance Minister Bambang Brodjonegoro said recently that the government had committed to preparing the country'€™s business world, especially in the services and manufacturing sectors, to compete in the AEC through providing incentives.

Bambang said FDI in manufacturing should be increased through providing better business conditions in the country, adding that '€œthe new one-stop service at the BKPM will create a much faster process of obtaining permits for investors.'€

According to Bambang, Indonesia needs to focus on three manufacturing fields '€“ natural-resources based, large economic-scale business with a domestic focus and government-program centered.

'€œNatural-resources based manufacturing will be related to downstream industries, while an example of the second type is automotive, because we have the ability to export in the sector,'€ he said.

Meanwhile, power-plant development as an energy self-sufficiency program as well as maritime industry may be included in the government-program based manufacturing field, Bambang said.

According to Bambang, the government is currently preparing a regulation to provide incentives for shipyards as part of efforts to support the country'€™s maritime-based manufacturing industry. The regulation is expected to be released earlier next year, he added.

Previously, Coordinating Maritime Affairs Minister Indroyono Soesilo said the government would provide exemptions on value-added tax (VAT) as an example of incentives that would be offered to spur growth in the shipbuilding industry as part of efforts to help realize the maritime-axis platform.

On the other hand, Standard Chartered Bank Indonesia chief economist Fauzi Ichsan said the government should first focus on building infrastructure before offering incentives to the manufacturing sector. Bureaucratic reform and efforts for legal certainty should also be carried out throughout the infrastructure development, he said.

'€œWe will have more than Rp 100 trillion in funds saved from fuel-subsidy reallocation next year to finance infrastructure projects. The infrastructure should also focus on resolving issues of energy supplies and transportation,'€ he said.

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