T

he establishment of the ASEAN Economic Community (AEC) next year will give Indonesia'€™s pulp and paper industry the momentum to further strengthen its market share in the Southeast Asian markets, an analyst has said.

Senior economist Aviliani of the Institute for the Development of Economics and Finance (Indef) said that the establishment of the single market within members of ASEAN would give Indonesian pulp and paper producers a bigger market in which to expand their market share.

'€œIndonesia'€™s pulp and paper industry is the largest in ASEAN,'€ she told reporters recently. With the opening of the ASEAN single market, the Indonesian pulp and paper industries would be able to control the pulp and paper market in the region.

She added, however, that the government should provide a beneficial business climate for the country'€™s pulp and power industries so that they would be able to take advantage of the opportunity.

'€œA more favorable policy should be established in both the upstream and downstream pulp and paper business,'€ she added.

Aviliani said that in 2013, Indonesia'€™s pulp and paper exports to Malaysia reached a total of 363,400 tons, 356,100 tons to Vietnam, 163,160 tons to the Philippines and 125,860 tons to Thailand.

In the same year, the total exports of pulp and paper reached about million tons worth US$1.8 million and 4.1 million tons worth $3.7 million, respectively. During the period between 2009 and 2013, exports of pulp and paper grew by 5.6 percent a year.

Aviliani said that the dearth of areas allocated by the government for industrial forests had become a major problem for the expansion of Indonesia'€™s pulp and paper industry, in addition to long bureaucratic procedures for export activities.

Rusli Tan, deputy chairman of the Indonesian Pulp and Paper Association (APKI), acknowledged that the lack of raw materials had also become a major obstacle to the industry expanding its market in Southeast Asia.

He therefore called on the government to allocate more land for the association'€™s members to expand their industrial forests. With the increase in the industrial forest areas, the local pulp and paper producers would be able to increase their production capacity.

In addition to the expansion of the industrial forest areas, the government should also help the association'€™s members to use letter of credit (L/C) facilities to back up their exports, Ruslain said.

If the industry was given more forest concessions to develop industrial forests, and was allowed to use L/C facilities, there would be at least US$200 billion in new investment for the expansion of pulp and paper business within the next three years, he claimed.

'€œWith industrial forests, there will be more investment in the pulp and paper industry,'€ he said. '€œPulp and paper producers generally expand their production capacity by 2 million tons a year, so within three years, there will an additional capacity of 12 million tons or at least 10 million tons,'€ he said.

Rusli said that the pulp and paper industry would be attractive to foreign investors if the government provided paper and pulp manufacturers with a 360-day L/C.

For next year, the association is more optimistic about the paper and pulp industry'€™s outlook, with a growth forecast of 12 percent compared with the government'€™s own 6-7 percent prediction, which is based on production level as opposed to capacity.