Attractions of investment in Indonesia
Indonesia can brag about its 2009 decent economic performance when most other countries around the world experienced severe contraction, and in spite of political turbulence that always comes with general elections, the nation can still take pride that it was by and large a peaceful democratic process. The government continues to grapple with enormous economic challenges, but some progress has been made in creating a foundation for a sustainable economic recovery by attracting foreign investment, whether this be direct or portfolio investment.
Indonesia has much to offer foreign investors. The country is strategically located along some of the world’s major trade routes, it has a large domestic market, an abundant and cost-competitive workforce, rich natural resources, reasonably good infrastructure and a government committed to creating a conducive investment environment.
Area and population
Indonesia is considered to be one of the richest countries on Earth in terms of its biological diversity and natural resources. The archipelago is fragmented into more than 17,000 islands that stretch some 5,000 km from east to west, and owing to its complex geographical make-up and unique bio-graphical position, the country has an enormous diversity of ecosystems, as well as a fascinating history and heritage.
In terms of human diversity, Indonesia must rank as a global leader, as some 336 distinct cultures are recognized. It is the fourth most populous country in the world with more than 225 million inhabitants. It’s also the world‘s largest Islamic nation, but the constitutional freedom to practice other religions called Pancasila sees major groups of Christians, Buddhists, Hindus and other faiths exist side-by-side.
Population (July 2009): 240.3 million.
Annual population growth rate: 1.6%
Ethnic groups: Javanese 45%, Sundanese 14%, Madurese 7.5%, coastal Malays 7.5%, Chinese 5%, others 21%.
Religions: Islam 86%, Protestant 6%, Catholic 4%, Hindu 2%, Buddhist and other 1%.
Area: 2 million sq. km. (736,000 sq. mi.), about three times the size of Texas; maritime area: 7,900,000 sq. km.
Cities: Jakarta, capital city (est. 12 million). Other cities: Surabaya 3.0 million, Bandung 2.8 million, Medan 2.3 million, , Bekasi 2 million, Tangerang 1.6 million; Semarang 1.5 million, Depok 1.4 million; Palembang 1.4 million and Makassar 1.2 million plus an additional 3 million in the surrounding areas of each city. Jakarta is located 400 km south of the equator.
Terrain: More than 17,000 islands; 6,000 are inhabited; 1,000 of which are permanently settled. Large islands consist of coastal plains with mountainous interiors.
Climate: Equatorial, but cooler in the highlands. Temperature varies between 27o-33o. There are two main seasons; a dry season (May-October) and a rainy season (November-April).
Constitution, political structure and legal system
Indonesia is a republic whose consitution was promulgated on its independence day on 17 August 1945. The country is divided into 33 provinces and 471 Regencies/Municipalities.
The Executive Branch includes a President, a Vice-President and cabinet ministers. The legislative function is held by the House of Representatives (Dewan Perwakilan Rakyat/DPR) numbering 560 members and the House of Regional Representatives (Dewan Perwakilan Daerah/DPD) that has 132 elected members. The DPR and DPD are elected every 5 years. The latest election took place on April 9, 2009 when the number of registered voters was 171.3 million.
The President is elected by direct voting every 5 years. The first direct presidential election took place in 2004 when the incumbent Susilo Bambang Yudhoyono (SBY) was elected. On July 8, 2009, President SBY was re-elected for another 5 years (until 2014) with 60% of the votes. .
The President has strong powers and is seconded by a Vice-President. The current Vice President is Prof. Dr. Boediono.(2009_2014).The President chairs the Ministerial Council and nominates a number of high ranking officials as the Supreme Court chief (Ketua Makhama Agung).
In many matters the former Dutch colonial law still prevails, but Presidential decrees have amended those decrees in many areas.
GDP grew 4.2% year-on-year in Q3 2009, an improvement over 4.0% in Q2. Private consumption grew 1.2% q-on-q seasonally adjusted while investment climbed by 3.5%. On the external front, exports fell 20% y-o-y in Sept 2009 while imports decreased 24.2% in Sept 2009 y-o-y.
Inflation fell to a 5 year low of 2.6% y-o-y for October 2009.
BI left its benchmark rate at 6.5% in November 2009, noting that its rate is consistent with its 5% inflation taret or 2010 and is conducive for an economic recovery.
The US$-Rupiah (Indonesian currency) conversion rate is expected to continue between 9,000 and 9,500 levels during 2010. Euro conversion figures situate between 13,00014,000
Although lagging behind China, Brazil and India, Indonesia has an unchallenged comparative advantage. Although Indonesia has been getting weaker in competition (declined in rank from 37th in 1999 to 54th in 2009), the economic development from the 1970s until 1997 was a successful model that still continues in the present.
Banking and finance
124 conventional banks with around 10,000 branches are operating in Indonesia. After admitting apparent weaknesses in banking supervision, the central bank (BI) has been rolling out new rules to screen out banks.
As of early 2009 the largest banks in Indonesia ranked by assets were as follow: Bank Mandiri (340 billion Rp), BRI (250b), BCA (247b), BNI (201b), Bank Danamon (105b), CIMB Niaga (69.3b), PanIn Bank
(63.6b), Bank Permata (54.2b), BII (54b) and Citibank (53.5b).
The 8 largest foreign banks improved their net profits during 2009. They are, classified by size: Citibank, Deutsche Bank, HSBC, Standard Chartered, JP Morgan, RBS (ex ABN-Amro), Bank of China, Bank of America.
Classification of Banks
According to the Financial Statistics provided by the Central Bank of the Republic of Indonesia, the number of Banks and Financial Institutions as from December 2009 is:
Commercial Banks: 124; of which:
(a.) State Banks : 5
(b.) Private National Banks: 119
– Regional Government Banks: 26
– Private National Banks: 88 (of which: Foreign Banks and Joint Venture Banks : 31)
– Islamic Commercial Banks: 5
Rural Banks (BPR): 1,897
Finance and Securities Companies: 259