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Foreign investors flock to Indonesia

McKinsey has projected that Indonesia is on the way to becoming the seventh largest economy in the world in 2030 with 135 million middle-class consumers with capacity to spend.

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Indonesian President Joko Widodo (above) giving his state-of-the-nation address at a general assembly at parliament in Jakarta on Aug 16.

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Ngurah Swajaya, Ambassador of Indonesia to Singapore (above), notes that Mr Widodo has made it clear that the government will improve and provide a conducive environment for investment by accelerating the development of infrastructure and human resources.

INDONESIA is fast becoming a favourite of foreign investors with the country receiving an all-time record high of US$29.3 billion in new foreign direct investment (FDI) in nearly 22,000 projects last year, a significant increase over the previous year.

More importantly, the trend remains strong with Indonesia getting a further US$14.18 billion worth of new investments in over 23,000 projects in the first semester of this year, according to the latest data available.

Singapore continues to be Indonesia's top foreign investor, having poured US$9.19 billion into nearly 5,000 projects last year. The city-state has been the largest FDI contributor to Indonesia for the past five consecutive years, says Indonesia's Ambassador to Singapore Ngurah Swajaya in an interview with The Business Times on the occasion of his country's 74th Independence Day on Aug 20.

Singapore businesses continue to be optimistic about prospects in Indonesia. In the first semester of this year, Singapore ploughed in a further US$3.4 billion worth of new investments in 5,348 projects in Indonesia.

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Japan is Indonesia's second largest foreign investor, having put in US$4.95 billion in 3,166 projects last year, says the Indonesian envoy. China and Hong Kong were in third and fourth places, respectively, with a combined investment of US$4.39 billion in 2,634 projects.

Mr Ngurah cites a recent report by McKinsey, the global management consultancy, which projects that Indonesia is on the way to becoming the seventh largest economy in the world in 2030 with 135 million middle-class consumers with capacity to spend. For the Indonesian economy to reach that level, the country would need some 113 million skilled workers.

"There is a market opportunity worth US$1.8 trillion in consumer services, education, health, agriculture, fisheries, natural resources and the digital economy in Indonesia. I would say that every investor knows that to capitalise on such huge opportunities, they must move in quickly to get the maximum benefits," says Mr Ngurah.

The Indonesian envoy feels that the strong political stability in his country should be a major attraction for foreign investors with the election of President Joko Widodo for a second term. Despite different political points of view in the country, the election process had been completed peacefully showing the inherent strength of the world's third largest democracy.

"President Joko Widodo has made it very clear on the government's strong determination to improve and provide a conducive environment for investment, accelerate development of infrastructure and human resources through focusing on polytechnics and vocational training," says Mr Ngurah. Thus, the "wait and see" attitude should be abandoned as Indonesia has proven, once again that it is a mature working democracy, he adds.

"All systems and mechanisms are functioning effectively and this has led to the successful completion of the presidential election process and subsequent reconciliation in the post-election processes," says the Indonesian envoy.

Indonesia's rank in the World Bank's ease of doing business index has jumped by 48 positions in the past three years to 72nd position from 110 previously. President Widodo plans to accelerate this even further targeting rank 40 by 2024 when his term ends, he has revealed.

Similarly, Indonesia's position in the World Economic Forum's Global Competitive Index has also increased from the previous year to rank 45 in 2018 and it is the best performance among its peers, says the Indonesian ambassador.

To improve further, very clear national development priorities have been outlined to boost Indonesia's competitiveness. The first is to continue expediting infrastructure connecting the people's economic centres to the industrial and economic zones.

The second is to prioritise human resources development through improving education, vocational and training quality, including talent development.

The third is to invite all investments to generate employment, through improving ease of doing business and addressing corruption.

The fourth step is to continue bureaucratic reform to make it more effective and efficient. And the fifth is to ensure effective use of government budget to improve the economy and people's welfare.

"Furthermore, as Asean continues to be resilient with steady annual growth of above 5 per cent, Indonesia's economy also grew 5.17 per cent last year - 10 basis points better than the year before. This year, we are ambitious of achieving a target of 5.4 per cent growth, the highest since 2013," says Mr Ngurah.

"Significantly, all major international rating agencies have placed Indonesia on investment grades and the S&P has even upgraded the country further from 'BBB-' to 'BBB'. Thus, investors can see proof that Indonesia is taking significant steps to become an attractive destination."

To improve conditions further, the online single submission system continues to be enhanced so as to help upgrading and expediting transparent licensing services for FDI. The crux to this service philosophy lies in the strong commitment to improved good governance, transparency and anti-corruption stance, he adds.

The focus areas that Indonesia is targeting are Industry 4.0, infrastructure, and tourism-related industries and infrastructure. As manufacturing remains the dominant sector in the economy, Indonesia also adopted its transformation strategy towards Industry 4.0. These include automation and data exchange within the realm of manufacturing systems, Internet of Things and cloud technologies.

Another priority sector is infrastructure. Maritime connectivity through a "sea toll" development to improve sea connectivity will continue to be improved by upgrading and building new infrastructures in 477 locations.

Over the past five years, an accumulative 6.246 km of railways, 15 new airports and 1.461 km of toll roads, as well as a new MRT in Jakarta and LRT in Palembang have been operational.

"This will be followed by continuous development and integration to the on-going construction process of Trans-Sumatera, Trans-Java, Trans-Sulawesi and Trans- Papua toll roads that will open economic potentials in those big islands of Indonesia," says Ambassador Ngurah.

To support information technology and the digital economy, the government is to complete the "sky toll" project called "Palapa Ring". A fibre optic cable network to support telecom connectivity has been completed through three projects - Palapa Ring I (2.275 km), II (2.995 km) and the last Palapa Ring III (6.878) - will be completed early next year. This includes upgrading 175,000 base transmitter stations. All of these connections will support to connect the whole archipelago, he adds.

The ambassador says that going forward toll roads, housing and water projects will be offered to private investors, in addition to MRT supporting facilities for 240 km that is scheduled to be completed in the next decade.

"The 10 New Bali projects launched by the president in September 2017 have gained interest as new tourist destinations and for infrastructure investments," says Mr Ngurah. "As unique and distinct destinations, what is offered are not only rich diversities, but also investment in new hotels, resorts, restaurants, shopping centres, cruise facilities and whatever one's imagination can conjure up!"