THE REPUBLIC OF INDONESIA = COUNTRY PROFILE C

THE REPUBLIC OF INDONESIA

THE SOUTHEAST ASIA COUNTRY SERIES

2018

THE REPUBLIC OF INDONESIA = COUNTRY PROFILE i

THE REPUBLIC OF INDONESIA 2018 ii THE REPUBLIC OF INDONESIA = COUNTRY PROFILE iii

ACKNOWLEDGEMENTS

Team Leader: Samir S. Amir

Lead Researcher: Mohammad Talal Yahya

DISCLAIMER

The findings, interpretations and conclusions expressed do not necessarily reflect the views of the Board of Directors and Members of The Pakistan Business Council or the companies they represent. Any conclusions and analysis based on data from ITC, UN Comtrade, World Bank, Doing Business and CIA World Factbook are the responsibility of the author(s) and do not necessarily reflect the opinion of the UN, WTO, World Bank, or CIA. Although every effort has been made to cross-check and verify the authenticity of the data, The Pakistan Business Council, or the author(s), do not guarantee the data included in this work. All data and statistics used are correct as of December 1st, 2018, and may be subject to change.

For any queries or feedback regarding this report, please contact [email protected] or [email protected] iv

THE PAKISTAN BUSINESS COUNCIL: AN OVERVIEW

The Pakistan Business Council (PBC) is a business policy advocacy platform, established in 2005 by 14 (now 78) of Pakistan’s largest private-sector businesses and conglomerates, including multinationals. PBC businesses cover nearly all sectors of the formal economy. It is a professionally-run organization headed by a full-time chief executive officer.

The PBC is a not-for-profit entity, registered under Section 42 of the Companies Ordinance 1984. Though it is not required under the law to do so, the PBC follows to the greatest extent possible, the Code of Corporate Governance as applicable to listed companies.

The PBC is a pan-industry advocacy group. It is not a trade body nor does it advocate for any specific business sector. Rather, its key advocacy thrust is on easing barriers to allow Pakistani businesses to compete in regional and global arenas. The PBC conducts research and holds conferences and seminars to facilitate the flow of relevant information to all stakeholders in order to help create an informed view on the major issues faced by Pakistan.

The PBC works closely with the relevant government departments, ministries, regulators and institutions, as well as other stakeholders including professional bodies, to develop consensus on major issues which impact the conduct of business in and from Pakistan. The PBC has submitted key position papers and recommendations to the government on legislation and other government policies affecting businesses. It also serves on various taskforces and committees of the Government of Pakistan as well as those of the State Bank, SECP and other regulators with the objective to provide policy assistance on new initiatives and reforms. THE REPUBLIC OF INDONESIA = COUNTRY PROFILE v

THE PBC’S FOUNDING OBJECTIVES

The major objectives of the PBC as stated in its founding documents are:

• To provide for the formation and exchange of views on any question connected with the conduct of business in and from Pakistan.

• To conduct, organize, set up, administer and manage campaigns, surveys, focus groups, workshops, seminars and field works for carrying out research and raising awareness in regard to matters affecting businesses in Pakistan.

• To acquire, collect, compile, analyze, publish and provide statistics, data analysis and other information relating to businesses of any kind, nature or description and on opportunities for such businesses within and outside Pakistan.

• To promote and facilitate the integration of businesses in Pakistan into the World economy and to encourage in the development and growth of Pakistani multinationals.

• To interact with governments in the economic development of Pakistan and to facilitate, foster and further the economic, social and human resource development of Pakistan.

More information on the PBC, its members, and its workings, can be found on its website: www.pbc.org.pk vi

THE PBC’S MEMBER COMPANIES THE REPUBLIC OF INDONESIA = COUNTRY PROFILE vii viii

Executive Summary

The Republic of Indonesia (Indonesia) is the world’s largest archipelago with more than 17,000 islands, located between the Indian and Pacific Oceans. It shares borders with Malaysia, Singapore, East Timor, Papua New Guinea, Vietnam, the Philippines, and Australia. The total land area of Indonesia is 1.91 million km2, in addition it has an Exclusive Economic Zone (EEZ) of 6.01 million km2. The country is rich in natural resources including; petroleum products, tin, natural gas, nickel, timber, bauxite, copper, coal, gold, silver, and a fertile soil. It has a total population of 263.99 million, of which 40.24% are of Javanese ethnicity. About 87.20% of the population are Muslims who mostly speak Bahasa Indonesia, English and the Dutch language. Indonesia has a young workforce; around 42.40% of the people are in the age group of 25-55 years, while only 15.59% people are more than 55 years old.

Indonesians are descendants of Austronesian people who are thought to have migrated from Taiwan around 2000 BCE. Early kingdoms in the region fought over the spice trade, control of waterways and land routes. These kingdoms brought Hinduism and Buddhism along with Javanese art and culture, which is depicted in ancient temples, to the Indonesian islands. Java was famous for nutmeg, cloves and cubeb pepper; this attracted Muslim traders who dominated the European markets. Muslim traders introduced Islam in the region and by the 16th century, Islam was widely followed.

Portuguese were the first Europeans who arrived in Java in search of spices. Later, the Dutch Parliament granted a trading licence to the Dutch East India Company (VOC) to set-up trading posts across the Indonesian archipelago. In no time, VOC conquered the smaller kingdoms and established its rule. Following bankruptcy, the VOC was formally dissolved in 1800, and the government of Netherlands established a colony called the Dutch East Indies. During World War II, the Japanese invasion and occupation of the Dutch East Indies ended Dutch rule. This encouraged a previously suppressed Indonesian independence movement to rekindle. When the Japanese surrendered in August 1945, nationalist leader – Sukarno – declared independence and became president. However, the Netherlands, through the United Nations, tried to re-establish its rule which resulted in an armed and diplomatic struggle that ended in December 1949 when the Netherlands recognized Indonesian independence.

Indonesia was the most affected country by the Asian Financial Crisis of 1997-99. The Indonesian Rupiah (IDR) depreciated significantly against the US Dollar (USD) which caused Foreign Direct Investment (FDI) outflows, hyperinflation and high unemployment. However, strong macroeconomic policies attracted foreign investments that revived economic growth and helped Indonesia become a trillion-dollar economy. In 2017, the Indonesian economy grew by 5.07% to a GDP of USD 1,015.54 billion. It registered an annual inflation rate of 3.81% and unemployment of 4.18%. Currently, the services sector is the largest contributor to GDP – 47.49%, followed by industry – 39.37%, and agriculture – 13.14%. The Indonesian government, through its national plan ‘Making Industry 4.0’, is focusing on pushing the country to the top- 10 economies of the world by 2030. The ‘Making Industry 4.0’ entails digital transformation in various industries to improve high technology exports. THE REPUBLIC OF INDONESIA = COUNTRY PROFILE ix

In 2017, manufacturing, services and the mining sector attracted investments worth USD 13.10 billion, USD 13.00 billion and USD 4.40 billion, respectively. Top foreign investors in 2017 included Singapore – USD 8.40 billion, followed by Japan – USD 5.00 billion, and China – USD 3.40 billion. Through interest rate tax cuts for exporters, energy tariff cuts for labour-intensive industries, tax incentives for investments in special economic zones and a reduction in tax rates on property acquired by local real estate investment trusts, the government has managed to improve the business environment by reducing risk.

As the 16th largest economy in the world, Indonesia is heavily reliant on bilateral trade for economic growth. Trade contributed 39.54% to the GDP, with total exports of USD 168.81 billion versus imports of USD 156.93 billion – resulting in a trade surplus of USD 11.89 billion in 2017. Indonesia’s top three export partners were China, the USA and Japan which accounted for 34.74% of total exports, whereas top three import partners were China, Singapore and Japan which shared 43.27% in total imports. Top exports included palm oil, coal, petroleum gas, crude petroleum and rubber, while top imports were refined petroleum, crude petroleum, telephone sets, and vehicle parts.

The table below shows economic indicators for Indonesia and Pakistan for the year 2017. Both the countries have the same GDP growth rate (around 5%), unemployment (4%), and inflation (4%). Although Pakistan and Indonesia belong to the lower-middle income countries, Pakistan’s economy, with a GDP of USD 304.95 billion, is one-third of Indonesia’s economy. An Indonesian citizen has a higher purchasing power with a GDP per capita of USD 3,846.86, whereas a Pakistani consumer has a GDP per capita of USD 1,547.85. Pakistan’s foreign direct investment net inflows of USD 2.82 billion were around 10.00% of Indonesia’s net inflows of USD 22.08 billion. In 2017, Indonesia had a trade surplus of USD 11.89 billion, while Pakistan’s deteriorating trade deficit stood at USD 35.56 billion. In 2016, Indonesia’s high technology products accounted for 5.79% of manufactured exports while Pakistan lagged behind with 1.91% high technology exports as a percentage of manufactured exports.

Economic Indicators (2017) Country

Indonesia Pakistan GDP (Current USD Billion) 1,015.54 304.95 GDP per capita (Current USD) 3,846.86 1,547.85 GDP growth (Annual %) 5.07 5.70 Inflation (Annual %) 3.81 4.09 Unemployment (% of total labor force) 4.18 4.04 Exchange rate (LCU per USD) 13,380.87 123.19 Population (Million) 263.99 197.02 Foreign Direct Investment (Net inflows, USD Billion) 22.08 2.82 Trade Balance (USD Billion) 11.89 -35.56 High Technology Exports (% of manufactured exports); (2016) 5.79 1.91 x

As a founding member of ASEAN, Indonesia benefits from the ASEAN Free Trade Area (FTA) through Common Preferential Tariffs with member countries. It also enjoys the benefits of ASEAN’s free trade agreements with Australia, China, Japan, New Zealand, India and the Republic of Korea. Also, it has preferential trade alliances with the Group of Eight Developing (G-8) Countries and the Organization of Islamic Conference (OIC).

The figure below shows Indonesia’s trade with Pakistan over the period 2013-17. Since 2013, Indonesia’s trade surplus with Pakistan has improved to a new high of USD 2,156.98 million in 2017. This was a result of a rise in exports of palm oil, areca nuts, motor vehicles and coal. Since 2013, exports grew by 69.42% to USD 2,398.09 million against imports of USD 241.11 million in 2017. Top imports from Pakistan included; broken rice, fresh or dried mandarins, iron and steel products, paper and paperboard products, cotton, and textile articles.

Indonesia's Trade Overview with Pakistan

3,000

2,500 2,398.09 2,045.29 1,989.56 2,018.23 2,156.98 2,000 n Indonesia's exports to Pakistan 1,885.90 1,815.05 1,860.98 1,415.44

M i l o 1,500

D Indonesia's imports from Pakistan S 1,246.70 U 1,000 Indonesia's trade balance with 500 Pakistan 168.74 159.39 174.51 157.26 241.11 - 2013 2014 2015 2016 2017

At HS-06 level, top-25 high potential exports to Indonesia from Pakistan, which are currently worth USD 69.81 million, had an additional potential of USD 1,533.25 million in 2017. The products with the most export potential for Pakistan include; ‘Instruments and appliances used in medical, surgical or veterinary sciences, n.e.s.’ – USD 321.35 million, ‘Broken rice’ – USD 113.85 million, ‘Waste and scrap, of copper’ – USD 78.40 million, ‘Medicaments for therapeutic or prophylactic purposes’ – USD 70.76 million, ‘Woven fabrics of cotton, containing >= 85% cotton by weight and weighing <= 200 g/m²’ – USD 64.18 million.

Moreover, Pakistan has the potential to export textile and textile articles (including cotton, t-shirts and woven fabrics) worth USD 251.12 million to Indonesia while it currently exports textile goods valued at USD 29.30 million.

For its top-25 high potential exports to Pakistan which were worth USD 1,650.77 million in 2017, Indonesia had an additional potential of USD 3,770.13 million. Most potential lies in ‘Palm oil and its fractions’, ‘Motor cars and other motor vehicles with spark-ignition internal combustion reciprocating piston engine of a cylinder capacity > 1,000 cm³ but <= 1,500 cm³ ’, ‘Motor cars and other motor vehicles with spark-ignition internal combustion reciprocating piston engine of a cylinder capacity > 1,500 cm³ but <= 3,000 cm³ ’, ‘Medicaments for therapeutic or prophylactic THE REPUBLIC OF INDONESIA = COUNTRY PROFILE xi purposes’, and ‘Staple fibres of viscose rayon, not carded, combed or otherwise processed for spinning.’

Indonesia has the potential to export motor vehicles, and parts and accessories of motor vehicles worth USD 840.69 million and USD 321.23 million, respectively.

According to the World Bank’s Doing Business Index which measures the relative ease of starting and running a business by a local in a country, Indonesia ranked 73rd in 2019 in comparison with 72nd in 2018. Major improvements for the local businessmen were in ‘starting a business’, ‘getting electricity’, ‘registering property’, ‘getting credit’, ‘paying taxes’, and ‘resolving insolvency’. However, there was a decline in ‘protecting minority investors’, ‘dealing with construction permits’, and ‘trading across borders.’ xii

TABLE OF CONTENTS

•• Section 1: Geographic and Social Landscape...... 01 •• Country name ...... 02 •• Capital...... 02 •• Time zone...... 02 •• Central Bank ...... 02 •• Currency...... 02 •• Geographic coordinates ...... 02 •• Location...... 02 •• Area...... 03 •• Land boundaries...... 03 •• Natural resources...... 03 •• Land use...... 03 •• Population...... 03 •• Age structure...... 03 •• Birth rate...... 04 •• Death rate...... 04 •• Life expectancy at birth...... 04 •• Literacy...... 04 •• Ethnic groups...... 04 •• Languages...... 05 •• Religions...... 05 •• Climate...... 05 •• Administrative Divisions...... 05 •• Communications...... 06 •• Transportation...... 06

•• Section 2: History of Indonesia...... 09

•• Section 3: Economic Outlook...... 13 •• Economic Overview...... 14 •• Sectors of the Economy...... 15 •• Economic Indicators...... 17 •• Natural Resources...... 22 •• Exclusive Economic Zone (EEZ)...... 23 •• Belt and Road Initiative (BRI)...... 23 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE xiii

•• Section 4: Trade...... 25 •• Major Export Partners...... 27 •• Major Exports...... 28 •• Major Import Partners...... 30 •• Major Imports...... 31 •• Trade Alliances...... 33 •• Trade with China...... 37 •• Trade with Japan...... 42 •• Trade with the USA...... 47 •• Trade with India...... 52 •• Trade with Pakistan...... 57 •• Pakistan’s Potential Trade with Indonesia...... 62

•• Section 5: Recent Concessions by Indonesia to Pakistan...... 67

•• Section 6: Analysis of Major Industries...... 71 •• Palm Oil Industry...... 72 •• Automotive Industry...... 76

•• Section 7: Doing Business...... 81 •• Ease of Doing Business...... 82 •• Embassy...... 83 •• Consulate...... 83

•• Section 8: Sources...... 85 xiv

LIST OF TABLES

•• Table 1: Economic Indicators...... 14

•• Table 2: Indonesia’s Top-10 Export Partners...... 27

•• Table 3: Top-10 Exports at HS-02 Level (2013-17)...... 28

•• Table 4: Top-25 Exports at HS-06 Level (2013-17)...... 29

•• Table 5: Indonesia’s Top-10 Import Partners...... 30

•• Table 6: Top-10 Imports at HS-02 Level (2013-17)...... 31

•• Table 7: Top-25 Imports at HS-06 Level (2013-17)...... 32

•• Table 8: Indonesia’s Trade Alliances...... 33

•• Table 9: Top-5 Exports to ASEAN at HS-02 Level (2013-17)...... 35

•• Table 10: Top-5 Exports to ASEAN at HS-06 Level (2013-17)...... 35

•• Table 11: Top-5 Imports from ASEAN at HS-02 Level (2013-17)...... 36

•• Table 12: Top-5 Imports from ASEAN at HS-06 Level (2013-17)...... 36

•• Table 13: Top-10 Exports to China at HS-02 Level (2013-17)...... 38

•• Table 14: Top-25 Exports to China at HS-06 Level (2013-17)...... 39

•• Table 15: Top-10 Imports from China at HS-02 Level (2013-17)...... 40

•• Table 16: Top-25 Imports from China at HS-06 Level (2013-17)...... 41

•• Table 17: Top-10 Exports to Japan at HS-02 Level (2013-17)...... 43

•• Table 18: Top-25 Exports to Japan at HS-06 Level (2013-17)...... 44

•• Table 19: Top-10 Imports from Japan at HS-02 Level (2013-17)...... 45

•• Table 20: Top-25 Imports from Japan at HS-06 Level (2013-17)...... 46

•• Table 21: Top-10 Exports to the USA at HS-02 Level (2013-17)...... 48

•• Table 22: Top-25 Exports to the USA at HS-06 Level (2013-17)...... 49

•• Table 23: Top-10 Imports by the USA at HS-02 Level (2013-17)...... 50 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE xv

•• Table 24: Top-25 Imports from the USA at HS-06 Level (2013-17)...... 51

•• Table 25: Top-10 Exports to India at HS-02 Level (2013-17)...... 53

•• Table 26: Top-25 Exports to India at HS-06 Level (2013-17)...... 54

•• Table 27: Top-10 Imports from India at HS-02 Level (2013-17)...... 55

•• Table 28: Top-25 Imports from India at HS-06 Level (2013-17)...... 56

•• Table 29: Top-10 Exports to Pakistan at HS-02 Level (2013-17)...... 58

•• Table 30: Top-25 Exports to Pakistan at HS-06 Level (2013-17)...... 59

•• Table 31: Top-10 Imports from Pakistan at HS-02 Level (2013-17)...... 60

•• Table 32: Top-25 Imports from Pakistan at HS-06 Level (2013-17)...... 61

•• Table 33: Top-25 High Potential Pakistani Exports to Indonesia at HS-06 Level...... 63

•• Table 34: Top-25 High Potential Indonesian Exports to Pakistan at HS-06 Level...... 65

•• Table 35: List of Products Granted Duty-Free Access to Pakistan (2018)...... 69

•• Table 36: Top-5 Export Destinations for Indonesian Palm Oil and its Products (2013-17)...... 73

•• Table 37: Indonesian Palm Oil Exports at HS-06 Level (2013-17)...... 73

•• Table 38: Total Area Harvested in Indonesia by Different Estates (2016)...... 74

•• Table 39: Pakistan’s Top Import Partners for RBD Palm Oil (2013-17)...... 75

•• Table 40: Pakistan’s Top Import Partners Palm Olein (2013-17)...... 75

•• Table 41: Sales and Production of Completely Built Up (CBU) Units in Indonesia (2013-17)..... 77

•• Table 42: Top-10 Export Destinations of Indonesian Vehicles and Auto Parts (2015-17)...... 77

•• Table 43: Indonesian Exports of CBU units and CKD Units (2013-17)...... 78

•• Table 44: Growth Indicators of Automotive Industry in Pakistani and Indonesian Market...... 78

•• Table 45: Ease of Doing Business in Indonesia (2019)...... 82 xvi

LIST OF FIGURES

•• Figure 1: Flag of Indonesia...... 02

•• Figure 2: Map of Indonesia...... 02

•• Figure 3: Age and Gender Wise Population Statistics...... 04

•• Figure 4: Administrative Divisions of Indonesia...... 05

•• Figure 5: GDP Composition...... 15

•• Figure 6: GDP (Current USD Billion)...... 17

•• Figure 7: GDP per Capita (Current USD)...... 17

•• Figure 8: GDP Growth (Annual %)...... 18

•• Figure 9: Inflation (Annual %)...... 18

•• Figure 10: Exchange Rate (Local Currency Unit per USD)...... 19

•• Figure 11: Population Growth (Annual %)...... 19

•• Figure 12: Foreign Direct Investment (Net inflows, USD Billion)...... 20

•• Figure 13: Unemployment (% of total labour force)...... 21

•• Figure 14: Exclusive Economic Zone (EEZ) of Indonesia...... 23

•• Figure 15: Determination of Exclusive Economic Zone (EEZ)...... 23

•• Figure 16: Indonesia's Trade Overview...... 26

•• Figure 17: Indonesia’s Export Partners (2013-2017)...... 27

•• Figure 18: Indonesia’s Import Partners (2013-2017)...... 30

•• Figure 19: Indonesia’s Trade Overview with ASEAN...... 34

•• Figure 20: Indonesia’s Trade Overview with China...... 37

•• Figure 21: Indonesia’s Trade Overview with Japan...... 42

•• Figure 22: Indonesia’s Trade Overview with the USA...... 47

•• Figure 23: Indonesia’s Trade Overview with India...... 52

•• Figure 24: Indonesia’s Trade Overview with Pakistan...... 57

•• Figure 25: Top-3 Exporters of Palm Oil and its Products in the World (2013-17)...... 72 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE xvii

LIST OF ACRONYMS

FTA – Free Trade Agreement

USD – United States Dollar

IDR – Indonesian Rupiah

GDP – Gross Domestic Product

ASEAN – Association of Southeast Asian Nations

EEZ –Exclusive Economic Zone n.e.s. – not elsewhere specified

HS-Code – Harmonized System Code

USA – United States of America

UK – United Kingdom

CKD – Completely Knocked Down

CBU – Completely Built Up

CPO – Crude Palm Oil

PKO – Palm Kernel Oil

RBD Oil – Refined, Bleached, Deodorized Oil

OEM – Original Equipment Manufacturers

MFN – Most Favoured Nation

THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 01

SECTION 1

GEOGRAPHIC AND SOCIAL LANDSCAPE 02

Country name The Republic of Indonesia (Indonesia)

Capital Jakarta

Time zone UTC+7

Central Bank Bank Indonesia Figure 1: Flag of Indonesia

Currency Indonesian Rupiah

Geographic coordinates 5.000°S 120.000°E

Location

World’s largest archipelago, Indonesia is located in Southeast Asia between the Indian and Pacific Oceans. It shares land borders with Malaysia, East Timor and Papua New Guinea, while it has maritime borders with Malaysia, Vietnam, Singapore, the Philippines, Australia, and Palau.

Figure 2: Map of Indonesia THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 03

Area

Total: 1,904,569 km2 Land: 1,811,569 km2 Water: 93,000 km2

Land boundaries

Total: 2,958 km Malaysia – 1,881 km, Papua New Guinea – 824 km, Timor Leste – 253 km

Coastline: 54,716 km

Natural resources

Indonesia has large reserves of petroleum, tin, natural gas, nickel, timber, bauxite, copper, coal, gold, and silver.

Land use

Agricultural land: 31.2% Arable land – 13%; permanent crops – 12.1%; permanent pasture – 6.1%

Forest: 51.7% Other: 17.1% (2011 est.) Irrigated land: 67,220 km2 (2012)

Population

Total population: 263.99 million Population growth rate: 0.86% (2017 est.)

Age structure

0-14 years: 25.02% (Male - 33,205,805/Female - 31,994,844) 15-24 years: 16.99% (Male - 22,537,842/Female - 21,738,210) 25-54 years: 42.4% (Male - 56,493,414/Female - 53,980,979) 55-64 years: 8.58% (Male - 10,192,430/Female - 12,177,931) 65 years and over: 7.01% (Male - 7,954,795/Female - 10,304,489) (2017 est.) 04

Age and Gender wise Population Statistics - 2017

10.30 65+ 7.95 12.18 t 55-64 e 10.19 k Female c 53.98 r a 25-54 b 56.49 Male

A g e 21.74 15-24 22.54 31.99 0-14 33.21

- 10 20 30 40 50 60 Million People

Figure 3: Age and Gender Wise Population Statistics Birth rate

Total: 16.2 births/1,000 population (2017 est.)

Death rate

Total: 6.5 deaths/1,000 population (2017 est.)

Life expectancy at birth

Total population: 73 years Male: 70.4 years Female: 75.7 years (2017 est.)

Literacy

Population of age 15 and above who can read and write

Total population: 95.4% Male: 97.2% Female: 93.6% (2016 est.)

Ethnic groups

Javanese – 40.1% Sundanese – 15.5% Malay – 3.7% Chinese – 1.2% Others – 39.4% (2010 est.) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 05

Languages

Bahasa Indonesia, English, Dutch

Religions

Muslim – 87.2% Protestant – 7.0% Roman Catholic – 2.9% Hindu – 1.7% Others – 1.3% (2010 est.)

Climate

With a hot and tropical climate, Indonesia is divided by the equator. On average, temperatures vary across coastal plains, inland and in the mountainous areas. Coastal plains have an average temperature of 28°C, while the inland and mountain areas have an average temperature of 26°C. The country has relatively high humidity – between 70% to 90%. It receives monsoons from the North and East in June through September, and from the Northwest from December to March. Also, minor change in the length of daylight hours during the seasons is most favourable for agriculture throughout the year.

Administrative Divisions

Indonesia is divided into 34 provinces with 5 special provinces which includes; Aceh, Yogyakarta, Papua, West Papua, and Jakarta. Eight provinces have been created since 1999 while the rest gained their statuses later. Each province is subdivided into regencies and cities which have their own local government. A new government is elected through general elections for a five- year period.

Figure 4: Administrative Divisions of Indonesia 06

Communications

Telephones - fixed lines: Total subscriptions: 11.17 million Subscriptions per 100 inhabitants: 4 (2017 est.)

Telephones - mobile cellular: Total subscriptions: 458.92 million Subscriptions per 100 inhabitants: 176 (2017 est.)

Internet users: Total subscribers: 65.53 million Percent of population: 25.4% (July 2016 est.)

Transportation

Airports: 673 (2013) - with paved runways: 186 - with unpaved runways: 487 Heliports: 76 (2013) Railways: 8,159 km Roadways: 496,607 km - paved: 283,102 km - unpaved: 213,505 km (2011) Waterways: 21,579 km (2011) Major seaports: Banjarmasin, Belawan, Kotabaru, Krueg Geukueh, Palembang, Panjang, Sungai Pakning, Tanjung Perak, Tanjung Priok THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 07

SECTION 2

HISTORY OF INDONESIA 10

Ancient Era

Life on the Indonesian archipelago dates back to 0.5 to 2 million years. The fossils discovered in 1891 point to the early life of “Java Man” – the oldest human ancestor. Austronesian people are thought to have arrived in Indonesia from Taiwan around 2000 BCE. They brought techniques of wet-field rice cultivation, ritual buffalo sacrifice, bronze casting, megalithic practises, and ikat weaving methods with them.

By 8th century BCE, early Indonesians had mastered wet-field rice cultivation which allowed villages, towns, and small kingdoms to flourish. This was supported by Java’s hot and even temperature, volcanic soil and abundant rainfall all of which is most suitable for rice plantation.

Early Kingdoms and the Spread of Islam

From 7th to 15th centuries CE, early kingdoms fought to gain control over regional trade. The Medang Empire, based in Central Java, was ruled by the Sailendra dynasty. Hinduism was largely practiced throughout the region. Between 8th and 9th century, most temples reflected Javanese art while Javanese culture grew rapidly during this period. Later, civil war broke out which divided the empire into two, based on region and religion – Shivaist dynasty of Medang kingdom in Java, and Buddhist dynasty of Srivijaya kingdom in Sumatra. In 1006, Srivijaya kingdom defeated Shivaist dynasty to seize control of east Java.

Kingdom of Srivijaya flourished on trade through the Strait of Malacca, it regulated the Spice Route Traffic. Under Srivijaya, Malay culture spread in the area – promoting Hinduism and Buddhism, which attracted pilgrims from the rest of Asia. The kingdom influenced its control on the coastal areas and remained unchallenged until regional attacks from the Chola Empire weakened the Srivijayan power. This divided the cities into regional kingdoms. Also, conflicts with Javanese kingdoms – Singhasari and Majapahit – further pushed the Srivijayan empire into decline.

In 1290, Singhasari defeated Srivijaya, its leader Kertanagara was killed by a rebel from Jayakatwang. By the 15th century, Majapahit lost power to Muslim leaders of the Sultanate of Malacca.

Indonesian archipelago was already famous for precious spices among Muslim traders. As trade links were established with Muslim sailors, Islam entered through northern Sumatra in the 13th century and was widely adopted in Java by the end of 16th century, whereas Bali still had a Hindu majority.

Colonial Rule

During the early 16th century, Muslim merchants had monopolized the spice trade in Europe. Spices were considered of great value; they were not only used in medicines, but were essential for food preservation. Europeans, including the Dutch, Portuguese, Spanish and the English ventured to dominate the spice trade in India and Indonesia. Portuguese were the first Europeans to arrive in Indonesia in search of nutmeg – the then most valuable commodity, along THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 11 with cloves and cubeb pepper. With expertise in navigation and weaponry, they conquered the Strait of Malacca where local authorities helped them set-up trading posts.

In 1602, the Dutch Parliament granted the Dutch East India Company (VOC) an exclusive licence for trade and colonial activities in Indonesia. The VOC successfully conquered the smaller kingdoms, extending their rule within the region. Alongside, it gained complete control of the spice trade in Indonesia. By 1660, VOC had defeated the Portuguese to capture Malacca. Through local rulers, they expelled the British and took over the pepper trade. After the VOC was dissolved in 1800 following bankruptcy, the Dutch state took over its possessions in 1816. The colonial rule established two legal classes; Europeans and the natives, while Foreign Easterners were added later. These classes had a social and racial caste system. Moreover, the state developed local infrastructure to promote trade.

Indonesian Independence

Beginning 1908, the Dutch rulers suppressed nationalist movements during and after World War I. These movements led to widespread arrests and riots. In World War II, the Japanese invaded the Dutch East Indies in March 1942. Japanese relied on support from future Indonesian President, Sukarno, and Vice President, Mohammad Hatta. During the Japanese occupation, areas deemed important for the Japanese war effort suffered from war crimes; Japanese especially targeted people of Dutch-Indonesian decent. In March 1945, Investigating Committee for Preparatory Work for Independence (BPUPK) was formed by the Japanese to layout a framework for independence.

On Japan’s surrender in 1945, Sukarno unilaterally announced Indonesian independence on 17th August 1945. In December 1946, the United Nations proclaimed “Netherlands Indies” as a colony for which the Netherlands had a legal governing authority. This resulted in an armed and diplomatic struggle against the Dutch which ended on 27th December 1949 when the Dutch formally recognized Indonesian independence amid rising international pressure. In 1950, Sukarno declared the Dutch East Indies as the independent Republic of Indonesia.

Sukarno pushed the country away from democracy and towards a dictatorship, but lost power in 1965 to a military led coup by General Suharto. General Suharto was formally appointed president in March 1968 with support of the US government. Under his rule, he encouraged foreign direct investment in Indonesia which resulted in substantial economic growth. However, the Asian Financial Crisis of 1997 led to his resignation in 1998. Currently, President Joko Widodo is the Head of State with Jusuf Kalla as Vice President. Next presidential elections in Indonesia are scheduled for April, 2019. 12 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 13

SECTION 3

ECONOMIC OUTLOOK 14

Economic Overview

The largest economy in Southeast Asia with the world’s biggest Muslim population, Indonesia is rich in natural resources including; fish, natural gas, rubber, a fertile soil, warm waters, palm, and iron ores. It plays a significant role in regional stability and economic co-operation as a founding member of ASEAN.

The Financial Crisis of the 1990s severely affected the country. The Indonesian Rupiah tumbled to its lowest value – IDR 10,013.621 per USD. The economy contracted due to a decline in the manufacturing and services sector, resulting in massive unemployment and hyperinflation. However, strong macroeconomic policies to overcome the crisis attracted foreign investment which helped revive economic growth, leading to Indonesia becoming a trillion-dollar economy.

Indonesia is low-middle income country with a GDP of USD 1,015.54 billion in 2017. It has a GDP per capita of USD 3,846.86 with an annual GDP growth rate of 5.07% and an inflation rate of 3.81%. Currently, the services sector dominates over the industrial and agricultural sectors. Indonesian government, through its national plan ‘Making Industry 4.0’, is focusing on pushing the country to the top-10 economies of the world by 2030. Under this policy, the industrial sector will incorporate digital transformation in various industries to improve high technology exports.

The country has a population of 263.99 million people, with a young work force of 121.02 million.2 The Indonesian middle class makes up the majority of the population which earns an average minimum wage of IDR 2,142,855 per month. Around 10.60% of the total population lives below the poverty line. In 2018, Indonesia ranked 116th on the Human Development Index (HDI).3

The following table displays Indonesia’s economic indicators for the period 2013 to 2017.

Economic Indicator 2013 2014 2015 2016 2017

GDP (Current USD Billion) 912.52 890.81 860.85 932.26 1,015.54

GDP per capita (Current USD) 3,620.66 3,491.60 3,334.55 3,570.28 3,846.86

GDP growth (Annual %) 5.56 5.01 4.88 5.03 5.07

Inflation (Annual %) 6.41 6.39 6.36 3.53 3.81

Exchange rate (LCU per USD) 10,461.24 11,865.21 13,389.41 13,308.33 13,380.87

Population (Millions) 252.03 255.13 258.16 261.12 263.99

Foreign direct investment (Net inflows, USD Billion) 23.28 25.12 19.78 4.54 22.08

Trade Balance (USD Billion) -4.08 -2.14 7.67 8.84 11.89

Table 1: Economic Indicators

1 Source: World Bank 2 Currently employed 3 http://hdr.undp.org/en/2018-update THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 15

Sectors of the Economy

Indonesia has transformed itself from an agricultural country to a more developed, services- based economy. During the Asian Crisis 1997-99, the Indonesian economy underwent a major recession and suffered high levels of unemployment. This led the government to strengthen its financial sector, allowing it to be more resilient against future downturns. Due to prudent financial policies, Indonesia sailed smoothly through the global economic slump in 2008. With tax incentives, a low interest rate and low wages, foreign direct investment poured into the country which fuelled economic growth.

The Services sector is the largest contributor to the GDP – 47.49%, followed by industry – 39.37%, and agriculture – 13.14%. Since 1990, the services sector contribution in the GDP has increased by 8.42 percentage points while industrial sector’s share has remained constant. On the other hand, agricultural sector has declined by 6.75 percentage points in the same period.

GDP Composition

60

50 47.49 39.38 39.37 40 D P G

39.07

f 30 o 21.55 20.16 % 20 19.89 10 13.14 0 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Agriculture (% of GDP) Industry (% of GDP) Services (% of GDP) Manufacturing (% of GDP)

Figure 5: GDP Composition

Agricultural Sector

With a fertile soil, most suitable for growing tropical crops, Indonesia is a key producer of palm oil, rubber, cocoa, coffee, tea, cassava, rice, and tropical spices. Around 31.20% of total land area is dedicated to agriculture, out of which 13.00% is arable land while 12.10% is dedicated to permanent crops. Although agriculture sector’s contribution to the GDP has declined – from 21.55% in 1990 to 13.14% in 2017, it helped absorb the unemployed from the manufacturing and services sector during the financial crisis of 1997. Over time, employment in this sector has decreased due to low wages. Currently, the sector employs 29.68% of the total labour force – 36 million people; this includes 26 million farmers, 70% of whom are over the age of 45.4

4 https://www.indonesia-investments.com/culture/economy/general-economic-outline/agriculture/item378? https://en.wikipedia.org/wiki/Agriculture_in_Indonesia https://www.voanews.com/a/indonesia-food-sovereignty-remains-elusive/4649698.html 16

Industry & Manufacturing Sector

Industrial sector has been a driving force for the Indonesian economy. It employs 26.93 million people of which 17.01 million are working in the manufacturing sector, while another 1.39 million people serve in the mining sector. Mainly, this sector produces coal, footwear, oil, gold, textile products, paper products, automobiles, furniture and electronics. Its share in the GDP has remained nearly constant – 39.37% in 2017 versus 39.38% in 1990. Recently, the Indonesian government has imposed a ban on the mining of coal, gold and bauxite due to rising pollution levels, this has impacted the mining sector.

Manufacturing sector contributed 20.16% to the GDP in 2017 as compared to 19.89% in 1990. This sector now focuses on developing AI (Artificial Intelligence) industries to support economic growth and to generate employment in the country. Through technological advancements in artificial intelligence, human-machine interface, robot and sensor technology, and 3D printing under a new national plan called ‘Making Industry 4.0’, Indonesia is now aiming to be one of the top-10 economies in the world by 2030.5

Services Sector

The backbone of the Indonesian economy, the services sector employs most of the labour force. Around 58.17 million people work in this sector which is 48.06% of the total work force. Since the global economic crisis of 2008, this sector has been experiencing tremendous growth because of investment-friendly policies. The sub-sectors including: banking, insurance and finance, tourism, retail, food and beverages, media and entertainment, education, and health play a vital role.

According to the Travel and Tourism Competitiveness Report of 2017, Indonesia ranked as the 42nd top tourist destination out of 136 countries. In 2017, around 11.52 million people visited the country which generated USD 12.60 billion in international tourism receipts. Tourism industry contributed 7.51% in total exports for Indonesia versus 4.48% in 2012. The Central Bureau of Statistics (BPS) of Indonesia reported that around 1.97 million Chinese visited the country in 2017.

5 https://www.indonesia-investments.com/business/business-columns/widodo-launches-roadmap-for-industry-4.0-making- indonesia-4.0/item8711? www.kemenperin.go.id/download/18384 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 17

Economic Indicators

GDP

Indonesia’s economy has expanded since 1990; it is now the largest economy of Southeast Asia. The financial crisis that hit the country in the late 1990s saw Indonesia’s GDP contracting by 13.13% to USD 95.45 billion in 1998. Soon after, the country recovered and was back on track. Since 1999, Indonesia’s GDP has grown by 625.39% to USD 1,015.54 billion in 2017.

GDP (current USD Billion) 1200 1,015.54 1000

n 800 i l o

B 600 D S

U 400 539.58 215.75 200

0 106.14 95.45 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

GDP (current USD Billion)

Figure 6: GDP (Current USD Billion)

GDP Per Capita

Indonesia has been successful in increasing its GDP per capita since the Asian monetary crisis in 1997. From USD 585.00 in 1990, GDP per capita grew to USD 3,846.86 in 2017. The country registered a GDP per capita of USD 2,254.45 during the global economic slump which depicted its economic stability.

GDP per capita (current USD)

4500 3,846.86 4000 3500 3000

D 2500 S

U 2000 2,254.45 1500 1000 500 585.00 463.97 0 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

GDP per capita (current USD)

Figure 7: GDP per Capita (Current USD) 18

Economic Growth

Over the years, the Indonesian economy has slowed down – in comparison to a growth rate of 7.24% in 1990, it grew by only 5.07% in 2017. Major disruption in the economy occurred during the financial crisis (1997-99) when Indonesia witnessed a negative growth of 13.13%. After the crisis and general elections in 1999, the economy recovered with annual GDP growth of 0.79% in 1999.

GDP growth (annual %) 9 7.24 4.92 5.07 6

3 4.63 0.79

t 0 n e 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

r c -3 e P -6

-9

-12 -13.13 -15 GDP growth (annual %) Figure 8: GDP Growth (Annual %)

Inflation

Indonesia was the most affected ASEAN country during the Asian Financial Crisis and from the El-Nino drought. Indonesian central government debt as a percentage of GDP grew from 23.92% in 1996 to 72.48% in 1997.6 Corporations and private investors had already lost confidence in the Indonesian Rupiah. As per the IMF bailout package conditions, the government ended food and fuel subsidies which further pushed up consumer prices, resulting in hyperinflation. The inflation rate jumped up from 6.23% in 1997 to 58.39% in 1998; however, with the president’s resignation and democratic elections in 1999, it normalized to 3.72% in 2000. In 2017, the country had an annual inflation rate of 3.81%.

Ination (Annual %) 58.39 60

50

40 t n e

r c 30 e P 20 7.81 10 3.81 6.23 0 3.72 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Ination (annual %) Figure 9: Inflation (Annual %)

6 Source: World Bank THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 19

Exchange Rate

Following the Asian Financial Crisis, the Indonesian Rupiah (IDR) significantly lost its value against the US dollar (USD). IDR was allowed to float in the open market. Consequently, the Rupiah fell; corporations who had borrowed money in USD, sold rupiah for USD to secure their investments. This further decreased IDR’s demand which depreciated by 244.18% - from IDR 2,909.38 per USD in 1997 to IDR 10,013.62 per USD in 1998. Since then, the IDR has dropped to IDR 13,380.87 per USD in 2017.

Exchange rate (Local Currency Unit per USD)

16000 14000 13,380.87 12000

D 10,013.62 S 10000 U r

e 8000 p

U

C 6000 L 4000 2,909.38 2000 1,842.81 0 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Exchange rate (LCU per USD)

Figure 10: Exchange Rate (Local Currency Unit per USD)

Population

Indonesia has a young working population. Out of 263.99 million people, about 42.40% are in the age bracket 25-54 years while only 15.59% of the total population is 55 years or above. The annual population growth rate has declined consistently; from 1.78% in 1990 to 1.10% in 2017.

Population growth (annual %)

2.00 1.78 1.80 1.60 1.40 g e a

t 1.20 n

e 1.00 1.10

r c 0.80 e

P 0.60 0.40 0.20 - 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Population growth (annual %)

Figure 11: Population Growth (Annual %) 20

Foreign Direct Investment (FDI)

Between 1998 and 1999, depreciation of the Rupiah during the Asian Financial Crisis led to the loss of investor confidence which resulted in FDI outflows of USD 4.55 billion. Since then, FDI inflows into the country have followed an upward trend as investor confidence was restored after structural reforms brought political and economic stability. Inflows reached USD 25.12 billion in 2015, while low inflows in 2016 occurred due to imposition of tax on exchange of new, unused assets and because of Indonesian companies acquiring foreign-owned assets in Indonesia. As of 2017, FDI inflows stood at USD 22.08 billion.

According to the Indonesian Investment Coordinating Board (BKPM), top sectors that have attracted most of the investment in 2017 include; manufacturing (USD 13.1 billion), services (USD 13.0 billion), and the mining sector (USD 4.4 billion). In 2017, Singapore invested USD 8.4 billion in Indonesia, followed by Japan – USD 5.0 billion, and China – USD 3.4 billion. The government has improved the business environment by restructuring its investment policies (interest rate tax cuts for exporters, energy tariff cuts for labour-intensive industries, tax incentives for investment in special economic zones and reduction in tax rates on property acquired by local real estate investment trusts) all of which has reduced risk. However, the remaining obstacles for investors include; the prospect of rising interest rates, poor quality of infrastructure and high levels of corruption.7

Foreign Direct Investment (Net inows, USD Billion)

30 25.12

n 25 22.08 i l o

B 20 D S

U 15

, s

w 10

 o 6.19 i n 5 t

e 1.09 4.88 4.54 N 0

-5 - 4.55 1 9 0 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Foreign direct investment (net inows, USD Billion)

Figure 12: Foreign Direct Investment (Net inflows, USD Billion)

7 https://www.bkpm.go.id/images/uploads/file_siaran_pers/Paparan_Press_Release_TW_I_2018_-_EN.pdf THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 21

Unemployment

Overall, Indonesia has faced an increase in the unemployment rate in the period 1990 to 2017. In 2017, Indonesia had a total labour force of 127.11 million of which 4.28% remained unemployed.

According to Indonesia’s Bureau of Statistics, there were 289,632 registered job vacancies announced in 2017 which catered to 118,333 people. Average minimum wage per month in the year 2017 was IDR 2,142,855.

Unemployment (% of total labour force) 9 8.06 8 e r c

o 7 f r o

b 6 l a l a

t 5 o

t 4.28

f o 4 % 3 2.59 2 1 9 1 9 2 1 9 3 1 9 4 1 9 5 1 9 6 1 9 7 1 9 8 1 9 2 0 2 0 1 2 0 2 0 3 2 0 4 2 0 5 2 0 6 2 0 7 2 0 8 2 0 9 2 0 1 2 0 1 2 0 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Unemployment (% of total labor force)

Figure 13: Unemployment (% of total labour force) 22

Natural Resources

Mineral Resources

Indonesia is the world’s largest archipelago with 17,508 islands. These islands are magnificent in terms of bio-diversity and mineral resources. There are significant reserves of coal, tin, nickel, copper, gold, and bauxite in the country along with deep-water basins rich in crude petroleum and natural gas.

According to data from the Indonesian Central Bureau of Statistics (BPS), the country produced 42,698 tons of Tin ore, 419 million tons of Coal, 494,000 tons of Bauxite, 1.26 million tons of Nickle ore, 75,000 kg of Gold, and 2.69 million tons of Copper in 2016.

Oil

The largest oil producer in Southeast Asia, Indonesia has proven reserves of 3.3 billion barrels 8 of crude oil. With oil production of 773,572 barrels per day,9 it exported 768,000 barrels per day against imports of 907,900 barrels per day in 2016. However, to ease pressure on the Indonesian Rupiah by cutting oil imports, the government has ordered the oil producing companies to increase supply to the state-owned oil firm, Pertamina.10

Indonesia’s oil sector is dominated by international oil companies including Chevron, BP, ConocoPhillips, ExxonMobil, and Total along with China’s state-owned companies like PetroChina and China National Offshore Oil Corporation (CNOOC). Twenty-two out of 60 basins across the country have been explored and exploited for oil. Chevron operates most of the important fields – Minas, Duri and Rokan – in Sumatra, while Exxon Mobil controls the Cepu field in Java.

Gas

Indonesia ranks as one of the top-10 producers of natural gas in the world with annual production of 86.94 billion m3. It has proven natural gas reserves of 2.87 trillion m3. Due to a huge number of islands, fuel transportation is difficult; hence, natural gas is supplied in liquefied form (LNG). Despite being a major producer of gas, Indonesia’s domestic demand for natural gas from industries remains unfulfilled. ecently,R the Indonesian government has decided to cut gas exports and develop infrastructure to meet local demand.

Most prominent gas fields include the following: • Tangguh gas field in Bintuni Bay in West Papua Province, operated by BP (British Petroleum) • Arun gas field in Aceh, operated by ExxonMobil • East Natuna gas field in Natuna Islands - South China Sea • Banyu Urip gas field in the Cepu block in Bojonegoro Regency, East Java – controlled by Pertamina and ExxonMobil • Abadi gas field in Masela block, the east of Timor Island, operated by Inpex and Shell

8 CIA Factbook 9 Ministry of Energy and Natural Resources - Indonesia 10 https://www.reuters.com/article/indonesia-oil/indonesias-pertamina-gets-extra-225000-bpd-crude-locally-as-govt-cuts- imports-idUSL4N1V62KL THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 23

Exclusive Economic Zone (EEZ)

According to the United Nations Convention of the Law of the Sea, Indonesia has special rights for exploration and exploitation of marine resources in its Exclusive Economic Zone (EEZ) which is the area beyond the Indonesian Territorial Sea. The breadth of EEZ extends to 200 nautical miles.

The EEZ in the South-China Sea, around the Natuna Islands, has remained a disputed area between Indonesia and China.

Figure 14: Exclusive Economic Zone Figure 15: Determination of Exclusive (EEZ) of Indonesia Economic Zone (EEZ)

Belt and Road Initiative (BRI)

Belt and Road Initiative (BRI) is a network of roads, railways, oil pipelines, power grids, ports and infrastructure projects that focuses on linking China to 70 countries. Initiated in 2013 by the Chinese President, Xi Jinping, it focuses on building trade routes between China and Eurasian countries. The project is divided into a road and a sea network. Silk Road Economic Belt (SREB) is the land route which will connect China to Central Asia and then onwards to Europe. On the other hand, the Maritime Silk Road (MSR) joins China with Southeast Asia, Africa and Central Asia through a sea corridor.

China has invested heavily in Indonesian infrastructure projects under the BRI initiative. In April 2018, the two countries signed a USD 23 billion deal for five projects which includes two hydropower plants worth USD 20 billion, a USD 1.6 billion power plant in Bali, and a USD 1.2 billion steel smelter. In addition to this, China won the contract for Indonesia’s first high-speed railway project, a 140-km, USD 4.5 million railway line is being financed by Chinese banks. The project was due to be completed in 2019 but has been pushed to 2024 because of land clearance issues.11

11 https://www.scmp.com/week-asia/geopolitics/article/2169655/indonesia-review-chinas-belt-and-road-projects-if-prabowo

SECTION 4

TRADE 26

Trade Overview

As the 16th largest economy of the world, Indonesia had a nominal GDP of 1.02 trillion in 2017. With trade as 39.54% of GDP, it exports palm oil, coal, petroleum gas, crude petroleum and rubber against imports of refined petroleum, crude petroleum, telephone sets, and vehicle parts (including planes, helicopters and spacecraft).

Its trade balance improved significantly during the period 2013-17; from a trade deficit of USD 4.08 billion in 2013, it clocked a trade surplus of USD 11.89 billion in 2017. This was a result of a 15.91% decrease in imports versus a fall of 7.53% in exports since 2013. A reduction in imports in 2016 can be attributed to a depreciation in the Indonesia Rupiah against the US dollar. In 2017, it exported goods worth USD 168.81 billion in comparison with imports of USD 156.93 billion.

Indonesia's Trade Overview

200 182.55 186.63 Exports 176.04 178.18 168.81 Imports 150.37 142.69 144.49 156.93 150 135.65 Trade Balance n 100 i l o B D

S 50 U 7.67 8.84 11.89 0 -4.08 -2.14 2013 2014 2015 2016 2017 -50

Figure 16: Indonesia's Trade Overview THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 27

Major Export Partners

Indonesia’s top-10 export partners are displayed below. These contributed 70.77% in total exports. Top three export partners – China, the USA and Japan – accounted for 34.74% of total exports. Since 2013, exports to Japan, Singapore, Malaysia, Republic of Korea, and Taipei have reduced. On the contrary, exports to China, the USA, India, Philippines and Thailand have increased by 1.99%, 13.15%, 8.06%, 73.56% and 6.60%, respectively.

Top-10 Export Partners of Indonesia All values in USD Billion 2013 2014 2015 2016 2017 World 182.55 176.04 150.37 144.49 168.81

China 22.60 17.61 15.05 16.79 23.05 United States of America 15.74 16.56 16.27 16.17 17.81 Japan 27.09 23.13 18.02 16.10 17.79 India 13.03 12.25 11.73 10.09 14.08 Singapore 16.69 16.75 12.63 11.25 12.77 Malaysia 10.67 9.73 7.63 7.11 8.47 Korea, Republic of 11.42 10.61 7.66 7.01 8.19 Philippines 3.82 3.89 3.92 5.27 6.63 Thailand 6.06 5.78 5.51 5.39 6.46 Taipei, Chinese 5.86 6.43 5.04 3.65 4.22

Table 2: Indonesia’s Top-10 Export Partners

Indonesia's Top Export Partners 30 27.09 25 22.60 23.05

n 20 16.69 17.81

i l o 17.79 B 15 15.74 D 12.77 S

U 10

5

- 2013 2014 2015 2016 2017

China United States of America Japan India Singapore Malaysia Korea, Republic of Philippines Thailand Taipei, Chinese

Figure 17: Indonesia’s Export Partners (2013-2017) 28

Major Exports

At HS-02 level, top-10 Indonesian exports are shown in the table below. Mineral fuels, animal or vegetable fats and oils, and electrical machinery and equipment were the top three exports in 2017 with a value of USD 36.87 billion, USD 22.97 billion and USD 8.47 billion, respectively. From 2013 to 2017, exports of mineral fuels, electrical machinery and equipment, rubber, and machinery and mechanical appliances have fallen.

Top-10 products at HS-02 Level exported by Indonesia All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 182.55 176.04 150.37 144.49 168.81 Code Product Description Mineral fuels, mineral oils and products of their 27 57.41 51.13 34.65 27.87 36.87 distillation Animal or vegetable fats and oils and their cleavage 15 19.22 21.06 18.66 18.23 22.97 products Electrical machinery and equipment and parts 85 10.44 9.75 8.56 8.15 8.47 thereof 40 Rubber and articles thereof 9.39 7.10 5.91 5.66 7.74 Vehicles other than railway or tramway rolling 87 4.57 5.21 5.42 5.87 6.84 stock, and parts and accessories thereof Machinery, mechanical appliances, nuclear 84 5.97 5.97 5.22 5.45 5.87 reactors, boilers; parts thereof Natural or cultured pearls, precious or semi- 71 2.75 4.65 5.49 6.37 5.61 precious stones 64 Footwear, gaiters and the like 3.86 4.11 4.51 4.64 4.91 Articles of apparel and clothing accessories, not 62 3.90 3.93 3.98 3.88 4.15 knitted or crocheted 44 Wood and articles of wood; wood charcoal 3.63 4.07 4.01 3.86 4.00

Table 3: Top-10 Exports at HS-02 Level (2013-17)

Top-25 products exported by Indonesia at HS-06 level shown below contributed 49.88% to total exports. In 2017, top export was ‘palm oil and its fractions’ valued at USD 13.81 billion.

Top-25 products at HS-06 Level exported by Indonesia All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 182.55 176.04 150.37 144.49 168.81 Code Product Description 151190 Palm oil and its fractions, whether or not refined 10.86 13.26 11 11.06 13.81 270119 Coal, whether or not pulverised, non-agglomerated 10.44 9.29 7.5 6.53 10.48 Bituminous coal, whether or not pulverised, non- 270112 12.31 9.4 7.22 6.37 7.38 agglomerated 271111 Natural gas, liquefied 12.93 11.7 7.36 5.15 6.19 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 29

All values in USD Billion Code Product Description 2013 2014 2015 2016 2017 Petroleum oils and oils obtained from bituminous 270900 10.2 9.27 6.48 5.2 5.24 minerals, crude 400122 Technically specified natural rubber “TSNR” 6.71 4.6 3.56 3.24 4.96 151110 Crude palm oil 4.98 4.21 4.39 3.31 4.7 260300 Copper ores and concentrates 3.01 1.68 3.28 3.48 3.44 271121 Natural gas in gaseous state 5.19 5.47 2.97 1.85 2.6 Lignite, whether or not pulverised, non- 270210 1.74 2.12 1.28 1.61 2.59 agglomerated (excluding jet) 711319 Articles of jewellery and parts thereof 0.08 1.88 2.84 4.01 2.56 Semi-bleached or bleached non-coniferous 470329 1.84 1.72 1.73 1.56 2.29 chemical wood pulp, soda or sulphate Gold, incl. gold plated with platinum, unwrought, 710812 1.56 1.02 0.83 1.19 1.84 for non-monetary purposes 151329 Palm kernel and babassu oil and their fractions 0.95 1.15 1.05 1.6 1.83 Fatty acids, industrial, monocarboxylic; acid oils 382319 0.93 1.43 1.12 1.42 1.76 from refining 800110 Unwrought tin, not alloyed 1.96 1.57 1.15 1.12 1.57 030617 Frozen shrimps and prawns 1.18 1.53 1.19 1.26 1.4 640319 Sports footwear 1.37 1.21 1.16 1.06 1.34 720260 Ferro-nickel 0.23 0.29 0.33 0.57 1.33 New pneumatic tyres, of rubber, of a kind used for 401110 1.33 1.28 1.23 1.38 1.32 motor cars 090111 Coffee (excluding roasted and decaffeinated) 1.17 1.03 1.19 1 1.18 Motor cars and other motor vehicles with spark- ignition internal combustion reciprocating piston 870322 0.7 0.97 1.17 1.13 1.15 engine of a cylinder capacity > 1.000 cm³ but <= 1.500 cm³ Plywood consisting solely of sheets of wood <= 6 441231 1.01 1.06 1.08 0.98 1.11 mm thick 740311 Copper 0.52 0.76 0.55 0.78 1.08 Machines which perform two or more of the 844331 functions of printing, copying or facsimile 1.09 1.13 1.02 1.03 1.06 transmission

Table 4: Top-25 Exports at HS-06 Level (2013-17) 30

Major Import Partners

The following table shows top-10 import partners of Indonesia; these accounted for 73.82% of total imports. Top three import partners – China, Singapore and Japan – shared 43.27% in total imports. Overall, imports have fallen from USD 186.63 billion in 2013 to USD 156.93 billion in 2017. Major decline was observed in imports from Singapore (-33.97%), Japan (-20.95%), Thailand (-13.27%), Malaysia (-33.93%), the USA (-10.24%), Republic of Korea (-29.94%), and Germany (-20.09%).

Top-10 Import Partners of Indonesia All values in USD Billion 2013 2014 2015 2016 2017 World 186.63 178.18 142.69 135.65 156.93

China 29.85 30.62 29.41 30.80 35.77 Singapore 25.58 25.19 18.02 14.55 16.89 Japan 19.28 17.01 13.26 12.98 15.24 Thailand 10.70 9.78 8.08 8.67 9.28 Malaysia 13.32 10.86 8.53 7.20 8.80 United States of America 9.08 8.19 7.62 7.32 8.15 Korea, Republic of 11.59 11.85 8.43 6.67 8.12 Australia 5.04 5.65 4.82 5.26 6.01 India 3.96 3.95 2.74 2.87 4.05 Germany 4.43 4.09 3.47 3.16 3.54

Table 5: Indonesia’s Top-10 Import Partners

Indonesia's Top Import Partners

40 35.77 35 30 29.85

n 25.58 25 i l o

B 20 19.28 D 16.89 S 15 U 15.24 10 10.70 9.28 5 - 2013 2014 2015 2016 2017 Year China Singapore Japan Thailand Malaysia United States of America Korea, Republic of Australia India Germany

Figure 18: Indonesia’s Import Partners (2013-2017) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 31

Major Imports

Indonesia imports mineral fuels, machinery and mechanical appliances, and electrical machinery and equipment. From the top-10 imports at HS-02 level shown below, import of plastics and articles thereof has increased by 1.18% while the rest have fallen. These products contributed 64.78% in total imports.

Top-10 products at HS-02 Level imported by Indonesia All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 186.63 178.18 142.69 135.65 156.93 Code Product Description Mineral fuels, mineral oils and products of their 27 45.54 43.95 25.05 19.25 25.44 distillation Machinery, mechanical appliances, nuclear 84 27.29 25.83 22.38 21.07 21.77 reactors, boilers; parts thereof Electrical machinery and equipment and parts 85 18.2 17.23 15.52 15.43 17.93 thereof 72 Iron and steel 9.55 8.35 6.32 6.18 7.99 39 Plastics and articles thereof 7.64 7.79 6.83 7 7.73 Vehicles other than railway or tramway rolling 87 7.91 6.25 5.34 5.3 6.69 stock, and parts and accessories thereof 29 Organic chemicals 7.01 7.08 5.72 4.79 5.9 10 Cereals 3.62 3.61 3.16 3.19 2.93 Residues and waste from the food industries; 23 3.04 3.27 2.73 2.48 2.65 prepared animal fodder 73 Articles of iron or steel 4.75 4.29 3.72 2.93 2.63

Table 6: Top-10 Imports at HS-02 Level (2013-17) 32

The table below shows top-25 products at HS-06 level imported by Indonesia; these accounted for 30.87% of total imports, signifying a diverse import base. During the period 2013-17, imports of parts of telephone sets, wheat and meslin, raw cane sugar, gold, soya beans, copper, gear boxes, and polythene have increased.

Top-25 products at HS-06 Level imported by Indonesia All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 186.63 178.18 142.69 135.65 156.93 Code Product Description 271012 Light oils and preparations 16.39 16.43 9.17 6.77 9.27 Petroleum oils and oils obtained from bituminous 270900 13.59 13.07 8.06 6.73 7.06 minerals, crude 271019 Medium oils and preparations 11.46 10.29 4.84 3.17 4.85 851770 Parts of telephone sets 1.44 0.73 1.45 2.87 3.51 Wheat and meslin (excluding seed for sowing, and 100199 2.36 2.35 2.04 2.32 2.64 durum wheat) 170114 Raw cane sugar, in solid form 1.57 1.26 1.23 1.99 2.02 230400 Oilcake and other solid residues 1.93 2.19 1.81 1.57 1.64 Butanes, liquefied (excluding of a purity of >= 95% 271113 1.68 1.61 1.07 0.91 1.43 of N-butane or isobutane) 520100 Cotton, neither carded nor combed 1.35 1.4 1.09 1.09 1.33 271112 Propane, liquefied 1.39 1.41 0.94 0.75 1.28 Soya beans, whether or not broken (excluding seed 120190 1.1 1.18 1.03 0.96 1.15 for sowing) Gold, incl. gold plated with platinum, unwrought, 710812 0.02 0.02 0.7 0.83 1.03 for non-monetary purposes Parts suitable for use solely or principally with 852990 1.05 1.09 0.84 0.74 0.98 transmission and reception apparatus 847130 Data-processing machines 1.43 1.21 1.02 0.78 0.96 870899 Parts and accessories, for tractors, motor vehicles 1.08 0.88 0.87 0.81 0.87 390210 Polypropylene, in primary forms 0.94 1 0.74 0.76 0.86 310420 Potassium chloride for use as fertiliser 0.96 0.89 0.92 0.7 0.79 740311 Copper 0.67 0.77 0.73 0.62 0.77 870840 Gear boxes and parts thereof 0.55 0.52 0.41 0.55 0.72 854239 Electronic integrated circuits 1.1 1.1 0.96 0.99 0.72 290243 P-Xylene 1.09 1.17 0.76 0.42 0.69 Self-propelled mechanical shovels, excavators and 842952 0.5 0.42 0.21 0.27 0.67 shovel loaders 290121 Ethylene 0.85 0.91 0.78 0.67 0.67 390110 Polyethylene 0.61 0.7 0.63 0.61 0.67 Parts of aeroplanes or helicopters, n.e.s. (excluding 880330 0.86 0.26 0.58 0.6 0.61 those for gliders)

Table 7: Top-25 Imports at HS-06 Level (2013-17) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 33

Trade Alliances

Through the Common Effective Preferential Tariff under ASEAN, Indonesia has duty-free access to ASEAN members and non-ASEAN countries including; Australia, China, Japan, New Zealand, India, and the Republic of Korea. Also, it has preferential trade alliances with the Organization of the Islamic Conference (OIC) and Group of Eight Developing (G-8) Countries.

The following table shows Indonesia’s trade alliances:

Free Trade Agreement (FTA) Status ASEAN-Hong Kong, China Free Trade Agreement Signed but not yet In Effect Indonesia-Chile Free Trade Agreement Signed but not yet In Effect Trade Preferential System of the Organization of the Islamic Conference (OIC) Signed but not yet In Effect ASEAN Free Trade Area Signed and In Effect ASEAN - Australia and New Zealand Free Trade Agreement Signed and In Effect ASEAN - India Comprehensive Economic Cooperation Agreement Signed and In Effect ASEAN - Japan Comprehensive Economic Partnership Signed and In Effect ASEAN - People’s Republic of China Comprehensive Economic Cooperation Agreement Signed and In Effect ASEAN - Republic of Korea Comprehensive Economic Cooperation Agreement Signed and In Effect Japan - Indonesia Economic Partnership Agreement Signed and In Effect Pakistan - Indonesia Free Trade Agreement Signed and In Effect Preferential Tariff Arrangement - Group of Eight Developing Countries Signed and In Effect

Table 8: Indonesia’s Trade Alliances 34

Regional Alliance

Association of South East Asian Nations (ASEAN)

The Association of the South East Asian Nations (ASEAN), headquartered in Jakarta - Indonesia, is a regional inter-governmental organization formed on 8th August 1967. It aims to promote political and economic cooperation, and regional stability between the current 10-member countries which include Malaysia, Thailand, Indonesia, Philippines, Singapore, Vietnam, Cambodia, Laos, Myanmar and Brunei.

As a founding member of ASEAN, Indonesia’s contribution to the Southeast Asian Zone of Peace, Freedom, and Neutrality (ZOPFAN) and the Southeast Asian Nuclear Free Zone (NFZ) have been enormous. Being a leading non-aligned power, Indonesia successfully reduced regional dependence on external military powers and helped integrate Vietnam, Cambodia, and Laos into Southeast Asia Nuclear-Weapon-Free Zone (SEANWFZ).

The figure below illustrates Indonesia’s trade with ASEAN. It has improved its trade balance with ASEAN – from a trade deficit of USD 13.40 billion in 2013, it achieved a trade surplus of USD 0.02 billion in 2017. This can be attributed to a drop in imports from USD 54.03 billion in 2013 to USD 39.30 billion in 2017.

Indonesia's Trade Overview with ASEAN

60 54.03 Indonesia's exports 50.90 to ASEAN 50 40.63 39.70 38.91 39.32 39.30 Indonesia's imports 40 33.58 33.20 34.82 from ASEAN n 30 Indonesia's trade i l o

B 20 balance with ASEAN D

S 10 U 0 0.02 2013 2014 2015 2016 2017 -10 -1.61 -11.21 -5.34 -20 -13.40

Figure 19: Indonesia’s Trade Overview with ASEAN THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 35

From top-5 exports to ASEAN are shown below, exports of mineral fuels, mineral oils and products ranked as the top export valued at USD 10.48 billion in 2017; this item alone accounted for 26.65% in total exports.

Top-5 Exports to ASEAN at HS-02 Level All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 40.63 39.7 33.58 33.2 39.32 Code Product Description Mineral fuels, mineral oils and products of their 27 13.88 13.78 8.95 7.03 10.48 distillation; bituminous substances; mineral waxes Vehicles other than railway or tramway rolling 87 2.08 2.29 2.29 3.18 3.77 stock, and parts and accessories thereof Electrical machinery and equipment and parts 85 3.46 3.23 2.67 2.51 2.72 thereof Animal or vegetable fats and oils and their cleavage 15 products; prepared edible fats; animal or vegetable 1.8 2.18 2.25 2.09 2.49 waxes Natural or cultured pearls, precious or semi- 71 0.66 1.03 1.77 2.17 2.41 precious stones and articles thereof

Table 9: Top-5 Exports to ASEAN at HS-02 Level (2013-17)

Indonesia exports natural gas, coal, petroleum oils, bituminous coal, and gold to ASEAN countries. Export of natural gas has decreased from USD 5.19 billion in 2013 to USD 2.60 billion in 2017. Exports of coal and gold have increased by 88.41% and 313.89% to USD 2.28 billion and USD 1.49 billion in 2017, respectively.

Top-5 Exports to ASEAN at HS-06 Level All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 40.63 39.70 33.58 33.20 39.32 Code Product Description 271121 Natural gas in gaseous state 5.19 5.47 2.97 1.85 2.60 Coal, whether or not pulverised, non-agglomerated 270119 1.21 1.26 1.25 1.31 2.28 (excluding anthracite and bituminous coal) Petroleum oils and oils obtained from bituminous 270900 2.40 2.40 1.90 1.96 2.19 minerals, crude Bituminous coal, whether or not pulverised, non- 270112 1.94 1.50 1.33 1.13 1.53 agglomerated Gold, incl. gold plated with platinum, unwrought, 710812 0.36 0.21 0.76 0.96 1.49 for non-monetary purposes

Table 10: Top-5 Exports to ASEAN at HS-06 Level (2013-17) 36

A major fall in imports from ASEAN countries (from USD 54.03 billion in 2013 to USD 39.30 billion in 2017) can be attributed to a decline in imports of mineral fuels. The top import – mineral fuel, which contributed 31.58% in total imports, decreased from USD 23.62 billion in 2013 to USD 12.41 billion in 2017.

Top-5 Imports from ASEAN at HS-02 Level All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 54.03 50.90 38.91 34.82 39.30 Code Product Description Mineral fuels, mineral oils and products of their 27 23.62 21.03 12.83 9.63 12.41 distillation; bituminous substances; mineral waxes Electrical machinery and equipment and parts 85 4.40 4.53 4.09 4.13 4.42 thereof Machinery, mechanical appliances, nuclear 84 5.37 5.21 4.02 3.92 3.76 reactors, boilers; parts thereof 39 Plastics and articles thereof 3.30 3.41 2.94 2.90 3.26 29 Organic chemicals 2.41 2.47 2.05 1.42 2.20

Table 11: Top-5 Imports from ASEAN at HS-02 Level (2013-17)

Light oils and preparations ranked as the top import from ASEAN at HS-06 level. Since 2013, the most promising import item was parts of telephone sets which climbed up from USD 0.09 billion in 2013 to USD 1.07 billion in 2017 – an increase of 1,088.89%.

Top-5 Imports from ASEAN at HS-06 Level All values in USD Billion 2013 2014 2015 2016 2017 TOTAL All products 54.03 50.90 38.91 34.82 39.30 Code Product Description Light oils and preparations, of petroleum or 271012 13.61 13.42 7.53 5.59 7.17 bituminous minerals which >= 90% by volume 271019 Medium oils and preparations 7.54 5.53 3.04 2.46 3.81 Raw cane sugar, in solid form, not containing 170114 0.62 0.63 0.63 0.83 1.10 added flavouring or colouring matter 851770 Parts of telephone sets 0.09 0.08 0.69 1.10 1.07 Petroleum oils and oils obtained from bituminous 270900 1.49 1.45 1.81 1.22 0.99 minerals, crude

Table 12: Top-5 Imports from ASEAN at HS-06 Level (2013-17) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 37

Trade with China

After its independence in 1950, Indonesia was the first country in Southeast Asia to establish political relations with China. The two countries were in a close bond until the failed communist coup in 1965 resulted in suspension of all ties with the Chinese government. Indonesia believed that Communist China was partly responsible for the failed coup. However, diplomatic ties were restored in 1990 when top leaders from both countries signed an agreement to settle debt which improved bilateral relations.

In 2002, both countries signed ASEAN - China Free Trade Agreement (ACFTA). Since then, trade between them has increased. China is now the largest trade partner for Indonesia. Chinese investment in Indonesia has multiplied in various sectors including utility, transportation, industry, and tourism.

Trade Overview

Indonesia’s trade balance with China has deteriorated consistently – from negative USD 7.25 billion in 2013 it fell to negative USD 12.72 billion in 2017. This was due to a 19.83% rise in imports during 2013-17. In 2017, Indonesia exported goods worth USD 23.05 billion against imports of USD 35.77 billion. Indonesian exports to China include mineral fuels, iron and steel, and palm oil against imports of electrical machinery and equipment, mechanical appliances, and iron and steel.

Indonesia's Trade Overview with China 40 Indonesia's 35.77 exports to 30.62 30.80 29.85 29.41 China 30 Indonesia's 22.60 23.05 imports from 20 17.61 16.79 China n 15.05 Indonesia's i l o

B 10 trade balance

D with China S U 0 2013 2014 2015 2016 2017 -12.72 -10 -7.25 -13.02 -14.36 -14.01

-20

Figure 20: Indonesia’s Trade Overview with China 38

At HS-02 level, Indonesian exports of palm oil, iron and steel, pulp of wood, footwear and chemical products to China have increased. From the top-10 items below, mineral fuels were the top export valued at USD 7,019.10 million in 2017 which shared 30.45% in total exports to China.

Top-10 products at HS-02 Level exported by Indonesia to China All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 22,601.49 17,605.94 15,046.43 16,785.59 23,049.30 Code Product Description Mineral fuels, mineral oils and products of 27 8,252.44 5,879.99 4,505.70 5,401.00 7,019.10 their distillation Animal or vegetable fats and oils and their 15 2,482.85 2,697.77 2,937.89 2,738.15 3,258.85 cleavage products 72 Iron and steel 6.49 51.57 300.92 928.53 2,034.76 Pulp of wood or of other fibrous cellulosic 47 1,098.22 1,087.43 1,087.10 969.16 1,710.11 material 40 Rubber and articles thereof 1,550.90 803.07 507.20 530.23 1,243.58 38 Miscellaneous chemical products 752.36 1,388.30 567.35 723.89 811.89 44 Wood and articles of wood; wood charcoal 710.21 878.04 858.79 825.77 754.41 26 Ores, slag and ash 3,657.29 609.12 462.16 607.43 749.93 29 Organic chemicals 754.92 773.21 345.73 379.28 587.34 Footwear, gaiters and the like; parts of 64 144.32 220.44 311.18 391.62 480.68 such articles

Table 13: Top-10 Exports to China at HS-02 Level (2013-17)

At HS-06 level, top-25 products below contributed 71.78% to total exports to China. Lignite coal was the most exported item, followed by palm oil in 2017.

Top-25 products at HS-06 Level exported by Indonesia to China All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 22,601.49 17,605.94 15,046.43 16,785.59 23,049.30 Code Product Description Lignite, whether or not pulverised, non- 270210 1,618.35 2,028.12 1,180.82 1,534.30 2,397.35 agglomerated (excluding jet) 151190 Palm oil and its fractions 1,766.10 1,789.20 2,038.85 1,632.53 2,068.90 Semi-bleached or bleached non- 470329 coniferous chemical wood pulp, soda or 1,098.10 1,087.43 1,086.89 969.16 1,628.43 sulphate Coal, whether or not pulverised, non- 270119 agglomerated (excluding anthracite and 2,517.29 1,202.42 918.19 933.73 1,555.14 bituminous coal) Bituminous coal, whether or not 270112 2,754.69 1,495.20 619.53 1,158.33 1,156.15 pulverised, non-agglomerated THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 39

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 720260 Ferro-nickel 2.32 41.54 183.79 426.90 1,132.42 271111 Natural gas, liquefied 457.35 818.17 1,089.12 836.65 998.76 Technically specified natural rubber 400122 1,278.80 664.41 393.28 387.34 740.90 “TSNR” Palm kernel and babassu oil and their 151329 211.56 309.10 405.72 548.59 582.83 fractions Petroleum oils and oils obtained from 270900 225.89 226.30 631.20 763.88 543.66 bituminous minerals, crude 260300 Copper ores and concentrates 391.85 381.81 368.12 534.28 451.43 Mixtures of natural rubber, balata, gutta- 400280 0 0 26.24 63.37 407.67 percha, guayule, chicle 721891 Semi-finished products of stainless steel 0 0 0 30.18 355.19 442199 Articles of wood, n.e.s. 0 0 0 0 348.42 Edible mixtures or preparations of animal 151790 177.86 248.40 190.74 228.93 313.02 or vegetable fats or oils 382370 Fatty alcohols, industrial 98.24 127.05 115.61 198.12 261.78 Fatty acids, industrial, monocarboxylic; 382319 244.47 335.32 198.61 281.70 258.80 acid oils from refining Aluminium oxide (excluding artificial 281820 0.02 0.01 0.85 103.95 235.46 corundum) Aromatic hydrocarbon mixtures of which 270750 0 0 0 93.91 175.53 >= 65% by volume Flat-rolled products of stainless steel, of a 721914 0 0 0 0 163.60 width of >= 600 mm 440922 Tropical wood 0 0 0 0 163.24 480255 Uncoated paper and paperboard 46.78 56.76 98.97 92.73 153.56 Single cotton yarn, of uncombed fibres, 520512 93.69 101.73 108.18 114.67 152.67 containing >= 85% cotton 640319 Sports footwear 67.62 77.24 84.90 79.26 150.30 260400 Nickel ores and concentrates 1,447.42 82.21 0 0 149.97

Table 14: Top-25 Exports to China at HS-06 Level (2013-17) 40

Electrical machinery and equipment, and machinery and mechanical appliances shared 43.16% in total imports from China in 2017. Among the top-10 products below at HS-02 level, imports of articles of iron or steel have fallen while imports of rest of the items have increased since 2013.

Top-10 products at HS-02 Level imported by Indonesia from China All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 29,849.46 30,624.38 29,411.07 30,800.45 35,767.19 Code Product Description Electrical machinery and equipment and 85 6,779.55 6,831.48 6,318.39 6,402.70 7,869.40 parts thereof Machinery, mechanical appliances, nuclear 84 7,186.86 7,133.58 7,193.11 7,297.75 7,568.63 reactors, boilers; parts thereof 72 Iron and steel 1,415.63 1,809.47 1,984.11 2,099.25 1,969.59 39 Plastics and articles thereof 985.97 1,014.78 993.05 1,157.85 1,354.45 29 Organic chemicals 1,108.64 1,136.98 1,020.62 1,088.64 1,250.80 Man-made filaments; strip and the like of 54 509.47 551.29 545.04 685.94 807.12 man-made textile materials 73 Articles of iron or steel 1,179.65 1,247.41 1,105.42 819.81 702.81 Vehicles other than railway or tramway 87 rolling stock, and parts and accessories 611.25 526.25 460.35 517.91 674.38 thereof Inorganic chemicals; organic or inorganic 28 563.23 582.92 536.83 554.21 627.53 compounds of precious metals Edible vegetables and certain roots and 07 423.95 424.74 426.14 511.29 606.25 tubers

Table 15: Top-10 Imports from China at HS-02 Level (2013-17)

The following table shows top-25 imports from China at HS-06 level; these accounted for 24.10% of total imports. Parts of telephone sets ranked as top import with a value of USD 2,271.43 million in 2017.

Top-25 products at HS-06 Level imported by Indonesia from China All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 29,849.46 30,624.38 29,411.07 30,800.45 35,767.19 Code Product Description 851770 Parts of telephone sets 675.92 299.66 622.28 1,560.43 2,271.43 Data-processing machines, automatic, 847130 1,114.10 1,034.53 940.77 756.10 937.97 portable, weighing <= 10 kg Parts suitable for transmission and 852990 647.58 625.57 489.17 474.90 695.25 reception apparatus 070320 Garlic, fresh or chilled 360.66 348.57 342.33 433.79 575.62 Machines for the reception, conversion 851762 and transmission or regeneration of voice, 591.66 419.80 192.89 223.98 279.91 images or other data THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 41

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Telephones for cellular networks “mobile 851712 1,595.12 1,899.64 1,475.82 494.95 269.69 telephones” or for other wireless networks Bars and rods of alloy steel other than 722790 stainless, hot-rolled, in irregularly wound 307.43 311.51 213.35 252.87 269.56 coils 080810 Fresh apples 121.87 135.21 93.74 176.48 243.18 Tobacco, partly or wholly stemmed or 240120 181.66 167.79 156.16 182.12 222.91 stripped, otherwise unmanufactured 740311 Copper 27.47 91.02 29.38 80.90 219.12 Flat-rolled products of alloy steel other 722530 10.02 9.12 38.35 74.62 205.82 than stainless, of a width of >= 600 mm Parts and accessories of automatic data- 847330 55.20 67.50 97.93 231.86 205.21 processing machines Parts and accessories of motorcycles, incl. 871410 178.65 181.02 143.95 147.09 198.97 mopeds, n.e.s. Parts and accessories of printing 844391 233.47 238.33 225.58 212.13 198.86 machinery Ceramic flags and paving, hearth or wall 690721 0 0 0 0 192.67 tiles 720449 Waste and scrap of iron or steel 0 0 0.22 0 185.63 080830 Fresh pears 100.53 67.42 77.52 84.94 181.91 Woven fabrics of yarn containing >= 85% 540761 by weight of non-textured polyester 82.63 83.99 80.66 165.83 178.85 filaments Mixing, kneading, crushing, grinding, 847982 screening, sifting, homogenising, 23.29 28.16 115.25 157.27 178.19 emulsifying or stirring machines Superphosphates containing by weight => 310311 0 0 0 0 167.47 35 % of diphosphorus pentaoxide “P2O5” 850440 Static converters 106.19 110.49 115.82 107.08 154.23 Appliances for pipes, boiler shells, tanks, 848180 153.13 157.36 152.70 137.05 151.17 vats or the like Vessels for the transport of goods, and 890190 vessels for transporting both goods and 311.56 180.32 112.76 157.16 149.12 persons 271012 Light oils and preparations 150.84 65.55 31.94 74.24 143.98 Self-propelled mechanical shovels, 842952 41.56 19.12 34.49 40.00 143.20 excavators and shovel loaders

Table 16: Top-25 Imports from China at HS-06 Level (2013-17) 42

Trade with Japan

Japan is major trading partner for Indonesia after China and the USA. Both share historical, political and economic ties. After Japanese occupation ended with the end of World War II, 3,000 Japanese soldiers chose to fight alongside Indonesians against the Dutch colonists in the Indonesian National Revolution. Right after the revolution, they initiated diplomatic dialogue on war reparations. Bilateral relations between the two countries were established in April 1958.

In the 1970s, Japanese manufacturers of electronics, and automobiles established their factories in Indonesia. As of now, more than 1,500 Japanese business entities are running their operations in the country and have created 4.7 million jobs. These generate 18.1 percent of the country’s total exports, and support 53.4 million working population in the informal sector.12

Moreover, both countries are members of the G-20 (Group of Twenty) and The Asia-Pacific Economic Cooperation (APEC).

Trade Overview

The figure below shows Indonesia’s trade with Japan. Indonesia currently has a trade surplus with Japan which declined from USD 7.80 billion in 2013 to USD 2.55 billion in 2017. This was majorly due to a decline of 34.33% in exports in the last five years – driven by low exports of mineral fuels. Indonesia exported goods to Japan worth USD 17.79 billion against imports of USD 15.24 billion in 2017.

Indonesia's Trade Overview with Japan 30 Indonesia's 27.09 exports to Japan

25 23.13 Indonesia's imports from 19.28 20 Japan n 17.01 18.02 17.79 16.10 Indonesia's trade i l o 15.24 balance with Japan B 15 13.26 12.98 D S U 10

7.80 4.76 5 6.12 3.12 2.55 - 2013 2014 2015 2016 2017

Figure 21: Indonesia’s Trade Overview with Japan

12 Source:http://www.thejakartapost.com/news/2017/10/13/japanese-investments-create-4-7m-jobs-in-indonesia-ambassador. html THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 43

The following table shows top-10 products at HS-02 level exported by Indonesia to Japan. Mineral fuels were the top export worth USD 5,600.84 million which accounted for 31.48% of total exports to Japan. Top three exports to Japan include, mineral fuels; electrical machinery and equipment; and ores, slag and ash.

Top-10 products at HS-02 Level exported by Indonesia to Japan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 27,086.26 23,127.09 18,020.88 16,101.55 17,790.81 Code Product Description Mineral fuels, mineral oils and products of 27 14,240.71 11,159.58 6,960.50 4,879.56 5,600.84 their distillation Electrical machinery and equipment and 85 1,310.27 1,270.60 1,145.11 1,131.10 1,323.40 parts thereof 26 Ores, slag and ash 1,017.39 434.56 1,068.17 1,300.38 1,003.63 40 Rubber and articles thereof 1,336.88 963.39 793.50 751.97 997.66 Natural or cultured pearls, precious or 71 630.53 866.71 671.78 736.33 917.71 semi-precious stones 44 Wood and articles of wood; wood charcoal 997.18 996.75 816.74 793.27 813.30 Machinery, mechanical appliances, nuclear 84 778.79 794.25 674.07 601.73 672.40 reactors, boilers; parts thereof 75 Nickel and articles thereof 928.59 1,041.43 795.46 586.83 633.04 Vehicles other than railway or tramway 87 rolling stock, and parts and accessories 475.68 477.50 479.67 488.54 537.52 thereof Fish and crustaceans, molluscs and other 03 641.52 564.89 476.88 473.49 517.70 aquatic invertebrates

Table 17: Top-10 Exports to Japan at HS-02 Level (2013-17)

Top-25 exports to Japan contributed 68.17% to total exports. Exports to Japan have declined during the period 2013-17 – from USD 27,086.26 million in 2013 to USD 17,790.81 million in 2017. This can be attributed to a drop in exports of liquefied natural gas and bituminous coal.

Top-25 products at HS-06 Level exported by Indonesia to Japan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 27,086.26 23,127.09 18,020.88 16,101.55 17,790.81 Code Product Description 271111 Natural gas, liquefied 6,487.51 5,004.27 3,175.59 2,097.62 2,481.06 Bituminous coal, whether or not 270112 2,292.94 1,774.90 1,442.22 1,569.81 1,935.73 pulverised, non-agglomerated 260300 Copper ores and concentrates 902.04 432.01 1,066.41 1,297.05 998.98 711299 Waste and scrap of silver 619.34 856.53 654.06 717.71 902.21 Technically specified natural rubber 400122 1,072.23 715.88 590.32 537.62 766.92 “TSNR” 44

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Ignition wiring sets and other wiring sets 854430 429.72 423.87 443.29 533.61 676.71 for vehicles, aircraft or ships 750110 Nickel mattes 921.89 1,038.07 789.75 584.14 629.33 Petroleum oils and oils obtained from 270900 4,223.63 3,365.42 1,646.13 787.69 610.87 bituminous minerals, crude Coal, whether or not pulverised, non- 270119 agglomerated (excluding anthracite and 932.20 818.59 591.50 410.34 568.97 bituminous coal) Plywood consisting solely of sheets of 441231 544.99 506.59 392.34 384.23 385.71 wood <= 6 mm thick 030617 Frozen shrimps and prawns 366.28 328.92 271.66 263.12 288.01 480256 Uncoated paper and paperboard 288.43 265.67 296.49 264.55 262.31 Machines for printing, copying or facsimile 844331 313.01 334.37 255.17 224.69 228.72 transmission 800110 Unwrought tin, not alloyed 162.00 92.59 75.05 104.30 201.89 Road wheels and parts and accessories 870870 177.03 172.07 176.26 153.13 164.81 thereof, for tractors, motor vehicles 151190 Palm oil and its fractions 68.87 64.84 55.05 106.94 136.43 Motor cars and other motor vehicles with spark-ignition internal combustion 870322 136.59 127.34 114.46 114.23 134.28 reciprocating piston engine of a cylinder capacity > 1.000 cm³ but <= 1.500 cm³ Laminated wood as blockboard, 441294 129.11 121.07 114.23 109.93 121.02 laminboard or battenboard 392321 Sacks and bags 111.21 124.52 112.86 105.61 109.88 New pneumatic tyres, of rubber, of a kind 401110 137.65 124.67 92.95 102.12 105.93 used for motor cars Wooden furniture (excluding for offices, 940360 125.12 115.80 95.11 97.48 97.05 kitchens and bedrooms, and seats) 640411 Sports footwear 25.72 35.35 53.52 79.26 83.01 Coffee (excluding roasted and 090111 102.91 101.35 104.95 86.50 82.40 decaffeinated) 140490 Vegetable products n.e.s 8.15 8.54 20.44 35.56 79.40 Palm kernel and babassu oil and their 151329 20.12 44.88 33.36 57.81 76.37 fractions

Table 18: Top-25 Exports to Japan at HS-06 Level (2013-17)

Overall, imports from Japan have declined by 20.97% to USD 15,241.42 million in 2017. The table below shows top-10 imports from Japan at HS-02 level. Top three products include machinery THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 45 and mechanical appliances, vehicles, and electrical machinery and equipment worth USD 3,809.15 million, USD 2,218.32 million and USD 1,732.84 million, respectively.

Top-10 products at HS-02 Level imported by Indonesia from Japan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 19,284.59 17,007.58 13,263.52 12,984.77 15,241.42 Code Product Description Machinery, mechanical appliances, nuclear 84 5,736.21 5,179.83 3,674.23 3,352.44 3,809.15 reactors, boilers; parts thereof Vehicles other than railway or tramway 87 rolling stock, and parts and accessories 2,199.20 1,811.25 1,679.63 1,612.19 2,218.32 thereof Electrical machinery and equipment and 85 1,843.20 1,674.51 1,393.91 1,528.32 1,732.84 parts thereof 72 Iron and steel 2,108.74 1,775.75 1,472.39 1,445.41 1,642.45 39 Plastics and articles thereof 760.10 740.38 653.31 710.68 721.98 73 Articles of iron or steel 890.24 791.35 620.83 604.77 701.41 40 Rubber and articles thereof 684.31 621.18 470.28 438.24 551.04 99 Commodities not elsewhere specified 1,326.64 944.07 342.63 322.42 534.82 29 Organic chemicals 449.76 418.79 363.35 296.51 390.12 Optical, photographic, cinematographic, 90 medical or surgical instruments and 426.34 410.19 351.59 371.26 383.05 apparatus

Table 19: Top-10 Imports from Japan at HS-02 Level (2013-17)

Top-25 products below contributed 32.46% to total imports which shows that Indonesia has a diverse import base for imports from Japan. Top three imports from Japan at HS-06 level include; gear boxes, commodities, and motor cars and other motor vehicles valued at USD 547.46 million, USD 534.82 million and USD 340.37 million, respectively.

Top-25 products at HS-06 Level imported by Indonesia from Japan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 19,284.59 17,007.58 13,263.52 12,984.77 15,241.42 Code Product Description Gear boxes and parts thereof, for tractors, 870840 439.74 400.24 352.39 473.21 547.46 motor vehicles 999999 Commodities not elsewhere specified 1,326.64 944.07 342.63 322.42 534.82 Motor cars and other motor vehicles with spark-ignition internal combustion 870323 477.29 340.39 410.88 262.05 340.37 reciprocating piston engine of a cylinder capacity > 1.500 cm³ but <= 3.000 cm³ Parts and accessories, for tractors, motor 870899 365.99 285.11 290.22 281.44 319.52 vehicles 870410 Dumpers for off-highway use 101.19 106.63 61.72 9.42 238.58 46

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Parts and accessories of printing 844391 139.08 226.94 181.18 205.73 228.98 machinery 870850 Drive-axles with differential 180.13 128.65 120.79 129.65 196.81 Self-propelled mechanical shovels, 842952 79.24 82.67 51.11 63.57 185.98 excavators and shovel loaders 740311 Copper 383.71 346.90 216.48 183.97 183.15 Parts suitable for compression-ignition 840999 322.77 264.48 146.42 133.99 181.52 internal combustion piston Flat-rolled products of alloy steel other 722550 44.66 72.34 71.59 94.86 175.00 than stainless, of a width of >= 600 mm New pneumatic tyres, of rubber, of a kind 401180 used on construction, mining or industrial 0 0 0 0 169.27 handling Electrical apparatus for switching 853690 198.96 201.16 172.13 164.49 167.54 electrical circuits 843149 Parts of machinery 216.87 160.45 105.67 108.51 166.35 Parts suitable for spark-ignition internal 840991 351.66 301.86 174.85 140.33 160.37 combustion piston Fuel, lubricating or cooling medium pumps 841330 108.05 156.93 106.91 106.63 149.82 for internal combustion piston engine Flat-rolled products of iron or non-alloy 720839 163.83 142.29 170.19 146.82 127.80 steel, of a width of >= 600 mm Parts and accessories of bodies for 870829 79.76 104.12 64.41 100.00 121.23 tractors, motor vehicles 731815 Threaded screws and bolts, of iron or steel 129.15 114.46 92.84 111.28 114.96 Parts and accessories of printers, copying 844399 95.04 133.56 137.61 91.16 112.68 machines and facsimile machines, n.e.s. Flat-rolled products of iron or non-alloy 721049 157.47 143.92 123.96 131.85 111.59 steel, of a width of >= 600 mm Gold, incl. gold plated with platinum, 710812 10.18 8.88 7.58 9.53 111.36 unwrought, for non-monetary purposes Flat-rolled products of iron or non-alloy 720827 136.06 115.59 82.32 85.47 108.04 steel, of a width of >= 600 mm Bars and rods of alloy steel other than 722830 115.25 106.25 84.60 90.22 100.29 stainless Transmission shafts, incl. cam shafts and 848310 188.77 159.85 83.54 71.57 93.85 crank shafts, and cranks

Table 20: Top-25 Imports from Japan at HS-06 Level (2013-17) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 47

Trade with the USA

The USA was one of the first countries to establish diplomatic relations with Indonesia following its independence. In 2010, both the countries initiated a Comprehensive Partnership to improve democracy and civil society, education, security, climate, maritime, energy, and trade issues. Later, they formed the U.S - Indonesia Strategic Partnership, extending co- operation in regional and global issues.

Since 1950, the US government has aided Indonesia through its agencies including the Inter- Governmental Group on Indonesia, the Consultative Group on Indonesia, and U.S. Agency for International Development (USAID). USAID has assisted Indonesia in economic growth, health, water, food, and the environment.

Both countries are members of the United Nations, ASEAN Regional Forum, the East Asia Summit, Asia-Pacific Economic Cooperation (APEC), G-20 and World Trade Organization.13

Trade Overview

Over the last five years, Indonesia has seen a trade surplus with the USA. Trade between them has improved substantially, with exports rising from USD 15.74 billion in 2013 to USD 17.81 billion in 2017. On the other hand, imports from the USA decreased from USD 9.08 billion in 2013 to USD 8.15 billion in 2017.

Indonesia's Trade Overview with the USA 20 Indonesia's 18 17.81 exports to the USA 16 15.74 16.56 16.27 16.17 Indonesia's 14 imports from n 12 the USA

i l o 9.66 B 10 8.37 8.65 8.85 Indonesia's trade D balance with S 8 9.08

U 8.15 8.19 7.62 7.32 the USA 6 6.66 4 2 - 2013 2014 2015 2016 2017

Figure 22: Indonesia’s Trade Overview with the USA

13 https://www.state.gov/r/pa/ei/bgn/2748.htm; https://en.wikipedia.org/wiki/Indonesia%E2%80%93United_States_relations 48

Indonesian exports to the USA include; articles of apparel, rubber, fish, footwear, animal or vegetable fats or oils, electrical machinery and equipment, mineral fuels, and furniture. Exports grew by 13.15% in the period 2013-17 to USD 17,810.36 million in 2017. From top-10 products at HS-02 level below, articles of apparel and clothing accessories – not knitted or crocheted – ranked as the top export worth USD 2,128.71 million.

Top-10 products at HS-02 Level exported by Indonesia to the USA All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 15,741.13 16,560.08 16,268.49 16,171.28 17,810.36 Code Product Description Articles of apparel and clothing 62 1,914.20 1,863.81 1,985.92 1,934.10 2,128.71 accessories, not knitted or crocheted Articles of apparel and clothing 61 1,907.09 1,847.05 1,716.37 1,679.77 1,996.89 accessories, knitted or crocheted 40 Rubber and articles thereof 2,184.78 1,691.70 1,653.59 1,637.41 1,836.84 Fish and crustaceans, molluscs and other 03 925.23 1,306.26 994.85 1,143.66 1,405.58 aquatic invertebrates Footwear, gaiters and the like; parts of 64 1,032.80 1,120.64 1,267.28 1,296.99 1,333.66 such articles Animal or vegetable fats and oils and their 15 463.91 635.24 641.69 962.16 1,246.38 cleavage products Electrical machinery and equipment and 85 1,183.32 1,292.17 1,231.19 1,230.58 1,021.64 parts thereof Mineral fuels, mineral oils and products of 27 683.64 752.96 977.59 484.15 692.84 their distillation 94 Furniture 653.02 655.36 675.76 623.84 687.25 Machinery, mechanical appliances, nuclear 84 614.57 682.32 636.43 602.53 674.29 reactors, boilers; parts thereof

Table 21: Top-10 Exports to the USA at HS-02 Level (2013-17)

Top-25 exports at HS-06 level below make up 49.35% of total exports to the USA. Technically specified natural rubber ‘TSNR’ was the most exported item to the USA valued at USD 980.64 million.

Top-25 products at HS-06 Level exported by Indonesia to the USA All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 15,741.13 16,560.08 16,268.49 16,171.28 17,810.36 Code Product Description Technically specified natural rubber 400122 1,540.28 1,060.93 861.34 729.25 980.64 “TSNR” 030617 Frozen shrimps and prawns 665.09 987.39 721.86 846.58 978.87 New pneumatic tyres, of rubber, of a kind 401110 474.52 453.00 607.11 728.33 628.14 used for motor cars THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 49

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Petroleum oils and oils obtained from 270900 544.81 637.24 931.98 454.97 622.28 bituminous minerals, crude Palm oil and its fractions, whether or not 151190 refined (excluding chemically modified and 297.44 300.99 332.75 458.32 584.97 crude) Machines for printing, copying or facsimile 844331 341.69 396.88 387.06 379.21 420.83 transmission 640319 Sports footwear 435.88 375.42 348.19 301.76 381.84 Jerseys, pullovers, cardigans, waistcoats 611020 and similar articles, of cotton, knitted or 394.19 333.26 243.67 260.40 356.07 crocheted Palm kernel and babassu oil and their 151329 55.12 92.81 124.10 240.77 353.78 fractions Wooden furniture (excluding for offices, 940360 290.86 300.23 323.86 286.16 328.52 kitchens and bedrooms, and seats) 640399 Footwear 136.83 177.34 217.49 239.87 289.05 180400 Cocoa butter, fat and oil 113.69 236.34 235.38 217.46 278.25 Coffee (excluding roasted and 090111 207.04 295.90 281.08 269.90 256.40 decaffeinated) Footwear with outer soles of rubber or 640419 141.90 136.76 141.53 197.26 240.94 plastics and uppers of textile materials Women’s or girls’ blouses, shirts and shirt- 620640 204.60 215.91 211.50 196.89 239.21 blouses of man-made fibres 620520 Men’s or boys’ shirts of cotton 212.09 222.87 203.71 223.38 228.09 640411 Sports footwear 106.61 139.13 306.73 345.16 226.99 Plywood consisting solely of sheets of 441231 149.56 146.18 214.36 166.96 197.69 wood <= 6 mm thick Women’s or girls’ trousers, bib and brace 620462 289.22 249.30 246.24 207.92 195.71 overalls, breeches and shorts of cotton Brassieres of all types of textile materials, 621210 158.10 138.47 181.77 148.33 181.20 whether or not elasticated 160521 Shrimps and prawns 173.56 222.24 159.80 174.47 181.09 Jerseys, pullovers, cardigans, waistcoats 611030 151.29 164.48 125.88 137.38 166.90 and similar articles, of man-made fibres Plates, sheets and strip, of non-alloy 760611 125.57 142.55 147.07 79.95 160.13 aluminium, of a thickness of > 0,2 mm 852871 Reception apparatus for television 243.39 200.32 218.99 286.13 158.47 Crab, prepared or preserved (excluding 160510 146.68 213.34 204.04 214.79 152.67 smoked)

Table 22: Top-25 Exports to the USA at HS-06 Level (2013-17) 50

From 2013 to 2017, imports from the USA declined by 10.27% to USD 8,149.43 million in 2017. Major cause behind this was fall in imports of machinery and mechanical appliances, electrical machinery and equipment, and plastics and articles thereof. Top import was oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit - industrial or medicinal; straw and fodder.

Top-10 products at HS-02 Level imported by Indonesia from the USA All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 9,081.82 8,188.54 7,616.76 7,319.18 8,149.43 Code Product Description Oil seeds and oleaginous fruits; 12 miscellaneous grains, seeds and fruit; 1,024.98 1,127.47 1,016.72 954.76 1,140.51 industrial or medicinal; straw and fodder Machinery, mechanical appliances, nuclear 84 1,607.02 1,328.56 1,368.61 1,348.22 949.33 reactors, boilers; parts thereof Residues and waste from the food 23 567.15 530.53 465.17 446.98 558.81 industries; prepared animal fodder 52 Cotton 265.80 336.80 350.06 308.16 513.74 Mineral fuels, mineral oils and products of 27 197.88 72.00 45.61 100.79 433.33 their distillation Pulp of wood or of other fibrous cellulosic 47 157.93 202.46 238.24 298.13 356.91 material Electrical machinery and equipment and 85 543.07 549.34 565.73 319.08 349.49 parts thereof 10 Cereals 208.31 377.92 139.65 303.64 332.84 88 Aircraft, spacecraft, and parts thereof 270.15 175.98 236.84 179.29 328.10 39 Plastics and articles thereof 373.19 379.15 334.70 278.81 285.23

Table 23: Top-10 Imports by the USA at HS-02 Level (2013-17)

The table below shows top-25 products at HS-06 level imported by Indonesia from the USA; these shared 50.96% in total imports. Most imported item from the USA was soya bean with a value of USD 1,133.86 million.

Top-25 products at HS-06 Level imported by Indonesia from the USA All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 9,081.82 8,188.54 7,616.76 7,319.18 8,149.43 Code Product Description 120190 Soya beans 1,013.11 1,120.80 1,006.21 947.23 1,133.86 520100 Cotton, neither carded nor combed 264.17 336.00 349.75 307.19 513.22 Wheat and meslin (excluding seed for 100199 196.19 340.38 118.98 230.88 277.11 sowing, and durum wheat) Preparations of a kind used in animal 230990 183.10 210.39 183.35 211.78 231.28 feeding THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 51

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 271112 Propane, liquefied 0 0 0 22.07 186.51 Butanes, liquefied (excluding of a purity of 271113 0 0 0 34.09 181.09 >= 95% of N-butane or isobutane) Parts of aeroplanes or helicopters, n.e.s. 880330 142.37 73.05 134.39 132.62 176.09 (excluding those for gliders) Residues of starch manufacture and 230310 173.07 153.01 108.94 114.11 146.27 similar residues 283620 Disodium carbonate 138.89 150.30 160.40 133.20 143.51 470200 Chemical wood pulp, dissolving grades 1.71 3.07 64.10 101.73 138.16 230330 Brewing or distilling dregs and waste 76.05 79.94 62.60 68.94 110.92 880212 Helicopters of an unladen weight > 2000 kg 10.85 14.78 23.49 0 106.00 Semi-bleached or bleached coniferous 470321 67.46 106.72 95.18 101.47 105.30 chemical wood pulp, soda or sulphate 210690 Food preparations, n.e.s. 108.73 101.19 115.70 76.90 82.14 Milk and cream in solid forms, of a fat 040210 213.99 195.96 92.95 92.31 71.25 content by weight of <= 1,5% Medicaments for therapeutic or 300490 29.35 46.80 53.99 56.41 71.03 prophylactic purposes Polyamides-6, -11, -12, -6,6, -6,9, -6,10 or 390810 96.01 84.01 61.11 51.54 57.79 -6,12, in primary forms Tobacco, partly or wholly stemmed or 240120 51.61 41.74 41.75 57.79 55.51 stripped, otherwise unmanufactured Recovered “waste and scrap” paper or 470710 30.36 32.56 27.21 44.62 55.15 paperboard Prepared additives for oil lubricants 381121 containing petroleum oil or bituminous 114.58 92.84 88.24 80.43 53.30 mineral oil Floating or submersible drilling or 890520 0.00 0 0 0 53.00 production platforms 843143 Parts for boring or sinking machinery 114.21 95.28 98.31 48.15 51.82 760200 Waste and scrap, of aluminium 30.99 24.18 37.09 35.55 51.59 080810 Fresh apples 44.61 57.44 35.01 61.59 51.12 550210 Artificial filament tow 0 0 0 0 49.56

Table 24: Top-25 Imports from the USA at HS-06 Level (2013-17) 52

Trade with India

Both India and Indonesia are among the largest democracies in the world. They are member states of the G-20, the E7 (countries), the Non-aligned Movement, and the United Nations. Not only they are closely knit in historical and political ties, over the years they have further developed bilateral relations to improve trade.

In Asia, India is the largest export market for Indonesia. Currently, Indonesian-Indian business and economic cooperation covers at least six sectors: mining, infrastructure, manufacturing, pharmaceuticals, the digital economy and services. In manufacturing, the two countries have been cooperating in investment and trade in the textile and automotive industries. 14

Trade Overview

From the figure below, Indonesia’s trade balance with India has remained positive throughout the last five years. The trade surplus increased from USD 9.07 billion in 2013 to USD 10.04 billion in 2017. Due to a fall in exports in 2016, the trade surplus fell to USD 7.22 billion. Since 2013, exports have increased by 8.07% to USD 14.08 billion versus imports of USD 4.05 billion in 2017. Currently, Indonesia exports palm oil, mineral fuels and rubber to India against imports of meat, nuts, iron and steel, and vehicles.

Indonesia's Trade Overview with India

16 Indonesia's exports to India 14 14.08 13.03 Indonesia's 12 12.25 11.73 imports from India n 10.04 10 8.99 10.09

i l o Indonesia's

B 9.07 8 8.30 trade balance D

S 7.22 with India

U 6

4 3.96 3.95 4.05 2 2.74 2.87

- 2013 2014 2015 2016 2017

Figure 23: Indonesia’s Trade Overview with India

14 http://www.thejakartapost.com/news/2018/05/18/industry-group-seeks-to-enhance-trade-with-india.html THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 53

At HS-02 level, Indonesia’s top exports to India in 2017 were animal or vegetable fats and oils – USD 4,981.25 million and mineral fuels – USD 4,860.47 million; these contributed 69.88% to total exports. Since 2013, exports of iron and steel, and copper have increased by 1,089.72% and 1,328.59%, respectively.

Top-10 products at HS-02 Level exported by Indonesia to India All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 13,031.30 12,248.96 11,731.00 10,093.80 14,083.57 Code Product Description Animal or vegetable fats and oils and their 15 4,709.83 3,776.67 3,357.04 3,492.57 4,981.25 cleavage products Mineral fuels, mineral oils and products of 27 5,548.39 5,703.99 4,799.73 3,474.42 4,860.47 their distillation 26 Ores, slag and ash 759.57 339.96 802.89 532.39 700.51 40 Rubber and articles thereof 386.22 389.47 309.60 326.13 461.46 38 Miscellaneous chemical products 101.63 203.59 161.08 225.13 334.38 72 Iron and steel 23.16 102.25 148.39 166.91 275.54 29 Organic chemicals 155.10 224.52 184.98 133.02 226.51 Paper and paperboard; articles of paper 48 87.23 121.59 122.85 167.08 223.37 pulp, of paper or of paperboard 74 Copper and articles thereof 13.50 26.42 73.08 121.93 192.86 Machinery, mechanical appliances, nuclear 84 74.12 103.61 111.38 120.38 143.27 reactors, boilers; parts thereof

Table 25: Top-10 Exports to India at HS-02 Level (2013-17)

Top Indonesian exports to India at HS-06 level includes coal and crude palm oil worth USD 3,379.38 million and USD 3,068.29 million. The products below accounted for 86.68% of total exports to India.

Top-25 products at HS-06 Level exported by Indonesia to India All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 13,031.30 12,248.96 11,731.00 10,093.80 14,083.57 Code Product Description Coal, whether or not pulverised, non- 270119 agglomerated (excluding anthracite and 3,575.56 3,852.79 2,837.36 2,050.36 3,379.38 bituminous coal) 151110 Crude palm oil 2,331.77 2,101.74 2,112.62 1,868.49 3,068.29 Palm oil and its fractions, whether or not 151190 refined (excluding chemically modified and 1,949.82 1,533.61 1,104.42 1,570.12 1,826.91 crude) Bituminous coal, whether or not 270112 1,875.17 1,751.37 1,814.02 1,244.93 1,330.97 pulverised, non-agglomerated 260300 Copper ores and concentrates 754.42 338.79 801.64 529.95 694.46 54

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Technically specified natural rubber 400122 334.11 322.99 257.17 274.82 416.87 “TSNR” Fatty acids, industrial, monocarboxylic; 382319 50.69 114.68 92.58 146.92 218.25 acid oils from refining 800110 Unwrought tin, not alloyed 19.99 33.87 75.44 83.93 117.36 Semi-bleached or bleached non- 470329 coniferous chemical wood pulp, soda or 128.38 82.15 89.42 102.87 116.10 sulphate Wire of refined copper, with a maximum 740811 13.29 13.85 43.43 72.13 112.48 cross-sectional dimension of > 6 mm 720260 Ferro-nickel 0 3.54 23.58 51.85 99.55 Semi-finished products of iron or non-alloy 720712 steel containing, by weight, < 0,25% of 0 65.59 49.40 57.27 86.31 carbon 480257 Uncoated paper and paperboard 12.89 15.78 15.82 32.37 82.77 Wire of refined copper, with a maximum 740819 0 11.63 27.72 46.52 76.14 cross-sectional dimension of <= 6 mm 320190 Tanning extracts of vegetable origin 32.33 28.44 28.76 45.28 75.46 Gold, incl. gold plated with platinum, 710812 0 0 0 0 73.46 unwrought, for non-monetary purposes 151321 Crude palm kernel and babassu oil 141.39 61.61 118.07 32.30 63.83 480256 Uncoated paper and paperboard 4.30 11.32 10.49 34.48 60.47 271311 Petroleum coke, non-calcined 17.23 21.10 33.66 29.84 52.88 291590 Saturated acyclic monocarboxylic acids 15.32 16.91 22.91 37.02 48.24 440922 Tropical wood 0 0 0 0 47.22 271019 Medium oils and preparations 2.05 2.33 0.87 2.35 40.42 Flat-rolled products of iron or non-alloy 720851 0 3.05 30.99 7.65 40.19 steel, of a width >= 600 mm 300220 Vaccines for human medicine 70.93 76.34 77.74 44.26 39.74 271111 Natural gas, liquefied 0 0 92.98 0 39.41

Table 26: Top-25 Exports to India at HS-06 Level (2013-17)

The table below shows top-10 products at HS-02 level imported by Indonesia from India; these shared 72.27% in total imports. Top imports include iron and steel worth USD 561.76 million.

Top-10 products at HS-02 Level imported by Indonesia from India All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 3,963.98 3,952.08 2,741.42 2,872.74 4,048.55 Code Product Description 72 Iron and steel 198.29 249.13 140.35 203.84 561.76 Vehicles other than railway or tramway 87 rolling stock, and parts and accessories 180.65 292.04 268.02 233.67 461.21 thereof THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 55

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 29 Organic chemicals 510.94 609.91 496.64 401.12 453.02 Machinery, mechanical appliances, nuclear 84 325.48 408.78 357.48 337.76 366.16 reactors, boilers; parts thereof Mineral fuels, mineral oils and products of 27 212.61 399.03 87.23 43.12 265.35 their distillation Oil seeds and oleaginous fruits; 12 miscellaneous grains, seeds and fruit; 276.44 232.13 165.25 182.82 241.61 industrial or medicinal; straw and fodder 02 Meat and edible meat offal 0 0 0 141.46 166.10 52 Cotton 104.55 143.49 96.94 120.41 152.61 Electrical machinery and equipment and 85 407.69 148.99 150.76 128.09 145.78 parts thereof 32 Tanning or dyeing extracts 95.36 113.49 96.47 109.65 112.10

Table 27: Top-10 Imports from India at HS-02 Level (2013-17)

From top-25 imports at HS-06 level, groundnuts were top import from India valued at USD 211.08 million. The top 25 import products contributed 49.05% to total imports, indicating a diverse import base.

Top-25 products at HS-06 Level imported by Indonesia from India All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 3,963.98 3,952.08 2,741.42 2,872.74 4,048.55 Code Product Description Groundnuts, shelled, whether or not 120242 159.45 134.08 93.49 126.71 211.08 broken 020230 Frozen, boneless meat of bovine animals 0 0 0 141.46 166.10 Motor cars and other motor vehicles with spark-ignition internal combustion 870322 52.33 28.47 14.09 30.55 155.37 reciprocating piston engine of a cylinder capacity > 1.000 cm³ but <= 1.500 cm³ 271019 Medium oils and preparations 17.38 14.67 10.48 25.95 132.63 271012 Light oils and preparations 163.27 367.19 59.50 1.88 127.10 520100 Cotton, neither carded nor combed 62.26 102.20 52.21 77.14 121.50 870410 Dumpers for off-highway use 27.12 78.63 101.44 54.51 121.05 290243 P-Xylene 243.56 366.36 289.68 155.37 118.47 290220 Benzene 39.04 12.00 8.32 11.75 68.38 Semi-finished products of iron or non-alloy 720720 steel containing, by weight, >= 0,25% of 0.29 0.16 0 0.01 64.32 carbon Semi-finished products of iron or non-alloy 720711 steel containing, by weight, < 0,25% of 5.58 0 0 1.60 62.66 carbon 760110 Aluminium, not alloyed, unwrought 7.16 4.29 53.77 33.18 60.72 56

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Flat-rolled products of stainless steel, of a 721913 28.90 40.17 38.28 46.95 60.61 width of >= 600 mm 740311 Copper 0 0 0 28.65 54.53 Semi-finished products of iron or non-alloy 720719 steel containing, by weight, < 0,25% of 0.21 0.89 0.02 0.98 52.11 carbon Flat-rolled products of stainless steel, of a 721914 63.80 35.05 20.52 38.62 49.77 width of >= 600 mm Flat-rolled products of alloy steel other 722599 0 0 0 10.85 48.41 than stainless, of a width of >= 600 mm Flat-rolled products of iron or non-alloy 720918 22.57 17.06 25.62 41.56 46.58 steel, of a width of >= 600 mm 300220 Vaccines for human medicine 0 0.16 1.56 6.88 44.41 Unwrought zinc, not alloyed, containing by 790111 20.51 26.90 22.57 27.11 44.22 weight >= 99,99% of zinc Fruits of the genus Capsicum or of the 090421 15.23 17.91 21.84 26.70 40.55 genus Pimenta Parts and accessories, for tractors, motor 870899 32.30 53.26 36.63 41.78 39.41 vehicles 720230 Ferro-silico-manganese 9.82 14.80 12.01 9.41 34.26 290241 O-Xylene 38.48 29.99 15.67 25.09 30.94 320416 Synthetic organic reactive dyes 23.18 31.51 23.74 29.46 30.78

Table 28: Top-25 Imports from India at HS-06 Level (2013-17) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 57

Trade with Pakistan

Indonesia and Pakistan share strong religious and political ties.

Pakistan mainly exports rice to Indonesia in exchange for coal and palm oil. Through a preferential trade agreement, Indonesia offers market access to Pakistan on 232 tariff lines. Out of these 232 tariff lines, 103 are zero rated which include; fresh fruits, cotton yarn, cotton fabrics, readymade garments, fans, sports goods, leather goods and other industrial products. On the other hand, Pakistan offers market access on 313 tariff lines at preferential rate. Out of these 313 tariff lines, 82 are zero rated which includes; sugar confectionary, cocoa product, consumer goods, chemicals, tableware, kitchenware, rubber, wood, glassware and electronic products.15

On a recent visit of Indonesian President Joko Widodo to Pakistan in January 2018, four MOUs for co-operation in energy, trade, training and education sectors were signed.16

Trade Overview

Indonesia has had a healthy trade surplus with Pakistan as can be seen from the figure below. From USD 1,246.70 million in 2013, the trade surplus increased to USD 2,156.98 million in 2017 – an increase of 73.02%. This increment was due to a rise in the exports of palm oil, areca nuts, motor vehicles and coal. Since 2013, exports grew by 69.42% to USD 2,398.09 million against imports of USD 241.11 million in 2017.

Indonesia's Trade Overview with Pakistan

3,000 Indonesia's exports to 2,500 2,398.09 Pakistan 2,045.29 1,989.56 2,018.23 2,156.98 Indonesia's 2,000 imports from n 1,885.90 1,860.98 Pakistan 1,415.44 1,815.05

M i l o 1,500 Indonesia's D

S 1,246.70 trade balance U 1,000 with Pakistan

500 168.74 159.39 174.51 157.26 241.11 - 2013 2014 2015 2016 2017

Figure 24: Indonesia’s Trade Overview with Pakistan

15 http://thefortress.com.pk/pakistan-indonesia-historic-relations/ 16 https://www.thenews.com.pk/latest/273726-pakistan-indonesia-sign-mous-for-bilateral-cooperation 58

Since 2013, following Indonesian exports to Pakistan have increased; animal or vegetable fats and oils (76.42%), vehicles (733.83%), edible fruits and nuts (65.40%), mineral fuels (38.55%), paper and paperboard (32.78%), machinery and mechanical appliances (277.84%), soap (29.90%), and rubber and articles thereof (101.71%). In 2017, animal or vegetable fats worth USD 1,482.63 million ranked as the most exported item.

Top-10 products at HS-02 Level exported by Indonesia to Pakistan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 1,415.44 2,045.29 1,989.56 2,018.23 2,398.09 Code Product Description Animal or vegetable fats and oils and their 15 840.40 1,374.85 1,327.01 1,310.17 1,482.63 cleavage products Vehicles other than railway or tramway 87 rolling stock, and parts and accessories 20.22 44.88 33.91 66.70 168.60 thereof Edible fruit and nuts; peel of citrus fruit or 08 71.96 93.60 103.36 137.15 119.02 melons Mineral fuels, mineral oils and products of 27 78.41 79.72 68.57 73.92 108.64 their distillation 55 Man-made staple fibres 112.87 119.98 113.61 96.61 104.92 Paper and paperboard; articles of paper 48 75.32 85.21 91.33 94.85 100.01 pulp, of paper or of paperboard 40 Rubber and articles thereof 24.61 24.12 26.71 30.42 49.64 34 Soap 19.63 27.53 28.90 25.01 25.50 09 Coffee, tea, maté and spices 23.42 34.14 22.11 18.22 21.47 Machinery, mechanical appliances, nuclear 84 5.28 10.21 8.01 9.50 19.95 reactors, boilers; parts thereof

Table 29: Top-10 Exports to Pakistan at HS-02 Level (2013-17)

The following table shows top-25 Indonesian exports to Pakistan at HS-06 level; these accounted for 89.21% of total exports. Under this category, palm oil was the top export valued at USD 1,459.74 million.

Top-25 products at HS-06 Level exported by Indonesia to Pakistan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 1,415.44 2,045.29 1,989.56 2,018.23 2,398.09 Code Product Description 151190 Palm oil and its fractions 778.23 1,350.53 1,290.97 1,289.45 1,459.74 080280 Fresh or dried areca nuts 67.85 91.64 97.94 133.76 113.90 Bituminous coal, whether or not 270112 21.73 28.84 41.15 52.62 85.54 pulverised, non-agglomerated Motor cars and other motor vehicles with spark-ignition internal combustion 870321 0.19 5.46 0.07 0 72.44 reciprocating piston engine of a cylinder capacity <= 1.000 cm³ THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 59

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 550410 Staple fibres of viscose rayon 57.12 53.19 47.87 48.72 69.44 Gear boxes and parts thereof, for tractors, 870840 12.51 9.99 10.34 14.57 44.97 motor vehicles 480256 Uncoated paper and paperboard 32.24 30.58 38.49 42.22 41.24 Technically specified natural rubber 400122 9.57 9.86 9.19 15.48 37.21 “TSNR” Parts and accessories, for tractors, motor 870899 1.72 1.89 2.05 1.83 17.42 vehicles 481029 Paper and paperboard 12.12 15.41 15.39 13.66 17.30 Yarn containing predominantly, but < 85% 550951 10.90 18.62 22.11 20.05 17.11 polyester staple fibres by weight Palm kernel and babassu oil and their 151329 7.29 12.59 6.40 12.16 14.94 fractions Coal, whether or not pulverised, non- 270119 agglomerated (excluding anthracite and 56.21 50.88 27.40 21.28 14.74 bituminous coal) 480257 Uncoated paper and paperboard 6.29 8.06 9.00 10.48 14.30 Soap and organic surface-active products 340111 16.77 24.05 22.05 15.26 13.95 and preparations 230660 Oilcake and other solid residues 6.30 10.47 6.39 9.24 13.75 Motor cars and other motor vehicles with spark-ignition internal combustion 870322 1.78 0.61 0.30 36.75 12.83 reciprocating piston engine of a cylinder capacity > 1.000 cm³ but <= 1.500 cm³ 300220 Vaccines for human medicine 3.61 0.01 3.18 0 12.35 481014 Paper and paperboard 8.77 15.63 11.22 12.81 11.14 Parts and accessories of bodies for 870829 0 0.08 0.72 1.73 10.09 tractors, motor vehicles Single yarn containing >= 85% polyester 550921 29.17 28.51 19.07 13.54 10.04 staple fibres by weight Black fermented tea and partly fermented 090240 17.20 12.96 10.82 8.11 9.44 tea 380891 Insecticides 5.50 4.15 4.18 4.19 9.22 Lignite, whether or not pulverised, non- 270210 0 0 0 0 8.23 agglomerated (excluding jet) 960310 Brooms and brushes 1.68 2.32 4.75 6.14 8.00

Table 30: Top-25 Exports to Pakistan at HS-06 Level (2013-17)

Indonesia mainly imported edible fruits and nuts – USD 59.01 million, cotton – USD 42.01 million, cereals – USD 34.79 million, iron and steel – USD 25.88 million, paper and paperboard – USD 25.74 million, and fish – USD 10.59 million from Pakistan in 2017. During 2013-17, imports of the following products increased; edible fruits and nuts (1,738.22%), iron and steel (86,166.67%), paper and paperboard (128,600.00%), and articles of cotton – knitted or crocheted (132.00%), not knitted or crocheted (17.97%). Moreover, it can be observed from the table below that cotton imports have declined (21.00%) whereas imports of finished articles of apparel have increased. 60

Top-10 products at HS-02 Level imported by Indonesia from Pakistan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 168.74 159.39 174.51 157.26 241.11 Code Product Description Edible fruit and nuts; peel of citrus fruit or 08 3.21 19.32 23.03 20.44 59.01 melons 52 Cotton 53.18 69.31 41.00 21.10 42.01 10 Cereals 31.93 23.91 62.95 49.12 34.79 72 Iron and steel 0.03 0.11 0.03 0.71 25.88 Paper and paperboard; articles of paper 48 0.02 0.18 0.40 22.95 25.74 pulp, of paper or of paperboard Fish and crustaceans, molluscs and other 03 7.30 8.63 6.85 5.54 10.95 aquatic invertebrates Raw hides and skins (other than furskins) 41 10.20 13.31 8.20 9.07 9.78 and leather Articles of apparel and clothing 62 4.34 4.07 5.48 4.23 5.12 accessories, not knitted or crocheted Articles of apparel and clothing 61 1.50 2.17 2.46 2.68 3.48 accessories, knitted or crocheted Residues and waste from the food 23 3.44 0.72 1.96 0.71 2.48 industries; prepared animal fodder

Table 31: Top-10 Imports from Pakistan at HS-02 Level (2013-17)

At HS-06 level, top-25 imports from Pakistan shown below contributed 90.04% to total imports. In 2017, top three imports were broken rice – USD 34.79 million, fresh or dried mandarins – USD 34.07 million, and paper and paperboard – USD 25.45 million.

Top-25 products at HS-06 Level imported by Indonesia from Pakistan All values in USD Million 2013 2014 2015 2016 2017 TOTAL All products 168.74 159.39 174.51 157.26 241.11 Code Product Description 100640 Broken rice 29.97 23.91 62.95 49.12 34.79 080521 Fresh or dried mandarins 0 0 0 0 34.07 481159 Paper and paperboard 0 0.02 0.38 22.91 25.45 520100 Cotton, neither carded nor combed 35.75 55.50 24.69 5.37 25.16 Semi-finished products of iron or non-alloy 720719 steel containing, by weight, < 0,25% of 0 0 0 0 22.47 carbon 080520 Fresh or dried mandarins 3.21 19.32 23.03 20.44 17.94 030353 Frozen sardines 6.17 7.56 6.16 5.08 9.67 Woven fabrics of cotton, containing >= 520939 85% cotton by weight and weighing > 200 6.35 6.30 6.72 7.63 7.66 g/m², dyed Fresh or dried wilkings and similar citrus 080529 0 0 0 0 6.97 hybrids THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 61

All values in USD Million Code Product Description 2013 2014 2015 2016 2017 Semi-finished products of iron or non-alloy 720720 steel containing, by weight, >= 0,25% of 0 0 0 0 3.41 carbon Men’s or boys’ trousers, bib and brace 620342 2.70 2.10 3.07 2.22 3.00 overalls, breeches and shorts, of cotton 410792 Grain splits leather 0.16 0.08 1.52 0.81 2.95 310210 Urea 0 0 0 0 2.32 740400 Waste and scrap, of copper 25.54 1.81 2.85 3.93 2.30 Leather further prepared after tanning or 411310 2.67 3.53 2.14 2.57 2.11 crusting Woven fabrics of cotton, containing >= 520932 85% cotton by weight and weighing > 200 0.03 0.18 0 0.11 2.06 g/m² 560121 Wadding of cotton and articles thereof 0 0 0 0.35 1.95 Flours, meals and pellets of fish or 230120 crustaceans, molluscs or other aquatic 3.44 0.72 0 0.33 1.82 invertebrates Tobacco, partly or wholly stemmed or 240120 0.47 0.91 0.18 0.01 1.81 stripped, otherwise unmanufactured Women’s or girls’ trousers, bib and brace 620462 1.11 1.20 2.15 1.72 1.81 overalls, breeches and shorts of cotton Leather of the portions, strips or sheets of 410799 hides and skins of bovine “incl. buffalo” or 1.08 1.42 1.31 1.42 1.62 equine animals Woven fabrics containing predominantly, 551329 0.09 0.41 1.74 2.14 1.56 but < 85% synthetic staple fibres by weight 410719 Leather 4.81 7.80 2.61 3.11 1.51 Knitted or crocheted fabrics, of a width of 600290 5.12 2.07 5.39 3.82 1.48 <= 30 cm, containing >= 5% by weight Woven fabrics of cotton, containing >= 520819 85% cotton by weight and weighing <= 200 3.25 0.63 1.63 1.55 1.20 g/m²

Table 32: Top-25 Imports from Pakistan at HS-06 Level (2013-17) 62

Pakistan’s Potential Trade with Indonesia

Export Potential

Pakistan’s export potential for any product to be exported to Indonesia is calculated by subtracting Pakistan’s actual exports for a product to Indonesia from the minimum of Pakistan’s exports to the world or Indonesia’s imports from the world for that product.

Export Potential = Min (Pakistan’s exports to the world of X, Indonesia’s imports from the world of X) – Pakistan’s current exports to Indonesia of X

High potential Pakistani exports at HS-06 level have been shown below. The table shows Pakistan’s exports to Indonesia, Indonesia’s imports from the world, Pakistan’s exports to the world and Pakistan’s potential exports to Indonesia for the top-25 high potential items. Pakistan exported USD 69.81 million of these products to Indonesia while it had a potential to export USD 1,533.25 million worth of such goods in 2017. The products with most potential include; ‘Instruments and appliances used in medical, surgical or veterinary sciences, n.e.s.’ – USD 321.35 million, ‘Broken rice’ – USD 113.85 million, ‘Waste and scrap, of copper’ – USD 78.40 million, ‘Medicaments for therapeutic or prophylactic purposes’ – USD 70.76 million, ‘Woven fabrics of cotton, containing >= 85% cotton by weight and weighing <= 200 g/m²’ – USD 64.18 million.

Pakistan has the potential to export textile and textile articles (including cotton, t-shirts and woven fabrics) worth USD 251.12 million to Indonesia while it currently exports textile goods valued at only USD 29.30 million.

Pakistan’s High Potential Exports to Indonesia at HS-06 Level All values in USD Million Pakistan's Indonesia's Pakistan's Potential Code Product Description exports to imports exports to exports to Indonesia from world world Indonesia Instruments and appliances used in medical, 0.69 322.04 360.58 321.35 901890 surgical or veterinary sciences, n.e.s. 100640 Broken rice 18.95 132.80 182.57 113.85 740400 Waste and scrap, of copper 1.47 79.87 85.88 78.40 Medicaments for therapeutic or prophylactic 300490 0.02 464.58 70.79 70.76 purposes Woven fabrics of cotton, containing >= 85% 520819 0.30 82.46 64.48 64.18 cotton by weight and weighing <= 200 g/m² 481159 Paper and paperboard 17.64 140.34 81.07 63.43 “Polyethylene terephthalate", in primary 390761 0 59.64 134.58 59.64 forms, having a viscosity number of >= 78 ml/g Cane or beet sugar and chemically pure 170199 0.12 54.01 342.90 53.89 sucrose, in solid form 080410 Fresh or dried dates 0 53.63 107.49 53.63 170490 Sugar confectionery not containing cocoa 0 52.72 61.78 52.72 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 63

All values in USD Million Pakistan's Indonesia's Pakistan's Potential Code Product Description exports to imports exports to exports to Indonesia from world world Indonesia 640399 Footwear 0.02 51.41 68.99 51.38 250100 Salts 0 83.60 50.63 50.63 261000 Chromium ores and concentrates 0 47.48 104.30 47.48 410792 Grain splits leather 1.59 48.24 50.70 46.64 Plain woven fabrics of cotton, containing 521011 0.25 45.04 86.65 44.79 predominantly, but < 85% cotton by weight 841199 Parts of gas turbines, n.e.s. 0 140.79 43.86 43.86 170230 Glucose in solid form and glucose syrup 0.00 59.94 43.74 43.74 T-shirts, singlets and other vests of cotton, 610910 0.31 42.35 197.76 42.04 knitted or crocheted “Polyethylene terephthalate", in primary 390769 0 147.92 37.54 37.54 forms, having a viscosity number of < 78 ml/g Men's or boys' trousers, bib and brace overalls, 620342 0.37 34.76 410.42 34.39 breeches and shorts, of cotton 520100 Cotton, neither carded nor combed 28.05 1,325.17 60.95 32.90 Plain woven fabrics of cotton, containing 521031 0.02 32.84 57.79 32.82 predominantly, but < 85% cotton by weight Medicaments containing hormones or 300439 0 31.27 48.65 31.27 steroids used as hormones but not antibiotics Flat-rolled products of iron or non-alloy steel, 721049 0 234.61 31.18 31.18 of a width of >= 600 mm Telephones for cellular networks "mobile 851712 0 416.72 30.75 30.75 telephones" or for other wireless networks Top-25 High Potential Products at HS-06 Total 69.81 4,184.19 2,816.02 1,533.25 Level

Table 33: Top-25 High Potential Pakistani Exports to Indonesia at HS-06 Level

Import Potential

Import potential for a product is calculated by subtracting Pakistan’s actual imports for a product from Indonesia from the minimum of Pakistan’s imports from the world and Indonesia’s exports to the world for that product.

Import Potential = Min (Pakistan’s imports from the world of X, Indonesia’s exports to the world of X) – Indonesia’s current exports to Pakistan of X

The following table has been sorted according to high potential Indonesian exports to Pakistan. It shows Indonesia’s exports to Pakistan, Pakistan’s imports from the world, Indonesia’s exports to the world and Pakistan’s potential imports from Indonesia at HS-06 level. For its top-25 high potential exports to Pakistan worth USD 1,650.77 million in 2017, Indonesia had an additional potential of USD 3,770.13 million. Most potential lies in ‘Palm oil and its fractions’, ‘Motor cars and other motor vehicles with spark-ignition internal combustion reciprocating piston engine of a cylinder capacity > 1,000 cm³ but <= 1,500 cm³ ’, ‘Motor cars and other motor vehicles with 64

spark-ignition internal combustion reciprocating piston engine of a cylinder capacity > 1,500 cm³ but <= 3,000 cm³ ’, ‘Medicaments for therapeutic or prophylactic purposes’, and ‘Staple fibres of viscose rayon, not carded, combed or otherwise processed for spinning’.

Furthermore, Indonesia has the potential to export motor vehicles, and parts and accessories of motor vehicles worth USD 840.69 million and USD 321.23 million, respectively. In 2017, it exported motor vehicles valued at USD 88.79 million and parts and accessories worth USD 12.01 million to Pakistan.

Indonesia’s High Potential Exports to Pakistan at HS-06 Level All values in USD Million Potential Indonesia’s Pakistan’s Indonesia’s imports Code Product Description exports to imports exports to from Pakistan from world world Indonesia 151190 Palm oil and its fractions 1,459.74 2,011.89 13,814.90 552.15 Motor cars and other motor vehicles with spark-ignition internal combustion 870322 12.83 362.70 1,150.25 349.87 reciprocating piston engine of a cylinder capacity > 1.000 cm³ but <= 1.500 cm³ Motor cars and other motor vehicles with spark-ignition internal combustion 870323 3.52 340.75 720.71 337.23 reciprocating piston engine of a cylinder capacity > 1.500 cm³ but <= 3.000 cm³ Medicaments for therapeutic or prophylactic 300490 0.20 368.14 274.58 274.37 purposes Staple fibres of viscose rayon, not carded, 550410 69.44 292.89 310.42 223.45 combed or otherwise processed for spinning 540233 Textured filament yarn of polyester 1.39 172.01 161.76 160.36 Motor cars and other motor vehicles with spark-ignition internal combustion 870321 72.44 575.19 226.02 153.59 reciprocating piston engine of a cylinder capacity <= 1.000 cm³ 850440 Static converters - 133.90 368.33 133.90 Boards, cabinets and apparatus for electric 853710 0.01 132.21 133.77 132.20 control or the distribution of electricity Parts suitable for spark-ignition internal 840991 1.86 128.61 211.14 126.75 combustion piston Motorcycles, incl. mopeds, with reciprocating 871120 internal combustion piston engine of a 0.00 104.03 601.64 104.02 cylinder capacity > 50 cm³ but <= 250 cm³ Sanitary towels (pads) and tampons, napkins 961900 0.01 105.25 100.96 100.95 and napkin liners for babies Parts and accessories of bodies for tractors, 870829 10.09 109.34 303.37 99.25 motor vehicles 740311 Copper - 95.69 1,078.42 95.69 Parts suitable for compression-ignition 840999 0.06 95.28 193.96 95.23 internal combustion Instruments and appliances used in medical, 901890 0.12 115.69 86.38 86.27 surgical or veterinary sciences, n.e.s. 854449 Electric conductors, for a voltage <= 1.000 V 0.20 85.38 107.96 85.18 851770 Parts of telephone sets - 84.77 106.17 84.77 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 65

All values in USD Million Potential Indonesia’s Pakistan’s Indonesia’s imports Code Product Description exports to imports exports to from Pakistan from world world Indonesia 151110 Crude palm oil 0.03 84.34 4,698.23 84.31 291736 Terephthalic acid and its salts - 92.45 83.87 83.87 290121 Ethylene 2.97 86.83 132.29 83.86 Air pumps, air or other gas compressors and 841480 2.82 85.65 198.19 82.83 ventilating or recycling hoods Telephones for cellular networks “mobile 851712 - 760.26 80.26 80.26 telephones” or for other wireless networks 300220 Vaccines for human medicine 12.35 208.24 92.56 80.21 293499 Nucleic acids and their salts 0.68 80.25 94.06 79.57 Top-25 High Potential Products at HS-06 Total 1,650.77 6,711.73 25,330.18 3,770.13 Level

Table 34: Top-25 High Potential Indonesian Exports to Pakistan at HS-06 Level

SECTION 5

RECENT CONCESSIONS BY INDONESIA TO PAKISTAN 68

Recent Concessions by Indonesia to Pakistan

In order to secure around USD 1.50 billion palm oil exports to Pakistan, Indonesia recently provided concessions on twenty tariff lines which had an import duty that ranged between 7.50% to 30.00%.

For these 20 tariff lines, table below shows Pakistan’s exports to Indonesia in 2017, Pakistan’s potential exports to Indonesia, MFN rate and offer to Pakistan for twenty products on which Indonesia awarded duty free access. Pakistan’s exports of these products to Indonesia were valued at USD 24.44 million in 2017. These items had an additional potential of USD 316.53 million. On an annualized basis, these tariff relaxations can lead to an increase Pakistan’s exports to Indonesia by USD 320 million.17

Twenty Products with Recent Concessions

Pakistan’s Pakistan’s Potential Exports to Exports to Offer to Sr.# HS Code Description Indonesia MFN rate Indonesia Pakistan (2017) USD (2017) USD Million Million 1 08045020 Mangoes 0.00 - 20% 0% Broken rice - used for animal 2 10064010 18.90 113.90 feed Rp. 450/kg 0% 3 10064090 Broken rice - others - - Undenatured ethyl alcohol of 4 22071000 alcoholic strength by vol of - 4.11 30% 0% 80% or more (ltr) Denatured ethyl alcohol and 5 22072090 - 0.00 30% 0% other spirits of any strength Tobacco, not stemmed/ 6 24011010 - 2.56 5% 0% stripped -Virginia type Tobacco, partly wholly 7 24012010 stemmed/stripped-Virginia 1.69 24.60 5% 0% type Articles of apparel and clothing accessories of 8 42031000 0.00 2.25 15% 0% leather or of composition leather Single yarn; of 9 52051200 uncombed fibres 1.83 - 7.50% 0% (192.31

17 https://www.thenews.com.pk/print/400221-indonesia-abolishes-up-to-30-import-duties-on-pakistani-products THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 69

Pakistan’s Pakistan’s Potential Exports to Exports to Offer to Sr.# HS Code Description Indonesia MFN rate Indonesia Pakistan (2017) USD (2017) USD Million Million T-shirts Women; singlets 13 61091020 & other vests; knitted/ 0.31 18.60 25% 0% crocheted T-shirts Men/boys; singlets 14 61099020 & others vests knitted/ 0.08 18.69 25% 0% crocheted T-shirt; singlets & other vest; 15 61099030 - - knitted/crocheted; of other Jerseys; pullovers; 16 61102000 cardigans; waistcoat of 0.01 11.80 25% 0% cotton 17 62034290 Men/boys trousers of cotton 0.37 34.37 25% 0% Women's or girls' trousers, bib 18 62046200 and brace overalls, breeches 0.07 26.58 25% 0% and shorts of cotton 19 63022100 Bed linen; printed of cotton - 1.10 25% 0% Toilet linen and kitchen linen, 20 63026000 of terry towelling or similar - 5.26 25% 0% terry fabrics of cotton Total 24.44 316.53

Table 35: List of Products Granted Duty-Free Access to Pakistan (2018)

SECTION 6

ANALYSIS OF MAJOR INDUSTRIES 72

Palm Oil Industry

Oil Palm, also known as Elaeis guineensis, is an ancient plant from the West African tropical forest which was brought to Indonesia in 1848 by the Dutch tobacco planters. This plant produces two types of oil – Crude Palm Oil (CPO), which is used in food products including cooking oil and margarines, while Palm Kernel Oil (PKO) is used in non-food products like soaps, detergents, cosmetics, toiletries and candles. Biomass from the Palm Oil is used to produce Biodiesel.

Indonesia is the largest exporter of Palm Oil and its products. With exports of USD 18.51 billion, it has 54.19% of world’s share of the palm oil industry, followed by Malaysia – 28.27% with exports of USD 9.66 billion.

Top-3 Exporters of Palm Oil and its Products

20,000 17,464.91 18,513.12 18,000 15,838.85 15,385.28 16,000 14,365.42 14,000 12,288.95

n 11,994.81 12,000 9,659.65 M i l o 10,000 9,501.15 9,064.29 D

S 8,000 U 6,000 4,000 1,529.69 1,391.42 2,000 1,075.76 1,072.01 1,209.90 0 2013 2014 2015 2016 2017

Indonesia Malaysia Netherlands

Figure 25: Top-3 Exporters of Palm Oil and its Products in the World (2013-17)

Indonesian exports of palm oil have been rising consistently, from USD 15.84 billion in 2013, they sharply rose to USD 18.51 billion in 2017. Top three export destinations of Indonesian Palm Oil and its products were; India – USD 4.90 billion, China – USD 2.07 billion, and Pakistan – USD 1.46 billion. Crude Palm Oil and its products make up most of the total Indonesian Palm Oil exports. The country exported 6.40 million tons of Crude Palm Oil worth USD 4.70 billion in 2017 as compared to 6.58 million tons of oil worth USD 4.98 billion in 2013. In contrast, export of other palm oil products weighing 16.48 million tons were valued at USD 13.81 billion in 2017 versus 13.99 million tons with a value of USD 10.86 billion in 2013. Altogether, Crude Palm Oil exports remained constant while other products of palm oil saw growth during 2013-17. THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 73

Top-5 Export Destinations for Indonesian Palm Oil and its Products All values in USD Billion 2013 2014 2015 2016 2017 World 15.84 17.46 15.39 14.37 18.51

India 4.28 3.64 3.22 3.44 4.90 China 1.79 1.79 2.05 1.64 2.07 Pakistan 0.81 1.35 1.31 1.29 1.46 Spain 0.46 0.67 0.57 0.69 0.92 Bangladesh 0.50 0.80 0.67 0.58 0.82

Table 36: Top-5 Export Destinations for Indonesian Palm Oil and its Products (2013-17)

Indonesian Palm Oil Exports at HS-06 Level

2013 2014 2015 2016 2017

Code Product Description Net weight weight Net Net weight weight Net Net weight weight Net Net weight weight Net Net weight weight Net Trade Value Value Trade Trade Value Value Trade Trade Value Value Trade Trade Value Value Trade Trade Value Value Trade (Million Ton) (Million Ton) (Million Ton) (Million Ton) (Million Ton) (USD Billion) (USD Billion) (USD Billion) (USD Billion) (USD Billion)

151110 Crude Palm Oil 6.58 4.98 5.73 4.21 7.79 4.39 5.28 3.31 6.40 4.70 Other Palm Oil 151190 13.99 10.86 17.17 13.26 18.68 11.00 17.48 11.06 16.48 13.81 Products 151321 Crude Oil of Kernel Oil 0.45 0.35 0.40 0.39 0.61 0.52 0.27 0.31 0.29 0.38 Other Palm Kernel Oil 151329 1.19 0.95 1.08 1.15 1.21 1.05 1.31 1.60 1.19 1.83 Products

Table 37: Indonesian Palm Oil Exports at HS-06 Level (2013-17)

Plantation of Oil Palm trees requires high rainfall (minimum 1600 mm/year) with a tropical climate found within 10° of the Equator. This makes Indonesia a most suitable region for Oil Palm trees. Since 2000, total harvested area has increased from 4.16 million hectares to 11.12 million hectares in 2016. In 2016, government estates harvested 0.71 million hectares of land which is far less than private estates and small holder farms that harvested 5.75 million hectares and 4.66 million hectares, respectively. Usually, a small-holder farm covers 25 hectares, whereas a private estate has an area over and above 500 hectares. According to USDA Foreign Agricultural Service report, an average palm tree has a life of 25 years. Farmers in Indonesia use around 200 seeds per hectare. Although mature area has doubled since 2008 – from 5 million to 11 million hectares, small-holder farmers lose out due to poor incentives and high seed prices. As a result, in 2011 government imposed a moratorium on large holder farms which has allowed small farmers to expand their area until 2030. Also, this ban followed criticism from the European Union on increasing palm oil plantations. The Indonesian government has enforced 20% blending of biodiesel in diesel fuel from September 2018. This decision came 74

when government ended fuel subsidies which raised diesel prices. To minimize the ever- expanding current account deficit, the government has encouraged the use of biofuel which would ultimately increase the use of palm oil. Through its Crude Palm Oil (CPO) Fund and mandatory biodiesel program – B-20 Biodiesel, the Indonesian government has successfully regulated palm oil prices.18

Harvested Area by Different Estates All values in Million Hectares Government Small holder Year Private Estates Total Area Estates Farms 2000 0.59 2.4 1.17 4.16 2005 0.68 2.92 2.36 5.95 2010 0.66 4.5 3.39 8.55 2015 0.74 5.98 4.54 11.26 2016* 0.71 5.75 4.66 11.12

Table 38: Total Area Harvested in Indonesia by Different Estates (2016) * Preliminary Figures

Despite all the efforts from the government to sustain palm oil plantations, palm oil prices remain vulnerable to crude oil prices, El-Nino drought, soybean oil prices, and harsh weather conditions.

Pakistan, being one of the largest consumers of palm oil, imports refined, bleached and deodorized (RBD) Palm Oil and Palm Olein from Indonesia and Malaysia. Palm Olein is the liquid fraction obtained from crystallization at controlled temperatures. It is used for shortening, Vanaspati and other food products. While RBD Palm Oil, derived from crude palm oil, is used as cooking oil.

During the period 2013 to 2017, RBD Palm Oil imports climbed up from USD 758.56 million in 2013 to USD 796.74 million in 2017 – an increase of 5.03%. Imports from Indonesia have increased by 30.40% to USD 746.82 million which makes up 93.73% of total RBD Palm Oil imports, while imports from Malaysia decreased by 73.19% to USD 49.71 million in 2017.

On the other hand, Pakistan imported Palm Olein worth USD 1,160.78 million in 2017, of which 70.72% was imported from Indonesia versus 29.26% from Malaysia. Overall, Palm Olein imports from Indonesia have greatly increased; since 2013, imports grew by 1,861.95% to USD 820.88 million in 2017 as opposed to a 55.64% decline in imports from Malaysia. Such huge rise in palm oil imports was due to Pakistan – Indonesia Preferential Trade Agreement under which Indonesia enjoys a tariff on imports into Pakistan which is between 6.42% to 7.66%.

18 Sources:https://www.reuters.com/article/us-indonesia-biodiesel/indonesia-to-make-biodiesel-use-compulsory-from- september-1-official-idUSKBN1KM4WK https://www.straitstimes.com/asia/se-asia/indonesia-halts-new-palm-oil-plantation-development https://www.indonesia-investments.com/news/todays-headlines/widodo-signs-moratorium-on-new-palm-oil-plantations-in- indonesia/item8978? THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 75

Pakistan’s Import Partners of HS-15119020: RBD Palm Oil All values in USD Million 2013 2014 2015 2016 2017 World 758.56 944.27 664.66 674.84 796.74

Indonesia 572.71 858.90 627.28 622.57 746.82 Malaysia 185.43 83.13 36.72 52.08 49.71

Table 39: Pakistan’s Top Import Partners for RBD Palm Oil (2013-17)

Pakistan’s Import Partners of HS-15119030: Palm Olein All values in USD Million 2013 2014 2015 2016 2017 World 808.64 870.75 861.43 901.20 1,160.78

Indonesia 41.84 494.10 693.95 675.87 820.88 Malaysia 765.65 375.61 166.47 225.32 339.63

Table 40: Pakistan’s Top Import Partners Palm Olein (2013-17) 76

Automotive Industry

Indonesia is the second largest producer of motor vehicles in the ASEAN region after Thailand. Foreign companies, particularly from Japan, have established car manufacturing plants in the country. These include; Toyota Motor Manufacturing Indonesia, Astra Daihatsu Motors, Isuzu Astra Motors Indonesia, Honda Prospect Motors, Suzuki Indomobil Motors, Mitsubishi Motors Corporation, Wuling Motors, Nissan Motors Indonesia, Hino Motors Manufacturing Indonesia, Gaya Motors, Fuso-Mitsubishi Motors, and Mercedes Benz Indonesia. Altogether, they have a total production capacity of 1.93 million vehicles per annum. Most Japanese brands were attracted to the country due to low per capita-car ownership, low labour cost and an increasing young population.

With a rising population and an expanding middle class, Indonesia has become the biggest car market in Southeast Asia and accounts for about one-third of total car sales in ASEAN. In 2017, ASEAN auto sales soared to 3.33 million vehicles while Indonesia contributed 1.08 million in these sales. The country has a young workforce with first-time buyers which allows for growth in car sales. Moreover, the mining sector and Small and Medium Enterprises (SMEs) have fuelled the demand for commercial vehicles.

Japanese Original Equipment Manufacturers (OEMs), mainly Toyota, are leading the car industry. They have local plants which saves them from 30% tax on import of Completely Built Up (CBU) units. Also, these firms focus on producing models that fit local needs – with smaller and fuel- efficient engines to allow tax incentives. They have a wide-spread dealership network which is convenient for spare parts availability and maintenance. Such companies have government support through trade agreements (ASEAN – Japan FTA and ASEAN – China FTA) resulting in lower import duties.

Indonesia has a well-developed market for Multi-Purpose Vehicles (MPVs) and Sport Utility Vehicles (SUVs). To promote a family car, which carries up to seven passengers, the government has imposed a low tax (10%) on production of these vehicles as opposed to luxury sedans (30%). This has discouraged domestic and foreign demand for Indonesian sedans due to higher prices; hence, sedan market in Indonesia remains underdeveloped. To ease pressure on the Rupiah, the Indonesian government discontinued fuel subsidy which resulted in higher fuel prices in 2013. At the same time, government encouraged car manufacturers to produce fuel- efficient cars (with 1,200 3cm engines) to escape taxes (0% tax on production) while adhering to local component requirement (LCR) – between 70% to 85% (LCR in Indonesia is calculated based on the Completely Knocked Down parts and not on the subcomponents). This gave rise to Low Cost Green Cars (LCGC); since 2013, LCGC sales grew by 358.30% to 234,554 cars sold in 2017.

The table below shows sales and production of Completely Built Up (CBU) units in Indonesia from 2013 to 2017. Sales were 1,079,886 vehicles in 2017, which comprised of 844,224 passenger vehicles and 235,310 commercial vehicles. In contrast, production increased by 0.70% to 1,216,615 vehicles, of which 982,356 were passenger cars while 234,259 were commercial vehicles. THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 77

Sales and Production of Completely Built Up (CBU) Units 2013 2014 2015 2016 2017 Units Sold 1,229,916 1,208,019 1,013,291 1,061,859 1,079,886 Units Produced 1,208,211 1,298,532 1,098,780 1,177,797 1,216,615

Table 41: Sales and Production of Completely Built Up (CBU) Units in Indonesia (2013-17)

Currently, Indonesian government has set a target of becoming a global production house for car manufacturing and to overtake Thailand in the coming years. In the long run, it is focusing on exporting Completely Built Up (CBU) units with 100% locally manufactured components. In this regard, the state is heavily investing in infrastructure projects including ports and roads. It plans to build 22 ports across Indonesia within the next five years at a total investment of USD 3.57 billion. Also, it is developing 2,650 km non-toll and 1,000 km toll roads across the country. Furthermore, companies are required to carry out activities such as welding, painting, assembling of the vehicles and quality control within the country. Importantly, Indonesia, which followed Euro-2 standard for carbon emissions, has converted to Euro-4 from September 2018, and hopes to target Euro-6 in the coming years. This transition would boost car exports in the future. Despite all these measures to improve the auto industry, major car parts including engines and axel shafts are imported from abroad; therefore, Indonesian government would require technology transfers along with infrastructure to allow companies to manufacture auto parts locally.

In 2017, Indonesia exported vehicles and parts worth USD 6,835.40 million under HS-02 category. From the top-10 export markets of Indonesian vehicles and auto parts, Pakistan imported vehicles and parts worth USD 168.60 million from Indonesia versus USD 33.91 million in 2015 – an increase of 397.20%.

Top-10 Export Destinations for HS-87 (Vehicles and parts thereof) All values in USD Million 2015 2016 2017 Rank World 5,419.38 5,867.76 6,835.40

1 Philippines 744.64 1,468.23 1,754.49 2 Thailand 744.57 849.39 942.31 3 Japan 479.67 488.54 537.52 4 Saudi Arabia 901.19 460.55 505.39 5 Viet Nam 125.96 200.69 424.99 6 Malaysia 404.38 435.82 413.13 7 Mexico 224.19 245.20 240.24 8 Singapore 213.81 180.15 183.01 9 Pakistan 33.91 66.70 168.60 10 USA 132.99 177.77 164.39

Table 42: Top-10 Export Destinations of Indonesian Vehicles and Auto Parts (2015-17) 78

Indonesian car exports included 231,169 CBU units in 2017 as compared to 170,907 units in 2013. This shows that foreign demand for Indonesian cars is increasing. Whereas in 2016, Indonesia exported 202,626 CKD units.

Indonesian Car Exports 2013 2014 2015 2016 2017 Completely Built Up (CBU) Units 170,907 202,273 207,691 194,397 231,169 Completely Knocked Down (CKD) Units 105,380 108,580 108,770 202,626 N/A

Table 43: Indonesian Exports of Completely Built Up (CBU) units and Completely Knocked Down (CKD) Units (2013-17)

Brief Comparison of Pakistani and Indonesian Automotive Market

Indonesia and Pakistan are undergoing similar economic growth rates (around 5%). Although both the countries lie in the lower middle-income group, the Indonesian economy – with a GDP of over 1 trillion – is much larger than Pakistan’s economy. Indonesian consumer has higher purchasing power with a GDP per capita of USD 3,846.86, whereas Pakistani consumer has a GDP per capita of USD 1,547.85. Also, there is a huge difference in the motorization rate of 87.20 vehicles per 1000 inhabitants in Indonesia as opposed to 17.00 vehicles per 1000 inhabitants in Pakistan. Still, Pakistani market is favourable for growth in car sales due to financial relaxations provided to customers and the growing working population. In Pakistan, minimum down- payment requirement is 15% in comparison to 25% in Indonesia on non-commercial vehicles. According to the World Bank, Pakistan had a lending rate of 8.07% while Indonesia had a rate of 11.07% in 2017.19 This allows for low cost of borrowing for Pakistani car buyers.

Growth Indicators of Automotive Industry

Country (%) (2017) (2017) (2017) (2017) (2015) Motorization Rate Rate Motorization Requirement (Non- Requirement GDP Growth Rate (%) Rate GDP Growth GDP per capita (2017) commercial vehicles) commercial Lending Interest Rate Rate Lending Interest Sales of New Vehicles Vehicles New of Sales Production of Vehicles Vehicles of Production Minimum Down Payment Payment Minimum Down

Indonesia 5.07 3,846.86 87.20 1,216,615 1,079,886 25% 11.07% Pakistan 5.7 1,547.85 17 230,000 269,000 15% 8.21%

Table 44: Growth Indicators of Automotive Industry in Pakistani and Indonesian Market

19 Source: World Bank; Gaikindo; ASEAN Automotive Federation; https://www.indonesia-investments.com/business/industries-sectors/automotive-industry/item6047 THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 79

SECTION 7

DOING BUSINESS 82

Ease of Doing Business

The Doing Business Index, a measure by the World Bank, compares business regulations in 190 economies. It uses ten indicators in order to compare the ease of starting and running a business by a local in every country.

The table below is a comparison of 2018 and 2019 rankings. Major improvements for local businessmen were in ‘starting a business’, ‘getting electricity’, ‘registering property’, ‘getting credit’, ‘paying taxes’, and ‘resolving insolvency’.

Country: Indonesia DB 2019 Rank DB 2018 Rank Change in Rank Overall 73 72 -1 Topics Starting a Business 134 144 10 Dealing with Construction Permits 112 108 -4 Getting Electricity 33 38 5 Registering Property 100 106 6 Getting Credit 44 55 11 Protecting Minority Investors 51 43 -8 Paying Taxes 112 114 2 Trading Across Borders 116 112 -4 Enforcing Contracts 146 145 -1 Resolving Insolvency 36 38 2

Table 45: Ease of Doing Business in Indonesia (2019) THE REPUBLIC OF INDONESIA = COUNTRY PROFILE 83

Embassy

Indonesian Embassy in Islamabad, Pakistan

Address: Diplomatic Enclave I Street 5, Ramna G 5/4, P.O. Box 1019, Islamabad - 44000 Telephone: (+92) (51) 283-2017 to 20 Fax: (+92) (51) 283-2013 Email: [email protected] Website: indonesian-embassy.pk, www.kemlu.go.id/islamabad Head of Mission: Iwan Suyudhie Amri, Ambassador

Pakistani Embassy in Jakarta, Indonesia

Address: Jalan Mega Kuningan Barat, Block E.3.9, Kav. 5-8, Jakarta Selatan - 12950

Telephone: (+62-21) 5785-1680, (+62-21) 57851836-37 Fax: (+62) (21) 5785 1645 / 872 Email: [email protected], [email protected] Website: www.mofa.gov.pk/indonesia/ Head of Mission: Mr. Abdul Salik Khan, Ambassador

Consulate

Indonesian Consulate General in Pakistan

Address: E/1-5 Sharah-e-Iran Clifton, Karachi 75600 Telephone: (+92-21) 3587-4619, (+92-21) 3587-4623 Fax: (+9221) 3587-4483 Email: [email protected] Website: www.kemlu.go.id/karachi/ Head of Mission: Dempo Awang Yuddie, Consul General

SECTION 8

SOURCES 86

Data

Map of Indonesia: https://www.nationsonline.org/oneworld/map/indonesia_map.htm Wikipedia: https://en.wikipedia.org/wiki/Politics_of_Indonesia GAIKINDO: https://www.gaikindo.or.id/ ASEAN Automotive Federation: http://www.asean-autofed.com/ World Bank: https://data.worldbank.org ITC Trade Map: http://www.intracen.org/ CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/id.html BPS: https://www.bps.go.id/ BKPM: https://www.bkpm.go.id/ GAPKI – Indonesian Palm Oil Association: https://gapki.id/ USDA Foreign Agricultural Information Network: https://www.fas.usda.gov/

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