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