Indonesia – South Africa: Promoting South-South Trade and Investment
Pictured (l-r) Ambassador Sjahril Sabaruddin of Indonesia to South Africa,
Bayu Krisnamurthi, Vice Minister of Trade for Indonesia, Peter Verrijdt, President of the
Diplomatic and Executive Networking Centre and Gusmardi Bustami,
Director General of The Ministry of Trade for Indonesiaat the One-on-One Business Matching
Indonesia - South Africa Business Forum held in Durban South Africa.
Remarks by the Vice Minister of Trade, HE Bayu Krisnamurthi
The Republic of Indonesia
Business Forum, Durban, 13 April 2012
Excellency Ambassador of the Republic of Indonesia to South Africa
CEO’s and Business Representatives from Indonesia and South Africa
Distinguished Guests, Ladies and Gentlemen
I would like to commence by thanking all the parties involved in setting up this Business Forum. My visit to this vibrant city of Durban needs to be seen as part of an overall effort to strengthen economic relations between Indonesia and South Africa. Last year the Indonesian Trade Minister met with his counterpart South African Ministers in Pretoria. This year he assigned me to enhance the awareness of Indonesia further in Cape Town and Durban, two major cities of South Africa. I was also informed that the Second Ministerial Joint Trade Committee meeting between Indonesia and South Africa could possibly be held in Indonesia next month. Indonesia will also take part in the “Africa Big Seven 2012 Expo” held in Johannesburg this July. These strong G2G and B2B contacts underscore the fact that the Indonesian Government is deeply committed to substantially enhance its engagement with South Africa.
This time I have brought with me business delegates from various sectors. They represent key sectors not only in goods such as textile and garment, food & beverages, tyre manufacturer, but also services, namely services incidental to mining. We look forward to getting to know the South African Market to gain better knowledge of each other and work toward possible partnership. Providing full support to these companies meeting you today are Indonesian government officials representing not only the Ministry of Trade but also the Ministry of Foreign Affairs and the Indonesian Board of Investment.
Economic Landscape and South-South Cooperation.
As we meet here today there are a couple of significant facts worth our close look:
First, global financial crisis still casts a shadow over many countries. While we hope that the worst of the crisis is behind us, it is clear that the risks remain lie ahead. The pace of recovery is uneven across the globe.
Second. Strong growth is already evident in some countries, particularly emerging and developing economies. Countries like China and India have been leading the way. Indonesia has also managed to weather the crisis and is projected to grow at around 6% this year. South Africa, member of the BRICS countries, has also avoided a major economic crisis and signs of economic recovery have already been emerging. This strong growth in emerging and developing economies should serve as a reminder that there are other dynamic poles of growth in Asia, Africa and Latin America that need to be recognized. In short, the center of gravity in global development is shifting and developing nations are a force to be reckoned with today.
These facts make South-South cooperation more compelling. The need for increased Indonesia-South Africa trade and investment has therefore become urgent. The South African enterprises have ample opportunities to do direct trade and investment to expand into new markets of ASEAN, the rising economies of South East Asia of 600million population, by setting up production base in Indonesia. With the same token, there is a necessity for Indonesia private sector to pay more attention to the South Africa market since it provides a gateway to penetrate further to other parts of Africa through various trade agreements. We witness, for example, Bharti Airtel, the India mobile operator, has recently announced a new partnership with Samsung in 17 African countries. Another example is Bakrie Group, the Indonesian conglomerate, who has set up a joint venture to invest billions USD into Nigerian mining, gas and agriculture sectors over the next five years. Promoting Indonesia and South Africa trade and Foreign Direct Investment, therefore, should be high on the future agenda of South-South cooperation.
On trade, I have to say that our trade figure is far from reflecting potentials owned by our two countries. Globally, South Africa rank as Indonesia’s 23rd largest trading partner in 2010. But considering the fact that both countries are members of the G20 with South Africa’s GDP amounted to USD 548,3 billion and that of Indonesia’s reached USD1.1 trillion, our trade should be able to reach USD 16billion, 1 percent of our GDP combined, or eight-fold the size of existing trade.
Our trade structure is complementary. Indonesia’s major exports to South Africa include palm oil, natural rubber, automotive components, paper and paperboard, woven fabrics, footwear and chemical & chemical products. Major imports from South Africa are chemical wood pulp, cane or beet sugar, ferrous waste and scrap, soybeans, unwrought aluminum, and cotton. There is, however, considerable scope for increasing two-way trade and investment between both countries.
How to increase the two-way trade and investment between our two countries?
There is a sizable number of opportunities offered by Indonesia.
First, Indonesia has been blessed with robust and dynamic domestic market. Indonesia’s population of 240million is growing in purchasing power with the per capita income of US$3000. There is also an estimated 50 million people, which is classified as middle class in urban areas with their per capita income amounting to US$10 000.
Second, Indonesia has also been endowed by a demographic dividend. More than half of our population is below 30 years old. The ratio of productive population compared with dependents is still higher until the next 15 years.
Third, our young population is indicative of the type of dynamic domestic market one can find in any major city across the world, including the goods and services consumed by this age group – such as internet and mobile telephone, fashion, clothes and music.
Therefore, some industrial sectors with characteristics of retail consumer service and modern lifestyle will have positive trade and investment prospects in Indonesia, including property, health and wellness consumer goods, banking and insurance services, and business-related services. The telecommunications sectors, energy, transportation, mining and infrastructure would also remain the focus for growth this year. Let us not forget that Indonesia has advantages to become the leading production base in ASEAN countries which not only able to satisfy the large domestic demand but also to deliver goods and services to the region.
As for Indonesia, South Africa is the largest market in Sub-Saharan Africa in terms of purchasing power and given its strong influence over the region, the country is an attractive location for trade and investment. South Africa is also benefited from its proximity and access to several expanding Africa markets in the Southern African Development Community (SADC) and the South African Custom Union (SACU). These markets provide Indonesian enterprises with new outlets and business opportunities.
Despite its resilience and bright outlook, Indonesia, being the world’s largest archipelago, still faces several challenges to overcome. The country is in an urgent need of improving its competitiveness in several areas, particularly infrastructure and connectivity. These are among the areas in which Indonesia is still behind in comparison with other strong performers in the region. Nevertheless, I see these challenges can also become another great opportunity for both the South African and Indonesian business sector and let me tell you why.
Infrastructure has been dubbed as one of the most glaring constraints facing Indonesia. Indonesia is economically fragmented, with large strip of production and consumption centers isolated from one another. In order to address this challenge the Government of Indonesia has introduced a Master Plan for Acceleration and Expansion of Indonesia’s Economic Development, or MP3EI. The Master Plan seeks to expand and accelerate our economy at an average pace of at least 7 percent per year to reach USD 4 trillion in GDP and USD 15,000 per capita income by 2025. MP3EI also seeks to integrate the country and connect it to the global economy. It will guide investment into eight areas, subdivided further to 22 economic activities, all geographically concentrated along six economic corridors. The plan draws an economic map for Indonesia’s future. The premise is based on extra benefits that accrue from clustering. Each of the six corridors can grow its regional economy faster and thus lift national GDP if it specializes in economic activities in which it has comparative advantage. Sumatra island, for example, has been tapped as a production and processing center of natural resources; Java, a driver for industrialization and services; Kalimantan or Borneo, a production and processing center for mining and energy reserves; Sulawesi or Celebes, a production and processing center for agriculture, fisheries, plantations, and oil and gas; Bali and Nusa Tenggara, a gateway for tourism; and Papua and Maluku, a development center of food, fisheries, energy and mining.
Now, I would like to draw your attention on the following development that will ensure the MP3EI workable, First Tax Allowance. The Government has launched a new round of tax incentives aimed at boosting downstream investment, widening the floor for 129 business sectors to be eligible for the tax allowance. Sectors ranging from plantation, mining, real estate and pharmacy to food are seen as crucial to develop the under-invested downstream industry. The tax allowance will reduce taxable income to 30 percent of total investment carried over 6 years, accelerate depreciation and amortization, impose income tax of up to 10 percent for offshore taxpayers, and carry forward losses from five to 10 years.
Second is Tax holiday. The Government has also issued a regulation which will give five-to 10 year tax breaks in five industrial sectors – base metal, oil refining, petrochemicals, renewable energy, and telecommunications equipment – with an investment of at least Rp 1 trillion. Third, infrastructure spending. Indonesia only spends 3% of GDP for infrastructure. With the MP3EI Indonesia’s infrastructure development program for the next 5 years will cost approximately USD150-160 billion of which USD 50-60 billion will be supported through public funds. The remaining USD 90-100 billion will be coming from private participation under Private-Public-Partnership arrangements. Fourth, the issuance of the Land Law in December 2011 will further expedite infrastructure development. The new law will expedite road, port and power-plant construction projects that are so far impeded by land ownership issues. This certainly add up to abundant business opportunities. A lot of projects need to be developed in such areas and they offer some place for investors and businesses to come in and participate in the development process.
In order to expedite the infrastructure we are now undergoing legal process for early implementation of the Land Acquisition Law. Previously, the processes to acquire land for government infrastructure projects were often marred by conflicts between landowners, citizens and project developers, while the legal processes to settle such disputes in court could drag on for years. The new Law now addresses concerns pertinent to land acquisition.
What you see in Indonesia now is the making of a “New Indonesia”. A new Indonesia, which has put in place a set of democratic governance along with economic reforms, ensures market efficiency. Yes, we still have corruption, red tape and an uncertain legal environment as the main challenges for conducting business and investment in the country. But we have been breaking into a long tradition of corruption by implementing transparent and accountable governance. Put it in a 10-15 years perspective and you will find a democratic country of ensuring market efficiency and a conducive business climate.
In closing, let me reiterate my message that South Africans and Indonesians are strategic partners. The partnership between South Africa and Indonesia is unprecedented in the past. It is time to reinvigorate the substance of that partnership to benefit both. The opportunities beckon, I am here to prepare the ground. It is up for business enterprises and investors now to seize them.
I wish you well with your business matchings.