FKP Indonesia-India Investment Cooperation

8/11/2019 FKP Indonesia-India Investment Cooperation

1/25

INDONESIA-INDIA

INVESTMENT COOPERATION:

PROSPECTS ANDCHALLENGES

Teddy Lesmana

Economic Research Center

The Indonesian Institute of Sciences

Forum Kajian Pembangunan

Media Center - LIPI, Gedung Sasana Widya Sarwono lantai 1, JlJenderal Gatot Soebroto 10, Jakarta Selatan 12710


2/25

Outline

Introduction

India Investment Opportunities

Indonesia InvestmentOpportunities

ChallengesRecommendation.


3/25


4/25


5/25

ey ea ures o n a sattractiveness

India was the fourth-largest recipient of FDI in terms of projects started in 2012, and interms of value, it accounted for 5.5% of global FDI. Although the number of jobs declinedslightly in 2012 (due to a drop in industrial projects) India still accounts for 9.4% of jobscreated by FDI around the world.

Investors across the world recognize Indias FDI potential. Between 2007 and 2012, theUS invested the most in India, with 30.2% of projects, followed by Japan with 10.4%.

Seven of the top 10 investors in India during 2007-12 were from Western Europe, led bythe UK and followed by Germany and France. India's pool of business partners is growing,with a striking 123.3% rise in the number of projects from the Middle East in 2012, mostlyin financial services. Southeast Asian countries are also expanding their investment in thecountry, with projects mainly originating from Singapore, Malaysia and Thailand.

Actual FDI performance and our survey results both show that metropolitan cities, such asMumbai, Bengaluru, the National Capital Region (NCR), Chennai and Pune, remain keyattractions. On the other hand, there is a significant awareness gap about tier-II and tier-IIIIndian cities, which also offer opportunities for investment. Forty-three percent ofrespondents could not think of any city other than the main metropolitan areas. Amongthose who responded, Ahmedabad was the preferred choice in emerging cities, followedby Jaipur, Chandigarh, Coimbatore and Surat.

Source: http://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-survey
http://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-surveyhttp://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-survey


6/25


7/25


8/25


9/25

Indias trade with Indonesia (US$Millions)


10/25


11/25

Why Indonesia Matters

A polity transformed within a generation,Indonesia is now playing a role commensuratewith its status as the fourth largest country, a

nation with the largest Muslim population, athriving democracy strategically located in theIndian Ocean and Indo-Pacific region. It is acountry that seeks to lead the ASEAN without

dominating it, demonstrating an instinct for abalanced relationship with other Asia-Pacificpowers such as the US, China, India, Japan,

Australia and South Korea.


12/25

Indonesias Economy in Brief

Growth in gross domestic product (GDP) moderated to5.8% in 2013 from an average of 6.3% over the previous3 years.

Growth in fixed investment slowed to 4.7% in 2013 afterstrong increases of about 9% annually in 2010-2012.

Private consumption remained robust in 2013,expanding by 5.3% and contributing half of the growth inGDP on the expenditure side.

Government consumption grew by 4.9%, which signaledsome improvement in budget execution.


13/25

Selected Indonesia Economic

Indicator

Source: Asian Development Outlook (ADO) 2014; ADB estimates.

Selected Economic Indicators (%) - Indonesia 2014 2015

GDP Growth 5.7 6.0

Inflation 5.7 4.8

Current Account Balance (share of GDP) -2.9 -2.0


14/25

Indonesia Investment Priority

Sectors

The Government of Indonesia sets its investmentpriority sectors every five years. Under the 2010-2014 National Mid-Term Development Plan, thepriority sectors are:

lnfrastructure/Transportation

Oil, and Gas

Power

Mining Telecommunications

Manufacturing and Agriculture


15/25

Potential Projects by sectors

No Sector /Sub-sector Quantity Project Cost

(C$ Billion)

1 Air Transportation 7 1.52

2 Land Transportation 2 0.27

3 Marine Transportation 12 2.83

4 Railways 9 9.33

5 Toll Road 35 26.23

6 Water Resources - -

7 Water Supply 24 1.81

8 Solid Waste and Sanitation 6 0.27

9 Telecommunication - -

10 Power 5 3.95

11 Oil and Gas - -

Total 100 46.21


16/25

The Government of Indonesia is consistently sustaining themomentum of Public Private Partnership (PPP) developmentin order to accelerate the provision of infrastructure. Thefollowing projects summary are adopted from The PPP Book2013, which is primarily intended to inform potential

investors, lenders and contractors about the opportunitiesavailable in Indonesia to become a private partner in a PPPProject. The PPP Book is therefore the presentation of PPPopportunities in Indonesia to the world.

The PPP Book now consists of 27 projects, arranged in three

categories: potential, prospective, and ready for offer PPPs.In this 2013 edition there are 14 prospective projects and 13potential projects. To date, 21 projects listed in previousbooks have already gone to tender.
http://www.bkpm.go.id/img/file/PPP%20BOOK%202013-compact.pdfhttp://www.bkpm.go.id/img/file/PPP%20BOOK%202013-compact.pdfhttp://www.bkpm.go.id/img/file/PPP%20BOOK%202013-compact.pdfhttp://www.bkpm.go.id/img/file/PPP%20BOOK%202013-compact.pdf


17/25

Public-Private PartnershipProjects


18/25

Challenges in Investment

(India) Political Challenge: The support of the political structure has to be

there towards the investing countries abroad. This can be workedout when foreign investorsput forward their persuasionfor increasing FDI capitalin various sectors like banking, andinsurance.

Federal Challenge: Very important among the major challengesfacing larger FDI, is the need to speed up the implementation ofpolicies, rules, and regulations. The vital part is to keepthe implementation of policiesin all the states of India at par.

Resource challenge: India is known to have huge amounts ofresources. There is manpower and significant availability of fixedand working capital. At the same time, there are someunderexploited or unexploited resources.

Equity challenge: India is definitely developing in a much fasterpace now than before but in spite of that it can be identified thatdevelopments have taken place unevenly.


19/25

Challenges in Investment

(Indonesia)

Indonesia is faced by the less developed ofinfrastructure. Road, electricity supply, harbor, and anyother infrastructures, which support the economyactivities.

Harmonization of national and regional implementation.

Investment procedure is still long enough compared tocountries.

Insufficient supply of energy required for industrialactivities.

Regulations that impede investment climate.

The distribution of investment is still concentrated in

Java and less optimal implementation of technologytransfer.


20/25

Prospects

India-Indonesia Comprehensive EconomicCooperation Arrangement (India-IndonesiaCECA)

The Indian government is keen to step upinvestment in Indonesia, especially in the food,automotive, manufacturing and infrastructure

Indonesia is keen on attracting Indianinvestments in manufacturing and value addedprocessing than just in exploitation of itsnatural resources.


21/25

Prospects

In a partial-equilibrium framework, the projection-estimates of Indias exports to Indonesia arein therange of US$. 1.7 billion - US$ 7.8 billion by the year2020. The estimates of exports from Indonesia to Indiawould be in the range of US$ 3.4 billion - US$ 9.7 billion

by 2020. Welfare gains of the proposed CECA on trade in goods

have been estimated using a multi-sector computablegeneral equilibrium (CGE) model. According to which,the welfare gains accruing to India could be to the tune

of 1.0 percent of GDP and to Indonesia to the extent of1.4 percent of GDP under the scenario of full tariffliberalization along with setting in place the tradefacilitating infrastructure.

Source:

Report of the Joint Study Group on the Feasibility of India-Indonesia Comprehensive Economic

Cooperation Agreement (CECA)


22/25

Conclusion and

Recommendation In the economic domain, Indias trade deficit with Indonesia is

the tenth largest it has with any country. Indonesianinvestment in India still remains very low, while Indian importsfrom Indonesia still focus mainly on extractive industries likecoal and palm oil.

Tourism is limited because there are still no direct flightsbetween the two countries. While a joint studygroup recommended that India and Indonesia negotiate aComprehensive Economic Cooperation Agreement as earlyas September 2009, leaders are still at the exploratory stagesof negotiations four years later.

As both existing and new ideas are implemented over thenext few years, close attention will have to be paid to not justboosting the level of bilateral trade and investment, but alsoresolving issues regarding the distribution and content ofthese flows.


23/25

Conclusion and

Recommendation Improve government procedures and the ease of doing

business. Better governance will reduce transaction costs,helping a wide range of activities, including growth in exports.

Setting up infrastructure and connectivity between two countries.

Technological transfer and mutual investment cooperation.

Setting up bilateral Trade Negotiations Committee (TNC). Commencing negotiations on trade in goods, trade in services,

investment and other

areas of cooperation as a single undertaking by TNC with aview to establishing a

Comprehensive Economic Cooperation Agreement (CECA).


24/25

Conclusion and

Recommendation


25/25

Thank You

Documents

FKP Indonesia-India Investment Cooperation