OpportunitiesandChallengesacrosstheIndonesiaInvestmentLandscape

Moekti P.Soejachmoen,PhDHeadofMandiri InstitutePT.BankMandiri,PerseroApril2018

EconomicPerformanceandOutlook

2

9

7.4

5.6

3.7 3.5 3.32.7 2.3 2.1 2.1 2 1.6 1.5 1.3 1.2 1.1 0.8 0.4

-0.6 -2

0

2

4

6

8

10

China India Indonesia S.Arabia Turkey Korea Australia Argentina Mexico S.Africa Brazil Russia Canada US Germany UK France Japan Italy

G20&BRICS

4.834.74 4.78

5.15

4.94

5.21

5.034.94

5.01 5.01 5.06

5.19

4.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

IndonesiaEconomicPerformancein2017Successfullymaintainthegrowthperformanceandperformsbetterthanmanyotheremergingeconomies

2015YoY:4.88

2016YoY:5.03

2017YoY:5.07

Source:CEIC

3

6.7 6.96.6

6.4

6.0

6.5

7.0

2016

2017

2018F

2019F

8.27.1 7.4 7.8

6.07.08.09.0

2016

2017

2018F

2019F

-3.46

-3.46

1.9 2.1

-7.0

-2.0

3.0

2016

2017

2018F

2019F

3.2 3.2

3.6 3.5

3.0

3.5

4.0

2016

2017

2018F

2019F

5.0 5.1

5.3 5.3

4.8

5.0

5.2

5.4

2016

2017

2018

F

2019

F

1.5

2.32.7 2.5

1.0

2.0

3.0

2016

2017

2018F

2019F

0.91.6

1.2 0.9

0.0

1.0

2.0

2016

2017

2018F

2019F

1.8 1.82.2 2.0

1.01.52.02.5

2016

2017

2018F

2019F

1.9 1.81.5 1.5

1.0

1.5

2.0

2016

2017

2018

F

2019

F

1.92.2 2.4

1.9

1.0

1.5

2.0

2.5

2016

2017

2018

F

2019

F

AdvancedEconomies

EmergingEconomies

Pickupintheglobalgrowthhasbeenbroadbased,inadvancedandemergingeconomiesStrongermomentumin2017isexpectedtocarryinto2018&2019

EmergingeconomiesinAsiaareexpectedtogrowbroadlyatthesamepaceasin2017,whilegrowthinChinaisexpectedtomoderategradually

USeconomyhasbeengrowingatastrongerpacethanexpected,thetaxreformisanticipatedtostimulateneartermactivityofUSgrowth

Source:CEIC4

FutureGlobalEconomicTrends

PopulisminEU(Brexit,Euroceptics)

RiseofAsiaasanEconomicPowerhouse

ProtectionisminUSA(InwardLookingPolicies)

RiseofMillennial RiseofMachines

5

16,215

19,475

24,565

28,618 28,530 29,276 28,964

32,240

6,6698,666

9,821

12,25013,158 13,404

16,253

19,336

2010 2011 2012 2013 2014 2015 2016 2017

USD

Million

ForeignDirectInvestment DomesticDirectInvestment

TotalInvestmentcontinuedtoincreasewithhighergrowthin2017ForeignDirectInvestmentshowed11%increasedin2017comparedto2016

6

MacroIndicatorsForecasts

2012 2013 2014 2015 2016 2017 2018F

RealGDP(%) 6.0 5.6 5.0 4.8 5.0 5.07 5.3

CPIinflation(%,eop) 3.7 8.1 8.4 3.4 3.0 3.61 3.61

CADtoGDP(%) -2.8 -3.2 -3.1 -2.0 -1.9 -1.7 -2.0

Rp/USD(eop) 9,670 12,189 12,440 13,795 13,436 13,568 13,598

7-dayreporate - - - - 4.75 4.25 4.25

Source:CEIC,Mandiri GroupForecast7

OpportunitiesacrossInvestmentLandscape

8

Source:MinisterofFinance’sPresentationatMandiri InvestmentForum2018

IndonesianGovernmentisverycommittedtoimplementstructuralreformsSomeofinternationallyrecognizedachievementsinimplementingit

9

54 55 54

4446

50

38

3437

41

36

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

129122 126 129

116 120 120

106

91

72

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CompetitivenessIndexRank

EaseofDoingBusinessRank

Fintech Outlook2018Peertopeerlending(P2PL)andpaymentfintechs willcontinuetogrowin2018

Fourth largest population and the economy continues to grow, expected to

reach 5.3% next year, slightly higher than ASEAN-5 (5.2%) and also higher than global economic growth (3.7%).

Economic condition is favorable

Financial access is still low

59% of SMEs have an account at a formal financial institution, 26% of

SMEs have outstanding loan. 15% of adult population use digital payment,

much lower than the Asia Pacific average (41%).

Growing e-commerce drive an increase of

P2PL and payment

Funds channeled through P2PL platforms have reached

IDR 1.9 trillion (about 15x higher than last year). 99% of

fintech transaction value in 2017 comes from e-

commerce transactions payment (Statista)

Regional head elections will

encourage the growth of P2PL

and payment MSMEs’ campaign materials providers will need more loans. It will also encourage e-commerce

transactions, therefore will increase the payment activities.

Affordable smartphone price

drives usage of smartphoneIn 2018, smartphone users

are expected to reach 26.3% of the total population, up

from this year's 23.7%.

Development of fintech is fully

supported by the government

Fintechs will help to increase fin inclusion,

encourage the reduction of costs in economic

activities, job creation, understand behavior, and

data optimization.

2

3

45

61

4.61 5.78 7.06 8.59 10.37

2015 2016 2017 2018F 2019F

(USDBn)

E-CommerceOutlook2018PromisingDemandSize

Retail e-Commerce sales in Indonesia still thrives

Growing digital buyers in Indonesia

Relatively current low internet user penetration in Indonesia

More middle-end smartphones available

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21

2018’s Growth:

21.8%

2018’s Growth:

21.8%

22.20 24.70 28.20 31.70 35.40

2015 2016 2017 2018F 2019F

(millionpeople)

82%1

58% 71%3

67% 51%

SEA avg: 53%

GLOBAL avg: 50%

Smartphone Class Q2 2015 Q2 2016 Q2 2017

Ultra High End (>USD 600) 2% 3% 1%

High End (USD 400 - USD 600) 1% 1% 3%

Mid Range (USD 200 - USD 400) 9% 13% 28%

Low End (USD 100 - USD 200) 33% 40% 43%

Ultra Low End (< USD 100) 56% 43% 26%

Indonesia Smartphone Market Share

Source:Statista,IDC,WeAreSocial,Hootsuite

1.4%

3.1%

3.9%

4.4%

2.2%

Shareoftotalretail

sales

12

E-CommerceOutlook2018Fiercecompetition

Battle of big players such as Bukalapakand Tokopedia still continues

Clash of the Titans

Brick and mortar goes

digital

The diversification of retail channel through digital platform has become strategy of conventional retail to sustain their business

Race in digital payment for

obtaining larger consumer database

Consumer database is valuable resource for product

development

Suitable tax policy is critical in fostering

E-Commerce business

Tax policy should guarantee level of playing field in E-Commerce business and will not limit the development of E-commerce

More collaboration in digital ecosystem

P2P Lending goes to finance E-Commerce merchants

Niche market

New comer must offer different strategy and have unique features to obtain niche market

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4

56

1

2

DigitalEconomyOutlook2018Optimizebenefitandmitigaterisks

Impact on job creation

SMEs should benefit from Fintechcompetition

Consumers protection and supportive

regulatory framework

Domestic industry promotion

• Fintech (P2P lending) helps SMEs which are unbanked and underbanked to get financed and runs their business.

• In 2018, we expect to see more entrants in P2P lending business as several companies are waiting for their permit to be approved by regulator. Given this point, SMEs should have more financing source to develop their business.

Source:MandiriInstitute

• SMEs absorb more than 90% of national labor force as this sector has more labor intensive nature. The role of Fintech in reaching out SMEs will also affect job creation generated by SMEs business expansion.

• New Fintechestablishment also creates employment in digital business such as data scientist, digital marketing and software programming

• Creative industry such as fashion and handy crafts has very good opportunity to promote their products through E-Commerce platform.

• The upcoming package of regulation should guarantee consumer protection particularly in fraud anticipation.

• Correspondingly, regulator need to be precise and careful in designing regulation in order to maintain the pace of digital business as well as mitigate its business risks.

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IndustrialRevolution4.0isagamechangerforIndonesiaeconomyImplicationofIndonesianeconomy/industryenvironmentforthe4IR

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Indonesiafallsbehindglobalpeersintechnologyinvestment

Source:ATKerney,2017 16

ProductivitypercostinIndonesiaisflattening;weakeningIndonesia’spositionintheglobalcompetition

Source:ATKerney,2017 17

Source:ATKerney,2017

IndonesiaisshowingthelowesttradeflowinASEANwhileshrinkingnetexport

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Sectorprioritizationof4IRfocusesongrowthdrivenbynetexport,withpositiveimpactonjobs

Source:ATKerney,2017 19

Source:ATKerney,2017

5sectorswereselectedfor4th IndustrialRevolutionimplementationprioritysectors

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ChallengesacrossInvestmentLandscape

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2018LocalElections 2019Legislative andPresidentialElections

• 171elections:• 17provinces• 39cities/municipals• 115 regencies/districts

• 574pairsofcandidates

• Officetobefilled:• 1presidency• 575 HRmembers• 132DPDmembers• >190,000localHRmembers

(for548localHR)

• >160 millionvoters • >195millionvoters• >480,000polling stationsacross

17,000islands• 4millionpollingstationofficials• 700millionballots,2,450ballot

designs

• June27,2018 • April 2019(thepreparationprocesshasstartedsinceNovember2017

Indonesiawillhavesimultaneouslocalelectionsin2018andlegislativeandpresidentialelectionsin2019

Source:Djayadi Hanan’s PresentationatMandiri InvestmentForum2018

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IndonesiaPoliticalCalendarin2018

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Indonesialackskeydigitalinfrastructuretoimplement4IR

FiberOptic

DataCenter/Cloud

5G

25

Indonesiastillneedstosimplifyindustrialpolicyandregulations

Needtightercoordination

Conclusion

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v ToimproveeconomicgrowthinIndonesia,industrializationespecially4IRisneeded,whichinturnneedslotsofinvestmentbothdomesticandforeigndirectinvestment

v Governmentiscommittedtocontinuouslyandconsistentlyimproveitsinvestmentclimatetocreateagoodandstableenvironmentforbusinesstothriveandprosper

v Indonesiaoffersapromisingfutureforbusiness.Donotwaittoolong.InvestinIndonesiaassoonaspossible

Conclusion:

ThankYou

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