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Chairman address, John Wells
Australian governments join global push to use medicinal cannabis to treat chronically-ill patients, Isabelle Walker
Funding success: helping 24,000 Aussie kids, Benjamin Haslem
The social media election, Timothy Mantiri
Election 2016, Julie Sibraa
Brexit: What next for the EU? The view from Brussels,Nathalie Rubin-Delanchy
Trump taps the disenchantment, Isabelle Walker
Back to the future: Is it time for digital evangelists to take a cold shower? Benjamin Haslem
The Shell Issue 8
After many false dawns the economic sun may soon shine on Australia’s northern neighbou
Wells Haslem Account Director Kathy Lindsay lived and worked in Jakarta from 2010-16. She worked in PwC’s Energy, Utilities and Mining business.
With a growing middle class of around 50 million and half of its 250 million people under 30 years of age, our neighbour to the north, Indonesia, represents a huge opportunity for Australian business. The sectors expected to benefit from the higher disposable incomes of Jakarta’s young, middle class are health, leisure and tourism.
Australia’s two-way trade with Indonesia is worth about $16 billion a year, below the other much smaller ASEAN countries of Thailand and Malaysia, which generate about $20 billion each per annum, and one-tenth of our major trading partner, China.
There is room to grow the relationship, even though doing business in Indonesia can be a challenge.
The lack of infrastructure is the most-cited difficulty.
The roads in Jakarta are in gridlock from early morning to late at night and there are an incredible 4,000 additional motorbikes and 1,500 cars on the streets every day, according to the Jakarta police. The official metropolitan area has grown from 8.2 million people to over 30 million between 1970 and 2016.
And for the 10 million people within the city limits of Jakarta, only four per cent have access to a sewage drainage and treatment system. For the majority, household waste is disposed untreated.
Outside the capital there are poor roads, inadequate ports and a struggling electricity network.
Indonesia’s regulatory environment can also be intrusive and hard to navigate - the rules are often unclear and can change quickly. While labour costs are still low, wages are rising and labour laws are restrictive. For foreign expatriates, there are further restrictions on age, skills and experience.
Despite these challenges there is a great deal of opportunities for Australian businesses looking to do business in Indonesia.
A changing of the political guard and with it the political culture are reasons for optimism.
There is a lot enthusiasm for the new breed of government leaders – President Joko “Jokowi” Widodo, Jakarta Governor Basuki “Ahok” Tjahaja Purnama, Surabaya Mayor Tri Rismaharini and Bandung Mayor Ridwan Kamil – who claim a space for themselves outside the political elite.
Their emphasis is on down to earth leadership, building physical and social infrastructure and implementing pro-poor policies.
Jakarta’s Ahok is fast-tracking infrastructure projects, most notably a rail-based mass rapid transit system, cleaning rubbish from the streets and drains to mitigate flooding and subsidised health care and education for the poor. Mayor Tri has improved Surabaya’s green credentials, which has won it the ASEAN Environmentally Sustainable City Award 2012. Mayor Ridwan is championing Bandung’s technology and creativity and has also introduced better waste management.
Meanwhile, the National Government announced is most recent economic stimulus package in March, the 11th since September 2015, to boost Indonesia’s growth. President Jokowi is hoping to cut the high dwell time at Indonesian ports, which has caused losses of up to IDR 740 trillion (approx. A$74 billion) and drastically affected competitiveness due to high transportation and logistics costs. Indonesia has slipped 10 spots down the World Bank’s logistics performance index in 2016 to be ranked 63 out of 160 countries.
Previously stimulus packages have included deregulation, cheap loans and other support for Indonesian SMEs, tax incentives for investment and opening up more industries to foreigners.
A list of industries where foreign investment is restricted is updated every couple of years. This so-called “negative investment list” is designed to increase investment in Indonesia while protecting national strategic business as well as Indonesian SMEs. The latest list released in May removes the foreign ownership cap on 35 business. Sectors that benefit include e-commerce, health care, tourism, transportation and power generation, construction and installation.
Recent indications are that Indonesia’s economy is responding. Economic growth has been the strongest in 10 quarters in April-June lifting annual growth to 5.18 per cent. The Jakarta stock exchange composite index has risen 15 per cent in the past year.
Australian business should give serious consideration to investing in Indonesia but be aware that moments of optimism in the past have come to little.
Still, with a new breed of political leadership, perhaps this time the economic upswing will be sustained.
As a starting point, knowledge of the market, a good local partner, the ability to adapt to changing circumstances with speed but the patience to deal with the red tape will all be required to be successful.