As Indonesia's economic and political situation has improved in recent years it has gained a higher profile internationally and attracted more foreign investors and business. It now offers a much more attractive climate for foreign investment than it did a decade ago due to a number of factors.
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For a recent CNN feature on Indonesia, Click on the clip below:
Source: CNN
Economic Stability
Indonesia has withstood the global economic downturn better than most countries. A significant reason for this was the sweeping reform and restructuring that it's banking and financial sector went through after the Asian financial crisis in 1998. The nation's foreign exchange reserves have tripled in the past decade, national debt levels have been cut dramatically and historically high fuel subsidy costs have been lowered. The fact that 70% of GDP comes from domestic consumption means the economy is less dependent on exports than many other Asian economies.
Moody's gave the country a stable rating in January and the IMF upgraded its rating for the country/economy in its recent assessment in June 2009.
Improved Political Stability
On July 8th 2009, President Susilo Bambang Yudhoyono was reelected as president for a second 5 year term with an impressive 60.8% of the vote. He was the first president to be re-elected since the country's first direct presidential elections in 2004. This extends the new era of political and financial stability that begun with the first term.
In April 2009, the parliamentary elections returned President Susilo Bambang Yudhoyono's ruling Parti Demokrat party to power and increased their number of seats threefold. This means that they will no longer be as dependant on their coalition partners for support and can pursue more far reaching structural reforms which they had been unable to gain coalition support for in the past.
A decade of continuous expansion in Indonesia hasn't been seriously interrupted by six major terrorist bombings since October 2002 as the assaults have done little to harm consumer spending, which accounts for almost two-thirds of the economy. Fitch Ratings said an 'isolated incident' wouldn't impact the nation's credit outlook. The quick rebound in Indonesian equity markets and the rupiah since the recent bombings in Jakarta has underlined this belief.
Government Support - Pro Business
This government has been very pro business compared to its predecessors and has done much to encourage foreign direct investment and trade. Examples of government incentives include tax breaks and initiatives such as the free trade zone (FTZ) for Batam, Bintan and Karimun in the Riau Islands which are is 30 minutes from Singapore by ferry. Indonesia and Singapore have already signed a deal for considerable investment in the three islands.
Companies operating in the islands will no longer pay value-added tax (VAT), import duties and luxury tax, spurring hope that more foreign businesses will invest in the islands to tap low production costs. Another FTZ exists in Pulau Weh, Indonesia's most western island located strategically at the entry to the Malacca Straits.
Skilled Workforce and Low Labor Cost
Indonesia has a large and reasonably skilled labor pool for a developing country and the cost of labor is extremely low relative to most countries. Some relevant statistics include:
- Adult literacy 90.4 per cent
- Unemployment is currently 8.1%
Although Indonesia is better known for its skilled workforce in industries like furniture manufacturing and automobile assembly, it also has a skilled labor force in value added areas like IT where people can be employed at a fraction of the cost in other countries.
ZDNet Asia conducted an online survey between late 2007 and early 2008 to gain insights into Asia's IT workforce and salary trends. Some 3,267 respondents were polled from Indonesia, of which almost half were employed in small companies which had 99 or fewer employees.
Source: ZDNet Asia
* $1 equals approx 10,000 Indonesian Rupee (IDR)
Strategic Location
Indonesia is part of the Association of Southeast Asian Nations, or Asean, which has a free-trade agreement among its ten members and has also signed trade pacts with Australia, New Zealand and Japan. This gives manufacturers access to vast S.E. Asian markets while taking advantage of low production costs
