Indonesia's Astra Pins Hopes on Inexpensive Cars

  From Wall Street Journal

  Feb 14, 2013

PT Astra International plans to continue dominating Indonesia's booming car and motorcycle markets by spending billions of dollars on expansion and becoming the first auto maker to sell a car priced to reach the country's emerging middle class.

Astra controls 54% of the passenger-car market through joint ventures with Japan's Toyota Motor Corp., Daihatsu Motor Co. and Isuzu Motor Ltd., and holds 58% of the motorcycle-and-scooter market through a joint venture with Honda Motor Co. 

To expand the pool of Indonesians who can afford a car, Astra plans next quarter to introduce models with sticker prices as low as $8,000 through its joint ventures with Toyota and Daihatsu. Currently, the least-expensive passenger cars in Indonesia sell for at least $12,000.

"We will be the first offering affordable vehicles," he said. "This year, [auto-sales growth] should at the very least be flat, provided this new car is launched."

Astra and its Japanese partners are proceeding with more than $2 billion in new investment to boost capacity and expand their reach to Indonesia's far-flung islands. "We don't have any intentions of slowing down whatsoever," Mr. Sugiarto said.

Less than 5% of Indonesia's 240 million people own cars. As lower prices and strong economic growth put a car within reach of more Indonesians, annual sales could eventually hit three million vehicles. While China's market is five times that size, Indonesia's market is expected to expand faster.

Mr. Sugiarto said the low-cost car could be introduced as early as April. Astra is waiting for the government to decide the tax rate on the car. Mr. Sugiarto said he expected the vehicle will get special tax treatment under the green-car program, because of its high fuel efficiency. The car, with the names Toyota Agya and Daihatsu Ayla, will go more than twice as far on a liter of gasoline as Indonesia's most popular current vehicles, Mr. Sugiarto said.

Other auto makers, including India's Tata and Japan's Nissan Motor Co., are scheduled to roll out their own inexpensive, fuel-efficient models in Indonesia, but not until later, said Michael Dunne, president of Car Keys, a Jakarta-based consulting firm.

Even in this new market segment, auto makers will find it challenging to compete with Toyota and Daihatsu and their national network of more than 1,700 sales and service outlets. "They have done a very good job of building a moat around their business," Mr. Dunne said. "And they are extremely price competitive."

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Indonesia launches trade policies to lure Taiwanese investors

From Focus Taiwan

Feb 16, 2013

Indonesia has adopted a series of incentives in its trade policies to create favorable conditions for Taiwanese businesses to invest there, an Indonesian official said Friday.

The policies introduced to encourage investment include a 10-year preferential tax treatment offer and tax subsidies for 129 industries, Indonesian Minister of Trade Gita Wirjawan said during a press briefing in Jakarta.

Gita said there are vast business opportunities in Indonesia's rich natural resources and that the introduction of many of the country's trade, investment and financial policies was designed to pave the way for investors seeking to do business there.

Gita said the preferential trade policies and extensive natural resources can create favorable investment conditions for both domestic and foreign investors.

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Uniqlo Taps Indonesia as Billionaire Yanai Seeks Overseas Growth

From Bloomberg

Feb 13, 2013

Fast Retailing Co., the apparel retailer headed by Japan’s richest man, will open its first Uniqlo branded store in Indonesia by June and plans to add 10 outlets in three years to tap an expanding middle class.

The new Jakarta store will be among Uniqlo’s five largest in Asia after South Korea, Taiwan, Hong Kong and Singapore, Naoki Otoma, Fast Retailing’s group executive vice president, said in an interview in Jakarta today.

The casual clothing maker, led by billionaire President Tadashi Yanai, has expanded outside Japan to reduce reliance on its home market. It joins other consumer brands including Apple Inc. in seeking growth in Southeast Asia’s largest economy, which has expanded more than 6 percent for nine quarters.

With Indonesia’s economy steadily expanding “we’re a bit late to enter this market,” Otoma said.

Investment climbed 18.7 percent to 83.3 trillion rupiah ($8.6 billion) in the last quarter from a year earlier, M. Chatib Basri, chairman of nation’s Investment Coordinating Board, said last month. Apple Inc. has been granted approval to open its first store in the country, Basri said.

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Indonesia's Big Banks Lead the World in Profit

From Business Week

Feb 14, 2013

The lime-green Yamaha Mio motorbike that Suryadi bought in 2011 to commute to his job pumping gas in Jakarta would have cost 11.8 million rupiah ($1,220) had he bought it outright. Instead he financed the purchase with a loan at 16 percent interest. Now the 44-year-old father of three is making monthly payments to Bank Danamon Indonesia (BDMN) that eat up about one-fifth of his salary. He’ll end up paying 46 percent more than the cost of the bike by the time he retires the loan. “I don’t have the money to pay in cash,” says Suryadi, who like many Indonesians goes by one name. “Paying in installments is all I can afford.”

Amid growth that the Organisation for Economic Co-operation and Development projects will average 6.4 percent during the next four years, cash-strapped borrowers like Suryadi have helped make Indonesian lenders the most profitable among the 20 biggest economies, according to data compiled by Bloomberg. The average return on equity is 23 percent for the five banks with a market value of more than $5 billion, the data show. That’s greater than the average 21 percent returns at similar-size banks in China and more than double the 9 percent in the U.S. The Indonesian banks’ impressive financial performance is built on loans with an average interest rate of 12 percent—and deposit rates that average 4.6 percent interest, according to Bank Indonesia, the country’s central bank. “There’s plenty of demand for credit but limited supply,” says Ken Timsit, a Jakarta-based partner and managing director at Boston Consulting Group.

Lenders’ profits in the world’s 16th-largest economy might have been even higher if Indonesian banks weren’t also among the most inefficient. The nation’s biggest lenders spend as much as 4 percent of their total assets on operating expenses like maintaining branch networks, compared with 2 percent in Malaysia and 1 percent in Singapore, says Timsit. Alexander Chia, a Kuala Lumpur-based analyst at RHB Capital, blames Indonesia’s geography: More than two-thirds of the archipelago’s 242 million people are spread throughout rural areas on its 6,000 inhabited islands.

Halim Alamsyah, a deputy governor of Bank of Indonesia, says he expects loans to increase 23 percent this year. There’s plenty of room for growth: As profitable as Indonesia’s banks are, they lend to only 28 percent of the population, or about 67 million people, according to World Bank data. Suryadi, the gas station attendant, says he’s saving to build a house that may cost about 50 million rupiah and, he says, “I would like to borrow some money.”

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From Brussels With Love: 5 Reasons Why Europeans Adore Indonesia

From the Jakarta Globe

Feb 14, 2013

This is the fifth Valentine’s Day I have spent in Indonesia. So I have been thinking about five things which I, and other Europeans, love about this marvelous country.

First, Europeans love Indonesian people. I am lucky to have made many great friends in this country. Indonesians are famous for their smiles and are usually very polite. But I also really like it when Indonesians, as they often do, tell me frankly what they really think. I have particularly enjoyed my visits to Indonesian universities and the debates I have had with young students there. Students are articulate and fearless in expressing their opinions. If they disagree with me, they will say so. I find this very refreshing. 

European companies also love the energy, skills and hard work of Indonesia’s people, which is why more than a million Indonesian people are employed at some 1,000 firms from Europe which have invested in this country. 

Second, Europeans love the sheer diversity of Indonesia. The different customs and languages of peoples like the Batak and Minangkabau in Sumatra, the ancient traditions in Java, the customs in the Toraja region of Sulawesi and the Papuan highlands are fascinating. It is truly remarkable that Indonesia’s founding fathers managed to shape this diversity into a coherent whole. 

Both the European Union and Indonesia have made huge progress, however, in unifying many different peoples and traditions behind a common purpose and working for the welfare and security of all, and as in any relationship we continue to learn from each other. 

Third, Europeans love Indonesian products. Many of us have become too fond of Indonesia’s delicious food, as our expanding waistlines show. 

But it is not just Indonesian food which Europeans love. Through the difficult global economic environment of the last five years, Indonesia’s exports to the European Union have continued to hold up strongly across many sectors, including food but also manufactured goods, timber, palm oil and other commodities. Exports to the European Union totaled 14.7 billion euros ($19.8 billion) in 2012, well above the levels seen before the global crisis hit in 2007. And Indonesia maintained a strong trade surplus of 3.2 billion euros with the European Union. 

Fourth, Europeans love Indonesia’s landscapes. The majestic wealth of Indonesia’s natural heritage is truly breathtaking. Java’s volcanoes, the forests of Kalimantan, the coral reefs throughout the archipelago are just the beginning of a endless wonders. It has been a pleasure for me to visit some of them during my time here. It has also been a pleasure to see how President Susilo Bambang Yudhoyono’s government has stepped up Indonesia’s efforts to tackle climate change and deforestation. 

Finally, and on a more personal note, I love Indonesia’s golf courses. More are being developed all the time, and I hope to try out a few more of them before I leave this country. 

I have been immensely fortunate to experience some of the attractions of Indonesia over the last five years. As links like these grow, I have no doubt that it will lead more Europeans to fall in love with Indonesia and its people. 

Julian Wilson is the EU ambassador to Indonesia.

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Indonesian Economy to Reach $2 Trillion by 2018

From Times Union

Feb 15, 2013

Indonesia is the large archipelago located between Southeast Asia and Australia. Indonesia’s GDP grew at a CAGR of 5.6% for a total of $890.67 billion at current prices in 2012. The country is recognized for its strong economic growth, prudent fiscal management, and a sound macroeconomic policy framework in recent years. Lucintel estimates the economy of Indonesia would reach $2 trillion by 2018. The country has a risk rating of BBB by different credit rating agencies.

Lucintel's study encompasses the major drivers. Indonesia has low dependence on foreign trade. The major source of domestic consumption in the country is its burgeoning middle class. This factor insulates Indonesia from being dependent on exports and become vulnerable to economic risks.

Indonesia ranks among the more stable economies of the Asia Pacific region. The country has an advantageous position in terms of its young population. The level of education plays a vital role in the development of better quality human resources in the country. In Indonesia, the national literacy rate stands at 92% and there is approximately 39% enrollment in tertiary education, which is ample and indicates the quality of higher education.

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POSCO to lift Indonesia investment to $11 billion over next 5 years: Jakarta

From Reuters
Oct 19, 2012

South Korean steelmaker POSCO will almost double its investment in Indonesia to $11 billion over the next five years, from $6 billion currently, Chief Economics Minister Hatta Rajasa said on Friday.

The world's fourth-biggest steelmaker, already has a multi-billion dollar joint venture with Indonesian state-owned PT Krakatau Steel, the country's biggest steel producer.

Earlier this year, the South Korean firm's affiliate POSCO Engineering & Construction, formed a consortium to build two 300-megawatt power plants on Indonesia's Sumatra island, worth around $1 billion.

A POSCO spokesman in Seoul said the South Korean firm has yet to make detailed investment commitments in Indonesia, and noted other partners would jointly invest in any projects.

Foreign direct investment in Indonesia stayed strong in the second quarter, showing the G20 member remained a magnet in a troubled global economy and that changes in mining ownership rules are not cutting investor appetite.

The country got a boost at the end of last year when Fitch Ratings upgraded it to investment grade sovereign status on a par with India. But Europe's debt woes and a series of Indonesian government moves to limit foreign ownership have unnerved investors.

New investment is key to achieving the country's ambitious target of becoming a top 10 global economy by 2025 by selling more finished products rather than simply exporting raw materials, while improving its creaky infrastructure to achieve President Susilo Bambang Yudhoyono's target of 7 percent annual economic growth.

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Indonesia eyes preferential trade agreement to boost trade with SA

From Business Day
Oct 19, 2012

AMID its push to diversify exports, Indonesia expects to seal a preferential trade agreement with South Africa, one of the fastest-growing markets in Africa.

Indonesia planned to conduct a preliminary study to assess areas of mutual needs in both countries and focus on those that would benefit the most from increased trade, the Indonesian trade minister, Gita Wirjawan, said in Jakarta this week.

"We have to clearly identify what we can offer each other and find out what is hampering trade on these products, then determine our moves. This is the necessary process to prepare for an agreement," Mr Gita said after a second joint trade committee meeting which discussed, among other things, market access and sectoral co-operation.

The study was due to begin next year with completion set for six months to a year thereafter, he said.

Trade between Indonesia and South Africa expanded 78.93% last year to $2.14bn from a year earlier. Indonesia’s exports rose 111% last year to $1.43bn, while imports surged 36.62% to $705m.

South Africa ranks 23rd as an export destination for Indonesian firms. Indonesia exports palm oil and its derivatives, rubber, vehicles and paper, while importing chemical wood pulp, ferrous waste and scrap, sugar cane, sweeteners and cotton.

The trade ministry’s international trade co-operation director-general, Iman Pambagyo, said the preferential trade agreement was needed to gain wider market access for local goods because, at present, local manufacturers were struggling with South Africa’s high import tariffs of more than 10%.

Indonesian manufacturers said that sometimes the import tariff stood at 35%, making their products far less competitive in the South African market.

South Africa’s Trade and Industry Minister Rob Davies said that before accepting Indonesia’s invitation to sign a preferential trade agreement, his country would need to consult other members of the South African Customs Union (Sacu), such as Botswana and Swaziland.

"So, we cannot commit to such an agreement already," he said, but he added that South Africa was also planning to assess complementarity between the two countries next year.

Mr Davies acknowledged that Indonesia was one of the world’s most dynamic markets with huge potential, which South Africa identified as a key destination for export diversification and investment.

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Indonesia, Philippines Face Hurdles in Gaining Investment Grade - S&P

From Wall Street Journal
Oct 19, 2012

Standard & Poor's Ratings Services is on the threshold of raising the credit ratings for Indonesia and the Philippines to investment grade, but the ratings firm said the upgrades may take some time because the countries need to implement further reforms.

S&P rates both Indonesia and the Philippines at BB-plus, just one notch below investment grade. It affirmed Indonesia at that level in April with a positive outlook and raised the Philippines to that rating in July with a stable outlook.

"The positive outlook on Indonesia recognizes ongoing improvement in the government's balance sheet and the country's income metrics. A modest improvement in the country's political and policy dynamics--combined with Indonesia's other credit attributes--could lead to an upgrade," said S&P credit analyst Agost Benard in a statement.

Indonesia is already at investment grade by Fitch Ratings and Moody's Investor Service reckoning, while the Philippines is a notch below the coveted rating in Fitch's standard and two notches below that by Moody's assessment.

S&P said that aside from the lack of policy initiatives to promote long-term growth during President Susilo Bambang Yudhoyono's second term that started in 2009 and a slew of measures or policy proposals that appear to raise roadblocks for foreign investors, the Indonesian government has also abandoned a planned electricity tariff increase and been unable to cut fuel subsidies in the face of rising oil prices. A widening trade deficit only added to the less favorable view, it added.

The Indonesian government has said it would continue efforts to reduce energy subsidies, which weigh heavily on its budget deficit and were cited by S&P in April when it decided to affirm Indonesia at BB-plus instead of raising it to investment grade. Analysts, however, have said that there will continue to be strong political opposition to increase prices for subsidized fuel after a plan to do so in March triggered violent street protests.

For the Philippines, Finance Secretary Cesar Purisima has often complained that credit rating firms are behind the curve, noting that financial markets already rate Philippine debt at least two notches above investment grade.

"Our higher appraisal of the government's fiscal stance came in addition to the ongoing strengthening of external liquidity indicators, long a rating strength for the Philippines, the report said.

It also pointed to the Philippines' other strengths: remittances from a well-diversified overseas labor force, a fast-expanding business process outsourcing industry, and a vibrant goods trade. It said the surpluses have proven resilient during the period of global downturn.

But while fiscal management is a rating strength for Indonesia, S&P pointed out as a rating constraint the Philippines' weak fiscal profile and its high interest burden on public debt due to a narrow revenue base and the large portion of expensive commercial debt.

"For both sovereigns, though, their low per capita income levels remain a rating constraint. The wealth levels in Indonesia and the Philippines imply a low revenue base for the government to draw on, significant human and physical capital shortcomings, and hence less fiscal and political flexibility to modify policy to avoid default in the event of adverse economic developments," it said.

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Etihad Airways signs code share deal with Indonesian airline

From Al Arabiya
Oct 19, 2012

Abu Dhabi’s flag carrier, Etihad Airways, has signed a code sharing agreement with Garuda Indonesia, local media reported on Thursday. 

The agreement will come into effect on October 28 and is the airlines’ 42nd code sharing contract, Gulf News said. 

Etihad Airways President and Chief Executive Officer, James Hogan, said the codeshare with Garuda Indonesia was key to the airline’s network development strategy.

“Indonesia, the world’s fourth most populous nation, is an important source of global tourism growth and this new agreement will position both airlines to benefit from the strong demand for travel between Indonesia and the Middle East and Europe that we have seen in recent years.”

The Etihad representative believes “it will also stimulate trade in foodstuffs, manufactured goods and other commodities between Indonesia and trading partners in the western hemisphere which, in turn, will contribute to the profitability of the airlines’ cargo operations on the route.”

President and CEO of Garuda Indonesia, Emirsyah Satar, said “through this partnership, Garuda Indonesia will be able to extend its service to Europe, North America, Middle East and Africa, and Etihad Airways will provide more convenient connections for their passengers in Indonesia, Australia and Japan.”

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