Indonesia Investment Landscape:

Progress and Outlook

Trade, Tourism, Investment Seminar on TEI 2019

Jakarta, October 17th 2019Thomas Trikasih LembongChairman of BKPM

Why Indonesia?

2

$1GDP of more

than $1 trillion (Nominal)

trillion

GDP

Population of 260million,

with 44% under 25

Indonesia’s EODB ranking

has improved significantly

over the last 5 years

4th most prospective

investment

destination

Sovereign credit rating

continues to trend

higher

2nd most biodiverse

country in the world,

which helps the tourism

sector5th highest number

of internet users

globally

Indonesia has a big economy and many opportunities..

3

$20.494

$13.407

$4.972

$4.000

$2.829

$2.775

$2.717

$2.072

$1.868

$1.711

$1.631

$1.619

$1.426

$1.418

$1.223

$1.022

$913

$782

$766

$704

United States

China

Japan

Germany

France

United Kingdom

India

Italy

Brazil

Canada

Russia

Korea

Spain

Australia

Mexico

Indonesia

Netherlands

Saudi Arabia

Turkey

Switzerland

The largest economy in SE Asia &

member of G20

WHERE

ON EARTH

Top-20

GDP Current Prices

in 2018(USD billion)

16th largest economy

GDP: Gross Domestic ProductsSource: IMF, 2019

..and is now fully rated as investment grade country

4

Rating Agency Ratings Upgrade Update

S&P BBB May 31, 2019

Moody’s Baa2 April 13, 2018

Fitch BBB March 14, 2019

JCRA BBB April 26, 2019

R&I BBB April 26, 2019

Indonesia Economic Growth: The New Normal?

5

Indonesia economic growth has remained at about 5 percent since 2014, down from more than 6 percent previously. This slowdown

in growth can be traced to the end of the commodity boom, which has weighed on Indonesia’s key exports (including coal, palm

oil, base metals, natural gas, crude oil, and rubber), while indirectly affecting investment and government spending. Initially, some

analysts saw the slowdown as temporary, being either a cyclical phenomenon or otherwise easily corrected by minor policy tweaks.

Source: Lowy Institute

Indonesia’s economy is expected to shift towards service sector

6

45,1

27,0 23,3 17,7

12,4

25,221,7

16,3

4,85,0

9,8

10,2

18,619,7

17,0

18,3

5,05,4

8,9

10,0

14,1 17,8 19,327,5

1980 2000 2015 2030(E)

Other services

Transport, storage and communications

Trade, retail, hospitality

Construction

Manufacturing industry

Primary sector

Resources driven

Manufacturing driven

Service driven

Service industry

Total GDP by Sector: Historical and Forecastin % contribution

Source: World Bank, Reserve Bank of Australia, United Nations, Indonesia Statistical Agency (BPS), A.T. Kearney

11.9

10.1

9.8

9.6

7.2

7.3

Sector GDP CAGR

(2015-2030)

Since 2015, 16 economic policy packages have been introduced to attract

more investment

7

Predictableregional minimum

wages

Tax incentives for

labor intensive

industries

Shorter dwelling times

Easier visa and work

permits processing

Negative list

of investment

reform

Transport industryincentives

Improvements to

infrastructure and

electricity grids

3-hour licensing

Lower electricity

rates for

industries

Property

incentives

Land

aquisition

acceleration

EODB

Improvements

in Ease of

Doing Business

Affordable housing

e- commerce

Incentives for e-

commerce

Industry

Logistics

INSW and

lower logistics

costs

OSS

Online Single

Submission

Sources: Ministry of Economic Affairs, 2018

Online Single Submission (OSS), an integrated online system with data sharing

OSS

Obtaining Investment Licenses and Permits

B. EXISTING INVESTOR

Company

Individual

www.oss.go.id

A. NEW INVESTOR(New Registration)

(Re-registration)National

TASKFORCE

Monitoring

Single Business Number

Business License

Commercial/Operational License

MinistryTASKFORCE

Provincial/MunicipalityTASKFORCE

Promising sector: lifestyle industry

9

+564.7%

+165.8%

+303.8%

+159.1%

+200.0%

+130.8%

+136.4%

+137.5%

+166.7%

+225.0%

growth

Indonesia Middle Class Spending(USD Billion)

Source: Canback Global Income Distribution database; Indonesia Central Bureau of Statistics, Mckinsey Consumer and Shopper Insight Indonesia Study, 2011,

Mckinsey Global Growth Model; Mckinsey Global Institute analysis

The shift:from goods-based to leisure consumption

Consumer lifestyle

From goods to experiences

Travel to relieve stress

More economical tourism

E-travel effect

Supported by booming consumer class

10

240265

280 280

+120

+40+90

2010 20202030 in 5-6%

of GDP scenario2030 in 7% of GDP scenario

Indonesia Population, in millions

Source: Mckinsey Global Institute

3.1% pa

Tourism sector also shows promise

11

• Travel & tourism industry grows 50% faster than global GDP growth

• International tourist arrivals grew by 7% in 2017

6.4% pa

Contribution Travel &

Tourism to Indonesia GDP

Contribution Travel &

Tourism to Employment

“We believe in the nexttwenty years, one ofevery four new jobs willbe in the tourism sector”

President Joko Widodo

Investment in Indonesia’s digital economy continues to grow rapidly

12

• The highest number of unicorns in SE Asia

• Massive “tech savvy” population • Regional hub for investment from venture capitalists

143 million active

internet users

106 million social media

users

• The digital economy is expected to reach USD 150 billion by 2025

6xgrowth in the number of digital finance apps since 2010

USD

5.6bilvalue of e-commerce markets in 2016

24.7milpeople purchasing via e-commerce in 2016

Our startups are proven to attract considerable amounts of investment

13

Company Latest Funding

RoundValuation Note

US$3billion (2018) US$11billionInvestment from Softbank &

Didi Chuxing

US$1.5billion (2018) US$ 4 billionTencent is the largest

investor

US$1billion (2018) US$ 7billionAlibaba is the largest

investor

US$0.5billion (2017) US$ 2 billion

US$0.1billion (2019) US$0.75billionInvestment from ANT

Financial

US$50million (2019) US$ 1 billion

Indonesian 4th unicorn, after

Gojek, Tokopedia and

Traveloka

US$27.5million (2018)Investment from East

Ventures, LINE

US$30million (2018)

Source: Bisnis Indonesia, Fintechnews.sg, Reuters

Tourism focus on developing 10 new Bali’s – Target of 20 million foreign

tourists in 2019

14

Lake Toba Tanjung Kelayang Tanjung Lesung Kepulauan Seribu Borobudur

Mount Bromo Mandalika WakatobiMorotai IslandsLabuan Bajo

10

1

2

34

5 67

8

9

Human capital investment is key

15

2015 2016 2017

0.6940.691

0.6890.686

0.682

Indonesia’s HDI 2013-2017Comparison of HDI 2017

69.4Life expectancy

at birth

12.8E x p e c t ed years ofs c h o o l i n g

* In t h o u s a n d

8.0Mean years ofs c h o o l i n g

10.846*GNI per C ap i ta

2013 2014

Indonesia’s HDI 2017

Indonesia still needs to continuously and consistently improve its human capital

Source: UNDP, 2019

Singapore

Brunei Drslm

Malaysia

Turkey

Mexico

Brazil

Thailand

China

Philippines

South Africa

Indonesia

Vietnam

India

Cambodia

Myanmar

0.932

0.853

0.802

0.791

0.774

0.759

0.755

0.752

0.699

0.699

0.694

0.694

0.640

0.578

0.582

Rising need for vocational schools: preparing Indonesia’s future workforce

16

Food and agriculture

Energy Tourism and creative industry

Maritime

Develop vocational education

Arrange the joint-

curriculum

Provide lecturers

Provide internships

Where are vocational graduates needed?

What can industry do?

Source: Ministry of Research, Technology, and Higher Education, 2017

Univ. graduates

do not match industries’ needs

5.4%of educational institutes are

vocational, compared to 50% in developed

countries

RegulationEstablishment of

Presidential Instruction No. 9/2016

on revitalization of vocational schools

Revitalization of Vocational

Education

With energy imports pushing trade balance deficits, Indonesia needs to boost

exports

17

Development of Banten-Jakarta-West Java corridor to boost exports

18

19

Badan Koordinasi Penanaman Modal (BKPM)

Indonesia Investment Coordinating Board

Jalan Jenderal Gatot Subroto No. 44

Jakarta 12190 - Indonesia

t +62 21 525 2008 | f +62 21 525 4945 | e info@bkpm.go.id

bkpm.go.id | investindonesia.go.id

Indonesia Investment Promotion Centre (IIPC)

THANK YOU

Top 10 investors in Indonesia (2014- 2019 S1)by country, excluding upstream oil & gas, and financial sectors

20

Source: BKPM, July 2019

In USD Million

Rank Country 2014 2015 2016 2017 2018 S1 2019 Total

1 Singapore 5,832.1 5,901.2 9,178.7 8,441.6 9,193.2 3,431.7 41,978.5

2 Japan 2,705.1 2,877.0 5,400.9 4,996.2 4,952.8 2,358.7 23,290.7

3 China 800.0 628.3 2,665.3 3,361.2 2,376.5 2,289.9 12,121.3

4 Malaysia 1,776.3 3,077.0 1,115.6 1,213.6 1,774.9 1,046.9 10,004.2

5 Hong Kong, China 657.3 937.2 2,248.3 2,116.5 2,011.4 1,312.8 9,283.5

6 Netherlands 1,726.3 1,307.8 1,475.2 1,489.4 943.1 738.5 7,680.4

7 South Korea 1,126.6 1,213.5 1,065.8 2,024.6 1,604.7 544.4 7,579.6

8 United States 1,299.5 893.2 1,161.9 1,992.8 1,217.6 631.7 7,196.8

9 British Virgin Islands 624.0 730.5 1,157.3 844.8 1,043.3 385.4 4,785.3

10 United Kingdom 1,588.0 503.2 307.3 774.8 271.1 65.3 3,509.6

Total Top-10 18.135,3 18.068,8 25.776,2 27.255,6 25,388.7 6,491.5 127,429.8

Total (145 countries) 28,529.7 29,275.9 28,964.1 32,239.7 29,307.9 14,186.9 162,504.3

Five common challenges faced by investors in Indonesia

21

Regulation

1

Tax &

Incentives

2

Land

Acquisition

3

Skilled labor &

foreign worker

4

Public

Infrastructure

5

Issues:•Uncertainty•Complicated •Lack of coordination

Government Efforts:•Accelerated doing business (Presidential Regulation No. 91 Year 2017).

•Single submission system

Issues:•Complicated•Fiscal incentive not attractive

Government Efforts:•Tax data integration system to improve data transparency•Revised tax incentives regulation for more wide range of business sectors. •New Tax Holiday mechanism

Issues:•Long time to acquire land•Speculative rising price of land

Government Efforts:•Spatial plans (Government Regulation No. 13 year 2017•The Ministry of Industry to set a price ceiling for industrial land

Issues:•Limited skilled labor•Complicated procedure to obtain Foreign Worker Permit

Government Efforts:•Incentives for industry that support vocational and training program•Ease of foreign worker permit (Gov. Regulation No. 20/2018)

Issues:•Slow dwelling time •Lack of infrastructure

Government Efforts:•Implemented “post-border” system for certain restricted goods•alternative financing for infrastructure i.e. PINA (Non State Budget Financing)

Where to invest? 11 Special Economic Zones (SEZ)

22

Sei MangkeiPalm Oil & Rubber Industry, Fertilizer, Logistics, Tourism

Tanjung Api-apiPalm Oil, Rubber,

Petrochemical Industries

Tanjung LesungTourism

Maloy BatutaPalm Oil, Coal and

Mining

BitungFishery, Coconut Oil &

Herbal Pharmacies Industries, Logistics

PaluManufacture, Agro (Rubber, Cacao, Seaweed, & Rattan) Nickel & Ore Industry, Logistics

MorotaiTourism, FisheryIndustry, Manufacturing & Logistics

Arun LhoksemawePetrochemical, Logistics, Oil & Gas

Food & Paper Manufacture

SorongShipyard, Fishery & TourismKelayang

Tourism

MandalikaTourism

Fiscal incentives in SEZ are regulated underMinister of Finance Regulation No. 104/PMK.010/2016):

Tax Incentives:• Income tax reduction ranging from 20% to

100% for maximum 25 years• Free VAT for import on raw materials

Facilities:• Property ownership and residence permits for foreigners• Integration of investment, land, immigration and work

licensing in SEZ