REPUBLIK INDONESIA Investment Opportunities in Indonesia Prof. . Ba Bambang Br Brodjo jonegoro, , Ph.D .D. Min inis ister of of Nati tional De Developmen ent Pla lanning / Head of He of Nati tional l De Development Pla lannin ing Agency Tok okyo, November 30, , 2017
Indonesia Macroeconomic and Policy Outlook How is the economy doing? 2
Why should you invest in Indonesia? High & stable economic growth Progressive infrastructure Indonesia is In is a huge e pot otentia ial market in in Asia ia development 4 th Indonesia is projected to Indonesian Economic Growth (%) 5 th Largest emerging market with the 5.2 5.2 be the largest economy in 5.0 best middle class potential 5.0 5.0 5.0 4.9 4.9 the world by 2050 4 th Most Populous country in Source: World in 2050, PWC the world 2014 2015 2016 2017* 15 th Largest economy in the world GDP per capita (US$) 3,605 ± 5% Private consumption 3,374 grows steadily ly 2015 2016 Source: BPS, Team Analysis Source: BPS *Outlook 3
Indonesia’s Investment Grade from Rating Agencies Indonesia’s Investment Grade from Rating Agencies Promising investment destination Promising investment destination BBB- /Stable Baa3 /Positive BBB- /Positive BBB- /Positive BBB- /Positive 4 th 3 most populous country on earth Top Destination for 3 Japanese investment Top 261 million population attracting investors in destination Asia (The Economist) (JBIC Ratings) Jumped from rank 106 in Rank ∞ 72 2016 to rank 91 in 2017 for Abundant Ease of Doing Business natural resources 65% of investment realization in (EoDB, World Bank - 2018) Indonesia are FDI capital 4 4
FDI Realization in Indonesia by country excl. upstream oil, gas, and financial sectors Total FDI Realization in 2012 – Q3 2017 (USD million) # 1 TOP 5 Investment 6,119.1 in Q1-Q32017 # 2 3,999.6 2737,4 # 3 1,536.7 1,336.5 # 4 Singapore Japan China United South States Korea Total 140 Countries: 163,836.5 Source: The Investment Coordinating Board of The Republic of Indonesia (BKPM) 5 5
Japan investment outlook Japan Japan investmentrealizationbysectors Outward investment in the world 2012 – Q3 2017 in Indonesia 2012 – Q3 2017 ( excl. upstream oil & gas, and financial sectors ) (excl. oil & gas, and financial sectors – USD million) Investment Realization Based on Capital Expenditure* 3,500.00 # 1 – 20% 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 # 2 – 9% 500.00 0.00 2012 2013 2014 2015 2016 Q3 2017 Transportation Industry Metal, Machinery & Electronic Industry Electricity, Gas & Water Real Estate # 3 – 9% Chemical & Pharmaceutical Source : FDI Market/Financial Times, 2017 Source: The Investment Coordinating Board Republic of Indonesia (BKPM) 6
2018 Economic Growth and Development Target Investment will be the main driver of Indonesia’s economic growth ECONOMIC GROWTH: [5.4 %] Production Side Expenditure Side 3 priority sectors that will be enhanced Manufacture* : 4.9 % HH Consumption : 5.1 % by its role in growth and employment Construction* : 6.9 % rate are: NPISH Consumption : 5.8 % Trade* : 5.7 % Gov. Consumption : 3.8 % ICT* : 11.0 % Agriculture Investment (GFCF) : 6.3 % Manufacture Financial Service* : 9.4 % Export : 5.1 % Tourism Agriculture* : 3.7 % Import : 4.5 % Transportation : 8.3 % Mining : 1.0 % Inflation: 3.5 % Electricity & Gas : 5.7 % USD/IDR: 13,400 * the greatest contribution to growth Poverty Rate: HDI: Gini Ratio: Unemployment Rate: 9.5 – 10.0% 71.5 0.38 5.0 – 5.3% 7 7 7
Indonesia Infrastructure Development and Financing Framework Growing private sector involvement in infrastructure development 8
Why invest in infrastructure and why now? Closing the infrastructure gap and providing a stronger foundation for economic growth in the future Indonesia infrastructure stock is Strong commitment in policy and Why now? below average global standard and implementation level by President tends to decline Jokowi administration The nature of infrastructure development Infrastructure stock gap/GDP Takes time - years Some breakthroughs 32 % 70 % from planning, construction and operation Future value of money Umbulan drinking water facility increased capex when the project is delayed planned during Dutch colonial era Benefit for future generations 49 % Jakarta Mass Rapid Transit 38 % planned 30 years ago the impact are in the medium and long-term (IMF) many more … Real results Source: The World Bank (2015) & McKinsey (2013) + 8 Infrastructure Global Competitiveness from 60 th to 52 nd Multiplier effect from + 5 infrastructure development Global Competitiveness Additional economic growth from 41 st to 36 th Lowering competitiveness and Boosting activities in various economic growth Source: Global Competitiveness Report 2017-2018, WEF sectors 9
Building an Infrastructure Investment Ecosystem Closing the infrastructure gap to achieve economic growth Financial innovation Indonesia is committed to close its infrastructure gap (hybrid financing) Strong We believe that infrastructure is an engine for Private sector coordination engagement at policy and economic growth (domestic & implementation overseas) We work hard to innovate a nd set up infrastructure level investment ecosystem to attract more domestic Integrated investors & foreign investors Approach We continue to improve and implement to strengthen Improving Mobilizing long- term funds project the ecosystem, deepen the capital markets, support (pension funds & readiness & transactions, and manage investment risks insurance pipeline companies) Stakeholder facilitation & advocacy towards financial close 10
Infrastructure Development Strategy 2015 - 2019 Infrastructure Fulfillment of Basic Needs Urban Infrastructure to Support Leading Sectors Urban infrastructure development Basic needs infrastructure for improving Infrastructure for connecting towards modern and smart cities citizen’s health and well -being leading sector areas Irrigation for Modern transport 100% drinking agriculture security development water access Develop sustainable 100% sanitation Industrial area urban transport access connectivity Tourism area Livable housing Development development access towards smart cities 11 11 11
Financing Infrastructure Development 2015 – 2019 Increasing the significant role of SOEs & the private sector through PINA & PPP schemes Total value of investment required for infrastructure in 2015 – 2019 USD 359.2 bn Investment value sources: Government Budget: 22.2% 22 2% 41.3% 41 3% Private 36 36.5% 5% USD 148.2 bn Participation: SOEs : USD 131.1 bn USD 79.8 bn Calculation based on infrastructure investment (required) to be a middle income country by 2025. 12 Sources: BAPPENAS- JICA, 2014: Background Study for RPJMN 2015-2019, Analyst team of Ministry of National Development Planning (BAPPENAS) RPJMN: National Medium-Term Development Planning 12 12
Financing Infrastruture Development 2015 – 2019 Increasing the significant role of SOEs & the private sector through PINA & PPP schemes PUBLIC INVESTMENT: PROVISION OF PUBLIC FACILITIES Investment that does not cause direct investment Special Commercial 1 2 Investment which is economically and Social Investment Investment return to the object. financially viable but seen as less attractive or risky hence Government intervention is Social security; needed. Education security; Health security. Toll roads; Ports. Sou Source of of fun fund : : Source of Sou of fun fund : Government funding Commercial funding ( APBN & APBD ) promoted by the Government low high Internal Rate of Return (IRR) General Commercial Investment which is more attractive hence the 3 4 Investment which is economically viable but Public Private Partnership Investment Government’s role in regulating and promoting less financially viable hence needs additional is minimized. Government support . Electricity; Drinking water facility; Airports; Mass public transportation. Gas pipe. Sou Source of of fun fund : Sou Source of of fun fund : Government funding & Commercial commercial funding funding 13 13
Emerging Opportunities & Trends For Private Participation …PRIVATE INVESTMENT OPPORTUNITIES within a wide range of project phases … PLANNING - TRANSACTION - GREENFIELD BROWNFIELD Project Stage PREPARATION OPERATIONAL Project Initiator Investor Investor Debt Financier (Unsolicited PPP (Debt & Equity) (Debt & Equity ) Project Scheme) Development/ Development/ Operatorship Project Advisor Transaction Transaction (Preliminary Studies, Consultant Consultant Feasibility Studies) Strategic Consultant Contractor Supplier Legal Status PRIVATE PARTICIPATION Supplier Securities Securities Surveyor Securities Guarantor Guarantor Guarantor 14
Non-Government Budget Equity Financing Pembiayaan Investasi Non Anggaran Pemerintah (PINA) 15 15
Non-Government Budget Equity Financing ( PINA ) PINA plays a significant role in accelerating project’s financial close Project pipeline Investment appetite INVESTOR Investment focus areas Project readiness Project structure Equity participation Investee Investor Loan Investment instrument options PINA Facilitation Function Pipelining Function Ecosystem Function 16
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