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ASEAN in Focus : Indonesia as an Investment Destination

Indonesia is at the very forefront of the boom in infrastructure redevelopment taking place across Southeast Asia.

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In order to boost its economy and attract investment, Indonesia’s government is determined to overhaul the country’s essential infrastructure.

In line with this, the Sea Toll Road programme – a development with a number of similarities to China’s Belt and Road Initiative – will significantly enhance Indonesia’s maritime capabilities.

With the country’s business environment becoming ever more vibrant, while its infrastructure shortcomings become less of a problem, innovative and visionary Hong Kong entrepreneurs – including those in the service sector – should prepare themselves for a whole new world of opportunities.

A World of Opportunities and a Huge Funding Gap

Indonesia is at the very forefront of the boom in infrastructure redevelopment taking place across Southeast Asia.

Despite difficulties in maintaining the country’s mandated 7% annual economic growth, President Joko Widodo seemingly remains determined to improve the country’s essential infrastructure.

As part of the 5.5% increase in the overall spending specified in the 2017 State Budget, a total of IDR 387.3 trillion (approximately US$30 billion) has been earmarked for infrastructure development. This is the largest amount ever allocated to such projects and represents an increase of 22% on the previous budget.

In terms of where the money will actually be spent, the Committee of Infrastructure Priorities Development Acceleration (KPPIP) has identified 30 projects – out of 225 national strategic undertakings – as priorities for the period 2016-2019.

Table: 30 Priority Infrastructure Projects for the Period 2016-2019
 
Table: 30 Priority Infrastructure Projects for the Period 2016-2019

The government has adopted an innovative and seemingly effective approach for generating funding for these infrastructure projects.

Its new tax amnesty programme, for instance, is said to have proved particularly successful. When its first phase ended on 30 September 2016, the programme had already netted the Indonesian government some IDR 97.2 trillion (approximately US$7.5 billion, 59% of the overall target) in additional tax revenue.

Tax amnesty programme

The tax amnesty programme offers unprecedented immunity from prosecution as well as concessional tax penalties to individual and corporate taxpayers who voluntarily declare assets (in or outside Indonesia) that went undeclared prior to 31 December 2015. The amnesty is now scheduled to run from 18 July 2016 to 31 March 2017 (the reporting period of the Indonesian tax authority).

Though considered the most successful tax amnesty programme ever undertaken anywhere in the world, Bank Indonesia – the country’s central bank – is forecasting that the final sum repatriated will still be far below the figure required to complete the current infrastructure redevelopment programme.

Indeed, it is estimated that the state and regional budgets will only raise around 40% of the total infrastructure funding requirement as set out in the National Medium Term Development Plan (RPJMN) 2015-2019 – IDR 1.98 quadrillion (approximately US$142 billion) out of IDR 4.8 quadrillion (US$345 billion). It is expected that this shortfall will be covered through co-operation with the private sector on a Public Private Partnership (PPP) basis.

Java: Leading Indonesia’s Regional Investment

Home to nearly 60% of all native Indonesians, Java is the most densely populated island on Earth.

It’s also a favourite destination for many of those looking to invest in Indonesia and accounts for 54% of the total investment the country secured in 2016. This includes both domestic (DDI) and foreign investment (FDI), across the six economic corridors stipulated under the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI).

Chart: DDI and FDI among the six economic corridors in Indonesia in 2016
 
Chart: DDI and FDI among the six economic corridors in Indonesia in 2016

Java is made up of four regions and two special territories. Of these, Banten, Central Java, East Java, the Special Territory of Jakarta and West Java were ranked high on the Top 10 lists of DDI and FDI destinations for 2016, with East Java particularly popular among domestic investors and West Java among foreign investors.

Table: DDI Realisation in 2016 in Indonesia
 
Table: DDI Realisation in 2016 in Indonesia
Table: FDI Realisation in 2016 in Indonesia
 
Table: FDI Realisation in 2016 in Indonesia

This concentration of investors reinforces the island’s role in driving the country’s industrial development and service sectors under the provisions of the MP3EI. As a result, Java looks sure to remain a prime target for international investors as Indonesia take its place amongst the world’s developed countries.

The comparative lack of interest in investment outside of Java, however, may hamper the country’s overall development. In 2014, in order to encourage a more even spread of investment across the country and in line with his ambition to transform Indonesia into a ‘global maritime axis’, President Widodo announced the Sea Toll Road programme as part of the 2015-2019 National Medium Term Development Plan (RPJMN 2015-2019).

China’s Maritime Silk Road and Indonesia’s Sea Toll Road: The Crossover

The Sea Toll Road program is intended to boost Indonesia’s maritime capabilities, which currently support 40% of its international sea trade flow. It also includes measures designed to strengthen governance and close any security gaps seen as likely to threaten the flow of trade or fishing activities within the waterway.

The programme focuses on enhancing inter-connectivity between islands (local integration) and upgrading port infrastructure (globally connected). When fully implemented, Indonesian ports should be more competitive and more attractive to international shippers and forwarders, particularly when compared to the ports of Singapore and Malaysia, both which are currently more popular channels for international traffic.

As part of the Sea Toll Road project, 24 of the nation’s 111 commercial seaports will be expanded, including five hub ports – Belawan/Kuala Tanjung in Sumatra, Tanjung Priok/Kali Baru in Jakarta, Tanjung Perak in Surabaya, Makassar in South Sulawesi, Bitung in North Sulawesi. Some 19 feeder ports are also within its remit, including Batam in Sumatra, Tanjung Emas in Semarang and Sorong in Papua. The programme will expand their capacities, allowing them to handle higher levels of cargo and passenger traffic between western and eastern Indonesia, while also facilitating the further development of the country’s Industrial Estates.

Picture: Ports to be developed under the Sea Toll Road programme
 
Picture: Ports to be developed under the Sea Toll Road programme

This hub-and-feeder model has also been designed to increase national security by limiting the movement of foreign vessels to hub ports in domestic waters. At the same time, by utilising the feeder ports for regional consolidation, it lends flexibility to the schedule frequency of many of the ports, while also shortening the routes between them.

Logically, any upgrade to the ports of western Indonesia should increase their chances of attracting vessels looking to trans-ship across the Straits of Malacca without calling at Singapore. The developments in eastern Indonesia, meanwhile, are largely designed to reduce the regional price disparity of goods in western and eastern Indonesia by up to 30%. The intention is to achieve this by consolidating the fragmented forwarding sector and rebalancing the inter-island cargo flows.

At present, six regular cargo routes are being introduced, while around 100 sea transport routes are being optimised in order to boost connectivity between the different regions of the country. By 2019, the plan is to build or acquire 609 vessels in order to support the fleet’s expected increase in passenger and cargo traffic. With such moves being implemented in tandem with other logistics infrastructure projects, in order to ease congestion and achieve shorter holding times for containers at major seaports, it is hoped that logistics costs in Indonesia will be reduced from their current level of 26% of GDP to 19% by 2020, then reduced still further to 9% by 2035.

Picture: The Six Regular Cargo Routes under the Sea Toll Road
 
Picture: The Six Regular Cargo Routes under the Sea Toll Road

From a more strategic and international point of view, the Sea Toll Road programme is very much in line with China’s Belt and Road Initiative (BRI), which looks to improve business connectivity between Southeast Asia, Africa and the Indian continent. In light of this then, the development of logistics infrastructure along many of Indonesia’s busiest waterways, including the straits of Malacca, Sunda, Lombok and Wetar, is crucial to the success of both of these far-reaching initiatives.

Picture: Indonesia as a Global Maritime Fulcrum
 
Picture: Indonesia as a Global Maritime Fulcrum

Opportunities for Foreign Investment

In 2015, the realised funds for infrastructure development totalled IDR 190 trillion (US$14.42 billion), more than double the 2010 allocation. For 2017, another record-high level of funding has been allocated for infrastructure spending. Despite this, Indonesia remains in dire need of private participation in its development programme, as the existing funds can only meet roughly 40% of the total infrastructure funding required up until 2019.

Aside from its major on-going infrastructure developments, such as the Sea Toll Road, Indonesia is committed to several other substantial projects, most notably the provision of facilities for the 2018 Asian Games, scheduled to be held in Jakarta and Palembang in South Sumatra. In order to deliver on these commitments, the government has continually revised its negative investment list in a bid to widen the scope of foreign investment in Indonesia. It is hoped that this will engage the private sector by offering foreign investors more favourable terms with regard to ownership and local SME partnership requirements.

Since September 2015, the Indonesian government has introduced a series of economic stimulus packages designed to boost investment through deregulation and fiscal incentivisation. These measures have included streamlining the approval and procurement procedures required for infrastructure projects, a temporary reduction in tax on revalued fixed assets and cuts to energy prices.

At present, one of the other options available for infrastructure financing is the newly established 57-member Asian Infrastructure Investment Bank (AIIB), of which Indonesia is one of the co-founders and one of its principal backers. To date, the AIIB has approved only one programme in Indonesia – the National Slum Upgrading Project, an initiative intended to revitalise basic infrastructure, including drainage systems and water supply access, in 150 towns and cities across Indonesia. Two more projects – related to improving the safety and efficiency of dam operations and establishing a regional infrastructure development fund – are currently under consideration.

No Strangers to Indonesia: Hong Kong Investors

As far as foreign investment is concerned, Hong Kong is no stranger to Indonesia. In 2016, for instance, Hong Kong was the four-largest FDI investor in Indonesia. In this regard, it was behind only Singapore, Japan and the Chinese mainland, while being ahead of the Netherlands and the US. Between 2011 and 2016, Hong Kong’s realised investment in Indonesia grew at a compound annual growth rate (CAGR) of 76%, rising from US$135.0 million to US$2.2 billion.

In October 2013, during a speech to the Indonesian Parliament, Xi Jinping, China’s President, first outlined his vision of the 21st Century Maritime Silk Road and his plans to establish the AIIB. Since that time, Hong Kong’s investment commitment in Indonesia has soared, rising from US$2.9 billion in 2013 to US$4.5 billion in 2015.

Chart: Hong Kong Investment in Indonesia
 
Chart: Hong Kong Investment in Indonesia

A significant proportion of Hong Kong’s investment in Indonesia has been in the real estate, industrial estate and business sectors. At present, a substantial number of Hong Kong companies have investments in Indonesia, including such well-known property developers as Hongkong Land, the Baleno, Bossini, Giordano and Samuel and Kevin fashion brands, toy manufacturers Lung Cheong and Itacho Sushi, the popular sushi chain.

Table: Top-10 Investment Sectors by Hong Kong Investors
 
Table: Top-10 Investment Sectors by Hong Kong Investors

At present, only a relatively small number of Hong Kong-based SMEs have the financial and staff resources required to manage mega-infrastructure projects. A substantial number of innovative and visionary Hong Kong entrepreneurs – including those in the services sector – are, however, ideally equipped to capitalise on many of the other opportunities emerging across Indonesia. As its business environment grows more vibrant and its infrastructure deficiency becomes a thing of the past, Indonesia’s population is becoming ever more willing and able to spend. In combination, all of this makes Indonesia an irresistible prospect for Hong Kong’s outward-looking business community.

A case in point here is OpenPort, a Hong Kong-based end-to-end logistics solution provider, offering app-based services for tracking business-to business shipments in emerging markets. Since opening its Jakarta office in late 2015, OpenPort has contributed significantly to the development of Indonesia’s logistic sector, an industry estimated to have a potential market value of around US$250 billion.

It has achieved this by introducing a common platform for shippers and forwarders, allowing them to track the delivery of goods in real time. This has resulted in a cost-effective and seamless integration of the logistics network and continuous optimisation of supply chains. This has proved a hugely appealing proposition for all parties involved in the increasingly intricate supply chains required by contemporary businesses.

Overall, OpenPort’s Java Office found success through its partnership with many of Indonesia’s increasingly tech-savvy logistics players. By working hand-in-hand with them, it is now seeking to continuously improve the country’s logistics network.

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COVID-19 Vaccine Roll Outs in ASEAN Live Updates by Country

Thailand is currently expecting vaccines to be delivered in mid-2021. The doses would cover 13 million people in a population of about 69 million. Thailand’s National Vaccine Institute signed a non-refundable advance market commitment contract worth 2.38 billion baht (US$79 million) with AstraZeneca to reserve the supplies

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ASEAN coronavirus Covid-19 live updates by country

Brunei

Brunei has joined the global Covax scheme and is expecting to have the COVID-19 vaccine in Q1 2021, having sourced enough supplies to cover 50% of the population. Discussions are on-going with other suppliers.   

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  • Brunei recorded one new case on May 8, bringing the total to 330 cases amid three deaths.
  • Brunei saw one new case on May 7, taking the total to 229 cases amid three deaths.
  • Brunei recorded one new case on May 4, taking the total to 228 amid three deaths.

Cambodia

Cambodia is expected to import vaccines from both China and Russia. China’s vaccines are still undergoing clinical trials while Russia has already commenced production. Australia has offered financial support to aid vaccine coverage in several southeast Asia countries including Cambodia.  

  • Cambodia recorded 538 new cases on May 8, bringing the total to 18,717 cases amid 114 deaths.
  • Cambodia recorded 558 new cases on May 7, taking the total to 18,179 cases and 114 deaths.
  • Cambodia reported 650 new cases and four deaths on May 6, bringing the tallies to 17,621 cases and 114 deaths.

Indonesia

Indonesia has commenced vaccinations with just over nine million doses being given to front line workers from last month. China’s Sinovac is in discussions with Indonesia to provide supplies, however, the Government faces difficulties with a large population of 268 million and price sensitivity at Sinovac’s estimated costs at 200,000 rupiah (US$20) a dose.

Indonesia’s Health Ministry’s Disease Control and Prevention Director-General Achmad Yurianto said that vaccinations would only be provided to citizens aged 18-59. The vaccine has also been required to pass halal certification prior to use and it is uncertain how the country can source enough vaccines to reach a sizeable part of its population.  Australia has stated it will also provide financial support to solve these issues.  

  • Indonesia recorded 6,130 new cases and 179 deaths on May 8, bringing the totals to 1,709,762 cases and 46,842 deaths.
  • Indonesia saw 6,327 new cases and 167 deaths on May 7, bringing the tallies to 1,703,632 cases and 46,663 deaths.
  • Indonesia reported 5,647 new cases and 147 deaths on May 6, bringing the totals to 1,697,305 cases and 46,496 deaths.

Laos

Laos has been trialing the Russian Sputnik V vaccine and is also in discussions with China about acquiring supplies. 

  • Laos recorded 28 new cases on May 8, bringing the total to 1,233.
  • Laos saw 28 new cases on May 7, taking the total to 1,205.
  • Laos saw 105 new cases on May 6, taking the total to 1,177.

Malaysia

Malaysia is to provide vaccines free of charge to its nationals, but foreigners will need to pay for the treatment, according to the Malaysian Minister of Health, Tan Sri Muhyiddin Yassin, who has signed a deal with Pfizer for 12.8 million doses.

These will be administered in two stages of 6.4 million people each, with the program to commence in Q1 2021. The country aims to inoculate between 80-100% of its citizens. 

  • Malaysia reported 4,519 new cases and 25 deaths on May 8, taking the tallies to 436,944 cases and 1,657 deaths.
  • Malaysia saw 4,498 new cases and 22 deaths on May 7, bringing the tallies to 432,425 cases and 1,632 deaths.
  • Malaysia recorded 3,551 new cases and 19 deaths on May 6, taking the totals to 427,927 cases and 1,610 deaths.

Myanmar

Myanmar is seeking assistance from the Gavi and Covax programs to acquire vaccines, while Australia is also providing financial relief. At present, the Government aims to treat 20 percent of the ‘most at risk’ in the country with vaccines. The Government is struggling with finances and logistics and is also under US sanctions, while cases are surging. The Government has banned the celebration of Christmas and other seasonal celebrations.   

  • Myanmar recorded 31 new cases on May 8, taking the total to 142,934 amid 3,210 deaths.
  • Myanmar saw 29 new cases on May 7, taking the total to 142,903 amid 3,210 deaths.
  • Myanmar recorded 16 new cases and one death on May 5, bringing the total to 142,874 amid 3,210 deaths.

Philippines

The Philippines aims to commence vaccinations from June 2021 and expects to inoculate about 25 million people (about 25 percent of its population) over the course of the year. The country has been badly affected by the virus and has the second-highest rate in Southeast Asia.

The business community has reacted, more than 30 local companies signed an agreement to purchase at least 2.6 million vaccine doses from AstraZeneca in the country’s first such deal to secure coronavirus vaccines, ten days ago. They plan to donate a large part of the doses to the government for its planned vaccination program and use the rest to inoculate their employees. 

  • The country saw 6,979 new cases and 170 deaths on May 8, taking the totals to 1,094,849 cases and 18,269 deaths.
  • The Philippines reported 7,733 new cases and 108 deaths on May 7, bringing the tallies to 1,087,885 cases and 18,099 deaths.
  • The Philippines saw 6,637 new cases and 191 deaths on May 6, bringing the totals to 1,080,172 cases and 17,991 deaths.

Singapore

Singapore has been working on producing its own ‘Lunar’ vaccine, in a joint venture between the US company Arcturus together with the Duke-NUS medical school. It is a single dose, mRNA shot, developed from genetically engineering COVID-19 genes into an otherwise harmless virus. This technique is marginally safer than other vaccines which rely on dead Covid-19 material to provoke an immune response. The vaccine is expected to be available from Q1 2021. High-risk personnel will receive the vaccine first in a process to be determined by the government.     

  • Singapore recorded 20 new cases on May 8, taking the total to 61,331 cases amid 31 deaths.
  • Singapore saw 25 new cases on May 7, taking the total to 61,311 cases amid 31 deaths.
  • Singapore saw 18 new cases on May 6, bringing the total to 61,286 cases amid 31 deaths.

Thailand

Thailand is currently expecting vaccines to be delivered in mid-2021. The doses would cover 13 million people in a population of about 69 million.

Thailand’s National Vaccine Institute signed a non-refundable advance market commitment contract worth 2.38 billion baht (US$79 million) with AstraZeneca to reserve the supplies. Discussions are also on-going with Oxford University in the UK to secure a vaccine that could be available in Q1 if trials are completed in time.   

  • Thailand reported 2,419 new cases and 19 deaths on May 8, taking the tallies to 81,274 cases and 382 deaths.
  • Thailand recorded 2,044 new cases and 27 deaths on May 7, taking the totals to 78,855 cases and 363 deaths.
  • Thailand reported 1,911 new cases and 18 deaths on May 6, taking the tallies to 76,811 cases and 336 deaths.

Vietnam

Vietnam’s National Institute of Hygiene and Epidemiology (NIHE), a division of Vietnam’s Ministry of Health, has signed an agreement with Medigen Vaccine, a Taipei, Taiwan-based vaccine company to secure the supply of 3 million to 10 million COVID-19 vaccine doses in 2021. Medigen is currently conducting Phase II studies of the vaccine, co-developed with the USA’s National Institutes of Health (NIH), in Taiwan and Vietnam with a view to a Q1 2021 rollout.  

Vietnam is also working on producing its own vaccine, with the Institute of Vaccines and Medical Biologicals (IVAC) in Nha Trang City, partnering with New York City-based Icahn School of Medicine and the global health non-profit organization PATH. Phase 1 trials are already underway in Vietnam, while Phases 2 & 3 will be conducted at the beginning of 2021. The institute plans to submit documents for approval to the health ministry as early as April next year and claims to be capable of producing 30 million doses a year, expecting that a national vaccine could be distributed to the general population in October 2021.

  • Vietnam saw 15 new cases on May 8, taking the total to 3,152 cases amid 35 deaths.
  • As of May 7, 2021, Vietnam’s Ministry of Health confirmed a total of 3,091 cases of COVID-19. However, 2,560 of the affected patients have recovered and been discharged from hospitals. Vietnam has also recorded 35 deaths due to the pandemic. The latest community transmission cases have been reported from Hanoi, Vinh Phuc, Thai Binh, Bac Ninh, and Da Nang among others. 16 local cases are linked to the National Hospital of Tropical Diseases in Hanoi’s Dong Anh district.
  • As of May 6, 2021, Vietnam’s Ministry of Health confirmed a total of 3,030 cases of COVID-19. However, 2,560 of the affected patients have recovered and been discharged from hospitals. Vietnam has also recorded 35 deaths due to the pandemic. The latest community transmission cases have been reported from Hanoi’s outskirts district of Dong Anh.

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Banking

Singapore’s PayNow and Thailand’s PromptPay Launch Cross-border Payment System

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In a global first, Singapore and Thailand have linked their real-time payment systems, PayNow and PromptPay allowing international fund transfers between the two countries within minutes.

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Myanmar

Digital Revolution and Repression in Myanmar and Thailand

Activists have also proactively published social media content in multiple languages using the hashtags #WhatsHappeningInMyanmar and #WhatsHappeningInThailand to boost coverage of events on the ground.

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By Karen Lee

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Following the February 1 coup, Myanmar’s netizens became the latest to join the #MilkTeaAlliance, an online collective of pro-democracy youth across Asia.

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