Key facts and figures*
Capital city: Jakarta
Currency: Indonesian rupiah (IDR), approx 10,399 per USD
Government: The President is Susilo Bambang Yudhoyono: his Democratic Party (PD) holds the highest % seats at 20.9%.
Population: 240,271,522
Population growth rate: 1.136%
GDP - real growth rate: 4.4% (2009)
Economy
Indonesia has proved to be less exposed to the global recession than many of its neighbours, and its economy actually expanded by 4.2% year on year in the first half of 2009. This was due to increased domestic consumption and increased government spending which propelled the economy to recover fast. The country is extremely resource-rich, with its major industries focused on the export of petroleum and natural gas, rubber, palm oil, cocoa and coffee, as well as mining. A large part of the country’s economic strength lies in its considerable domestic demand (it has the fourth highest population behind China, India and the USA) which accounts for around 60% of GDP. Indonesia outperformed many other emerging markets, and together with China and India was one of the only G20 members posting growth during the crisis. A long-term focus of the Government has been to cut borrowing, and over the eight years from 2000 to 2008 public and private debt to GDP fell from 100% to 60%. The long-term prospects in Indonesia are regarded as positive. With 44% of the population under 24 it is due to have a growing workforce in years to come – unlike in many other countries where aging workforces are a major concern.
The main barriers to entry for foreign entities looking to invest in Indonesia include a complex regulatory environment and the unequal resource distribution amongst the 17,000 islands which comprise the country. In addition, the Transparency Index ranks Indonesia 126th indicating it has high levels of local corruption which may again impede foreign companies looking to do business. The Government is looking to address all of these issues; it is investing in improving Indonesia’s infrastructure, and it has recognised the global shift towards conservation with a particular focus on the Indonesian peatlands and forests, which are seeing greater protection. The government has already introduced significant amendments including tax and customs reforms, the use of Treasury bills, and capital market development and supervision.
The global recession affected the manufacturing, travel and logistics industries the most heavily, whereas the oil and gas industries have focused on future efficiencies with significant ICT investments.
ICT
In July 2007 revisions to a set of regulations referred to as ‘The Negative List’ were introduced in Indonesia which formally capped new foreign investment in the country’s telecoms market. The fixed line market was capped at 49% and mobiles at 65% (both previously saw levels at up to 95%). The regulation is due for renewal this year, and with initial concerns from the Government that higher levels of foreign investment would be required to fund infrastructure projects, reduce local unemployment and propel economic growth, it remains to be seen what modifications will be made and how this will affect future foreign investment.
With the strong economic growth in Indonesia there has been a flourishing demand for telecoms; mobile penetration increased by 53% from 2001 to 2008 and there is little sign of the growth rate diminishing. It was predicted that by 2010 there would be approximately 80 million internet users in Indonesia (this number was at 30 million in 2008) making it the 11th highest number of internet users in the world behind China and the US. Due to the geographical spread of Indonesia (17,000 islands) there has been a natural preference for fixed wireless and wireless in the local loop – this has led to a higher penetration of wireless broadband in a manner not seen in many other countries.
In 2008 Indonesia had over 30 million phone lines in use and 140 million mobile phones, placing it in the top 10 and 6 (respectively) in terms of number of users relative to the rest of the world. If you consider that the higher ranking countries – with the exception of China, India and Brazil – are all developed economies, the infrastructure definitely belies the potential of the country for supporting foreign investments and expansions.
Foreign investment
Despite the revisions to the ‘Negative List’ regarding foreign investment into telecoms, on the whole the Indonesian government encourages and supports foreign investment and private industry-led growth. There are various laws regulating which sectors are open to all investors, which are closed to foreign investors, and which industries have enforced ownership limits for foreign investors. In order to promote local small businesses there are a number of sectors which are reserved solely for them, or on the condition that they are partnered with if a large or medium-sized foreign company wants to invest. Historically, foreign investments have tended to be in oil, rubber and manufacturing.
The manufacturing industry in particular has had significant levels of foreign investment due to the rising labour costs and materials in other emerging markets, combined with the streamlining of the investment process, incentives and the ease of restrictions. The majority of foreign investment in manufacturing since the late 60s has focused on chemicals, followed by mining and natural gas.
The expectation of the Indonesian government is that foreign investors will upskill local workers, resulting in a higher skilled local workforce, and the transfer of business and technology skills. To employ an international worker the government must first deem the position open to non-Indonesians, and even then there must be a training program which aims eventually to replace the foreigner with an Indonesian.
Foreign companies normally take out a 30-year lease on properties as they have no rights to land ownership in Indonesia; however, they can establish a limited Indonesian company if they wish to legally buy the rights to the land.
Telstra in Indonesia
Telstra has a long history of doing business in Indonesia, including Telstra's participation from the mid-1990's until early 2004 in providing PSTN and data services in a joint venture in Central Java. Telstra International currently offers a complete portfolio of networking solutions in Indonesia to meet the needs of our customers. Some of our key product offerings are outlined below:
IP VPN
Telstra can deliver a highly resilient, seamless IP VPN service across Indonesia with dual IP VPN nodes in Jakarta, enabling us to offer enhanced resiliency on the network. Customers are able to build dual access to diverse PoPs to enable better reliability and resilience with no single point of failure in the IP VPN network infrastructure at our dual PoP locations.
International Private Lines
Recent expansion by Telstra International extended our IPL capabilities to Indonesia, meaning we can now offer highly cost-effective, secure, dedicated connectivity to our customers.
Ethernet Solutions
Telstra is a leading provider of Ethernet solutions in Asia Pacific and can offer the complete suite of Ethernet services in Indonesia. This includes EPL, VPLS and EVPL services over dual on-net PoPs.
Global Internet
Telstra can also offer high quality access to the public internet on our Global internet product with two PoPs in Indonesia. Telstra operates Asia’s leading backbone with investments in multiple sub-sea cable systems and extensive private peering arrangements, enabling customers to enjoy low latency, superior access to the internet.
Call your account manager today to find out how Telstra can support your business in Indonesia.
*Key facts and figures are taken from the following sources:
- Analysis of Indonesia as an Offshore Services Location, TJ Singh, Yanna Dharmasthira, Jim Longwood, 23 October 2009
- CIA – The World Factbook, March 2010
- Indonesia Enterprise Telephony Market Q2 2009, Frost & Sullivan, December 2009
- Indonesia, TeleGeography, 31 Jan 2009