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Today's Headlines Apindo
Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), said investors continue to complain about the difficulty of obtaining all necessary investment permits in the regions of Indonesia even though, generally, there has been an improvement in the degree of bureaucracy under the Joko Widodo administration.
The Indonesian Employers Association (Apindo) proposes two strategies to boost Indonesia's export performance in 2017: (1) seek new export markets and (2) export 'halal' products (which adhere to Islamic law) to the Middle East. Last week Indonesia's Trade Ministry revised down its export target for 2017. The Ministry now expects Indonesia's export performance to grow 5.6 percent (y/y) to USD $136 billion this year (from an estimated USD $129 billion in 2016). The revision makes the nation's export target in line with the slow recovery of international demand.
Indonesia's business community rejects the proposal of the House of Representatives (DPR) to impose mandatory corporate social responsibility (CSR) programs on Indonesian companies. A proposal that is being discussed among the DPR stipulates that companies need to allocate about 2 - 3 percent of their annual spending for their CSR programs. Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), informed that Indonesian employers generally reject the proposal. Instead the government should focus on improving companies' tax compliance (which remains very low).
The Indonesian Employers Association (Apindo) is optimistic that Indonesia's economic growth will reach 5.5 percent year-on-year (y/y) in 2016, a figure that is higher than the projections set by the central government and central bank. Optimism of Apindo is based on expectations that public and private investment will increase next year on the back of an improved investment climate in Southeast Asia's largest economy, brought about by the series of economic stimulus packages that were unveiled by the government in recent months as well as political and social stability.
As Indonesia’s economic growth continued to slow in the second quarter of 2015, the Indonesian Employers Association (Apindo) warned of increasing unemployment in Southeast Asia’s largest economy. Each 1 percent gross domestic product (GDP) growth can generate between 200,000 and 300,000 new jobs in Indonesia. As such, when economic growth slows, society misses out on new jobs and with around two million Indonesians entering the labor force each year, job generation is an important task of the government.
Indonesian newspaper Bisnis Indonesia reported that a number of foreign companies in West Java are ready to leave Indonesia because of increasingly higher operating costs. Chairman of West Java's branch of the Indonesian Employers Association (Apindo) Dedy Widjaja said that the main factors that are driving these investors away are higher regional minimum wages and the government's plan to raise the price of electricity. In May 2014, the Indonesian government intends to cut electricity subsidies for medium and large industry groups.
Deputy Trade Minister Bayu Krisnamurthi said that the Indonesian government is preparing two strategic steps to anticipate the negative impact of the winding down of the Federal Reserve's quantitative easing program. In January 2014, the Fed's bond-buying program will be reduced from USD $85 billion to USD $75 billion per month. The two strategic steps, which will enhance financial stability in Southeast Asia's largest economy, involve the curtailing of Indonesia's current account deficit and high inflation.
On Monday (28/10), another large-scale demonstration took place in the center of Jakarta, Indonesia's capital city. The workers that participated in the strike demanded a new minimum wage for Jakarta's provincial government due to the country's recent high inflation rate after prices of subsidized fuels were raised in June 2013, thus curbing people's purchasing power. The workers demand for the new minimum wage of IDR 3.7 million (USD $327) per month. However, these developments can hurt the investment climate in Indonesia.
Indonesia's government will make a new government regulation that foresees the minimum wage increase in all 33 provinces will be kept below 20 percent in 2014. This new rule is directed to labor-intensive industries, including Indonesia's small and medium businesses. The limitation of the regional minimum wage increase to 20 percent is much lower than the demand from Indonesia's labor associations, which requested minimum wage increases up to 50 percent.
Latest Columns Apindo
Investment in Indonesia's furniture and handicraft industries is expected to slow in 2016 due to subdued global demand and the lower competitiveness of these industries in Indonesia. Local furniture companies are moving away to Vietnam due to issues related to logistics costs, minimum wages and workers' productivity. For example, Taiwan-based Woodworth Wooden Industries Indonesia, the first Taiwanese furniture company that entered Indonesia (with a USD $40 million investment), decided to exit Indonesia, leaving 200 workers unemployed.
In the 2000s many Indonesian companies diversified their business to include coal mining (or shifting their core business to coal mining altogether) due to lucrative opportunities amid the 2000s commodities boom. However, since 2009 mining companies have had to face tough times. Especially since 2011 commodity prices have shown a declining trend and there remains little hope of a rebound on the short term as the sluggish global economic growth trend persists, particularly led by the economic slowdown in China.
Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), expressed his concern about unemployment in Indonesia, particularly unemployment among the younger generation of Indonesians (aged between 15 and 29). Amid slowing economic growth over the past six years, various industries have been cutting employment. With roughly half of the total population below 30 years of age, Indonesia’s demographic bonus can turn into disaster if this potential workforce fails to obtain employment opportunities.
A total of 35 American companies are interested to invest a combined USD $61 billion in Indonesia over the next five years according to a survey conducted by the Paramadina Public Policy Institute, the American Chamber of Commerce in Indonesia (AmCham Indonesia), the Indonesian Employers Association (Apindo), and the Indonesian Chamber of Commerce and Industry (Kadin Indonesia). These 35 US companies have already invested a total of USD $65 billion in Indonesia over the period 2004 to 2012.
In the past days, Indonesia’s fuel subsidy policy has been in the spotlight of Indonesian media continuously. When it was reported that incumbent President Susilo Bambang Yudhoyono (SBY) and newly elected president Joko Widodo would meet on the island of Bali this week to discuss various transitional matters, speculation emerged that the country’s generous fuel subsidies, which seriously burden the government’s budget as well as current account, might be wound down before the new government is inaugurated in October 2014.
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