Indonesia Forum Auckland, September 28, 2012

NOKE KIROYAN

Doing Business in Indonesia:

An Introduction and Overview

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The World’s Largest Archipelago• Population: 241 million• Land area: 1.9 million square

kilometers (the size of Mexico, almost 2/3 of India)

• 17,500 islands• 300 ethnic groups

Population: 140 million, thereof approx. 90 million ethnic Javanese (largest ethnic group in Southeast Asia).

Size: 126.700 km2 (almost 1/2 the size of New Zealand). 1000-km northern route (great post road/groote postweg) constructed by Governor General

Herman Daendels in 1808 – 1810 in the service of France the island’s main artery to date. Center of power and economy since colonial times. Javanese culture dominant, and pre-eminently dominant during President Soeharto’s 32-year

reign.

Center of the Indonesian Universe

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Faces of Indonesia

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Cultural Diversity in Indonesia

“Ask anyone in Indonesia about the country’s future and most likely you will get an optimistic answer. This is no surprise. The third largest democracy and fourth most populous country in the world has transformed itself from a low-income country in the 1960s into a fast-growing emerging market.”

“Doing Business in Indonesia 2010” – The World Bank and IMF 6

Perennial Optimists

National Policy-making Process

Perception of Good of Community

Public Opinion

Ideology

Economic, Social and Political

Circumstances

Governments

Political Attitude

POLITICAL WILL

GOAL: GOOD OF

COMMUNITY

Policies and Strategies

7(“Negotiating Mining Agreements: Past, Present and Future Trends,” Danièle Barberis, 1998)

Year Era Economy

1945-1950 Revolution (War against the Dutch)

Non-existent

1950-1957 Proto-democracy In shambles

1957-1966 Guided Democracy (Revolution Ch. 2)

In ruins – inflation 650%

1966-1998 New OrderExcellent: 7- 8% growth

1998-2005 Reformation – seeds of democracy In the Doldrums

2005- now Nascent DemocracyRespectable: 6% + growth

Political and Economic Overview

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Article 33 of Indonesian 1945 Constitution

1. The economy shall be organized as a common

endeavor based upon the principles of the family

system

2. Sectors of production that are important for the country and affect the life

of the People shall be controlled by the State

3. The land, the waters and the natural riches

contained therein shall be controlled by the State and

exploited to the greatest benefit of the people

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Economic Nationalism is not a new phenomenon

It is enshrined in the Constitution

Only during a very brief period in its history did Indonesia ideologically deviate from economic nationalism (1950 – 1957)

Economic nationalism was the driving force even in the reign of President Soeharto that was hailed as the era of economic

developmentThe Contract of Work is a legal construct to accommodate foreign

participation within a nationalistic framework (Article 33 of Constitution)

Economic growth will strengthen, rather than weaken economic nationalism, at least in the medium term

Economic nationalism mainly affects the resources industries, in other sectors many foreign companies are doing very well

Outside mining, many foreign companies are doing well

BANKINGANZ, HSBC, CIMB,

Commonwealth

INSURANCECIGNA, Prudential,

Manulife, Allianz

FMCGUnilever, Arnott’s, Phillip Morris, BAT

LOGISTICSSchenker, DHL,

Maersk

TECHNOLOGYAxiata, RIM, Siemens, GE

TRAVELAir Asia, Accor

Group

AUTOMOTIVEToyota (market share

> 50%), Honda, Mercedes

It definitely is, but you can do (good) business in Indonesia without promoting and resorting to bribery or being otherwise involved in corruption.

Is Corruption an Issue?

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Middle class group: 50 million +

27th biggest exporter in 2010

Inflation 5.4% (2011)

Economic growth in 2011 6.5% - 2012 revised downward to 6.3%

Size of economy : US$ 846 billion in 2011, projected to be a trillion dollar economy in 2014

16th largest economy in the world

Some Stats ………

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A few Snippets

Growth of air travel in 2011

22%

National flag carrier Garuda flew 4.6 million passengers in Q1/2012 (up 25% YOY)

Jakarta Airport served 52.4

million passengers in

2011

New car sales in 2012

projected at 1 million units

Mobile telephone

subscriptions in Q1/2012 255

million numbers

Accor to double number of

hotels to 100 by end 2015

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1200 air traffic

controllers needed

Aston Hotels to add 73 new hotels (20

thereof this year) to

existing 45

800 new pilots

needed annually

US$ 2 billion commuter line from airport –

Jakarta operational

2014

Challenge # 1: Unfamiliarity breeds disinterest

Indonesians don’t know much about New Zealand

Kiwis don’t know much about Indonesia

Ergo – stereotypes prevail

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Challenge # 2: Hardly Any Commonality

We don’t play cricket

We don’t play rugby

Our legal system is based on the

Napoleonic code

Directness is not usually a

virtue

Indonesians are city-dwellers

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Challenge # 3: Australia far ahead in bilateral relations

Cooperation exists in all sectors and areas: economy, security, education,

counter-terrorism

Negotiations on Indonesia – Australia Comprehensive Economic Partnership

Agreement (IA-CEPA) commenced in September 2012

May be turned into an advantage if linked to Australia – New Zealand Closer Economic

Relations (CER)17

IA-CEPA initial work will focus on four areas

Agriculture

Minerals

Services

Green economy

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19(“The archipelago economy: Unleashing Indonesia’s Potential – Executive Summary” – McKinsey Global Institute, September 2012)

• 16th-largest economy in the world• 45 million members of the

consuming class• 53% of the population in cities

producing 74% of GDP• 55 million skilled workers in

the Indonesian Economy• $0.5 trillion market opportunity

in consumer services, agriculture and fisheries, resources, and education

• 7th-largest economy in the world

• 135 million members of the consuming class

• 71% of the population in cities producing 86% of GDP

• 113 million skilled workers needed

• $1.8 trillion market opportunity in consumer services, agriculture and fisheries, resources, and education

Indonesia Today …..and in 2030

The Archipelago Economy: unleashing Indonesia’s Potential

20(“The archipelago economy: Unleashing Indonesia’s Potential – Executive Summary” – McKinsey Global Institute, September 2012)

Misperceptions about Indonesian economic performance

The Indonesian economy has performed strongly over the past decade and is more diverse and stable than many realize. Indonesia had the lowest volatility in economic growth compar-ed to OECD and BRIC countries.

Another mis-perception is that Indonesia’s economic growth centers on Jakarta. The fastest growing urban centers are large and mid-sized cities with more than 2 million people, incl. Medan, Bandung, Bogor and Surabaya.

Indonesia is not an Asian manufacturing exporter driven by its growing workforce or a commodity exporter driven by its natural resources. The main drivers of growth are domestic consumption and services.

The majority of Indonesia’s productivity gain has come not from a shift of workers from lower-productivity agriculture into more productive sectors, but from product-ivity improve-ment within sectors and not at the expense of employment.

Opportunities abound for NZ companies – but diligence and patience required

Agriculture

Aviation

Consumer Products

Infrastructure

Natural Resources

Education

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What could be done to accelerate and expand business relations

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New Zealand as a source of invention and technology

Spearheaded by rebranding – introducing other areas of expertise in addition to agriculture

Multi-year investment by NZ Government in bilateral relations

A final note: find the right partner!

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Unless you are very big, you don’t enter the Indonesian market by yourself, but in partnership with a local individual or company. Finding the right one takes time

and effort Don’t enter into a partnership

without due diligence

THANK YOU

PT KOMUNIKASI KINERJA

Menara Karya, 10th Floor Suite HJl. HR Rasuna Said Blok X-5 Kav.

1-2Jakarta 12950 – INDONESIA

T: +6221 5794 4694F: +6221 5794 4696

info@kiroyan-partners.comwww.kiroyan-partners.com