US-Indonesia Bilateral Economic Ties Worth $90 Billion

US-Indonesia Bilateral Economic Ties Worth $90 Billion

                                                                   New study released at annual Investment Summit

(Jakarta, Indonesia) The total value of the Indonesia-US bilateral economic relationship exceeds $90 billion per year, according to a report released today by AmCham Indonesia and the U.S. Chamber of Commerce. Entitled "Vital & Growing: Adding up the US-Indonesia Economic Relationship,", the study projects that, in a best case scenario, that number could grow to $131.7 billion by 2019 - an increase of 46.2 percent over 5 years.

The report was released at the fourth annual US-Indonesia Investment Summit in Jakarta, which is co-sponsored by the US Chamber and AmCham Indonesia.

"This report succinctly captures the enormous importance of the economic relationship between the two countries," said Myron Brilliant, Executive Vice President and Head of International of the U.S. Chamber of Commerce. "Even more striking than the size of the economic interaction is the potential for further growth, if the investment environment is welcoming."

In an innovative approach to measuring bilateral economic ties, the two organizations quantified the totality of the economic linkages netween the two nations, to include not just foreign direct investment, but also trade, domestic sales, finance and government revenue. Taken together, these five components added up to $90.1 billion in 2014 (the latest year for which data are available). This is equivalent to roughly 10 percent of Indonesia's GDP.

"This report grows out of our strong partnership with the US Chamber of Commerce and with the Indonesian government-particularly BKPM (the Indonesia Investment Coordinating Board)." said Brian Arnold, President of AmcHam Indonesia. "This partnership has given both government and business a very valuable platform on which to hold frank and candid discussions about the policies that will best promote economic growth."

According to the report, achieving the best-case scenario will depend largerly on actions taken by both governments. The report notes that President Joko Widodo's administration has already undertaken certain economic reforms, but will need to continue and expand that process to achieve the desired outcome. Priorities include:

  • Legal certainty as the foundation for business confidence and growth. Both US and Indonesian companies will be able to invest, grow and create jobs if there is greater legal certainty in terms of contract sancity, enforcement of existing laws and an impartial judiciary.
  • Collaboration and communication are vital for the creation of an enabling economic environment. Effective communication with the private sector will yield more effective and rational policies and regulations.
  • Innovation is the key to keeping pace in a dynamic global economy. Incentive for taking risks, investment in research and development, and human resource capacity building are the keys to innovation.
  • Bureaucratic and policy reform must continue and expand. Specific examples include the abolition of the Negative Investment List (DNI), rationalization of the work permit process, streamlining of permitting at all levels of government, and reform and proper incetivization of the civil service and judiciary.

The report also looks at nine industrial, extractive and service sectors. Each one is at a different stage of development with US companies playing diferent roles in each. The degree to which each sector is controlled by the government is a main factor in their performance. Based upon a ranking system developed in the report, several sectors have a high degree of future potential. These include creative economy, finance and infrastructure. Several factors in which US companies have a significant presence have average prospects of growing apace with GDP, such as oil and gas, consumer goods and agriculture. Other sectors have lower potential partly due to restrictive government policies that inhibit investment and create uncertainty.

The executive summary of the report can be accessed here: http://bit/ly/USIIIReport2016-ExecutiveSummary

The full report is here: http://bit.ly/USIIIReport2016


Key Findings

What is the real value for Indonesia of its economic relationship with the United States? AmCham Indonesia and our partner in the US-Indonesia Investment Initiative, the U.S. Chamber of Commerce, have previously focused in several studies on foreign direct investment (FDI), coming up with impressive numbers regarding US companies and their involvement in Indonesia. But this year, we wanted to do more.

We set out to try and quantify the totality of the US-Indonesia economic relationship, to include not just FDI, but also trade, domestic sales, finance and government revenue. Together these five components equal the Big Number, which captures the enormous importance of the economic engagement between these two major powers. Here are some of the key findings from the main report.

The Big Number

  • The total value of bilateral economic relationship between the US and Indonesia was $90.1 billion in 2014.
  • The net trade adjusted figure represents 10.1 percent of Indonesia's GDP in 2014.
  • The compound annual growth rate (CAGR) for the total economic relationship grew at 8.0 percent over 5 years (2010-15), while Indonesia's GDP growth over the same period was 5.5 percent, indicating the relationship is a strong driver of overall growth.
  • Domestic sales make up the largest component of the Big Number at $34.1 billion, followed by bilateral trade at $27.6 billion, FDI at $14.7 billion, finance at $11.8 billion and government revenue at $1.8 billion.
  • Using the best case scenario, the number could grow to $131.7 billion by 2019-an increase of 46.2 percent over 5 years.

The Road to the Best Case

Achieving the best-case scenario will depend on actions taken by both the Indonesian and US governments. It is also dependent on external factors that cannot necessarily be controlled. There are, however, a series of economic reforms that can be undertaken by the Indonesian government that would increase the likelihood of achieving the best-case scenario. The process of economic reform has already been started by the Widodo administration, but will need to continue and expand to achieve the desired outcome. These include:

  • Legal Certainty is the founcation for business confidence and growth. Both US and Indonesian companies will be able to invest, grow and create jobs if there is greater legal certainty in terms of contract sanctity, enforcement of existing laws and an impartial judiciary.
  • Collaboration and Communication are vital for the creation of an enabling economic environment and development of rational laws and regulations. Effective communication as economic policies are developed to make use of the experience and expertise of the private sector will lead to effective policies to make Indonesia a world class economy.
  • Innovation is the key to keeping pace in a dynamic global economy. Incentives for taking risks, finding new ways of doing things, investing in research and development and human resource capacity building are the keys to innovation.
  • Bureaucratic and policy reform must continue and expand. Specific examples include the abolition of the Negative Investment List (DNI), rationalization of the work permit process, streamlining of permitting at all levels of government, and reform and proper incetivization of the civil service and judiciary.

Economic Sector Potential

The report also looks at nine industrial, extractive and service sectors. Each one is at a different stage of development with US companies playing diferent roles in each. The degree to which each sector is controlled by the government is a main factor in the performance of each of these sectors, now and into the future.

Based upon a ranking system developed in the report, several sectors have a high degree of future potential. These include the creative economy, finance and infrastructure. Several sectors in which US companies have a significant presence have average prospects growing apace with GDP, such as oil and gas, consumer goods and agriculture. The final set of sectors have lower potential partly due to restrictive government policies that inhibit investment and create uncertainty. These include extractive, pharmaceutical/healthcare/life sciences and information communications technology (ICT).

US Company Sentiment

A survey was also taken and interviews were conducted with the executives of US companies both in Indonesia and the US. Here are some of the findings:

  • 87 percent felt that there had been "some improvement" in the investment climate under the Widodo administration;
  • 100 percent stated that 12 economic reform packages had "some impact";
  • When asked if the reform packages have ahd any impact on their own business, only 25 percent stated that they had "some impact", while 75 percent stated that there was "no impact" or that it was still "too early to say".

The executive summary of the report can be accessed here: http://bit/ly/USIIIReport2016-ExecutiveSummary

The full report is here: http://bit.ly/USIIIReport2016

 







Kamis, 15 September 2016 |