Perspectives

28 February 2023 - Technical Assistance II

Indonesia has been actively promoting its manufacturing sector as a key area for Foreign Direct Investment (FDI) to drive sustainable economic growth and achieve the 2045 grand vision of becoming a prosperous and advanced nation.

The pharmaceutical and healthcare industries have emerged as one of the priority sectors for investment, given the potential to contribute to the country's economic development, as well as the growing demand for healthcare services in Indonesia.

The Ministry of Investment (BKPM) partnered with ARISE+ Indonesia to develop an Investment Attraction Plan to attract FDI from the European Union (EU), including for the pharmaceutical and healthcare industries. On February 14, the Ministry of Investment (BKPM), in collaboration with ARISE+ Indonesia, organised an investment meeting to promote Indonesia's investment projects in the healthcare sector, convening EU companies, embassies, trade and investment organisations, as well as the Ministry of Health, the Ministry of Industry, and the Ministry of National Development Planning Ministry (Bappenas).

We had the honour to discuss the investment attraction plan with Mr Indra Darmawan, the Deputy Minister for Investment Planning, at the Ministry of Investment (BKPM).

The following is the excerpt from our interview.

Q: What would be Indonesia's investment target and direction this year? Given the current economic uncertainties brought about by the pandemic, Russian war, and geopolitical tensions, how does Indonesia plan to maintain continued investment growth and meet the investment realisation target for 2023? Considering that the investment realisation in 2022 exceeded the target, what strategies would be to anticipate difficulties in meeting this year's target?

A: The investment target this year is set for IDR 1,400 trillion, a 16,7% increase from last year (2022). We have identified that developing a robust manufacturing sector and implementing an industrial downstream policy are key strategic policies to achieve our investment target and promote sustainable economic growth in Indonesia. The Ministry of Investment/BKPM has recently completed the formulation of a comprehensive roadmap for the industrial downstreaming policy, which covers 21 commodities under eight priority sectors.

Indonesia's industrial downstreaming policy, particularly in nickel processing, has yielded significant results. The value of Indonesia's nickel exports has surged from US$ 3,3 billion in 2017 to an impressive US$30 billion in 2022. This is clear evidence that our downstreaming policy adds value to raw materials, increasing the overall value of the Indonesia's exports. This, in turn, contributes to economic growth by boosting the country's GDP and promoting further economic development.

Indeed, this year presents us with a number of challenges, both globally and domestically. The global recession and the upcoming political year in Indonesia have caused some investors to take a wait-and-see approach. Since our trade value only contributes 35% of GDP, the domestic factor could pose a greater challenge than the global one. Nowadays, competitiveness is not just about efficiency but also resilience to shocks.

To address these challenges, we must foster closer collaboration with business actors, providing them with assistance and creating a conducive and comfortable environment that facilitates ease of doing business in Indonesia. By doing so, we can encourage more investment and ensure that investors continue to see Indonesia as an attractive destination for their capital. Through this collaboration, we can build greater resilience and achieve our investment targets for 2023 and beyond.

Q: As the largest market in the ASEAN region, Indonesia has the potential to lead the bloc's economic growth. Could you share some insights into the investment agenda that Indonesia is championing as the ASEAN Chair in 2023 and how it plans to lead the region towards greater economic growth and development?

A: Indonesia's ASEAN Chairmanship is a strategic opportunity to build on the success of its Presidency of the G20, which was widely considered a success and is a valuable asset. Only the focus is now shifting from the international to the regional level, emphasising how Indonesia can lead the ASEAN region to navigate economic cooperation amidst a fierce rivalry between major economic powers.

With a population of 600 million, the ASEAN region is a strategic asset with great potential to become a production hub, not just a target market. Indonesia aims to leverage its ASEAN Chairmanship this year, under the theme "ASEAN Matters: Epicentrum of Growth", to foster economic cooperation and create new economic centres tailored to each country's competitiveness.

In the context of ASEAN, digital connectivity is the most critical aspect to work on. Improved digital connectivity would pave the way for the region to become a world-class production hub. However, the digital divide between ASEAN countries presents a challenge that must be addressed through increased cooperation to strengthen the region's digital connectivity, making it more resilient and competitive as a strong production hub.

Q: What were some of the key takeaways from the recent event, in collaboration with ARISE+ Indonesia, to convene European Union companies and promote investment projects in the pharmaceutical and healthcare sectors?

A: The recent Focused Group Discussion (FGD) provided a valuable opportunity for us to present three ready-to-offer investment projects, supplemented with a pre-feasibility study, which can greatly assist potential investors.

The projects include the Paracetamol Medicinal Raw Material Industry, Clopidogrel, and Amoxilin in Subang Industrial Estate, the Pharmaceutical Salt in Gresik, and the Natural Rubber-based for Healthcare Industry in Medan Industrial Estate. In addition to showcasing these projects, the FGD served as a platform for communication with the private sector. We were able to gather information on the challenges businesses face and their aspirations, enabling us to discuss and develop effective policy solutions. The inputs from the private sector provide valuable insights and feedback that can be used to improve the business environment in Indonesia.

Q: Ministry of Investment/BKPM, in collaboration with ARISE+ Indonesia, is developing an investment plan to attract a new wave of EU investment into Indonesia. Could you please give us your perspectives on the key ways in which you believe FDI from Europe, in particular, can strategically support Indonesia in achieving its investment target and contribute to Sustainable Development Goals (SDGs)?

A: Foreign direct investment (FDI) from Europe has a strategic role in supporting Indonesia in achieving its investment target and contributing to SDGs. European Union has been among Indonesia's top 5 and top 10 investors for the last three years, especially in the pharmaceuticals and healthcare industries. The fact that companies from the European Union rank among the top five investors in Indonesia indicates a strong appetite among European companies to invest in the country.

In addition to bringing new capital, European companies can offer access to technology, innovation, and management best practices that can help to increase productivity and efficiency and promote innovation in the Indonesian economy. Moreover, FDI from the EU can help Indonesian companies to penetrate the global market, particularly the EU market. To further facilitate this, we are pursuing to conclude the Indonesia-EU Comprehensive Economic Partnership Agreement (I-EU CEPA) negotiation by the end of this year. This agreement can unlock new opportunities for trade and investment, creating new market access and reducing barriers to trade.

The FDI from the EU will also help improve Indonesia's economy's competitiveness by promoting linkages between local and foreign firms and boosting the quality and standards of products and services in the country. More importantly, FDI can create job opportunities, improve infrastructure, and promote environmental sustainability. All of the above are essential to contributing to the sustainable growth of the Indonesian economy and achieving SDGs.

So, thank you, ARISE+ Indonesia, for the support and cooperation.

Q: What core message would you like to give to European foreign investors who have the potential to expand their businesses in the Indonesian market?

A: Indonesia remains a top 20 global investment destination, according to UNCTAD. Despite the challenges posed by the pandemic, Indonesia's economic performance has remained above average, and the country's increasing visibility on the global stage is attracting attention from investors worldwide, including those from the European Union. Indonesia has the potential to become a partner for industrial development, particularly in the high-tech sector, where it currently lacks expertise. Investors from the European Union can fill this gap and collaborate with Indonesia to serve both the ASEAN and global markets. This strategic partnership can benefit both Indonesia and the EU, allowing Indonesia to leverage the strengths of EU companies and technology while providing a platform for EU companies to expand into the region. As such, Indonesia's position as a key investment destination is highly significant for the European Union and vice versa.

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