Posted on 18 Dec 2014
Indonesia is predicted to enjoy higher foreign direct investment
(FDI) and trade volume when the ASEAN Economic Community (AEC) is implemented
at the end of next year as it stands as the largest economy in the region, a
professional accountants group said in recent research.
The quarterly research, titled Economic Insight: Southeast Asia, was conducted
by UK-based accounting body the Institute of Chartered Accountants in England
and Wales (ICAEW) in collaboration with independent UK consultant the Centre
for Economic and Business Research Ltd (CEBR). The fourth-quarter research’s
scope includes a focus on Indonesia, Malaysia, the Philippines, Singapore,
Thailand and Vietnam as the leading economies in the region.
Douglas McWilliams, chief economist at the ICAEW and executive chairman at the
CEBR, said the AEC aimed to increase free trade and regional integration, which
would create a market situation with more open cross-border capital and
workforce exchanges.
The AEC’s goal of regional interdependence has been built gradually through the
ASEAN organization as the region’s intra-FDI amount grew 17 percent in 2013,
higher than the 13 percent increase in 2000.
“Among its ASEAN counterparts, Indonesia recorded the highest FDI growth with
36.8 percent between 2000 and 2013,” he said in a press statement recently.
The group also emphasized that better condition of the banking system as well
as legal framework may help the country to increase the FDI scale in the
future. Indonesia’s realized FDI reached Rp 342.7 trillion (US$26.57 billion)
between January and September this year, increased by 16.8 percent from Rp
293.3 trillion in the same period last year, according to Investment
Coordinating Board (BKPM) data.
Mark Billington, regional director at the ICAEW’s Southeast Asia Office, added
the economic integration would be more effective if ASEAN members committed to
developing advanced infrastructure, such as high-speed trains between Kuala
Lumpur, Malaysia and Singapore.
“Better connections will help smoothen exchanges of knowledge and skills, which
will also boost the creation of innovative industries with added values,” he
said.
Indonesia’s Finance Minister Bambang Brodjonegoro said recently that the government
had committed to preparing the country’s business world, especially in the
services and manufacturing sectors, to compete in the AEC through providing
incentives.
Bambang said FDI in manufacturing should be increased through providing better
business conditions in the country, adding that “the new one-stop service at
the BKPM will create a much faster process of obtaining permits for investors.”
According to Bambang, Indonesia needs to focus on three manufacturing fields –
natural-resources based, large economic-scale business with a domestic focus
and government-program centered.
“Natural-resources based manufacturing will be related to downstream
industries, while an example of the second type is automotive, because we have
the ability to export in the sector,” he said.
Meanwhile, power-plant development as an energy self-sufficiency program as
well as maritime industry may be included in the government-program based
manufacturing field, Bambang said.
According to Bambang, the government is currently preparing a regulation to
provide incentives for shipyards as part of efforts to support the country’s
maritime-based manufacturing industry. The regulation is expected to be
released earlier next year, he added.
Previously, Coordinating Maritime Affairs Minister Indroyono Soesilo said the
government would provide exemptions on value-added tax (VAT) as an example of
incentives that would be offered to spur growth in the shipbuilding industry as
part of efforts to help realize the maritime-axis platform.
On the other hand, Standard Chartered Bank Indonesia chief economist Fauzi
Ichsan said the government should first focus on building infrastructure before
offering incentives to the manufacturing sector. Bureaucratic reform and
efforts for legal certainty should also be carried out throughout the
infrastructure development, he said.
“We will have more than Rp 100 trillion in funds saved from fuel-subsidy
reallocation next year to finance infrastructure projects. The infrastructure
should also focus on resolving issues of energy supplies and transportation,”
he said.
