Icn-2007-12 - Economic Outlook 2008

ISSN 0853-2086
INDONESIAN COMMERCIAL NEWSLETTER
MONTHLY REPORT
MARKET INTELLIGENCE REPORT ON

INDONESIAN ECONOMIC OUTLOOK 2008
Indonesian Commercial Newsletter Since 1978 Published by PT Data Consult Founder : Sulaeman Krisnandhi Editor-in-Chief : D. Ganjar Sidik Senior Editors : - Hendrawan Tranggana - Agustina R. Effendy
December 2007
PT DATA CONSULT
BUSINESS SURVEYS AND REPORT
List of Content
INDONESIAN COMMERCIAL NEWSLETTER DECEMBER 2007
ECONOMIC OUTLOOK:
ECONOMIC OUTLOOK 2008........................................................................................1

General picture ............................................................................................................................. 1 APBN contributes little to GDP growth ......................................................................................... 2 Export performance improves with commodity price hikes .......................................................... 4 Inflation in 2007, exceeding target................................................................................................ 6 Outlook 2008................................................................................................................................. 7 Indonesias economic prospects, 2008 ........................................................................................ 9
INDUSTRY OUTLOOK:
PROSPECTS OF MANUFACTURING SECTOR IN 2008...........................................10

Current issue-De-industrialization............................................................................................... 10 GDP growth by sectors............................................................................................................... 11 Transport equipment industry revived in 2007 ........................................................................... 12 Metal industry takes advantage of high steel price in export markets........................................ 13 Cement industry growing to follow revived of property sector in 2007 ....................................... 13 Fertilizer and chemical manufacturing sector to grow at slower rate ......................................... 14 Food, beverages and tobacco manufacturing sector ................................................................. 15 Timber and forestry products sector ........................................................................................... 15 Textile, rubber goods and footwear manufacturing sector ......................................................... 16 Export of non-oil/gas boosted by high commodity prices ........................................................... 18 Realization of investment surges................................................................................................ 20 Growth target manufacturing sector in 2008 .............................................................................. 23 Textile industry expected to revive ............................................................................................. 24 Motor vehicle industry expected to continue to grow.................................................................. 25 Cement industry to grow by slower pace.................................................................................... 25 Food, beverage and tobacco sector ........................................................................................... 26 Steel industry facing dumping prices .......................................................................................... 26 Timber product industry .............................................................................................................. 26 Paper and printed materials........................................................................................................ 27 Fertilizer and chemical industry .................................................................................................. 27 Projection for 2008 by the government....................................................................................... 28
AGRIBUSINESS:
AGRIBUSINESS ..........................................................................................................29
Current issue............................................................................................................................... 29 Agribusiness sector expanded 10.23% in 3rd Q of 2007 ............................................................ 30 Prices of several agribusiness commodities expected to continue to scale up in 2008............. 31 CPO price is expected to rise to US$ 900 per ton...................................................................... 31 Price of cacao ............................................................................................................................. 32 Rubber price ............................................................................................................................... 33 Coffee price................................................................................................................................. 34 Prospects of agribusiness 2008.................................................................................................. 35
December 2007 - Indonesian Commercial Newsletter
List of Content
INFRASTRUCTURE:
PROSPECTS OF INFRASTRUCTURE AND PROPERTY SECTORS 2008............. 37

TOURISM:
OVERVIEW AND PROSPECTS OF TOURISM SECTOR .......................................... 42

TELECOMMUNICATION:
OUTLOOK OF TELECOMMUNICATION INDUSTRY ................................................ 49

MINING:
PROSPECTS OF MINING COMMODITIES, 2008 ...................................................... 54

CORPORATE NEWS IN BRIEF: Barito Pacific to acquire 70% of Chandra Asri............................................................................ 58 Medco to team up with sheel upstream to develop CBM Deposits ............................................ 58 Indofood Group acquires Lonsum .............................................................................................. 58 Djarum Group to expand business to coal mining industry ........................................................ 58 Etilsat acquires 16% stake in XL from Sondahk........................................................................ 59 BII-Danamon Bank closer to merger .......................................................................................... 59 Bank Lippo and Bank Niaga heading for merger........................................................................ 59 Polysindo to spend US$ 75 million in 2008 ................................................................................ 60 ATPK acquires Otoma Global Mitra BII-Danamon Bank closer to merger................................. 60 Garuda doubles order for Boeing 737-800 NG........................................................................... 60 Rajawali to establish Cambodian flag carrier ............................................................................. 61 Pertamina to build new oil refinery in East Java......................................................................... 61 ECONOMIC NEWS IN BRIEF: Implementation of investment 184% from target ........................................................................ 62 Indonesian Airlines asked not to buy European aircraft ............................................................. 62 Indonesia-Qatar joint venture to finance projects ....................................................................... 62 More incentives offered to boost oil and gas explorations.......................................................... 63 Investment in oil and gas sector predicted to rise 22.2% ........................................................... 63 Indonesia-Iran oil refinery project shelved .................................................................................. 63
APPENDICES: Monetary indicators..................................................................................................................... 64 Banking indicators....................................................................................................................... 65 Economic Indicators.................................................................................................................... 66 Export and import........................................................................................................................ 67 Gross Domestic Product............................................................................................................. 68 Oil Price and Foreign Exchange .................................................................................................69 The Indonesian Economic Trends .............................................................................................. 70
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ECONOMIC OUTLOOK
ECONOMIC OUTLOOK 2008
General Picture The Indonesian people entered the year 2007 with great expectation that things would be better than in 2006 when the economy was rocked by soaring oil prices in the world market and increases in oil fuel (BBM) prices on the domestic market. The governments decision to raise the price of subsidized BBM in October, 2005 resulted in a slump notably in the manufacturing sector in 2006. In 2007, the economic condition improved despite rising prices of crude oil to hit the US$ 100 per barrel level. The inflation in 2007 was kept low as the government maintained the prices of BBM, telephone and electricity tariffs. Meanwhile, Bank Indonesia cut its benchmark interest rate contributing to revival of the business sector. In August-Sept. 2007 the worlds economy was jolted by the U.S. sub-prime mortgage crisis causing a loss of billions of U.S. dollars to a number financial agencies in a number of countries. the world. Indonesia fared better. The country and a number of other Southeast countries, which have experienced monetary crisis in 1997 were better prepared to face the U.S. crisis. However, the improvement of the countrys macro economic indicators condition fell short of the peoples expectation and the business sector in particular. The economic growth was not strong enough to reduce poverty and unemployment. Based on data in the first three quarter of 2007, the countrys economy was estimated to grow 6.5% (y on y) and exports 13%.
Table - 1 Economic indicators, 2006 2007 *) Description 2006 1. GDP growth (%) 5.2 2. Growth of domestic demand (%) 5.3 3. Growth of private consumption (%) 3.0 4. Fiscal balance (% against GDP) (1.3) 5. Foreign debts (US$ billion) 128.7 6. Total foreign debts of the government 52.9 7. Foreign exchange reserve (US$ billion) 44.5 8. Foreign investment (US$ billion) 2.1 9. Current account (US$ billion) 1.6 10. Inflation rate (%) 7.0 11. Indonesian oil price (US$/barrel) 65.5
Note:*) up to QIII of 2007 Source: BPS, BI,BKPM, Data Consult
2007*) 6.5 5.4 5.3 (1.2) 136.9 55.7 54.9 8.5 1.9 6.6 68.5
Economic Outlook
APBN contributes little to GDP growth In the first three quarters of 2007 the countrys GDP grew 6.52% stronger than 2006s growth of 5.48% in 2006. The soaring prices of crude oil in the world market and the U.S. sub prime mortgage crisis dragged down the countrys economic growth in 2007 Exports growth fell short of target because of the U.S. crisis. The main driver of economic growth in 2007 was the consumption sector which expanded 5.29% in 2007. Table 2 GDP growth year-on-year by sectors 2004 2007 (%)
1. 2. 3. 4. 5. Sector Household consumption Government consumption Gross domestic fixed capital formation Exports of goods and services Imports of goods and services Produk Domestik Bruto 2004 4.97 3.99 14.68 13.53 26.65 5.03 2005 3.95 6.64 10.80 16.36 17.07 5.68 2006 3.17 9.61 2.91 9.16 7.57 5.48 2007*) 5.29 6.53 8.83 7.78 8.15 6.52
Source: BPS, processed
Indonesias GDP has for the past several years been sustained by the household consumption sector and exports of goods and services. The worlds economic crisis did not have direct impact on the countrys economy because of the high household spending. Meanwhile, the contribution of the governments consumption to the GDP growth has declined. In 2007, the contribution of the governments spending to the countrys GDP was 7.42% or down from 8.63% in 2006. The decline in the contribution of the governments consumption was caused by lower growth of the development budget. Low realization of the state budget also means the lower role of the state budget as and economic stimulant. The finance ministry said by Nov. 30, 2007, state spending totaled Rp 535.5 trillion or 72% of the amount set in the revised 2007 state budget of Rp 746.4 trillion. Two weeks before the end of 2007, capital spending increased. According to the finance minister, realization of the budget for capital spending was estimated to reach 89.4% of the amount set in the revised 2007 state budget. The estimate was much higher than realization of 82.4% in 2006 and 60% in 2005.
Indonesian Commercial Newsletter December 2007
Economic Outlook
The realization was higher than expected as two weeks earlier the realization was only 83% of the target. The surge in the realization gave rise to suspects of irregularities in the utilization of the state budget fund. The suspicion was mainly in the realization of the special fund allocation (DAK), which turned out to have been fully disbursed amounting to Rp 17.094 trillion.
Table 3 Contribution to GDP (%)

1. 2. 3. 4. 5. 6. 7. Sector Household consumption Government consumption Gross domestic fixed capital formation Inventory change Discrepancy of Statistics Exports of goods and services Imports of goods and services Gross Domestic Product 2004 66.77 8.32 22.45 1.61 (3.82) 32.22 27.54 100.00 2005 64.12 8.08 23.61 0.99 (1.09) 33.61 29.31 100.00 2006 62.69 8.63 23.97 0.59 (0.68) 30.88 26.06 100.00 2007*) 56.44 7.42 22.33 1.90 3.56 47.11 38.76 100.00
Source: BPS
Sector Transport and Communications largest contributor to economic growth The transport and communications sector has been the largest contributor to the economic growth in 2007. That year, the sub-sector of aviation and telecommunications was the largest contributor to the GDP growth marked with the fast growing number of airlines and aircraft and a surge in the number of mobile phone users. In the first three quarter of 2007, the transport and communications sector grew 12.52%, down slightly from the previous years growth of 13.6%. The agricultural sector grew quite strongly by 8.9% in 2007 as against the previous years growth of only 2.98%. The faster growth was attributable mainly to the plantation sector (oil palm, and rubber). The prices of palm oil and rubbers in the world market have soared in the past several years. The manufacturing sector grew slower expanding only by 4.53% in 2007 compared with 4.63% in 2006. The slower growth was caused by high production cost. The mining sector the grew in 2007 but with a slower rate compared with in 2006.
Economic Outlook
Table - 4 GDP growth by sectors, 2001 2007 (year on year) 1. 2. 3. 4. 5. 6. 7. 8. 9. Sector Agriculture Mining and quarry Manufacturing Electricity, gas and water supply Construction Trade, hotel, and restaurant Transport and communications Finance, leasing and coporate services Services GDP Non-oil/gas GDP Oil/gas GDP 2004 2.82 (4.48) 6.38 5.30 7.49 5.70 13.38 7.66 5.38 5.03 5.97 (3.52) 2005 2.66 3.11 4.57 6.30 7.42 8.38 12.97 6.79 5.05 5.68 6.57 (3.20) 2006 2.98 2.21 4.63 5.87 8.97 6.13 13.64 5.65 6.22 5.48 6.09 (1.27) (%) 2007*) 8.90 1.80 4.53 11.72 7.54 6.86 12.52 8.02 5.70 6.52 6.93 1.44
*) Growth y on y Q III 2007 Source: BPS
Export performance improves with commodity price hikes Export growth until November, 2007, fell short of the governments target of 20%. Exports in the first 11 months of that year grew only by 13.04% to US$ 103.1 billion from the same period in the previous year. In the whole of that year, exports were estimated at only US$ 112 billion. In the past two years, exports grew significantly. In 2006, exports grew 18.8% to US$ 101.8 billion. The main contributors to the export growth included the manufacturing sector, notably palm oil and rubber industries. The prices of a number of primary commodities including agricultural and mining products have increased to follow the soaring prices of crude oil in the world market. The increases in the prices of the commodities contributed to rise in the countrys exports. In 2007, however, the growth rate was slowed with limited production capacity. Inadequate infrastructure mainly transport infrastructure also hampered exports. The country is also facing dwindling reserves of minerals such as oil resulting in declining production of oil in the past several years. 4
Economic Outlook
Table 5 Exports by sectors, 2000 - 2007 (US$ million)
2005 Sector I. Non Oil/gas 1. Agriculture 2. Manufacture 3. Mining 4. Other sectors II. Oil and Gas 1. Crude oil 2. Oil production 3. Gas 2002 45,946 2,568 38,730 3,744 4 12,113 5,228 1,307 5,528 2003 47,406 2,526 40,880 3,996 5 13,652 5,621 1,554 6,477 2004 55,939 2,496 48,677 4,761 4 15,645 6,241 1,654 7,750 66,429 2,880 55,594 7,947 8 19,232 8,146 1,932 9,154 78,814 3,309 62,432 11,264 9 22,789 9,821 2,156 10,812 83,533 3,551 68,758 9,843 2006 2007*) Growth 2007**) % 16.22 15.43 16.63 14.03
19,541 8,145 2,562 8,835
1.18 10.45 -2.68 -5.08 13.04
III. T O T A L 57,159 61,058 71,585 85,661 101,603 103,075 Note: *) Exports: Jan Nov. 2007 **) % Change in January-Nov. 2007 from January-November 2006 Source: BPS, ICN
The high prices of oil have resulted in an increase the oil and gas earning. In the first 11 months of 2007, the countrys exports and imports of oil and gas were almost equal with surplus of only US$ 75 million. The trade surplus of US$ 35.57 billion in the first 11 months of 2007 came almost all from non-oil/gas trade.
Table 6 Trade balance, 2002 2007*)

Description I. Including oil and gas 1. Exports 2. Imports 3. Surplus II. Non oil/gas 1. Exports 2. Imports 3. Surplus 2002 2003 2004 2005 2006 (US$ million) 2007*
57,159 31,289 25,870
61,056 32,551 28,505
71,584 46,524 25,060
85,660 57,701 27,960
101,603 70,374 31,229
103,075 67,568 35,507
45,046 24,763 20,283
47,407 24,940 22,467
55,939 34,792 20,147
66,428 40,243 26,185
78,814 49,217 29,597
83,533 48,101 35,432
Economic Outlook
Table 6 contd
Description II. Oil and gas 1. Exports 2. Imports 3. Surplus 2002 12,113 6,526 5,587 2003 13,649 7,611 6,038 2004 15,645 11,732 3,913 2005 19,232 17,458 1,774 2006 22,789 21,157 1,632 2007* 19,542 19,467 75
*) Exports & Imports Jan Nov 2007 Source: BPS, Data Consult/ICN
Inflation in 2007, exceeding target The countrys inflation in 2007 was 6.59% or higher that the governments target of 6%. Foodstuff contributed 75% to the inflation of 1.1 month-on-month in December. BPS said the prices of rice and wheat flour rose sharply in December. Increase in the oil fuel consumption and natural disasters that crippled transport and distribution of goods in Central and East Java, also contributed to the rise in inflation. The higher than expected inflation in 2007 caused concern making it an issue that has to be addressed more seriously by the government in 2008. The high inflation in December forced the central bank to be more careful in taking monetary decision. The central bank maintained its benchmark interest rate (BI Rate) at 8% in its meeting in January after a cut in the previous monthly meeting. In the 2008, state budget the BI rate is assumed to average 6%. Table - 5 Monthly inflation 2005 -2007 (%)
Months January February March April May June July August Sept. Oct. Nov. Dec. Inflation rate 2005 Inflations 1.43 -0.17 1.91 0.34 0.21 0.50 0.78 0.55 0.69 8.70 1.31 -0.04 17.11 2006 Inflations 1.36 0.58 0.03 0.05 0.37 0.45 0.45 0.33 0.38 0.86 0.34 1.21 6.60 2007 Inflations 1.04 0.62 0.24 -0.16 0.10 0.23 0.72 0.75 0.80 0.79 0.18 1.10 6.59
Source: BPS (Central Bureau of Statistic)
Economic Outlook
According to the finance minister, the government sets inflation targets at 5%-6% in 2008, 4.5%-5.5% in 2009 and 4%-5% in 2010.
Outlook 2008 Oil Prices 2008 The oil prices in the world market have inched closer to the US$ 100 per barrel level in entering the year 2008. The prices are expected to decline after the peak of winter in the northern part of the world, but negative sentiments will continue to threaten the market that people should get used to living with high prices of oil. The prices of oil are forecast to continue to fluctuate but will hover around US$ 90 a barrel with sometimes hitting the record level of US$ 100 per barrel. High prices of oil may result in higher inflation and cause economic slowdown in the world. However, analysts said as long as the oil prices are below US$ 120 a barrel, crisis could still be averted despite deep slump, but the worlds economy will most likely be succumbed to crisis if the prices scale up higher than US$ 120 a barrel.
Economic projection by the government in 2008 The government as expressed both by the president and the chief economics minister is optimistic that the countrys economy will be better in 2008 than in 2007. Chief Economics Minister Boediono predicted that the countrys economy will expand by 6.5%-7%. Boediono said amid the global economic slowdown and soaring oil prices, there are still factors sustaining economic growth in 2008. He cited the composition of export commodities is easily affected by the global economic instability. The Indonesian exports are dominated by commodities that are high in price and demand. The global slump will affect exports in general but demands are still strong for major export commodities like coal, rubber and palm oil. Another factor pushing up economic growth include is stronger investment sector. Until the second quarter of 2007, approved investment projects increased in number and value. An increase in capital spending will also contribute to economic growth, in the 2008 state budget capital spending is set at Rp 101.5 trillion.
Economic Outlook
However, it would not be easy for the government to reach its economic growth target of 7% set for 2008 apart from external factor, internal factor could come as a stumbling block such as political heat ahead of the 2009 elections, natural disasters, which are especially more frequent in the country lately and inefficient distribution system.
Prospects of Global Economy A World Banks Report about Global Economic Prospects 2008 said the worlds economic growth will tend to slow down as a result of the declining growth of major economies notably the United States, which has been rocked by sub-prime mortgage crisis. However, a strong growth will be recorded by emerging economies. The worlds economy was estimated to expand by 3.6% in 2007, down to 3.3% in 2008. The World Bank estimated that the emerging economies grew by 7.4% last year and the growth rate would fall to 7.1% in 2008. The United Nations also predicted slowdown in 2008 but developing nations will maintain high growth. Based on the World Banks report, China and India will lead emerging economies. The two Asian giants will maintain strong growth in 2008. China is predicted to expand by 10.8% in 2008 slower than an estimated 11.3% in 2007 and India to expand by 8.4% in 2008. With the expansion, overall, the economic role of developing nations will equal the U.S. economic role in the world. Developing nations will have big contribution to the worlds economic growth and will help reduce the impact of the economic slump in the advanced nations on the global economy. The report said the world economy will continue to face big challenges in the new year. First, a decline in the U.S. economy will result in a decrease in exports from developing nations. However, the sub-prime mortgage crisis in the United States could still be controlled although it has jolted major financial markets in the world. The U.S. economy is expected to revive in 2009 with a growth of 2.3% and the worlds economy is forecast to expand by 3.9%. Second, devaluation of the U.S. dollar will be a threat to the world economy destabilizing world trade and monetary market, and could cause a slowdown in exports and investment.
Economic Outlook
Third, the effects of the oil price that recently hit the US$ 100 per barrel level in international future exchange market is feared to be worse. However, according to the World Bank report, higher prices of oil would reduce consumption. It is estimated that the prices of crude oil in 2008 and 2009 would fall gradually. The report said the average prices of crude oil exceeded US$ 84 a barrel in 2008 and would fall 6.8% to an average of US$ 76 in 2009. Meanwhile, World Bank economists warned against the danger of economic overheating in developing countries. Slump in the United States may trigger capital flight form the words economy to developing nations causing larger economic bubbles.
Indonesias Economic Prospects, 2008 The Indonesian economy was better in 2007 than in the previous year although the improvement was not up to expectation. A number of economic indicators improved in 2007 such as economic growth was higher than 6.5 year on year, inflation was lower at 6.6%, the BI Rate was cut to 8%, the rupiah was more under control at the level of 9,100 -9,400 per US dollar and exports grew by 13% though falling short of target. Foreign investors also show greater interest as indicated by the increase in the valued of investment approval and growing Gross Fixed Capital Formation (PMTB) In the third quarter of 2007, PMTB grew 8.8% (y-o-y), rising from 7.7% and 6.9% in the first and second quarters or much higher than the growth rate of 1.29% in 2006. Expansion in the investment sector was reflected by improvement in construction investment indicator such as in an increase in cement consumption and in investment credits. Realization of investment projects in the first nine months of 2007 grew by 95.7% for foreign direct investment and by 164.5% for domestic investment. This indicates improved confidence of investors in the countrys economy and the governments policies. The Indonesian economy is predicted to improve in 2008 even if the crude oil prices will remain high at around US$ 100 a barrel. Indonesian economy is sustained by its exports of primary commodities with prices higher to follow the oil price hikes offsetting losses cause by an increase in the oil prices. However, if the oil prices remain high, inflation might be more difficult to control. Inflation could be as a high as in 2007 at 6.5% in the first quarter of 2008 or cut slightly to 7.75% . The economic growth, therefore, is predicted to be slightly higher than in 2007 at 6.5%-7% in 2008. * * *
INDUSTRY OUTLOOK
PROSPECTS OF MANUFACTURING SECTOR IN 2008
Current issues- De-industrialization The manufacturing sector was the hardest hit by the 1997/1998 crisis. The sector has not yet fully recovered from the blow although a number of industries such as automotive industry have almost fully recovered. Other industries are still in the process of recovery and some have even collapsed. When the crisis struck many industries collapsed over huge debts with swelling repayment burden as a result of the rupiah fall. Sectors such as banking, agriculture and mining have revived but the manufacturing sector remained in the doldrums facing heavier challenges. Competition is sharper especially from China, which produces much cheaper products. Chinese products are more competitive not only in international market but they have also flooded the Indonesian market facing weak resistance from local products. The surge in the prices of oil fuels in 2005 served another blow to the countrys manufacturing sector. The production costs rose amid weakening purchasing power of the people. Producers, therefore, could not raise their prices as buyers would certainly chose imported products. The prices of basic materials have also increased adding to the production cost. A number of cacao-based food producers were forced to stop operation on difficulty to secure the basic material. Cacao farmers and traders choose to export their cacao beans as the prices were higher in international markets. It is ironic that Indonesia, one of the worlds largest producers of cacao beans had to face scarcity in supply of that commodity forcing cacao processing factories to import cacao beans from Malaysia. Almost all industries were facing an increase in the prices of their basic materials as a result of the prices of primary commodities like iron ore, nickel, copper, etc. Similarly the prices of farm products like cacao, crude palm oil, soybean and rubber have continued to climb. Another factor weakening the manufacturing sector is lack of fund to finance capacity expansion or to restructure or modernize factories. Banks still hesitated to disburse fresh fund for some sectors of the manufacturing sector. Forestbased, textile and footwear industries are still seen as risky sectors. The manufacturing sector, therefore, could not share the benefit from a cut in bank interest rates.
Indonesian Commercial Newsletter - December 2007
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Industry Outlook
Development of the manufacturing sector is also hampered by too much red tape including illegal levies, which are still rife in the country. Meanwhile, there has been no improvement in law enforcement. Investors still complained about legal and business uncertainties. As a result the contribution of the manufacturing sector to the countrys Gross Domestic Products (GDP) has declined in proportion. The process of deindustrialization is in the offing marked by the decline in production capacity, low investment, falling production and the closure of a number of factories as capital flights. Not everything, however, was bad for the manufacturing sector in 2007. There was progress shown in the investment sector. More foreign investors have returned to the country to resume business including in the manufacturing sector. They began to invest in various business areas such as building material, automotive, pharmaceutical and paper manufacturing. The country has regained its position among major investment destinations in the world after the government launched a series of policies offering incentives for foreign investments.
GDP Growth by sectors In 2007, the manufacturing sector in the non-oil/gas sector grew moderately, even declined compared with in 2004. In 2004, the GDP from the manufacturing sector in the non oil/gas sector grew 7.51%. The growth rate fell to 5.85% in 2005 and to 5.27% in 2006. In 2007 it was slightly higher at 5.31%. Altogether, the GDP growth in the manufacturing sector including in the oil/gas sector was lower still in 2006 as a result of a decline in the oil and gas processing industry to follow the soaring prices of crude oil and a decrease in the countrys production of crude oil. However, the condition improved in 2007 marked by a 1.94% increase in the GDP in the oil/gas sector as against a decline of 1.22% in 2006. Table 1 GDP growth by sectors, 2001 2007 ( %)
No. Sectors AGRICULTURE, FISHERIES, ANIMAL HUSBANDRY & FORESTRY MINING AND QUARRY MANUFACTURING SECTOR a. Oil and gas sector b. Non-oil/gas sector 2004 (%) 3.26 -4.48 6.38 -1.95 7.51 2005 (%) 2.49 1.59 4.63 -5.30 5.85 2006 (%) 3.0 2.2 4.6 -1.22 5.27 Q-III 2007 (cumulative) (%) 4.3 3.7 5.0 1.94 5.31
1 2 3
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Industry Outlook
Table 1 contd
No. 4 5 6 7 Sectors 2004 (%) 5.22 7.49 5.69 13.38 7.70 4.85 5.05 2005 (%) 6.49 7.34 8.59 12.97 7.12 5.16 5.60 2006 (%) 5.9 9.0 6.1 13.6 5.7 6.2 5.5
(%)
Q-III 2007 (cumulative) (%) 10.3 8.3 7.4 12.2 7.9 6.5 6.3
ELECTRICITY, GAS & CLEAN WATER CONSTRUCTION TRADE, HOTEL AND RESTAURANT TRANSPORT & COMMUNICATIONS FINANCE LEASING and 8 CORPORATE SERVICE 9 SERVICES GROSS DOMESTIC PRODUCT Source: BPS
Transport equipment industry revived in 2007 The year 2007 was a year of revival for motor vehicle industry after a setback in 2006 as a result of the oil fuel (BBM) price hikes in 2005 and high interest rates. Sales of motor vehicles increase after the inflation was put under control, and Bank Indonesia cut its benchmark interest rate. In 2006, car sales fell to 318,904 units. In the first 11 months of 2007 sales already reached 395,315 unit exceeding sales in the whole of 2006. The association of motor vehicle industry (Gaikindo) said sales in 2007 rose 36.23% to 434,499 units. The high growth in car sales contributed to expansion of GDP in the transport vehicle, machine and equipment sector, which was the fastest growing industry in 2007 with a growth rate of 8.06%. However, in comparison with in 2005 and 2004, the growth rate was 12.75% and in 2005 it was 12.4%. In 2006 it was only 7.55%. Amid the soaring fuel prices, car sales continued to scale up. By the end of 2007 the price of crude oil hit the a new record high of US$ 100 a barrel. The government, therefore, planned to ban sales of subsidized BBM to private cars. The plan caused a decline in interest of consumers in buying cars with large CC capacity. The price of subsidized premium gasoline with octane content of 88 is Rp 4,500 a liter. The price of non subsidized premium with octane content of 90 is around Rp 6,500 per liter. The government, however, put off the plan on public protest and forecast that the oil price would fell in 2008. Car market, therefore, was brisk again and sales are predicted to increase in 2008. 12
Industry Outlook
Metal Industry takes advantage of high steel prices in export markets Metal industry grew in 2006 but declined in 2007. The industry grew in 2006 with the increase in the price of metal goods including steel in international market. The export volume grew only slightly but the export value shot up in 2006. The countrys production of various steel products fell in 2006 but the value increased with rising prices. However, in 2007, the countrys steel industry suffered a blow with large imports in cheaper prices flooding the domestic market. Local producers, therefore, accused foreign suppliers of dumping. Toward the end of 2007, the government slapped anti dumping import duty on hot rolled coil (HRC) of 19 suppliers from China, India, Thailand, Taiwan and Russia. The HRC products sold with dumping prices in the country had weakened the domestic industry. The countrys HRC products produced by state-owned steel maker PT Krakatau Steel could not meet the imported products in market competition. On the other hand the imposition of the anti dumping import duty has caused concern for HRC consumers in the country like producers of cold rolled coil (CRC) and galvanized iron sheet (GI sheet). They have to use more expensive basic material resulting in slowing growth of the countrys steel industry. The countrys steel industry is operating much below its installed capacity. Only HRC and steel slab industries operate at more than 65% of their capacity. GI sheet industry used only 34.16% of its installed capacity with production of 410,000 units in 2007. The industry has an installed capacity of 1.2 million tons a year. Most steel factories use old machines and are no longer efficient. Imports of non standard galvanized iron sheet with a thickness of less than 0.2 millimeter rose sharply by 33.3% to 200,000 tons in 2007 from 15,000 tons in 2006. This year imports are predicted to rise further.
Cement industry growing to follow revival of property sector in 2007 Cement industry grew in 2007 after declining in 2006. In the first and second quarters of 2007, cement consumption in the country grew 7.5% to 15.6 million tons but the growth rate slowed later. Based on data at the cement association (ASI), the countrys consumption of cement in the first nine months of 2007 totaled 25.2 million tons, up 7.05% from 23.5 million tons in the same period in the previous year.
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Industry Outlook
Consumption in September was the lowest in the third quarter of 2007 down 2.4% to 3.11 million tons from 3.18 million tons in the same months in the previous year. ASI chairman Urip Timuryono attributed the decline in consumption in September to long holidays during the Islamic Idulfitri celebration. Seeing the trend until the third quarter, cement consumption in the country in the whole of 2007 was estimated to reach 34 million tons or up 6.25% from 32 million tons in 2006. In 2008, cement consumption is forecast to grow at a lower rate as a result of the rising prices of fuel. ASI predicted that the countrys consumption of cement will grow only by 5-6% in 2008.
Fertilizer and Chemical Manufacturing sector to grow at slower rate Fertilizer, chemical and rubber goods sector, which contributed 12.49% to the countrys GDP, grew only 5.2% in the QIII of 2007. In the whole of that year the sector was estimated to grow by 5.1%. The growth rate was lower than in the previous two years. In 2006, expansion of fertilizer industry was hampered over shortage in gas supply. A number of fertilizer factories suspended operation that year on shortage of supply of the basic material of urea fertilizer. The problem continued through part of 2007. Almost all fertilizer plants suffered a shortage in gas supply mainly PT Pupuk Iskandar Muda and PT Pupuk Kujang. Petrochemical industry in East Java received gas only 60% of its requirement. As a result it was predicted that fertilizer and petrochemical production would declined in 2007 Shortage in gas supply caused a problem not only for fertilizer and petrochemical industry but also for other manufacturing industries. The expansion of the sector is also determined by demand from rubber goods industry including tire industry. Increase in car sales in the country in 2007 contributed to increase in demand for tire and rubber, the price of which has increased in international market. Meanwhile, exports of rubber in the form of crumb rubber is expected to continue to increase although with a lower rate in 2008 as a result of declining demand from China and the United States. The price of natural rubber has remained high because of limited supplying capacity from producers. Demand for rubber in the world market begins to decline with a cut in imports by China.
14
Industry Outlook
Meanwhile, oil-based petrochemical industry such as plastic basic material industry was confronted with the problem as a result of soaring prices of crude oil. The soaring oil prices has caused an increase in production cost.
Food, Beverage and Tobacco Manufacturing Sector The food, beverage and tobacco manufacturing sector still grew amid increases in the prices of basic materials and fuel. The expansion of the sector was attributable to growing consumption sector. Toward the end of 2007, the prices of food basic materials surged such cooking oil, soybean and wheat flour. The food processing industry, therefore, suffered a slowdown. Wheat flour-based food processing industry was in difficulty in maintaining production rate. Soybean-based food products such as soybean cake and tofu, a popular food products for low income Indonesians disappeared from the market. The strong growth of crude palm oil industry offset the decline in the other sectors of the food manufacturing sector. The prices of CPO have continued to scale up. CPO exports, however, were curbed by high export tax imposed by the government.
Timber and forestry products sector There has been no progress made to revive timber industry. A big setback has been experienced by plywood and other processed timber industries in the past five years. The trend is heading toward total cessation of the existence of the industry if no concrete cat is taken to improve the condition. Main problems confronting plywood industry are as follows: Shortage of log basic material resulting in large idle capacity. Low efficiency as a result of old machines. Fund not available for restructuring. Decline in competitiveness facing products from China and Malaysia, which are more efficient and use cheaper basic material in smuggled logs from Indonesia. 5. Rife illegal levies and weak law enforcement. 6. Market prefers products with certificate. 7. Plywood is timber product with low added value. 1. 2. 3. 4.
15
Industry Outlook
The Indonesian Association of wood panel (APKINDO) had 130 members in 2007 but only 68 of them remaining in operation with a total capacity of 6.1 million cubic meters a year and of the 68 companies only 19 are operating normally with production of 1.54 million cubic meters annually each. The industry, therefore, showed poor performance in general. In 2007, the countrys export of wood panel totaled only 1.7 million cubic meters, down from 2 million cubic meters in 2006. The condition of the industry is not expected to improve significantly in the near future. It would need large investment and long time for recovery. Old machines will need replacement and the forest need replanting that will take a long period until ready for harvest.
Textile, rubber goods and footwear manufacturing sector Textile and textile product (TPT) industry is one of three largest contributors to the countrys GDP in the manufacturing sector. However, the countrys TPT industry is still struggling for recovery. Banks have not feel safe to disburse their funds for the industry. The industry is still seen a risky sector. However, exports of TPT have increased despite its old and inefficient machines. In 2007, the countrys TPT exports were valued at US$ 9.9 billion up from US$ 9.2 billion in the previous year. On the contrary sales on the domestic market declined. Based on official data of the Central Bureau of Statistics (BPS), imports of textile in 2006 surged 72.55% from 51,000 tons to 88,000 tons. Illegal imports were much larger. API said illegal imports of TPT also rose 69.35% in 2007 to 862,000 tons valued at US$ 4.74 billion from 509,000 tons in 2006. The imports of around 950,000 tons in 2007 including illegal imports, caused marketing problem for local products. Based on data at API, sales of local products fell 42.9 % in 2007 to 270,000 tons from 456,000 tons in 2006. API said local TPT producers had only a 45% share of the domestic market or worth Rp 1.45 trillion of the total market value of Rp 3 trillion in 2007. The market share fell by 5 percentage point from 50% in 2006 when the market value was around Rp 2.8 trillion. Footwear industry began to revive in 2007. Exports of footwear rose from US$ 1.6 billion in 2006 to US$ 1.8 billion in 2007. The revival followed relocation of some factories form China and Vietnam to the country after the European Union slapped anti dumping import duties of 24.7% on products from the two countries.
16
Industry Outlook
The import duty on Indonesian product is only 14% in the EU. footwear are expected to rise further in 2008. Table - 2 Growth of manufacturing sector in non-oil/gas sector, 2004 QIII of 2007 No. Sectors 2004 2005 2006 (%) (%) (%) 1. Food, beverage and tobacco 1.39 2.70 7.22 Textile, leather products & 2. footwear 4.06 1.30 1.23 3. Timber and forest products -2.07 -1.30 -0.66 4. Paper & printed products 7.61 2.50 2.09 Fertilizer, chemical & rubber 4.48 5. Goods 9.01 8.90 Cement & non metal quarry 0.53 6. Products 9.53 3.80 7. Base metal, iron & steel -2.61 -3.80 4.73 Transport vehicle, machine & 7.55 8. equipment 17.67 12.40 9. Other goods 12.77 2.60 3.62 Total Industry 7.51 5.90 5.27
*) Q III 2007; Source: BPS
Exports of
2007*) (%) 6.44 -2.16 -1.72 8.03 5.20 5.45 1.47 8.06 -1.33 5.31
Transport equipment and food manufacturing industries are the largest contributors to the GDP in the manufacturing sector. The two industries accounted for 60% of GDP in the manufacturing sector in 2007. In 2007, for example, transport equipment industry contributed 33.4% and food manufacturing sector contributed 28.26%. In 2007, the contribution of the two industries to GDP increased while the contributions of other manufacturing industries declined. The contributions of textile, leather goods and footwear sector fell from 11.6% in 2006 to 10.5% in 2007. Similarly the contribution of the fertilizer, chemical goods and rubber manufacturing sector dropped from 13.1% to 12.9%. See the following table. Table - 3 Contribution of each manufacturing sector to GDP in the manufacturing sector
No. 1 2 Sectors Food, beverage and tobacco Textile, leather goods & footwear 2004 29.69 12.99 Contributions (%) 2005 2006 28.17 28.11 12.11 11.63 2007*) 28.22 10.49
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Industry Outlook
Table 3 contd
3 4 5 6 7 8 9 Wood & forest products Paper & printed materials Fertilizer, chemical & rubber goods Cement & other non metal quarry products Base metal, iron & steel Transport equipment, machines & equipment Other goods Total 5.67 5.63 11.60 3.96 3.07 26.47 0.92 100.00 5.49 5.37 12.16 3.91 3.19 28.65 0.95 100.00 4.12 5.43 13.13 3.45 1.69 31.62 0.82 100.00 3.96 5.12 12.95 3.39 1.67 33.44 0.76 100.00
Note: *) QIII 2007 Source: BPS
Exports of non-oil/gas boosted by high commodity prices As was in 2006, when the domestic market was hit by slump, exports of non oil/gas commodities notably manufactured products continued to grow though at a slower rate in 2007. Increase in the export value of various manufactured products as a result of a surge in the prices of various commodities boosted the exports in 2007. The export value of products of natural resources-based industry such as vegetable oils especially palm oil shot up to follow the soaring prices of the commodities in international market In the first nine months of 2007, exports of vegetable oils surged 44% from the same period in the previous year. The prices of various metal products in 2007 remained high jacking up earning from the exports of non iron metal goods including nickel, copper, tin, etc. the prices of which rose more than 30%. Similarly, exports of metal-based downstream products such as steel, machines and automotive products grew year-on-year in the first three quarters of 2007 rising by almost 40%. Meanwhile, exports of steel products grew only 2.7% because of problem in competition. The countrys steel industry is less competitive as most of the basic materials are imported when the prices of the material are high. Textile products also are less competitive because of high prices of imported basic materials amid strong competition in international market especially from China. In 2007, textile exports grew only by a range of 2% to 6%. Exports of garment rose 2.2%, exports of yarns and textiles by 6.2%. Despite the slow growth textile and textile products still a major contributor to the countrys foreign exchange income among the non-oil/gas commodities. 18
Industry Outlook
Exports of electronic and electric appliances grew by a lower rate in 2007 after a sharp increase in the previous year. On the contrary, demands on the domestic market was brisker in 2007 as a result of improved purchasing power of the people. Table - 4 Exports of main non-oil/gas products by commodities
(US$ million)
SITC 28 32 84 42 23 77 65 68 76 63 64 75 Description Metal ore and metal waste Coal, coke and briquette Clothes Vegetable oil and fats Natural rubber & synthetic rubber Electric machines, parts & equipment Weaving yarns, textiles and textile products Non ferrous metal Telecommunicati ons equipment Wood and soft wood products Paper, carton & processed products Office equipment and data processing equipment Organic chemicals Fish, mollusks and processed products Furniture Coffee, tea, cacao, spices Motor vehicles Other manufacturing Products Iron and steel Shoes and other footwear Pulp and paper Non metal mineral goods Rubber goods 2004 2,724.9 2,758.3 4,454.2 4,216.3 2,212.7 3,193.4 3,151.9 1,780.7 3,078.8 2,801.0 2,181.7 2,729.1 2005 4,539.0 4,354.4 5,106.4 4,764.0 2,614.1 4,003.0 3,446.6 2,594.4 3,070.8 2,711.9 2,277.7 2,935.8 2006 6,450.2 6,086.1 5,760.5 5,714.6 4,375.6 4,039.4 3,614.0 3,428.2 2,898.0 2,855.8 2,801.7 2,460.8 Jan-Sep. 3,870.2 4,313.5 4,390.3 3,839.4 3,350.6 3,077.3 2,735.5 2,668.4 2,111.2 2,060.2 2,106.9 1,742.5 Jan-Sep. 6,398.6 4,896.0 4,488.8 5,548.2 3,572.2 3,251.5 2,906.7 3,500.0 1,983.7 1,948.2 2,414.6 1,358.3 Growth (%) 65.33 13.51 2.24 44.51 6.61 5.66 6.26 31.17 -6.04 -5.44 14.60 -22.05
51 03 82 07 78 89 67 85 25 66 62
1,620.2 1,700.6 1,669.3 1,144.1 964.9 1,408.8 823.9 1,320.5 591.0 846.6 683.2
1,635.2 1,796.7 1,856.1 1,479.9 1,355.3 1,481.7 939.2 1,428.5 934.2 873.0 817.1
1,983.0 1,955.5 1,876.0 1,807.2 1,700.2 1,652.1 1,626.0 1,599.8 1,126.4 999.3 986.1
1,300.3 1,482.1 1,374.9 1,356.8 1,228.0 1,244.0 1,137.1 1,231.6 818.8 752.2 746.8
2,118.7 1,557.2 1,488.4 1,427.7 1,576.5 1,494.9 1,168.8 1,230.0 735.8 770.5 862.9
62.94 5.06 8.25 5.23 28.38 20.17 2.79 -0.14 -10.14 2.43 15.55
19
Industry Outlook
Table 4 contd
SITC 74 Description 2004 2005 760.8 741.2 668.3 7,243.3 66,428.4 2006 880.5 825.0 780.2 9,307.0 79,589.1 Jan-Sep. 673.3 622.1 576.8 6,775.9 57,586.8 Jan-Sep. 746.1 659.1 624.9 8,803.1 67,531.4 Industrial 591.3 machines and equipment 57 Plastic materials 624.7 71 Power 573.3 Generating Machines Other 6,094.0 Total 55,939.3 Source; BPS, industry ministry, ICN Growth (%) 10.81 5.94 8.34 29.92 17.27
Realization of Investment surges A series of governments policies in the investment sector such as new Investment Law and a number of governments decisions have boosted realization of investment projects in 2007. Improvement in economic and political has begun to attract foreign investors to Indonesia. The Capital Investment Coordinating Board (BKPM) reported that based on the number of licenses it issued in the first nine months of 2007, there were 775 foreign investment (PMA) projects valued at US$ 8,544.4 million implemented or up almost 100% from US$ 4.29 billion in the same period in 2006. Implementation of domestic investment (PMDN) projects rose by almost 60% to Rp 32.87 trillion in value from Rp 12.42 trillion in the same period in 2006. In the nine months period in 2007, realization of the projects provided jobs for 217,528 people including 78,736 in PMDN projects and 138,792 in PMA projects. Table - 5 Realization of PMDN and PMA projects, Jan.-Sept.- 2006-2007
PMDN/ Domestic Direct Investment Realization 1 Jan 30 Sept. 2006/ Jan 1 Sept 30, 2006 # Projects Investment Value (Rp. billion) 12,425.7 1 Jan 30 Sept. 2007/ Jan 1 Sept 30, 2007 # Projects Investment Value (Rp. billion) (4) 32,875.7
Realization of Investment (Permanent Licenses) Jobs provided
117 49,322 persons
124 78,735 persons
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Industry Outlook
Table 5 contd
PMA/ Foreign Direct Investment Realization 1 Jan 30 Sept. 2006/ Jan 1 Sept 30. 2006 # Projects Investment Value (US$ million) 4,291.4 1 Jan 30 Sept. 2007/ Jan 1 Sept 30. 2007 # Projects Investment Value (US$ million) (4) 8,544.4
Realization of investment (Permanent Licenses) Jobs provided
702 179,227 persons
775
138,792 persons
Source: BKPM Note: Not including investment in the sectors of oil and gas, bank, non bank financial agencies and insurance, leasing in mining sector under contract of work , working contract, coal mining , investment licensed by related institutions/sector , portfolio investment (capital market) and household investment P : Number of permanent licenses issued I : Value of investment realization in Rp billion *) provisional figure, including permanent license issued by regional administrations received by BKPM on Oct. 30, 2006
Based on the BKPMs report, in the first nine months of 2007, the largest investment was for paper, paper & plastic product manufacturing sector valued at Rp 14.54 trillion in 8 projects, followed by food industry with investment of Rp 4.3 trillion in 19 projects, base metal, metal goods, machine and electronic manufacturing sector with investment of Rp 3.52 trillion in 15 projects, food crop and plantation with investment of Rp 3.29 trillion in 16 projects and construction sector Rp 2.11 trillion in four projects. West Java had the largest PMDN projects with realization valued at Rp 11.21 trillion in 30 projects, followed by Jambi Rp 4.47 trillion in 2 projects, Jakarta Rp 3.82 trillion in 25 projects, Riau Rp 3.09 trillion in 11 projects and Southeast Sulawesi Rp 2.76 trillion in 1 project. Table - 6 Realization of PMDN projects in Jan-Sept. 2007
PMDN (Domestic Direct Investment) Sector Paper and Printing Industry Food industry Metal, machinery and electronic industry Food crops & plantation # Project 8 19 15 16 Value (Rp. Billion) 14,548.2 4,734.3 3,522.4 3,293.0
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Industry Outlook
Table 6 contd
PMDN (Domestic Direct Investment) Construction Chemical and pharmaceutical industry Other services Electricity, gas & water supply Mining Motor vehicles & other transport equip. ind. Textile industry Rubber and Plastic Industry Transport, storage & communication Animal husbandry/Livestock Trade & repair Non metallic mineral industry Hotel & restaurant Other industry Wood industry Leather Goods and Footwear Industry Fishery Forestry Medical, precisi.,optical instru., watch & clock industry Real estate, Industrial Estate & business activities Total
Note: *) Until September 2007 Source: Investment Coordinating Board
# Project 4 10 4 5 6 5 7 8 4 1 4 2 2 2 1 1 124
Value (Rp. Billion) 2,110.7 1,119.2 797.5 743.6 492.4 287.7 226.4 219.7 206.1 145.2 141.3 124.2 95.9 36.5 19.8 8.5 3.1 32,875.7
The largest foreign investment was in the transport, warehouse and communications sector valued at US$ 3,295.2 million in 35 projects, followed by investment in chemical and pharmaceutical sector valued at US$ 1,563.7 million in 26 projects, food industry US$ 572.1 million in 45 projects, paper and printing US$ 428.5 million in 10 projects and in trade and repairs sector US$ 411.8 million in 235 projects. Jakarta had the largest foreign investment with realization valued at US$ 4,383.4 million in 276 projects, followed by East Java US$ 1,662 million in 54 projects, West Java US$ 944.1 million in 196 projects and Banten US$ 236 million in 59 projects. Singapore led in the value of realization of investment projects in the first nine months of 2007 with investment of US$ 3,322.7 million in 90 projects, followed by Britain US$ 1,668.7 million in 58 projects, Japan US$ 535.6 million in 89 projects, Taiwan US$ 465.7 million in 27 projects and South Korea US$ 246.1 million in 133 projects.
22
Industry Outlook
Table - 7 Realization of PMA projects by sectors in 2007*) # Project Sectors Sector Transport, storage & communication Chemical and pharmaceutical industry Food industry Paper and Printing Industry Trade & repair Motor vehicles & other transport equip. ind Other services Mining Metal, machinery and electronic industry Construction Food crops & plantation Hotel & restaurant Wood industry Rubber and Plastic Industry Textile industry Real estate, Industrial Estate & business activities Leather Goods and Footwear Industry Other industry Non metallic mineral industry Fishery Animal husbandry/livestock Medical, precisi., optical instrument, watch & clock industry Electricity, gas & water supply Forestry Total
Note *) Until September 2007 Source: (Investment Coordinating Board) BKPM
Value (US$ million) 3,295.2 1,563.7 572.1 428.5 411.8 336.9 312.2 300.9 265.3 207.9 158.4 126.6 125.5 116.5 114.0 64.1 33.2 29.5 26.8 24.3 18.8 10.9 1.3 8,544.4
35 26 45 10 235 29 100 26 80 13 12 18 13 26 53 7 7 21 5 4 7 1 2 775
Growth Target for Manufacturing Sector in 2008 The manufacturing sector is predicted to grow faster in 2008 than in 2007, but will not be as fast as in pre crisis period. The sector is forecast to expand by 7%7.5% in 2008 or slightly higher than the countrys economic growth of 6.3%-7% projected for the year.
23
Industry Outlook
Processing of locally produced primary commodities will remain the main driver of growth for the manufacturing sector in 2008. The prices of crude oil are expected to be stable and tend to decline. The condition will contribute to strengthening the purchasing power of the people in general and increase in sales of manufactured products. The slump that has hit the manufacturing sector in the past years was partly attributed to old and inefficient factories. Restructuring, therefore, will be needed immediately and restructuring will need large investment. The government has taken steps to boost investment in the manufacturing sector such as by seeking to improve investment and business climate. A new Investment Law has been passed and a number of government regulations have been issued to attract investors. The government has also offered subsidized funds for textile companies to replace their factory machines. In 2008, the manufacturing sector will face a new challenge in the form of global economic slowdown resulting in sharp competition. The countrys manufacturing companies will face sharp competition not only in international market but also in domestic market. On the domestic market competition is sharp facing large imported products sold at cheaper prices.
Textile Industry expected to revive Textile and textile products (TPT) are among major contributors to the countrys GDP. TPT exports grew in 2007, but ironically sales on the domestic market declined. According to the Indonesia Textile Association (API) local TPT products had only a 45% share of the domestic market with sales valued at Rp 1.45 trillion of the total market value of Rp 3 trillion in 2007. The market share shrank 5 percentage points from 50% in 2006 when the market value was Rp 2.8 trillion. It is predicted that the market share of local TPT products will decline further in 2008 with growing imports including illegal imports from China, Vietnam, Bangladesh and Europe. Without restructuring, the countrys TPT industry will face greater difficulty in market competition both on the domestic and international markets. In November, the government and the House of Representatives already agreed to launch a program to revitalize the TPT industry. Under the program, the government planned to disburse Rp 285 billion in subsidized credits for selected textile companies. However, the program was not fully successful Disbursement in 2007 totaled only Rp 195.639 billion or around 76.7%. of the total amount of subsidized credit offered by the government.
24
Industry Outlook
The subsidized credits offered by the government is expected to encourage banks to offer credits to the sector 10 times larger that investment in TPT industry in 2007 was expected to reach a value of US$ 250 million. The increase in investment in 2007 is expected to increase TPT exports in 2008 to US$ 11.06 billion or a 10% increase from US$ 10.06 billion in 2007. In 2008, the government plans to provide larger subsidized credit at Rp 400 billion, and with bank loans investment in the TPT sector would reach US$ 500 million. If the target comes to reality, the TPT industrialist will be able to buy new machines to improve their efficiency and strengthen competitiveness. The TPT industry, therefore, would grow by a higher rate of 5.5%.
Motor vehicle industry expected to continue to grow A strong growth was recorded in 2007 by the countrys automotive industry marked by increase in car sales from 318,904 units in 2006 to 432,000 units in 2007 or an increase of 35.8%. Despite the strong growth, performance in 2007 still was below that of 2005, when sales totaled more than 500,000 units. The increase in sales in 2007 was attributable to a cut in interest rate an stable fuel prices after a surge in 2005 that caused a slump in 2006. In 2008, the automotive industry is expected to expand further especially as the oil prices are expected to fall to below US$ 100 a barrel and with improvement in the peoples purchasing power. If the prices of crude oil will not climb higher than the US$100 per barrel level, the government is expected not to go ahead with its plan to ban private car from using subsidized gasoline. Optimistic estimate puts the increase in car sales at 10%-20% to 500,000 units in 2008. The sales target is set on assumption that the crude oil prices to hover around US$ 90 a barrel, the economy to expand by 6.3%, and the benchmark interest rate (BI Rate ) stable at 8%.
Cement industry to grow by slower pace The gradual cut of the BI Rate especially since the third quarter of 2006 to reach 8% in 2007, breathed new life to the property sector and in turn to the cement industry. Meanwhile, the government has an ambitious plan to build large infrastructure projects including toll road, airport, seaport and power plants that will need large supply of cement.
25
Industry Outlook
In 2007, cement consumption grew 7.5% form 2006 despite a slowdown in growth in the last quarter of that year. In 2008, the growth rate is not expected as high as in 2007 as a result of the rise in the prices of fuel. The ASI chairman predicted cement consumption will grow by 5%-6% in 2008.
Food, beverage and tobacco sector In 2008, food processing industry will have to go over stumbling blocks that will likely hamper its growth. On of the stumbling blocks is an increase in the prices of basic material such as wheat flour, soybean, cooking oil, sugar, etc. The prices of industrial fuels already increases in 2007 and are not expected to go down in 2008. In fact many small food processing factories have stopped operation. Food processing industry has been one of a few industries that have survived a tough period in the wake of the 1997/1998 crisis . It has recovered faster that other industries . However the surge in the prices of basic materials is feared to place the industry in a a more difficult situation in 2008. The industry is predicted to expand by 5%-6% in 2008.
Steel industry facing dumping prices The countrys steel industry was weakened by large imports sold at dumping prices while the prices of basic materials remained high in 2007. The government has slapped anti dumping import duties on those accused of dumping hot rolled coil (HRC) on the domestic market. The measure, however, drew protest from HRC consumers including producers of CRC, GI sheet, pipes, etc. They complained about the high prices of the basic material. In 2008, the countrys steel industry is facing uncertainty as those operating in the downstream sector of the industry demand protection that they could face market competition. Demands for steel products are high and growing on the domestic market with growing number of construction project in the infrastructure and property sectors, but the high prices of the basic materials in international market it is difficult for the steel industry to expand in 2008.
Timber product industry It would be difficult for the country to regain its position among the worlds largest supplier of processed products of tropical wood because of dwindling basic material and inefficient factories.
26
Industry Outlook
Although illegal logging and wood smuggling had been reduced, shortage in supply of log basic material remained unsolved in 2007 because of the extensive damage to the forest. Plantation forests or industrial timber estates have been grown only with the tree species specially to feed pulp industry. The market prospects should improved for plywood with declining supply from China and Malaysia, which have relied more on smuggled logs from Indonesia for basic material. Intensive anti illegal logging and smuggling by the government lately has reduced smuggling and illegal logging. The government has raised the felling quota for forest concessionaires (HPH) to increase log supply for local timber processing industries but not enough to revive the industry. It is feared that more timber processing factories will collapse in 2008. Those having greater chance to continue operation are companies using trees from rubber plantations but they are not many. In 2008, timber processing industry is forecast to grow only by 1.5%. The increase is expected with growing demand on the domestic market.
Paper and printed materials Paper and printing industry grew fast in 2007 boosted by growing demand for paper. The growing demand has boosted investment in paper industry especially by domestic investment (PMDN) companies. Both PMDN and PMA companies showed greater interest in the sectors of paper, paper products and printing and base chemicals and pharmaceuticals industry than in other sectors in the first half of 2007. Data at the Capital Investment Coordinating Board (BKPM) foreign investment projects approved by the government in the sectors of base chemical, chemical and pharmaceutical products led in number -- totaling 20 projects valued at US$ 13.665 billion. Projects approved in the sector of paper, paper products and printing industry followed with 8 projects valued at US$ 2.052 billion in the first six months of that year. In 2008, paper and printed material industry is predicted to expand by 8%.
Fertilizer and Chemical Industry Fertilizer and chemical industry in 2007 suffered a setback with shortage in supply of gas feedstock. However, the industry grew though not as previously expected. In 2008, the industry is expected to fare better as the government has issued a policy to guarantee gas supply. A number of fertilizer factories such as
27
Industry Outlook
Petrokimia Gresik have also established cooperation with gas producers. The fertilizer and chemical industry is predicted to expand by 7% in 2008.
Projection for 2008 by the government The industry ministry has set a growth target of 7.43% for the manufacturing sector in 2008. The target is set lower than 2007s growth target of 7.9%. The industry ministry said food and beverage industry is projected to expand by 8% in 2008 high than last years target of 7.12%; base metal and steel industry to expand by 5.5% higher than last years 2.5%; transport equipment, machine and equipment industry to grow by 9.6%, up from 2007s target of 9%. Fertilizer, chemical and rubber goods sector is predcited to expand by 6.5%, higher than 2007s target of 5.1%; and cement and non metal quarry product sector is predicted to expand by 7% higher than 2007s target of 6%. Meanwhile, lower growth targets set in 2008 include for paper and printed material industry, which is predicetd to grow by 8% as against 2007s target of 8.5% and timber product and forest product sector, which is forecast to grow by 1% as against 007s target of 2%. The non-oil/gas manufacturing sector is projected to contribute 25.5% to the countrys economy this year and it is expected to remain the largest contributor to the economic development in the next 10 years. Table - 8 Projected growth of non-oil and gas sector 2008 Projection of industry ministry (%) No. Sectors 1. Food, beverage and tobacco 8.0 2. Textiles, leather goods & footwear 3.5 3. Timber & forest products 1.0 4. Paper and printed material 8.0 5. Fertilizers, chemical & rubber goods 6.5 6. Cement & non metal quarry products 7.1 7. Base metal, iron & steel 5.5 Transport equipment, machines 9.6 8. and equipment
Source: Industry ministry, Data Consult/ICN
2008 Projection of ICN (%) 5.5 4.5 1.5 8.0 7.0 6.5 5.5 10.0
* * * 28
AGRIBUSINESS
AGRIBUSINESS
Current Issue In 2007, the performance of the agribusiness sector grew from the previous year. The countrys production of crude palm oil CPO rose to around 14.1 million tons from 14.1 million tons in 2006. The oil palm plantation also expanded to 6.4 million hectares from 6 million hectares in 2006. The expansion, however, was relatively slow over fear of being charged with damaging the environment. Issue of environment has become more sensitive lately especially in the European and U.S. markets. Indonesia and Malaysia have been accused of damaging forests to open new oil palm plantations. Palm oil products are required to have the certificate of Roundtable on Sustainable Palm Oil (RSPO) issued by an independent agency since late 2007. However, only 10% of the 220 member companies of the Indonesian Association of Palm Oil Companies (Gapki) have RSPO membership. The certificate is needed to allow Indonesian CPO products to enter the international market especially the European and the U.S. markets. However, the requirement will mean an increase in cost. The imposition of export tax on CPO and its derivatives of up to 10% in September 2007 based on the international prices in Rotterdam has made the countrys CPO products less competitive. Major buyers like Pakistan already turn to Malaysia for supply. The prices of agribusiness commodities such as CPO, cacao, coffee and rubber, have continued to scale up in international market. The prices of CPO in international market has hit a peak level of US$ 900 per ton on rising demand including from bio fuel producers. CPO has been used as an alternative fuel amid the soaring prices of petroleum. The increase in the CPO price was also attributable to problem in supply from Indonesia and Malaysia, which account for 90% of the worlds CPO supply. As a result of long drought Indonesia could increase only production by 3%-4% in 2007 much slower than normally 12% annually. Demands for other major Indonesian commodities such as cacao, rubber and coffee have also increased in the world market.
29
Agribusiness
Agribusiness sector expanded 10.23 % in 3rd Q of 2007 Generally a fast growth was recorded in the agribusiness sector in 2007 In he third quarter of 2007, the sector grew 10.23% much faster than 3.4% in 2006 . It was also much faster than the economic growth of 3.91% in the same period. The expansion was mainly attributable to increase in prices of the agribusiness commodities. The increase in the prices of palm oil was caused by growing demand from bio fuel industry and growing preference over other vegetable oils like soybean oil as feedstock for cooking oil. Consumer began to turn away from soybean oil after it was found to have a content of trans fat, which is dangerous to human health. The price of natural rubber has also scaled up to follow the rise in the price of synthetic rubber, which is made of oil. Table 1 Growth of Indonesian agricultural sector 2004-2007 (YoY) No. Sector 2004 2005 2006 (%) (%) (%) Farm, animal husbandry, 3.26 2.49 2.98 forestry and fisheryes Gross Domestic Product 5.05 5.60 5.48
Source: Central Bureau of Statistics (BPS)
QIII 2007 (%) 10.23 3.91
Palm oil, cacao, coffee and rubber are major export commodities and major export earners in 2007. The exports of the commodities have increased both in volume and value. In the first nine months of 2007, exports of palm oil reached 7,0 million tons valued at US$ 3,4 million and rubber exports totaled 2,8 million tons valued at US$ 5,6 million. Though declining in export volume, the export value of palm oil rose in 2007 because of the price hike. Exports of palm oil declined in volume following the imposition of the export tax.
Table - 2 Export volume and value of six agribusiness commodities
Commodities Primary plantation products Coconut (Primary) Rubber (Primary) Jan-Dec 2006 Volume Value (Tons) (000' US$) 766,544 1,738,573 285,201 3,309,248 Jan-Sept. 2007 Volume Value (Tons) (000' US$) 960,877 2,839,009 487,937 5,690,656
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Agribusiness
Table 2 contd
Commodities Palm oil (Primary) Coffee (Primary) Cacao (Primary) Sugarcane (Primary) Other Total Primary products Jan-Dec 2006 Volume Value (Tons) (000' US$) 10,609,791 3,699,053 326,912 449,091 460,425 635,418 386,508 37,134 36,502 19,504 14,325,255 8,434,649 Jan-Sept. 2007 Volume Value (Tons) (000' US$) 7,019,589 3,481,210 215,543 427,308 383,470 686,545 108,045 6,716 343,677 795,806 11,870,210 11,191,608
Processed plantation product Sugar-based food Rubber goods Subtotal processed products Other Total processed plantation products Primary Processed Total exports
53,118 187,429 240,547 111,413 351,960 14,325,255 351,960 14,677,215
98,144 488,666 586,810 382,271 969,081 8,434,649 969,081 9,403,730
39,948 286,370 326,318 70,386 396,704 11,870,210 396,704 12,266,914
75,089 793,399 874,488 226,445 1,100,933 11,191,608 1,100,933 12,292,541
Source: BPS, Agriculture ministry, Data Consult/ICN
Prices of several agribusiness commodities expected to continue to scale up in 2008 CPO price is expected to rise to US$ 900 per ton In 2008, the price of CPO will still be determined by the trend in the crude oil market. The price is forecast to reach US$ 900 per ton in 2008. Demand for CPO is predicted to continue to increase from China, India and Pakistan. Meanwhile supplying capacity from Malaysia is expected to stagnate because of the difficulty in expanding plantations in that country. Limited availability of land has prompted palm oil producers in that country to expand operation to Indonesia. Currently Malaysian investors own 15% of oil palm plantations in Indonesia. The price of CPO on the domestic market is around Rp 7,180 per kg and he price of fresh fruit bunches (TBS) has also increased to Rp 1,600 per kg from Rp1,450 earlier. In August, 2007, the government imposed export tax of up to 10% progressively on CPO base don the price of that commodity in Rotterdam. Since the imposition of the progress export tax, CPO is less competitive in export market. Pakistan has cut its imports from Indonesia of RBD stearin and
31
Agribusiness
RBD olein. It turned to Malaysia for supply as the price of the two palm oil products averaged US$ 902 per ton as against Malaysias US$ 820 per ton. Malaysia imposed export tax of 19% on CPO and 0% on its derivatives. Most Indonesias exports of RBD stearin and RBD olein have been to India, Pakistan and China. The rest is to the European Union and 10% to Pakistan. Table 3 Export tax on CPO and derivatives, 2007 Prices of CPO (per ton) Export tax Group II Group III < US$ 550 0% 0% US$ 550 US$ 649 2.5% 1.5% US$ 650 US$ 749 5% 4% US$ 750 US$ 849 7.5% 6,5% > US$ 850 10% 9%
Source : Office of coordinating minister for economy Note : Group II = CPO, Refined Bleached Deodorized Olein (cooking oil), Crude Olein, Crude Stearin, Crude PKO, Crude Kernel Stearin, Crude Kernel Olein Group III = RBD Palm Kernel Oil, RBD Stearin, RBD Palm Oil
Price of cacao The selling price of cacao FOB is around US$ 1,750 per ton or an increase of 10% early last year. The price on the domestic market is around Rp 14,700 per kg for dry cacao without fermentation. The price of wet cacao is Rp 7,500-9,000 per kg. The price during the harvest time in June and July was even higher at Rp 18,000 per kg. The cacao association (Askindo) estimated that production of cacao beans in 2007 reached 630,000 tons up from 500,000 tons annually in the previous years. The production was smaller than Ivory Coasts 1.3 million tons and Ghanas 650,000 tons a year. The productivity in Indonesia is low -- 600-800 kg per hectare a year. The productivity could still be improved to 1.5 to 2 tons per hectare. Smallholders plantations account for 87% of the countrys production of cacao beans. Indonesia produces 150,000 tons of processed products of cacao a year. Malaysia with cacao bean production of only 60,000 tons a year could turn out 300,000 tons of processed products of cacao. Indonesia needs to import 300,000 tons of fermented cacao beans and 24,000 tons of cacao powder to feed its cacao processing industry.
32
Agribusiness
Indonesian cacao beans could not yet compete well with foreign products such as Malaysia as Indonesian cacao beans are not fermented. The price of fermented cacao beans is higher. Malaysia buys raw cacao beans at a price of US$ 200 per ton from Indonesia. The beans are then fermented and processed into powder that will sell at US$ 600 US$ 1000 dollar per ton. The government regulation also does not encourage development of cacao processing industry in the country. The import duty on processed products of cacao is only 5%. Malaysia is more protective on its industry imposing a 25% import duty on processed products of cacao. Askindo said it will encourage fermentation of cacao beans to be more competitive in international market. Farmers are reluctant to do fermentation as the process will take quite long time of more than 5 days. The government will require Indonesian cacao beans for export to meet Indonesian National Standard with one-year transitional period in 2008.
Rubber price The price of natural rubber reached US$ 228 per ton in 2007. The price of rubber remained high in 2007 as supply fell from Thailand, which is the worlds largest producer and Indonesia, the worlds second largest producer. Demands are strong especially from China, the United States, South Korea and India. Farmers selling price for rubber rose to Rp 6,000 Rp 7,000 per kg in 2007 from Rp 4,500 Rp 5,500 per kg in 2006. The price hike encouraged the farmers to start replanting. The agriculture ministry said around 400,000 hectares of rubber plantations need replanting that will cost around Rp 3.52 trillion. Indonesia, however, has a shortage of 20 million high yield seedlings every year. Currently producers of high yield seedlings could produce only up to 50 million seedlings as against annual requirement of 70 million. Indonesia has the large rubber plantations in the world totaling 3.33 million hectares. They include smallholders plantations making up 84.5%, state plantation 7.3% and private companies plantations 8.2%. Rubber plantations are found in 15 provinces including Nanggroe Aceh Darussalam, North Sumatra, Riau, Jambi, Bangka Belitung, Bengkulu, West Kalimantan and East Kalimantan.
33
Agribusiness
Indonesias rubber production was estimated to reach 2.9 million tons in 2007, up from 2.6 million tons in 2007. Indonesia, however, is only the second lather producer after Thailand, which produces around 3 million tons of that commodity. The third largest is Malaysia. Difficulty in securing rubber supply is reflected by the high price of that commodity. In North Sumatra and other producing regions, the selling price of processed rubber from farmers rose to Rp 16,400 Rp 16,600/kg from Rp 16,000 earlier.
Coffee price The price of coffee in international market averaged US$ 1,900 per ton, up from US$ 1,850 earlier. Indonesias coffee production was estimated to reach 550,000 tons in 2007, down from 653,400 tons in 2006. The decline was caused by long drought since 2006. In the coffee year ending September 2008, the production is predicted to reach only 450,000 tons. Indonesia is the fourth largest producer of coffee in the world after Brazil, Colombia and Vietnam. The productivity of coffee plantations in the country is low around 500 kg 700 kg per hectare, and the quality is low because of poor maintenance system by farmers, who dominate the plantations. Although the price of that commodity increased in the world market, the countrys exports fell in 2007, partly because of growing domestic consumption to 150,000 tons from 120,000 tons in the previous year. In North Sumatra and Aceh coffee exporters suffered losses as their purchasing prices were higher than the export prices. Many exporters were forced to buy coffee at high prices to meet contracts with their buyers abroad. The price of Arabica coffee at the Belawan port of North Sumatra, was around 3.10 U.S. cents per kg or around Rp 28,000 per kg. Coffee plantations in the country totaled 1.26 million hectares. Smallholders account for 95.8% and private companies plantations making up 2.1% and state plantation 2.1%.
34
Agribusiness
Prospects of Agribusiness 2008 Palm oil Demand for CPO is predicted to continue to rise especially with growing demand from biofuel producers. GAPKI said the countrys CPO production is expected to reach 18.5 million tons in 2008. The increase is boosted by CPO price hikes and improvement in productivity of plantations. Indonesia plans revitalization of 1.5 million hectares of oil palm plantations in 2007-2012 to increase productivity. Investors still show strong interest in oil palm plantation. Currently the private sector owns 53% of oil palm plantations in the country. The Capital Investment Coordinating Board has granted license for 14 companies to open oil palm plantations expected to operate in 2008-2011. Six of the licensed investors are foreign companies with a total investment of US$ 175.7 million. The new investment is expected to increase the countrys production capacity by 867,200 tons of CPO a year. Indonesia exports 65% of its CPO production with more than 150 countries of export destination including China, India, Malaysia, Singapore and the Netherlands.
Cacao Indonesia plans to revitalize 200,000 hectares of cacao plantations in the next five years (2007-2012) to increase productivity. In 2010, the countrys cacao plantations are predicted to expand to 1.1 million hectares producing 730,000 tons of cacao beans a year. In 2025, Indonesia hopes to become the worlds largest producer of cacao beans when plantations are predicted to expand to 1.35 million hectares producing 1.3 million tons of cacao beans a year. Indonesia still has wide land of more than 6.2 million hectares suitable for cacao plantations in Papua, East Kalimantan, Central Sulawesi, Maluku and Southeast Sulawesi. The productivity of the existing plantations could still be improved from now less than 50% of ideal productivity. The problems faced by cacao exporters is poor quality.
35
Agribusiness
Latest research shows that flavanol content of cacao is good for the hearth negating previous suspect that cacao bean has high content of cholesterol.
Rubber The International Rubber Study Group (IRSG) said the worlds consumption of rubber would reach 23.7 million tons in 2007 and will rise further to 24 million tons in 2010. The figure shows that the opportunity is still wide open for Indonesia to increase its output. In order to increase productivity the government will revitalize 300,000 hectares of rubber plantations until 2010 and make replanting in 400,000 hectares of plantations having old and damaged crop. Indonesia is set to become the worlds largest producer of natural rubber in 2020. In order to meet the target the government has offered facility for investors. The incentives include in the form of simpler licensing procedure tax incentive to boost development of rubber plantations and downstream sector of rubber business. The price of rubber is predicted to remain high in 2008 with the soaring oil prices. The price of synthetic rubber will follow the trend in the price of oil.
Coffee The export price of Arabica coffee in 2008 is predicted to rise further in 2008 from US$ 3 per kg in 2007. The rise in the price is attributable mainly to expected fall in supply from Brazil and Indonesia amid growing demand in the world market. In the present coffee year (October 2007 to September 2008), the countrys coffee production is forecast to reach only 450,000 tons down from 550,000 tons in the previous year because of unfavorable climate. Indonesia plans to increase its production of Arabica coffee, which has higher price. The productivity will be increased from 560 kg per hectare to 700-800 kg per hectare. Indonesian coffee production is dominated by robusta, grown mainly in low lands in Lampung and Java. Arabica grows well in high lands such as in Aceh, North Sumatra, South Sulawesi and Bali. * * *
36
INFRASTRUCTURE
PROSPECTS OF INFRASTRUCTURE AND PROPERTY SECTORS 2008
Infrastructure In 2007, the government began implementation of a number of infrastructure projects planned in 2006. The projects include toll road, airpoer, seaport and power generaitng plants. Construction of toll road projects has been delayed on a number of factors including financial problem faced by the tender winners and difficulty in land clearing. Some of the projects, however, have been carried out and partly are near completion. In 2008, the construction of infrastructure projects is expected to be brisker. The construction market is forecast to reach a value of Rp 171 trillion in 2008. Around 45% of the project cost or Rp 77.7 trillion will come from the state budget. The rest or Rp 93.5 trillion will derive from the private sector and state companies. The public works ministry is to receive development fund of Rp 35.65 trillion.
Toll roads In 2005-2009, the governments hopes to build 1,530 kilometers of toll roads with priority given for the construction of 1,115 kilometers including the 760-kilometer Trans Java. Construction of toll roads early in 2007 met a lot of stumbling blocks mainyl in land clearing and financiang difficulty. In 2007, realization totaled only 4 kilometers in the Hankam-Cikunir section of the Jakarta Outer Ring Road (JORR). The four kilometer section, however, was vital as it links with the 45kilometer Veteran-Cakung section of the JORR and reduce congestion in the city toll roads. After the government took a number of steps toward accelerating the process of land clearing, construction of toll road has run faster. In 2007, construction of a number of toll road projects kicked off and some of them are nearing completion. Construction of four sections of the JORR -- 9.7-kilometer Kebun JeerukPenjaringan, 34-kilometer Kancil-Pejagan, 11.6-kilometer Makasar Seksi 4 and 12.8-kilometer Waru-Djuanda is expected to be completed in 2008.
37
Infrastructure
Apart from difficulty in land clearing, financial problem has been a major cause of delay. Fortunately, investors and banks have begun to show interest in toll road projects especially after the government and Bank Indonesia asked state banks to provide credits for toll road projects. Consruction of the 115 kilometer Cikampek - Palimanan toll road has been delayed for several times on financial difficulty but now it has received credit amounting to Rp 5 trillion from 10 local banks. Construcirton, therefore, is expected to start soon. Credits have also been made available by a bank syndicate for the Bekasi-Kalimalang- Kp Melayu toll road project. In 2008, toll road construction is expected to be brisk. A local bank syndicate has pledged a credit for 12 toll road projects, which were previously rejected by creditors. The process of land clearing has also run without much delay after the government set a maximum limit for land price to be paid by investors . The policy to prevent markup in the price of land. Meanwhile, tender will be held for a number of toll road projects in 2008.
Electricity The year 2008, will be a tough period for the electricity sector in the country. The price of oil fuel is expected to increase that the country will likely suffered crisis in power supply. The rising prices of oil fuel will result in an increase in demand for electric energy, which is still cheaper because of the subsidy provided by the government. Meanwhile, PLN is facing growing inefficiency of its power generating plants, which still use oil for fuel. PLN is expected to be able to significantly scrap the use of oil fuel not earlier than 2009 when coal-fired plants built under the crash program begin to come on line. Under the crash program PLN is to build coal fired power plants with a total capacity of 10,000 megawatts to be completed before 2010. Most of the plans are expected to be operational in 2009. Currently, 35 coal-fired power generating projects with a total; capacity of 10,000 MW are being built or being prepared to be operational in 2009. However, PLN is still facing problem to finance some of the projects. The government has banned PLN to look for foreign loans to finance the projects. The government wants PLN to use loans from local banks. However, funds from local banks are not easy to come. Therefore, it is feared that crisis will still a threat in 2008 and 2009.
38
Infrastructure
Property The property sector notably in Jakarta and surrounding areas grew rapdily in 2007 after heavy slump in 2006. Apart frm retail trading centers which have become the driver for the property growth, office and apartment buildings have sprung up to line main roads in Jakarta and its sattelite cities. High rise buildings are not only built in business centers in Jakarta but brisker activties have been seen in newly opened and strategic areas. Apartment towers are built close to office buildings and new growing business centers.
Office Space The market prospects of office spaces are still encouraging in the next several years. Demand for office rooms is predicted to increase with the improved economic condition. New office buildings are built not only in Central Business District (CBD) areas such as Jl, Sudirman, Kuningan, etc. but also in new strategic areas such as in South Jakarta. Thenew location in South Jkarta has become the choice of most mining and construciton companies, which need wider location with easy access. It is predicted supply of office spaces will continue to increase although the increase is expected to be slower in 2009 as demand is also expected to decline that year as the countrys attention will be drawn more to preparation and results of general election in the same year. In 2008, new supply in the Central Business District (CBD) and other areas in Jakarta is estimated to reach 750,000 m2, up to 850,000 m2 in 2009 as against 603,000 m3 in 2007. Meanwhile, demands are predicted to rise from 440,000 m2 in 2007 to 550,000 m2 in 2008 and to 650,000 m2 in 2009. The occupancy rate is predicted to fall slightly from 87.6% in 2007 to 85.8% in 2008 and to 84.7% in 2009 as supply is higher than requirement. Demands for apartment suites are also forecast to continue to rise as more working people will chose to stay in apartments to be close to working places and to be safe from the inconvenience of traffic jams, which have become notorious in Jakarta.
Retail Spaces Business in retail paces has flourished in Jakarta in the past several years. Supply of retail spaces has continued to increase, but new supply has continued 39
Infrastructure
to be absorbed by the market. Supply has increased in all segments premium and medium segments. New supply is dominated by retail spaces for sales than ones for rent. Retail spaces for sales are generally medium class with the concept of mixture dominated by small units with a small part leased out in large units (trade centers). In 2006, retail spaces for sales made up 38% of the spaces and retail spaces for rent 62%. It is predicted that the portion of retail spaces for sale will continue to increase in the coming years. In 2009, the portion of retail spaces for sales is forecast to rise to 46% with retail spaces for rent making up 54%. Competition among developers is getting tighter. It is obvious from the condition in the market. Many new retail space buildings have been built in locations near areas which already have retail space buildings. Success in competition, therefore, is determined not only by how strategic the location is but also by the availability of facilities, architectural concept, selection of tenants and discount. Successful strategy is always adopted quickly by other developers such as the case with town square concept. The increase in the price of crude oil which hit the level of US$ 100 per barrel toward the end of 2007 and the governments plan not to sell subsidized premium gasoline to private cars in 2008 is feared to result in a decline in demand for retail spaces. The occupancy rate of retail space buildings in 2008 is, therefore, forecast to decline to 87.5%. Supply of retail spaces in 2008 would not grow as fast as in 2007. In 2008, retail spaces are estimated to expand only by 350,000 m2. The occupancy rate in 2009 is expected to increase slightly with improvement in the purchasing power of the people especially in urban areas. The type of retail spaces to be built will be trade centers, which are a mixture of units for rent and units for sale. This type of property will sell better as recovery of investment is faster. Potential locations for this type of property are entry gates to the city and along the roads connecting Jakarta with its satellite cities. This type of retail space property is expected to dominate development of new retail space buildings. Meanwhile, construction of new retail spaces for rent will be concentrated more in primary areas.
40
Infrastructure
Apartments Improvement of the economic condition and growing demand for dwelling houses close to working places for efficiency and security has contributed to increase in demand for apartment houses. People buy apartment houses not only for own dwelling but also for safe investment. The cut in the Bank Indonesian benchmark interest rate (BI Rate) now 8%, which has resulted in a cut in housing/apartment credit (KPR) to 9.65%-12.75%, contributes to increase in demand for apartment houses. The expansion of various business sectors has contributed to the emergence of new Central Business Districts (CBD) in the Greater Jakarta in the past several years in addition to the Golden Triangle area of Jl. Sudirman-MH. Thamrin-Gatot Subroto and Kuningan. The market is still wide open in Jakarta for apartment houses as indicated by the fact that new units have always been absorbed immediately by the market. Supply has continued to increase - from 43,147 units in 206 to 54,978 units in the second quarter of 2007 for ones offered on strata title. Supply of ones for lease rose to 29,263 units in the second quarter of 2007 from 20,106 units in 2006. With the revival of the investment sector marked by a sharp increase in the realization of foreign direct investment (FDI) in 2007, more expatriates are expected to need dwelling houses in Jakarta. The expatriates would be dominated by middle level managers, who are potential dwellers of middle class apartment houses, the type built mostly in Jakarta. The market prospects for apartment houses are still good in 2008 and 2009. This year there are 20 apartment projects expected to enter the market increasing cumulative supply to 89,356 units in 2008 and to 97,948 units in 2009. Meanwhile, cumulative demands are forecast to reach 66,480 units in 2008 and 72,089 units in 2009. In 2009, there will be surplus as supply is higher than requirment. * * *
41
TOURISM
OVERVIEW AND PROSPECTS OF TOURISM SECTOR
Number of Foreign Tourists below 6 Million Targets in 2007 There was no significant progress made to recover the tourism sector in 2007. Based on data at the Central Bureau of Statistics (BPS) the number of foreign visitors to the country in the first 11 months of 2007 totaled only 4.1 million. The international conference on global heat in Bali in December, 2007 was expected to contribute to attracting more foreign visitors to the country, but it was estimated that the 6 million target set for 2007 was not likely to be achieved. Foreign exchange earning from the tourism sector totaled only US$ 3.6 billion in the first 10 months of that year. There are a number of reasons for the poor performance of the sector in 2007 such as lack of promotional drives. Malaysia, Singapore, Thailand and other neighboring countries are more aggressive in promoting their tourism objects. In addition travel warnings issued by the U.S. and Australian government telling their citizens not to visit the country, which they considered not safe. Later the European Union bans 51 Indonesian carriers from flying to Europe since July 2007. The ban sent bad message to tourists about Indonesian airlines, which are a key element of the tourism industry. In 2007, the country spent only Rp 150 billion for tourism promotion at home and abroad. Ideally the amount is at least Rp 450 billion or around US$ 6 per person. According to the World Economic Forum in 2007, Indonesia is the 60th in the ranks of 125 countries in tourism competitiveness. Singapore is the 8th, Malaysia the 31st and Thailand the 43rd. Graph- 1
Development of foreign tourists arivals, 1995-2006
6,000 5,000 000 tourists 4,000 3,000 2,000 1,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Foreign tourist 4,265 4,960 5,135 4,535 4,614 4,988 5,069 4,921 4,410 5,246 5,002 4,871
42
Tourism
Bali and Jakarta have remained the main destinations of visitors to the country. The number of foreign tourists visiting Bali rose 15.3% to 1.5 million in 2007 from 1.3 million in the previous year. Visitors to Bali made up 36.5% of the total number of visitors to the country in 2007. The number of visitors to Jakarta in 2007 was 1.5 million, up 30% from 1.15 million in the previous year 2007. The increase was attributable mainly to urban based tourism and MICE (meeting, incentive, conference & exhibition) tourism. Around 70% of foreign visitors to Jakarta are for business and to attend conferences. However, security problem and bird flue have discouraged visitors to the country. In 2007, floods that inundated most of Jakarta also discouraged visitors. Table -1 Number of foreign tourists by entry gates, 1995 2007
Entry gates 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*) *) November Source: CBS Soekarno Hatta 1,259,264 1,565,706 1,475,340 883,016 819,318 1,029,888 1,049,471 1,095,507 921,737 1,005,072 1,105,202 1,147,250 1,047,553 Ngurah Rai 1,065,313 1,194,793 1,293,657 1,246,289 1,339,571 1,468,207 1,422,714 1,315,176 1,054,143 1,525,944 1,454,804 1,328,929 1,587,688 Polonia 217,647 225,368 174,724 70,441 76,097 84,301 94,211 97,870 74,776 97,087 109,034 110,405 105,452 Batam 941,415 1,048,119 1,119,238 1,173,392 1,248,791 1,134,051 1,145,578 1,101,048 1,285,394 1,527,132 1,024,758 1,012,711 960,472 Juanda 70,718 124,917 114,688 65,310 75,931 105,371 112,513 112,241 67,627 75,802 81,409 83,439 128,614 Other Port 710,960 801,357 957,635 1,096,383 1,053,856 1,165,764 1,244,738 1,199,613 1,006,492 1,015,195 1,134,077 1,226,894 280,052 Total 4,265,317 4,960,260 5,135,282 4,534,831 4,613,564 4,987,582 5,069,225 4,921,455 4,410,169 5,246,232 4,909,284 5,002,101 4,109,831
Visitors from neighboring countries mainly Singapore and Malaysia still dominate the number of foreign visitors to Indonesia. In 2006, foreign visitors from Singapore totaled 1.40 million or the largest, followed by visitors from Malaysia 770,000. The number of visitors from Australia declined to only 230 because of the travel warning by the Australian government. Other main countries of origin are Japan, South Korea, Taiwan and Hong Kong in Asia and Britain, Germany, and the Netherlands in Europe and the United States.
43
Tourism
Table - 2 Foreign tourists by countries of origin, 2006 2007*) Countries of origin Malaysia Singapore Japan South Korea Taiwan Germany Britain The United States Australia Other countries Total
Source: CBS *) October
2006 769,988 1,401,804 419,213 295,514 236,384 106,629 110,412 130,963 226,981 1,173,463 4,871,351
2007 463,517 749,879 397,936 227,392 180,765 86,400 106,056 101,986 219,310 1,177,607 3,710,848
Growth (%) - 66,1 - 86,9 - 5,3 - 29,9 - 30,7 - 23,4 - 4,1 - 28,4 - 3,5 0,35 - 23,8
Foreign Exchange Income US$ 3.6 billion In the first 10 months of 2007, the tourism sector contributed US$ 3.6 billion to the countrys foreign exchange income, down from US$ 4.4 billion in the previous year. Every decline of 100,000 in the number of visitors will cause potential loss of US$ 90 million. The decline in income was also caused by shorter length of stay from 11-12 days to 9 days on the average per visit. With daily spending of US$ 100 per person income from the tourism sector would reach only US$ 4.4 billion, down from US$ 5.7 billion in 2000. Table -3 Number of foreign tourists and foreign exchange income, 2000 - 2007 Year 2000 2001 2002 Foreign Spending per person on Length of stay on exchange average (US$) average income (days) (US$ million) Per visit Per day 5,064,217 1,135.18 92.59 12.26 5,748.80 5,153,620 1,053.36 100.42 10.49 5,396.26 5,033,400 893.26 91.29 9.79 4,305.56 Foreign Visitors
44
Tourism
Table 3 contd Year 2003 2004 2005 2006 2007 Foreign Visitors 4,467,021 5,321,165 5,002,101 4,871,400 4,109,831* Spending per person on average (US$) 903.74 901.66 904.00 893.9 970.9 93.27 95.17 99.86 100.48 107.7 Length of Foreign stay on exchange average income (days) (US$ million) 9.69 4,037.02 9.47 4,797.88 9.05 4,521.89 9.09 4,400.00 9.02 3,603.16**
Source: Statistics * ) November **) October
In 2006, the biggest spenders were tourists from the oil-rich Saudi Arabia averaging US$ 1,661.57 per visit per person. The least spenders were those from Malaysia spending around US$ 474.8 per visit on the average. Table - 4 Average spending by foreign tourists by countries of origin, 2002 2006 (US$)
Country of origin Brunei Darussalam Malaysia Philippines Singapore Thailand Hong Kong India Japan Korea Rep Pakistan Bangladesh Sri Lanka Taiwan China Rep. Saudi Arabia Austria Belgium Denmark 2002 640.61 589.05 636.18 526.74 919.88 914.45 1,046.61 957.55 649.29 999.2 1,273.48 940.54 1,151.44 986.18 2,122.60 1,286.47 1,071.12 1,195.96 2003 1,083.23 698.13 835,45 538.85 748.77 934.88 767.33 966.69 1,107.31 699.66 773.37 1,041.09 1,077.33 1,115.60 1,444.98 1,141.71 1,538.41 1,253.02 2004 564.94 511.58 1,007.01 457.79 698.72 836.34 855.19 887.02 910.13 1,045.16 839.73 1,019.40 747.71 875.68 1,810.80 1,464.27 1,280.09 1,177.52 2005 822.6 526.81 965.56 507.78 672.31 871.53 903.99 838.5 872.89 754.65 1,088.04 997.25 810.63 654.73 1,630.79 1,158.80 1,192.05 733.17 2006 550.87 474.8 586.4 507.82 876.84 789.87 962.33 968.36 858.79 899.22 1,272.89 704.03 728.61 779.24 1,661.57 1,283.68 1,195.14 493.9
45
Tourism
Table 4 contd
Country of origin 2002 2003 2004 France 995.36 1,111.55 1,267.33 Germany 1,017.34 1,182.64 1,245.50 Italy 964.9 1,014.98 1,141.25 Netherland 1,075.71 1,171.46 1,365.35 Spain & Portugal 937.83 1,237.42 1,247.82 Sweden 910.48 994.27 1,060.08 Switzerland 806.59 785.77 1,108.74 United Kingdom 1,067.03 1,087.22 1,179.65 Finland 832.07 738.53 1,095.82 Norway 2,843.43 826.17 1,222.81 Russia 1,863.53 1,019.73 1,259.10 USA 1,413.49 1,195.25 1,310.47 Canada 1,427.27 1,102.36 1,381.20 Central America 1,117.85 683.6 609.4 South America 1,235.52 1,174.33 1,170.29 Australia 946.89 1,114.15 1,154.74 New Zealand 705.48 849.71 1,072.61 Egypt 1,696.00 680.33 452.35 Other Country 1,068.42 1,069.50 1,218.31 Average 893.26 903.74 901.66 Source: Passenger Exit Survey, Department of Culture and Tourism 2005 1,152.38 1,205.82 1,194.42 1,454.95 1,405.77 1,102.16 1,207.89 1,169.95 682.16 1,314.24 1,167.95 1,333.94 1,115.50 1,816.67 1,434.86 1,136.32 1,112.50 1,021.96 995.62 904
(US$)
2006 1,337.01 1,119.76 1,096.87 1,365.91 2,003.33 991.33 1,811.61 1,246.45 1,128.96 846.57 1,735.61 1,462.74 1,016.19 1,381.94 1,333.55 1,330.31 1,116.15 855.21 586.76 913.09
Hotel occupancy rates improve The hotel occupancy rates increased in 2007 although the number of foreign visitors declined. Jakarta, Yogyakarta, East Java and Bali recorded an increase in hotel occupancy rates. In 2007, the occupancy rates of star rated hotels in Bali were the highest averaging 59.84% up from 45.80% in 2006. The relative high rates were attributable to frequent international conferences held in Bali especially the Global Heat Conference toward the end of 2007. The second highest occupancy rates were recorded by Jakarta averaging 50.86%. In East Java, the occupancy rates also rose to 40.31% in 2007 when the number of foreign tourists visiting that province surged 73.3% to 98,356. On the contrary a decline was recorded by hotels in North Sumatra, Central Java and North Sulawesi.
46
Tourism
Table 5 Hotel occupancy rates in 10 tourist destination areas (%) No 1 2 3 4 5 6 7 8 9 10 Destination areas North Sumatra West Sumatra Jakarta West Java Central Java D.I. Yogyakarta East Java Bali North Sulawesi South Sulawesi Total 2005 November 32.62 48.11 53.64 36.14 44.44 55.52 39.41 38.25 43.76 33.82 43.75 2006 November 54.81 43.26 54.34 38.35 37.00 42.59 31.25 45.80 58.41 29.31 45.49 2007 October 35.75 33.89 50.86 40.88 30.07 42.12 40.31 59.84 50.20 35.21 47.46
Source: Cental Bureau of Statistic (BPS)
Hotels could break even with an occupancy rate of 50%. A number of hotel operators have succeeded in expanding their chains of hotels of three star or more luxurious hotels See the following table. Table 6 Company groups with chains of hotels
Company group Sahid Group Gramedia Group Artha Graha Group Nugra Santana Bimantara Salim Group Radjawali Group Bakrie Group Aston Group
Source: BPS
Hotel networks Hotel, Catering , Construction Sahid Hotel Newspaper publishing, Printing, Santika Hotel Hotel, Bank, Electronic, Borobudur Trade, Toll road operation Kartika Plaza Hotel, Office Buildings, Shipbuilding, Sultan Jakarta, Bali, Contracting, real estate Surabaya Patra Jasa Telecommunications, Mining, Grand Hyatt, Hotel Property, General Trade, Hotel Mulia, Jimbaran Bali Food Processing Industry, Banking, Shangri-la Hotel Insurance, Automotive Industry, etc. Property, Television Broadcasting, Sheraton Hotel Tourism Resort General Trading, Pipe Industry, Oil Nirwana Resort Bali Industry, Telecommunications Hotel Aston Hotel
Line of business
47
Tourism
Prospects of Tourism Sector The government has declared the year 2008 as Visit Indonesia Year 2008. The culture and tourism minister has sets a target for the number of foreign visitors at 7 million in 2008 with foreign exchange income of US$ 6.4 billion. The government, however, has failed to reach its target in the past two successive years. The government has proposed additional budget of Rp 200 billion to the House of Representatives for the promotion of Visit Indonesia Year 2008 (VIY 2008). The amount is relatively small compared to US$ 80 million spent by Malaysia to promote Visit Malaysia 2007. Currently the culture and tourism ministry has only Rp 100 billion available for the VIY 2008. Around 80% of the fund will be used for promotion including advertisements at home and abroad. The government also has asked Indonesian airlines serving international routes including Garuda Indonesia, Merpati Nusantara Airlines, Lion Air, Adam Air and Batavia Air to put on the logo of VIY 2008 on all of their aircraft to help the promotional drive. Garuda will spend around US$ 100,000 on putting the VIY logo on all of its aircraft. Indonesia has been lagging behind many countries in developing tourism industry. According to the WTO (World Tourism Organization) the number of world tourists rose 4% per year. The number of world tourism is forecast to reach 1,046 million in 2010 up to 1,602 million in 2020. Asia Pacific including Indonesia will post the highest growth. The region is expected to record 231 million foreign tourists in 2010 and 438 million in 2020. With tourist objects much larger in number compared with those of Malaysia, Singapore and Thailand, Indonesia should attract larger number of foreign visitors, but the fact is the contrary. Indonesia is even behind the tiny country of Singapore in number of foreign visitors. The government has made much progress in developing MICE tourism to attract more visitors to the country. The main problem faced by he country in developing its tourism industry is lack of professional managers and coordination between the government agencies and the private sector in promoting the countrys tourist objects. * * *
48
TELECOMMUNICATION
OUTLOOK OF TELECOMMUNICATION INDUSTRY Controversies have marred the fast growing telecommunications sector especially mobile telecommunications in 2007. Issue of cross ownership surfaced involving two largest mobile telephone operators in the country -- PT Telkomsel and PT Indosat with owner Singapores Temasek and its subsidiary. The fact that it has stakes in the two companies makes it a suspect in monopoly practice banned in the country. The anti monopoly agency KPPU has declared Temasek guilty and ruled it to divest its stake in either one of the companies. KKPU also said the prices set by Telkomsel as the market leader was too high hurting the consumers. Temasek and its group have brought the case an appeal court. Another controversy involving mobile telephone industry is on SMS tariff of Rp 250-350, which is considered too expensive. Oligopoly among incumbent operators was said to be culprit behind the high tariff. The two cases are still unsettled until now. The KPPUs verdict has raised call for a cut in the voice and SMS telecommunications tariffs. The government has also asked telecommunications companies to cut their tariffs. With the KKPUs decision, the telecommunication tariffs in Indonesia are expected to be cheaper in 2008. Despite possible cut in tariff, prospects of business in mobile telecommunications sector remain encouraging in the country as the market is still wide open and investment cost has declined.
Outlook of Cellular Telephone According to the Indonesian Association of Cellular Telephone (ATSI), the number of cellular phone users in the country grew 49.1% annually in the 20022007 period. By the end of 2007, the number of cellular phones users in the country totaled 80 million. Almost all operators recorded a fast increase in the number of subscribers. Market leader Telkomsel already had 44.5 million subscribers in QIII 2007. Currently cellular phone coverage has reached rural and isolated areas. Telkomsel claims it has cover 95% of all district areas of the country and in 2008 Telkomsel targets to cover the entire sub-districts (kecamatans) of the country. The number of users of cellular phones has grown fast as the market is still widely open and highly potential with the low ratio of users to the population in the country. Teledensity in the country of 220 million people is around 30 % much lower compared with the teledensity in other Asian countries. 49
Telecommunication
Almost all world telecommunication technology suppliers have made their presence in Indonesia and share the potential market. Telecommunication service industry is one of the most dynamic service industries requiring huge investment every year. Spending for the countrys telecommunications networks is estimated to reach US$ 2.9 billion in 2007. In the last three years, competition in cellular business has been getting more persistent because of the arising new investors, mainly foreign investors that injected capital to finance the construction of network infrastructures and service to cellular operators, which have not operated although they own operating permit for a long time, for example Hutchison and Smart. In addition, old player like Mobile 8 already has customers now after it expands its network and promotion persistently. Among Asia Pacific countries, the percentage of cellular penetration in Indonesia is still few, namely 30% in 2007. This is an opportunity to improve cellular penetration in Indonesia. With low teledensity and supported by better economic growth, the need for telecommunication will estimated increase. It is estimated that penetration level will increase by about 9.1% per annum within the next five years. In 2007, the penetration level will increase by 35%, and then keep increasing until 54% in 2011. Based on estimated number of customers that keeps increasing within the next five years and amount of ARPU per user, it is estimated that cellular service revenue will increase as well. Total revenue will increase to Rp 80 trillion in 2007, and then will keep increasing to more than Rp. 90 trillion in 2008. Economic growth that keeps developing stably results in potentially high growth of cellular market in Indonesia. With growth percentage of average cellular customers of 49.1% within the last five years, it is estimated that the number of cellular customers in Indonesia will increase to about 90 million at end of 2008. the number of cellular customers will keep increasing to 160 million in the coming 2011, with teledensity level of 50%. It is estimated that CDMA subscribers growth rate will increase rapidly because CDMA operators get more numerous and the infrastructure network gets more extensive. Therefore, the coverage area can reach remote areas of Indonesia.
Outlook of Fixed line Telecommuncations Fixed telecommunications (PSTN), which consists of fixed wire line and fixed wireless access (FWA) has expanded dynamically especially the FWA segment.
50
Telecommunication
Fixed wire line service has tended to be stagnant although there is no competitor of the only operator PT Telkom. Fixed wire line service is lagging behind FWA service in development. FWA service uses competitive tariff facing fixed wire line although it has growing and higher level technology. The sluggish growth of fixed wire line is marked by slower growth of the number of its subscribers. Fixed wireless Access (FWA) FWA is growing fast both in the number of subscribers and in features and technology that FWA is competing not only against fixed wire line but also with mobile telephone. The main players in FWA service in Indonesia at present are Telkom-Flexi, Indosat-Star One and Bakrie telecom-Esia. There is also Mobile 8, which has not yet operational, but it is expected to emerge as a strong competitors for the three other operators which are already in operation. Telkom-Flexi is now the largest operator of FWA, both in term of the number of subscribers, revenue and networks. Bakrie Telecom reported a the fastest growth in the number of subscribers although in absolute term it is still far behind Telkom Flexi. Apart from being expansive by offering highly competitive tariff Bakrie Telecom is aggressive in expanding business in fixed wire line market. The company has launched a product Wifone. Indosat, currently is the lowest in number of subscribers and revenue as it has focused more in expanding its cellular phone business. However, it has larger networks compared with Bakrie Telecom. Indosat is optimistic it could increase revenue and the number of its subscribers soon. Fixed Wireline Until now Telkom is still the only operator of fixed wire line in Indonesia. BatamBintan Telecom, although registered as service provider on the islands of Batam and Bintan, its subscribers and revenue are small and its operates only in the bonded zone area. In 2005 and 2006 the number of new line units was smaller at only 126,781 or an increase of only 1.5%. The number of new lines shrank further to only 23,080 in 2006 or an increase of only 0.3%.
51
Telecommunication
Though slow the number of subscribers for fixed wire line still continues to increase to reach 8.9 million in 2007 and the number is expected to continue to scale up to reach 9.7 million line units in 2011. The revenue from fixed wire line service has taken a downtrend and the trend is expected to continue in the coming years especially with PT Telkom planning to make FWA as a replacement for fixed wire line. In 2007, the revenue from fixed wire line service is predicted to reach Rp 9.6 trillion and the figure is expected to continue to slide to reach only Rp 9.3 trillion in 2008. Though declining the fixed wire line is expected to continue to expand for data and internet use.
Futures Outlook of Fixed line Low penetration of fixed line The prospects are encouraging for business in fixed telephone. Demand for telecommunications services will continue to increase both for voice, data and multi media telecommunications. With low penetration of around 4% for FWA, the market is still highly potential although development will depend on the economic condition in general and the purchasing power of the people in particular. Limited capacity of fixed wire line networks The development of fixed line is expected to continue to favor wireless fixed telephone (FWA), because of the slow development of fixed wire line. Meanwhile, the FWA segment is getting more attractive especially as while being mobile it could function as house telephone. With tariff equaling that of fixed wire line, FWA is more competitive facing both fixed wire line and cellular phones. Lower investment cost Another advantage offers by FWA service is lower investment cost for network. The investment for fixed wire line network is around US$ 600 - US$ 700 per line unit, as against only US$ 150 US$ 200 per line unit for FWA network. Faster in construction and implementation process The time needed to establish FWA network is much faster than for fixed wire line network as it does not need to erect poles and install cable lines. In addition registration of subscribers is simpler and faster.
52
Telecommunication
Technology for expansion The FWA technology has advanced faster both in features, voice quality and in data transfer capacity. The technology of EVDO (evolution data optimize) of CDMA used by FWA is equal to 3G of GSM. With the technology FWA will continue to be competitive facing cellular phone. The number of subscribers using fixed wire line and fixed wireless has continued to increase. Though slow the number of subscribers for fixed wire line still continues to increase to reach 8.9 million in 2007 and the number is expected to continue to scale up to reach 9.7 million line units in 2011. Meanwhile, the number of fixed wireless subscribers is expected to rise faster from 8.5 million in 2007 to 32.7 million in 2011. See the following table. Table - 1 Projection of the number of subscribers, 2008 - 2011
(million units)
Year Fixed Wire line Fixed Wireless Total Fixed line

Source: Data Consult processed
2008 9.1 11.9 21
2009 9.3 16.7 26
2010 9.5 23.4 32.9
2011 9.7 32.7 42.4
The revenue from fixed wire line service has taken a downtrend and the trend is expected to continue in the coming years especially with PT Telkom planning to make FWA as a replacement for fixed wire line. In 2007, the revenue from fixed wire line service is predicted to reach Rp 9.6 trillion and the figure is expected to continue to slide to reach only Rp 8.4 trillion in 2011. Though declining the fixed wire line is expected to continue to expand for data and internet use. On the contrary revenue from FWA service has continued to leapfrog estimated to reach Rp 3.2 trillion in 2007 and is projected to shoot up to Rp 20.1 trillion in 2011. Table 2 Projection of revenue in, 2008 - 2011
Year Fixed Wire line Fixed Wireless Total Fixed line Revenue
Source: Data Consult processed
2008 9.3 5.1 14.4
2009 9.0 8.2 17.2
2010 8.7 13.1 21.8
(Rp trillion) 2011 8.4 20.1 28.5
* * *
53
MINING
PROSPECTS OF MINING COMMODITIES, 2008 The soaring oil prices that have almost hit the US$ 100 per barrel level has put a brake on expansion of a number of business sectors and caused global economic slowdown. On the contrary, a number of sectors have gained from the oil price hikes. The prices of most other mineral products have increased and those of plantation commodities such as palm oil and rubber have shot up. In the mining sector, price hikes have been recorded for coal, tin, gold and nickel, etc, giving handsome profit to companies producing them in 2007. Coal, especially has gained importance as one of the main alternative sources of energy amid the soaring prices of oil fuels (BBM). The price of coal in the world market was recorded at US$ 78 per ton in mid November. Based on the spot price of coal in Asia at US$ 45 per ton, the coal trade value in Indonesia in 2006 should reach US$ 7.1 billion or around Rp 63.3 trillion. Meanwhile, the countrys coal exports in the January-August period in 2007 were valued at US$ 8 billion. Tin producing companies have also enjoyed handsome profit in 2007. The price of tin surged since the last quarter of 2006 from US$ 8,940 per ton early October 2006 to US$ 15,255 late September 2007. Currently the price of tin bars has even hit the level of US$ 15,000 per ton. The prices of gold have also scaled up considerably boosting production. The countrys gold production overshot the target by 156% in 2007. The production of silver also exceeded the target by 184%, copper by 123%, nickel matter by 103%, ferronickel by 101%, and tin by 125%. The countrys export of mining product grew by 35.7% in value and 12.3% in volume. In the first 8 months of 2007, the mining sector contributed 37% to the growth of countrys exports of non-oil/gas commodities.
Coal Data at the trade ministry show exports of mining products contribute 15% to the countrys export earning from non-oil/gas sector and coal accounted for 50% of the contribution. The countrys coal production has been boosted by the good prices. 54
Mining
The market prospects are encouraging for coal both on the domestic and internaitonal markets. So far coal has been the main alternative fuel in the country. Demand for coal is expected to continue to scale up in the coming years to fuel various industries. Many companies have modified their factories to use coal instead of oil as fuel. Demand for coal have increased from major economies including Chinna, the United States, Japan, Europe and India. In Indonesia, coal requirement has also increased fast especially from the manufacturing sector and for coal power generating plants (PLTU). The government through the state electricity company PLN has launched a crash program to build coal fired power plants with a total capacity of 10,000 megawatts to be completed before 2010. Coal requirement in the country averages 50 million tons a year now, but with the crash program the requirement will double to 100 million tons a year. Meanwhile, the countrys coal production totaled 215 million tons in 2007, up from 193 million tons in 2006. Exports in 2007 were estimated at 165 million tons, up from 145 million tons in 2006. The high prices have boosted production. In 2008, the countrys coal exports are forecast to reach 234 million tons, and demand on the domestic market is estimated to rise to 55 million tons. In the coming years, coal exports from the country, which is the worlds largest coal exporter at present, are predicted to decline with the growing domestic requirement. The government has ruled producers are required to set aside part of their production for domestic consumption. Exports will be limited to around 150 million tons in 2009 to ensure supply in the country. Coal contribution to the countrys energy requirement growing Coal has contirbuted significantly to the countrys energy requirement as well as to foreign exchange earning. The contributions have increased from year to year. Exports of oil and gas have tended to delcine lately in volume, on the contrary coal exports have grown rapidly. Exports of oil and gas, however, are expected to increase in 2009 with expected operaiton of a number of major oil and gas field like Cepu in Java and Tangguh in Papua. In 2005, coal exports totaled 476.4 million BOE (barrel oil equivalen) up to 508 million BOE in 2006 and to an estimated 590 million BOE in 2007. In 2008, the exports are forecast to rise further to 623.5 million BOE.
55
Mining
Exports of gas totaled 198.4 million BOE in 2005, down to 173.75 million BOE in 2006. In 2007, the expoerts were estimated to rise to 215.497 million BOE but predicted to fall again to 195.4 million BOE in 2008. Exports of crude oil totaled 159.4 million barrel in 2005, down to 129.8 million barrels in 2006 and to an estimated 120.1 million barrels in 2007. In 2008, oil exports are predicted to reahc 127.4 million barrels. Coal stocks attract investors Investors have shown growing interest in coal stocks. The trend is expected to continue in 2008. Toward the end of 2007, coal mining company PT Indo Tambangraya Megah (ITM) planend to go public selling 30% or 387.4 million units of its share. The company hoped to earn US$ 100150 million from the share sales. It planned use 70% of the fund for business expansion and to finance the construction of power plant and repay a debt. Company source said around US$ 45 million of the fund will be used for the expasnion of its subsidiary PT Bharinto Ekatama, and US$ 50 million for the development of a new project. ITM is a subsidiary of Banpu Plc, a Thai coal producer. In 2008, there are two other coal producing companies -- PT Adaro Indonesia and PT Sapta Indra Sejati plan to go public. PT Adaro Indonesia, the countrys second; largest coal producer, is expected to sell up to 30% of its share valued up to US$ 600 million.
Tin Indonesia is one of the worlds largest tin producers. In 2007, tin price hit a new record of US$ 17,000 per ton on strong demand and declining supply to the world market as a result of the crack down on illegal miners in Indonesia. Earlier tin price sank on rampant smuggling from the country by illegal miners, but the crack down by the government and export restriction sent the price to a record level. The government sought to reduce exports to only 90,000-1000,000 tons a year to keep the price high at around US$ 15,000 per ton. The government warned that too high prices may increase threat to the countrys position as the price maker in the world market. Many other former producers like Congo, Australia, and New Zealand may be prompted to retart exploitations of their mines abandoned earlier when the prices were not good.
56
Mining
In 2008, the market prospects remain encouraging for tin, but the government needs to maintain its tin policy and prevent illegal mining.
Nickel After peaking in May, 2007, the prices of nickel began to slide in the second half of 2007. The price hit record level of US$ 51,800 per ton at London Metal Exchange on May 9, 2007. The surge in price forced consumer to cut consumption resulting an decline in demand and prices. Global consumption of nickel is forecast to rise in 2008 with growing demand from stainless steel producers. Demand from stainless steel producers is predicted to grow 10% to 1.47 million tons. The International Nickel Study Group (INSG) said the increase in demand would revive the market after a decline of 5% in 2007. The expected rebound in the first half of 2008, the prices of nickel in the year is estimated to average US$ 12- US$ 14 per lb. PT Aneka Tambang Tbk Tbk (Antam), one of the largest producer of nickel in Indonesia beside PT Inco, cut its output target for 2007 after leak in its FeNi III plant recently. Previously Antam set its production target at 18,500 tons of nickel matte in 2007, but the target was later reduced to 16,000 tons. In the first 10 months of 2007, its nickel production totaled 12,200 tons. Although the FeNi III plant has resumed operation its capacity utilization was only 50% of its installed capacity. In 2008, PT ANTAM has not set production target for ferronickel, but the production is not expected to exceed 20,000 tons. The company, however, hopes to increase its earning from its gold and bauxite divisions. The prices of nickel is expected to increase in 2008 despite the decline toward the end of 2007, as demands from stainless steel makers are expected to increase again. * * *
57
CORPORATE NEWS IN BRIEF
BARITO PACIFIC TO ACQUIRE 70% OF CHANDRA ASRI. Timber company PT Barito Pacific said it hopes to chalk up Rp 1 trillion (US$ 111 million) in net profit this year including from petrochemical company PT Chandra Asri it was to take over on Dec. 14. Barito will to acquire 70% of Chandra Asri for which it is to launch right issue hoping to raise Rp 9.16 trillion in fresh fund to be used entirely to finance the acquisition. Barito owner and chief commissioner Prajogo Pangestu said the acquisition and right issue plans were sanctioned by the company shareholders in a recent meeting. Chandra Asri, which produces ethylene and propylene reported net profit at US$ 51.92 million in the first half of this year or an increase of 41.61% from the same period last year. Pangestu said Barito will acquire the 70% stake from Strategic Investment Holdings Ltd (48%), PT Inter Petrindo Inti Citra (14.60% and McKinley Investment Holdings (7.25%). Temasek, which holds the remaining stake, refused to sell. MEDCO TO TEAM UP WIH SHELL UPSTREAM TO DEVELOP CBM DEPOSITS. Energy company PT Medco E&P Indonesia said it has signed a cooperation agreement with Shell Upstream to carry out joint study of plan to develop coal bed methane (BBM) gas deposit in Lematang block in South Sumatra. The Lematang Block is estimated to hold 183,000 trillion cubic feet (TCF) of CBM gas, Medco E&P) President Lukman Mahfoedz said. Cooperation will be in joint study that will take around two years, but hopefully the cooperation will continue in explorations and exploitations, Lukman said. He said he could not give estimate of investment in the project before the study is completed but the project is capital intensive. The government offer a more generous production split of 45% for investors compared in CBM compared to 1% in oil. INDOFOOD GROUP ACQUIRES LONSUM. Publicly listed agribusiness company PT Salim Ivomas Pratama said it has acquired 70% of PT Mitra Inti Sejati at a price of Rp 66.5 billion (US$ 7.4 million). The subsidiary of the countrys food giant PT Indofood Sukses Makmur said in a report to the Jakarta Stock Exchange that Mitra Inti, a plantation company, has become its subsidiary after the deal signed on Oct. 1. Mitra Inti has oil palm plantations totaling 12,950 hectares in West Kalimantan. Salim Ivomas and Indofood Agri Resources Ltd, another subsidiary of Indofood, only recently struck a big deal acquiring a 36.6% stake worth Rp 5.7 trillion in PT London Sumatra Plantations (Lonsum), from. First Durango Singapore Pte Ltd and Ashmore Funds Salim Ivomas has been pledged a loan of Rp 5.71 trillion by a group of banks to finance the acquisition of Lonsum. PP London Sumatra has large oil palm and rubber plantations in Sumatra. DJARUM GROUP TO EXPAND BUSINESS TO COAL MINING INDUSTRY. The Djarum Group, a countrys clove flavored cigarette giant, said it will set aside up to US$ 1.5 billion to finance business expansion to booming coal mining industry. The widely diversified corporation hopes to acquire a number of coal 58
Corporate News in Brief

mining companies in Kalimantan this year, a company official said. We hope to thrash out negotiations with a number of coal mining companies before the end of this year, the source told the newspaper Investor Daily. He said Djarum wants to make coal mining industry one of its core businesses beside cigarette manufacturing industry. Djarum has long prepared expansion to coal mining industry and the growing demand for coal has encouraged it to move fast have a share of the booming business, he added. Indonesia is major coal supplier exporting 75% of its production of around 375 million tons every year. ETILSAT ACQUIRES 16% STAKE IN XL FROM SONDAHK. Emirate Telecommunications Corp. (Etilsat), a telecommunications giant from United Arab Emirates, has acquired 16% stake worth US$ 438 million in the countrys third largest mobile phone operator PT Excelcomindo Pratama, a report said. Etilsat bought the stake from Bella Sapphire Ventures Ltd, which is owned by Indonesian tycoon Peter Sondakh, an investment manager told the newspaper Bisnis Indonesia.XL founder Sondakh has no share left in the company. Telekom Malaysia holds the majority 67% stake in XL buying the stake from Sondhak earlier. Meanwhile, (XL plans to sell 7,000 units of its base transceiver stations (BTS) which are estimated to be worth Rp 7 trillion (US$ 777 million). The company has named Goldman Sachs as the sales arranger, its President Hasnul Suhaimi said. The sales process is expected to be completed in April next year, Suhaimi said, adding XL plans to continue using the units by leasing them from the buyers. The company wants to reduce the number of its BTS now totaling around 12,500 units to cut costs of investment and maintenance, he said. The company has 14 million subscribers and next year it is set to increase the number by at least 4.5 million. BII-DANAMON BANK CLOSER TO MERGER. Merger plan between Bank Danamon and Bank Internasional Indonesia (BII) may at last come to reality after Temasek Holdings Pte Ltd, which controls both banks, said merger is the option to comply with Bank Indonesias single presence policy (SPP). Temasek subsidiary Fullerton Holdings Pte Ltd, which holds the controlling share in BII said it has submitted the plan to Bank Indonesia. The central has ruled that foreign investor may not have controlling stake in more than one Indonesian bank and suggested options merger, selling stake or establishing a holding company. The single presence policy is to be effective in 2010 but the investors are required to submit their plan to comply with the rule before the end of his year. BII is 55.59% owned by Sorak Financial Holding Pte Ltd, 6.04% by Citbank Singapore, 6.57% by UBS AG Lndon 6.57% and the rest by the public. Fullerton said if share sale is considered more profitable, the option could be changed any time despite the merger plan by selling the shares in BII and maintain control only of Bank Danamon. BANK LIPPO AND BANK NIAGA HEADING FOR MERGER. Malaysias Khazanah National Bhd is considering merger of its two Indonesian based banks 59

PT Bank Lippo and PT Bank Niaga to keep its ambition to become the fifth largest bank owner in Indonesia. A single presence policy of Bank Indonesia give option for Khazanah to either combine the banks, form a holding companies for them or sell its stake in either one of them. The Indonesian central bank has ruled no foreign investor is allowed to have controlling stake in more than one bank in the country by 2010 and such investors are required to submit their plans before the end of this year. From the business point of view merger is the right option, Managing Director of Khazanah Datuk Azaman Mokhtar was quoted as saying. The two publicly listed banks had assets valued at 85.6 trillion by the end of the third quarter of this year. POLYSINDO TO SPEND US$ 75 MILLION IN 2008. Publicly listed synthetic fiber producer PT Polysindo Eka Perkasa Tbk, will spend US$ 75 million in 2008 to secure supply of its basic material. The fund is expected to be provided by Dutch investment company Damiano BV, which owns 59% of the company, corporate secretary Tunaryo said. Damiano is joint venture between ADM Capital (Hong Kong) and Spinnaker Capital Group (London). Tunaryo said the company hopes to improve its performance after some of its creditors have agreed to convert its debt into shares. The debt laden company reported a loss of Rp 500.5 billion (US$ 55.6 million) in the first nine months of this year despite an increase in sales of polymer products, staple fiber and filament yarns. Tunaryo attributed the losses to increase in the prices of basic material such as paraxylene as a result of the soaring oil prices. Polysindo has two factories in Karawang and Semarang - producing PTA/Purified Terephatic Acid (340,000 tonx), polymer (330,000 tons), woolen fiber (144,000 tons), and yarn fiber (160,000 tons). Earlier it was reported that Damiano BV has sold a 10% stake reducing its controlling stake to 59% in PT Polysindo Eka Perkasa. The shares have been sold through the Jakarta Stock Exchange since October, 2007 with a total price of Rp 37.6 billion (US$ 4 million), corporate secretary Tunaryo said. ATPK ACQUIRES OTOMA GLOBAL MITRA. Two subsidiaries of publicly listed energy company PT ATPK Resources have wholly acquired oil and gas service company PT Otoma Global Mitra at a total price of Rp100 billion (US$11.1 million). PT ATPK Energy Resources acquired 99% and PT ATPK Power took the remaining shares of Otoma Global in a deal on Nov. 20. The shares were bought from Wiwing Syarifuddin and Dewi Indah Evriyanti, respectively former 60% and 40% shareholders of PT Otoma Global, which has operated as supplier of goods and services needed in oil and gas explorations and production. ATPK Resource secretary Andreas Andy said the acquisition will strengthen the companys oil and gas business. GARUDA DOUBLES ORDER FOR BOEING 737-800 NG. Indonesias flag carrier PT Garuda Indonesia said it will double its order for brand new aircraft of Boeing 737-800 Next Generation (NG) from 25 to 50 units pesawat. Garuda President Emirsyah Satar said the state owned airline is set to replace its old 60

aircraft with new ones. Delivery of the new aircraft is expected to start in 2009. Garuda also plans to place order for six units of B777 aircraft to increase frequency of international flights. Emir said Garuda, which has long been in the red, will start posting net profit this year. In the firsth three quarter of 2007, Garuda posted Rp218 billion in net profit. Garuda serves fligts to 22 cities in the country and 18 cities abroad including Bangkok, Hong Kong, Kuala Lumpur, Singapura, Beijing, Seoul, Shanghai, Tokyo, and Australian cities. RAJAWALI TO ESTABLISH CAMBODIAN FLAG CARRIER. The Rajawali Group and PT Ancora Internasional in cooperation with the Cambodian government will establish that countrys flag carrier. The two companies and the Cambodian government have signed an agreement in Phnom Penh. Rajawali and Ancora will have 49% of the shares and the Cambodian government will holds the majority shares of 51%, Rajawali Managing Director Darjoto Setyawan said. Details including the investment cost have yet to be studied, Setyawan said. Cambodia already had a flag carrier Royal Air Cambodge, but mismanagement led to its closure in 2001. Earlier Rajawali, which has stakes in various business sectors including cigarette, cement, hotel, mobile phone, retail, plantations and mining, proposed to acquire a stake in Garuda Indonesia, but failed as the government postponed divestment of the nations flag carrier. PERTAMINA TO BUILD NEW OIL REFINERY IN EAST JAVA. State oil and gas company PT Pertamina will team up with a local company Wahana Universal to build an oil refinery in East Java at an estimated cost of US$20 million. Pertamina owns all 7 oil refineries in the country, but its production is not enough to meet the domestic oil fuel requirement. Pertamina Exploration and Production Director Hestu Bagyo said the two companies had signed an agreement to build the refinery, which will have a total processing capacity of 6,000 barrels of crude oil per day. Construction will start in October 2008 and it is to be completed in December in the same year. Its feedstock is to be supplied from the Cepu block, which is expected to start turning out oil and gas early the next year, Bagyo said. The Cepu block is estimated to have a reserve of 600 million barrels of oil and 17 trillion cubic feet of gas, now being developed by ExxonMobil in cooperation with Pertamina. The block is expected to turn out 165,000 barrels of crude oil a day after it is fully operational.
* * *
61
ECONOMIC NEWS IN BRIEF

IMPLEMENTATION OF INVESTMENT 184% FROM TARGET. Implementation of investment projects so far in 2007 has reached Rp 125.95 trillion (US$ 13.99 billion), up 169.02% from Rp 74.51 trillion in the whole of 2006, or the highest since the investment law was effective in 1967. Head of the investment coordinating board (BKPM) Muhammad Lutfi said investment is predicted to expand further by 15% in 2008 exceeding the 12.54% target set by the finance ministry. Domestic investment projects this year were mainly in paper and paper product and plastic industries and foreign investment projects are in transport, warehousing and telecommunications sector. Singapore is the largest among foreign investing countries, followed by Britain, South Korea, Japan and Taiwan. Implementation of the new projects provide jobs for 247,712 Indonesians. Lutfi said Indonesia has regined its position among the worlds investment destinations. He attributed the surge in investment to government policy of simplifying licensing procedure and other incentives.
INDONESIAN AIRLINES ASKED NOT TO BUY EUROPEAN AIRCRAFT. The Transport Ministry asked Indonesian airlines not to buy aircraft from Europe in retaliation of a recent decision of the European Union extending ban on Indonesian airlines from serving flights to Europe. The European Union bans Indonesian airliners from flying to Europe since July for security reason and the band was extended early November, 2007. Air Transport Director General Budhi Muliawan Suyitno said there is no ban on airlines to buy aircraft from Europe but the cost will be higher. There will be additional cost of at least US$ 200,000 per unit of aircraft bought from the EU for mandatory examination, Budhi said. A number of Indonesian airlines have signed contracts to buy or lease aircraft from Europe such as Airbus and ATR. Indonesia will also stop open sky talks with the EU if it does not lift the ban especially on the nations flag carrier Garuda Indonesia, Transport Minister Jusman Djamal said. In a show of solidarity to the state airline, President Susilo Bambang Yudhoyono postpones state visit to the EU as the head of state has to fly with the flag carrier, Jusman said, adding the president would not fly with Lufthansa or KLM. The government has also announced regulation subjecting foreign airliners serving flights to the country to ramp checks in Indonesian ports.
INDONESIA-QATAR JOINT VENTURE TO FINANCE PROJECTS. Indonesia and Qatar have agreed to establish a joint venture investment company with an authorized capital of US$1 billion to help finance a number of projects in Indonesia. Qatar Investment Authority (QIA) will owns 85% of the joint venture company and the Indonesian Finance Ministry will be a 15% shareholder, Vice President Jusuf Kalla said. The investment company will provide funds to finance projects in the property, infrastructure and power generating sectors, Kalla said after the signing of the agreement here recently. He said he hopes other Middle East countries will see the potential and profitability of economic cooperation with Indonesia. Presidential special envoy for Middle East Alwi Shihab said a similar agreement was to be signed between PT Perusahaan Penglola Aset (PT PPA) and investment company Emaar from the United Arab Emirates but was cancelled. The signing of the agreement with Emaar to develop tourism project worth US$ 600 million in Lombok was cancelled as PT PPA, a state-owned asset management company, will end its term of service next year, Alwi said. He hopes a new agency will be set up to replace PT PPA that the plan with Emaar could be renewed.
62
November 2007 - Indonesian Commercial Newsletter
Economic News in Brief

MORE INCENTIVES OFFERED TO BOOST OIL AND GAS EXPLORATIONS. The government said it will abolish import duty, value added tax and income tax on imports of capital goods used for oil and gas and geothermal explorations and exploitations. The incentives are expected to boost the countrys oil production to reach 1.4 million barrels per day in 2009, Vice President Jusuf Kalla said. Kalla said Indonesia has to recover its oil industry to regain productivity it had in 1985 when production averaged 1.7 million barrels a day. He said oil production could be increased by removing various stumbling blocks hampering investment. At least the oil production could be raised to 1.4 million barrels from around 950 barrels a day at present, he said. Energy and Mineral Resoruces Minister Purnomo Yusgiantoro said the incentive regulation will be effective as from January 1, 2008. INVESTMENT IN OIL AND GAS SECTOR PREDICTED TO RISE 22.2%. Investment by oil and gas production sharing contractors is predicted to rise 22.2% to US$ 2.2 billion in Indonesia next year from an estimated US$ 1.8 billion this year. The investment target for this year was previously set at US$ 2.3 billion, but realization is almost certain to fall short because of a number of factors such as difficulty in securing rigs, a deputy at the Oil and Gas Executive Agency (BP Migas) Ahmad Luthfi said. Drilling rigs and survey ships were not easily available resulting in delays of work in several projects, Luthfi said Drilling in the Ganal Block off East Kalimantan by Chevron Ganal and Eni Ganal Ltd to cost US$ 37 million, and drilling of exploration wells in the Sebatik Block by PT Star Energy to cost US$ 19.65 million will contribute to the total investment cost in 2008, he said. The country is also almost certain fail to reach its target of producing 1 million barrels of crude oil per day with production averaging only 957,000 barrels per day. so far. INDONESIA-IRAN OIL REFINERY PROJECT SHELVED. Construction of an Indonesian Iranian oil refinery is likely to be delayed with both sides still revising agreement first signed in 2004. PT Pertamina said it has signed with National Iranian Oil Refining and Distribution Company (NIORDC) revision of their memorandum of understanding on the project to be built in Bojonegoro, Bantan. Pertamina President Ari Hernanto Soemarno said the project was estimated to cost US$ 2.5 billion when the agreement was first signed, but now the cost has swelled to an estimated US$ 7 billion. A Pertamina Director Suroso Atmomartoyo said the agreement has been revised four times and the latest revision concerned the extension of feasibility study, capacity, supply of feedstock and technical details. The feasibility study could change technical specifications of the refinery which is to have a processing capacity of 300,000 barrels of crude oil a day. Earlier Suroso said construction of the project is to start next year and to be completed in 2012. * * *
63
APPENDICES
1. MONETARY INDICATORS
(in Billions Rupiah)
No 1
Items
Reserve Money among Currency in circulation others : among Bank Deposit at BI 120,377.00 others : 2 Net International Reserve 3) 341,881.00 3 Net Domestic Assets -30,710.00 among Net claims on Government 193,826.00 others : among Government Bond 4) 263,621.00 others : among Bank Indonesia's Liquidity Support 1) 560.00 others : among Net claims on IBRA 1) 94.00 others : among Liquidity Credits 2) 10,173.00 others : among BULOG others : among Open Market Operation -278,634.00 others : 4 Memorandum Items' : International Reserves (IRFCL - SDDS) 54,897.00 - in million US$ - In this program, Base Money is defined as the sum of Base Money and shortfalls of statutory reserves. 1. 2. Net Domestic Assets is defined as Base Money subtracted by Net International Reserves (converted using a fixed exchange rate). As of second week of May 1999 does not include interest. Including credit within the chanelling framework, and as of November 16, 1999 has been administered by Bank Rakyat Indonesia, Bank Tabungan Nasional and Permodalan Nasional Madani. A fixed exchange rate of Rp.7,000/US$ is applied in accordance to the Letter of Intent to the IMF dated January 20, 2000. Before, Rp.7,500/US$ was applied. And as of 4th week of May 2000 the International Reserves and Foreign Currency Liquidity (SDDS-IMF) concept is applied. Including government obligation indexation.
30 Nov 2007 Week IV 311,172.00 190,483.00
3.
4.
64
November 2007 - Indonesian Commercial Newsletter
Appendices
2. BANKING INDICATORS
(in Trillions Rupiah)
No 1
Items Fund 1 Loan Obligation 2 Issued Securities 3 Third Party Fund a in Rupiah b in Foreign Currency 4 Money Market Borrowing Loanable Fund 1 Bank Indonesia Certificate 2 Other Securities **) 3 Money Market Lending 4 Equity Participation 5 Credits *) a in Rupiah B in Foreign Currency Asset Capital Performance 1 Non Performing Loan a Value b Ratio to total credits (%) 2 Profit/Loss a Operational b Non Operational 3 Net Interest Margin Memorandum Items 1 Number of Banks 2 Number of Bank Offices
May 2007 1,454.00 13.70 16.00 1,305.90 1,094.10 211.80 118.40 1,321.80 202.50 80.40 172.90 6.20 865.60 685.60 180.00 1,720.90 142.60
June 2007 1,503.20 14.00 16.80 1,353.70 1,130.70 223.00 118.70 1,361.40 196.70 84.10 165.10 6.00 904.10 707.80 196.40 1,770.80 139.90
July 2007 1,529.50 14.10 16.80 1,376.20 1,157.40 218.80 122.30 1,399.90 202.10 86.70 152.00 6.10 915.60 714.20 201.40 1,801.10 141.60
Aug. 2007 1,544.80 14.30 16.80 1,392.60 1,172.10 220.60 121.00 1,392.40 239.60 84.70 143.30 6.50 936.80 726.80 210.00 1,820.40 149.00
Sep. 2007 1,566.50 14.10 16.80 1,400.60 1,171.40 229.20 135.00 1,436.30 221.10 88.80 180.40 5.30 956.70 750.60 206.10 1,850.50 152.40
3 4 5
58.00 6.70 21.20 14.90 6.30 8.00 130.00 9,375.00
57.50 6.40 25.20 18.10 7.10 7.70 130.00 9,375.00
59.20 6.50 29.10 21.50 7.60 8.70 130.00 9,492.00
59.10 6.30 33.27 24.31 8.96 8.00 130.00 9,571.00
55.00 5.80 37.28 26.68 10.60 8.10 130.00 9,619.00
*)Including channeling credits **)Not including the government bonds within the recapitalisation program Source: BI
65
Appendices
3. ECONOMIC INDICATORS
Indonesias inflation by Group of Commodities, 2004 2007*) (2002=100)

Year/ Month Food Stuff Prepared Food, Beverage Cigarette &Tobacco 4.85 13.71 6.36 1.89 0.87 0.65 0.36 0.38 0.47 0.33 0.40 0.48 0.45 0.51 0.43 0.91 Housing, Water, Electricity Gas and Fuel 7.40 13.94 4.83 1.81 0.71 0.80 0.29 0.26 0.35 0.13 0.32 0.77 0.18 0.21 0.12 0.63 4.87 6.92 6.84 0.72 -0.25 0.56 0.41 0.61 0.21 -0.43 0.61 0.49 1.22 2.05 1.66 0.99 Clothing Medical Care Education, Recreation & Sports Transport, Comm. & Financial Services 5.84 44.75 1.02 0.22 0.10 0.03 0.09 0.22 0.13 0.11 0.05 0.04 0.07 0.47 -0.27 0.22 Gene ral
2004 2005 2006 2007 Jan. Feb. March April May June July August Sept. Oct. Nov. Dec.
6.38 13.91 12.94 3.71 2.68 0.84 0.16 -1.30 -0.39 0.47 1.35 0.79 1.81 1.87 0.04 2.47
4.75 6.13 5.87 1.39 0.54 0.64 0.20 0.32 0.18 0.22 0.35 0.24 0.44 0.45 0.26 0.41
10.31 8.24 8.13 0.36 0.10 0.23 0.03 -0.03 0.01 0.03 2.89 3.18 1.70 0.21 0.11 0.12
6.40 17.11 6.60 1.84 1.04 0.62 0.24 -0.16 0.10 0.23 0.72 0.75 0.80 0.79 0.18 1.10
Monthly Indonesia's Consumers Price Indices and Inflations, 2005-2006, December 2007 (2002 = 100)
Months January February March April May June July August Sept. Oct. Nov. Dec. Inflation rate 2005 Inflations 1.43 -0.17 1.91 0.34 0.21 0.50 0.78 0.55 0.69 8.70 1.31 -0.04 17.11 2006 Inflations 1.36 0.58 0.03 0.05 0.37 0.45 0.45 0.33 0.38 0.86 0.34 1.21 6.60 2007 Inflations 1.04 0.62 0.24 -0.16 0.10 0.23 0.72 0.75 0.80 0.79 0.18 1.10 6.59
66
Appendices
4. EXPORT AND IMPORT

Indonesia's Export Development, 2004 2007
FOB value (US$ million) 2006 JanNov. 91,118 19,314 7,374 2,632 9,307 71,874 3,076 58,954 9,843 2007 JanNov. 103,075 19,541 8,145 2,562 8,835 83,533 3,551 68,758 11,224 % Growth 2006 2007 13.04 1.18 10.45 -2.68 -5.08 16.22 15.43 16.63 14.03
Descriptions Total Exports Oil & Gas Crude Oil Oil Products Gas Non Oil and Gas Agriculture Manufacturing Mining & others
2004 71,585 15,645 6,241 1,654 7,750 55,939 2,496 48,677 4,525.0
2005 85,661 19,232 8,146 1,932 9,154 66,429 2,880 55,594 8,039.1
2006 101,603 22,789 9,821 2,156 10,812 78,814 3,309 62,432 11,205.0
Indonesia's Import Development, 2004 2007

CIF value (US$ million) 2006 JanNov. 2007 JanNov. 67,568.4 19,467.0 8,089.4 11,289.3 88.3 48,101.4 6,085.3 51,380.9 10,102.2 % Growth 2006 2007 20.45 10.63 12.04 9.03 320.48 24.93 39.46 18.43 21.01
Descriptions Total Import Oil & Gas Crude Oil Oil Products Gas Non Oil and Gas Consumption Goods Raw Materials/ Auxiliary Goods Capital Goods
2004 46,179.7 11,625.2 5,831.4 5,785.7 8.1 34,554.5 3,771.7 36,314.8 6,093.2
2005 57,547.3 17,391.1 6,797.0 10,579.2 14.9 40,156.2 4 620,5 44 792,0 8 288,4
2006 61,078.1 56,097.1 18,975.1 17,595.7 7,220.1 7,852.5 11,082.5 10,354.6 21.0 30.1 42,103.0 4 839,7 47 165,7 9 072,7 38,501.4 4,363.6 43,385.0 8,348.5
* * *
67
Appendices
5. GROSS DOMESTIC PRODUCT The Value of Gross Domestic Product By Industrial Origin At Current Price and At Constant Price 2000
Industrial origin Agriculture, Livestock, Forestry and Fishery Mining and Quarrying Manufacturing Industry Electricity, Gas and Water Supply Construction Trade, Hotel, and Restaurant Transport and Communication Financial, Ownership & Business Services Services GDP GDP without oil and gas
(Billion Rupiahs) At Constant Price 2000 2004 2005 2006 Qtr III 2007 252.9 254.4 261.3 77.2
160.7 469.1 11.1 97,5 271.2 95.8 150.9 151.4 1,660.6 1,511.8
162.6 491.7 11.6 103.4 294.4 109.4 162.0 160.0 1,749.5 1,604.2
168.7 514.2 12.3 112.8 311.9 124.4 170.5 170.6 1846.7 1 703.1
43.2 137.1 3.5 30.9 86.0 35.8 46.4 45.7 505.8 469.7
The Growth of GDP by Type of Expenditure Type of Expenditure 2004 2005 2006 (Percentage) 2007 *) 2007 Year on Year 4.9 5.29 4.7 7.9 8.8 8.0 6.3 6.53 8.83 7.78 8.15 6.5
Private Consumption Expenditure Government Consumption Expend. Gross Domestic Fixed Capt. Formation Export of goods and services Import of goods & services GDP
4.9 1.9 15.7 8.5 24.9 5.1
3.9 8.1 9.9 8.6 12.3 5.6
3.2 9.6 2.9 9.2 7.6 5.5
*) January September 2007
* * * 68
Appendices
6. OIL PRICE AND FOREIGN EXCHANGE
OIL PRICES
ITEM Market Latest Date Price 1 month ago 3 months Ago One year Ago CRUDE OIL PRICE (US$/Barrel) - Sumatran Light 1) Tokyo 1/14/2008 64.23 65.25 - Arabian Light 2) Europe 1/14/2008 67.54 71.43 - Arabian Heavy 2) Europe 1/14/2008 70.11 83.15 - Brent 2) Europe 1/14/2008 85.29 93.46 - W. Texas 2) 1/14/2008 87.37 97.34 REFINED PRODUCT (US$/Gallon) - Fuel Oil 2) New York 1/14/2008 .4543 .4651 - Gasoline, New York 1/14/2008 .3565 .3674 Premium 3) Sources: 1) FEER - Telerate, 2) AWSJ- Dow Jones International Petroleum Report, 3) AWSJ - Oil Buyer Guide
55.13 58.42 61.29 78.32 79.37
53.22 56.46 59.10 66.27 67.35
.5520 .4546
.5642 .4440
FOREIGN EXCHANGE AND GOLD PRICE IN JAKARTA

ITEM -FOREIGN EXCHANGE (RUPIAH) US$ Buying Selling Pound. Aust. $ Sin. $ Mal. $ Hk. $ Yen Euro Today 1-17-2008 8,945 9,945 17,554 19,521 7,885 8,769 6,249 6,953 2,870 2,885 1,146 1,274 83.50 92.85 13,125 14,595 1 nonth ago 8,740 9,740 17,717 19,747 7,614 8,490 6,036 6,731 2,755 2,775 1,120 1,249 78.62 87.64 12,747 14,207 3 months ago 8,515 9,515 17,250 19,279 7,317 8,181 5,614 6,275 2,585 2,620 1,091 1,219 70.14 78.38 11,390 12,728 187,500 One year Ago 8,895 9,895 16,449 18,357 6,608 7,352 5,598 6,231 2,425 2,700 1,146 1,274 78.24 87.06 11,368 12,648 186,500
GOLD PRICE (RP/GRAM) - Gold 24 carat 267,500 235,500 AVERAGE INTEREST RATE - JIBOR a. Over night (O/N) 4.4 4.4 b. 1 month 7.8 7.8 - BI Rate 1 month 8.0 8.0 - SBI (Primary market) 1 month 8.0 8.0 Notes : SBI = Bank Indonesia Certificates, SBPU = Money Market Securities JIBOR = (Jakarta Interbank Offered Rate) n.a. = Data not available Source: Bank Indonesia/Data Consult * * *
5.2 8.5 8.5 8.5
3.0 8.9 12.75 11.00
69
Appendices
7. THE INDONESIAN ECONOMIC TRENDS
Items 1. The growth rate of GDP (% p.a.) - GDP per capita (US$) - GNP per capita (US$) 2. Total export (US$ bill) Total increase (%) Non-oil/gas(US$ billion) Non-oil Increase (%) 3. Total import (US$ bill) Total increase (%) Non-oil/gas(US$ billion) Non-oil increase (%) 4. Current account (US$ bill) 5. Reserve assets (US$ bill) (End of the year) 6. Total money supply (Rp trill.) Increase in 12 months (%) 7. Bank credit (Rp trill.) Increase in 12 months(%) 8. Comm. bank deposit (Rp trill.) Increase in 12 months(%) 9. Average interest rate (% p.a.) a. 3 month time deposit in Rupiah -State bank -Private bank b. Short-term credit -State bank -Private bank 10. Inflation rate, % p.a -Inflation Jan. Dec. 2007 2003r) 4.0 1,116 1,072 61.1 6.8 47.4 5.3 32.6 4.1 24.9 0 6.1 36.2 2004r) 5.1 1,207 1,165 71.6 9.3 55.9 17.9 46.2 39.5 34.5 35.7 5.9 36.3 2005r) 5.6 1,320 1,256 85.6 19.5 66.4 18.5 57.5 23.6 43.4 15.4 8.0 34.7 2006r) 5.5 1,663 1,591 100.6 17.5 79.5 19.6 61.07 5.8 42.1 4.62 9.6 42.5 2007e) 6.5 1,710 1,612 83.0*) 12,8 81.5 17.4 53.6*) 17.43 43.1 23.34 6.5 51.0
223.7 16.6 437.9 19.8 902.3 6.8
253.8 11.8 553.5 26.4 965.0 6.7
281.9 12.9 689.6 20.2 1,134.0 7.0
361.0 9.4 787.1 11.7 1,298.7 6.6
411.2 6.0 907.2 14.4 1,413.7 6.6
10.70 10.88 16.0 18.8 5.06
6.26 6.61 14.6 15.9 6.40
8.17 8.18 15.2 16.0 17.11
9.60 9.88 15.2 17.2 6.6
7.28 7.67 14.3 15.1 6.6 6.59 222.1
11. Population (million peoples) 211.6 214.4 216.6 Notes : r) Revised figures *) January September 2007 e) Estimate by Data Consult p) Projection revision figures n.a. = data not available Source: Bank Indonesia, Central Bureau of Statistic and Data Consult
219.3
* * *
70
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Icn-2007-12 - Economic Outlook 2008

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ISSN 0853-2086

INDONESIAN COMMERCIAL NEWSLETTER

MARKET INTELLIGENCE REPORT ON

ECONOMIC OUTLOOK 2008........................................................................................1

PROSPECTS OF MANUFACTURING SECTOR IN 2008...........................................10

December 2007 - Indonesian Commercial Newsletter

PROSPECTS OF INFRASTRUCTURE AND PROPERTY SECTORS 2008............. 37

OVERVIEW AND PROSPECTS OF TOURISM SECTOR .......................................... 42

OUTLOOK OF TELECOMMUNICATION INDUSTRY ................................................ 49

PROSPECTS OF MINING COMMODITIES, 2008 ...................................................... 54

December 2007 - Indonesian Commercial Newsletter

December 2007 - Indonesian Commercial Newsletter

Source: BPS, processed

Indonesian Commercial Newsletter December 2007

Table 3 Contribution to GDP (%)

Indonesian Commercial Newsletter December 2007

*) Growth y on y Q III 2007 Source: BPS

Indonesian Commercial Newsletter December 2007

19,541 8,145 2,562 8,835

1.18 10.45 -2.68 -5.08 13.04

Table 6 Trade balance, 2002 2007*)

57,159 31,289 25,870

61,056 32,551 28,505

71,584 46,524 25,060

85,660 57,701 27,960

101,603 70,374 31,229

103,075 67,568 35,507

45,046 24,763 20,283

47,407 24,940 22,467

55,939 34,792 20,147

66,428 40,243 26,185

78,814 49,217 29,597

83,533 48,101 35,432

Indonesian Commercial Newsletter December 2007

Source: BPS (Central Bureau of Statistic)

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter - December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Note: *) QIII 2007 Source: BPS

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Realization of Investment (Permanent Licenses) Jobs provided

117 49,322 persons

124 78,735 persons

Indonesian Commercial Newsletter December 2007

Realization of investment (Permanent Licenses) Jobs provided

702 179,227 persons

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

35 26 45 10 235 29 100 26 80 13 12 18 13 26 53 7 7 21 5 4 7 1 2 775

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007

Indonesian Commercial Newsletter December 2007