Bernardo M. Villegas
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Indonesia Will Lead the AEC (Part 2)

            When President Widodo was elected in 2014, there were great expectations about Indonesia moving away from protectionist measures that were imposed during the previous regime of President SBY.  Because his party was not able to muster a majority in the Parliament, it took time for the new President to open up the economy to attain faster growth.  Last June 2016, however, amid slowing growth and stagnating investments, the government finally opened 35 new sectors to foreign participation.  It revised its Negative Investment List opening 35 new sectors to FDI, especially in services and trade.  With these reforms, the government hopes to attract some $44 billion of new FDI in 2016.  The sunrise sectors most likely to attract FDIs are those related to e-commerce, technology and infrastructure.  China leads in infrastructure investment, especially in toll road projects.

          Indonesia is expected to be the leading economy in the ASEAN Economic Community (AEC) because of its very rich natural resources and its large domestic market, having the fourth largest population in the world today.  In e-commerce alone, the World Bank estimates that 70% of Indonesia’s 250 million people will be of working age (15 - 64 years) by 2020.  According to Oxford Analytica Daily Brief, this young population, together with the advancement of ICT technology, is expected to grow the domestic e-commerce businesses.  In 2015, the number of Indonesia’s online shoppers reached 7.4 million—only a small fraction of the population—indicating the potential for future growth.  In 2016, the Indonesian E-commerce Association expects e-commerce transaction to reach $25 billion from only $8 billion in 2013.  It is the objective of President Widodo to transform Indonesia into Southeast Asia’s largest digital economy and produce 1,000 technology entrepreneurs by 2020.  The famous Bandung Institute of Technology, which we visited, will produce a good number of these Silicon Valley-type  entrepreneurs.  The government, however, has to work hard to significantly improve its ICT infrastructure.  Indonesia’s internet speed is among the lowest in the ASEAN at 4.1 megabytes per second (Mbps), as compared to those of Singapore and Thailand (61 Mbps each) and the ASEAN average (17.7 Mbps).

          The domestic market of Indonesia, valued at $840 billion, is highly attractive to foreign investors.  In fact, like the Philippines, Indonesia’s domestic market partly insulates it from the ups and downs of the global economy.  It has the lowest export to GDP ratio in Southeast Asia.  This large domestic market also gives Indonesian companies in the Fast Moving Consumer Goods a competitive advantage in attaining economies of scale in food manufacturing, pharmaceuticals, personal care, textiles and garments so that they can export these goods tariff-free to their ASEAN neighbors.  In fact, in the Philippines we already see a proliferation of Indonesian-made products in food, beverage and health products.  As Indonesia opens up to more FDIs, we shall also witness more multinational companies making Indonesia their manufacturing hub from which to export their goods to the rest of the ASEAN. 

          It would be forward looking for Filipino entrepreneurs to explore opportunities to do business in Indonesia either on their own or in partnership with their Indonesian counterparts.  During my numerous visits to Indonesia, I have observed some Philippine business enterprises who have succeeded in penetrating the Indonesian market.  Among these are United Laboratories, SGV (they actually helped build the accounting profession in Indonesia), Liwayway Manufacturing (manufacturer of famous Oishi brand), Jollibee, Penshoppe, Energy Development Corporation, Pacific Trader (furniture company based in Cebu), and Asia Select (an executive search firm).  I am sure there are more.  Indonesians feel very comfortable in dealing with Filipinos because they share very similar cultures.   The Filipinos who have settled in Indonesia tell me that they learned the Bahasa language in a matter of months because it comes from the same linguistic roots as the Filipino languages.  I hope that more Philippine universities will offer Bahasa as a foreign language.  With the aim of the ASEAN Economic Community to achieve free flow of people, the first step would be with respect to professionals like engineers, architects, accountants, and English professors.  Filipino professionals are highly respected by Indonesians.  I also hope to see more Philippine investors attracting Indonesians to partner with them in exploring opportunities in the Philippine domestic market, following the examples of First Pacific, Mondenissin, and CITRA.  The business synergy between Indonesia and the Philippines will enable us to capitalize on the leadership that our giant neighbor to the South will surely exercise in the AEC.  I am already envisioning Indonesia playing a role in the AEC similar to that of Germany in the European Union.  For comments, my email address is bernardo.villegas@uap.asia.