Considerations when investing in Indonesia from Singapore

Things in Indonesia are booming. When I talk with those unfamiliar with Indonesia, they are often amazed. I maintain that Indonesia is one of the world’s best kept secrets. So many people do not even know that Bali is a part of Indonesia.

By some measures, Indonesia is the 16th largest economy in the world. It gives credibility to ASEAN given its size. As a young democratic country, Indonesia has maintained political stability since emerging from decades of autocratic rule. Demand for infrastructure in Indonesia is fueled by both economic growth and urbanisation, while petroleum and minerals continue to make up the majority of exports. To continue reforming its investment climate, the government has rolled out measures to ease red-tape, open up sectors for investment and improve public services.

Often Singapore is used as a base for investing in Indonesia. This is understandably a sensitive topic. In July 2017, the Indonesian President was quoted as saying that he aims to persuade companies that have significant operations in Indonesia, but are listed on overseas stock markets to sell shares on Indonesia’s bourse. President Widodo claimed he has a list of such firms, mostly operating in mining and plantation sectors, and said he would seek to persuade them, without force, to become a public company in Indonesia.

There are many good reasons for Indonesian companies to list in Singapore. For instance, Indonesia-based companies such as Golden Agri-Resources Ltd (SGX: E5H) and Wilmar International Limited (SGX: F34) needed access to a more international investor base to help fund their operations. Given the less mature stock market in Indonesia, a listing in Singapore can often make sense.

IE Singapore writes on its website that the demand for infrastructure creates opportunities for Singapore companies in the maritime, utilities, manufacturing and industrial park development sectors:

? Maritime –

With 17,000 islands, Indonesia is an archipelago nation and President Jokowi envisions it to be a “Global Maritime Axis”. Sea port infrastructure is hence crucial to reduce the high logistics costs Indonesia currently faces. Singapore companies should consider investing in key nodal ports and its supporting infrastructure, through partnerships with state-owned enterprise, Pelindo I-IV or other established Indonesian companies.

? Utilities –

The new administration is committed to improve on the provision of utilities for the country. They target to increase the country’s electricity capacity by 35,000 megawatts and provide the entire population with access to clean water by 2019. For the power sector, Singapore companies can become Independent Power Producers can look beyond Java for additional opportunities. For large water projects, Singapore companies should cultivate relationships with the respective government stakeholders as areas of jurisdictions differ for each project. Besides government or government related projects, Singapore companies should also consider infrastructure projects in the private space, for example, dedicated power plants or industrial water treatment plants servicing industrial parks.

? Manufacturing and Industrial Parks –

Indonesia’s new administration has emphasised the need to revitalise its manufacturing sector by developing integrated industrial estates. Indonesia aims to revive its status as a globally renowned cost-competitive manufacturing hub. Other than competitive production costs, Singapore manufacturers will have access to the country’s population of 250 million when they set up production facilities in Indonesia. Singapore manufacturers that set up factories in industrial parks also enjoy common facilities such as utilities and security. Industrial park developers should explore opportunities out of West Java due to its competitive costs.  

? Although not mentioned by IE Singapore, another growth area in Indonesia is real estate development.  Despite various state incentives, the Indonesian property development sector is still unable to keep pace with the growing population and demand.  Overall, investment opportunities in the property development sector are promising given the backlog and the government’s determination to boost the rate of housing development.

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