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Opening Speech by EU Ambassador to Indonesia, H.E. Vincent Guerend
at the "Indonesia Economic and Investment Outlook 2018"
Jakarta, 8 February 2018
Dear Pak Thomas Lembong, Chairman of the BKPM,
Dear Mr Ulf Backlund, Chairman of Eurocham Indonesia, and distinguished Eurocham Board Members,
Distinguished guests and speakers, members of the diplomatic and business community.
It gives me a great pleasure to be present here today, at the opening of the Indonesia Economic and Investment Outlook 2018.
We just learnt from the official statistics that the recovery of Indonesian economy continued in the last quarter of 2017. As a matter of fact, at 5.19%, Indonesia’s quarterly growth in the last quarter of 2017 hits four-year high. This brings the annual GDP growth to 5.07%. This figure is not bad. But it could and should be higher.
It is not a bad result as it shows the resilience of the Indonesian economy, and keep the country broadly in line with the economic developments in the region. But this figure is below the expectations (including the Government target) and the necessary growth level needed to absorb the new people entering the job market.
On the other side of the globe, the European economy, an 18 trillion USD economy, is also strengthening fast. Over the whole year 2017, the EU economy expanded by 2.5%, its best performance in a decade. The European recovery is spilling over to the rest of the world, contributing significantly to global growth as the EU is the largest global trade actor and the largest provider and beneficiary of Foreign Direct Investment (FDI).
The European economy has performed significantly better than expected last year, with broad based improvement across the continent. After years of sluggish growth due to a series of debt crises, investment is now picking up and confidence in economy has "considerably brightened". This is good news for Indonesian exporters.
Bilateral Economic Relations
Even during difficult economic times in the past, trade and investment flows between the EU and Indonesia have grown substantially – showing how robust and resilient our trade relations are.
With regard to bilateral merchandise trade, the EU remained as Indonesia's 3rd largest export market after China and the US (almost 11% market share), as well as 3rd most important source of imports (more than 9.3% of total imports) in 2017 after China and Japan.
Even more importantly, the EU is one of the largest sources of foreign investment. The EU has a FDI stock in the country of almost €34 billion, second only to Singapore (from where European companies are also investing here). According to BKPM data, from January to September 2017 alone, EU companies invested US$ 2.2 billion in Indonesia (4th largest investor after Singapore, Japan and China), and representing an increase by 29% compared to the previous year, an impressive rise.
Going forward, I am happy to note that, according to the last European Business Confidence Survey, European investors remain broadly positive in terms of the outlook for their business in Indonesia and the future growth prospects.
There is an interest by European companies to bring capital and necessary products to Indonesia.
However, one cannot hide that European investors appear hesitant about expanding investments despite the future potential due to a number of challenges faced by international business operating in Indonesia.
EU industry has repeatedly expressed general concerns with regard to legal uncertainty due to changing regulations and investment rules, making it very challenging to plan and realise investments in Indonesia given the often very large scale nature and longer time-frame of investment projects, with a long-term view of the domestic market.
The already long list of market access issues faced by our industry is continuously growing and Indonesia needs to address them if the country wants to attract productive investments.
Although we do welcome the various deregulation packages adopted by the Government, we also look forward to see them effectively implemented in order to make the business environment even more attractive and comparable to that of other Asian countries. I believe this is one of the highlights in today’s discussion.
More generally, we strongly believe that in order to leapfrog from 5 to 7%, the country needs to rely more on the private sector, both domestic and foreign owned, and should no longer consider imports as an evil as imports clearly feed exports.
The improvement of the business climate will also be essential to create a framework conducive for successful Comprehensive Economic Partnership Agreement (CEPA) negotiations.
The conclusion of CEPA between the EU and Indonesia is a key milestone in our relations and will provide new opportunities and growth for investors as well as increase the choices for the consumers.
The goal is to conclude an ambitious economic agreement between the EU and Indonesia that makes trade and investment easier and covers a broad range of issues, including customs duties, regulatory barriers to trade, trade in services, trade aspects of public procurement, competition rules, intellectual property rights, investment and - last but not least - rules on sustainable development.
A successful CEPA will provide a stable, predictable and transparent long-term framework for bilateral trade and investment relations, also providing certainty for exporters and investors on both sides, hereby stimulating more trade and FDI.
Upon a successful CEPA, we can expect even greater contribution from the EU industry in Indonesia, not only with capital investment, but also know-how and technology, in the sectors such as transport and logistics, insurance/banking, pharmaceutical and health care, agriculture/horticulture, retail, and various services sectors.
European investment would not only capital investment and advanced technology, but also technical know-how and innovations, investment in R&D, and human resources and skills development.
This in turn would contribute to the development of a diversified and higher value added economy in Indonesia, as well as help develop the country into the manufacturing hub of ASEAN, including for high-tech products.
We have already conducted three rounds of CEPA negotiations, and we have recorded positive engagement from both sides and we are looking forward to further progress during the fourth round which will be conducted in Solo later this month.
We, of course, welcome high ambitions shown by Indonesian government to conclude the talks before 2019 but we need to see an acceleration of the frequency and progress in the substance of the negotiations if we want to achieve this ambitious target.
On this positive note, I look forward to hearing more fruitful and productive discussion about our economic relationship and how to tackle challenges ahead.