Thursday, July 22, 2010

Indonesia’s Gita Wirjawan: We Are Open For Business!

Knowledege@wharton interviews Gita Wirjawan, a 44-year-old former investment banker with Goldman Sachs and J.P. Morgan, who recently became the chairman of Indonesia's Badan Koordinasi Penanaman Modal (BKPM), the country's Investment Coordinating Board, a ministerial-level post.

Here is the transcript as well as the video.

Below are some excerpts (all bold highlights mine)

1. Regionalization

``But we have to underline the point that a good chunk of the investment coming into Indonesia thus far has been coming from Asian countries -- the Southeast Asian countries and the Japans of the world and the Koreas and increasingly Taiwan and mainland China. And in the last quarter or so, we are seeing an increasing amount coming from the United States.”

2. Trade can be complimentary

``Number one, if you look at the economic structure of China and that of Indonesia, there is a great degree of complementarity. China for the last 20 years has been driven by investments, and Indonesia has been driven for the last 15 years by domestic consumption. And China is trying to move the pendulum from an investment-centric economy to more of the human capital development and more domestic consumption. For its part, Indonesia needs to move to a more investment-centric model. So that complementarity will play out nicely if we get our act together in terms of inviting and encouraging Chinese investors to come to Indonesia.

``And, second, the increased strength of the yuan, or renminbi, will encourage the Chinese to shop for even more goods and services and hopefully to make more investments in Indonesia. We have seen a significant expression of interest by many Chinese companies. The numbers in terms of realization have not been as staggering as the expression of interest, but there is always a lag between expression of interest and actualization of the investment.

3. It’s all about the business environment

``A lot of what we have done is mainly out of the institution's own initiatives as opposed to the fact that it is ministerial in level. One classic example was our ability to create a one-stop shop for investment, which was implemented in February. This involved a delegation of authority from 15 ministers and we were able to get that in a relatively short period of time, and then we were able to simplify the investment decision-making process in Jakarta.

``Now we can issue a license in five hours -- compared with waits, in the past, of up to seven days. Now we can give you immigration permits, labor permits and even fiscal incentives for certain industries without your having to go to all the different ministries. The challenge is to roll this out to all 33 provinces and all 500 regencies -- that's a monster in itself. We have set a target to roll it out in all 33 provincial capitals and the capitals of 40 regencies by the end of the year. If we can get this done, which I believe we can, we will see a significant unlocking of value.

4. Unlocking the potentials of the capital market

``The amount of private equity funds that have been invested or managed with respect to Indonesia is very small in absolute value -- we're talking about no more than $2 billion. Let's take a look at the market cap of the Indonesian stock market. It hovers around $220 billion. As for our economy, as I said earlier, it is a staggering $650 billion, the largest in Southeast Asia, and it is expected to grow to around $1 trillion in 2014. Put the size of the private equity funds in Indonesia in the context of the market cap and the economy, and it presents an enormous opportunity for many to take a look at us.

5. Business Environment means the Small and Medium Scale enterprises

``We need to take a view on how we can cultivate the small and medium entrepreneurship efforts. The bulk of the investment flows in Indonesia, from within and from without, actually relate to small and medium enterprises, and that involves entrepreneurship in a big way. We need to think about how to promote these efforts in an even bigger way -- and how to lead them to a more innovative thought process, whether that includes thinking about going to the capital markets model after a few years for exit mechanism purposes or for value crystallization purposes or value maximization purposes.”

Mr. Wirjawan doesn’t explicitly say it, perhaps out of fear from ideological labeling, but the simple message is: Indonesia is open for business (euphemism for economic freedom or capitalism)!

Good for our neighbor, but how about the Philippines?

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