OPENING REMARKS FROM IFC INDONESIA - Dialogue to Drive Japanese Investments in Indonesia - International ...
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OPENING REMARKS FROM IFC INDONESIA
Dialogue to Drive Japanese Investments in Indonesia
Indonesia Country Manager
Azam Khan
April 23rd, 2021
INDONESIA AT-A-GLANCE
7th largest economy
270 million population Rich in renewable resources …
US$1 trillion GDP, average of ~5% GDP
4th most populated country globally (fishing, forestry, and agriculture)
growth since 1990
Young population … and non-renewable resources Investment grade
S&P-BBB negative, Moody’s-Baa2 stable,
Median age of 30 (tin, gold, copper, nickel, bauxite, oil, & gas)
Fitch-BBB stable
PREVALENT DEVELOPMENT GAPS FACED BY THE COUNTRY
POVERTY AND HUMAN DEVELOPMENT INDICATORS BUSINESS ENVIRONMENT AND INVESTMENT
~10.2% ~1.5mn ~96% EASE OF DOING BUSINESS
(6%) ~21 COMPETITIVE INDEX RANKING
Poverty Rate at the
National Poverty Out of School Infant Mortality
Adult Literacy Rate
(% of People Ages
#73/190 #50/141
Children (% of Primary (Per 1000 Live Births) Overall Ranking in
Line 15 and Above) Global Competitiveness Report 2019
School Age) Doing Business 2020
~27.6mn 0.54 ~28% ~9%
Individuals Living in Human Capital Stunting Rate Prevalence of
~2.1% of GDP ~34% of GDP
Poverty Index (0-1) (Under 5 Years) Undernourishment Foreign Direct Investment
(% of Population) Gross Capital Formation
(Net Inflows)
CLIMATE VULNERABILITY & ENVIRONMENTAL DEGRADATION JOBS & GENDER
RANKED RANKED RANKED
#116/180 ~22mn #85/153 ~51%
#64 will join workforce in the
Global Gender Gap Index
Female Bank Account
Environmental Performance Index (EPI) next 10 years Access
Global Climate Risk Index 2020 2020 2020
0.45/#105 0.39/#103 ~67% ~54% ~60% ~94%
ND-GAIN Vulnerability Score/Rank out of ND-GAIN Readiness Score/Rank out of Labor Force Female Labor of SMEs are Female Literacy Rate – 3
181 Countries 191 Countries Participation Participation Women-owned Percentage Points below
Rate Male
KEY CONTRAINTS TO PRIVATE SECTOR PARTICIPATION
THE COMPETITION GAP THE HUMAN CAPITAL GAP
• Country with some of the strictest restrictions on FDI - FDI inflows • Gaps in both education and health diminishing labor productivity and slowing
representing 2.1% of GDP (Vietnam (6.2%) and Malaysia (2.5%)) down economic growth
• Increased barriers to goods imports, raising the cost and reducing the • Low levels of health spending (~1.4% of GDP) and high prices of nutritious
availability of inputs food, contributing to the prevalence of stunting and non-communicable diseases
• Regulatory uncertainty, weak competition policy and enforcement - ranked (NCDs)
#140/190 on starting a business in Doing Business 2020 with overall Doing • Limited access to financial services - ~20 million people still pay their bills and
Business ranking of #73/190 other expenses in cash and ~95 million adults don’t have an account at a financial
• In response to the above factors, the government and Parliament passed the institution
Omnibus Law on Job Creation in 2020 with Implementing Regulations issued • Inadequate skills cited as a top constraint when hiring managers and
(Perpres/ PP) in February 2021 professionals, addressed by the Omnibus Law on Job Creation with Implementing
Regulations (Perpres/ PP) issued in February 2021
THE FINANCIAL GAP THE INFRASTRUCTURE GAP
• Underdeveloped financial markets - credit to private sector of 33% of GDP, • The government’s limited fiscal capacity for infrastructure projects,
deposits of 36% of GDP, and capital markets capitalization of 47% of GDP particularly due to the COVID-19 pandemic
• Corporate bonds instruments mainly are plain vanilla bonds, due to nascent • Long period of underinvestment particularly in the energy, transportation, and
stage of bond-market development, limited investor literacy, and tax and regulatory digital sectors
impediments • The government’s SOE-driven model limits participation and competition for the
• Highly concentrated banking sector dominates the financial system (78% of private-sector in infrastructure sectors
total financial assets), with four state-owned banks holding 44% of banking • Low bankability of concessions and tariffs in most infrastructure sectors
assets
• Domestic lending practices are unconducive to infrastructure financing - short
• Underdeveloped sub-national financing markets, making it difficult for sub- tenure loans and short-term outlook of local investors
national governments to borrow
Source: The World Bank Country Private Sector Diagnostic 2019
ECONOMIC GROWTH CONTRACTED DUE TO COVID-19,
BUT RECOVERY CONTINUES
Q4
Source: Bank Indonesia, BPS, CEIC
JOKOWI’S MAJOR POLICY REFORMS TO ATTRACT FOREIGN
INVESTMENTS: THE OMNIBUS LAW ON JOB CREATION
The Omnibus Law was promulgated in November 2020 and the first wave of Implementing Regulations was issued in February 2021. The Law amends 76 different
laws across 11 clusters and focuses on removal of sectoral discrimination towards foreign investment and simplification of business licensing. The Law will
facilitate reforms in the following key areas:
The Law substantially reduces the number of business activities subject to restrictions from 813 to 260.
• The Law permits foreign investment in hospital businesses (health sector) from a cap of 67%.
INVESTMENT • It also removes the government’s obligation of reserving sectors for SMEs.
The Law eases the issuance of work permits for foreign skilled workers and reduces barriers to import of key commodities and
AND
industrial inputs.
LABOUR However, the Law excludes the revisions on the Education and Higher Education laws, which would have allowed for-profit education
legal entities to establish schools and higher education institutions and bring more flexibility for foreign education to operate in
Indonesia.
The Law stipulates the establishment of an Indonesian Sovereign Wealth Fund (SWF), known as the Indonesia Investment Authority (or
INA) to attract global investors into Indonesian based assets.
SOVEREIGN
WEALTH FUND
Circumstances surrounding the SWF are still uncertain at this stage, but IFC has already established a dialogue with the entity,
including on potential pilot transactions.
The Law introduces a risk-based approach to business licensing that incorporates environmental permits.
ENVIRONMENT
The implementation of a risk-based system requires significant institutional strengthening across all levels of government and relevant
agencies, as well as the enactment of new standards. However, some of these arrangements are not yet fully detailed.
IFC IN INDONESIA
STARTED OPERATING IN 1968, INDONESIA GRADUATED FROM IDA IN 2008
Over the last 10+ years, IFC committed 77 Long-Term Financing (LTF) projects worth US$5.5 billion
(US$3.1 billion on Own Account (56%), US$2.4 billion Mobilization (44%))
NEW INVESTMENT (US$ million) PORTFOLIO AMOUNT BY SECTORS NUMBER OF OUTSTANDING PROJECTS BY SECTORS
Private Equity Funds
6%
Housing & Real
Estate Insurance and Education, 1
9% Pensions, 1
Tourism, 1
Retail
10%
Tourism Infrastructure
1% Banking and Finance, 2
Microfinance, 14
Disruptive Disruptive
Technologies Technologies, 2
1%
Retail, 2
Life Sciences
and Medtech Agribusiness, 3
6%
TOTAL COMMITTED PORTFOLIO (US$ million)
Banking and
Microfinance Life Sciences
40% and Medtech, 3
Agribusiness
4%
Housing & Real Private Equity
Manufacturing Estate, 6 Funds, 4
7%
Infrastructure
12% Infrastructure Infrastructure, 6 Manufacturing, 4
Finance
4%
IFC INDONESIA IN INFRASTRUCTURE
SELECTED PROJECTS
ASAHAN 1 SUNTER WTE LEGOK NANGKA WTE
Hydroelectric Power Plant Waste-to-Energy Plant Waste-to-Energy Plant
North Sumatra, 2020 Jakarta, 2021 West Java, 2020-2023
$230m One of the Country’s
lowest cost producers 180 $224m 2,200 35 A/S 1,820 $265m
loan facility of power megawatt financing package tons/ day capacity megawatt electricity IFC provides tons/ day capacity estimated project cost
hydroelectric plant incl. up to $94m IFC output transaction advisory
loan
Asahan 1 is a run-of-river hydro plant in North Sumatra, The Sunter WtE is the first Waste-to-Energy plant in In August 2019, JICA signed a Cooperation Agreement
constructed in 2010 and selling electricity to Indonesia’s Indonesia, which is developed to manage waste for with the Ministry of Finance (MoF), then in September
national electricity utility company (PLN) under a 30- Jakarta and sell power to PLN. The project is developed 2019, JICA concluded a Project Services Agreement
year long-term Power Purchase Agreement. It is owned jointly by Fortum Oyj and Jakarta Propertindo with IFC. Under these contracts, JICA, in cooperation
by a subsidiary of PLN and Singaporean Fareast Green (“JakPro”). The total project cost is expected to be with IFC, will provide Transaction Advisory Services in
Energy. In March 2020, IFC led refinancing of the debt around $250-300m. The proposed IFC financing package support of procurement procedures by the Indonesian
with total refinancing package of $230m. IFC was able to is up to $224m, consisting of up to $94m from IFC’s own Government agencies for selecting private project
extend the tenor to 17 years and improve pricing, hence account and up to $130m of mobilization. operator for Legok Nangka WtE. Legok Nangka WtE is
improve the shareholders’ return. the first PPP Waste-to-Energy project in Indonesia.
IFC INDONESIA IN FINANCIAL SECTOR
SELECTED PROJECTS
BTPN SME GREEN LOAN SUSTAINABLE BOND PROGRAM FMF KBC MSME LOAN
Commercial Bank, 2018 Commercial Bank, 2020 Multi-finance Company, 2020
$150m $600m $70m $200m $350m $210m $50m $327m $34m
revolving loan from expected green loan expected SCF loan loan facility from IFC expected climate loan expected loan to loan facility from IFC expected micro loan expected SMEs loan
IFC own account outstanding by 2022 outstanding by 2022 own account outstanding by 2024 WSME outstanding by own account outstanding by 2023 outstanding by 2023
2024
BTPN SME Green Loan comprises of $150m revolving OCBC NISP Sustainable Bond Program comprises of a FMF KBC MSME Loan consists of a 3-years IFC’s loan
loan to BTPN, the 9th largest bank in Indonesia, to Green Bond and a Gender Bond of $100m each. The of up to $50m to FMF, a mid-size multi-finance
expand green financing and to increase lending to Gender Bond was the first ever gender bond in the company. The Project is guaranteed by KB Kookmin
MSMEs focusing on the following two areas: (i) supply country. The Program leveraged blended finance Card (KBC), the parent company of FMF and the
chain finance (SCF); and (ii) women owned MSMEs. The resource from UK-IFC MAGC program to promote green second-largest credit card-issuing company in South
Project is the first ever SCF engagement of IFC in the building financing under Green Bond as well as We-Fi to Korea. The project will help FMF to continue lending to
country. support the first ever gender bond in Indonesia and MSMEs and expand its newly launched SCF business.
second issuance in the Asia Pacific Region.
IFC INDONESIA IN MANUFACTURING AND SERVICES
SELECTED PROJECTS
TRANSCORPORA LOAN NABATI INDONESIA LOGOS INDONESIA
Retail Industry Player, 2018 Food Manufacturer, 2018 Logistics Property Specialist, 2020
$275m The first retail chain in
Indonesia to adopt 53,000 $44m $63m 8,600 $120m The project facilities
meet the IFC’s green
IFC’s countercyclical
role in supporting a
financing package IFC’s Excellence in expected direct and IFC A-loan IFC B-loan and MCPP expected direct jobs consisting of $73m building standards large investment
incl. $60m IFC loan EDGE indirect jobs created facility created from the IFC loan and $47m program
from the expansion expansion mobilization
The IFC investment is used to finance the development
The financing package is used to expand Nabati’s wafer
The financing package consists of an A-loan of up to of Grade A warehouse facilities in West Java. The client,
and biscuit manufacturing plant in Majalengka, West
US$60 million and mobilization of up to US$215 million Logos, is an experienced logistics property specialist
Java. As the existing facilities are operating at
to PT Trans Corpora, a leading player in the retail that develops and manages property assets for
full capacity, the Project is necessary to maintain
industry in Indonesia. IFC’s investment is primarily used domestic and international companies, which
Nabati’s continued growth. Nabati was started as a
to expand TC’s retail, property, and tourism operations, lease warehousing space for their business activities.
small-scale business, which was then transformed into
including for housing and hotels. The investment marks The investment marks IFC’s first formal engagement
a professionally run company and becomes the market
IFC’s first formal engagement with the Group. with Logos.
leader for wafers in East Asia.IFC STRATEGY FOR FY21-24
PILLAR 1: PILLAR 2: PILLAR 3:
SUPPORTING SUSTAINABILITY ENHANCING INCLUSION IMPROVING COMPETITIVENESS
• Fill the infrastructure gap • Increase access to finance/ higher financial • Address skills gap and gender disparities
• Make urban lives livable & sustainable inclusiveness for MSMEs, gender, and Supply • Access, affordability, and quality of healthcare
Objectives • Reduce waste and carbon footprint of economic Chain Financing (SCF) and education
activities • Develop and deepen the capital markets and • Increase value-added production beyond low-
• Built resilience against natural disasters Financial Institutions (FIs) wage competitiveness
• Development of capital markets
• Improve access to reliable and affordable • Human capital development – Health
• Increase access to finance for MSMEs (through
energy • Human capital development – Education
Focus Areas Supply Chain Financing (SCF) & Gender
• Improve access to efficient logistics • Promote value-added and competitive sector –
Financing)
• Improve urban services Agri and Tourism
• Improve digital infrastructure and connectivity
• COVID-19 facility (RSE)/ Capital injections/ • Liquidity support for Banks/ Non-Bank Financial • COVID-19 facility (RSE)/ Liquidity support/
Other support for clients (e.g., extension of Institutions (NBFIs) Working capital finance
Relief
loan’s disbursement period, cushions for CODs) • SME Guarantee Facilities; Risk Sharing
Facilities
• Select corporate restructuring for infra players • NPL Resolutions/ Distressed Asset Recovery • Select corporate restructuring for real sector
Restructuring Program (DARP) players
• Insolvency frameworks
• Renewable Energy • Capital markets development • Health & Education (HealthTech/ EdTech)
• Transport and logistics/ E-logistics • Supply Chain Financing (SCF) • Electric Vehicles (EV) supply chain*
Resilient
• SOE’s Asset Recycle • Gender Financing
Recovery
• Urban services, Municipal financing • Fintech, digital finance
• Electric Vehicles (EV) supply chain* • Digital infrastructure/ connectivity
Digitalization of Economy: Harnessing digital technologies not only to power economic recovery in the short term, but to also bring greater inclusion and resilience in
the medium term
* Cross-cutting sectors between INFRA and MASYou can also read
