Indonesia

Introduction
The report investigates the possibility of doing

business in Indonesia. y It starts by giving a background on Indonesia, the history, population, language and their currency. y The report then identifies the enabling factors to consider when doing business, such factors are government
economy communication and transportation, exports and imports, investment and international relations.

Introduction cont..
y In order to explore the possibility of South Africa doing business with Indonesia, the following aspects are discussed in details: y economic relations, y government co-operation in economic trade, y working practices and environment, y building and maintaining relationship.

Background
Indonesia is an archipelago in Southeast Asia consisting of 17,000 islands (6,000 inhabited) and straddling the equator.

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Background continues
y The largest islands are Sumatra, Java (the most

populous), Bali, Kalimantan (Indonesia's part of Borneo), Sulawesi (Celebes), the Nusa Tenggara islands, the Moluccas Islands, and Irian Jaya (also called West Papua), the western part of New Guinea. Its neighbor to the north is Malaysia and to the east is Papua New Guinea.

History
y The 17,000 islands that make up Indonesia were home to a diversity of cultures and indigenous beliefs when the islands came under the influence of Hindu priests and traders in the first and second centuries A.D. y Muslim invasions began in the 13th century, and most of the archipelago had converted to Islam by the 15th century. y The Dutch United East India Company established posts on the island of Java, in an effort to control the spice trade. y During World War II, Japan seized the islands. Tokyo was primarily interested in Indonesia's oil, which was vital to the war effort, and tolerated fledgling nationalists such as Sukarno and Mohammed Hatta.

Land and Population

Land Land area is 699,548 sq.. mi (1,811,831 sq. km) and the total area is 741,096 sq. mi (1,919,440 sq. km). Population y Population is 242,968,342. The growth rate is 1.1%, birth rate is 18.4/1000 and life expectancy is 71.0. y The population falls roughly into two groups, the Malayan and the Papuan, with many of the inhabitants east of Bali representing a transition between the two types.

Land and Population conti..

y Almost 90% of the population is Muslim, making

Indonesia the largest Islamic nation in the world. Slightly less than 10% of the population is Christian, 2% is Hindu and 1% Buddhist. Hindus are concentrated principally on Bali, which is known for its unique culture.

Language and currency

More than 300 languages are spoken in Indonesia, but an official language, Bahasa Indonesia (a form of Malay), was adopted after independence and is now understood in all but the most remote villages. English has replaced Dutch as the main second language, and is widely spoken in government and business circles. Rupiah is an Indonesian currency. The exchange rate went from Rp 2,450/$1 in July 1997 to Rp 14,500/$1 in July 1998.

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Government and economy

y Government Indonesia is governed under the constitution of 1945, which was restored in 1959 as amended. y Economy Indonesia has a market-based economy in which the government plays a significant role. There are 141 state-owned enterprises The government administers prices on several basic goods including fuel, rice, and electricity. Crude oil and natural gas are Indonesia's most valuable natural resources and its major source of export revenue.
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Government and economy cont..

Agriculture accounts for about 13% of the GDP and

employs over 40% of the labour force During the past three years, growth has been quite robust, reaching 5.1 percent in 2004, 5.6 percent in 2005 and 5.5 percent in 2006. Per capita income is now above pre crisis levels at $1.283 in 2005 and $1.377 in 2006.

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Communication and Transportation

y Indonesia uses main telephones lines, mobile cellular, radio broadcast stations, television broadcast stations and Internet hosts for communication. Transportation includes railways, highways, waterways, ports, harbors and airports.

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Exports and Imports

Indonesia is one of the world's major rubber producers, other plantation crops include cocoa, coffee, palm oil, coconuts, sugarcane, tea, tobacco, cinchona, cloves, sisal, and spices. Despite plantation cultivation, Indonesia has a wide landholding base. The majority of the people are largely self-sufficient in food. Rice is the major crop; cassava, corn, yams, soybeans, peanuts, and fruit are also grown. Horses and cattle are raised on some of the Lesser Sunda Islands. Fish is abundant, both in the ocean and in inland ponds.
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Exports and Imports conti

In natural-resource potential, Indonesia is one of the wealthiest countries in the world. It has great timberlands, vast rain forests of giant trees. Tin, nickel, bauxite, copper, coal, manganese, gold, and silver are mined, and salt is available in large quantities from shallow enclosed seashore lagoons. Iron and uranium are believed to exist in quantity but have not yet been exploited.

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Investment
Indonesia improves its investment climate by issuing new regulations favouring the public private partnership in further development of the national infrastructure. Indonesia carries out a comprehensive economic and institutional reform program to create a favorable overall investment climate. The objectives of the reforms are to provide legal certainty, policy consistency and reduce the costs of doing business. Indonesia has a new investment law which was drafted together with the business sector.

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Investment conti
New tax and customs reform program have been introduced to remove distortions, improve tax and customs administration and to reduce corporate tax rates. New labor law has also been introduced to remove the rigidities of the labor market to the satisfaction of all concerned, including the labor sector and investors. New licensing process and procedures has been also introduced to bring down the cost of doing business. Most importantly, the government is making substantial gains in the fight against corruption.
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International relations
Indonesia plays an important role in global affairs, while also embracing its responsibility to its millions of citizens whose primary right is an opportunity to continue improving their quality of life and that of future generations. Indonesia's principal trading partners include Japan, the United States, members of the European Union and other nations of the Association of South-East Asian Nations (ASEAN).ASEAN has been extremely successful in its efforts to promote economic, social, cultural and scientific relations between its members.
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International relations cont..

Indonesia is fully committed to its obligations to the World Trade Organization, with the goal of encouraging an inclusive and fair multilateral trading system, and transparent laws and regulations governing national economies, also committed to the empowerment of developing countries, at times referred to as the South. Indonesia and South Africa have been working closely as the co-chairs of the Asia-African Sub-Regional Organizations Conference (AASROC) process and in the Asian-African Summit 2005 in Jakarta, Indonesia

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Business to exploit in Indonesia

Indonesia is a mining country. Tin, nickel, bauxite, copper, coal, manganese, gold, and silver are mined. It is believed that Iron and uranium exist in quantity but have not yet been exploited. These two minerals were identified as areas of exploitation in Indonesia. Partnership between Areva SA and FLSMIDTH in Indonesia will be formed due to the fact that the Indonesian mining law does not allow a foreign independent company to mine without a local partner.

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Business to exploit in Indonesia cont

y The advantage would be, Indonesia and South Africa

share similar history of oppression and subjugation under colonial powers. y The two countries established diplomatic relations in 1994 and Indonesia opened its Embassy in Pretoria in 1995. At present, they share cordial bilateral relations which are multi-facet, covering cooperation in the spheres of political, economic, socio-cultural and others.

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Economic Relations
Indonesia s strategic importance as the largest country in the Southeast Asia region and one rich in resources is obvious. y As a domestic market of 230 million people with growing purchasing power, Indonesia is a good match for South Africa, the biggest economy in the African continent. South Africa has a steady economic growth of 5 percent, population of 47 million and per capita income of $ 4.870 also with substantial purchasing power. Indonesia South Africa bilateral trade relation maintains a sustainable growth during the last seven years. South Africa s sustainable economic growth in the last eight years has also led to rapid growth of bilateral trade between the two countries.

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Government co-operation and economic trade

Indonesia and South Africa has established the IndonesiaSouth Africa Joint Trade Committee in Pretoria in May 2006. The Joint Trade Committee (JTC) facilitates the effective implementation of the Trade Agreement between Indonesia and South Africa which was signed in Cape Town in November 1997. The JTC is an important vehicle to deepen and broaden cooperation between the two countries.

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Working practices and environment

y Business hours y Normal office hours are from 8am to 5pm (with a one-hour break) from y y

Monday to Friday and 8am to 1pm on Saturday. A working week of five eight-hour days is increasingly common. Clothing Indonesia is a predominantly Muslim culture so you need to dress conservatively. The safest option for a businessman is to wear a suit jacket and tie during formal meetings and remove them if it seems appropriate. Because of the extreme heat and humidity, business dress is often casual. Standard formal office wear for men includes dark trousers and a lightcoloured long-sleeved shirt and tie, without a jacket.
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Working practices and environment cont..

y Building and maintaining relationships Indonesia is a relationship driven market. Companies may not

respond very quickly to your emails especially if you are not well known to them. Patience is a key element in doing business successfully. It can sometimes be more effective to provide incentives or gifts rather than discounts. In general, Indonesians appreciate token gifts. Be polite and humble and appreciate things. Try not to hurry or hurry others and don't issue ultimatums. Do not cause loss of face or criticize someone publicly. The tone of language too can make or break a relationship. When giving presentations, assess your audience in advance and use English. Keep words to minimum and visual displays to a maximum.
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Working practices and environment

y

Managing business meetings can change at short notice, especially those of government officials. Establish your bona fides early in the conversation by explaining who you are or represent, and how you have come to be visiting them. Usually, depending on location, you can only go to three to four appointments a day. Try not to be late even though traffic can be very bad, especially during rainfall. Wait for your host to invite you to drink or eat. Do not offer food or drink during Ramadhan (fasting month). But also take note, educated Indonesians will forgive most breaches of etiquette
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Accept that appointments may be hard to get and your hosts schedules

Business opportunities
y Indonesia projected its economic growth from 4.5 percent in 2003 to
7.2 percent in 2009 so that in the next five years, economic growth will average 6.6 percent every year. The government introduced the infrastructure roadmap, which entails building 1,600 kilometers of toll-roads, power plants and ports, in the next four years. The whole infrastructure effort is expected to cost US$146 billion, out of which US$72 billion or around a third of GDP, will come from the private sector. Indonesian business community can benefit from South Africa's strategic position as the regional economic powerhouse and its strategic location as a hub for travels to other countries within the region. Likewise, with more than 220 million population, Indonesia is a potential market for South African products. Indonesia can also function as South Africa catalyst to penetrate the Southeast Asian Market, the ASEAN Free Trade Area (AFTA). 27

Business threats
Financial risks, for example, currency crises-

Inflation Political risks associated with events such as expropriation of assets by foreign governments or unwelcome regulations. Natural disasters such as earthquakes and tsunamis

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Conclusion
Indonesia is not the easiest place in the world in which to do business

but is currently undergoing a radical transition towards becoming a more modern and efficient economy. With many promising changes underway, there is a good reason to be hopeful Indonesia shall emerge from its present trial-by-fire to become both an attractive investment destination, and a profitable market. Operating successfully in Indonesia requires patience and an understanding of influences affecting business culture, legal and regulatory environments. The PESTEL analysis as well as the opportunities identified, clearly indicates that it is safe and an ideal decision to do business with Indonesia.

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Questions?

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Picture Gallery

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