Yaroslav Rozhankivskyy: Три складові і три передумови максимальної продуктивн...
INDONESIA'S SECTORAL DEVELOPMENT THROUGH FTA
1. Indonesia’s Sectoral Economic
Development Strategy through FTA
Arrangement
Keywords: Sectoral targeting, FDI, FTA
Prayoga Wiradisuria
October 2007
Supervisor: Professor Shujiro Urata
2. RESEARCH
Determining future key FTA items between Indonesia and partner
Goal country through assessment of country’s priority sector and FDI spill-
over effect and hurdles.
Determining priority sector (re-assessment)
Method FDI spill-over effect assessment
Previous FTA assessment (incl. ASEAN FTAs)
Interviews of key government officials and experts
Data gathering Indonesia economic statistics (time series, sectoral, etc)
FTA data
Subject of Economic Development theories
reference FDI concept and impact analysis
FTA principles
3. CONTENT
Brief Statistics of Indonesia
Revisiting Sectoral Targeting in Indonesia
FDI and Its Spill-Over Effect
Impact to FTA Key Negotiation Items
4. INDONESIA
A quick glance
An Archipelago of ~17,000 islands
230 Million people
300+ languages
Multi-ethnic, multi-religion
Gained independence 60 years ago
Member of OPEC, APEC, ASEAN
Democratic systems
Resource-rich
6. ECONOMIC PROJECTION
BI's Economic Prospects 2005 2006
Economic Forecasts:
I. Real GDP Growth (%) 5.3 - 5.6 5.0 - 5.7 Budget Assumptions 2006
1. Consumption: 3.3 - 3.8 4.0 - 5.0
a. Private Consumption 3.4 - 3.9 3.0 - 4.0 Economic Growth (%) 6.2
Inflation rate - eop (%) 8.0
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b. Government Consumption 2.6 - 3.1 12.8 - 13.8
2. Investment 9.6 - 10.1 8.4 - 9.4 3M SBI rate - average (%) 9.5
3. Exports of Goods & Services 7.6 - 8.1 7.4 - 8.4 Vs. Exchange Rate - average 9,900
4. Imports of Goods & Services 10.5 - 11.0 9.1 - 10.1
Oil Price - ICP (US$/barel) 57.0
II. CPI Inflation Rate - eop (% YoY) 18 7.0 - 9.0
Oil Production/Lifting (MBCD) 1,050
Assumptions:
I. External Conditions:
1. World Oil Price (USD/barrel) 53 57
2. World Output Growth (%) 4.3 4.3
3. World Trade Volume Growth (%) 7 7.4 Medium Term Targets, 2005 - 2008 2004 2005 2006 2007 2008
Printed
4. World Interest Rate (%) 3.6 4.5 Economic Growth (%) 5.1 5.5 6.1 6.7 7.2
5. US tight money policy ends at 2Q06, thus stable IDR/USD
Quality of Growth:
expected in 2006 1. Open Unemployment:
II. Internal Conditions: a. Million of Persons 10.3 10.2 9.6 8.8 7.5
1. Wages/Salary increase and bank credit growth of around 15% - b. % of Labor Force 9.9 9.6 8.9 8 6.7
2. Manpower
20% in 2006 can partly offset the declining purchasing power due to
a. Labor Force (million of persons) 104 106 108 110 112.1
high inflation Additional (million of persons) 1.3 2 2 2 2.1
2. Tight "bias" monetary policy to help curb inflation b. Job Opportunity (million of persons) 93.7 95.7 98.3 101.2 104.6
3. Faster disbursement of government spending in 2006 Job Creation (million of persons) 0.9 2 2.6 2.9 3.3
4. Better investment climate, incl. Investment Law, Tax reforms, Labor
Law, etc. Source: Bank Indonesia, 16 Dec 2005, APBN 2006
5
7. INDUSTRY SECTORS CONTRIBUTION TO GDP
1Q05 2Q05 3Q05 YTD-05 Share 1Q05 2Q05 3Q05 YTD-05 Share
1. Agriculture 2.5% 1.1% 1.6% 1.7% 15.3% 4. Utilities 5.8% 8.9% 9.8% 8.8% 0.7%
a. Farm Food Crops 1.3% -0.6% 0.3% 0.4% 7.9% 5. Constructions 7.3% 8.1% 6.3% 7.2% 5.9%
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b. Others 4.1% 2.8% 2.9% 3.2% 7.5% 6. Trade, Hotel & Rest. 10.0% 10.0% 7.9% 9.2% 16.7%
2. Mining and Quarrying 0.7% -0.8% -2.3% -0.8% 9.0% a. Wholesale & Retail 10.6% 11.1% 8.4% 10.0% 13.7%
a. Oil & Gas -6.6% -4.7% -6.4% -5.9% 5.3% b. Hotel 11.3% 1.8% 3.1% 5.3% 0.7%
b. Non Oil & Gas 16.5% 4.7% 3.3% 7.7% 2.8% c. Restaurant 5.9% 5.9% 6.0% 6.0% 2.2%
c. Quarrying 7.3% 8.1% 6.3% 7.2% 0.9% 7. Transport & Comm. 13.2% 13.9% 12.9% 13.3% 6.1%
3. Manufacturing Industries 6.5% 5.5% 5.6% 5.9% 28.1% a. Transport 10.6% 7.9% 5.1% 7.8% 3.8%
a. Oil & Gas -3.0% -2.0% -0.1% -1.7% 2.8% * Railways -4.9% -5.5% -4.9% -5.1% 0.0%
b. Non Oil & Gas 7.7% 6.4% 6.3% 6.8% 25.3% * Road 4.8% 5.3% 4.9% 5.0% 1.6%
* Food, Bev. & Tobacco 4.7% 3.5% 2.9% 3.7% 7.0% * Air Transport 20.4% 12.2% 7.2% 12.8% 0.6%
* Textile, Leath & Footw -0.8% 3.1% 1.2% 1.1% 3.1% b. Communication 17.9% 25.2% 27.5% 23.6% 2.3%
* Wood & Forest Prod. 0.3% -2.1% 0.5% -0.4% 1.2% 8. Finance 6.4% 9.8% 9.1% 8.4% 9.2%
* Paper & Printing 3.9% 4.6% 8.7% 5.7% 1.4% a. Banks 1.4% 9.9% 10.1% 7.1% 4.1%
Printed
* Fertilizer, Chem.& Rubber 17.6% 9.0% 6.3% 10.7% 3.4% b. Non Bank Financial 8.9% 9.2% 7.8% 8.6% 0.7%
* Cement/Non-Metal Quarry 10.1% 8.7% 2.6% 7.0% 0.9% c. Others 10.9% 10.2% 10.2% 10.6% 4.4%
* Iron & Steel -8.0% -4.2% -3.5% -5.2% 0.4% 9. Services 4.9% 4.4% 5.4% 4.9% 9.0%
* Transport/Machine Equip. 13.5% 11.7% 13.5% 12.9% 7.7% Real GDP 6.1% 5.8% 5.3% 5.8% 100.0%
blue figures mean average growth
Source: Badan Pusat Statistik
green figures mean better to excellent growth
red figures mean lower to dismal growth
6
8. SAVING RATIO AND INVESTMENT RATIO
Saving Ratio Investment Ratio
1994-1996 2002-2004 Change 1994-1996 2002-2004 Change
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Bangladesh 20.1 23.5 -3.4 20.7 24.0 -3.2
China 41.3 45.8 -4.5 40.5 42.6 -2.1
Hong Kong 31.6 31.6 0.0 32.8 22.3 10.6
India 22.4 23.3 -0.9 23.9 22.8 1.1
Indonesia 28.4 23.3 5.1 31.2 20.4 10.8
Malaysia 34.9 34.0 0.8 42.1 22.7 19.4
Philippines 18.8 22.5 -3.7 23.5 19.2 4.3
Printed
Singapore 50.7 44.2 6.5 34.4 18.6 15.7
Korea 35.9 32.2 3.7 38.4 29.4 9.0
Taiwan 27.5 26.5 1.0 24.6 18.0 6.6
Thailand 34.3 30.5 3.8 41.4 25.3 16.1
Vietnam 18.2 31.1 -12.8 28.1 34.4 -6.3
7
9. CONTENT
Brief Statistics of Indonesia
Revisiting Sectoral Targeting in Indonesia
FDI and Its Spill-Over Effect
Impact to FTA Key Negotiation Items
10. DEFINITION AND BENEFITS OF SECTORAL TARGETING
Main benefits of targeting
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• Mobilizes and focuses public resources (public funds,
Definition of sectoral administrations, political decisions) on a limited number of
targeting projects or sectors to gain a favorable position relative to
competitor countries (concentration vs. dispersion)
Identification by the state or • Identifies the fields of action that offer the most
region of activity sectors productivity for public investment to prioritize state
for priority resource intervention (economic vs. political approach)
allocation with the objective • Enables more effective, transparent public communication
Printed
of accelerating economic with international lenders, investors, and local economic actors
development
• Narrows the scope of state action so that sectoral
strategies can be defined in greater depth
9
11. EXAMPLES OF PROACTIVE SECTORAL-TARGETING STRATEGIES
SUCCESSFULLY IMPLEMENTED BY EMERGING NATIONS
Key comparative advantages
IT/business India • Low-cost, qualified, English-speaking workforce
process • Availability of world-class IT infrastructure (e.g.,
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outsourcing (BPO) special IT parks)
Dubai • Geographic location
Logistics/light • Quality of port infrastructure
manufacturing • Free zone for light manufacturing (Jebel Ali)
Morocco • Climate/environment/culture
Printed
Tourism • Proximity to Europe
• Hotel infrastructure
Tunisia • Availability of raw materials (olives)
Olive oil • Availability of production, promotion, and
marketing
10
12. ILLUSTRATION: NATIONAL ECONOMIC STRUCTURE ANALYSIS
GDP, jobs, and exports (including informal sector) Industrial sector ratios
Jobs per mn Exports/
revenue revenue (%)
100% = 419bn 9.6mn jobs 136bn
39 39 Tertiary
14 19
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Tertiary sector 54 sector
12
Industrial 4 33
Industrial secondary 9
16 secondary
sector 52
Other secondary 12 Other
40 16 11
secondary
Primary sector 18 4
5
Primary
GDP Employment Exports 52 8
sector
Printed
• The industrial sector occupies a position of • The industrial sector makes a relatively limited
medium importance in the local economy, with 16% contribution to job creation
of GDP and only 12% of jobs • A significant share of production is destined for export
• However, the industrial sector is the country’s
leading source of exports, accounting for more
than 50% of all exports
11
13. ILLUSTRATION: COMPARATIVE ANALYSIS WITH OTHER COUNTRIES
Industrial GDP in
$ bn
Country 1
High 44
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Industrial GDP
Country 7
31
($ bn)
30
17
Country 2
Country 3
Country
11
Low
under study
Printed
6
Country 4
2
Country 6 1
Country 5
Low High
Relative weight of industrial sector
(industrial GDP/total GDP)
12
14. ILLUSTRATION: STATIC ANALYSIS OF CONTRIBUTION DISGUISED EXAMPLE
MADE BY DIFFERENT BRANCHES Large sector
100% = 52.1bn 467,000 jobs 70.8bn
Electronics 1% 2% 3%
Machinery and equipment 2% 2% 1% 0%
2% 2%
Furniture and other industries 2% 2% 1% 1%
4%
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3%
Electrical appliances and machines 2%
5% 14%
Paper and board 7%
Automotive 2%
12%
5%
13%
Chemicals
19% • Textile and agri-food
industries play a
Building materials structuring role in
40%
the national
Printed
economy
20% 47%
Textiles and leather
• The automotive
sector is relatively
significant to exports
34% 32%
Agri-food* 21%
GDP Employment Exports
13
15. ILLUSTRATION: DYNAMIC ANALYSIS OF GROWTH IN MAIN BRANCHES
Average annual growth
rate (AAGR) of GDP
GDP GDP growth %, last 5 years
17.3 1.3 2.7
Agri-food*
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Textiles and leather 10.3 0.3 0.6
Building materials 9.3 1.6 4.8
• Relatively low GDP
growth in absolute terms
Chemicals 6.6 1.8 8.3 **
• Average annual growth
rate of GDP is above 5%
Automotive 2.5 0.8 9.6
in only three sectors:
– Automotive and
Printed
2.3 0.03 0.4 electronics
Paper and board
(for export)
– Chemicals
Electrical appliances (for domestic market)
1.3 0.05 0.9
and machines
Furniture and other 0.9 -0.1 -2.6
industries
Machinery and
0.9 0.1 4.1
equipment
Electronics 0.7 0.1 6.0
14
16. CONTENT
Brief Statistics of Indonesia
Revisiting Sectoral Targeting in Indonesia
FDI and Its Spill-Over Effect
Impact to FTA Key Negotiation Items
17. FDI IS ASSUMED TO BRING POSITIVE TO INDONESIA ECONOMY
THROUGH INCREASED CAPITAL STOCK, EMPLOYMENT, AND
PRODUCTIVITY
Impact generated
Investments through FDI
Capital
Depreciation
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stock
• FDI can have important positive
Existing stock effects on a country’s economic
development*
Job creation
• FDI impacts GDP through 3 key
GDP Employment Job destruction levers
Printed
– Increasing capital stock
Existing employment – Employment creation
– Inward transfer of skills and
Technology technology* leading to
increased productivity
Skills/Knowledge
Productivity throughout the economy
Scale effects
Geography, culture , etc.
16
18. SPILLOVER-EFFECT PROVIDES A GOOD ESTIMATE OF THE IMPACT AN
FDI HAS ON A LOCAL ECONOMY
Case example: Intel’s $300mn* investment in Costa Rica in 1997 created spillover in GDP
growth, trade balance, social conditions, and knowledge/productivity sector
Before Intel investment After Intel investment
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Pre-1997 Post-1998
4.6 % (1990-1996) • 7%-8% (1997-1999; highest in Latin
GDP growth America)
• Five points of 8% attributed to Intel
(close to 60% GDP growth
attributed to Intel)
• $500mn deficit • $600mn surplus
• Trade concentrated in Latin America • Trade diversified to European and
Printed
Balance of trade
and U.S. Asian countries (export to Asian
countries almost tripled)
Knowledge/ • Not much interaction with • Exchange of curriculum, faculty, and
productivity cutting-edge research students through “Intel associate”
programs
• Rush toward technical education
Sources: Intel; Center for International Development, Harvard University
17
19. IN GENERAL, SPILLOVER CAN BE CLASSIFIED AS
QUANTIFIABLE OR NONQUANTIFIABLE
Quantifiable spillover effects Nonquantifiable spillover effects
Macroeconomic-related Health-related
Explanation Examples Examples Explanation
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Spillover from Additional GDP created Emergence of a large Improvement in
Capital Social
led multiplier effects of because of investment software professional quality of life
annual opex spent middle class in
on local economy Bangalore
Increase in Know-
Indirect employment Chip-testing knowledge base ledge
Additional indirect knowledge in
Labor led created by main and capabilities
employment generated Singapore/Malaysia
investment
Printed
because of investment
Dresden in former Change in Brand
Effect on balance
Foreign East Germany country’s image image
of trade and Additional exports
trade as a high-tech
foreign because of investment
related knowledge hub
reserves
Increase in government Quantum Improvement in
Fiscal Increase in Infrastru-
tax revenue because of infrastructure local physical
related government cture
investment/new improvement in and business
revenue
employment southern China infrastructure
Source: McKinsey study
18
20. SOME SPILL-OVER EFFECTS QUANTIFICATION METHODS
Description Source or examples
• Created by U.S. Department of www.bea.gov/bea/dn2/home/
Commerce benchmark.htm
RIMS
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• More than 300 industry aggregates
and I/O tables available for more
than 300 counties in 50 states
• Created by U.S. Forest Services and www.implan.com
University of Minnesota
IMPLAN • Now maintained by Minnesota-based
IMPLAN group
Printed
• Considered most accurate I/O table
Department of Statistics, government
• Created by the local statistical - Singapore
of
Others* organizations in each country
• Mostly country-level information
* Most countries have I/O tables, which are published either by the central bank or the central statistical body
19
21. FDI FLOW INTO THE COUNTRY, HOWEVER, IS FACED WITH VARIOUS
HURDLES PREVENTING INDONESIA FROM GETTING MAXIMUM SPILL-
OVER EFFECT BENEFIT
Typical hurdles Examples (Hypothetical)
• Land
• Energy
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Scarce resources • Water
• Corruption networks
• Political issues
Hidden agendas • Unwillingness to give up
responsibility and control
Printed
• Long lead times between
steps of investment process
Slow and inflexible
processes
• Administrative and
bureaucratic hurdles
• Mentality issues
• Missing industry/
Lack of industry functional expertise
and functional • Focus on new sectors for
knowledge the economy
20
22. CONTENT
Brief Statistics of Indonesia
Revisiting Sectoral Targeting in Indonesia
FDI and Its Spill-Over Effect
Impact to FTA Key Negotiation Items
23. FTA
What negotiation items need to be incorporated in
FTA between Indonesia and partner country in a
respective sector
1. To help overcoming the hurdles to FDI from the
2. To multiply the spill-over effect of the FDIs
24. FTA NEGOTIATIONS SHOULD BE LEVERAGED TO INCLUDE ITEMS THAT
WILL HELP IN OVERCOMING VARIOUS HURDLES TO GENERATE FDI
FLOWS INTO THE COUNTRY
Typical hurdles Examples FTA items (hypothesis)
• Land • Transparent policy regarding pricing, allocation
• Energy and usage of key resources
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Scarce resources • Water • Establish dedicated unit (e.g., land authority) that closely
works together with the Investment Agency to free up and
allocate resources for new investors
• Corruption networks • Agree on the cultivation of ‘transparency of the system’
• Political issues as guiding theme
Hidden agendas • Unwillingness to give up • Establish ‘round table’ culture to involve all relevant
responsibility and control stakeholders when problems and bottlenecks occur
Printed
• Long lead times between • Education of Local Investment Agency staff towards a
steps of investment process hands-on, consequent follow-up process with
Slow and inflexible
processes
• Administrative and stakeholders
bureaucratic hurdles • Agree on the removal hurdles and inefficiencies
• Mentality issues (‘From red tape to red carpet’)
• Missing industry/ • Regular training and coaching sessions to build up
Lack of industry functional expertise necessary skill set provided by the investor
and functional • Focus on new sectors for • Transparent recruitment of experts in key areas
knowledge the economy
23
25. IN SUMMARY
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Indonesian Industries sectoral assessment
Non- Key Sectors Targeted Key Sectors
1. _____ 1. _____
2. _____ 2. _____
3. _____ 3. _____
Approach
Support
Printed
FDI Targets:
1. Tangible
FDI 2. Intangible
Hurdles:
1. Political agenda
2. Lack of knowledge
Support
Key items to be negotiated
FTA 1.
2.
3.
24