THE GROWTH OF INDONESIAN TOURISM ECONOMY

THE GROWTH OF INDONESIAN TOURISM ECONOMY

M. HATTA RAJASA

Coordinating Minister for Economic Affairs, the Republic of Indonesia

Delivered at the Indonesia Tourism Investment Day (ITID) 2012

JW Mariott, Jakarta, 21 October 2012

Indonesia tourism industry is growing very fast during the last few years, and it will grow even faster in the years to come along with the improvement in the global economy. Last year we booked more than 7,6 million foreign tourist arrivals to the country, and we expect to secure 8 million this year, and 10 million in 2014. So, the momentum is creating itself, and you are in the best position to take the best out of the  momentum.

To make things happen, and to happen soon, Indonesia can proudly announce to the world of its new strategy to boost the economy. We call the new strategy a Master Plan for Acceleration and Expansion of Indonesian Economic Development 2011-2025 or better known as MP3EI. The new strategy is promulgated in a Presidential Regulation and was published in 2011. I will come later in details on the MP3EI.

Export is one of the key drivers of Indonesian economic growth. It plays an important role in growths of investment and public consumption which in turn affects the developments of manufacturing, agriculture, tourism, trade, infrastructure, energy, transport, and other economic sectors. Due to the global financial crisis in mid-2008, Indonesian economic growth slowed down to 4.5% in 2009 from 6.0% in 2008. However, Indonesia could still claim to be one of the best performers in the world along with China and India during the crises. Other economies, particularly developed ones, grew negatively.

The global economic recovery  since 2010 has contributed positively to the growth of Indonesian economy. The growth momentum remained intact through 2011, and the economy grew by 6.4%. This year the momentum is still on the horizon and Indonesian economic growth is projected to be secured at 6.3% or so.
The positive growth was due to a strong domestic spending, both by the government and the private sectors. This is a proven fact of the Indonesian economic resilience. We are targeting an economic growth of 6.3% - 6.8% annually during 2010-2014, with an annual investment growth of 9.1%-10.8%, and annual manufacturing growth of 6.79%. Export of goods and services is projected to grow by 10% to 11% annually.

Indonesia’s bright  economic prospect has triggered capital inflows, and investors have responded positively to the stable economic environment. Higher  foreign exchange reserve is supported by flows of goods and capital. Strong capital inflows have  led to higher foreign reserve. Indonesia, however, need to be careful about the short-term nature of  foreign portfolio investment. We are optimistic with the IMF projection that Indonesia’s GDP will be ranked 17th in 2014. Goldman Sachs projected Indonesia’s position to be at the 11th in 2050. I can tell you again that one of the golden bridges towards realizing all these positive projections is the implementation of the MP3EI.

FACILITIES OFFERED TO INVESTORS:
1. Establishing Special Economic Zone (SEZ):

• Under Law 39/2009
• SEZ could be proposed by private sector (company)
• Each economic activities entitles to an extensive tax and custom exemptions, as well as on non-fiscal insentives.
• Exemption from ownership limitations regulation (negative list).
• Specialized setup for labor relation institutions.

2. Tax holiday/allowance:

• Tax holiday is entitled for pioneering industries (Gov’t Regulation 94/2010)
• Tax allowance is entitled for national priority sectors and specialized promoted areas (Gov’t Regulation 62/2008) à for 23 sub-sectors (in 77 business fields) ranging from forestry, mining, estate crops, fisheries up to various manufacturing sub-sectors.
• Amount of tax deduction is 30% of total investment value, charged in 6 year period.  In addition : accelerated depreciation, very low income tax charged to foreign tax subject and loss compensation up to 10 years

3. Government Guarantee:

• Regulated by Presidential Decree No. 78/2010
• Dedicated to guarantee various infrastructure project from many types of risks (including political risk)

4. Others:

• Very simple and standardized investment procedures (Investment Coordination Agency) – at central to local levels.
• Ever improving National Single Sindow (NSW) system for export and import purposes.
• Etc.

All in all, Indonesia has a number of comparative advantages to lure investment, i.e. a huge domestic market, a variety of natural resources, an abundant creative human resources, a strategic location on the international trade map, and a good international relations, etc. The government has been working hard to win the private sector’s support in developing infrastructure and energy sector through the scheme of public private partnership (PPP).

At this point allow me to further elaborate the MP3EI as our new strategy in pushing development undertakings more energetically with the private sector’s role being sine qua non. The spirit of the MP3EI is to create a breakthrough in developing the economy, not just to do business as usual. The strategy integrates all stakeholders: the central government,  the local governments, the state-owned enterprises, the enterprises owned by the local governments, and the private sector. The private sector is given an important role in implementing the policy, particularly in the investment  side. The government is responsible for ensuring that the whole policy environment is conducive for the business to grow. The government regulates and deregulates, facilitates, and catalyses to ensure a debottlenecking process of investment. The facilities provided for investors are good infrastructures, and fiscal and non-fiscal incentives.

The whole country is divided into six economic corridors namely:
Corridor 1: Sumatera;
Corridor 2: Java
Corridor 3: Kalimantan;
Corridor 4: Sulawesi;
Corridor 5: Bali and Nusa Tenggara;
Corridor 6: Maluku and Papua

The implementation strategy of the MP3EI consists of three main elements, namely:
1. Promote economic activities in all economic corridors;
2. Strengthen connectivity and integration both locally and globally;
3. Capacity building of human resources

The goal of the MP3EI is to uplift Indonesia to a new level of economic development with a per capita income between US$14,000.00 and US$16,000.00 by 2025.

With regard to our business meeting today, Corridor 6 of the MP3EI has been chosen to become Indonesia’s international window for tourism promotion. Komodo is a rising star in attracting foreign tourists to Indonesia. Lombok with its new international airport and the three gilis (small islands) of Trawangan, Meno, and Air as well as the Mandalika beach has a great future in the tourism industry. Bali is becoming a stronger market for international meetings and events (seminars, workshops, conferences, exhibitions, etc.). As a matter of fact approximately 37% of foreign tourist arrivals to Indonesia came through Bali-Lombok-Komodo.

But other tourism destinations are also developing and are revitalized, most notably: Raja Ampat Marine Park (West Papua), Tanjung Lesung (Banten, Pangandaran (West Java), Singkawang (West Kalimantan), Bintan (Riau Archipelago), Belitung (Bangka-Belitung), Toraja (South Sulawesi), Wakatobi (Southeast Sulawesi), Takabonerate (South Sulawesi), Ambon, Tual, Saumlaki (Maluku), and Tarakan, Derawan (East Kalimantan).

We are developing special economic zones (SEZ) with tourism as the heartbeat.  We already dedicated Tanjung Lesung in Banten Province as the first Tourism SEZ by Government Regulation No. 26/2012, and shortly Mandalika in West Nusa Tenggara Province will follow stipulation.

Almost all of the above mentioned destinations are recently spotted by foreign tourists as great marine tourism destinations worth investing in. The government of Indonesia has launched Presidential Regulation No. 79/2011 to facilitate foreign yachts visit to Indonesia. Foreseeing a potential marine tourism industry development in the region, the Indonesian government has been contemplating on launching a concept of “Pacific Paradise and Beyond” in which countries across the Pacific collaborate to promote marine tourism with a particular goal to improve the economy of the coastal communities in the Pacific region.

Investors in the special zones are entitled to special fiscal and non-fiscal facilities. Law No. 39/2009 provides:
1. Additional facilities in income tax;
2. Reduction in Land and Property Tax;
3. Exemption from import tax;
4. Customs free;
5. VAT and Luxurious Goods Selling Tax Free;
6. Exemption from or reduction in local tax and retribution;
7. Special arrangement in land ownership;
8. Special arrangement  in acquiring business permit, managing industrial and trade affairs, port handling, immigration, and security;

Government Regulation No. 52/2011 on Income Tax for Investors is the newest policy to boost investment in Indonesia.

Tourism investment figures show that by the first semester of 2012 the realization of commitment by investors has almost doubled the figures of the whole tourism investment realization in 2011, that is Rp 4,862 trillion as compared to Rp 2,798 trillion. These investment commitments were mostly in the industry infrastructure, namely hotels and restaurants.

I hope this meeting will give you a clear idea of what Indonesia offers for investment in the tourism sector. We invite you to give us feedbacks so that we can serve you even better.