Market Report: Indonesia

The Government of the Republic of Indonesia applies a presidential system to its democratic country along with five Pancasila principles that are interrelated and inseparable, namely: the belief in one God; a just and civilised humanism; unity of Indonesia; democratic citizenship lead by wise guidance born of representative consultation; and social just for all the people of Indonesia.

These guiding principles have led to the development of an industrious nation state. According to the Association of Southeast Asian Nations, Indonesia has the fourth largest population in the world (270 million) where almost half that number live in urban areas and have increased capacity to spend.

Indonesian industry is, as a result, performing relatively well.

Established in 1983, PT United Tractors Pandu Engineering — or PATRIA as it’s more commercially known — has since become one of the best manufacturers of logistics and heavy equipment in Indonesia. Its manufacturing facilities are based in in XI Jababeka Street Block H 30-40, Jababeka Industrial estate, West Java, Indonesia. PATRIA is reported to be the largest trailer manufacturer in Indonesia with a 70 per cent market share in mining trailers and 80 per cent for large vessel products.

PATRIA is also the only trailer manufacturer to exhibit at the Jakarta Mining Expo since 2017. Prior to that, PATRIA joined the company group, PT United Tractors Tbk.

As Product Marketing Department Head at PATRIA, Banu Ady Saputra provides product specifications, GA drawing, pricing and lead time advice. His main goal is to ensure that all products produced by PATRIA are sustained and able to compete in the market.

PATRIA’s production capabilities are extensive and include: water, fuel and lube tanks, excavator buckets, large and medium sized mining vessels, tower lamps, concrete mixers, core samplers, hydraulic pumping units, loading ramps as well as various trailer designs for mining, logging and general freight applications. The most popular builds are the big mining vessels and the mining trailers.

“In mining the trend is to build the trailers as big as possible to reduce the cost per tonne,” Saputra said. “Running with 200 tonnes of payload is becoming more and more popular for mining contractors here in Indonesia. PATRIA focuses in the mining sector because it provides the biggest contribution to the company’s revenue. The market characteristic is also different – the logistics sector, for example, goes to red ocean market while the mining sector is blue ocean market.”

To build robust, heavy duty road transport equipment, particularly for coal mining and logging purposes, PATRIA has partnered with supplier, Fuwa K-Hitch, to source 20 tonne axles, mechanical suspensions and heavy duty fifth wheels.

Fuwa K-Hitch has strong engineering capability to develop product that meets our requirements,” Saputra said. “PATRIA is also involved in design improvement processes with Fuwa K-Hitch; our engineers actively communicate with Fuwa K-Hitch to help improve their product range. Some of the big customers in Indonesia already know and use Fuwa K-Hitch in their trailers, so we have no doubt about the quality of the product.”

In light of Indonesia’s current financial instability, impacted by the Covid-19 pandemic, Saputra estimated that domestic demand contributes around 57 per cent to its economy.

“The government expects a Gross Domestic Product – GDP of 5.3 per cent by 2020,” Saputra said. “As for our unstable economy, our company is trying to diversify its existing business. In 2011, PATRIA established a subsidiary to focus on transhipment (PML), ship building (PMP), and ship repair (PAMI). In 2017, we also establish a subsidiary that focused on the fishery business.

Sri Mulyani Indrawati, Indonesia’s Minister of Finance, explained the performance of the ‘State Budget’ earlier this year at a press conference. She reported, the realisation of state revenue had reached 103.7 trillion IDR (approx. €6,084,441,239,1010,657.00) or 4.6 per cent of the 2020 State Budget target. Non-Tax State Revenue (PNBP) grew 2.3 per cent. Corporate income tax (corporate) also fell due to the global economy slowdown such as coronavirus (Covid-19) negative issue.

“This January, state revenues are still contracting 4.6,” she said. “Economic slowdown in 2019 was starting to be seen in corporate income tax, they made adjustments to their tax payments. Non-Tax State Revenue (PNBP) grows 2.3 per cent so that the total taxation and total state revenue contracted by 4.6 per cent.”

In the expenditure realisation, 39.8 trillion IDR [approx. €8,156,265,934,423,350.00] or 5.5 per cent of 2020 State Budget target has been utilised with a 9.1 per cent contraction due to frontloading from Ministries/Institutions (K/L) for spending on social assistance especially the Family Hope Program (PKH) or Indonesian Conditional Cash Transfer Programme and 9 basic needs for food card (Sembako card).

“On the expenditure side, there was a 9.1 contraction,” the Minister said. “However, we saw an indication of frontloading of Ministries / Institutions (K/L). Why the contraction in January? Because last year there was a significant frontloading and additional social assistance carried out in January. For this year, social assistance changes are normalised, spent for 12 months. This is why the comparison looked not apple to apple. Last year, January social assistance expenditure was paid in January, this year the social assistance spending remained the same but distributed 12 months, different schemes, from PKH to Sembako cards.”

Even though Ministries/Institutions expenditure is still negative, according to the Ministry of Finance there are some positive things such as the transfer of schools’ operational assistance (BOS) funds directly to school accounts. Last year, the transfer seemed to be faster but the transfer to the province or district, not necessarily to the school. Likewise, the Village Fund, now goes directly to the village, not through a city or district account. This is what distinguishes the impact on the economy, even though the figure looks negative.

As of January, the primary balance position was negative 13.6 and a deficit of 36.1 trillion IDR (approx. €2,114,024,952,997,033.80) or 0.21 per cent of the Gross Domestic Product (GDP). Compared to last year, the deficit was 13.6 smaller than 22.1 trillion IDR (approx. €1,296,663,536,620,164.80). For a deficit of 36.1 trillion IDR, last year’s deficit was 45 trillion IDR (approx. €2,641,755,399,664,500.00).

Debt financing until January was 68.2 trillion IDR (approx. €4,003,727,072,380,419.50). Nearly half the amount compared to last year.
SilPa (Budget Surplus/Shortage of Budget Financing) decreased to 32 trillion IDR (approx. €1.9 trillion) compared to 78 trillion IDR last year (approx. €4.57 trillion).

In February, Lana Soelistianingsih was appointed as the new Member of the Board of Commissioners and concurrently serving as the Chief Executive Officer of the Indonesia Deposit Insurance Corporation (LPS) for  2020-2025 replacing Fauzi Ichsan in accordance with Presidential Decree (Keppres) of the Republic of Indonesia Number 10/M of 2020 concerning Dismissal and Appointment Member of the LPS Board of Commissioners.

Minister Indrawati advised on 20 February 2020 that economic and financial conditions must be maintained together with Financial Services Authority (OJK), Bank Indonesia as central Bank (BI) for economic development.

“I hope that Lana with her experience and wisdom can carry out this task effectively and well. Maintain LPS’s human resources, the assets and financial resources that come from (banks) contributions,” she said. “We also need to increase cooperation between LPS and regulatory institutions such as the OJK, and monetary authorities (BI).”

Indrawati added that LPS must be able to become a trusted institution for the community as an institution that guarantees their deposits in the bank.

“We hope that this will continue to be improved in terms of LPS’s reputation so as to create confidence and trust from the industry as well as respect from the industry as an institution that guarantees deposits,” she said. “This will determine the environment of financial institutions, especially banks as intermediaries and where people carry out savings deposit transactions. Trust is very difficult to obtain and difficult to maintain, and easy to lose. Without public trust, it’s very impossible for us to do financial deepening.”

The bank funding fees collected by the LPS, according to Indrawati, must also be appropriate in the atmosphere and facilities, environment, and the impression that a banking restructuring program must have is well communicated to banks, not to cause speculation as if a banking crisis will occur.

In March, Indonesia President, Joko Widodo confirmed the health and safety of the country’s community was the Government’s main priority, implementing social distancing, preparing contingency plans for hospital service readiness, including accelerating the construction of hospitals on Galang Island, in the Riau Islands.

Widodo mandated the availability of health equipment such as masks, personal protective equipment, and hand sanitisers, also prioritising the needs of domestic medical devices and stopping the export of masks and medical devices.

“The Covid-19 pandemic has had an impact not only on public health but also on the economy of the people and the business world,” Widodo said in a statement. “One of the things that needs to be anticipated in the current situation, is the fulfillment of basic needs. Related to this, the government ensures that the staple goods of the people are sufficient with stable prices. Meanwhile, the impact of Covid-19 which touched the business world will also be responded to in accordance with the President’s instructions through the provision of economic incentives, especially for businesses, more specifically MSMEs”.

To respond to this extraordinary situation, Indonesia’s Ministry of Finance responded by facilitating the refocusing and reallocation of the budget in the interests of handling the Covid-19 pandemic quickly while continuing to prioritise accountability and applicable regulations. Appropriate state expenditure on target is a very important point.

Indonesia’s ministries and institutions were encouraged by the Ministry of Finance, in accordance with the President’s instructions, to reallocate spending activities that are less effective during the pandemic, including official travel expenses, seminars and people gatherings.

The Ministry of Finance actioned a number of policies including: relief of PPh22 and PPh25 tax obligations for 19 manufacturing industry sectors; simplification / reduction of the number of import activities in order to improve the smoothness and availability of raw materials; reducing the number of imported lartas, for companies with producer status (the initial stage will be applied to steel products, alloy steel, and derivative products); simplification of regulations regulated by more than one K / L (duplication) in the form of horticulture, animal and animal products, as well as drugs, medicinal ingredients, and food; reducing the number of imported lartas for strategic food products used in the manufacturing industry, such as industrial salt, sugar, flour, corn, meat and potatoes.
Other policies involved the acceleration of export and import processes for reputable traders (companies with high levels of compliance) to increase the smooth flow of goods to reduce logistics costs as well as the development of the National Logistics Ecosystem (NLE). NLE is a platform that facilitates collaboration of information systems between government and private agencies to simulate and synchronise the flow of information and documents in export/import activities at ports and domestic goods trading and distribution activities through data sharing, business process simulations and elimination of repetiion and duplication. It aims to increase and accelerate the services of the export-import process.

Under Widodo’s guidance, the state budget was prioritised to keep the business world affected by Covid-19 moving and the Indonesian economy growing.

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