2019 Industry Summit

– Accelerating Net Export

Making
Indonesia
ATKearney
4.0
 Making
Indonesia 4.0

Implementing “Making Indonesia 4.0’s 10 National Priorities” are critical to

improving Indonesia’s net export

Making Global Top 10 10 National Priorities x Backup in the

following pages
Indonesia Economy by 2030
4.0 Attract Foreign
1 Reform Material Flow 6 Investment

10% Net Export Regain net export Redesign Industrial Upgrade Human
contribution to position (the same 2 Zones 7 Capital
GDP level as 2000)
Enhance output while Establish Innovation
2x current 3 Embrace sustainability 8 Ecosystem
managing cost (Similar
productivity-to-
improvement speed to
cost Incentivize Technology
India) 4 Empower SMEs 9 Investment
2% of R&D Build local innovation
spending share capabilities (Similar Build Nationwide Digital Reoptimize Regulations
to GDP level to China) 5 Infrastructure 10 and Policies
Source: A.T. Kearney 8
 Making
Indonesia 4.0

1 Reforming Material Flow can directly impact net export improvement

“Berdikari1” Indonesia up until mid-stream level
Indonesia Balance of Trade 2 Indonesia Import Breakdown xx % of imports
(2018, USD Bn) (2018, USD Bn)
189 75% of all imports
73 (industry inputs)
Export 180
30
20 9 9 31
17
Total Industrials Spare Parts Fuel & Fuel F&B Capital Goods Consumer
Lubricants Goods
100% 38% 16% 11% 5% 5% 16% 9%

Import 189 Example Policies

Demand Raw Material Hi-Tech

control by Production Capability
Net efficiency Acceleration Building
Export
-8 Eco-car to reduce ~30% of Refineries/smelters to boost High-tech FDI to accelerate
(Import) fuel consumption oil, chemical and metal skill transfer
production
1. Berdikari refers to self-sustaining and independent
2. Based on 2018 data from Ministry of Trade, numbers may not tally due to rounding,
Source: Ministry of Trade 9
 Making
Indonesia 4.0

2 Building coastal industry zone will strengthen Indonesia’s export power

Smart coastal industry zoning – Auto (illustrative)

Smart Automotive Industry Zone
Industrial Zone Design Principles Example

New
Vehicle
Factory
Batam Bontang
Mega Solar panel
Chemical
Electronic Battery Factories
4IR Factory
Factory
Central Java (a few locations)
Patimban
(potential) Auto East Java (a few locations)
Textile
F&B
Autonomous
driving trucks
Coastal Integrated Digital Loading
Location Domestic Network “Smart Port” Smart Logistics and
Located in coastal Integrate with Warehouse hub
areas for easier Build suitable digital
domestic ports &
access toward global port infrastructure for
transportations for
shipping & market more streamlined
access to domestic
access operations a
market Export
Source: A.T. Kearney 10
 Making
Indonesia 4.0

3Embracing sustainability trend could boost export in global market

especially in sectors such as automotive
Embracing sustainability to boost export – Auto (example) Not exhaustive

CO2 Emission for Passenger Car Selected Recent Eco-Regulation

(g CO2 / km) Today
220 European United
China
200
Union States
Lower emission
target for • Finalized NEV2 • Set regulations • Unsuccessfully
180 passenger policy to promote governing vehicle revised on 2025
vehicles going adoption of new emission since fuel economy
160 forward energy vehicles 1992 – knowns as target from 54 to
EURO X 37 miles/gallon
140 • NEV can be • Attempted
China 2020: 117 treated as • Most recent is revoking
120 India 2022:113 currency and is EURO 6/V, the California’s
Japan 2020: 122 tradeable among most stringent authority to set
100 companies regulation just yet
US 2025: 99 own standard
Korea 2020: 97EU 2021: 95
Historical Performance
80
Enacted Target
Major industrial countries are shifting toward more
60
2000 2005 2010 2015 2020 2025 environmentally friendly vehicles
1. Refers to EURO X regulation for gasoline passenger cars
2. NEV = New Energy Vehicle Policy launched in China in 2017 (applicable to all auto companies with annual production of >30K passenger cars) 11
Source: A.T. Kearney
 Making
Indonesia 4.0

4 Supporting MSME’s overseas market access will help in enhancing net export

Facilitating MSME export (illustrative)

SMEs Electronic Export Center Preferential MSMEs Market
Enhancing SMEs Export Access
One-Stop SMEs Electronic Export Center Govt. to negotiate
I have an order coming more MSMEs-specific
FTA with vital access
in from China for my
durian snacks! Fulfill export documentations
requirement
Export to
Gov’t-funded Arrange transport and APAC and
Tablet logistics
beyond
Clear customs inspections
and duties

MSMEs to place export order Assist in filing refund for

in one-stop SMEs Electronic export tax
Export Center

Source: A.T. Kearney 12

 Making
Indonesia 4.0

6 Accelerating FDI to key sectors could improve sectoral productivity and export
Select large manufacturers capable of
Attracting FDI to key sectors – guiding principles increasing productivity and gap

1 • Focus on “Big Fish”

Targeted • Aligned targets with Making
Approach Indonesia 4.0 strategy (Be clear
what Indonesia will get)

2
Understand • Understand investors’ needs in order
to attract them and build “Win-Win”
Investor Needs relationship

• Offer more attractive incentives

3 Competitive FDI and investment than competing
Incentives countries (e.g. Thailand, Malaysia,
Vietnam)

Source: A.T. Kearney 13

 Making
Indonesia 4.0

7 Developing national talents will strengthen the national competitiveness

Next-Generation Talent Program

2030 Key Programs1
17Mn Digital Engineer Indonesia
Internship 4.0
Talent Program Revival Plan Innovators

Curate internship
Incentivize Revamp Fund R&D program to give
employers engineering programs through young talent first-
(training grant, tax curriculums to job Gov’t grants for hand experience on
break) to equip linked programs focused themes; e.g.
+30Mn employees with
digital skills; e.g.
(skill-business
matching); target x2
bio fuel/materials,
halal products, agri.
4.0 technologies;
targets incl.
companies and
Working age analytics, data new engineering yield improvement,
population education
science, coding, etc. workers etc institutions
2019
(Now)

Basic Education Reform

– STEAM (Science, Technology, Engineering, Arts and Mathematics) focus curriculums
– Teacher retraining programs
– Vocational School 4.0
1. For further dive deep in collaboration with relevant ministries and stakeholders
14
Source: A.T. Kearney
 Making
Indonesia 4.0

Implementing “Making Indonesia 4.0’s 10 National Priorities” will help

Indonesia regain its competitiveness in global export market
Net export aspiration
Net exports benchmarking – ASEAN Net exports to GDP target for Indonesia
(2016,%) (2016 & 2030; %)
Indonesia can target average …or aspire to reach same
25.9% of MY and VN’s current peak net exports ratio from
benchmarks… 2000

Net export
14.7% 13x ~6x ~13x
Net import
10.5% 10+%
8.7%
6.4%
2.6% KH PH LA MM
5+%
0.8%
0.8%
-4.4% 2016 2030 - Moderate 2030 -
SG TH ID BN MY VN ID
20001 -9.0% -9.8% -10.0% Aspirational
Mfg.
contribution 30% 60% 65+%
1. Indonesia in year 2000
to net
Source: EIU, IMF, WITS, World Bank, A.T. Kearney exports 15