Current affairs

Competition to attract a production base with Vietnam

2020/08/06


Indonesia has negative quarterly GDP growth for the first time since 1999

Indonesia recorded its first negative quarterly growth since 1999, as consumption and investment declined due to the action restrictions implemented by provincial governments and a reduction in business activity as a result of the corona pandemic, which was more than the negative 5.08% predicted in advance by Finance Minister Sri Mulyani.

Q4 2020 GDP growth is down 5.32% y/y, with the biggest cause being the restriction of movement due to coronation.
The policy rate was lowered in June and July as a stimulus measure, so interest rates are low now.
On the other hand, during the currency crisis, as a result of the high interest rate policy to maintain a fixed exchange rate with the dollar and the IMF's promise of higher interest rates, regular interest rates were at a ridiculous level of over 30% per annum. twitter.com/yamazou/status…

Indonesia's recession is often compared to the recession that started with the 1998 currency crisis, but at the time, Indonesia's foreign exchange reserves ran out due to short selling by hedge funds (selling contracts without cash), which led to a crash in the rupiah market.

The recession is accompanied by a temporary suspension of economic activity in the midst of the country's current economic downturn, which means that central bank stimulus measures to lower interest rates and campaigns to support the travel and transportation industries.

Why interest rates went up in the Asian currency crisis and down in the Corona pandemic

After suspending the reception of domestic and international tourists for five months, Bali has resumed accepting domestic tourists on July 31, provided they bring a negative PCR test certificate issued at least 14 days prior to the flight, and will resume accepting international tourists on September 11.

The PCR test is now more than 3.5 juta, which is more expensive than the flight ticket price, so it will be limited to the wealthy people who can travel to Bali for the time being, but the resumption of domestic tourists is good news for the tourism industry as they used to account for more than 60% of the tourists to Bali in 2018.

Investment Environment in Vietnam and Indonesia

SARS in 2003, avian flu in 2005, swine flu in 2009, and the new coronavirus in 2020, with the recent news of seven deaths from the Bunyavirus.

Indonesian sailors' bodies dumped in the ocean, fishing fleets raiding the Galapagos Islands for shark fins, Chinese consulates inciting rioting protests over Black Lived Matter, sending unidentifiable species to the US and Japan, with the world in an uproar over this, the move to de-Chinaize industries will have to accelerate, and Indonesia is in a race with Thailand and Vietnam to attract manufacturers from other countries to relocate there.

However, Vietnam has the geographical advantage of being located on the Malay Peninsula with easy access to neighboring countries, and northern Vietnam belongs to the Chinese cultural sphere with Chinese characters and Confucianism due to the influence of a long period of rule by Chinese dynasties.

The reason why Vietnam was chosen as a recipient of the manufacturing industry's departure from China and Indonesia was passed over is for three reasons: wages are relatively high, land is relatively high, and investment procedures are complicated. Indonesia is also building an industrial park in Batang, Central Java, and is making efforts to make investment easier with the omnibus law.
money.kompas.com/read/2020/08/0…

Indonesia's average land price of Rp. 3.17 million per square meter is much more expensive than Thailand's Rp. 3.03 million and Vietnam's Rp. 1.27 million, and although the wage level is almost the same as Thailand's, it is much more expensive than Vietnam's, so all countries are trying to attract cheap land and minimum wages to win the competition.

There is a common movement in the provinces to develop industrial parks.

The Indonesian government considers labor costs and low land prices to be important factors in an attractive investment environment for foreign companies, and has recommended Batang Industrial Park in Central Java as the most important candidate site.

It is close to Semarang, which is an international trade port, and it will be an important base for the Northern Java Automotive Industrial Belt Initiative proposed in Making Indonesia 4.0.

Indonesia's downstream industry and manufacturing sophistication

中部ジャワのBatang

There is no doubt that Indonesia's biggest attraction for investors is "a thick domestic consumer market that will continue to grow," and with Vietnam's population of 96.21 million in 2019, close to 100 million, it is already forming a huge domestic market, and Indonesia cannot rely on domestic demand in the competition to attract foreign investment.