Country Risk Report - Indonesia
Country Risk Management
CEMS MIM
Fall 2013(Term 1)
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High Speed Rail Project
In
Indonesia
Country Evaluation Note
Background I am the Corporate Risk Manager at a large European Engineering & Construction firm (say Siemens), which is planning to submit its bid for the 35 KM elevated high speed rail project in Indonesia connecting the Jakarta Airport to the Central Business District in the heart of the city. This will be the company’s first investment in the region. It is facing stagnant order book position from its home market in Western Europe. This Country Evaluation Report will go as an additional input to the company board when the final decision to make the FDI in Indonesia is made. The bid amount is approximately in the range of 600-700 million USD. The project is supposed to be a PPP on a DBOT basis.
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Executive Summary
Indonesia is the fourth most populous nation in the world and with a GDP growth rate of 6.1% in 2012 it was the fastest growing economy in the ASEAN.FDI has grown by 30% YOY and the government plans to solicit investment worth 140 billion USD from the private sector for development of country’s infrastructure sector. This would suggest that Indonesia is the country to invest and the rail corridor project the ideal vehicle of entry. But one must not forget the 1997 Asian Financial crisis and what it did to the Indonesian rupiah. Public Institutions are still weak and corruption is not completely absent. Indonesia is ranked 100th out of 183 in Transparency International’s Corruption Perception Index. In 2011, World Bank had ranked the country 128th as far as “Ease of doing Business” is concerned. Moreover, S&P ranks Indonesia BB- at below investment grade. All these might suggest that one should be
CEMS MIM
Fall 2013(Term 1)
----------------------------------------------------------------------------------------------------------------
High Speed Rail Project
In
Indonesia
Country Evaluation Note
Background I am the Corporate Risk Manager at a large European Engineering & Construction firm (say Siemens), which is planning to submit its bid for the 35 KM elevated high speed rail project in Indonesia connecting the Jakarta Airport to the Central Business District in the heart of the city. This will be the company’s first investment in the region. It is facing stagnant order book position from its home market in Western Europe. This Country Evaluation Report will go as an additional input to the company board when the final decision to make the FDI in Indonesia is made. The bid amount is approximately in the range of 600-700 million USD. The project is supposed to be a PPP on a DBOT basis.
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Executive Summary
Indonesia is the fourth most populous nation in the world and with a GDP growth rate of 6.1% in 2012 it was the fastest growing economy in the ASEAN.FDI has grown by 30% YOY and the government plans to solicit investment worth 140 billion USD from the private sector for development of country’s infrastructure sector. This would suggest that Indonesia is the country to invest and the rail corridor project the ideal vehicle of entry. But one must not forget the 1997 Asian Financial crisis and what it did to the Indonesian rupiah. Public Institutions are still weak and corruption is not completely absent. Indonesia is ranked 100th out of 183 in Transparency International’s Corruption Perception Index. In 2011, World Bank had ranked the country 128th as far as “Ease of doing Business” is concerned. Moreover, S&P ranks Indonesia BB- at below investment grade. All these might suggest that one should be
References: 1. The Jakarta Post - “FDI growth set to fall below 20%” : http://www.thejakartapost.com/news/2013/11/08/fdi-growth-set-fall-below-20-next-year.html 2. Indonesia-Investments : http://www.indonesia-investments.com/ 3. Indonesia Private Equity : http://indoprivateequity.com/2012/02/16/liberalization-and-fdi-in-indonesia/ 4. BKMP – Indonesia Investment Coordinating Board : http://www4.bkpm.go.id/ 5. FDI Intelligence : http://www.fdiintelligence.com/Locations/Asia-Pacific/Indonesia/Can-Indonesia-keep-pace-with-its-own-growth 6. COFACE Indonesia Country Report : http://www.coface.com/Economic-Studies-and-Country-Risks/Indonesia 7. Indonesia : Risk Assessment by global EDGE : http://globaledge.msu.edu/countries/indonesia/risk