Indonesia

A flurry of new regulations in the mining sector over the past several months has made foreign investors cautious and threatened Indonesia’s status as a darling of emerging-market analysts. Although financial data suggests that macroeconomic risks stemming from the new protectionist stance will be limited, the government has made clear its desire to shift towards more local control of the economy.

With an increased emphasis on delivering connection quality and boosting the use of value-added services (VAS), Indonesia’s intensely competitive telecoms sector is in transition. This entails substantial investments in infrastructure and greater efforts by operators to improve service quality. Over the coming years, the structure of the sector may also change, as players collaborate more closely or even consolidate.

With several major infrastructure projects slated for 2013-14 and a land acquisition reform bill waiting in the wings, Indonesia is clearly working to address one of the most severe restrictions to its competitiveness. The bill will help clear away obstacles for the many public works in the pipeline, but significant legal and financial obstacles remain that will continue to slow growth.

The Indonesian economy is maintaining momentum in 2012, despite difficulties across the globe. A large domestic market and growing foreign direct investment (FDI) are ensuring that expansion remains steady. Policymakers and government officials are aware of the downside risks that exist, however, particularly regarding the uncertain global economic climate and the need to tackle the issues that hold back Indonesia’s long-term prospects.

Rising visitor numbers are supporting the growth of Indonesia’s tourism industry, and the country is now looking to tap into growing markets and develop new destinations. While tourism is an important foreign currency earner and a moderate contributor to overall GDP, it is still small compared to regional leaders Thailand and Malaysia. Its growth outlook, however, is excellent.

After topping Malaysia as the world’s primary producer and exporter of palm oil in 2007, Indonesia is now seeking to support its downstream refining operations and further expand this vital sector. The Indonesian government’s lowering of the export tax cap on crude palm oil (CPO) and refined products last August has seen local refiners moving ahead of their rivals.