Indonesia

Agnese Ranaldi published in Indonesia, THE ROAD TO DUBAI

Indonesia leads ASEAN’s transition to sustainable agriculture

Special G20 Indonesia /

Food security is one of the challenges of our time, but ASEAN should focus on sustainable agriculture if it wants to limit the social and environmental risks caused by climate change.

Sustainable agriculture in Southeast Asia may be the key to the global fight against climate change. As U.S. journalist David Wallace-Walls points out, "the future of the planet will be determined in large part by the growth trajectory of the developing world," and the emerging economies of ASEAN are at the epicenter of this transformation. The extraordinary demographic development and rapid urbanization, the increase in incomes, consumption, and the consequent surge in energy demand make it difficult to reconcile national interests and sustainability imperatives. But Southeast Asia is also one of the regions most vulnerable to anthropogenic climate change. According to an ISEAS report, flooding, loss of biodiversity and rising sea levels are the three threats perceived as most imminent by regional communities, and for 81.1% of respondents these will have a direct impact on food supply.

Food security is one of the challenges of our time. Unfortunately, the effects of the pandemic on the agricultural sector have been devastating in Southeast Asia. Indeed, the development of sustainable agriculture is at the heart of the Comprehensive Recovery Framework, designed by ASEAN to emerge from the crisis caused by Covid-19. Member states agreed on the need to promote measures that protect food supply chains, which are essential to "mitigate the risk of major shocks, which have a major impact on society, especially on the poorest and most vulnerable people."

However, food security must be promoted at the same time as other initiatives to combat climate change. In this regard, as well as having recently provided a taxonomy which will integrate the language of all national projects aimed at sustainability, ASEAN is also focusing a great deal on international cooperation. Sustainable agriculture will be one of the items on the agenda of the High Level Meeting organized at Dubai Expo 2021, where the heads of the private and public sectors of ASEAN countries, Italy and the United Arab Emirates will meet to discuss future cooperation under the banner of sustainability. The meeting will be held on December 9 in Dubai, and has been organized by the Italian Commissariat to the Expo in collaboration with the Dubai Chamber of Commerce and the Italy-ASEAN Association. Much of the climate cooperation, however, takes place at the national level. The International Fund for Agricultural Development (IFAD), for example, is working with the Indonesian government to implement eight sustainable rural development projects. Since 44% of Indonesia's population lives in rural areas, and agriculture is its main source of income, the success of the 2030 Agenda in the country is an indicator of progress in the entire region.

Alternative agricultural production practices pioneered in Indonesia are also inspiring other ASEAN countries. Such initiatives, encouraged by the government of Joko Widodo, have often originated from below. This is because the Indonesian population is one of the most exposed to the dramatic effects of climate change, including the risk that a large part of its coastal cities will end up buried under the sea level. This condition makes them particularly motivated to think about alternative lifestyles, production and consumption practices. During the pandemic, Jakarta deployed urban agriculture, which experts say could prove to be the cause of food security, while also responding to the region's high population pressure. Tahlim Sudaryanto, president of the Indonesian Center for Agriculture Socio Economic and Policy Studies (ICASEPS) under the Indonesian Ministry of Agriculture, praised these projects. Considering that by 2050, more than two-thirds of the global population will live in cities, according to a 2018 study published in Earth's Future, urban agriculture could produce up to 180 million tons of food annually, and provide 10 percent of global production of legumes and vegetables.

Several sustainable agriculture projects have proven virtuous in the country. Indonesia is the largest economy in Southeast Asia, and three out of five Indonesians live in the countryside, but the agricultural sector is the main source of income for 64% of the population living below the poverty line. When Audria Evelinn founded Little Spoon Farm, for example, she had in mind the precarious situation in which a large part of her fellow citizens lived. Her goal was to "improve the local food system in Indonesia by reconciling the relationships between nature, farmers and consumers." Since food is a powerful force for change, empowering consumers to choose local, organic, direct and seasonal produce creates "demand that supports a sustainable local economy that gives farmers a living." That's why she launched her project on the Indonesian island of Bali, where pressures from the tourism industry sometimes diverge from environmentalist demands, creating debate about the future of the local economy. Audria Evelinn wanted to make her contribution by designing an online platform from which people can directly order fresh local crops. Her farm is also experimenting with cooperative management practices and product reuse systems to solve the problem of food waste. Little Spoon Farm's experience confirms that not only are top-down international cooperation measures necessary: the involvement of the younger generations and from bottom-up instances in the fight against climate change is essential if effective solutions are to be found for the future of the planet.

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Clara Lomonaco published in Economy and trade, Indonesia

Indonesia: COP26 and road to G20 2022

Special G20 Indonesia /

From the commitments made during the Glasgow Climate Conference to the goals of the G20 presidency: this is what the future of Jakarta can be.

This year’s COP26 summit was hosted by governments of the UK and Italy in the Scottish city of Glasgow. As every year, the COP is an important moment that brings almost all Countries with the goal of ensuring a prompt action on climate change. Despite challenges posed by the pandemic, climate change continues to generate serious environmental, social and economic consequences. This year’s summit had the difficult task of dealing with the failure of the last COP25, held in Madrid in 2019, and presented some challenges including competing interests between developing and developed countries, the issue of climate finance and unsolved rules for international coal markets that were in the article 6 of the Paris Agreement.

The conference agenda was divided into five sessions:

  1. scaling-up adaptation;
  2. keep alive 1.5 °C;
  3. loss and damage;
  4. finalization of the Paris Regulation – article 6;
  5. mobilization of finances.

Since the beginning of the Conference has emerged the strong (but mostly necessary) political will of world leaders to achieve global environmental goals, but Indonesia, given its exposition among the major contributors to global climate change, what climate efforts is it making, and what strategies is it putting in place to positively influence its internal and international environmental impact?

“Indonesia is a super powerful country in the field of climate change migration”, these were words of Alok Sharma, President designate for the 26th United Nations Conference of the Parties on Climate Change, to Indonesian Minister of environment, Siti Nurbata, during the highly anticipated meeting in Glasgow. The British government declared that the collaboration with Indonesia was one of the most important elements of Britain’s success as COP26’s host and expressed the desire of a continuity between the two parties, realized and strengthened through the joint leadership in the Forest, Agriculture and Commodity Trade (FACT) dialogue.

The climate summit offered Indonesian president Joko Widodo (“Jokowi”) the opportunity to voice his vision of Indonesia as “bridge builder” and global issue solver. He underlined the government’s seriousness about controlling climate change and affirmed it is among the country’s main national interests; he encouraged world leaders to promote green development and increase climate resilience, as reflected in the Nationally Determine Contribution (NDC) update presented at the United Nations Conference in July this year.

To date, Indonesia has submitted several papers to the United Nations Framework Convention on Climate Change (UNFCCC), 8 in all, ranging from those related to adaptation to those pertaining to financing nature-based solutions. In each of these documents, the Indonesian government reiterated its commitment to reduce emissions by 29% compared to the Business As Usual (BAU) scenario in 2030. At the Conference, Indonesian Minister for the environment, Siti Nurbaya Bakar, added that with international help, it could be achieved a more ambitious scenario, reaching a reduction of 41% of emissions and, in this way, comply with the Low Carbon Compatible with Paris Agreement (LCCP). Within 2030, Indonesia will approach the status of being a net carbon sink in the sector of silviculture and in land use: the government plans to gradually reduce the use of coal to 60% by 2050 and will move towards a net-zero emissions status by 2070.

As head of the Republic of Indonesia’s delegation to COP26, at the Conference, Minister Siti introduced the government’s Road Map for Climate Change Adaptation until 2030. This new path has foreseen (and foresees for the future) several initiatives: the first one has seen the active involvement of the community through the Climate Village Program (ProKlim), Ecoriparian: a program that aims to restore the mangrove ecosystem and agro-social forestry as a phase of work for climate adaptation. The program also involved and integrated the work programs of Ministries and Agencies, local governments, the private sector, and local community leaders.

The second initiative in climate change control action is “Indonesia FoLU Net-Sink 2030”. This ambitious goal will be accompanied by an operation manual, whose completion is expected by the end of 2021, with supervision and control purposes. The Indonesian action on climate change in the energy sector aims at phasing out coal-fired power plants, to the implementation of waste-to-energy plants, the development of energy from biomass, hydropower, solar and photovoltaic energy, geothermal energy and the conversion of high-cost diesel power plants with gas and NRE.

In the session devoted to “Finalising the Paris Rulebook – Article 6”, Indonesian Deputy Minister Alue presented a proposal to find a common solution to implement Article 6 of the Paris Agreement:

  • increase the ambition and implementation of results of the NDC (Nationally Determined Contribution) through a cooperative approach and financial support among member states while continuing to ensure the achievement of environmental integrity from the mitigation actions carried out;
  • to avoid a double claim in emission reduction, Indonesia proposes to use the best methodology in preparing the baseline, transparent in reporting and base on national circumstance;
  • in terms of disbursement of funds for adaptation activities may be made by prior agreement of the two cooperating parties;
  • Indonesia also encourages the adoption of Article 6 of the Paris Agreement at COP 26 in Glasgow, considering its importance in supporting the increased ambition and implementation of the NDCs to achieve the long-term goal of reducing global temperatures to 1.5°C.

COP26 in Glasgow was also the starting point for the discussion of the New Collective Quantified Goal (NCQG). For Indonesia, the NCQG must reflect real need and ensure that finances effectively flow to developing countries. The NCQG discussion process can be initiated from a political and technical perspective. Multilateral or bilateral formal and informal meetings can be used to obtain input and opinions from parties who may be part of the process. The entire process must be inclusive and transparent. The NCQG also needs to be more ambitious and understandable to both developed and developing countries and more balanced in terms of the use of climate finance for mitigation and adaptation.

Minister Siti Nurbaya Bakar paid special attention and emphasis on the economic and financial aspect encouraging developed countries to take the lead in providing to developing countries with financial resources needed to implement climate programs. The trade-off between economy and environment is a real issue. The coordination between central government and local leaders is another challenge that Indonesia must resolve to reach its climate goals. As a big developing country, with the fourth-largest global population, Indonesia will need USD 5.7 billion every year to finance its transition to green energy. The challenge is not in drafting or signing agreements and decrees, but in the coordination and execution needed to implement them efficiently. Climate actions require strategic policies and financial cooperation among interested parties at national and global levels. Hence, the Indonesian government's hope is to continue pushing for a support for increased climate finance, including through a fiscal policy and increased access to global finance.

Minister Siti concluded his speech with a positive note referring to young generations that have great concerns for the environment and push the Indonesian government to take climate change more seriously. A 2020 Indonesia Bright Foundation survey revealed that 97% of Indonesian millennials see that impacts on climate change are equally or more dangerous of the COVID-19 pandemic. 63% of interviewees affirmed that government performances were the main obstacle to climate efforts. Even the Indonesian leading foreign policy group, the Foreign Policy Community of Indonesia, has recently issued a strong call to the government to protect the nation on the golden centenary (2045) from the threat of climate crisis. The awareness of climate change in Indonesia is growing and could support a more robust government effort.

Indonesia to the G20 presidency of 2022

For the first time since the founding of G20 in 1999, Indonesia has been nominated to assume the G20 presidency from December 1st, 2021, to November 30th, 2022. The modus operandi that the Country will adopt for next year’s Summit will be to focus the international dialogue on efforts to achieve a sustainable, stable and balanced economic recovery in the post-pandemic world.

The Indonesian Foreign Minister, Retno Marsudi, has anticipated that next year’s Summit will be hosted on the island of Bali with strict health protocols and will be entitled: “Recover Together, Recover Stronger”.

The chosen topic has the goal to encourage joint efforts for global economic recovery. An inclusive people-centered growth, environmentally friendly and sustainable growth is Indonesia's main commitment as chair of the G20. “These efforts must be advanced through a stronger global collaboration and an incessant innovation. The G20 must be the driving force of the ecosystem development that leads to collaboration and innovation”, added President Widodo.

At the time of the G20 creation, the Asian financial crisis of 1997-98 had strong consequences for Indonesia: the drop in GDP (-13.1% in 1998) and the increasingly strong popular protests led to the fall of the Suharto regime. Under the leadership of his successor, Habibie, the Country embarked on a path of democratization and economic reforms that have led it to become one of the most dynamic economies of Southeast Asia. Together with Saudi Arabia and Turkey, Jakarta is a G20 member with an Islamic majority, but it brings forward quite different demands from the other two mentioned entities. In fact, since the beginning, Jakarta had assigned itself the role of intermediary within the Group of 20 between western economies and BRICS Countries (Brazil, Russia, India, China, South Africa). Indonesian mediation has also been important in raising awareness of emerging countries issues and external economies of the Group of 20. The Indonesian experience has allowed Jakarta to provide to G20 a point of view of a rising Country and to identify a support scheme for nations that, as often occur regarding developing economies, have a reduced margin of fiscal measure.

In addition to its role as an intermediary, Indonesia in the G20 performed the key function of representing of ASEAN within the Group. In fact, Jakarta is the only G20 member belonging to the economic union that also includes Brunei, Cambodia, Thailand, Laos, the Philippines, Vietnam, Malaysia and Myanmar. Therefore, Indonesia has always participated in the G20 and has always been the bearer of ASEAN positions. The presence of Indonesia within the G20 is due to the economic and demographic weight of Jakarta, but also to the need to include in the Group of Twenty a representative of a region of growing importance in global trade.

Jakarta has always seen the G20 as an opportunity to bring Southeast Asia’s demands on a global level, particularly the preservation of a stable regional architecture and the integration of the region into the global economy.

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Sabrina Moles published in Indonesia, Politics and strategy

What Indonesia's G20 will look like

Focus on Indonesia's G20

Jakarta could direct the attention of the global North towards developing Asia, but it may miss the opportunity to step out of the mainstream of multilateralism. Here are what challenges it brings with it

Indonesia will lead the presidency of the G20 from the 1st of December 2021 to 30th November 2022. It is the first time Jakarta has obtained the leadership of the multilateral group, which includes 19 of the largest economies and the European Union. Founded in 1999 as a platform for discussing economic issues, it soon spread to other global problems. The handover between Italy and Indonesia, discussed at the summit in Rome on October 30-31st, was an opportunity to highlight some of the most challenging: climate crisis, health emergency, management of global markets are just some of the terms most mentioned by leaders gathered on that occasion.

The presidency of Indonesia will see emerging economies as protagonists: in 2023 it will be India's turn, followed by Brazil and then South Africa. "This is an honor for us, for Indonesia, and at the same time a great responsibility, which we must do well," said Indonesian President Joko Widodo, better known as Jokowi. It is not for nothing that the theme of 2022 is "Recover Together, Recover Stronger", an expression that contains that character of inclusiveness in which the Indonesian-led presidency will try to aim.

According to what was declared at the end of the Rome summit, in 2022 the projects with a view to health security, emissions reduction, and market management should be implemented to contain the economic crisis caused by the pandemic. Challenges that are not simple, which Jakarta will have to carry on their shoulders as the only ASEAN member included in the club. 

Climate crisis and sustainable development

Like other Southeast Asian countries, Indonesia is exposed to increasingly frequent extreme climatic events (2510 reported in 2020, compared to 535 in 2005). Therefore, Indonesia - as said by Jokowi - hopes to “offer a platform for global partnerships and international funding to support the energy transition to cleaner renewables”. 

Jokowi is aware of the difficulties of emerging economies facing the transformations that the energy transition requires. What has been considered one of the main solutions on the table is, for developing countries, a challenge that first requires universal access to quality electricity. Indonesia alone has sovereignty over 17,500 islands and a sinking capital, while the economic policy is deeply rooted around fossil fuels. The projects are many and quite ambitious, such as a solar park in Java which will be completed by the end of 2022 and will be, with its 145 megawatts, the largest in the country.

Sustainable development requires a different approach than that adopted by the global North. The arrival of Indonesia at the head of one of the representative organizations of this reality could bring new ideas that are often underestimated. In 2014, Jokowi started introducing many reforms to increase individual well-being. Consequently, the Gini coefficient for income inequality in Indonesia has started to decline for the first time in 15 years: today it has stabilized at around 38.2 (that of Italy is at 35.9). The issue of health cooperation will also remain important to support countries in difficulty, which remains an important topic for domestic politics as well: in recent years, for example, Jokowi has introduced a review of health insurance with a view to universalizing the system. sanitary.

Jakarta maintains prudent fiscal policies, to the point that the national debt remains below 40% of GDP. This political vision is accompanied, not without criticality (as in the case of labor laws), by a clear support for liberalization. In this way, Jokowi's reforms have helped to improve Indonesia's position in the World Bank's Doing Business Index from 120th place in 2014 to 73rd in 2020. In this sense, Jakarta remains a welcome guest in the G20, and a potential example of economic development for the rest of the region.

International cooperation

Indonesia's caution also remains high in foreign policy, where Jokowi has been able to maintain active links with both China and the United States. The control over public debt has made it possible to welcome the Chinese projects of the Belt and Road initiative to accelerate infrastructure development plans, while the attention towards other potential investors remains high. It is no coincidence that the landing page of the site dedicated to the presidency of Indonesia reveals the intention to present the country to the world, make it more attractive and trustworthy by the international community. The promise, signed during the G20 in Rome, to tax multinationals with a global tax of 15% could seem another good prerequisite for Jakarta to open up to the world. Furthermore, from a political point of view, Jokowi has been able to manage the inter-ethnic conflicts in the country and is the only Muslim leader who has reached the presidency through regular democratic procedures. 

Caution and compromises: the Indonesian presidency contains that accommodating leadership that lends itself to buffering ideological frictions in a particularly complex historical phase for the international community. Different, but complementary to a political and economic model like Western democracies. The G20 in Rome intended to reaffirm the model of multilateral international relations, while the world risks slipping into small neighborhood conflicts that hinder the cooperation and supervision of external actors. It is beginning to become clear that in the face of these tensions, the power of international institutions to give sufficient answers to contemporary problems has perhaps been overestimated, while the presence of Indonesia could bring attention back to those countries that have yet to catch up with the rest. of the world.

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Agnese Ranaldi published in Economy and trade, Indonesia

Investment opportunities in Indonesia

The pandemic prevented Indonesian President Jokowi's from the implementation of his financial reforms, but in Indonesia the role of foreign investment remains crucial for the post-pandemic recovery.

The global economic crisis that followed the spread of Covid-19 caught by surprise President Joko "Jokowi" Widodo, who had ambitious macroeconomic plans for Indonesia. Jakarta was committed to implementing a dense reform agenda, aimed at economic and social well-being, to stimulate manufacturing production and to attract foreign investors interested in Southeast Asia. While the pandemic has changed the government's priorities, attracting foreign capital investment remains crucial for economic recovery.

The April 2019 political elections proved to be a battle for the economy, and the vote of millennials and the Indonesian middle class was decisive. On this occasion, Jokowi leveraged the image of a man of the people who would continue to make Indonesia prosperous even during his second term. According to experts, this electoral success was to be interpreted precisely as a validation of his policies, launched during the previous mandate and aimed at the development of infrastructures and public spending in social programs. The Central Bank supported these ambitions by keeping interest rates high to attract foreign capital. Then Covid-19 arrived, and for President Widodo the opportunities to make a difference have been reduced. Today the national government's priority is economic recovery, which requires a lowering of interest rates designed to stimulate consumption, while trying to stem downward pressure on the rupee.

Despite these financial measures designed to address the crisis, the macroeconomic structure of many Southeast Asian countries relies heavily on the inflow of foreign direct investments (FDI), and Indonesia is no exception. ASEAN's leading sectors, such as manufacturing, retail, transportation, and telecommunications, have led the bloc to become an economic powerhouse, with an estimated GDP of $9.3 trillion as of 2019. Indonesia accounts for about 40% of ASEAN's economic output, which is on track to become the world's fourth largest economy by 2050. According to ASEAN Briefing, efforts by Southeast Asian governments in recent years to promote regulatory systems that are attractive to those wishing to do business in the region are one of the vectors that will continue to ensure FDI inflows, even during Indonesia's recovery efforts.

In this regard, consulting firm Dezan & Shira Associates published a report that sheds light on the investment landscape in the country. The top five sectors receiving investment are the metals industry, electricity, gas and water supply, transportation and telecommunications, housing and mining. Moreover, the top five economies investing in Indonesia are Singapore, China, Hong Kong, Japan and South Korea. The regulatory system is particularly attractive to foreign financiers, especially because Indonesia is party to twelve free trade agreements, including the Regional Comprehensive Economic Partnership (RCEP), which was signed last year. When the agreement was proposed for ratification, Indonesian Trade Minister Muhammad Lufti said that the RCEP will be very beneficial to Indonesia because it will strengthen its role in regional supply chains, as well as support the economy during the post-pandemic recovery. The report goes on to list tax benefits dedicated to those wishing to do business in the country, as well as a list of industries with ample room for growth including the digital economy, electronic components manufacturing and the super-competitive automotive industry.

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Pierfrancesco Mattiolo published in Economy and trade, Indonesia

The potential of EU-Indonesia relations: from trade to political cooperation?

By Pierfrancesco Mattiolo

For the EU, deepening its relations with Jakarta is an opportunity - perhaps even a necessity. High Representative Borrell's visit early this June is a sign of this.

‘As the EU, we are well aware that the global centre of gravity is shifting towards the Indo-Pacific region’. With these words, published in an article of his for the Jakarta Post, Josep Borrell made it clear how closely Brussels is watching political and economic developments in the ASEAN countries. The EU High Representative for Foreign Affairs and Vice-President of the European Commission went to Jakarta in June for an official visit, where he met with high-profile figures from the Indonesian government - President Widodo, the Ministers of Foreign Affairs and Defence, some members of the Parliament - and ASEAN - including Secretary-General Lim Jock Hoi.

There are many reasons behind the EU's renewed focus on ASEAN. While Brussels has made a qualitative leap in its relations with two member countries, Vietnam and Singapore, thanks to the recent free trade agreements, it is at odds with other governments. For example, on a political level, the EU responded to the coup in Myanmar with a series of sanctions against Tatmadaw-linked officials and, last year, to repeated human rights abuses in Cambodia by revoking the favourable Everything But Arms (EBA) trade regime. On the trade front, Brussels has been sued twice before the World Trade Organization (WTO) over its measures on palm oil and biofuels produced from it, by Kuala Lumpur and Jakarta, respectively. Despite the ongoing legal dispute, the future of trade relations between the EU and Indonesia looks promising and deepening the cooperation, on a political and strategic level too, with the most populous state of ASEAN is in the best interests of Brussels. Borrell was clear on this point: ‘the potential of our relationship is untapped. We can do much more’.

On the trade side, negotiations on the EU-Indonesia Free Trade Agreement are at an advanced stage and both sides seem keen to speed things up. One of the major issues, palm oil, could be moved to a separate negotiating table for a compromise to close more easily the the TSD (Trade and Sustainable Development) Chapter of the Agreement. Borrell himself gave this approach a nod during his visit to Jakarta. Discussions on the other chapters are progressing positively, although on some issues it is more difficult to find a common ground - for example, on technical barriers to trade (TBT), government procurement, and protection of intellectual property rights. The Agreement will also cover investments, a topic that is quite important for the Indonesian government. Indeed, the investment chapter of the Omnibus Law, Jakarta's ambitious economic reform plan, was implemented a few months ago, opening the country to foreign investment in many sectors - including telecommunications, transport, energy, and construction services providing various incentives to attract it. This opening could be further strengthened by the Free Trade Agreement and bring new opportunities to European companies. For the time being, the Indonesian market is particularly favourable to competitors from countries that have signed the RCEP (Regional Comprehensive Economic Partnership, the trade agreement between ASEAN countries, China, Japan, South Korea, Australia and New Zealand). In particular, Indonesia needs foreign investment in its infrastructure, the inadequacy of which is an obstacle to the country's economic growth, and China has eagerly stepped in.

The appeal of Chinese investments and the support received in the management of the COVID-19 crisis are prompting the Indonesian government to warm up its relations with Beijing, which have been particularly tense in the past years due to disputes over fishing grounds in the South China Sea. China's growing influence in the region is undoubtedly one of the reasons that encouraged the EU and some of its member states - France, Germany and the Netherlands - to draw up a new and bolder "Indo-Pacific strategy" that involves Jakarta. While dialogue with Myanmar and Cambodia, for instance, is difficult due to deep political differences - and China has taken advantage of the situation to increase its influence over the two regimes-, the EU has no problem acknowledging Indonesia as ‘one of the world’s largest democracies and economies’ and a ‘like-minded country', as if to underline its intention to cooperate on a political level too. Jakarta has sent out encouraging signs in this sense: after the talks with Borrell at the beginning of June, the Minister of Foreign Affairs Marsudi reiterated her government's commitment to obtaining the appointment of an ASEAN envoy for Myanmar, the cessation of violence and the release of political prisoners by Burmese coup forces. Political cooperation could soon step up to a strategic level as well. The EU has expressed its intention to be present in South-East Asia with its military navies too. This is a significant policy shift for Brussels, seeking a pragmatic approach that balances economic and political cooperation with a strategic projection in the Indo-Pacific to balance China's influence. Indonesia - which, by the way, will hold the presidency of the G20 next year, immediately after Italy - is certainly an essential partner, probably a necessary one, for this new vision.

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Stefano Rinaldi published in Economy and trade, Indonesia

GoTo: the new ASEAN e-commerce giant

Gojek and Tokopedia announce the merger into a new entity to challenge Grab and Sea.

Gojek and Tokopedia have recently confirmed the rumours of recent weeks by announcing their merger. GoTo, the resulting e-digital platform, will be a new ASEAN e-commerce giant worth over $18 billion. This news comes at a time when the tech industry, and especially digital commerce, has recently been extremely dynamic.

The sense of urgency that accompanies the creation of GoTo is significant, suggesting that it might be the only way for both companies to gain a more relevant role in their target market.

Tokopedia and Gojek are two important scale-ups, both Indonesia-based, and both with excellent fundamentals and bright growth prospects in their respective markets.

Tokopedia is an e-commerce platform, one of the top five in ASEAN, while Gojek is undoubtedly the leader in shared mobility in the national market.

Both companies are very promising and have proven to be able to compete on a large scale, thanks to the characteristics of their country of origin. With a population of more than 270 million (the fourth largest in the world) and an economy that was booming before Covid (+5% in 2019 before dropping by 2.1% in 2020), Indonesia is one of the most attractive markets for e-commerce. 

In addition, Tokopedia has received funding rounds of $2.8 billion to enhance its e-commerce platform and can boast names such as SoftBank, Google and Alibaba among its investors.

On the other hand, Gojek has a portfolio of investors of the calibre of Facebook, PayPal, Visa and MUFG (Japanese banking giant) amounting to over $5 billion, and is a definite promise of digital mobility, comparable to Uber in its early years in the US.

Both have not only excellent foundations but also the necessary funds and access to Asia's best-in-class ICT infrastructure.

The cause of the merger between Tokopedia and Gojek must therefore be sought outside, especially in the threat posed by other competitors. In this respect, the golden rule of e-commerce applies: agglomeration and centralisation are synonymous with power and a guarantee of survival.

On one side, in fact, the two companies have to deal with the exploit of Grab - the largest shared mobility platform in Southeast Asia with 200 million users - which has announced an imminent listing on NASDAQ for over $40 billion. Grab is the region's first true super-app, the first example of an all-encompassing mobile application that includes social networking, digital payment, e-commerce, mobility and financial services: hence its motto, 'The Everyday Everything app'. Everything suggests a strategic desire to achieve rapid international expansion, as well as an explicit ambition to become the undisputed leader in the ASEAN region.

On the other hand, Tokopedia and Gojek have to compete with giants such as Sea, which is beginning to represent a major competitor in the Indonesian market as well. The Singaporean group continues to invest relentlessly to increase its presence in individual local markets in the region: with a stellar capitalisation, it has the power to exclude other players from many digital markets in the region.

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Annalisa Manzo published in Economy and trade, Indonesia

Indonesia opens up to foreign investment

Indonesia change tack and opens up to foreign investment, as part of the reforms planned by the implementation of the Omnibus Law

The Presidential Decree 10/2021, also dubbed as “Positive Investment List”, took effect on March 4, 2021, outlining the new list of business fields open to investment. This regulation is included in the implementation of the so-called “Omnibus Law”, the largest economic reform plan ever launched in Indonesia and replaces Presidential Decree no. 36/2010, which listed the sectors closed to investment and those open under specific conditions.

Approved on October 5, 2020, the controversial Omnibus Law (UU 11/2020 Cipta Kerja) mainly aims to create new jobs, encourage domestic and foreign investment, and stimulate the economy through the simplification of bureaucratic processes and the speeding up of political decisions. However, strong disapproval was expressed by trade unions and workers' rights associations, epitomized in massive protests throughout October to condemn the law for the damage caused to wages, job safety and to environmental protection, with further centralization of power in Jakarta.

The new investment list has significantly reduced the number of sectors that are completely closed to any form of investment (foreign or local) and those that are totally closed or partially open to foreign investment. This aligns with the government's efforts to counter the impact of the Covid-19 pandemic by encouraging the arrival of more FDI in Indonesia. The decree certainly represents one of the major liberalizations of foreign capital: before the introduction of the Omnibus Law, the country did not have a comprehensive system to promote investments.

Important sectors such as telecommunications, transportation, energy, distribution and construction services, which were severely restricted in previous years, have been opended up to foreign investment and stimulated with fiscal incentives, such as corporate income tax reductions. Additional benefits include the provision of support infrastructures to foreign companies, as well as energy and raw materials, together with simplified business licensing. In addition, foreign investments in technology start-up sectors in Special Economic Zones have been exempt from the minimum investment threshold of IDR 10 billion.

The business fields have been classified into 4 main categories, emphasizing the group of priority sectors. Within the latter category, 245 business areas now open to foreign investment have been outlined. Priority sectors also include some industries that are strategic for the country's economic development, such as the processing and refining of nickel, a key material in electric vehicle (EV) batteries. Indonesia is home to the world's biggest nickel reserve and plans to become EV battery production hub, developing a complete supply chain for nickel, from the extraction of raw materials to the manufacturing of the batteries themselves. Tesla has recently put forward its investment proposal to help Indonesia implement its ambitious plans in this direction.

Hence, Indonesia sends a strong message to the international economic community, putting on paper the list of new business opportunities. The openness to foreign investment enshrines a new and valuable approach for the future of the country.

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Carola Frattini published in Culture and society, Indonesia

Indonesia will vaccinate workers before the elderly

The ASEAN giant chooses a different strategy to halt the advance of COVID and jumpstart the economy

The vaccination challenge, an extraordinary logistical enterprise made all the more daunting by manufacturing delays, requires tough choices. Over the past year, policymakers around the world have focused their efforts and resources first on research for vaccine development and then on the purchase of the doses needed to inoculate their fellow citizens. In recent months, however, a new question has taken center stage in the political debate: who will be given the first available doses?

The discussion regarding the correct order of precedence in the administration of vaccines is of extreme importance. Once the vaccination of health workers has been completed, most of the EU Member States have chosen to give priority to the elderly citizens, considered the most fragile elements in the face of the virus, starting from the over-80s, the over-65s, and so on down. Indonesia, on the other hand, has chosen a different strategy: to vaccinate first citizens between 18 and 59 years old, the workforce, which represents more than 60% of the population. 

The government chose to take this route for two main reasons. The first is purely health-related; Indonesian authorities hope to stop the advance of the infection by immunizing those who move around the most, whether for professional commitments or social activities. These people are more likely to be infected and consequently to infect others: 80% of COVID cases recorded in Indonesia are among the working population. The second reason is essentially economic; like and perhaps more than other world economies, in fact, Indonesia is paying a hefty bill for the epidemic. Recovery also means restarting tourism and transport, which are among the hardest hit sectors, and for this reason people need to be able to return to work as soon as possible, perhaps even to travel, in safety. 

This result, according to Fithra Faisal Hastiadi, an economist at the University of Indonesia and spokesperson for the Ministry of Commerce, can only be achieved through a mass vaccination campaign of people of working age, starting, of course, with those who carry out a profession in which the risk of contagion is highest (health workers, the police and the military). Indonesia is therefore turning to the vaccine to solve both the health emergency and the economic crisis. In Hastiadi's words, "when we talk about public health we are also talking about economics, because public health is a function of economics." 

Like all choices, this one too is not without its critics, and the Indonesian government has been accused on several occasions of not caring enough about the health of the weakest sectors of the population. However, Amin Soebandrio, director of the Eijkman Institute of Molecular Biology, defends Jakarta's strategy, stating that vaccinating workers first is the only way for Indonesia to achieve herd immunity and bring contagion under control. Another strong supporter of this choice is the Minister of Health, Budi Gunadi Sadikin, who, despite the fact that there are still no in-depth studies on the impact of vaccines on the spread of the virus, insisted that thanks to this strategy the elderly will no longer risk being infected by relatives who return home after a day in contact with other people. 

Of course, when Indonesia started the vaccination campaign, it was not sure if it had enough doses to vaccinate the entire population, and the country only had the Sinovac Biotech vaccine, developed in China, which, at the time, was not considered scientifically effective and safe for the elderly. The approval for the use of Sinovac on the over 60s arrived on February 6th and in the meantime the government has reserved an additional 125 million doses of the Chinese vaccine and 330 million doses of AstraZeneca and Pfizer-BioNTech vaccines. Yet the government does not seem, at this time, intent on changing the order of priority in which the vaccine will be administered. 

CB. Kusmaryanto, a member of the country's Bioethics Committee, says that in Indonesia it is not possible to "make good choices, but to choose the lesser evil." Indonesia's economy, the largest in Southeast Asia and tenth largest in the world on a purchasing power parity basis, overtook India in 2012 to become the second largest G20 member state in terms of GDP growth. Since the turn of the new century, Indonesia has cut poverty in half and prior to Covid-19 qualified for upper middle-income status. The government's plan now is to vaccinate 67% of individuals in the next 15 months, hoping that the strategy will prove effective and sufficient to put Indonesia back on its development trajectory.

By Carola Frattini

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Annalisa Manzo published in Economy and trade, Indonesia

The Islamic economy in Indonesia

With the launch of the Masterplan for the Islamic economy and the mandatory halal certification, Indonesia aims to become a global hub of the halal sector by 2024.  

On May 14th, 2019, Indonesian President Joko Widodo officially launched the first Masterplan for the Islamic Economy (MEKSI) to be implemented in the five-year period 2019-2024. As the country with the largest Muslim population in the world, Indonesia in the last years has been concretely aspiring to develop strong strategies for its Islamic economy.

The State of The Global Islamic Economy Report 2020/2021 records that Indonesia continues to rise in all the rankings related to the global Islamic economy’s sectors, always among the top 10 countries. With reference to the GIEI (Global Islamic Economy Indicator), Indonesia climbed from tenth place in 2018 to fourth place in 2020, further advancing compared to the fifth place in 2019. In addition, it ranks first in the Top 5 halal food consumer markets, spending $144 billion; seventh in the Top 10 countries by Islamic finance assets; second, fourth and fifth place in the corresponding Top 5 halal cosmetics, halal pharmaceuticals and modest fashion consumer markets.

The data confirm the role of Indonesia among the countries with the greatest potential to become hubs of the Islamic economy. Recently, Indonesia has taken decisive steps in this direction. First of all, with the Law No. 33/2014 on Halal Product Guarantee, the Indonesian government decided to make the certification for all halal products released on the domestic market mandatory, including imports. The law came into effect in October 2019 and extended until 2024 to allow producers to adapt their business and obtain halal certification. Halal requirements are applied to different types of goods and services. The global halal market, analyzed by the Global Islamic Economy Report, consists of 7 economic categories: halal food, Islamic finance, Muslim-friendly travel, modest fashion, halal pharmaceuticals, halal cosmetics, Islamic-themed media and recreation.

The launch of the so-called MEKSI 2019-2024 (Masterplan Ekonomi Sharia Indonesia) follows the same route. It is the first masterplan aimed at making Indonesia a leading country in the production of halal products and services (permitted by Islamic law). The plan identifies four main strategies. They include the strengthening of micro, small and medium-sized enterprises’ role, as the first engine of the halal value chain, focusing on the most competitive sectors of the country (halal food and beverages, and modest fashion); the enhancing of the Islamic financial sector, with a wider presence and supply of capital for halal production companies; and finally, the promotion of Indonesian halal products and services through a more intense collaboration with e-commerce platforms.

The Indonesian government started the Masterplan through the establishment of the National Islamic Finance Committee (KNKS, Komite Nasional Keuangan Syariah). The main goal is to broaden the role of Islamic finance in driving the country’s economic growth, supported by a national roadmap for Islamic fintech. The KNKS changed its name to National Sharia Economy and Finance Committee (KNEKS), as part of a new strategy and a new executive management.

The KNEKS will embrace four areas: halal products industry development, Islamic finance development, Islamic social finance development and expanding of Islamic business activities. The demand for Islamic finance, as well as its analysis and understanding, is getting increasingly strong in Indonesia. The country also noticed the largest number of events in this sector, and ranks second for the amount of studies about Islamic finance.

The implementation of MEKSI involves several players of the Islamic economy through large and ambitious initiatives. In fact, the principal goals of the Masterplan include the construction of the Halal Lifestyle District in Jakarta, an industrial district of 21 thousand square meters with an investment of $18 million; and the Muslim Fashion Project (MOFP), a roadmap for the modest fashion industry growth, which include competitions and elaboration of fashion start-ups, involving about 656 small and medium enterprises and 60 designers. Thus, Indonesia aims to become the next global capital of modest fashion.

MEKSI 2019-2024 represents an important turning point for Indonesian economic policy. The Islamic economy is destined to become the identity value of Indonesia, which has the ambitious purpose of becoming a key producer and global hub of the halal sector by 2024.  

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Annalisa Manzo published in Indonesia, Politics and strategy

13th Bali Democracy Forum: the future of democracy in South-East Asia

From the protection of civil rights to the need for an inclusive economy, Indonesia puts the spotlight on the development of democracy in the Asia-Pacific region.

The thirteenth edition of the Bali Democracy Forum, entitled la tredicesima edizione del Bali Democracy Forum, intitolata Democracy and the Covid-19 Pandemic, took place on 10th December in semi-virtual mode. The speech by Indonesian Foreign Minister Retno Marsudi, the first woman to hold this position in the country, opened the event convened in Nusa Dua. After her speech, the words of the United Nations Secretary-General and the Director-General of the World Health Organization were presented via video.

The 13th Bali Democracy Forum (BDF) addressed the impact and consequences of the Covid-19 pandemic on democracy and solidarity between states. Together with the global health and economic emergency, the restrictive measures adopted by governments to contain the infection are also threatening some founding values of democratic societies. Therefore, the main goal of the 13th BDF was to provide a space for sharing experiences between states and stakeholders, as well as to find answers on the future of democracy as a consequence of the global crisis.

The annual intergovernmental forum focuses its attention on developing democracy in the Asia-Pacific region. Established by the indonesian government in 2008 to seal the first democratic decade in Indonesia, the BDF aims to encourage regional and international cooperation on the issue of democracy and peace, through a productive dialogue between all participating States. Democracy is one of the founding principles of Indonesia, enshrined in the so-called Pancasila, the philosophical thought on which the Indonesian state is founded. The promotion of democracy is also an integral part of Indonesia’s foreign policy, particularly in the Asian region.

Adherence to the values of equality and mutual respect has become the foundation on which the authentic spirit of the Forum is based. Over the years, the BDF has made democracy a key point of the strategic agenda in the Asia-Pacific region, as the region’s biggest meeting on this issue. In line with the three founding pillars of the United Nations Charter, the BDF puts the spotlight on the need to succeed in creating a lasting balance between economic and political development, the maintenance of peace and security, and the protection of human rights and humanitarian values in Asia-Pacific. 

Furthermore, the 13th Bali Democracy Forum conducted a series of events as part of the Road to BDF, from September to November 2020. This new initiative was divided into three main segments: Bali Civil Society and Media Forum (BCSMF), Bali Democracy Students Conference (BDSC), and the Panel of Inclusive Economy. Each segment produced a series of preliminary meetings and consultations on democracy and the Covid-19 pandemic.

The BCSMF aims to encourage the participation of civil society and media, as main actors in the process of public policy making. This Forum brings together community leaders, NGO activists, academics, researchers, journalists and public figures. The BDSC involves students from many Indonesian and foreign universities in a precious moment of discussion on various issues, which arise from the Forum’s dominant theme. Finally, the Panel of Inclusive Economy was introduced in the 2019 edition as an essential part of the BDF. Through this Panel the importance of an inclusive economy was highlighted, being able to guarantee the participation of all stakeholders, especially the private sector. Indeed, the collaboration between public and private sectors enables the strengthening of the democratic system and the economic development. The Panel also plays as a platform to deepen the topics in question and to propose concrete actions to address economic challenges. The strengthening of micro, small and medium-sized enterprises (MSMEs) was a crucial theme of the BDF 2020. In fact, the 13th BDF emphasized the need to fortify MSMEs as a key part of the economic recovery, since they represent one of the sectors most hit by the pandemic.

«Our task is not easy, we need to make sure that democracy can support our efforts in the post-pandemic era» said the Foreign Minister Retno Marsudi. Through the BDF, Indonesia places itself at the center of the Asia-Pacific region and it affirms a very important prerogative in the delicate historical moment we are experiencing. The spirit of inclusion is the cornerstone of a successful democracy. The support and protection of democratic principles must become a positive force to overcome the challenges and problems caused by the current pandemic and start the post-pandemic phase. 

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Rizka Diandra published in Asean, Indonesia, Politics and strategy

RCEP: sfide e opportunità per l’Indonesia

L’Indonesia cerca di trarre vantaggio dall’adesione alla RCEP mentre è alle prese con problemi di infrastrutture e investimenti

La firma della Regional Comprehensive Economic Partnership (RCEP) avvenuta il 15 novembre segna un’importante tappa nella storia recente dell’Indonesia. Dopo otto anni di negoziati, i dieci Stati membri dell’ASEAN insieme a Cina, Giappone, Corea del Sud, Australia e Nuova Zelanda, hanno finalmente firmato un accordo commerciale destinato a diventare il più grande della storia. Il trattato infatti creerà un mercato di circa 2,1 miliardi di consumatori, equivalente al 30% del PIL globale.

L’obiettivo della RCEP è quello di creare un partenariato economico reciprocamente vantaggioso per ciascuno dei Paesi partecipanti grazie all’abbassamento delle tariffe, alla semplificazione delle procedure doganali e alla stesura di regolamenti economici comuni. Per l’Indonesia, l’adesione alla RCEP non solo aprirà le porte a una vasta gamma di opportunità commerciali future, ma nell’immediato servirà al Paese per rimettere in sesto un’economia pesantemente colpita dalla pandemia di Covid-19. Molti economisti stanno tuttavia ancora cercando di prevedere tutte le possibili implicazioni che un accordo così ambizioso comporterà per il mercato indonesiano.

Uno degli obiettivi immediati della RCEP è consentire alle merci di circolare in modo più efficiente attraverso i 15 Paesi membri. Ciò comporterebbe un indubbio vantaggio per Jakarta, poiché le attività commerciali di queste nazioni hanno rappresentato il 57% delle esportazioni totali dell’Indonesia e il 67% delle sue importazioni totali nel 2019. Inoltre, il 66% degli investimenti diretti esteri proviene da diversi Paesi firmatari quali Singapore, Cina, Giappone, Malesia e Corea del Sud. Tuttavia, per sfruttare al meglio i vantaggi dell’accordo, l’Indonesia ha bisogno di adeguare il suo sistema infrastrutturale.

Anche prima della pandemia di Covid-19, la crescita economica del Paese è stata spesso rallentata da questo fattore. Nel 2017, la Banca Mondiale ha stimato che l’Indonesia dovrà investire circa 500 miliardi di dollari nei prossimi 5 anni per colmare il suo divario infrastrutturale. Secondo gli esperti, una delle possibili soluzioni è quella di sfruttare maggiormente le iniziative infrastrutturali lanciate dai governi dell’Asia-Pacifico. Questi includono la cinese Belt & Road Initiative, la Partnership for Quality Infrastructure del Giappone, e l’istituzione della Banca Asiatica di Investimento per le Infrastrutture sponsorizzata da Pechino. 

La partecipazione a queste iniziative multilaterali non è tuttavia esente da rischi, e il governo indonesiano deve tenere conto dei risvolti geopolitici. In quanto uno dei principali Paesi del Sud-Est asiatico, l’Indonesia ha un mercato interno che fa gola alle altre potenze del continente asiatico e del mondo. Un esempio è il progetto della ferrovia ad alta velocità Jakarta-Bandung, la cui gara per la costruzione ha causato frizioni tra il Giappone e la Cina, entrambe interessate all’appalto. A vincere alla fine è stata Pechino, che ha offerto tassi di prestito più bassi e una tempistica più breve il completamento dell’opera.

La partecipazione alla RCEP contribuirà senza dubbio ad aumentare degli investimenti esteri diretti verso l’Indonesia. In passato, le rigide leggi sul lavoro hanno indotto molte aziende straniere a ridurre i propri investimenti; per risolvere questo problema, il governo ha introdotto quest’anno una nuova riforma, la Legge Omnibus, che mira a facilitare le attività economiche nel Paese modificando ben 76 leggi esistenti. Sono incluse tra le varie norme la riduzione della burocrazia, l’allentamento delle restrizioni sugli investimenti stranieri e l’abrogazione di alcune leggi sul lavoro.

Nonostante gli sforzi del governo, il progetto ha ricevuto severe critiche da vari gruppi sociali, poiché il disegno di legge taglia alcune protezioni sociali e allenta le norme ambientali, aumentando il rischio deforestazione e inquinamento. Tuttavia, è ancora troppo presto per vedere l’impatto a lungo termine del disegno di legge, in quanto tutto dipende dalle modalità di attuazione. La Legge Omnibus potrebbe effettivamente portare a un clima migliore per gli investimenti in Indonesia e quindi creare più posti di lavoro, ma deve essere sostenuta da una solida esecuzione e da un ampio monitoraggio da parte del governo.

Sulla base di quanto descritto è chiaro che fare affidamento solo sulla RCEP non è sufficiente, né per la ripresa post-pandemia, né per lo sviluppo economico a lungo termine dell’Indonesia. Per trarre il massimo vantaggio da questo accordo, il Paese deve sostenerlo con una solida pianificazione infrastrutturale e un quadro normativo moderno, entrambe grandi priorità per l’attuale governo. Una volta raggiunti questi obiettivi, l’Indonesia otterrà significativi benefici economici, aumentando la propria competitività e integrandosi maggiormente nella regione Asia-Pacifico. 

By Rizka Diandra 

Translated by Andrea Passannanti 

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Diego Mastromatteo published in Economy and trade, Indonesia

Indonesia's entry into the EV sector will strengthen its position in the global market

Indonesia, the world's largest producer of nickel, aims to build an industry that will include the construction of electric vehicles. 

In Indonesia, the transport sector contributed to nearly a third of 2018 greenhouse gas emissions, mainly due to road mobility. The Indonesian government has pledged to reduce its CO2 emissions to achieve the 2016 Paris Agreement on Climate Change goal of keeping the global temperature below 2° C. The spread of electric vehicles (EVs) has been seen by many observers as the main future strategy for reducing polluting emissions.

In order to clarify the matter, the Indonesian Ministry of Transport has already drawn up a draft regulation that electric vehicles will have to face before they can be sold on the market. The quick adoption of these guidelines is a good sign for both domestic and foreign electric vehicle manufacturers, as they have long aimed at this market of over 200 million potential consumers. The push came from President Joko Widodo himself, who is aiming at accelerating the EV program for land transport.

The regulation also outlines the various initiatives the government will take to strengthen the domestic electric vehicle industry, including the requirement for finished products to use locally made components. The construction of 2,200 EV units, 711,000 hybrid units and 2.1 million electric motorcycles by 2025, will make Indonesia less dependent on oil import, which weighs heavily on the national budget. However, state-owned electricity giant Perusahan Listrik Negara estimates that Indonesia will need more than 31,000 new electric vehicle charging stations by 2030 to meet its targets, at a cost of 3.7 billion dollars. The Institute for Essential Services Reform has identified the lack of charging stations as one of the key factors inhibiting the spread of electric cars in Indonesia. Moreover tax incentives aren’t sufficient enough and the costs to support the EV infrastructure required are still high.

On the other hand, Indonesia is one of the largest producers of nickel in the world, which its export has been recently banned by the government: the ban’s aim is to encourage foreign companies to invest in the production of finished products directly in the country, using its nickel and its batteries. Tesla CEO Elon Musk, while not yet present in the Indonesian market, has asked mining companies to increase production.

The Minister of Industry Agus Gumiwang has shown interest in Tesla's proposal, which already plans to build a battery factory on site, more specifically in Batang Province. Negotiations are currently underway between the Californian tech company and the Indonesian government to build a new nickel mining and processing company in the country. The Coordinating Minister for Maritime and Investments Affairs, Luhut Binsar Pandjaitan, also confirmed that they would secure their nickel supply if Elon Musk's company will decide to invest in a battery factory in the country.

Now aware of the growing importance of nickel in the development of this sector, Indonesia also wants to create a domestic industry of batteries for electric vehicles, with the aim of putting the first cells on the market by 2023. They will be designed and built by Indonesia Battery Holding, a new joint venture launched by the state oil company Pertamina, the energy distribution company Perusahan Listrik Negara and the mining company Aneka Tambang. The founding of this new state-owned company will put Indonesia in a strong position in the global battery market.

Nowadays, the weak point of this strategy is the difficult access to the technologies necessary for the production on an industrial scale. To fix this, the government is negotiating with the Chinese company CATL and Korea’s LG Chem, two of the world's largest manufacturers of EV batteries. The entry of these players into the Indonesian market will bring investments for an additional 20 billion dollars to be allocated to the development of the missing technologies. Furthermore, the batteries for electric vehicles produced in Indonesia will not only be destined for the transport sector, but also for the energy storage sector: experts predict that demand will increase for both uses in the next years.

In conclusion, given Indonesia's current market, existing regulations and weak industrial infrastructure, electric vehicles will face very difficult challenges to break into the automotive sector. To achieve a high market share and a significant reduction in emissions, supportive policy tools are needed. Policies must aim to provide incentives for electric vehicles and disincentives for internal combustion engine vehicles (ICEVs). The tools should include tax incentives (both initial and recurring), non-financial incentives, regulatory incentives and the availability of public charging infrastructures, indispensable tools already adopted in other countries with a high diffusion of EV vehicles.

By Diego Mastromatteo

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