Financing in Indonesia for F&B and Retail - (IE) Singapore

Financing in Indonesia for F&B and Retail Denny S Hanubrata November 7, 2013

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Overview of Indonesia Key Indicators GDP 2012: US$878 bn – 16th largest economy in the world

Country Overview

Seven macro trends

Favorable demographics

 Favorable Demographics (young and growing population) will likely drive further increases in GDP per capita

Urbanization

 Urbanization will drive the bulk of the economic growth of Indonesia.

Foreign exchange reserves: US$95,675.33 million (Sep 2013) Population: 247mio (2013) Real GDP growth:  6.3% (average of 2009-12)  6.3% (average of 2013-23) GDP per capita:  US$3,599 (2012)  US$8,380 (2023) Inflation:  4.6% (average of 2009-12)  5.0% (average of 2013-23)

Foreign Direct Investment remains strong particularly in manufacturing

 Manufacturers are now consistently seeing parts of their value-chain being transferred to Indonesia due to low cost advantage and near to the market

Rural revolution

 Government support as investment increase to narrow infrastructure gaps between rural and urban

Rise of consumers, growing affluence and burgeoning middle class

 Indonesia’s middle class is expected to grow to 3545% of the total population by 2030

Low credit penetration

 Growth in Indonesia’s banking industry - demand has not been artificially pulled forward, hence the marginal return on credit growth is still quite high

Exports 2012: US$210.7 bn Imports 2012: US$212.8 bn

Emerging digital and technology driven nation

 Emerging digital and technology driven nation

Source: McKinsey, Business Monitor, Bank Indonesia, Kompas, Country meterinfo and other research report 1

DBS Indonesia

-Indonesia

Indonesia’s macro

Indonesia: The Asian Growth Story Today:

16th largest economy in the world

2020:

Economy larger than Singapore, Thailand and Malaysia combined

2030:

7th largest economy in the world

Some blips in the near term but long term growth story still intact Upside, with *infrastructure developments +0.5% to 1%

5.8 – 6 Continued growth trajectory (current state)

10 years average GDP growth of 5.7%

Presidential Election Year

GDP per capita (current US$)

1,076

1,871

Doubled in 5 years

Possibility that the full impact of government’s latest measures be visible only after presidential election

3,557

Sources: DBS Group Research, McKinsey, IMF, World Bank * Realization of Indonesia MP3EI Economic Masterplan 2011 – 2025 3

Indonesia’s macro

Some blips in the near term; allows for economy to adjust Slower GDP growth and volatility in the Rupiah, a result of weaker global economy

Indonesia economy: Domestic Consumption Driven Model (59% of GDP)

Slower Growth in Exports

AFC ’97 14,950 GFC ’08 12,400

With the impending tapering of Fed’s stimulus, volatility expected over next couple of months.

Aug’13 10,741

Weakening since late 2011

Rupiah under some pressure, exacerbated by portfolio outflows

GFC ’08 USD 52bn 4.7 mths

Jun’13 USD 98bn 5.8 mths

AFC ’97 USD 18bn 3.5 mths

Foreign reserves have fallen from a high of USD 124bn (Aug’11) to below the USD 100bn mark lately (Jun’13)

Sources: ASEAN Briefing, DBS Group Research, CEIC, World Bank 4

Indonesia’s macro

Indonesia: The Asian Growth Story Indonesia’s long term growth potential remains strong

Indonesia’s Huge Potential

 Large domestic

Challenges

Megatrends Powering Indonesia’s Growth into the Future •1

Rise of consumers – growing affluence and burgeoning middle class

•2

Growing investments signaling investor confidence

•3

Broad-based growth across Indonesia

•4

Emerging digital and technology driven nation

•5

Infrastructure development will provide upside

•6

Growth in Indonesia’s banking industry

 Weak infrastructure

market

 Young population; growing working age segment

 Lower labor costs  Abundant and

 Political uncertainty  Corruption, excessive bureaucracy

 Shortage of local talent

untapped resources

 Sound economic fundamentals

5

Business in Indonesia

Doing Business in Indonesia Looking at the several demographic facts at Indonesia

65+ yrs 5%

Others 19%

0-14 yrs 30%

30 - 64 yrs 36%

Hindu 2%

Budhist Other 1% 1%

Christian 8%

Bali 2%

Sumatera 21% 15-29 yrs 29% • Indonesia’s population is young – half the population is below the age of 25 and 30% under the age of 14. Only 5% are aged 65 years and over.

Java 59%

• Java population accounts for the lion’s share of Indonesia’s population, so too it accounts for the bulk of economic activity.

Muslim 88% • HALAL FOODS - Almost 90% of the Indonesian population is of Muslim faith but there are significant numbers of believers in other faiths. Indonesians of Islamic faith generally adhere to accepted Islamic dietary restrictions.

Source: Central Bureau Statistics 6

F & B Industry in Indonesia Halal Certification • The Indonesian authorities do not require halal certification for all foodstuffs. • However, given 88% of the population is Muslim, “Halal” remains a very significant aspect and is strongly recommended. • In addition the Indonesian Islamic Council (MUI) prefers all food products to be halal accredited.

3 Steps of LPPOM MUI Halal Certificaton: 1.

2.

Pre-Audit  Fill in 3 application forms: halal certification, the declaration on ingredients, and company’s affirmation forms  Attach information with specification, halal certificate and document on Halal Assurance System  LP POM MUI sending official letter of schedule audit  Auditing process to the factory Process Audit  Auditing Process Covers : a. Management of Halal Assurance System. b. All documents regarding to the raw material

c. Whole process of production d. Sampling if necessary The Field Auditing : a. Production location (every location, branches and toll manufacturing). b. Factory location in the country origin . c. Factory location for base form of raw material. 3. Post Audit  Company prepare Halal Assurance System.  Company regular report system to LP POM MUI every 6 months and every changes raw material, supplier, factory process, etc.  Unscheduled inspection by LP POM MUI to the company factory.

7

Business in Indonesia

Doing Business in Indonesia Roadmap for those setting up business in Indonesia Preparation Establish an Indonesian Legal Entity to conduct capital investment activities. 1•

2

3

Setting Up Preparing facilities, infrastructures and licensing / non-licensing arrangements for capital investment

Registration to BKPM Must establish an Indonesian legal entity within 6 months, or will be declared null and void.

1•

Deed Establishment by Notary If it is a foreign capital investment, the legal entity shall be in the form of a Limited Liability Company (LLC).

2

Ratification of Legal Entity Obtain ratification from the Minister of Law & Human Rights of the Republic of Indonesia.

Regional License The company is required to have a regional license issued by the regional government. Operational Permit Company may directly arrange for Operations Permit to the Ministry or technical service office relevant to its field of business.

Ready for Operation Company is ready to conduct production activities (industry) or to conduct operational activities (services). Business Permit To submit an application to the institution operating One Stop Service. Next step (required application): ● For a trading company → General Importer Identification Number (API-U). ● For non-trading companies → import duty exemption for goods and materials.

Source: BKPM 8

Foods & Beverages - Retail

Indonesia Top 15 Industries Food & Beverage potential remains strong for the next 20 years

2023

2012

In S$ million Personal and household services

470

Textile manufacturing

3,274

Estate crops (e.g. CPO, coffee, tea)

484

Telecommunication

3,328

Textile manufacturing

498

Transportation (land, water, air)

3,456

Restaurants

3,457

Oil and gas manufacturing

3,496

Oil and gas manufacturing

Telecommunication Transportation (land, water, air) General Government Fertilizers, chemical and rubber products

544 634

Estate crops (e.g. CPO, coffee, tea)

666

Fertilizers, chemical and rubber products

698

General Government

732

Food crops (e.g. rice, corn) Property

Non-oil and gas mining (e.g. coal, metal)

930

Non-oil and gas mining (e.g. coal, metal)

Oil and gas mining

1,094

Oil and gas mining

Automotive and Machinery Manufacturing

1,155

Automotive and Machinery Manufacturing

Infrastructure

1,384

Food, beverages and tobacco manufacturing

1,565

Infrastructure Growth rate assumption (Source:BMI & BI)  Transportation, Oil & Gas manufacturing & mining (9%)  Textile manufacturing, Property, Non oil & gas mining (10%)  Automotive and machinery manufacturing (12%)  Infrastructure (13%)

Property

865

1,606

Food, beverages and tobacco manufacturing Food crops (e.g. rice, corn)



Restaurant (14%)

   

Estate crops ( (16%) General government (17%) F&B and Tobacco manufacturing (18%) Food crops (23%)

4,489 5,219 5,685 7,310 8,019 8,708 11,020 11,724 15,021 16,866

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Foods & Beverages - Retail

F & B Industry in Indonesia Investment and Competition

The food industry is included in the investment realization in the Top 5 Domestic Investments (DCI) and Foreign Direct Investments (FDI) in Indonesia. Foreign Direct Investment Realization Based on Capital Investment Activity, 2011

Domestic Direct Investment Realization Based on Capital Investment Activity, 2011 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

100% 36%

Total: IDR 76 Tn

10.40% 12%

9.20%

9%

11%

12.30%

1 27.00% 0.9 4.00% Total: IDR 19.5 Tn 0.8 6.30% 5.60% 0.7 9.10% 0.6 9.60% 18.50% 0.5 100% 0.4 19.80% 0.3 0.2 0.1 0

• Investment realization in the food industry ranks fifth in FDI in 2011, while it ranked the third for domestic investment. • In terms of the number of businesses, large medium-scale enterprises in this industry is very small (