20% 5-6% 11% SWEDEN MANUFACTURING TECHNOLOGIES FOR INDONESIA. 203 Bio USD

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1 20% (Manufacturing contribution to Indonesia s total GDP 2017) 5-6% (CAGR of manufacturing sector between ) 7% (Manufacturing export growth ) 11% SWEDEN MANUFACTURING TECHNOLOGIES FOR INDONESIA Packaging Technology, Tools and Machinery, Industrial Automation MARKET OVERVIEW Indonesia is an emerging market still dependent on natural resources extraction. However, the government is imposing regulations to push developments towards higher adding-value creation and vertical integration in local manufacturing. Key findings related to Indonesia s manufacturing sectors Manufacturing is a main contributor Indonesia s total GDP with and impressive growth (CAGR 20%) By output, Indonesia is one of the top ten manufacturing countries in the world (UNIDO (2016) and projected CAGR is 5.7% until 2022 Many backbone industries are transforming from labor intensive to capital intensive manufacturing Substantial need for advanced manufacturing solutions to climb up the value chain results into continuous CAPEX Government targets to achieve 10% of manufacturing growth by 2020 Major Contributors of Indonesia Manufacturing in 2017 Food and Beverages 31% (Growth in manufacturing Investment ) 2022) 203 Bio USD Coal and Oil & Gas Refinery Transportation Equipment Metal Materials and Electronics 12% Chemicals & Pharmaceuticals Source: Indonesian Statistics (BPS) Others 30% 1

2 KEY LOCATIONS OF MANUFACTURING ACTIVITIES IN INDONESIA Sumatra Kalimantan Java Sulawesi Papua Low to High concentration of manufacturing activities Most of manufacturing activities are centralized in Java, the island that dominates the Indonesian economy and politics. In particular those areas around the capital city of Jakarta such as Bekasi, Karawang, Tangerang, and Surabaya is where most industrial estate is located. Sumatra : 21 Industrial estate : IE Medan, IE Dumai, IE Padang : Medan, Riau, Padang, Palembang : F&B, agriculture, metal processing, etc Java : 57 Industrial estate : Jakarta IE Pulo Gadung, MM2100, KIIC, Jababeka IE, JIIPE : Jakarta, Bekasi, Surabaya, Karawang Tangerang, Semarang, etc : F&B, automotive, textile, electronics, chemical, etc Kalimantan : 5 Industrial estate : Kaltim IE, Karingau IE : Balikpapan, Bontang, Banjarmasin : F&B, furniture, chemical, etc Sulawesi : 4 Industrial estate : IE Makassar, IE Palu : Makassar, Palu : F&B, chemical, furniture, etc DRIVERS AND CHALLENGES Drivers: Number of industrial estate Major industrial estate Key Cities Key Sub segment The development of 12 Special Economic Zones to offers attractive frame conditions Manufacturing sector become one of priority sectors, hence government is pushing the growth of the sector through some initiatives such as Continued deregulation to improve ease of doing business rating (72 --> 40 by 2019) Restrictions to export commodity raw materials but incentives for value added manufacturing Gradual opening of the 2016 negative investment list positive impact on manufacturing sectors in general Government has just launched the roadmap of industry 4.0 that will push the development of some sub-segment in the manufacturing sector Government s initiative to massively develop infrastructures as long term strategy for economic development 2

3 Challenges Potential of political instability due to upcoming 2019 presidential election. Lack of skilled labor in the manufacturing sector Labor salary trends grows more rapidly compared to other ASEAN countries. Limited supply of energy with competitive price Amongst others, the Indonesian government has prioritized the following manufacturing sectors to be modernized: Labor Intensive Industries e.g. textile & garment Export oriented industries e.g. automotive, electric & electronic Import substitution industries e.g. pharmaceutical raw material & petrochemical Value added industries e.g. agriculture and oil & gas MANUFACTURING TECHNOLOGIES FOR INDONESIA There are three main manufacturing sub-sectors well suited for european companies: Packaging Technology Tools and Machinery Industrial Automation PACKAGING TECHNOLOGY ~70% of the packaging industry output is serving the F&B industry - plastic constitutes >45% of the packaging material Shifting consumer demand to personalized products has a negative impact on mass products Polarization of pack sizes - middle-income families buy - lower income families prefer single pack. Increasing demand for packaging solutions in preserved food and beverages Indonesia is the world 2nd largest plastic waste generating country --> the government pushes the development of sustainable alternatives Counterfeit products e.g. in the pharmaceutical industry calls for traceable packaging technology INDUSTRIAL TOOLS AND MACHINERY Machine tools are needed in all key industries especially in automotive, plastic, steel, aluminum After Thailand, Indonesia's automotive industry is the 2 nd largest in South East Asia with a total of appr active companies Most of the machine tools are imported - less than 10% are produced locally Speed - end users push products to have a shorter development time High precision - end users starting to understand the value of high quality products Less waste - raw material prices are increasing and are more volatile INDUSTRIAL AUTOMATION Compared to other emerging markets, Indonesia can no longer be considered as a low labor cost country Planned automation initiatives threaten the reduction of blue collar workforce Manufacturers of pulp & paper, cement, mineral processing (steel) and oil & gas are consuming vast amounts of energy Companies increasing capacity through retrofit automation but also to invest into new machinery and equipment Companies are forced to invest into new technologies which drive productivity, increase quality standards, produce less waste or consume less energy Advanced technologies go hand in hand with skills enhancement 3

4 OPPORTUNITIES FOR SWEDEN TECHNOLOGIES Sweden Investments in Indonesia Indonesia is a prioritised market for Sweden. Today, more than 80 Swedish companies are active in Indonesia, spanning across various industries. Swedish companies employ, directly and indirectly, thousands of people all around Indonesia and contribute significantly to the economic and societal development of the country Sweden is one of the biggest European investors. In 2017 Sweden is ranked 30 th compare to all global countries and amongst European countries enjoys 12 th position. The accumulated investment in 2017 has reached 17 Mio USD Currently there are several sectors that have been considered as main target for Swedish company in Indonesia such as Industrial equipment, transportation, energy & environment, ICT, as well as manufacturing sector. FDI and government initiatives Huge investments go into infrastructure projects, continued deregulation improves the ease-ofdoing-business ranking, or restrictions to export commodity raw materials result into incentives for value added development in manufacturing. The three identified sub-segment and their technology portfolio cater perfectly to the above segments. In 2017, Indonesia attracted a total FDI of USD 17 bio. With more than half are manufacturing related the remaining share is split along the following industries: Indonesian Leading Companies & their CAPEX Some leading companies within Indonesia s manufacturing sectors have recorded significant capital expenditure in 2017: Existing players within the manufacturing arena Several well-known brands and suppliers, mainly coming from Europe and Japan are already catering to the high-end market, whereas China covers the lower segments. Packaging Technology Industrial Tools and Machinery In USD Millions 6% 4% Food and Beverage 8% Mineral Processing 32% Automotive 8% Cement Pulp and Paper 16% Plastic and Rubber 26% Oil and Gas Industrial Automation 4

5 SUMMARY & CONCLUSIONS Indonesia s manufacturing sectors are expected to continue to grow over the next 5 years Indonesia s current economic-, social-, and political situation is expected to remain stable and continues to attract FDI Government initiatives are endorsing manufacturing companies to obtain advanced technology allowing them to climb up the value chain (vertical integration) Huge demand for innovation and smart solutions to support an increasingly exportoriented industry Many macro-economic indicators and specific growth scenarios for manufacturing sectors QUOTES FROM SUCCESSFUL EUROPEAN COMPANIES Indonesia with its rising middle class and increased consumer spending has a need for added-value food products. Food processing technology from Buhler ensures stable supplies and meets highest quality standards. Now is the right time to invest in this promising growth market Managing Director PT. Buhler Indonesia Indonesia remains a high potential market for investment considering increased focus on domestic production / availability of goods and services vs. imports Managing Director PT. SGS Indonesia Indonesia with its large total GDP and rapidly growing GDP per capita is well ahead of most emerging markets in the region. The government is making significant efforts when it comes to ease of doing business. The middle class in Indonesia is growing fast making it a valuable target group for investors. It is now time to invest into this economic power house President Director PT Endress+Hauser Indonesia To support the fast growing consumer goods sector, the demand in the industrial area will also increase. As an industrial SME, we profit from this strong local growth and easy access to the ASEAN region. Our competitive local production supports us to access new markets not only in Asia but also back in Europe CEO PT Sandmaster Asia based in Jakarta/Indonesia 5