Posts tagged foreign investment
Indonesia is considering tax holidays for major foreign direct investors, targeting new and existing businesses in an attempt to bump the country’s FDI up to a total Rp240 trillion (US$28.2 billion) by the end of 2011.
Finance Minister Agus Martowardojo said details of the plan were still being discussed, but would probably feature 5-10 year tax breaks for investors in the base metals, telecommunications equipment, oil refinery, petrochemicals, machinery and renewable energy industries.
The new plan would also cover businesses which had been in operation less than a year. Projects such as a $6 billion joint venture by South Korea’s POSCO, a $4.5 billion petrochemical complex by Honam Petrochemical Corp (also of South Korea) and a $8-9 billion oil refinery from Kuwait Petroleum Corp were said to be waiting for an announcement on foreign investor tax breaks before going ahead.
Foreign direct investment (FDI) into Indonesia in Q2 is already up 21% on the same period last year, thanks mainly to the mining sector. The government is also mulling plans to give tax holidays to smaller investors employing 100-300 people, determined to take Indonesia’s economy into the global Top 10 by 2025 and making much-needed improvements to the country’s infrastructure.
More companies listed on the Bursa Malaysia (Malaysian stock market) are potential acquisition targets for Japanese companies as investment continues to flow in, thanks to a strong yen and a geographic diversification drive gathers pace in Japan.
The momentum was already underway before Japan’s 11 March 2011 disasters highlighted the need for more offshore activity. Between January 2009 and July 2011 Japan was involved in 513 M&A deals worth US$14.2 billion in emerging Asia, reports The Edge Malaysia. This figure includes Chinese and Indian deals as well as those in Malaysia and Indonesia.
Focusing on Malaysia alone, however, Japanese FDI rose 537% year on year in 2010 (compared to 109% in other Southeast Asia), accounting for 12% of all foreign direct investment inflow. Japan was involved in 34% of Malaysian M&A activity.
But this activity might not be what you’d expect from Japanese deals, and is certainly different to those of the previous two decades. UOB Kay Hian Malaysia Research said it’s not the electronics and electrical sector attracting Japanese interest this time. Instead, the Japanese are looking at logistics, financial, healthcare and consumer industries, as well as heavier industries where Malaysia offers a better deal on energy and logistics costs. The research house said Japanese companies were also prepared to pay more for greater control of their acquisitions, like Asahi Group’s purchase of Malaysian bottler Permanis, and Mitsui & Co’s 30% stake in Integrated Healthcare Holdings. Companies that already trade with Japanese firms are seen as more attractive.
source & article: The Edge Malaysia
Indonesia’s economy could probably cope with a sudden outflow of ‘hot money’ from its economy but should still be wary of risks presented by such bubbles, said the government.
Bambang Brodjonegoro, The Finance Ministry’s head of fiscal management, said his country should minimize hot money scenarios, or short term investors chasing quick profits on the country’s fast-rising economy. Channeling investments into long-term FDIs (foreign direct investors) and government bonds was preferable to achieve stability and growth.
Foreign investors have become fascinated with so-called ‘emerging’ economies in the past few years as growth opportunities in the developed West have dried up and countries like China, India and Indonesia have boomed. Indonesia’s premier market index, the Jakarta Composite Index (JCI) has risen 6% this year to 4,130.80 and its currency, the rupiah, has increased its value by 5.5% against the US Dollar, to Rp 8,491.
The government may well be getting its wish, as foreign sales of Indonesian government bonds have also risen 31% to Rp 248 trillion (US$29 billion) with 15 year bonds yielding an attractive 9%. The Finance Ministry said foreign investment could reach 40% of all bond holdings after the government sells a further Rp 40 trillion by the end of this year.
Indonesia has suffered in the recent past from rapid foreign capital flight, once during the Asian Crisis of the late 1990s and less severely after the 2008 global financial crisis, which still devalued the rupiah. With the effects of both crises still looming large in memory, fears of hot money and moves to curb short term investments are common across the region.
source & article: The Jakarta Globe
Google has plans to expand its operations in Indonesia with a potentially large investment. There is speculation the company will spend anywhere between US$100 million and $1 billion, with Indonesia’s Investment Coordinating Board (BKPM) optimistic the amount will be larger than Google has invested in other ASEAN nations.
Google’s chairman Eric Schmidt met this week with Indonesian Vice President Boediono and high level government ministers to set out the proposals. Google is eager to begin its Indonesian expansion as soon as possible, but is apparently still seeking clarification over online advertising regulations, security, and government involvement in the country’s obligatory local data centers.
Schmidt was in Bali this week as the keynote speaker at the ASEAN Regional Entrepreneur Summit 2011 and was quoted as being surprised by the amount of independent business activity in Indonesia. He said the country’s business environment was very similar to the USA in terms of interconnectivity, market homogeny and large population.
He also met with members of the Indonesian Association of Young Entrepreneurs, where he reportedly told them a reduction in government intervention would speed up Google’s plans to establish an Indonesian base.
Longer-term investment inflows into Indonesia are replacing riskier short-term investments, a condition showing more confidence and more favorable to economic growth.
According to The Jakarta Post, Bank of Indonesia (BI) data shows foreign direct investment (FDI) increased from US$2.48 to $2.9 billion in the first quarter of 2011, a 17% rise. At the same time, the trend was reversed in shorter-term foreign portfolio investment (FPI) went from $6.1 billion to $3.56 billion.
BI spokesman Difi A. Johansyah said investment loans rose 29% on a year-on-year basis as of May 2011, and would build Indonesia’s economic capacity for growth without negative impacts, like economic overheating. Increased production capacity would ensure ample supply to meet demand, mitigating inflation.
The trend will move even further towards FDI and longer-term investments should Indonesia achieve investment-grade rating from Moody’s, Fitch Ratings and Standard & Poor’s, enabling influxes from large foreign institutional investors. Indonesia’s central bank also recently revised the country’s growth forecast for 2011 from 6.4% to 6.8% on improved prospects for investment and exports.
source & article: The Jakarta Post
Malaysia’s dreams of becoming a regional leader in aerospace received a boost today from UK-based BAE Systems, which said it was keen to revitalize the two countries’ relationship. The group’s business development director, Alan Garwood, said he would be keen to discuss issues with Malaysian Prime Minister Najib Razak, who is on an official tour of the UK this week.
PM Najib met with 20 major industry players at an official dinner to discuss possible Malaysian collaborations.
Malaysia has earmarked aerospace as a potential major industry, with the government saying it hopes to become a big player in aircraft component manufacture and aircraft repair and maintenance. Do do so would need advances in local training and skills, as well as investment from international aerospace companies like BAE. Conveniently, many aerospace/defense firms have begun to focus on Asia-Pacific and Middle East of late, seeking new markets in emerging economies at a time when developed countries are spending less on their equipment.
Garwood said Malaysia’s growth over the last few years had been “phenomenal”, and unmatched by European countries. BAE Systems is looking to find local partners for joint ventures, and is also hoping to use that leverage to become a defense contractor to the Malaysian government when the Malaysian air force replaces its fleet of 10 MiG-29N fighters soon.
BAE has already teamed up with Malaysia’s Composites Technology Research Malaysia Sdn Bhd (CTRM).
source & article: Business Times
Malaysia’s BIO International delegation has announced four new deals, including two new investments into Iskandar Malaysia’s Bio-XCell technology park and two partnerships between BioNexus-status companies (see below) and foreign firms.
The two partnerships were: a Technology Licensing Agreement in the bio-refinery sector between Lestari Pacific Sdn Bhd and UK-based Arter Biofuel Products Ltd., and a memorandum of collaboration between Pristine Oil (M) Sdn Bhd and Norway’s Bio Protein AS. The latter deal will establish a new RM608 million (US$20 million) plant in Malaysia to produce a bio-protein to replace fishmeal in the aquaculture industry, according to Business Times.
Pharmaceutical company Agila Specialties (formerly Strides Specialties) Sdn Bhd Americas also announced it would set up a 3.2 hectare facility to produce biopharmaceuticals and sterile injectables at Bio-XCell park for the global market, costing up to $60 million. Meanwhile, Malaysia’s largest industrial gases supplier MOX-Linde also signed a memorandum of collaboration to establish a gas distribution facility at the park. The company plans to extend its facility to include an electronics specialty gases warehouse and separation plant should demand increase.
BioNexus is a government sponsored program awarding special status to biotech companies meeting specified criteria, allowing them to access tax incentives, support programs and a ‘Bill of Guarantees’. Its purpose is to promote international partnerships and commercialization of Malaysian-developed biotechnology. Only 3% of companies in the program have achieved ‘maturity’, determined by workforce and revenue figures, but the plan is to increase this to 5-7% by the end of its first phase in 2015. 188 companies have signed on to date.
With Indonesia on track to achieve investment-grade credit rating by the end of 2011, it’s time to look at another large Southeast Asian economy looking to follow suit. The Philippines Department of Finance is confident the country can achieve the same investment-class rating by 2013, after a budget surplus and government measures to reduce spending.
Fitch Ratings raised the Philippines long-term foreign currency bond rating from BB to BB+, one step below investment grade, while Moody’s Investors Service raised its rating on foreign and local currency bonds from Ba3 to Ba2. Philippines Finance Secretary Cesar V. Purisima said it was a historic fourth positive action on the country’s credit rating since the Aquino administration began 11 months ago.
Higher credit ratings lower the price of debt, allowing the government to borrow more efficiently to finance infrastructure and other projects. Investment grade also opens the doors to large institutional investors (such as pension funds) from wealthy countries, who are often blocked by law or internal rules from investing in anything below the grade.
The new administration has an agenda to improve the Philippines financial image abroad with initiatives to cut spending, combat corruption and promote fiscal sustainability. The central bank, Bangko Sentral ng Pilipinas, has also promised to play its part in keeping prices stable, maintaining growth and insuring against external shocks through sound monetary policy.
source & article: mb.com.ph
Japanese equities firm Nomura has released a glowing report on Indonesia through its local subsidiary there, saying “this country cannot be ignored.” Its abundant natural resources, young and large population, and decade of reforms are all factors contributing to Indonesia’s current and future prosperity.
It was Nomura Indonesia’s first research report, and the company is interested in setting up a Jakarta brokerage to capitalize on a country which “finds itself in the tail winds of some of the world’s most dynamics economies” and also expressed confidence Indonesia would attain investment-grade sovereign debt rating by the end of this year.
There were the oft-repeated calls for more spending on infrastructure and further reforms to attract investment. The report listed 10 points or ‘development signals’ which needed to happen for Indonesia to reach 8% economic growth, which included opening the service sector to foreigners, passing a land acquisition reform bill, further eradicating corruption and developing the financial sector.
source & article: the Jakarta Globe
Cashed-up emirate Abu Dhabi will invest over RM18 billion (US$5.9 billion) in the Malaysian aluminum industry, building a new and advanced aluminum smelter for RM12.7 billion ($4.17 billion) and investing a further RM5.4 billion ($1.77 billion) developing downstream industries. Abu Dhabi’s Mubadala Development Company will form a joint venture corporation with Malaysia’s 1Malaysia Development Berhad (1MDB) to complete the projects.
Abu Dhabi has shown a lot of interest in Malaysia lately and this week’s announcement came as members of the emirate’s government and Royal Family visited to discuss potential new agreements. Malaysian Prime Minister Najib Razak said Abu Dhabi saw “abundant economic opportunities” in Malaysia’s Economic Transformation Programme (ETP) and that Crown Prince Sheik Mohamed Zayed Al-Nahyan had reiterated a commitment to invest in Malaysian projects.
Abu Dhabi is also cooperating with Malaysia on an oil block development in Sarawak, and Mubadala has invested RM1.2 billion ($394 million) in the Iskandar Malaysia project. Not to mention the 34-hectare Kuala Lumpur International Financial District (KLIFD), which is another Malaysia-Abu Dhabi joint venture costing around RM25 billion ($8.2 billion) to house the city’s financial services sector.
source & article: The Star Business