:00:00. > :00:00.goes the polls. What will it take for Indonesia to
:00:07. > :00:26.consider its potential. We are Talking Business.
:00:27. > :00:32.A warm welcome to the programme. Indonesia has potential that is
:00:33. > :00:35.reminiscent of the United States with a population that is smaller
:00:36. > :00:41.than that of the world's largest economy. It has been dubbed one of
:00:42. > :00:48.the fragile five countries, at risk of a potential crisis once the era
:00:49. > :00:54.of global cheap money ends. I went on a road trip around Indonesia to
:00:55. > :01:00.discover for myself, what potential the country has. Rich in resources,
:01:01. > :01:13.green fields, a large population. It could be the United States, but it
:01:14. > :01:14.is Indonesia. The country has huge potential, but economic growth has
:01:15. > :01:18.slowed dramatically. What are the roads locks holding back growth? I
:01:19. > :01:29.am Linda, can I come with you to Jakarta. OK. The roads are slowing
:01:30. > :01:36.is down. Congestion, potholes. It can take over an hour to travel just
:01:37. > :01:43.two kilometres. How bad is the traffic?
:01:44. > :01:48.TRANSLATION: From the outskirts of Jakarta into the centre takes an
:01:49. > :01:55.hour of the night. Usually four hours, and eight hours on a bad day.
:01:56. > :01:58.It is really boring. Our driver is transporting T`shirts from a factory
:01:59. > :02:08.to Jakarta. At least he is trying to. Poor infrastructure means
:02:09. > :02:11.logistics cost one of his T`shirts is four times higher than in Japan.
:02:12. > :02:21.Why doesn't the government spend more money on roads and rail? Part
:02:22. > :02:27.of the reason is the government spends more subsidising this than
:02:28. > :02:31.the roads. Petrol costs just 50 cents a litre. But leading
:02:32. > :02:39.presidential candidates have said they will cut fuel subsidies, but it
:02:40. > :02:43.is a tough political cell. For some Indonesians, they will suffer
:02:44. > :02:48.because they will find it difficult to send their children to school and
:02:49. > :02:57.suffer more hardship if you'll is more expensive.
:02:58. > :03:05.The average speed of traffic in Jakarta is eight kilometres per
:03:06. > :03:09.hour. A person can run faster. It has taken about four hours and I
:03:10. > :03:14.have still not got to my destination. I am going to walk for
:03:15. > :03:19.a little while. It seems I am not the only one looking for a break
:03:20. > :03:25.from the traffic. These consumers are why companies come here, in
:03:26. > :03:29.spite of the roads. Like cosmetics giant, L'Oreal, they chose Indonesia
:03:30. > :03:35.to build their biggest factory in the world. They are producing
:03:36. > :03:40.shampoos and other products tailored to Asians. And targeting the 240
:03:41. > :03:49.million potential consumers. A market that is only smaller and the
:03:50. > :03:52.United States. Longer queues to get into the city. Preventing businesses
:03:53. > :03:59.from giving up will be the big challenge for the next Indonesian
:04:00. > :04:03.government. Building roads and operating is among the
:04:04. > :04:07.infrastructure challenges. Regardless of the outcome of the
:04:08. > :04:13.upcoming presidential elections, there will be a new government that
:04:14. > :04:19.will have to address these issues. Since the president 's's term will
:04:20. > :04:25.end. I caught up with his finance minister to find out the prospects
:04:26. > :04:29.and the challenges for the economy. What about sure spending? Even be
:04:30. > :04:35.allocated amount is less than what you are spending on fuel subsidies.
:04:36. > :04:39.If you wanted to strengthen your economy, surely infrastructure,
:04:40. > :04:45.roads, over the last ten years that should have been a much vigour
:04:46. > :04:50.priority in terms of delivery? I entirely agree with you. But I am
:04:51. > :04:59.also very realistic that the capacity of the government is very
:05:00. > :05:04.limited. Even though we cut fuel subsidy entirely, it is not enough
:05:05. > :05:13.to finance infrastructure. The main problem is land procuring. If you go
:05:14. > :05:17.around the area, one of the reasons why until now, the government has
:05:18. > :05:25.not been successful in building these roads is because land
:05:26. > :05:29.clearing. If there is one family who refuses to surrender their land, you
:05:30. > :05:36.cannot surrender `` you cannot build the road. If you go to Bali, you can
:05:37. > :05:44.see how the government could build the road above C. Less than 12
:05:45. > :05:52.months. Why? It is above the sea. No land issue. In many cases, it is
:05:53. > :05:56.much easier to create a miracle like Moses and do land procuring. I want
:05:57. > :06:03.to talk a little bit about the fuel subsidy point you raised. If it
:06:04. > :06:06.mostly benefits middle income and rich people, why keep it in place?
:06:07. > :06:13.Why hasn't your government eliminated it? I agree with you, but
:06:14. > :06:17.unfortunately we are not living in the best world. We are living in a
:06:18. > :06:24.second`best world and there is bureaucracy. That is the reality. We
:06:25. > :06:28.cannot just put this in perspective. It is very clear the
:06:29. > :06:37.decision is fuel subsidy, but politically it is not easy because
:06:38. > :06:45.people always use this as support for the poor people. My question is,
:06:46. > :06:49.who is going to benefit for the protection of the agriculture
:06:50. > :06:53.product? Do you think it is the poor people? No, I don't think so. It is
:06:54. > :07:02.the is this group who will benefit. The protection is in Asia. The
:07:03. > :07:07.answer is politics. One thing about Indonesia is the business
:07:08. > :07:12.environment is ranked as one of the lowest in the region. Is that a
:07:13. > :07:17.failure of your government? Of course, it is not easy. I have two
:07:18. > :07:25.at mid`the problem. I said to my colleagues, people have to deal with
:07:26. > :07:35.the government. If you submit a document, you never know when this
:07:36. > :07:48.document could be completed. In my role as Minister of Finance, the
:07:49. > :07:51.major complaint is about tax. We introduced a policy where you pay by
:07:52. > :07:54.filing it just once. I think I introducing this we will be
:07:55. > :07:59.improving this online system somehow. But there is a problem.
:08:00. > :08:01.Sometimes the expectation of the people is too high. What I have
:08:02. > :08:02.heard from businesses in particular is there is frustration around the
:08:03. > :08:05.traffic jams and the infrastructure. One of the
:08:06. > :08:12.frustrations is corruption and leakages of the money being spent.
:08:13. > :08:14.Why hasn't that been sorted? It is important to look at the current
:08:15. > :08:24.situation than the previous one. Let me ask you a question. Do you think
:08:25. > :08:28.the corruption previous was relatively low? Maybe the answer is
:08:29. > :08:36.no. Why did the economy grow by 7.6%. We have built and
:08:37. > :08:41.infrastructure. We were not able to build it after the 1998 crisis. It
:08:42. > :08:46.is not about corruption, it is about certainty. You deal with the one
:08:47. > :08:53.single family that everything will be settled. But since we have this
:08:54. > :09:02.democratic setting now, there is a fragmentation of power. It means you
:09:03. > :09:08.have to talk to the parliaments, the local government, central
:09:09. > :09:18.government. So the problem is uncertainty. There is one thing, the
:09:19. > :09:20.thing that I learned, there is something worse than organised
:09:21. > :09:23.corruption and that is unorganised corruption. What do you see as the
:09:24. > :09:29.biggest challenges? You said it, it is infrastructure. Because I do
:09:30. > :09:41.believe in ten years, 75 cents of our population will live in urban.
:09:42. > :09:46.It will be clean water, public transport, sanitation, housing
:09:47. > :09:50.facilities and there is no way you can handle this issue unless you
:09:51. > :09:53.provide and infrastructure. The second one is, we cannot rely on
:09:54. > :10:01.these natural resources and cheap labour. So we should emphasise on
:10:02. > :10:08.the human capital. That is why I am preparing the ground for introducing
:10:09. > :10:11.this tax incentive, scholarship, training and the third one, I don't
:10:12. > :10:18.believe the future of Indonesia will rely on this physical capital. You
:10:19. > :10:25.are talking about resources, the advantages will be no longer
:10:26. > :10:34.tangible assets, but intangible assets. It is governance. If you are
:10:35. > :10:36.talking about the role of the IT system to eradicate corruption, that
:10:37. > :10:42.will be the crucial thing. If we could handle those three things, I
:10:43. > :10:48.would not be surprised if Indonesia with the one of the seven largest
:10:49. > :11:12.economies in the world. How do you cope with traffic jams? What are
:11:13. > :11:15.they expecting from upcoming presidential elections that will
:11:16. > :11:22.usher in the first change in government for a decade. I caught up
:11:23. > :11:27.with the head of the Indonesian employers Association. What would
:11:28. > :11:36.you like to see the next government do? The free priorities. The first
:11:37. > :11:57.priority is is... The second priority is infrastructures. The
:11:58. > :12:03.last five to ten years we have had huge unemployment. There was still
:12:04. > :12:13.30 million people living below $1 per day. You have a gap between the
:12:14. > :12:20.people who have and the people who have not. How do you cope with the
:12:21. > :12:32.traffic jams? The only way to do it is to build infrastructure. There is
:12:33. > :12:34.a good baton for electric `` for infrastructure for electricity. The
:12:35. > :12:40.government is not providing enough legal certainty. Not just for
:12:41. > :12:55.foreign investment, we have enough money to build infrastructure. There
:12:56. > :13:00.are all combinations that we can do but give us the gleeful certainties.
:13:01. > :13:05.There has been a lot of discussion the role of foreign investment in
:13:06. > :13:11.Indonesia, the resource sector, whether they are needed, how do you
:13:12. > :13:29.view foreign countries and the roles? We need capital. We need
:13:30. > :13:39.expertise. We have to look for a way to win the situation. Indonesia has
:13:40. > :13:45.become a middle income country in the past decade. It is a notable
:13:46. > :13:50.achievement but recently growth has begun to slow. Will it begin to grow
:13:51. > :14:05.in a virtual suckle or could it form into a vicious cycle? Resource which
:14:06. > :14:12.Indonesia saw global prices boom skyrocket. That boosted growth.
:14:13. > :14:18.Higher economic growth meant for those more money for investment.
:14:19. > :14:29.Indonesia was in a constant cycle of growth and investment.
:14:30. > :14:36.Will the end of the commodity boom mean that Indonesia could fall into
:14:37. > :14:42.a vicious circle were aboard investment leads to lower growth and
:14:43. > :14:50.less income? If the country could attract investment into new areas
:14:51. > :14:57.like consumer goods, then that could launch Indonesia into a new cycle of
:14:58. > :15:03.growth and prospects. Indonesia has got to traits which are particularly
:15:04. > :15:06.enticing to business, resources and people. What the foreign companies
:15:07. > :15:12.need to see from the next government to get them to invest? I asked the
:15:13. > :15:22.American head of the chamber of commerce. What are the factors that
:15:23. > :15:29.make Indonesia had to do business in? Traffic jams. You hit one of
:15:30. > :15:33.them, infrastructure. I am two kilometres away and it took me an
:15:34. > :15:41.hour to get to this interview. Infrastructure is one big issue.
:15:42. > :15:49.Electricity and trains. The second issue is the regulatory environment.
:15:50. > :15:56.We referred to it as a gold field in a minefield. It is not easy and it
:15:57. > :16:02.takes a lot to set up a business here. To set up a business in
:16:03. > :16:07.Indonesia takes on average ten procedures and 48 days. Singapore
:16:08. > :16:12.has two procedures and three days. You see the difference. The Ford
:16:13. > :16:18.area is human capital. As companies are looking to invest the looking at
:16:19. > :16:24.a 24 `` 21st`century workforce that does not exist in Indonesia. We do
:16:25. > :16:29.not have the same educated German people, 20% of young people do not
:16:30. > :16:35.graduate from elementary school. Infrastructure, regular Tory
:16:36. > :16:41.environment and human capital. What you most like to see changed with
:16:42. > :16:46.video government? Decision`making. That is the biggest issue for
:16:47. > :16:51.investors. The ambiguity. Dishes being made in the ear of natural
:16:52. > :17:07.resource, the extract and sector. Progress is slowing down. `` extract
:17:08. > :17:13.mint. I think you're going to see for one thing, we expect to see oil
:17:14. > :17:20.subsidies go away. Or be reduced. That will free up more money for the
:17:21. > :17:24.infrastructure. The government are serious about infrastructure,
:17:25. > :17:28.bringing the private sector in. The problem has been the have been
:17:29. > :17:35.looking at low`cost beds. They have not been looking at the full
:17:36. > :17:42.cautiously optimistic they will be cautiously optimistic they will be
:17:43. > :17:48.some movement on infrastructure. What we are looking for is a more
:17:49. > :17:52.certain to regular Tory environment. Despite the poor infrastructure,
:17:53. > :18:05.foreign companies and the investment have been growing quickly in
:18:06. > :18:10.Indonesia but still at low levels. I caught up with the Indonesian boss
:18:11. > :18:14.of this factory to find out why? Indonesia made sense for a few
:18:15. > :18:21.reasons. Manpower is easily available. We looked at the
:18:22. > :18:23.availability of raw materials and that makes a big difference when
:18:24. > :18:30.you're setting up a factory, you you're setting up a factory, you
:18:31. > :18:34.have to have access to materials. We looked at the economic and political
:18:35. > :18:40.stability of the country. If you look at the economy, it is one of
:18:41. > :18:44.the most stable in the world. It has become a fully functional democracy
:18:45. > :18:47.in a short period of time. These factors combined with the fact that
:18:48. > :19:02.is the biggest potential market in the region. How do you cope with the
:19:03. > :19:06.traffic jams? It is a part of your contingency planning, it is how you
:19:07. > :19:11.manage your stock, how many we have houses do you have, how many
:19:12. > :19:16.distributors, your supply chain. We do you people live and we do you
:19:17. > :19:22.picture a new head office? It is a way of life. It somebody at me how
:19:23. > :19:34.people in Russia manage on a cold environment, the Wear jackets. If
:19:35. > :19:41.you have to carry extra stock, it adds to the cost. I think overall it
:19:42. > :19:50.balances out because there are other areas where Indonesia has low costs.
:19:51. > :19:54.Who are you expecting to win and are you confident that what you are
:19:55. > :20:02.hearing for the bureaucracy will continue? Both of the candidates are
:20:03. > :20:06.pragmatic. I have read the excerpts of some debate and they are saying
:20:07. > :20:09.the right things. They are talking about building infrastructure and
:20:10. > :20:14.investing in education. Whoever comes in, it does not matter, they
:20:15. > :20:22.are business friendly and pragmatic and then do the right thing. `` and
:20:23. > :20:27.will do the right thing. There are a lot of problems with the business
:20:28. > :20:31.environment, do you have any instances where you have had to cope
:20:32. > :20:37.environment where you have bought, environment where you have bought,
:20:38. > :20:40.only in Indonesia? Once you have come from India that is nothing that
:20:41. > :20:46.is only in Indonesia because you have seen that or worse in India. I
:20:47. > :20:51.have not came across any such cases. The challenge is usually, the 2`mac
:20:52. > :20:58.areas where it is the most challenging, we have touched on it
:20:59. > :21:00.already, it is the infrastructure. It is improving. There are
:21:01. > :21:08.investments in the woods. I think it will get better. I think everybody
:21:09. > :21:12.at the lodge is that there is a shortage of talent today in the
:21:13. > :21:20.country. The shortage is likely to become more acute in the future.
:21:21. > :21:25.Everybody is working towards this. These are the two areas. What
:21:26. > :21:30.particular clearly do you do for your products? The extent to which
:21:31. > :21:35.consumers are using consumer products which is the penetration
:21:36. > :21:39.which is much lower in Indonesia compared to western Europe or Japan.
:21:40. > :21:49.Japan is by far the highest in the world. Consumers want more benefits
:21:50. > :21:52.from the same products. A lady in South Korea could use eight products
:21:53. > :22:09.before she leaves home but in Indonesia the Ladywood use one or
:22:10. > :22:14.two. It will triple. Indonesia has come a long way in the past decade.
:22:15. > :22:19.But to continue to grow it will need to invest in infrastructure,
:22:20. > :22:23.education and its legal system. There is certainly a lot at stake in
:22:24. > :22:27.the upcoming elections. That is all we have got time for. Join us next
:22:28. > :22:31.time for more talking business.