Newsletter May 2012
A warm HELLO from Innovare
2012 started with a Bang for AsiaPacific. Spurred by China and India, the positive effects on Asia have been very exciting. It is still not too late to jump on the bandwagon. In this e-note, we wish to highlight an open secret…. Indonesia
Meanwhile, for friends based in the UK, I hope the weather stays sunny for your sake and mine…. as I will be making a business trip from mid-May onwards.
With Best Regards
on behalf of the Innovare Team
The Western media on Indonesia has, more than often, focused on the bad news… Aceh, corruption, Bali bombings. However, living in Singapore and having the privilege to travel the region extensively, one cannot help but notice the genuine buzz in Jakarta.
Over the last few years, the traditional safe havens of Europe and the US have started to erode. Investors and entrepreneurs have started viewing Asia in a different light. Having survived and taken in tough lessons during the 1997 Asian financial crisis, many weaker economies then have restructured and taken a more conservative approach, so much so, that the present sub-prime crisis has a comparatively lesser impact. One such country is Indonesia. Long regarded as the high-risk and emerging member of Asia, the country has significantly turned around over the last 8 years.
Here are a few headlines to digest :
- Economic growth in 2011 hit 6.5%, the strongest since 1996
- Exports last year grew 29%
- Foreign direct investment rose to US$20b from US$17b
There are risks, of course :
- high fuel subsidies might be cut resulting in social unrest
- the fight against corruption is an ongoing process
infrastructure has yet to catch up with the growth
(although this also presents an opportunity)
Nevertheless, it is the general consensus that the positives far outweigh the negatives. As a result, Fitch upgraded Indonesia to an Investment grade credit rating of BBB- after 14 years of junk status. Moody’s and S&P also came with upgrades.
Indonesia is blessed with a young workforce, which creates far more economically-priced labor then even China. Demand is domestically driven, which cushions it from the external forces. Furthermore, it has rich natural resources like oil, gas and minerals.
Contracting In Indonesia
As in most of AsiaPacific, contracting is confined mainly to project work undertaken by multinationals. After a peak just prior to the global crisis, we now see contractor numbers being ramped up again, especially in the telecommunications industry together with the oil/gas sector. Contracts are being awarded to the usual players but the interesting trend is that new giants from China are getting into the picture in a big way.
Given the vast amounts of infrastructure upgrades required, we envisage contractor demand to last for awhile more.
Having managed contractors in Indonesia since 2004, we find that the following issues are worth paying attention to where contracting is concerned :
High Withholding Tax: up to 20% is levied for monies remitted abroad for work performed in Indonesia.
Local Billing Withholding Tax: this amounts to 2%.
Value-Added Tax advance: The VAT system requires VAT to be paid before the 10th of the following Month upon billing. Hence, if the client is given credit terms of, say 30 days, thus crossing the settlement date, the billing company will have to fund the VAT.
Individual Income Tax: this graduates up to 30%.
Work Permits: This is a must even for short-term contract work. This is because there are regular spot checks in clients’ premises.
Shift from expatriates to locals: this is the ongoing trend due to the lower cost of the local workforce. Hence, expatriates deployment might only be in the initial phase of the projects.
Innovare in Indonesia
We have been managing contractors in Indonesia since 2004 via an exclusive partnership arrangement. However, due to the heightening momentum, we see it fit to establish ourselves in Indonesia… hence, the birth of PT. Indo Java Makmur together with PT. Java CommsNetworks.
We have appointed a local general manager with a local team. This enables us to increase our quota to meet demand, as well as, bill locally for services rendered.
Should you need assistance in Indonesia or Asia Pacific, we would be pleased to hear from you. Please contact :
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