MP3EI 2011-2025The Master Plan for Accelerating and Expanding

Indonesia’s Economic Development

An Overview of Concept and Implementation Issues

Dr. Astia DendiComponent Team Leader Policy Advice & NetworkingDecentralisation as Contribution to Good Governance Program (GIZ-DeCGG)

Structure of Presentation

• Purpose of presentation• Indonesian 2025’s Vision• What’s & What’s not MP3EI? • Objectives and Strategic Frameworks of

MP3EI:• Issues and Constraints in MP3EI Implementation

• Concluding Remarks

Purpose of Presentation

• Introduce basic concept and strategic elements

of MP3EI to the team members GIZ

Decentralisation as Contribution to Good

Governance Program (DeCGG);•Discuss some issues and constraints of MP3EI

implementation•Food for thought: Bureaucracy Reform &

MP3EI

Background

Geopolitical and

geoeconomic position

of Indonesia

Natural resources

endowment

Demography bonus

INDONESIA

Indonesia 2025’s Vision

“Propelling Indonesia into a developed nation, to be one of the ten world largest economies by 2025, and to be one of the six world largest economies by 2050 through high, inclusive, and sustainable economic growth.”

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

The 2025’s Vision focuses on three main goals:

• Increase added value, expand value chain and efficiency of industries:

• Integrate domestic market to enhance competitiveness and strengthen the national economy;

• Strengthen the national innovation system towards an innovation-driven economy.

What’s and What’s not MP3EI?

• MP3EI is a roadmap to transform Indonesia’s economy, to accelerate economic growth and to improve competitiveness;

• MP3EI is a working document to implement the Long Term Development Plan 2005 -2025:

• MP3EI provides direction of development for specific economic activities (8 programs & 22 economic activities), requirement for the investment and the improvement of the regulatory framework;

• The MP3EI is not a substitute for the National Mid Term Development Plan (RPJMN) and not a substitute for the ongoing national and regional development programs;

Objectives of MP3I

Objective Indicators: Income per capita will shift from USD 3,000 to around USD

15,000 with GDP of around USD 4-5 trillion in 2025.Real economic growth of 7 - 9 percent per yearRate of inflation is 3% by 2025Improved equalityEtc.

“Propelling Indonesia into a developed nation, to be one of the ten world largest economies by 2025, and to be one of the six world largest economies by 2050 through high, inclusive, and sustainable economic growth.”

MP3EI Estimated Investments

Strategic Framework of MP3EI

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

Programs and Main Activities of MP3EI

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

Institutional Setup of MP3EI

Source: Presidential Decree No. 32 year 2011 on MP3EI 2011-2025

Director : President of Republic Indonesia

Vice of Director : Vice President of Republic Indonesia

Executive Director (Ketua Harian)

: Coordinating Economic Minister

Deputy 1 : Minister of National Development Planning Agency

Deputy 2 : Coordinator for National Economic Committee

Members : • 22 Ministers• Cabinet Secretary• Head of Indonesia Investment Coordinating Board• Head of National Land Agency• Head of National Innovation Committee• Chairman of Chamber of Commerce

The Six Economic Corridors

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

Annual Growth Target for The Six Corridors in Year 2025

% GDP Nominal Growth (2010-2025)

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

The Framework of Indonesia’s Connectivity

Source: MP3EI 2011-2025, Coordinating Ministry of Economic Affairs

The objectives of the national connectivity strengthening

1. Connecting the centers of major economic growth based on the principles of integration, through “inter-modal supply chain systems”.

2. Expanding economic growth through accessibility improvement from the centers of growth to the hinterland.

3. Distributing the benefits of economic development by improving the quality of connectivity to the less developed areas, isolated areas, and border areas in order to achieve equitable economic development.

Human Resource Development

• Academic Education Program developing higher formal ➜schools (university academic & polytechnic) and university research centers nationally:

• Vocational Education Program the development of ➜community colleges in every capital city, and the development of education vocational schools.

• The development of job trainings and certification bodies:• The enhancement of technological competence and skills:• The development of a national sustainable innovation

system (see next slide):

Human Resource Development: The Proposed Innovation Initiatives

Source: Coordinating Ministry of Economic Affairs: MP3EI 2011-2025

Challenging Issues and Constraints

Source: Author’s compilation

Challenging Issues and Constraints

Source: BPS

Problematic Factors for Doing Business In Indonesia

Source: World Economic Forum: The Global Competitiveness Report 2013-2014

Time and Cost for starting Business in Indonesia**

Indonesia’s Doing Business Rank*

**Source: World Bank, Doing business in Indonesia, 2012

DB 2012 (of 183 economies)

DB 2014 (of 189 economies)

Ease of Doing Business:

129 120

Starting a business 155 175

Dealing with construction permits

71 88

Getting electricity 161 121

Registering property 99 101

Getting credit 126 86

Protecting investor 46 52

Paying taxes 131 137

Trading across borders

47 54

Enforcing contracts 156 147

Resolving insolvency 146 144

*Source: Compiled from World Bank: Doing Business Reports

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Time, days (left scale) Cost, % of income per capita (right scale)

Indonesia’s Rank on Doing Business Topics*

*) Source: World Bank 2013: Doing Business 2014

Indonesia’s & Southeast Asia’s Doing Business Rank since 2011

StateDoing Business Rank

2011 2012 2013

Singapore 1 1 1

Malaysia 23 18 12

Thailand 16 17 18

Brunei Darussalam 86 83 79

Vietnam 90 98 99

Indonesia 126 129 127

Cambodia 138 138 133

Philippines 134 136 138

Lao PDR 163 165 163

Source: Compiled from World Bank, Doing Business Report

Time Dealing with Construction Permits in Indonesia

Source: World Bank, Doing business in Indonesia, 2012

Indonesia’s Doing Business Rank 2014

Source: World Bank 2013: Doing Business 2014

Time and Procedures to Start a Business since 2010 in Selected Countries in Asia-Pacific

Source: World Bank, Doing business in Indonesia, 2012

Investor Confidence Index 2013

Source: The 2013 A.T. Kearney Foreign Direct Investment Index

Logistic Performance Index (155 Countries)Global Rank

Source: Compiled from the World Bank (http://lpi.worldbank.org/)

Countries 2010 2012

Malaysia 29 29

Philippines 44 52

Vietnam 53 53

Thailand 35 38

Indonesia 75 59

Cambodia 129 101

Lao PDR 118 109

Discussion and Concluding Remarks

• Indonesia has made significant progress in improving national economy and

global competitiveness; but facing some problematic issues.

• MP3EI calls for a whole government approach

• Quality of governance matters: Build on integrity, harmonize and simplify

regulations, promote vertical and horizontal coordination & collaboration, and

evidence-based policy making;

• What are appropriate incentives for boosting private sector

involvement/investment?

• Land acquisition: State Law VS Adat Laws (e.g. Law 22/ 2012 and Presidential

Regulation 71/ 2012)?

• Need for Local stakeholders ownership: stakeholders fora for MP3EI?

• Shift from Business as Usual to Innovation-Driven: A Great challenge for

Bureaucracy Reform!

References:

• A.T Kearney (2013), Foreign Direct Investment Confidence Index. Back to Business: Optimism Amid Uncertainty.

• Bappenas (2011), Sustaining Partnership: National Connectivity 2011 Special Edition.

• Coordinating Ministry For Economic Affairs (2011), Master plan for Acceleration and Expansion of Indonesia Economic Development 2011-2025.

• Strategic Asia (2012). Implementing Indonesia’s Economic Master Plan (MP3EI): Challenges, Limitations and Corridor Specific Differences, can be accessed at: http://www.strategic-asia.com/pdf/Implementing%20the%20MP3EI%20Paper.pdf

• World Bank, Doing Business in Indonesia 2012.• “Land restriction put brakes on MP3EI Growth”, Jakarta Post, Tuesday, 11 June 2013, can

be accessed at: http://www.thejakartapost.com/news/2013/06/11/land-restrictions-put-brakes-mp3ei-growth.html

• “MP3EI infrastructure projects flounder as govt fails to act”, Jakarta Post, Friday, 31 August 2012, can be accessed at: http://www.thejakartapost.com/news/2012/08/31/mp3ei-infrastructure-projects-flounder-govt-fails-act.html

• Presidential Decree No. 32 year 2011 on MP3EI 2011-2025