TIME FOR EXPORTS OF NON-OIL/GAS COMMODITIES TO SERVE AS THE MAIN DRIVER FOR INDONESIA'S ECONOMIC GROWTH -- January 2011

INDONESIAN COMMERCIAL NEWSLETTER

January 2011

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TIME FOR EXPORTS OF NON-OIL/GAS COMMODITIES TO SERVE AS THE MAIN DRIVER FOR INDONESIA'S ECONOMIC GROWTH

Indonesia's exports have increased sharply over the past year. In 2010, exports were valued at US$157.7 billion, up from the previous year's figure of US$116.5 billion or an increase of 35% in a year. The increase in 2010 was significant as the export value also exceeded the previous record of US$137 billion in 2008 before shrinking in 2009 when the world's market was hit by deep slump followed global financial crisis.

In 2010, exports rose 14 percent from 2008. Increase in the exports was notably in the exports of primary commodities such as oil and gas, palm oil, rubber and coal.

Ten main commodities contributed 47.5% to the country's exports of non-oil/gas commodities dominated by palm oil, maritime products and cacao. Increase in the earning from the exports cacao, coal and palm oil was mainly attributable to price hikes, but the increase in the earning from the exports of textiles and textile products, electronics goods, footwear and automotive products was attributable mainly to larger export volume.

Exports of non-oil/gas commodities growing

The export value of palm oil increased sharply in January 2011, reaching US$ 1.624 billion, up sharply from US$ 757 million from a year earlier.

The export value of palm oil and rubber reached US$16.3 billion and US$ 9.4 billion or totaling US$25.7 billion in 2010 , drawing near the oil and gas export earning of US$28 billion that year. .

In the not too long time the total export value of rubber and palm oil is expected to exceed the oil and gas export earning. Oil and gas are not renewable commodities. Their resources will be depleted some time in the future. Therefore, new commodities will be needed to replace them as one of the main export earners.

Meanwhile, Indonesia has succeeded in increase exports of manufactured goods. In the past textiles and garments were among the major export earners. Now electric machines and equipment have become major export earners among manufactured goods.

Exports electric machines and equipment already reached US$ 10.5 billion in 2010 and the export trend is growing although they have not been listed among ten main export commodities of the country. The export value rose from US$8 billion in 2009. Domestic and foreign investors produce electric machines and equipment in the country. Part of their production is exported.

Samsung and Lucky Goldstar, two electronic giants from Korea have big units in Indonesia. There are also Japanese giants like Panasonic which has expanded its production capacity to produce electronic components for exports to various countries.

The company plans to expand further its capacity through relocation of factories from China and Vietnam to the country.

The foreign companies will contribute to boosting exports by Indonesia.

Increase was also recorded in the exports of machines and mechanic equipment (HS 84) - up from US$4.7 billion in 2009 to US$5 billion in 2010. Meanwhile exports of motor vehicles and parts (HS 87) surged from US$1.957 billion to US$ 2.899 billion.

Indonesia has exported substantial volume of components of motor vehicles and motor vehicles in completely knocked down (CKD) form and cars in completely built up (CBU) form with value reaching almost US$3 billion. Exports of four wheelers have been recorded mainly to Middle East and other Asean countries

Diversification changes the market

China has replaced the United States as the country's second largest market and India relegated Singapore and Malaysia from the country's fourth and fifth largest export markets. Japan remains the largest country of destination, followed by China, the United States, India, Singapore and Malaysia.

Japan, however, is no longer far ahead. China and the United States are getting closer. In February, exports to Japan were worth only US$ 2.852 billion, followed by exports to China reaching US$ 2.343 billion and to the United States at US$ 2.513 billion.

Exports to China and India have increased notably exports of commodities other than oil and gas. The two Asian giants need larger supplies especially primary commodities to feed their fast growing industries.

Exports of Indonesian commodities to Japan have been on the decline in the past five years as a result of the government's efforts to diversify export destinations. The decline was even sharper following the recent devastating tsunami in that country.

In the past five years, Indonesia has sought to expand market to Middle East, Europe and other Asian countries.

Based on data at the Central Bureau of Statistics (BPS), exports of non-oil/gas to Japan inn 2010 were valued at US$16.496 billion.

Tsunami affects exports from Indonesia to Japan.

Trade between Indonesia and Japan declined after the recent tsunami. Indonesia's exports to that country and imports from that country declined. The decline is expected to continue at least until the end of this year. Among the main export commodities outside oil and gas to Japan are fish, shrimp, and plantation commodities.

Infrastructure and supporting facilities like ports, roads, bridges and nuclear power plants in Fukushima, Onagawa, and Tokai were destroyed by the tsunami that the Japanese economy is expected to take some time to recover. That country's economy is predicted to suffer a contraction or a slowdown through the rest of this year. The impact of the nuclear power crisis is bad for the economy and will hamper recovery.

Exports of some commodities such as plywood, coal and other mining products from Indonesia to Japan are expected to increase as a result of the tsunami. Japan needs larger supplies of plywood for the reconstruction and coal to generate energy to help make up the shortage with a number of nuclear power plants out of function.

Exports of timber products forecast to rise 30%

The Indonesian association of exporters (GPEI) predicted that exports timber-based products will increase 30% this year if all exporters have the certificate of the timber legality verification system (SVLK).

The system has been recognized by the European Union as a verification system for the legality of timber products from Indonesia. Timber exporters, therefore, are required to have the legal verification certificate.

SVLK needs to be recognized all over the world to facilitate exports from the country. It will also expect to discourage illegal logging as it would be difficult for illegal logs to enter market.

Increase has been recorded in the country's exports timber products from year to year, but the increase has been moderate as not all exporter shave secured the SVLK certificate.

Last year exports of timber products, which are produced from local basic material were valued at US$ 2.9 billion, lower than the earning of US$11 billion from the exports of textiles, which are produced with imported basic material. With the SVLK certificate, the non tariff barrier could be reduced and timber exports are predicted to increase sharply. The government is expected to be more aggressive in seeking international recognition of SVLK not only in Europe.

Exports are forecast to reach US$ 170 billion in 2011

In 2010, the country's exports of non-oil/gas commodities were valued at US$157.7 billion exceeding the previous record of US$108 billion in 2008. In 2011, exports of commodities outside oil and gas are expected to rise further with the growing investment in industries producing export commodities like motor vehicles, textiles and garments, electronics and footwear.

Based on BPS's figures, exports in November 2010 reached US$15.34 billion or an increase of 6.52 percent from the previous month's US$14.39 billion.

Imports in November 2010 were recorded at US$13, 07 billion or an increase of 7.85 percent from the previous month's US$12.12 billion. Imports of non-oil/gas in November 2010 were valued at US$10.12 billion or an increase of 3.99 percent from US$9.7 billion in October in the same year. Meanwhile, imp orts of oil and gas in November 2010 were valued at US$2.95 billion or an increase of 23.60 percent from US$2.38 billion in the previous month.

The increase in the Indonesian export sin 2011 is boosted by good commodity prices. Exports are expected to grow both in volume and value. Production of palm oil is expected to increase this year with more plantations start producing.

Similarly, the country's production of coal is also expected to rise after the discovery of new reserves. The increase in production will allow the country to increase exports.

Exports of manufactured goods are also expected to grow significantly in 2011 with the growing investment in that sector.

In 2011, the country's export earning is predicted to reach US$170 billion based on the growing trend. In January alone exports were valued at US$14 billion.

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