In mid-July 2016, the Asia Taiwanese Chambers of Commerce held their four-day annual general meeting in Tai­chung, attended by over 800 Taiwanese businesspeople based in 13 countries, including Indonesia, Vietnam, Singapore, and the Philippines. Representatives to Taiwan from the Philippines and Indonesia, as well as the chairman of the Asia Taiwanese Chambers of Commerce, also took part. Many at the meeting expressed their hopes that the Tsai administration’s “New Southbound Policy” would provide continued support to Taiwanese doing business in Southeast Asia and reduce the investment risk they face.

With the global economy still in the doldrums, the efforts of Taiwanese businesses abroad have been crucial to providing a diverse range of development opportunities for Taiwan in the global market. Chou Tsung-ho, chairman of the Indonesia Taiwan Chambers of Commerce (ITCC), remarks that Taiwanese doing business in Southeast Asia agree that the new administration’s focus on Taiwan’s southern neighbors is the right decision.

The Tsai administration’s “New Southbound Policy” is focused on the steady economic growth of ASEAN member states. Chou Tsung-ho hopes the administration will provide concrete support for Taiwanese investment in Indonesia.

Plenty of people, rich in resources

Indonesia, comprised of over 17,000 islands, is the largest country by area in Southeast Asia and is home to a wealth of land and ocean resources. Since the 1970s, mining and agriculture have accounted for tremendous quantities of exports, including natural gas, petroleum, copper, aluminum, and palm oil. While such products may have little in the way of added value, they have nonetheless earned Indonesia a significant amount of money.

Chou, who arrived in Indonesia 45 years ago, remembers how hard life there could be in the past; though ordinary folk could barely afford shoes, they still needed life’s necessities, a demand Taiwanese businesses were eager to satisfy. With the combination of a government that was opening up natural resources to foreign companies and the low cost of labor, these Taiwanese firms were thus able to get their collective foot in the door of a growing market.

The members of the Association of Southeast Asian Nations (ASEAN) have a total population of approximately 620 million, with Indonesia accounting for nearly 250 million of that. This massive market is a big part of why foreign investors are so interested in the country. And within that population, about 7% are ethnic Chinese, a not insignificant number of people.

“Indonesia is a great choice for Taiwanese businesses, because not only is there a sizable population of potential consumers, they also don’t discriminate against Chinese,” says Chou. He goes on to explain that investment opportunities there have been looking better and better by the year, especially as the economy has begun to ­really take off in recent years. Indonesia has begun to gradually transition from a hub for production and export to a market with impressive potential domestic demand, and with its lower wage rates, it is an excellent option for Taiwanese businesses being driven away from China by growing labor costs.

In recent years the Indonesian government has worked to address unfavorable conditions for foreign investment, making it quicker and more convenient, thus helping to spur basic infrastructure development.

Tech drives growth

In 2011, Indonesia’s then-president Su­silo Bam­bang Yud­ho­yono announced the “Masterplan for Acceleration and Expansion of Indonesia’s Economic Development” (Masterplan Per­ce­pa­tan dan Per­lua­san Pem­bangu­nan Eko­nomi Indonesia, or MP3EI), a blueprint for development by 2025 of 22 main economic activities in eight main programs across primary and secondary industries. Among these was one particular sector that attracted no small amount of attention and an­ti­cipa­tion from foreign businesses—the information and communication technologies (ICT) industry.

Being comprised of five main islands and over 10,000 smaller ones, connecting the various parts of the Indonesian archipelago is a challenge. As a result, there is a substantial demand for information and communication technologies, especially among the younger generations. This has created a powerful drive and excellent conditions for the ICT industry.

The cellphone industry in particular has enjoyed the support and protection of state policy, with regulations in place requiring all 4G phones sold in Indonesia from 2017 onward to be made with at least 40% locally produced components. Driven by this, major ICT companies from Taiwan (Asus), South Korea (Samsung), and mainland China (Lenovo) have set up plants in Indonesia, providing a concrete boost to the nation’s economic growth.

Chou Tsung-ho, who trades in secondhand cellphones in the province of Central Java, has had his cart hitched to the ICT industry for some years now. Central Indonesia, he says, has a market bigger than he could have imagined, and even with the boom in competitors in the market since he first received his sales license, there still isn’t enough supply to meet the massive demand.

In recent years the Indonesian government has worked to address unfavorable conditions for foreign investment, making it quicker and more convenient, thus helping to spur basic infrastructure development.

Encouraging foreign investment

After Joko Widodo was elected to the presidency in 2014, he began actively working to address the rich‡poor divide in Indonesia and to raise the quality of social and governmental services. He also set to work on creating a diverse, growing economy with notable ambition. In the two years since, his administration has done a great deal to boost confidence at home and abroad, with the performance of the nation’s financial market in recent times attracting a noticeable influx of foreign investment. Chou notes that the new administration has paid a fair amount of attention to island-to-island shipping, with an estimated 3000-plus vessels of various kinds expected to be built in the next year, providing a substantial boost to both raw materials transportation and fisheries. This infrastructural help for the outlying islands, combined with the development of the tele­communi­cations system, has been a positive development for the national economy.

“Another important policy was enacted in 2016—a tax amnesty program which includes new tax incentives for companies to revalue their fixed assets,” says Chou. In the past, the Indonesian government levied severe taxes on changes in ownership of foreign-owned corporate assets, up to 30% on cash. To avoid these taxes, buyers and sellers would frequently go through third-party payment systems, and foreign investors would inject only limited capital. Since June 30, 2016, however, the new policy has set out new mechanisms for tax declaration, and the taxation system now offers more preferential conditions.

In recent years the Indonesian government has worked to address unfavorable conditions for foreign investment, making it quicker and more convenient, thus helping to spur basic infrastructure development.

A nascent middle class

Savings rates in Indonesia have generally been the lowest among Asian nations. With the recent economic growth, though, this has begun to change as a new middle class rises. According to Euromonitor International, between 2009 and 2014 Indonesian families’ real disposable income grew by 26%, with their savings rate growing from 2.6% in 2005 to 4.8% in 2016.

With its growing buying power, this rising middle class has turned its attention to social and lifestyle activities, with an increasing demand for quality and international brands. This in turn has created powerful new opportunities for international businesses and new investments in education. At present, Jakarta and Surabaya have two schools that were originally exclusively for the children of Taiwanese businesspeople, but have now opened their doors to local ethnic Chinese as well. Enrollments have grown year by year, a clear indication of the growing interest in Chinese-medium education among Indonesia’s Chinese community.

Language training is also crucial for management staff at Southeast-Asian plants opened by Taiwanese businesses, and to this end Taiwan’s government has launched programs to support Taiwanese children with Southeast-Asian immigrant parents to learn Southeast-Asian languages. Many parents have also begun encouraging their children to study in Southeast-Asian countries. The government is preparing to offer scholarships to support the studies of over 100 Taiwanese in ASEAN member states and help them to educate themselves in Southeast-Asian languages and cultures. The government is also working to encourage more people from Southeast Asia to come to Taiwan to study.

Indonesia’s minister of research, technology and higher education, Muhammad Nasir, has said that since 2012, Indonesia has provided public funding for doctoral students to study in four priority partner countries—Germany, Austria, New Zealand, and Taiwan. On top of that, each year the country selects several college instructors to travel to Taiwan for graduate or doctoral study. They also welcome Taiwanese students hoping to study in Indonesia, as this is an important channel for educational exchange between the two countries.

Chou is fully behind the Tsai administration’s southbound pivot, particularly as the masses of Taiwanese businesspeople in Indonesia provide a form of commercial soft power for Taiwan in a country with which it has no formal diplomatic ties, providing Taiwan with another firm source of overseas economic support.

Consumption and investment are the two primary drivers of Indonesia’s economic growth, with the Jokowi administration actively working to improve basic infrastructure and develop maritime trade, thus attracting growing foreign investment.

Indonesia was a focus of the World Economic Forum 2016, a sign of the positive growth the nation’s economy is enjoying.

As the Indonesian middle class grows, so too does its spending power. Here we see smiling children at Jakarta’s Istiqlal Mosque. (photo by Jimmy Lin)

As Indonesia’s economy has enjoyed rapid growth in recent years, more and more businesspeople are seeing the country less as a base for cheap labor and more as a domestic market with tremendous potential and a growing base of high-end consumers.