As the world’s largest archipelago, Indonesia is among the most important producers of aquaculture globally. In 2001, Indonesia ranked fourth in aquaculture output and has since increased its fishery exports to US $4 billion in 2015. Though Indonesia’s aquaculture industry has begun to make strides, it is still far from realizing its full potential.
In an effort to harness its comparative advantages, the Indonesian government has made monetary commitments to the sustainability of the industry and is working to relax regulations surrounding foreign investment. Upon their election in 2014, both President Joko Widodo and Susi Pudjiastuti, the Minister of Maritime and Fisheries, have been working to establish strategies to promote and expand Indonesia’s fisheries.
The government’s commitment led to the expansion of the fishery sector by 8.37 percent in the third quarter of 2015. With strong government support, Indonesia’s fishery sector will remain competitive with the establishment of the ASEAN Economic Community (AEC) and a strong demand from the United States, Japan and ASEAN members. Investors are also tapping into the sector’s low-tech infrastructure that demands attention from storage supplies, transportation infrastructure, and fast distribution processes.
Opportunities for Investment
Shrimp and tuna are Indonesia’s two largest fishery exports and are expected to grow with the establishment of the ASEAN Economic Community (AEC). The AEC works to boost regional economic integration between the ASEAN members. The Maritime Ministry predicts this agreement will help boost the growth of Indonesia’s captured fish industry by 2.4 percent and the cultivated fish industry by 8.72 percent. This growth is also being attributed to the discontinuation of the suspension on the issuance of fishing permits for those who used ex-foreign owned fishing boats, as Indonesia works to loosen regulation on foreign investors. Demand in the Indonesian fishing sector is strong with the United States accounting for 41 percent of their total fishery exports in 2015, followed by Japan, Europe and ASEAN countries.
Building Infrastructure in Indonesia’s Fishery Sector
Currently, the majority of local fisherman use traditional fishing techniques and equipment, which causes inefficient fishing and reduces the potential of the industry. In order to remain competitive, the Indonesian fishery industry recognizes that they are under pressure to modernize their equipment and techniques. Of the 3000 small-scale fishing ports, the majority do not have property storage facilities for the fish. Therefore, a short delay in processing is enough for a lot of the meat to go bad before it can be distributed. This provides large opportunities for companies in the shipment and transportation industry. Other opportunities for foreign investors lie in the harvesting of seafood, processing, and the sale of fishing devices.
The potential of the aquaculture industry is estimated to exceed US $339 billion annually with the growth of costal businesses, biotechnology and fisheries. The government’s commitment of US $1.9 billion to the improvement of the sector demonstrates strong government support in the hopes of attracting foreign investors.
The Indonesian government has also pledged to create 24 ports, maritime highways and modern fishing ships in order to reduce logistics costs. They have also enlisted the help of foreign companies to help modernize the aquaculture sector. Aquaculture, including the rearing of fish, process of fishing products, and manufacturing of devices is open to foreign investors who have partnerships with local players. Norway and China are two countries that have made investments into these sectors. Depending on the industry, foreign investors can expect a 5 percent reduction on their corporate income tax for the first six years.
Meeting Challenges Head On
Though the industry is opening up to foreign investment, investors must be wary of the heavy regulation surrounding their involvement in capture fishing operations or fishing of specific species due to the FDI restrictions in place. However, all global players are open to participate in any aquaculture operations that includes the rearing of fish, process of fishing products, or manufacturing of fishing devices, provided they have local partnerships.
For first time investors, Indonesia can prove to be a tricky market to navigate. In order to take full advantage of the growing industry, it is recommended to enlist the help of professional service firms with region-wide operations. Dezan Shira & Associates provides foreign direct investment advisory services as well as tax advisory and compliance to multinationals investing in China, India, Hong Kong and ASEAN.
This article was first published June 2016.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.