Indonesia's plastics industry catches up

With faster-than-expected growth and more favorable indicators showing renewed business and consumer confidence, Indonesia is now back on its track. Even with some setbacks, the country is well on its way to joining the rank of attractive trade and investment havens in Southeast Asia. This year alone, it is projected to hit record foreign and domestic investment and the trend is expected to continue even in 2009. Total domestic and foreign direct investment is estimated to expand 15% to nearly US$16 billion this year, from a record US$13.8 billion in 2007, and expand further to US$20 billion next year. Several factors are pushing the growth of these sectors. Sound government policies addressing issues that concern investors, such as inflation, power supply, interest rates, etc. are giving the right environment for business to thrive. Another factor is the realization of majority of Indonesian companies that they need to expand their businesses and look beyond domestic market towards a more expansive international market for better opportunities. Catching up with rising demand Driven by the automotive and packaging industries the demand for plastic materials has increased by 96.5% over the last decade. Demand for rubber and rubber based products has seen Indonesia誷 natural rubber production increase by almost 6% per year for the last four years. There has also been efforts to produce raw materials locally, especially in the plastics sector. For instance, the completion of the PE plant of PT Petrokimia Nusantara Interindo (PENI) has helped the industry as the raw materials needed for producing plastic goods are now produced in Indonesia. While the Indonesian government still needs to address the issue of waste management, recycling and other environmental concerns, local and foreign companies are keen on moving ahead in the sector. Alcan, a global packaging manufacturer, has been a major player in the packaging sector. Throug Alcan Packaging Flexipack PT, this packaging giant expanded its presence in the area of flexible packaging with its strategic acquisition of Interkemas Flexipack PT-a subsidiary of leading plastic processing company, Argha Karya Prima Tbk PT. Other players are eyeing opportunities in flexible packaging across all consumer goods products as this type of packaging has become the ideal substitute to metal, glass and rigid plastic packaging. Increased focus on upgrading infrastructure facilities created demand for construction materials. After a property and consturction slump in 2006, the sector is now on the way to recovery aided by the government誷 efforts to upgrade infrastructure facilities. Thus, the market of plastics pipes now shows bright prospects. In recent years, Indonesia誷 plastics industry has relied heavily on imported machinery and raw materials. The trend is not expected to see any drastic reversal in the near term although investments are pouring into the sector as investors see greater potential in the wake of higher demand for plastics. Recently, the Indonesian government came out with a policy to stop the import of used machines starting on January 1, 2009. According to Director General for Metal, Machinery, Textile and Multifarious Industries Anshari Bukhari, "the government詓 policy on used machinery imports is under review. The import of used machines will be stopped in 2009, meaning that the imports will be put to an end in December." Data from the ministry showed that in 2007 Indonesia's total machine imports had reached US$8.1 billion, 20% of which were second-hand machines. While this may not be good news to some businesses, the government sees this policy as a means to boost the development of the local engineering industry. including the plastics processing machinery. Even with these prospects for industrial expansion, there are several obstacles that need to be hurdled. Poor infrastructure, legal uncertasneakers