IK-CEPA: Indonesia South Korea Partnership 2020

by | May 12, 2021 | Study Insight | 0 comments

Source: Jakarta Globe

Indonesia and South Korea have shared a strong partnership. One of the partnerships is a Comprehensive Economic Partnership Agreement (CEPA) in November last year and are currently awaiting follow-up implementation. During the January-September 2020 period, Indonesian Investment Coordinating Board (BKPM) noted that investment realization from South Korea was ranked 7th with a total investment of USD 683 million. 

In 2020, many industries share a tremendous increase with the impact of both partnerships. Even with the COVID-19 pandemic, the relations have become stronger and closer. However, with good collaboration between the two countries, there must be prospects for it. Thus, it is essential to find out more about this partnership if you are interested in starting your business in Indonesia, and this article will provide you with this partnership information so you can learn more.

Overview of Indonesia and South Korea Partnership

In 2021, the diplomatic relations between the Republic of Indonesia and the Republic of Korea will mark its 48 years. The diplomatic relations between Indonesia and South Korea were established in September 1973, but the consular-level relationship began in August 1966. Since then, both countries have continued to enhance relations and cooperation at the bilateral, regional, and even multilateral-level. 

Furthermore, the two countries also actively support one another in various forums at the regional and international level, like the nomination of every candidature to the international organizations. The close ties between Indonesia and the Republic of Korea could even be seen from the intensity of visits of the high dignitaries of both countries (Embassy of The Republic of Indonesia in Seoul, Republic of Korea, 2020).

Economic Agreement Between Indonesia and South Korea

The partnership is going well in 2020. Proved with Indonesia and South Korea signed in 2020 the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA). The agreement is predicted to boost the trade goods and services and investment between both countries. The IK-CEPA is seen as a good thing with representing broader and deeper bilateral cooperation after both countries participated in signing the mega Regional Comprehensive Economic Partnership (RCEP) trade deal (Jakarta Post, 2020).

Both countries share the same vision, values, and will continue to contribute to the international community as middle powers. Currently, around 2,000 South Korean companies from various sectors have invested and operated in Indonesia. 70% of South Korea’s investment realization is centered on Java, with the dominating investment sectors in electricity, water gas (USD 228.4 million), chemical and pharmaceutical Industry (USD 148.4 million) (BKPM, 2020). South Korea has seen that Indonesia has many industries which will go well in the future. Therefore, their collaboration will also go well and significantly impact the two countries.

Indonesia and South Korea Partnership Industries Throughout 2020 and Its Investment Prospect

With the spread of COVID-19 in 2020, the partnership between two countries in many industries becomes stronger. From the health sector as South Korea’s support Indonesia to fight the spread of COVID-19 until their partnership in the technology industry. 

Health Sector

On April 21, 2020, President Joko Widodo had a conversation with President Moon Jae-in. Both Heads of State expressed commitment to strengthen international cooperation in handling COVID-19. Indonesia and South Korea are currently working together through pharmaceutical companies Kalbe Farma and Genexine to develop a COVID-19 vaccine. Besides, since the start of the pandemic, South Korea has been a crucial partner for Indonesia in providing medical supplies needed to handle COVID-19, including personal protective equipment.

During the support for handling the COVID-19, the South Korean Government has given Indonesia the form of 322 test kits, which will be used for 32,200 tests. It is a component of the commitment of the South Korean Government to the Indonesian Government with a worth of USD 500,000. The Director of East Asian and Pacific Affairs welcomed the increased cooperation in handling COVID-19 in Indonesia, which reflected the growing strength of RI-ROK within the framework of the Special Strategic Partnership within both countries (Ministry of Foreign Affairs, of The Republic of Indonesia, 2020).

Renewable Energy

In September 2020, The Korea International Cooperation Agency (KOICA), in collaboration with the United Nations Development Program (UNDP), has launched a USD 18 million project to provide access to solar power and clean water in remote parts of Indonesia and Timor-Leste. This project committed to completing the project to ensure access to clean and renewable energy and widespread distribution to tackle energy inequalities. This project expectedly would provide the lives of thousands of people who lived in the rural and remote areas of Indonesia and Timor-Leste access to reliable and affordable electricity (The Jakarta Post, 2020). 

Indonesian Ambassador for South Korea Umar Hadi said at IK-CEPA that held on December 18th, 2020, the partnership between Indonesia and South Korea would lead to South Korea investment in Indonesia regarding renewable energy, which can bring high added value to many job field openings. This action also becomes the government’s strategy to tackle the pandemic-induced unemployment crisis that happened in 2020. He also added that several Korean investments in the renewable energy sector in the pipeline, such as solar panels. Indonesian government is currently trying to pull in semiconductor investment from South Korea for Indonesian gadget supplies, and the market has shown interest. 

Automotive 

Chairman of Commission VI of the Indonesian Parliament Faisol Riza encouraged cooperation and partnership between Indonesia and South Korea to develop environmentally-friendly transportation technology through the electric car industry. The discussion between his party and the Korean Ambassador on November 17, 2020, mostly talked about investment such as the provision of electric vehicles and the battery industry. This investment was made by Hyundai and various other Korean companies that expectedly able to help Indonesia’s economy in the automotive industry. According to this event, Faisol, with the enactment of the law, the investors from South Korea could invest in Indonesia again. Moreover, this cooperation would have been followed up to implement the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) in December 2020.

Previously, Indonesia’s Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan said in the  mid of November 2020, LG Chem Ltd, a Korean company, would sign cooperation between Indonesia and South Korea to develop lithium batteries  for electric cars. This event might also be a kickstart for the Indonesian government to invite investors to invest in Indonesia in terms of the vehicle battery industry (VOI, 2020).

Following up on this cooperation between Indonesia and South Korea on the automotive industry, South Korea’s Minister of Industry said that IK-CEPA would facilitate the exchange of professionals in certain areas from technology, science, to promoting cooperation in the high-tech industry. This agreement aimed to implement the deal next year in 2021. To sum up, the automotive industry partnership between Indonesia and South Korea is led by 2 top leading companies of South Korea, Hyundai Motor Group and LG Chem Ltd, which are considering their investments in battery manufacturing in Indonesia. 

Electronic

Inversely proportional to the previous statement, IK-CEPA believed it would also bring a multiplication effect to the electronic industry in Indonesia. The Chairman of the Association of Electronic Entrepreneurs (Gabel), Oki Widjaja, stated that the IK-CEPA agreement would encourage the component producers to back up the electronic assembly industries from South Korea to invest in Indonesia.

According to this, Oki reckoned the investor from South Korea still had advanced observations. The implementation of Omnibus Law as policy-related  would become the advantages and convenience of investment as a benchmark of foreign investors penetrating their products to the Indonesian market. These policies’ consequences would immediately become the supporting industries in the electronic industry (Bisnis, 2020).

Government Support in This Economic Agreement

The Indonesian and South Korean Governments agreed to maintain and enhance economic and business cooperation in November 2020. Both countries realized that collaboration was a key strategy to jointly overcome the economic impact of the COVID-19 pandemic. This agreement became a green light for both countries to exchange any bilateral economic activities such as investment. 

To support the economic agreement between these two countries, the Indonesian government continues to encourage strategic and qualified investment to enter the country. Indonesia’s Capital Investment Coordinating Board (BKPM) is committed to facilitating South Korean investors entering Indonesia. Investors only need to come with capital and technology, while the issue of land and licensing will be fully supported by the Government of Indonesia (BKPM, 2020).

Also, Indonesia’s industrial, fisheries, and agricultural products will get better access to the South Korean market. In return, Indonesia will buy raw industrial materials from South Korea to facilitate South Korean investment in the country. At the regional level, the two countries are working to finalize a larger, multi-country trade agreement (The Jakarta Post, 2020). Other benefits that come under this agreement, South Korea will eliminate more than 95% of its tariff lines, and Indonesia eliminate over 92% and give preferential tariffs to support South Korean investment, Indonesia’s Minister of Trade said in a statement (Economic Times, 2020).

BRIGHT Indonesia as Your Perfect Local Partner

Indonesia has been trying to encourage foreign investors, including South Korean companies, to invest in many local potential industries. Under the economic agreement between Indonesia and South Korea, IK-CEPA, the investing climate increases and boosts more chances for both countries to develop more international trades and foreign direct investments. Both countries have significant differences in terms of culture and business style, and to enter Indonesia’s industrial market, it is crucial to have the right local partner.

BRIGHT Indonesia will help South Korean businesses to enter Indonesia’s market through services such as Business Partnership Engagement, Management and Strategy Consulting, Business Registration and Establishment, and  Foreign Direct Investment Promotion. The services will help your business to:

  1. Secure the agreement between South Korean companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison. 
  2. Supporting South Korean companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  3. Help South Korean companies obtain the work and stay permit for your foreign employee in the Indonesian office: expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
  4. Link South Korean companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

With exceptional local market expertise and networks in Southeast Asia, BRIGHT Indonesia will offer excellent services designed specifically to achieve your company’s goal. 

For more information, email to info@brightindonesia.net.

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