Economic Forecast for Indonesia: How will the Mining Industry support local and regional economies

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Economic Forecast for Indonesia:

How will the Mining Industry support local and regional economies

by Edward Gustely Managing Director 08 February 2023

CAPITAL ADVISORS LTD

P E N I D A

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Indonesia’s Economic Outlook

• Indonesia’s economy grew 5.31% in 2022, the highest in a decade .

• Inflation in Indonesia has picked up, though the passthrough from international commodity prices has been somewhat contained by subsidies.

• External vulnerabilities have been low despite a moderate increase in external market pressures since the start of the war in Ukraine.

• The pick-up in domestic demand since the end of last year provided relief to the private sector, especially MSMEs that suffered disproportionately during the pandemic.

• Domestic recovery has enabled some fiscal consolidation, while monetary policy has remained appropriately accommodative.

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Indonesia’s Economic Outlook

• Spillovers from the Russian Federation’s invasion of Ukraine is still disrupting global economic activity.

• Global uncertainty poses downside risks for growth in Indonesia^.

• The fiscal deficit is projected to narrow to 3.0% of GDP for 2023, in line with government commitments.

• President Jokowi has ordered his Cabinet to maintain the state budget in order to stay credible, sustainable, and quite robust.

• Bank Indonesia economic growth forecast for Indonesia is between 4.5 to 5.3% for the 2023 economy, while the global economic growth will continue to slow in the upcoming year to 1.8%

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Indonesia’s Economic Outlook

• JPM Makes 2023 Recession Its Base Case, Expects Million Jobs Lost By Mid-2024

• Expect the global downturn to be led by Europe, which is the most impacted by the war in Ukraine.

• Most significant driver for 2023 global economy is China, where everything depends on the pace of its re-opening.

• Brace for 'violent' shocks that may reshape the global economy forever.

• Expect more uncertainty in the future as shocks grow more frequent and more violent.

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How Hard Commodities Performed in 2022

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How Will Commodities Perform in 2023?

• Commodity markets have a bullish outlook for 2023, mainly due to underinvestment and the lack of supply response in 2022.

• Rising interest rates worldwide increased the cost of capital in 2022, which drained money from commodity markets and triggering supply shortages.

• As China reopens the demand for hard commodities is likely to rebound, putting upward pressure on prices.

• We expect oil prices to rise due to an increase in demand but view a “transitional year” for base metals, with prices expected to remain relatively stable.

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...how will the Mining Industry

support local and regional economies…?

…through linking Indonesia’s Natural Resource Policies with its Industrialization themes,

priorities, and actions…

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The Indonesia National Car Program

Timor S515

( also known as Kia Sephia, 1996-2000)

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1996-2000: Indonesia’s National Car Program

• PT Timor Putra Nasional (TPN), commonly known as Timor, was an auto manufacturer formed by businessman Tommy Suharto.

• TPN was created as a response to a presidential instruction regarding the development of the national car industry. The Indonesian government then appointed TPN as a sole 'national car pioneer’.

• Throughout its operations, TPN imported cars made by Kia Motors from South Korea, both through built-up import and knock down kit import route.

• TPN had to end its operations after the WTO ruled the national car program was incompatible with WTO rules.

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Indonesian Companies in the EV and Battery Sector

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EV battery material suppliers brace for gluts as competition heats up

Lithium and nickel miners are taking on additional costs to produce more refined products.

The race to obtain battery raw materials has been intensified by efforts by western countries to secure supplies from non-Chinese sources.

Softer prices reflect concerns ot a slowdown in electric vehicle demand. China, the world's largest market, ended a subsidy program for EVs in December.

Tesla and Ford are already lowering EV prices to appeal to consumers dealing with rising inflation and interest rates.

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About Tesla

• Pres. Jokowi has offered Tesla a nickel mining concession and tax breaks to invest in the country, and that he was confident a deal would be finalized.

• Tesla signed nickel sourcing contracts worth about $5 billion from companies in Indonesia.

• One area of concern for potential investors is the nickel mining industry's environmental impact and Indonesia's use of coal for power generation.

• Still, global automakers are investing or sourcing from Indonesia due to limited alternatives and booming demand.

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About Tesla

• Tesla’s price cuts are an attempt to protect its market share, but they’re not exactly the desperation move some media outlets have claimed them to be.

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Time favors…Ukraine?...Russia?...or Indonesia?

• Ukraine military capabilities: heavily dependent on western support.

• Vladimir Putin: trying to run out the clock.

• But is it going to work?

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2023 Predictions

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Thank you

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Bio of Edward Gustely

Edward is a Co-Founder and Managing Director of Penida Capital Advisors Ltd.

He has over $30 billion of emerging market experience involving infrastructure and the digital economy, capital restructurings and business turnarounds, and has advised on $7.5 billion of securitization issues including the successful launch of Indonesia’s maiden 30-year global bond. He has played a pivotal role in building Sovereign Wealth Funds and Infrastructure Finance Agencies, and is the Chief Architect of the CleanTech Fund and Green Investment Fund launched by Indonesia’s President for scaling the country’s low- carbon growth plan.

Edward’s extensive international career has primarily focused on the emerging markets. He has co-founded several start-ups and private equity partnerships and served as the Managing Director of Goldhill International where he was responsible for growing it’s corporate finance and transaction management practice from $2 million to over $4.2 billion.

Edward began his professional career with IBM in Germany and the U.S. as a systems engineer and industry executive. His public sector engagements include serving as the cabinet-appointed U.S. Senior Advisor to four-Indonesia Finance Ministers (three awarded Euromoney’s ‘Finance Minister of the Year’), and to the U.S. Treasury.

An Ohio native, Edward holds an MBA in International Finance & International Management from Baldwin Wallace University graduating at the top of his class.

He earned his Latin American Studies and BSc.BA degrees from The University of Akron, Ohio. Edward is based in Jakarta.

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