The Indonesian unit of Dow Chemical is counting on the country’s huge population and accelerating economy to boost sales, its chief executive said.
Annual sales are expected to more than double by 2015 after rising by more than 50 percent in the past two years, Hideki Horito, president director of Dow Indonesia said in Jakarta on Wednesday. “But I can say it’s very small compared to around $60 billion of Dow’s sales worldwide.”
He spoke in a meeting with reporters and editors at the office of BeritaSatu Media Holdings, the parent company of the Jakarta Globe. Dow Chemical is the sixth-largest chemical producer based on its $40.7 billion market value.
Horito described Indonesia’s petrochemical industry as “lacking links” between the upstream business — meaning companies like state oil and gas company Pertamina that supply raw materials such as naphtha — and the downstream business — companies such as Unilever and Nestle that use the products derived from the raw materials.
There are not enough petrochemical makers in the country, and “Indonesia still relies on imports” of plastics and organic chemicals, Horito said.
To take advantage of demand, Dow Indonesia plans to import such products from other Dow Chemical facilities such as in Saudi Arabia, he said.
Dow Indonesia aims to double its sales by 2015 and to increase by more than five times by 2020, he said, declining to provide figures.
“There is still a big gap between chemical downstream products and upstream products,” Horito said, referring to the lack of companies that process petrochemicals into products. Only a few companies in the country have such capabilities, including Dow Indonesia and Chandra Asri Petrochemical, he said. Siam Cement, Thailand’s biggest petrochemicals maker and Dow Chemical’s partner in that country, owns a 30 percent stake in Chandra Asri.
According to data from the Central Statistics Agency, Indonesian imports of plastics and organic chemicals — the base material for plastics — have more than doubled in a five-year span, to $13.3 billion last year from $6.1 billion in 2007. In 2011 alone, imports climbed 31 percent from $10.1 billion from a year earlier.
Horito said Indonesia’s poor infrastructure was cited as one of the factors hampering foreign investment.
“Indonesia is a big country geographically. It is as long as the United States. There is no point in setting up plants here if there are no logistics network to link them up,” he said.
Horito said Dow Chemical — which has been operating in Indonesia since 1973 — is still looking out for potential investment projects in the country, while at the same time waiting for the government to resolve some issues. The government should offer tax incentives and tax holidays to small companies rather than those who can afford to invest more than Rp 1 trillion ($112 million) in certain sectors to avail of such breaks, he said.
For example, large companies need spare parts from smaller companies, and “these small companies are more in need of the incentives,” than the bigger ones, he said.
Indonesia’s rigid labor laws, including the difficulty in firing employees, is another major impediment, Horito said. Despite such problems, he said Indonesia remains a significant investment destination because of the growing economy and rising consumption.
“Still, opportunities here outweigh the challenges. The next 15, 20 years will be the golden period for Indonesia, and we want to be part of it,” Horito said.
Horito declined to mention Dow Indonesia’s total investment in the country except saying that “we will go further in Indonesia” with investment.