Economic Overview Of The Country Finance Essay

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Formal Name: Indonesia
Short Form: Indonesia
Term for Citizens: Indonesian(s)
Capital of Indonesia: Jakarta
Date of Independence: Proclaimed August 17, 1945, from the Netherlands. The Hague recognized Indonesian sovereignty on December 27, 1949.
Fiscal Year: April 1st - March 31st.
Area: 7, 41,096 (in sq mi)
Population: 24, 82, 16,193
Population Growth Rate: -1.04%
Economic groups: There are 300 different ethnic groups have been identified in Indonesia.
Religions: According to 2000- Muslim: 86.01 %
Christian: 8.07 %
Hindu: 3.00 %
Buddhist: 1.08 %
INTRODUCTION OF ECONOMY
Indonesia is one of the largest countries in South-east Asia, between the Indian Ocean and the Pacific Ocean which have mainly mountainous and covered with rain forests, swamps and consists over 13000 islands. Jakarta is the capital of Indonesia. Indonesia stated its independence on 17th August 1945 from Japan but Netherlands agreed to transfer sovereignty in 1949.
The president is Susilo Bambang and Muhammad Yusuf Kalla is the Vice-President of Indonesia. Bahasa is the official language in Indonesia which adapted form of Malay but the most widely spoken language is Javanese. 88.01% of Indonesians population is Muslim. It has a very large trading environment, with several countries ranging in products from gas to textiles. Population of 21.99% lives below poverty line.
There is mixed economy in Indonesia where the private sector and government play significant roles. The country is the largest economy in Southeast Asia and a member of the G-20 major economies. The Gross domestic product is almost Rp.1 trillion ($117.60 million) and the debt ratio to the gross domestic product is 26.01 percent.
The industrial sector is the economy's largest and an account is for 46.40% of GDP (2010), this is followed by services (37.10%) and agriculture (16.50%). However, since 2010 more people were employed in service sector compared to other sectors. Accounting 48.90% of the total labor force; this has been followed by agriculture (38.30%) and industry (12.80%). Agriculture however, had been the country’s largest employer for centuries.
According to World Trade Organization (WTO) data collected, Indonesia was the 27th biggest exporting country in the world in 2010, moving up three places from a year before. Indonesia's main export markets (2010) are Japan (17.29%), Singapore (11.30%), the United States (10.81%), and China (7.63%). The major suppliers of Indonesia’s imports are:-
Singapore (24.96%)
China (12.52%)
Japan (8.92%)
In 2005, Indonesia ran a trade surplus with export revenues of US $83.64 billion and import expenditure of US $62.02 billion. The country has extensive natural resources including crude oil, natural gas, tin, copper, and gold. The major imports of Indonesia's include machinery and equipment, chemicals, fuels and foodstuffs and the country's major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles.
DEMOGRAPHIC PROFILE OF THE COUNTRY
POPULATION
According to the 2010 the population of Indonesia’s national census is 237.60 million, with population growth still high at 1.90 percent. 58% of the population lives on Java, the world's most densely inhabited island. Despite a fairly effective family planning program that has been in place since the 1960s, the population is expected to grow to around 254 million by 2020 and 288 million by 2050.
There are around 300 distinct native ethnicities in Indonesia, 742 different languages and dialect. Most of Indonesians are descended from Austronesia-speaking peoples whose languages can be traced to Proto-Austronesia (PAn), which has been originated in Taiwan. Another major grouping is Melanesians, who inhabit eastern Indonesia. The largest ethnic group is the Javanese, who comprise 42.01% of the population, are politically and culturally dominant. The Sundanese, ethnic Malays, and Madurese are the largest non-Javanese groups.
A sense of Indonesian nationhood exists alongside strong regional identities. Society is largely harmonious, although social, religious and ethnic tensions have triggered unbearable violence. Chinese Indonesians are an influential ethnic minority comprising 3% to 4% of the population. Much of the country's privately owned commerce and wealth is Chinese-Indonesian controlled, which has contributed to considerable resentment and even anti-Chinese violence.
The official national language of Indonesian is a form of Malay, which is universally taught in schools, and consequently is spoken by nearly every Indonesian. Malay is the language of business, politics, national media, education, and academia. It was promoted by Indonesian nationalists in the 1920’s and declared the official language under the name Bahasa. Most of Indonesians speak at least one of the several hundred local languages and dialects often as their first language.
Religious freedom is stipulated in the Indonesian constitution, the government officially recognizes only six religions: Islam, Protestantism, Roman Catholicism, Hinduism, Buddhism, and Confucianism. Although it is not an Islamic state, Indonesia is the world's most populated Muslim-majority nation, with 86.10% of Indonesians being Muslim according to the 2000 census.
On 21St May 2011 the Indonesian Sunni-Shia Council (MUHSIN) was established. The council aims to hold gatherings, dialogues activities and social activities. It was the answer of violence committed in the name of religion. Sunni are the majority of Muslims in Indonesia. 9% of the population was Christian, 3% Hindu and 2% Buddhist or other. Most Indonesian Hindus are Balinese, and most Buddhists in modern-day Indonesia are ethnic Chinese. Though now minority religions, Hinduism and Buddhism remain defining influences in Indonesian culture. Islam was first adopted by Indonesians in northern Sumatra in the 13th century, through the influence of traders and became the country's dominant religion by the 16th century.
TOTAL POPULATION
Year
2006
2007
2008
2009
2010
2011
Population
24,54,52,700
23,46,94,000
23,75,12,400
24,02,71,500
24,29,68,300
24,56,13,000
Population Growth Rates
The average annual percent change in the population is resulting from a surplus (or deficit) of births over deaths//// and the remaining balance of migrants entering and leaving a country. The rate can be positive or negative. The growth rate is a factor which is determining how great a burden would be imposed on a country by the changing needs of its people for infrastructure (e.g. schools, hospitals, housing, roads), resources (e.g. food, water, electricity) and jobs. Rapid increase in population growth can be seen as threatening by neighboring countries.
Year
2006
2007
2008
2009
2010
2011
Population Growth Rate
1.41
1.21
1.18
1.14
1.10
1.07
Birth rates
Birth rates give the average annual number of births during a year per 1,000 people in the population at midyear, is known as Crude Birth Rate. The birth rate is usually the dominant factor in determining the rate of population growth, which depends on both the level of fertility and the age structure of the population.
Year
2006
2007
2008
2009
2010
2011
Birth Rate
20.34
19.65
19.24
18.84
18.45
18.10
TOTAL POPULATION
Age Structure
0-14 years
27.03% (Male 34,165,213/Female 32,978,841)
15-64 years
66.05% (Male 82,104,636/Female 81,263,055)
65 years and over
6.01% (Male 6,654,695/Female 8,446,603)
(2011 est.)
Sex Ratio
At Birth
1.05 Male(s)/Female
Under 15 years
1.04 Male(s)/Female
15-64 years
1.01 Male(s)/Female
65 years and over
0.79 Male(s)/Female
Total population
1 Male(s)/Female (2011 est.)
Geographic Areas
Urban population
44% of total population (2010)
Rate of urbanization
1.07% annual rate of change (2010-15 est.)
Migration Rates and Patterns :
This entry of migration rates and patterns includes the figure for difference between the number of persons entering and leaving a country during the year per 1,000 persons (based on midyear population). An excess of persons entering the country is referred to as net immigration.
Net Migration Rate-
Year
2006
2007
2008
2009
2010
2011
Net Migration Rate
0
-1.27
-1.25
-1.24
-1.23
-1.15
Ethnic Groups
This entry provides an ordered listing of ethnic groups starting with the largest and normally includes the percent of total population. Javanese 40.06%, Sundanese 15%, Madurese 3.03%, Minangkabau 2.07%, Betawi 2.04%, Bugis 2.4%, Banten 2.00%, Banjar 1.07%, other or unspecified 29.09% (2010 census).
Economic Statistics and activity
GROSS NATIONAL PRODUCT
Total
Year
2006
2007
2008
2009
2010
GDP (Billion$)
389.12
421.09
505.04
539.05
706.56
indonesia gdp
Indonesia GDP is at 706.56 billion.
Gross Domestic Product of Indonesia is worth 707 billion dollars or 1.14% of the world economy, according to the World Bank. Historically, from 1967 until 2010, Indonesia's average Gross Domestic Product was 151.08 billion dollars reaching an historical high of 706.56 billion dollars in 2010 of December and a record low of 5.99 billion dollars in December of 1967. Indonesia is the largest national economy in Southeast Asia. It has a market-based economy in which the government plays a significant role by owning more than 164 state-owned enterprises. The government administers prices on various basic goods, including fuel, rice and electricity. This page contains: Indonesia Gross Domestic Product (GDP) chart, historical data, forecasts and news.
Rate of Growth Rate.
Indonesia GDP Growth Rate at is 2.90 %
The Gross Domestic Product (GDP) in Indonesia expanded to 2.90% in the second quarter of 2011 over the previous quarter. Historically, from 2005 to 2011, Indonesia's average quarterly GDP growth was 1.50% reaching an historical high of 3.82 % in September 2009 and a record low of -3.57 % in December 2008.
Indonesia is the largest national economy in Southeast Asia. It has a market-based economy in which the government plays a significant role by owning more than 164 state-owned enterprises. The government administers prices on several basic goods, including fuel, rice, and electricity. This page includes: Indonesia GDP Growth Rate chart, historical data, forecasts and news. Data is also available for Indonesia GDP Annual Growth Rate, which measures growth over a full economic year.
Year
2006
2007
2008
2009
2010
Annual Growth Rate
6.01%
5.85%
5.35%
5.43%
5.85%
indonesia gdp growth rate
PERSONAL INCOME PER CAPITA
Indonesia GDP per capita is at 1087.00 USD.
According to the World Bank, Indonesia GDP Per Capita is 1087 US dollars. The GDP per capita is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the total population. Historically, from 1960 until 2008, Indonesia's average GDP Per Capita was 530.58 dollars which reaches an historical high of 1087.00 dollars in December of 2008 and a record low of 193.00 dollars in December of 1967. This page includes: Indonesia GDP per capita (Constant Prices Since 2000) chart, historical data, forecasts and news.
Year
2006
2007
2008
2009
2010
GDP Per Capita($)
912
949
989
1038
1087
DISTRIBUTION OF WEALTH
Since 1970s, Indonesia has undergone substantial economic development but the country remains comparatively poor which is around 17% below the national poverty line. The distribution of wealth in Indonesia is also very uneven, with the poorest 10% sharing only 3.00% of the wealth, with the richest 10% sharing over 30%.
Poverty rates have always been higher in the outer islands. The rise of manufacturing disproportionately benefitted Java, Bali, and Sumatra due to the better infrastructure of the inner islands. Economic disparity and the flow of natural resource profits to Jakarta has led to dissatisfaction and even contributed to separatist movements in areas such as Aceh and Papua (Irian Jaya). While the new laws on decentralization (moving more economic and political decision-making to the outer islands) may partially address the problem of unequal growth and satisfaction, there are many obstacles to putting this new policy into practice. The financial crisis of 1997 had social ramifications by reversing many of the income-distribution gains made over the previous decades. Though the enormous informal economy and family-support networks helped soften the impact of higher unemployment rates, social effects were nonetheless profound while some 15% of the population was below the poverty line before the crisis, an additional 40 million.
Distribution of Income or Consumption by Percentage Share: Indonesia
Lowest 10%
3.06
Lowest 20%
8.00
Second 20%
11.03
Third 20%
15.01
Fourth 20%
20.08
Highest 20%
44.09
Highest 10%
30.03
3
OVERVIEW OF INDUSTRIES TRADE AND COMMERCE
Indonesia is the 4th most populous country in the world which represents a considerable consumer market with a population of over 237 million. When we particularly talk about trade in Indonesia, there is slowly and steadily fostering the growth in various sectors.
In 2011, Indonesia had a gross domestic product (GDP) of $834 billion1.13 making it the 15th largest economy in the world. The Indonesian government plays a major role in Indonesia’s market economy in which it owns over 160 enterprises and sets prices for several goods such as electricity, rice and fuel services. Indonesia has the largest economy in Southeast Asia and is a member of both the G20 and Asia-Pacific Economic Cooperation (APEC). 
According to the IMF, after India and China, Indonesia is the third fastest growing economy in the G20. The country’s main economic industries consist of petroleum and natural gas, apparel, textiles, apparel, mining, tourism and rubber. Indonesia has endured the recent global financial crisis through its dependence on domestic consumption to drive continual economic growth.  In addition, investment from both foreign sources and domestic sources has supported the economy of Indonesia. Indonesia’s debt to GDP ratio has steadily declined due to its recent economic growth and sound fiscal policies
In the last several years trade was been expanding quickly between the United States and since 2005, U.S. exports to Indonesia have more than doubled from $3.10 million to $7.40 million in 2011. The main export categories are Transportation Equipment, Agricultural Products, Chemicals and Food Manufactures.Major trade association in Indonesia is the Indonesian Chamber of Commerce and Industry. Members include representatives from private industry, cooperatives, public corporations, utilities as well as state-owned enterprises. In addition, there are several other specialized and professional organizations that represent the interests of various other sectors and trades in the economy. Association of importers and exporters, most of who are organized on a commodity basis, include the Importers Association of Indonesia (GINSI) and the Indonesian Association of Exporters (GPEI). The head office of both organizations is at Jakarta.
OVERVIEW OF BUSINESS AND TREND AT INTERNATIONAL LEVEL
FROM THE POINT OF VIEW OF INDIA
International Business in India looks really productive and every passing day, it’s coming up with only more possibilities. The growth in the international business sector in India is more than 7.00% annually. There is scope for more improvement if only the relations with the neighboring countries are stabilized. The unbelievable performance of the stock market in India has gathered all the more attention (in comparison to the other international bourses). India definitely stands as an appropriate place to explore business possibilities, with its high-skilled manpower and budding middle class segment. The eastern part of India is known as the ‘Land of the Intellectuals’, whereas the southern part is known for its ‘technology acumen’. On the other hand, the western part is known as the ‘commercial-capital of the country’, with the northern part being the ‘hub of political power’.
Sectors having potentials for International business in India-
Information Technology
Telecommunication
Pharmaceuticals and Biotechnology
Research and Development
Banking
Capital Market
Chemicals and Hydrocarbons
Infrastructure
Agriculture and Food Processing
Retailing
Logistics
Manufacturing
Power and Non-conventional Energy
Sectors like Health, Education intuitions, Housing, Resources, Environment, Rural Development, Small and medium Enterprises (SME) and Urban Development are still not tapped properly and thus the huge scope should be exploited.
FROM THE POINT OF VIEW OF INDONESIA
Ambitious and fast rising – these two words appropriately describe modern Indonesia. A global economic slowdown, Indonesia was the third fastest growing economy among the G-20 for 2009 and it continuous to post strong economic growth, at a projected rate of 6.04% for 2012.
Improving economic competitiveness by creating a more constructive business climate is one of Indonesia’s national priorities for 2010 to 2014. Making it easier to do business and invest also helps promote sustainable urbanization, another of Indonesia’s key national development objectives. Across Indonesia, it’s easiest to start a business in Yogyakarta, deal with construction permits in Balikpapan, and register property in Bandung and Jakarta. To start a business in Manado and register property in Batam is the most difficult task.
Indonesia Market of 220 million is the largest among ASEAN partners India. Indonesia's economy has stabilized after the crisis of 1997-98, strengths supported by the country's vast natural resources (oil and gas, coal, copper, gold, forestry and plantation products) and manufacturing for the domestic and export market (textiles, footwear, electronics, automotive, pulp and paper). While stable in macroeconomic terms, the Indonesian economy is characterized by low investment growth, export slowdown and high unemployment, so it is largely driven consumption.
1. Framework:
In the era of globalization, trade relations were formalized under a Free Trade Agreement signed in June 1978, committing both countries to take all appropriate measures to facilitate, strengthen and diversify bilateral trade. The first meeting of the joint commission between India and Indonesia was held in Jakarta in September 2003.
2. Bilateral trade:
Indonesia is our second largest export market in ASEAN and one of our main export destinations. India is the biggest buyer of Indonesian crude palm oil and its products importer of mining, oil and paper. India exports refined petroleum products, wheat and rice, sugar and iron and steel products from Indonesia.
3. Investment / Joint Ventures / Projects:
There are over a dozen major companies manufacturing joint India Indonesia with direct indigenous participation or financed by Indians abroad. Large investments are in the fields of synthetic fibers, textiles, garments, steel and hand tools. A large number of Indian companies have been involved in the supply of equipment for the implementation of projects and in Indonesia. These include WAPCOS, IRCON, rites, STUP Consulting India Ltd., TCIL, Punj Lloyd, KEC International Ltd. TELK, BHEL and Bharat Heavy plates. NIIT / APTEC / LCC InfoTech have established education centers in Indonesia.
4. Banking:
Indonesia has many banks. The Bank of Spain has a branch in Indonesia, while Indonesia International Bank has a branch in Mumbai.
PRESENT TRADE RELATIONS AND BUSINESS VOLUME OF DIFFERENT PRODUCTS WITH INDIA
INDIA and INDONESIA - EMERGING ECONOMIES OF INDIA
India and Indonesia are increasingly emerging economies of Asia and has been the subject of major economic reforms. In the past two decades, robust sound fundamentals with the financial sector and manufacturing have positioned among five investment destinations in Asia.
In order to maximize the benefits of their bilateral relationship, however, the two countries have to tread a middle path, a mix of seeking complementarities in the economic field, in competition with each other in terms of attracting foreign investment.
There is hope that the signing of the CECA (Comprehensive Economic Cooperation Agreement), India and Indonesia, not only reach the target of $ 20 billion bilateral trade by 2015, but also sets new benchmarks for an economic relationship
INDIA & INDONESIA -TRADE and INVESTMENT COMPLEMENTARITIES
India and Indonesia bilateral trade is at least two millennia old. In the ancient past, the two nations used to trade in spices, timbers, minerals, precious stones, cotton and silk.
In present, trade ties have not realized their true potential which can be attributed to the lack of imaginative planning as well as ignorance on the part of the business communities of the two countries. Now India and Indonesia are increasingly seen as emerging Asian economies. Trade and investment complementary need to be comprehensively explored.
As a result of the continued growth of India's economic operation with ASEAN since 1970, the amount of trade grew in volume. In 1982 the ASEAN countries share of India's exports, which was 2.6 percent in 1970 had increased to 4.02%. During the same period, total imports from India in the region had increased.
THEY ACT AS COMPETITORS?
The answer lies in the treatment of the middle path, while the growing economic interdependence and integration of production networks and the strengthening of regional economic institutions tells us that developing economies with advantage in terms of cheap labor are intended to cooperate to achieve growth, but also true that it is difficult when they are competing to attract foreign direct investment. However, what really works it really works for the benefit of India and Indonesia is the fact that while Indonesia is an export-oriented economy, India is not. The tourism industry is the fastest growing industry between India and Indonesia
Business Volume India -Indonesia trade (year to year trade)
Export -Import data bank ministry of commerce -11
From the table, it is clear that India's exports have almost tripled in the last five years, while the import quota equally impressive. Among the important issues that exports from India to Indonesia are gems and jeweler, mechanical equipment, raw materials, while in the case of Indonesia has been chemical, leather, engineering products.
YEAR
Export
Import
2005-06
1380.20
3,008.11
2006-07
2,032.96
4,181.96
2007-08
2164.17
4,821.25
2008-09
2559.82
6,666.34
2009-10
3063.36
8,656.66
Co -operation in energy sector.
In August 2007 Tata power acquired a 30% stake in the Indonesia energy Tata power acquired a 30% stake in the Indonesian energy giant P. T. Bumi resources by paying close to $ 1.3 billion. Anil Dhirubhai Ambani group Reliance power also acquired three coal mines in Indonesia.
PESTEL ANALYSIS
POLITICAL AND LEGAL FACTORS
Indonesia is considered as Republic country. It declared its independence on 17th August 1945from Japan so 17th August is the national holiday. Indonesia’s legal rules and regulations are based on Roman-Dutch law. Their constitution has abrogated by Federal Constitution in 1949 and Provisional Constitution abrogated in 1950 which restored on 5 July 1959.
Political stability
In Indonesia after every five year election is being contested for president and vice president post by direct vote of the citizenry. Last time it was held on 8 July 2009 (next to be held in July 2014). Susilo Bambang has elected as president and Muhammad Yusuf Kalla is the Vice-President. Similarly, Cabinet also appointed by the president. So for next 5 years there are more chances of stability of the government.
Labour laws
Indonesia has one of the largest labour forces in the world which make it stand on5th rank. So, to protect the labour rights the government has made a law called Labour laws Article 28D (2). According to this law 7-hour workdays and 40-hour workweeks, with one 30-minute rest period for each 4 hours of work is legal in Indonesia. One day of rest weekly also mandatory in Indonesia. In April 1992, the Government of Indonesia signed a Memorandum of Understanding with the International Labour Organization under the International Program for the Elimination of Child Labour (IPEC) where the minimum working age is 14 years. (Labour &Social Protection in Indonesia, 2009)
Labour force - by occupation is as below-
Agriculture: 42.01%
Industry: 18.06%
Services: 39.03%
Company law
The Indonesian Company Law of 1995 is the most important framework for the current legislation on corporate governance in Indonesia. Under the Company Law, a company is a separate legal entity in which Directors and Commissioners represent the company. Every company must register their Memorandum of Act under this Company Law. (Incorporation of company Law in Indonesia)
Prime lending rate
The Commercial Bank prime lending interest rate is 6.41% and the Central bank discount rate is 10.83%.
Environmental law
Indonesia Environmental Agency states Decree Laws. For instance, Municipal Noise Reduction Plan (MNRP) has noise limit such areas in housing occupancy, hospitals, schools, and religious buildings.
Business or individual tax system
Tax system has various rules and categories for example on first 25,000,000 income rate of tax is 10% then on next 25,000,000 it is 15% and on next 50, 000,000 it is 30%. In the same way Income Tax on interest from Indonesian banks is fixed at a final 15% for both companies and individuals.
SOCIAL FACTORS
Population
Indonesia has a large population, which is increasing at a steady rate. It is on the 5th position all over the world with total 240,271,522 populations which is growing at 1.13%. The birth rate in Indonesia is 18.84 births/1,000 and the mortality rate is 29.25 deaths/1,000 populations. The total life expectancy rate is 70.76 years in which for male its 68.26 years and for female its 73.38 years. 52% of total population lives in urban areas which are increasing at 3.02% every year.
Age factor
Indonesia is considered as nation of young people. The total median age is 27.6years in which for male it is 27 years and for female its 28.1 years.
Age structure
0-14 years: 28.01% (male 34,337,341/female 33,162,207)
15-64 years: 66.00% (male 79,549,569/female 78,918,321)
ears and over: 6.00% (male 6,335,208/female 7,968,876)
Education
If a country has good literacy rate then it has bright future. Same thing apply on Indonesia. 90.4% of its populations are literate in which male are 94% and female are 86.8%.3.6% of their GDP is spent on education.
Religion
Indonesia is a multi culture and religion country where people from different religion work there. If we talk about majority of nation is Muslim with 86.01%, Protestant 5.07%, Roman Catholic 3%, and Hindu 1.08%.
TECHNOLOGICAL FACTOR
Transport system
Indonesia has effective and highly developed transport system .Indonesia has 139 airports, 8529 km railways lines and water ways covering 21579 km. Major ports are Banjarmasin, Belawan, Ciwandan, Kotabaru, Krueg Geukueh, Palembang, Panjang, Sungai Pakning, Tanjung Perak, Tanjung Priok. It has one of the largest merchant moraine with 971 in which 114 is already registered in foreign country.
Communication system
In Indonesia, the communication system is highly developed.17.33 millions of people use landlines where as 83.03 million of people use Cellular mobiles. There are 13 million of internet users which is good sign for a country. It has interisland microwave system, HF radio police net and domestic satellite communications system coverage which makes its communication system better.
Broadcasting technology
In media sources, Indonesia has 678AM and 43 FM channels. It has 54 local TV stations including 11 national TV networks each of with its group of local transmitters.
ENVIRONMENTAL FACTOR
Geographical location
Its geographic environment is one of the most complexes and varied in the world. By one count, it has situated in South-Eastern Asia between the Indian Ocean and the Pacific Ocean. It has total 1,904,569 sq km area in that land is 1,811,569 sq km and water is 93,000 sq km. Basically it is hot and humid country. At least 669 distinct languages and well over 1,100 different dialects are spoken. The nation encompasses some 13,667 islands; the landscape ranges from rain forests and steaming mangrove swamps to arid plains and snowcapped mountains.
Time zone
Indonesian time zone is UTC+7 mean seven hours ahead of GMT and 16 hours ahead of U.S. Pacific Standard Time.
Natural or Environmental disaster
Due to its geographic location, several times Indonesia has faced many natural disasters such as in December 26, 2004; magnitude 9.0 earthquake caused a tremendously powerful tsunami in the Indian Ocean and about 155000 people died and after this in May 26, 2006, in Feb. 2007, January 27, 2008 and many times country has faced same trouble because of its location.
 In the same way, Country has faced deforestation, soil erosion and massive forest fires in interior regions of Kalimantan, Sulawesi, and Sumatra due to its mountainous. In 1983, about 3 million hectares of prime tropical forest worth at least US$10 billion were destroyed in a fire in Kalimantan Timur Province. The disastrous scale of this fire was made possible by the piles of dead wood left behind by the timber industry. Even discounting the calamitous effects of the fire, in the mid-1980s Indonesia's deforestation rate was the highest in Southeast Asia, at 700,000 hectares per year and possibly as much as 1 million hectares per year.
CONCLUSION
After analyzing PESTLE analysis of Indonesia, we came to know it has some advantage and disadvantage in term of legal policy, economic factor, social, geographic and technological factor. Where growth rate, labour force, foreign reserve, water resources and natural resources such as gas, crude oil are more in Indonesia they have less per capita income, huge population, high inflation and unemployment rate. In Indonesia FDI is restricted in most of the sectors and the business environment is not good because of persistent corruption and natural disaster but it is recovering very fast and in next 4 or 5 years Indonesia would be in better  position.
INDUSTRY SCENARIO AND VOLUME
The cement industry in India has been enjoying its best period with a healthy growth in demand in the past two years. The industry has been operating at its near capacity during this period. The cement prices have been steady throughout the year with this firm demand position.
The all India clinker production picked up further by 6.05% to 129.70 million tonnes as compared to 121.75 million tonnes during the previous year. The overall production of cement in the country for the year ended March 2011 was up at 168.31 million tonnes as against 155.66 million tonnes in the previous year, registering growth rate of 8.01%. Domestic consumption grew further however lower at 3.65 million tonnes as against 5.88 million tonnes in the previous year due to a buoyant domestic market.
The cement industry is going through its boom period with full capacity utilization. Powered by the GDP growth of 8.09%, the annual demand in the country continues to grow at 8%-10%. As per NCAER study, under high growth scenario, the demand for cement (Including exports) is expected to increase 244.82 million tons by 2011-2012. As per study, the demand is expected to be much higher at 311.37 million tones. It the optimistic projection of the housing sector are met.
EXISTING CEMENT INDUSTRIES:
Some existing cement industries are Ambuja, Binani cement, Birla cement etc.
The Indian cement industry is presently dominated by Grasim and Gujarat Ambuja cement and is increasingly globalised with international player raising their stakes.
These companies control more than 45% of the market.
Gujarat Ambuja cement Ltd. is a major cement producing company in India.
The group's principal activity is to manufacture and market cement and clinker for both domestic and export market.
P T Semen Gresik Indonesia's biggest cement maker.
Statistics from the Indian high commission in Indonesia has revealed that trade turnover between Indonesia and India increased from US $ 537.53 million in 2011.
This said depicted an increase of 52% over the presiding year with India's exports to Indonesia at US $ 658.35 million as against an import figure of US $ 759.75 million.
INTRODUCTION
Cement is the glue that holds the concrete together, and is therefore critical for meeting society's needs of housing and basic infrastructure such as bridges, roads, water treatment facilities, schools and hospitals. Concrete is the second most consumed material after water, with nearly three tonnes used annually for each person on the planet. Being one of the basic elements for setting up strong and healthy infrastructure, Cement plays a crucial role in economic development of any country. Having more than a hundred and fifty years history, it has been used extensively in construction of anything, from a small building to a mammoth multipurpose project.
The manufacturing process of cement consists of mixing, drying and grinding of limestone, clay and silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be cooled in an air-cooling system to form clinker, which is the semi-finished form. This clinker is cooled by air and subsequently ground with gypsum to form cement.
There are three types of processes to form cement - the wet, semi-dry and dry processes. In the wet/semi-dry process, raw material is produced by mixing limestone and water (called slurry) and blending it with soft clay. In the dry process technology, crushed limestone and raw materials are ground and mixed together without the addition of water.
The dry and semi-wet processes are more fuel-efficient. The wet process requires 0.28 tons of coal and 110 kWh of power to manufacture one tonnes of cement, whereas the dry process requires only 0.18 tonnes of coal and 100 kWh of power.
There are different varieties of cement based on different compositions according to specific end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement, White Cement, Portland Blast Furnace Slag Cement and Specialised Cement. The basic difference lies in the percentage of clinker used.
GLOBAL CEMENT SCENARIO
Cement is a cyclical industry in which long periods of growth are interspersed by shorter periods of decline. This also means that as a rule the number of markets in growth at any one time will exceed those in decline. This is a significant factor for the long-term outlook of the cement sector, meaning that growth prospects for the industry are encouraging, despite the 2007 downturn in the US.
The key growth drivers for cement consumption are population growth (increasing demand for housing, commercial building and infrastructure) and economic growth (driving up the consumption of cement per capita). Rapid urbanization and the booming infrastructure have lead to an increase in construction and development across India, attracting even the global players. Cement is a global industry made up of local markets. When a product is both heavy and cheap, transportation costs become a key factor in determining its profitability, so cement plants need to be close to customers. This is why global cement industry leaders are seeking to be present in as many local markets as they can, resulting in the growing dominance of the industry by its largest businesses.
According to the leading manufacturer of cement production equipment in the world, FL Smidth, world cement consumption is set to rise on average between 3.6% and 4.8% per year in the coming years. At the same time, the Portland Cement Association (the US cement sector’s trade body) is expecting world cement consumption to average more than 6% annually in the next two years, reaching 4.9 billion metric tons by 2012 (estimation Oct 2010). While much of this growth is set to come from emerging growth markets in Central and Eastern Europe and Asia, growth in mature markets also looks healthy.
The recent years have witnessed a surge of foreign direct investment in the cement sector. International players like France's Lafarge, Holcim from Switzerland, Italy's Italcementi and Germany’s Heidelberg Cements together hold more than a quarter of the total capacity.
Holcim, one of the world's leading suppliers of cement, has 24 plants in the country and enjoys a market share of about 23–25 per cent. It will further invest about US$ 2.49 billion in the next five years to set up plants and raise capacity by 25 MT in the country. Holcim has a global sale worth about US$ 20 billion, where India contributes US$ 2 billion–2.5 billion. Italcementi Group, which acquired full stake in the K K Birla promoted Zuari Industries' cement, for US$ 126.62 million in 2006 plans to invest US$ 174 million over the next two years in various greenfield and acquisition projects.
High concentration of cement production may be attributable to high capital costs and long gestation periods in cement industry. Access to limestone reserves principal raw material for the manufacture of cement) also acts as a significant entry barrier for newer companies.
WORLD CEMENT PRODUCTION 2010
Regionally, Asia contributed about 70% to world production and included 9 of the 20 leading producing countries. Western Europe had about 8% of total output; the Middle East (including Turkey) and North America, nearly 6% each Africa, Central America and South America (combined), and the Commonwealth of Independent States, about 4% each and Eastern Europe, about 2%.
United States is the largest trader of cement in the world, with total trade of US$ 1,396 million during 2008, followed by Germany, Belgium and Netherlands with total trade of US$ 945 million, US$ 744 million and US$ 562 million, respectively.
Despite being the second largest producer of cement in the world, India is not amongst the major traders of cement.
INDONESIAN CEMENT INDUSTRY
In Indonesia, nine cement companies operate 15 cement plants with a total installed production capacity of 46.1 million metric tons (MMT). PT Semen Gresik, PT Semen Padang, and PT Semen Tonasa are part of the Semen Gresik Group, which is 51% owned the Government and holds the largest market share of 45.3%. PT Indocement Tungga Prakarsa, a subsidiary of Heidelberg of Germany, is the second-largest player with a market share of 29.6%, and PT Holcim Indonesia, a subsidiary of Holcim of Switzerland, is the thirdlargest with a market share of 15.2%.
The top three companies have a 90% share of the market. PT Semen Gresik, PT Indocement Tunggal Prakarsa, and, to a lesser extent, PT Holcim Indonesia each operate several large plants across the country. However, 73% of their capacity is in Java, which accounts for over two thirds of their sales. The other four companies (PT Semen Andalas Indonesia [SAI], PT Semen Bosowa, PT Semen Baturaja, and
PT Semen Kupang) each operate a single plant or a few small plants in Sumatra or in other islands.
The cement design capacity and location of the cement plants of these companies are given in the table.
Company
Location of cement plants
Capacity
(tons)
Domestic
Sales
(tons)
Market
Share
(%)
Major Shareholder
PT Semen Andalas
Indonesia Aceh
1,124,580
-
3.6
Lafarge
PT Semen Padang
West Sumatra
5,440,000
3,876,732
12.3
PT Semen Gresik
PT Semen Baturaja
South Sumatra and Lampung
1,250,000
895,235
2.8
Government of Indonesia
PT Indocement Tunggal Prakarsa
West Java and South Kalimantan
15,650,000
9,335,415
29.7
Heidelberg
PT Holcim Indonesia
West Java and Central Java
9,700,000
4,793,114
15.2
Holcim
PT Semen Gresik
East Java
8,200,000
7,903,635
25.1
Government of Indonesia
PT Semen Tonasa
South Sulawesi
3,480,000
2,496,165
7.9
PT Semen Gresik
PT Semen BosowaMaros
South Sulawesi
1,800,000
922,363
2.9
Bosowa Group
PT Semen Kupang
East Nusa Tenggara
570,000
68,942
0.2
Government of Indonesia
In 2005, demand for cement grew at a slower 5% as rising oil prices and interest rates led to a slowdown in infrastructure investments. An increase in government spending on infrastructure development would drive up demand for cement. Assuming a yearly growth in demand of 6% over the next 5 years, the existing capacity will be met by 2012. The domestic producers are expected to respond to the rising demand by increasing their capacity through new or better-performing plants. As foreign investors are not restricted from entering the Indonesian cement industry, the entry of new players could generate additional capacity. These projects are, however, not expected to pose a major threat to existing cement players, given the large capital investment requirement and the need for well-developed distribution network and brand recognition.
In response to rising demand and higher domestic prices compared with export prices, these companies have progressively shifted their sales toward the domestic market. Further capacity expansions could come with the entry of new players. However, they are not expected to pose a major threat to existing cement players, given the large capital requirements for new plants and the need to develop a distribution network and brand loyalty.
With rapid increases in cement prices in the domestic markets—up to Rs 4100 per bag (equivalent to Rs.41/Kg) in 2010, or about 35% higher than the 2008 level—the risk of imports is also increasing. For example, the PRC could be an exporter to Indonesia. However, it is believed that the risk to the existing producers is limited, given the rapid growth that is expected to continue in the PRC. In terms of geographic locations, Java is the largest-consuming region with the highest share of 62% of the national demand. The top three cement producers, which competed aggressively for market share in this region, appear to have switched to a "for profit" rather than a "for market share" strategy to maximize shareholder value and improve financial health. In other regions, smaller producers are ranked among the top three companies in market share, given the limited radius of competition in the cement industry. For example, SAI is ranked second in Sumatra, while PT Bosowa Maros is ranked second in Sulawesi and eastern Indonesia.
Role of Cement Industry in Indonesian Economy
The above chart shows the relationship between Indonesia’s GDP Growth & Cement Sector Growth along with the Domestic Consumption data. The Cement Industry is growing at a good pace of around 9 % on an average of past 3 years annually compared to Its GDP of 6.6%. Also the domestic consumption of cement in Indonesia is increasing at a high sped.
The above chart represents comparison of Cement Consumption Per Capita of different countries of the world, including India and Indonesia. Indonesia’s cement per capita consumption is 172kg, while that of India is 143kg.
Structure of Cement Industry
Public (48.99%)
PT Semen Gresik
(Persero) Tbk.
PT Semen Padang
PT Semen Tonasa
The Govt. of the Republic of Indonesia (51.01%)
Four Subsidiaries non-cement producers:
Six Subsidiaries non-cement producers:
Name
Activities
% Ownership
Lgasar
Cement Distribution
12%
Sepatim B
General Trading, Cement Packaging
85%
Bima SA
General Trading, Cement Packaging
80%
SUPS
Cement Packaging
10%
Name
Activities
% Ownership
UTSG
Limestone & Clay Mining
55%
IKSG
Cement Packaging
60%
KIG
Industrial Estate
65%
Swadaya Gra
Steel Fabrication, Contractor
25%
Varia Usaha
Transport & General Trading
24.90%
Eternit Gresik
Building Materials
17.60%
Type of Cement and Uses
Indonesia produces various types of cement. The main type is OPC (Ordinary Portland Cement) or Portland Cement of Type I (CP I). Other types include special ones and mixed cement, for certain uses in relatively small quantity. Those categorized in the special types are Portland Cement of Type II (CPI II), Portland Cement of Types III (CPI III), Portland Cement of Type V (CPI V) and OWC (Oil Well Cement).Those categorized as Mixed Cement are PPC, fly ash cement, and Super Masonry Cement (SMC) and Masonry Cement.
Types of Cement
Portland Cement of Type I or Ordinary Portland Cement (OPC) is a cement type with standard quality used widely for general construction such as building constructions which do not need specifications such as house buildings, high rise buildings, bridges and roads.
Portland Cement of Type II is a type of cement more resistant to sulfates. Portland Cement of Type II is used such as for port pier, dam and bridge constructions and heavy foundation of buildings in soil having moderate content of sulfates.
Portland Cement of Type III is used for constructions needed high early pressure after pouring a cement foundation in a fast process, such as in road, bridge and airport construction.
Portland Cement of Type IV is used for constructions that need low hydration heat such as large dams, thick concrete buildings or buildings in dry areas.
Portland Cement of Type V gives better protection against corrosion from water or soil containing sulfates larger than 0.20% such as sea water, ground water and water in mining sites. This type of cement is used for constructions of pools processing waste from chemical factories, sea building, etc.
Oil Well Cement (OWC) is used for oil and natural gas well constructions of certain depth. OWC is different from other types of cement as it will become hard if it is used for oil wells under high temperature.
Mixed Cement is a mixture of cement almost the same types and produced from limestone as an additive to mixture of crusts and gypsum in the final process of grinding. This type of cement is suitable for light and medium construction (semi permanent) such as houses and low cost buildings.
PPC (Portland Pozzolan Cement) is a mixture of cement using pozzolan as the material. It is suitable for sea beach buildings or buildings in swampy areas, dams and waterworks that need resistance to sulfates and low hydration heat.
White Cement (CementPutih) is produced in the country only by PT Indocement Tunggal Prakarsa. It used mainly for terrazzo tiles, or for ceramic products and other decorative ornaments.
Composition of the Products
Most cement factories in Indonesia produce Portland Cement of Type I or Ordinary Portland Cement, which accounts for 88% of the country's total production of cement. Other types, mixed cement accounts for 11.6%, and the rest are made up of OWC, PC type II and Type V.
Key Drivers of Domestic Cement Demand:
National Economic Growth
Favorable Interest Rate Environment
Infrastructure Expansion
Per Capita Consumption increase from Current Low Levels
Functions of Cement Industry
Housing and infrastructure sectors constitute a major part of the total demand for cement in India. These two sectors have been further analyzed.
Housing
Housing, besides being a very basic requirement for the urban settlers, also holds the key to accelerate the pace of development. Investments in housing, like any other industry, have a multiplier effect on income and employment. Construction sector employment is growing at the rate of 7% per annum. Housing provides opportunities for home-based economic activities.
The Indian Housing sector has grown by leaps and bounds in the last few years. The total home loan disbursements to this sector has risen from Rs 19,723 Crore in the year ended 2000 to a massive Rs 2,52,932 Crore in the year 2010. This robust growth has been triggered by a number of factors. Some of which are:
Tax rebates on housing loans
Continued growth in population
Decrease in number of people per household (average size of household)
Rise in disposable income levels
Lower interest rates and easy availability of housing finance
Also the Housing Finance Companies and banks have introduced various schemes to attract the young generation borrower. Free home insurance, lower rates for purchase of consumer durables, household goods, and refinance options are some of the noteworthy schemes that the institutes have come up with to attract the borrowers.
The Indian housing industry is highly fragmented, with the unorganized sector, comprising small builders and contractors, accounting for over 70% of the housing units constructed and the organized sector accounting for the rest. The organized sector comprises large builders and government or government affiliated entities. The housing market witnessed a frenzied boom in the early nineties on the back of a booming stock market and a liberalization process that was kicked off in 1991.
While a marked increase in demand is being seen in the rural parts of predominantly underdeveloped states such as Bihar, Chhattisgarh and Uttar Pradesh, the hill states of Uttarakhand, Himachal Pradesh and the north-east are also seeing a spurt in demand. The Centre's latest estimates peg the estimated shortage of houses in rural areas at around 15 million as against an overall shortage of 22 million dwelling units in the rural and urban areas put together.
The Centre, under its Bharat Nirman programme, expects over six million houses to be built in rural areas over the next four years. Rural housing projects undertaken by about 15 states through their own capital subsidy or credit-cum-subsidy schemes have also resulted in rural housing coverage going up during the last few years. These states, including Tamil Nadu, Andhra Pradesh, Karnataka, Gujarat, Uttarakhand, Jharkhand, Sikkim, Meghalaya and Punjab, have together constructed about 48 lakhs houses from 2005 to 2009, according to Planning Commission estimates. The cement industry recorded another year of double digit demand growth (10 per cent for 2006-09). The demand buoyancy is witnessed across sectors with increased focus on infrastructure development, rising industrial activity, and strong real estate demand from commercial and residential sectors.
Infrastructure
Infrastructure projects along with commercial constructions accounts for about 35% of the total cement consumption in India. With the government increasing its focus on infrastructure spending, particularly on roads, ports and airports, the cement demand is likely to go up in the near future. Since India began opening up in 1991, until recently, the progress of infrastructure has been very poor and has been a zigzag process. But if one considers the following developments, it would be visible that India is turning the corner on the infrastructure question and in turn spurring the demand for cement.
Firstly, there are over a hundred Special Economic Zones (SEZs) in India either in operation or under construction. Many international companies, like Nokia and automotive makers like Volvo, are actually producing in the SEZs. Construction has been taking place –land clearance has been done to relocate squatters or farmers away from their land and this has already happened in the last five years or so.
The other thing to look at is the organized retail sector in India. There are well over 500 retail malls either already operating in India or in various stages of construction and this is also new in the last three to five years.
The various road projects under the National Highway Development Program (NHDP Phase I and II) initiated by the previous government are being successfully implemented by the present government. Further, government has also announced new projects namely NHDP Phase, III, IV, V and VI, which include having four lanes on high density highways, upgradation of existing highways, six-laning of roads under NHDP Phase I and also 1,000kms of new expressways. The total cost of these new projects is about Rs. 1,075 billion and is expected to be completed by FY2012. A total demand of close to 50 million tonnes of cement is expected from the above projects.
BUSINESS ACTIVITIES OF CEMENT INDUSTRY IN INDONESIA
There are seven main players with a combined design clinker capacity of 40.7 million tons per year and cement 44.9 million tons. Cement output in 2009 was 39.6 million tones. Much of the domestic cement supply is now extended by blending in fly ash or other enhancers so the actual capacity could be more however allowance should be made for the age of some cement plants and corresponding inefficiencies. Also, some plants are currently shut down such as Kupang.
• Design Capacity: 54.4 m ton
• Domestic Growth: 17.7%
• Domestic Utilization: 89%
• Total Utilization: 91%
• Supply:-Domestic: 48.0 m ton
Export: 1.2 m ton
Import: 1.8 m ton2
INDIAN CEMENT INDUSTRY
The cement industry in India dates back to 1914, with the setting up of its first unit in Porbunder. It is considered as one of the core infrastructure industries. It is the second largest producer of cement in the world just behind China, with industry capacity of over 200 million tonnes. It is consider to be a core sector accounting for approximately 1.3% of GDP and employing over 0.14 million people. Also the industry is a significant contributor to the revenue collected by both the central and state governments through excise and sales taxes.
The cement industry has continued its growth trajectory over the past seven years. Domestic cement demand growth has surpassed the economic growth rate of the country for the past couple of years. The growth rate of cement demand over the past five years at 8.37 % was higher than the rate of growth of supply at 4.84% as also the rate of growth of capacity addition during the same period. Demand for cement in the country is expected to continue its buoyant ride on the back of robust economic growth and infrastructure development in the country.
The Indian cement industry is extremely energy intensive and is the third largest user of coal in the country. It is modern and uses latest technology, which is among the best in the world. Only a small segment of industry is using old technology based on wet and semi-dry process. Also, the industry has tremendous potential for development as limestone of excellent quality is found almost throughout the country. In other words, it is experiencing a boom on account of overall growth of the Indian economy, cost control continuous technology up gradation, etc. This has immensely helped it to conserve energy and fuel as well as to save materials substantially.
Cement is an essential component of infrastructure development and most important input of construction industry, particularly in the government’s infrastructure and housing programs, which are necessary for the country’s socioeconomic growth and development. Cement ranks second in volume among the industrial products manufactured in the world. And it is the most widely used man-made product and second only to water as world’s most heavily consumed substance.
Cement is poly-phased inorganic compound of complex nature formed by burning of calcareous and argillaceous raw materials as a binding material. Cement is used as a binding material in various types of civil constructions. Earlier, clay or lime was used for binding materials together.
Its properties include-
Low cost, high performance, Binder with almost any hard material, Building block, Gain strength progressively with ageing Substitutes with steel, polyester, epoxy-resin, plasticizers With advancement in manufacturing technology, today cement is a completely technical product. Various types of grades of cement are being manufactured to satisfy different needs of the construction industry. However, cement is still considered as a non-technical product and used in a traditional and often unscientific manner.
There are around 11 different types of cement that are being produced in India. The production of all these cement varieties is according to the specifications of the BIS (Bureau of Indian Standards).
Some of the various types of cement produced in India are:
Clinker Cement
Ordinary Portland cement (OPC)
Portland Blast Furnace Slag Cement (PSC)
Portland Pozzolana Cement (PPC)
Rapid Hardening Portland cement
Oil Well Cement
White Cement
Sulphate Resisting Portland cement
Highlights of Indian Cement Industry @ as on 31st March, 2011
CEMENT PRODUCTION AND DESPATCHES (P)
January 2012 (Million Tonnes)
Description
Jan-12
Dec-11
Jan-11
(Apr-Jan)
Cement Production
16.47
15.72
14.82
145.00
137.16
Cement Dispatches
16.27
15.76
14.73
143.96
136.18
Large Cement Plants
Companies (Members) (Nos.)
42
Cement Plants (Nos.)
139
Installed Capacity (Mn. tn.)
234.30
Cement Production (Mn. tn.) 2009-10
168.29
Plants with Capacity of Million tonnes and above (Nos.)
97
Manpower Employed (Nos.) Approx
1,20,000
Turnover in 2010 (Mn. US$) around
18,000
Statistics - Mini & White Cement Plants
Cement Plants (Nos.) Approx.
365
Installed Capacity (Mn. tn.)
11.10(P)
Cement Production (Mn. tn.) 2010-11
6.00(P)
Cement Map of Gujarat
All India Ranking – 5
(As on 31st March, 2011)
(Cement Production in Million Tonnes)
Year
Capacity
Cement Production
Cement Consumption
Cement & Clinker Export
2010-2011
18.72 (7.99)
12.19 (7.24)
13.08
2.53
2009-10
16.82 (7.56)
11.49 (7.15)
11.54
3.23
2008-09
19.62 (8.86)
15.21 (8.38)
12.09
5.06
2007-08
19.07 (9.63)
15.40 (9.15)
11.68
5.11
2006-07
17.47 (10.41)
15.22 (9.78)
10.08
7.83
Details of Cement Plants and Grinding Units in Gujarat
Sl.No.
Name of Cement Company
Location
Annual Installed Capacity (MT)
1
Shree Digvijay Cement Company Ltd.
Sikka
1.07
2
Saurashtra Cement Ltd.
Ranavav
1.50
3
Gujarat Sidhee Cement Ltd.
Veraval
1.20
4
UltraTech Cement Ltd.
Pipavav
5.80
5
UltraTech Cement Ltd.
Jafrabad
0.50
6
UltraTech Cement Ltd.(G)
Magdalla
0.70
7
Sanghi Indus. Ltd.
Abdasa Taluka
2.60
8
JK Lakshmi Cement Ltd.(G)
Kalol
0.55
9
Jaiprakash Associates Ltd. - Kutch
Sewagram
2.40
10
Jaiprakash Associates Ltd. (G) - Wanakbori
Sonipur
1.40
Total
18.72
(G):Grinding Unit
Market Segment of Indian Cement Industry
Market segment — North
Key markets in northern India include the states of Rajasthan, Punjab, Haryana and the National Capital Region (NCR).
Demand in this region is being driven by growth in infrastructure, and residential and commercial construction. In the past few years, demand has been fuelled further by the metro project in Delhi NCR.
Market segment — West
The states of Maharashtra and Gujarat are the key markets in this region.
Over the past few years, growth in housing and commercial real estate has augmented the demand for cement in this region.
The western region also exports cement to countries in the Middle East.
Market segment — Central
The state of Uttar Pradesh is the key market in this region.
The demand for cement in this region has primarily grown due to an increase in the number of housing and infrastructure projects.
Market segment — East
The key markets in the east are the states of West Bengal, Orissa and Bihar.
Growth in housing and industrial activity is primarily driving demand for cement in this region.
Market segment — South
Key markets in the southern region are the states of Tamil Nadu, Andhra Pradesh and Karnataka.
The south zone has witnessed increased capacity in last few years due to its rich limestone reserves.
Growth in the real estate market in the region, coupled with the development of key infrastructure projects such as airport and metro rail, has resulted in increased demand for cement in this region.
Cement Plant Installed Capacity Growth in India
The above chart shows the cement plant installed capacity of Indian Cement Industry which is increasing at almost 8-10% every year. In 2010, cement capacity grew up to 235.9 Mt.
Comparison between Capacity & Production
The above graph shows the comparison between India’s Capacity, Utilization & the Actual Production of Cement across different Five Year Plan.
Exports of Cement from India
Exports of cement (total) decreased to 3.42 million tonnes in 2009-10 from 4.82 million tonnes in 2008-09. Portland grey cement had a share of 82% and cement clinker 12% in the total cement exports. Portland white cement and other cements together had a 6% share. Exports of cement in 2009-10 were mainly to Malaysia (30%), UAE (21%), Iraq (20%) and Yemen Republic (12%).
Exports Statistics
Country
2008-09
Qty (tns)
Value (Rs.000’)
2009-10
Qty (tns)
Value (Rs.000’)
Malaysia
298173
631744
1020049
2350505
UAE
766267
1988728
711648
1966611
Iraq
1181936
3208282
668592
1688882
Yemen Republic
630543
1381757
402180
402180
Nepal
641479
1356110
104598
242977
Djibouti
2377
8623
48387
204878
Sri Lanka
414087
841558
99620
202336
Oman
84071
139983
49184
89986
Germany
133437
411178
4800
13467
Kuwait
422954
891395
-
-
Other countries
240835
614624
313020
747318
All Countries
4816159
11473982
3422078
8220944
Imports of Cement from abroad
Cement imports in 2008-10 increased to 6.2 lakh tonnes from 2.12 lakh tonnes in 2008-09. Grey cement had a share of 61% in the total cement imports in 2007-08 followed by cement clinker (28%), other cements 10% and white cement (<1%). Main suppliers in 2007-08 were Pakistan (61%), Bangladesh (9%), UK (8%), China and Japan (6% each).
Country
2008-09
Qty (tns)
Value (Rs.000’)
2009-10
Qty (tns)
Value (Rs.000’)
Pakistan
1625
6761
379295
1212065
Morocco
-
-
18313
236629
Bangladesh
20216
61622
56768
218097
China
64929
230503
38771
141626
UK
85338
198245
46727
113625
Japan
30100
64123
37616
95017
France
909
22210
993
18734
Netherlands
601
25431
399
14690
UAE
3135
11686
3016
13212
Other countries
4918
33438
5952
38300
Unspecified
-
-
33624
79613
All Countries
211771
654019
621474
2181608
India’s Cement Trade
Cement has traditionally not been among India’s major traded products. During 2010, India was the 44th largest cement-trading nation in the world. However, increased focus on infrastructure development in recent years has led to a Splurge of construction activity in the country, resulting in higher cement imports and hence trade.
Trade in cement is also underway with the neighboring countries and countries in Africa and West Asia. L&T (now a part of Grasim), Gujarat Ambuja Cements Ltd and Jaiprakash Industries are the top exporters. The western region, due to its proximity to the coasts, accounts for 92.4 per cent of total exports, of which Gujarat holds a share of 76 per cent.
During the period from 2003 to 2010, India’s cement trade increased from US$ 4.1 million to US$ 44.2 million, a CAGR of 40.3%. The increase in trade was led by rise in imports, which increased, from US$ 0.3 million in 2001 to US$ 37.1 million in 2010, at a CAGR of 91.3%. India’s cement exports on the other hand increased at a CAGR of 9.9%, from US$ 3.7 million to US$ 7.2 million. China was India’s main source of cement imports, during 2010 with imports worth US$ 13.9 million followed by Italy and Taiwan with imports worth US$ 13.5 million and US$ 2.5 million, respectively. India’s top five import sources together accounted for close to 92% of India’s total cement imports during 2010.
India has an immense potential to tap cement markets of countries in the Middle East and South East Asia due to its strengths of location advantage, large-scale limestone and coal deposits, adequate cement capacity and production of worldclass quality of cement with the latest technology. However for this Indian cement industry will have to become cost competitive vis-à-vis China. Cement companies in India often complain that the entire gamut of direct and indirect taxes and the freight for transporting cement from hinterland to the port substantially increases the price of cement. Moreover the infrastructure facilities at port to handle bulk/bagged cement are poor leading to delays in exporting.
4. POLICIES & NORMS OF INDONESIAN CEMENT INDUSTRY
The cement industry in Indonesia is a highly regulated industry, to which access was once prohibited through a Negative List for Investment (DNI) before such prohibition
was finally lifted through deregulation by Presidential Decree No. 54/1993. The market is also full of rules which govern competition, such as market allocation and price fixing.
Cement is an industry that is considered as strategic in Indonesia. The cement industry has natural characteristics of the economies of scale. The whole process of cement production, from selecting the factory location, production stages, and especially the distribution, is heavily affected by operation scale considerations. To operate efficiently, the production and distribution have to be conducted massively. This fact is reflected from the concentration level of the cement market which reached 82% in 1993, and 61.68% in 1995, and in 1998 the biggest company in the industry controlled 28% of the industry’s capacity.
Considering the large significance being put on the distribution cost factor, the price of cement for consumers relies heavily on the mode of transportation used for distribution, since cement factories cannot be built on just any location. Consequently, distribution to consumers becomes a major problem in the cement industry. Regions which do not have a cement factory, such as Eastern Indonesia, have to pay a higher price compared to those which owns one.
The geographical conditions of such regions make it impossible to build a cement factory, so that cement has to transport from other islands which have cement factories. Regarding those reasoning the government conducted intervention on the market by introducing market allocation mechanism to each of the producers which are determined by negotiations in monthly meetings attended by representatives from the Ministry of Industry and Trade, Ministry of Communications and the Indonesian Cement Association (ASI). The quota is determined based on factories location, production capacity, and the condition of the cement market in the region. The purpose of this arrangement of distribution and quota was to assure cement supply and stock in every province at a relatively stable price. The cooperation between producers and the government in establishing regulations for distribution has created an agreement similar to a cartel, in which competition among producers are arranged.
Market allocation was first applied through Decree of the Minister of Trade No. 49/KP/II/1974, dated 6 February 1974, the material of which, among others,
1) Determine the cement supplier, whether for cement produced in the country or abroad,
2) Determine the distribution ratio for import quotas,
3) Determine the division of the marketing area groups for cement, whether imported or produced locally, into 7marketing areas;
4) The appointment of distributors by the Minister of Trade and the appointment of retail sellers by the distributor.
Furthermore, in order to maintain the stability of cement price in the country, the government has established Pegged Pricing System with Maximum Retail Price HET) system, the price is monitored at all times to ensure that the price of cement on the market is within reasonable range. The government originally set the price of Rp.1.650/bag on 17 February 1974. And by Ministry of Trade Decree No. 319/KP/IV/1979 later the HET system is changed into Local Price Standard (Harga Patokan Setempat-HPS) system, which even though provide guided price system to the retailer, it still does not provide sufficient binding power to retailer to adhere to such limit since it was only a guidance.
The basic idea of market intervention by government was to achieve public welfare in order to provide consumer with sufficient and affordable supply of commodities. Price fixing and market allocation policies were viewed as cross subsidy policies from consumer in producing region to non-producing region. Consumer protection idea as identifiable, where consumer rights to obtain goods in competitive price is focus of the government in establishing their cement policy.
However, in practice, such good faith is distorted by anti-competitive conduct by the Indonesian Cement Association (Asosiasi Semen Indonesia-ASI) who was operating producer cartel. Prior the revocation of HPS system on 1997 through Ministry of Industry and Trade Decree No.403/MPP/Kep/II/1997 ASI’s role toward the hike of cement price every year was substantial. Government could not refuse ASI’s proposal to increase HPS price, in addition that there must be short of cement supply very year.
Thus, the role of government practically has solely become the endorser of ASI’s policy. Moreover, market allocation has also promoted the establishment of barrier to entry to cement industry. This practice can be traced back from the early development of cement industry. Prior mid-70’s ASI has established comprehensive system of market allocation system for cement industry. Every year ASI allocates specific quota of production and lights to certain geographical market area to each of its member, that later helps them to establish regional market.
Quality Standards
The government has set standards for the quality of cement products as given in SNI 15-2049-2004, which is the standard for portland cement of the I, II, II,IV, and V types. Standards for other types of cement have also been set by the government.
POLICIES & NORMS OF INDIAN CEMENT INDUSTRY
Government Policies
Government policies have affected the growth of cement plants in India in various stages. Their control on cement for a long time and then partial decontrol and then total decontrol has contributed to the gradual opening up of the market for cement producers. The stages of growth of the cement industry can be best described in the following stages:
Price and Distribution Controls (1940-1981):
During the Second World War, cement was declared as an essential commodity under the Defense of India Rules and was brought under price and distribution controls which resulted in sluggish growth. The installed capacity reached only 27.9 MT by the year 1980-81.
Partial Decontrol (1982-1988):
In February 1982, partial decontrol was announced. Under this scheme, levy cement quota was fixed for the units and the balance could be sold in the open market. This resulted in extensive modernization and expansion drive, which can be seen from the increase in the installed capacity to 59MT in 1988-89 in comparison with the figure of a mere 27.9MT in 1980-81, an increase of almost 111%.
Total Decontrol (1989):
In the year 1989, total decontrol of the cement industry was announced. By decontrolling the cement industry, the government relaxed the forces of demand and supply. In the next two years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall economic liberalization had peaked; ironically, however, the economy slipped into recession taking the cement industry down with it. For 1992-93, the industry remained stagnant with no addition to existing capacity.
GOVERNING BODIES & ACTS
In India, the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, is the nodal agency for the development of cement industries, that is, it is involved in monitoring their performance at regular intervals and suggesting suitable policy incentives, as per the requirement. The Department is responsible for formulation and implementation of promotional and developmental measures for growth of entire industrial sector in general and of some selected industries like cement, light engineering, leather, rubber, light machine tools, etc. in particular. It is involved in framing and administering overall industrial policy and foreign direct investment (FDI) policy as well as promoting FDI inflow into the country. It plays an active role in investment promotion through dissemination of information on investment climate and opportunities in India as well as by advising prospective investors about various policies and procedures.
The Department has been undertaking several measures like setting up of institutes/ councils for enhanced development of the industry. For instance, the National Council for Cement and Building Materials (NCB) has been constituted as an apex body dedicated to continuous research, technology development and transfer, education as well as scientific, technological and industrial services for the cement, related building materials and construction industries. It acts as a preferred technology partner to such sectors in the sustainable development of a better infrastructure and housing. NCB carries on its activities through its units located at Ballabhgarh, Hyderabad, Ahmedabad and Bhubaneswar. NCB's activities are channelised through its following six programme centres:
Cement Research and Independent Testing
Mining, Environment, Plant Engineering and Operation
Construction Development and Research
Industrial Information Services
Continuing Education Services
Quality Management, Standards and Calibration Services
Some of the rules and orders, administered by DIPP, relating to the cement industry are:-
Cement Control Order, 1967
Cement Cess Rule, 1993
Cement (Quality Control) Order,1995
Cement (Quality Control) Order, 2003
Government Controls
The prices that primarily control the price of cement are coal, power tariffs, railway, freight, royalty and cess on limestone. Interestingly, all of these prices are controlled by government. It is now encouraging the use of wastes such as slag and fly ash as a substitute to limestone concerning environmental issues which helps in reducing pollution.
Regulatory scenario
The Ministry of Mines regulates the mining sector, while the states own the minerals sector in their respective territories in India.
FDI of up to 100 per cent is allowed in the mining sector under the automatic route for cement production.
National Mineral Policy (NMP) 2008
The NMP aims to achieve the twin goals of large-scale prospecting with optimal mining and attracting investments with the latest technology. To implement comprehensive reforms stated in the NMP, the GoI has proposed a new legislation and amended the existing Mines and Minerals (Development and Regulation) Act. This legislation is expected to enhance the country’s regulatory environment by making it simple and transparent.
The impact of the Union Budget 2010–11
Excise duty has been increased by 2 per cent.
A budget allocation of US$ 36.16 billion has been made for India’s infrastructure development. Heightened focus on railways, housing, urban infrastructure and continued easy financing of the projects is expected to give impetus
to the construction sector.
Further, the additional deduction available for investment in long-term infrastructure bonds for individuals is expected to speed up the execution of infrastructure projects.
INDIA ADVANTAGE
India is the second-largest cement producer in the world, with an installed capacity of about 236 million tonnes (MT) in 2009–2010.
Between 2005–2006 and 2009-2010, domestic sales and realization of cement has been estimated to have grown at a CAGR of 18.4 per cent and 10.6 per cent, respectively.
The industry has witnessed continuous modernization and adoption of new technologies. Almost 93 per cent of the total capacity is based on eco friendly dry process technology.
The sector is expected to add an additional capacity of 92.3 MT by 2013. As a result, the industry will have a total installed capacity of 383.5 MT by March 2013. The cement industry employed 140,000 people in 2009.
Total FDI in the cement sector between April 2000 and August 2010 stood at US$ 1.9 billion.
FUTURE PROSPECTS OF THE CEMENT INDUSTRY
High spending on infrastructure projects and growing demand for housing units will fuel the Indian cement industry. Despite the gloomy outlook for the world economy, cement dispatches have witnessed impressive growth of 11.2% and 12.1% in November and December 2008 respectively.
INFRASTRUCTURE:
The Indian government has considered spending more than US$ 500 billion on infrastructure in the 11th Five Year Plan. This plan includes building road infrastructure, which will require 75 million metric tons of cement and power infrastructure that demands around 45 million metric tons of cement. Apart from this, railways, urban infrastructure, ports, airports, IT & ITES sector, organized retailing, shopping malls and multiplexes will be the main sectors driving the demand of cement in the country, says the report.
Besides this, the housing sector is also one of the key drivers for the cement industry and accounts for more than 40%of total cement demand. To further boost the housing demand in the country, many nationalized banks have reduced their interest rates on housing loans. As a result, the number of houses constructed is expected to increase from 3.6 million in 2009 to 6 million units by 2014. This concrete growth in the housing sector will lead to huge cement demand in the country
GOVERNMENT INITIATIVES
The Government of India has approved a package of fiscal incentives and other concessions for the North East Region, namely the North East Industrial and Investment Policy, 2007.
In a bid to attract foreign investors to its ambitious highways building programme, the Ministry of Road Transport plans to roll out projects worth US$ 120 billion by 2016
With an aim of accelerating and sustaining growth in the cement industry the Government has taken various measures in the Union budget 2011-12. The infrastructure sector has received an impetus in the form of improved funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around India. Introduction of tax free bonds, formation of infrastructure debt funds and formulating a comprehensive policy for developing public private partnership projects (PPPs) are some of the steps that will provide required stimulus for growth.
Measures taken in the Union Budget 2011-12 include:
Allocation of Rs 214,000 crore (US$ 46.5 billion) for infrastructure in 2011-12. This is an increase of 23.3 per cent over 2010-11
Government to come up with a policy for developing PPP projects
IIFCL to achieve cumulative disbursement target of Rs 20,000 crore (US$ 4.3 billion) by March 31, 2011 and Rs 25,000 crore (US$ 5.4 billion) by March 31, 2012
Under take out financing scheme, seven projects sanctioned with debt of Rs 1,500 crore (US$ 325.6 million). Another Rs 5,000 crore (US$ 1.1 billion) will be sanctioned during 2011-12
To boost infrastructure development, tax free bonds of Rs 30,000 crore (US$ 6.5 billion) proposed to be issued by Government undertakings during 2011-12
BUSINESS OPPORTUNITIES
The Indian cement industry has been on a high-growth trajectory led by buoyancy in sectors such as real estate, infrastructure and construction.
The GoI plans to increase its investment in infrastructure to US$ 1 trillion in the Twelfth Five Year Plan (2012–17) as compared with US$ 514 billion expected to be spent on infrastructure development under the Eleventh Five Year Plan (2007–2012).
Union budget 2010–11 plans a total outlay of US$ 6.4 billion on rural housing, roads and bridges.
Formal approval has been granted to 577 SEZ proposals and 363 have already been notified as SEZs, as of August 2010.
Infrastructure projects such as the dedicated freight corridors (DFC), upgraded and new airports and ports are expected to enhance the scale of economic activity, leading to a substantial increase in demand.
According to the Eleventh Five Year Plan (2007–2012), there is an increasing demand for housing in the country, especially in the economically weaker section (EWS)/low-income group (LIG).
The housing segment accounts for major proportion of the total domestic demand for cement in India.
Given the intense shortage of housing in the country, this segment has been the primary demand driver for the industry. The demand for office space in India is being driven by the influx of multinational companies and the growth of the services sector, especially the IT-BPO industry. Progressive liberalisation and easing of FDI norms in various sectors paved the way for growth in FDI, which led to a burgeoning demand for office space from MNCs and other foreign investors.
Growth in organized retailing and the entry of international retailers into India has fuelled the demand for good quality mall space.
Strong growth in tourism, including both business and leisure travel, has increased the construction of hotels in the country.
The real estate sector contributes 5 per cent to India’s GDP and is expected to reach a size of US$ 180 billion by 2020.
Upcoming industrial clusters and infrastructure development in emerging tier-II and tier-III cities are also likely to fuel demand in the sector.
The growing population and increased urbanization in the country has increased the need for more civil facilities.
POTENTIAL FOR EXPORT
Though India is the second-largest producer and consumer of cement in the world, there is a significant potential to increase the per capita consumption of cement in the country in comparison to Indonesia. The per capita consumption of cement in India is 143 kg, as compared with Indonesia of 172 kg.
Five Forces Model of Indian Cement Industry
Entry Barriers
High – Huge capital investments required present substantial barriers to entry and achieving economies of scale
Supplier's Power
Moderate – Cement players have to depend on the Railways for carriage outward and local coal companies for fuel, although diversification of freight options and fuel sources is diminishing the suppliers’ power
Buyer's Power
Low – Substantial market concentration among large players ensures low bargaining power of buyers
Substitute Threat
Low – Cement, practically, has no substitutes
Inter Firm Rivalry
Low – The Indian cement market is oligopolistic in nature, characterized by tacit collusion, where large players partially control supply for better price discipline

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