The New Normal’s wider impact – Changing times in Asia Pacific?

Dipping demand for commodities is meaning retrenchment and redeployment for many destinations across the Asia Pacific region as it responds to China’s 'New Normal'. Ruth Holmes reports, with a special focus on Indonesia.

Jakarta in Indonesia
There’s no doubt about it: Asia Pacific is a relocation hotspot. Whether it is the volume of inbound and outbound assignees to and from China, rotational, developmental or project-led assignments, APAC is where it’s at.Cartus’s latest survey of the top international destinations for its North American clients, published earlier this year, found that four of the top ten locations were in the region. China is the third-most-likely destination for US assignees, behind the UK and Canada, followed by India (4), Singapore (5) and Australia (10).APAC is also home to three of the world’s top ten most competitive economies – Singapore (2), Japan (6) and Hong Kong (7) – according to the World Economic Forum’s latest annual Global Competitiveness report. With such global impact and regional partnerships, Asia Pacific’s destiny as the new economic axis still looks set to be met, despite the headwinds.

Homeward bound?

While the impact of outbound assignments from China is one of the key trends driving mobility across the region and beyond, traditional APAC destinations, particularly those linked to the oil, gas and mining sectors, are struggling in the wake of China’s slowdown.Hong-Kong-based Robert Wyatt, vice-president of client services and administration at TheMIGroup, notes a pick-up in repatriations, along with more local hires and localisation in the region. “This is, of course, based on TheMIGroup’s client base [oil and gas, shipping and construction]. There has also been a vast drop in volume from Australia due to the Chinese economy, where the shipment of commodities to China has dropped by about 70 per cent.”Asia Pacific’s fast-growing emerging economies, like Indonesia, are also facing the squeeze. Growing now at 4.8 per cent, its slowest rate since 2009, Indonesia has huge potential to benefit from its population dividend.“Overall, the economy has taken a nosedive, like a lot of places globally,” says Jakarta-based Gene Sugandy, division manager for residential tenant representation at Colliers International. “Certainly, mobility has been affected by the decline in the oil and gas sector. It’s not only oil and gas, but also the supporting industries, upstream and downstream.“There has been a huge exodus of expats out. For every two to three families leaving, you now have one or two coming in. We are about 20 to 30 per cent of the numbers last year.“

Indonesia emerges?

Among those replacing retrenching extractive and energy-sector assignees in Indonesia are skilled Chinese middle managers and technicians on short-term contracts to maintain and train local workforces in Chinese-made manufacturing equipment.While some commentators have predicted that China’s shift to more sophisticated automation could see it reshore some of its manufacturing, for countries like Indonesia seeking to diversify from extractive industries, open up to foreign investment, and build a strong manufacturing base with its young 250-million population, manufacturing is a key source of growth.Indonesia’s manufacturing sector now accounts for around a fifth of the country’s GDP, and grew by 5.04 per cent in 2015, higher than the national economic growth rate of 4.79 per cent, according to government data. Its metals and electricity industry recorded the highest growth rate, at 7.9 per cent. Food and beverages rose by 7.54 per cent, and the machinery and equipment industry grew by 7.49 per cent.Together, these figures put Indonesia in the United Nations ranking of the top ten manufacturing nations globally. However, last year saw the world’s 16th-largest economy (by GDP per capita) import more than it exported, with a trade deficit of $2.31 billion.

Immigration challenges

Yet, here as elsewhere, legislation and compliance are potentially adding to Indonesia’s downsides of declining demand for commodities, depressed global trading conditions, and competition from Chinese products and other manufacturing nations in the Asia Pacific region, including Thailand and Vietnam.Gene Sugandy observes from her recent experience that, despite foreign policy set up to encourage overseas investment by rolling back some restrictions, Indonesia’s immigration administration is possibly hampering the opportunity of investment in the country.“Processing times are very slow for working visas, taking from six months to a year for two- to three-year working visas. I have not seen it so difficult in a long time, and it seems so contradictory to the government’s bid to bring in more foreign investment.”These challenges are directly affecting the volumes of Chinese technical specialists coming in to Indonesia – the very people who could help the country deliver on its promising demographic dividend.“These are often middle-management-level employees, and, for them, it is very challenging to get a working visa,” comments Ms Sugandy. “When a visa is finally secured, often there is a transfer-of-knowledge clause stipulating that the employee must be training a national expert who will replace them on expiration of their posting. “This regulation was adopted to try to bring Indonesia’s workforce up to compete globally. From a multinational company’s perspective, handing a multimillion-dollar investment over to a local expert after minimal mentoring and short-term working partnerships might be a problem.”    

What of the future?

The development of Indonesia’s workforce will be one of the keys to its economic success. Time will tell if delays in immigration and visa controls are likely to hamper the country’s ability to deal with its competitor nations in the region, reduce its export gap, and grow its productivity.

 

APAC global mobility magazine
Read more about the Asia-Pacific region in our APAC Summer 2016 digital magazine.

 
For more Relocate Global news and features about the Asia Pacific region, see our Asia section.