PESTEL Analysis Indonesia - Essay Example

PESTEL ANALYSIS INDONESIA P- political; E- economic; S- social; T- technological; E- environment; L- legal The PESTEL framework is an analytical tool used in the analysis of various macro-environment factors that may affect various strategies and assesses how the factors influences various performances at the current moment and in the future. 1. Enviromental: Indonesia environmental sector has been heavily damaged buy illegal logging industries. However, Legal logging concessions also represent (27%) huge accounted in Indonesia's forest loss. Source:http://news.mongabay.com/2014/1120-eshelman-indonesia-logging-moratorium.html#ixzz3TytZfxmF The annual rate of deforestation in Indonesia has varied considerably over the past twenty years, dropping from 1.8% between 1990 and 2000 to just 0.3% between 2000 and 2005 (FAO 2010). Between 2005 and 2010 this rose to an annual average of 0.7% (FAO 2010). With 94.4 million hectares of forests, Indonesia ranks third in the world for its forest cover, behind Brazil and the Democratic Republic of Congo. 40% of these forests are lie within protected areas (FAO 2010). Forest clearing within areas zoned for timber, logging, oil palm, and mining accounted for nearly 45 percent of deforestation in Indonesia between 2000 and 2010, (finds from a new study that examined forest loss within industrial concessions). Data about deforestation in Indonesia: 14.7 million hectares of forest was cleared in Sumatra, Kalimantan, Sulawesi, the Moluccas and Papua; 6.6 million hectares were destroyed due to industrial concessions; 1.94 million hectares belong to fiber plantations; 1.8 million ha belong to logging concessions, 1.6 million ha belong to oil palm concessions, 0.9 million hectares belong to concessions with overlapping zoning, 0.3 million hectares belong to coal mining concessions. The major problems pointed are deforestation that occurred outside concession areas, oil palm development, illegal logging, industrial and smallholder agriculture, and fire. Geographically, 48 % of forest loss within industrial concessions occurred in Kalimantan, 32% in Sumatra, 12% in Papua and 5% in Sulawesi. Analyzing the greenhouse gas emissions in the Indonesia, currently paper plantations are the largest source of carbon emissions during the period, accounting for more than a third of total industrial emissions. Oil palm follows up with 28 %, logging with 22%. Nevertheless, the percentages vary from island to island. In Sumatra fiber plantations amounted to nearly 60 percent of emissions, while the palm oil industry in Kalimantan accounted for about 40 percent. Logging concessions were the biggest source of industrial land use emissions in Papua, Sulawesi, and the Moluccas. In the future according to the study: Relative contributions of the logging, fiber, oil palm and mining industries to forest loss in Indonesia, it is expected that forest concessions continue to grow, due to political treaties and economical investment in logging. Solutions In response to general idea that the process of logging is illegal, corrupt in Indonesia, the new Minister of Environment and Forestry Siti Nurbaya Bakar imposed a moratorium (suspension) on the issuance of all new logging, by allowing issuances to be fair, accurate, clear and accountable. The moratorium is likely to last between four and six months. The united nations program reducing emissions from deforestation has pledged to give Indonesia up to a billion dollars if it can prove that it will reduce poisonous emissions and halt deforestation. To show commitment, in 2011 Indonesia placed a ban on all clearing of forests. (CNN international documentary) A climate change representative in Indonesia pointed out that people living in places with no other economic activities other than logging are bound to cut trees.he pointed out that creating more economical activities will result to people reducing the tree cutting and thus go a long way in reducing deforestation. According to the central statistics agency, the carbon trading scheme can provide a clear solution for the deforestation problem. This is because getting earnings from the sale will encourage the locals to take better care of the environment since it will be deemed to be a lucrative business (develop more) 1.1. Ilegal logging in Indonesia Illegal logging poses a serious threat to these forests, although recent research carried out by Chatham House found that the levels of illegal logging have fallen by 75% since 2000, the impact of illegal production nevertheless remains considerable, representing around 40% of total production. Illegality in Indonesia’s forest sector has long been the focus of many NGO’s in Indonesia. It is said that single-handedly, it just might be the biggest deforester in the world. Most of this deforestation is witnesses in the lowland and peat forests of Sumatra and Kalimantan. This causes a major threat to the vegetation at large and also the wildlife found there which mostly comprises of tigers, elephants and orangutan. Destroying their natural habitat will result to threatening their survival and if care is not taken, it might lead to their extinction. Studies show that Indonesian forests contain about 10% of the world vegetation and around 12% of the world’s mammals. This is by far the biggest percentage any country has and as a result it is correct to say that Indonesia has the largest forestation and vegetation in the world. Out of the 70% deforestation rate, 40% is illegal. This number is overwhelming to any economy. The illegal logging is not carried out in the proper acceptable way. It thus results to a lot of greenhouse emissions which are in a very high volumes. It is said that due to the high rate of destruction, Indonesia is then ranked as the 3rd largest emitter after united states and china. The biggest facilitator of illegal logging in Indonesia is development of palm oil cultivations. As the conversion of forests to palm oil cultivations continues, most of which is mainly illegal, the forest cover continues to deplete and the rate at which this is happening is utterly disturbing. (develop more) 1.2. Oil Palm Over recent years, much attention has been focused on oil palm production in Indonesian peatland. Indonesia consumes almost half of palm oil produced. It is the biggest producer of the oil . With more than 11 million hectares of the oil under plantation and the continued increase of the vegetation day by day, it produces close to 35% of the world’s sustainable oil. This ultimately makes the palm oil the major economic booster in Indonesia. This has also resulted to the growth of industries which uses palm oil as the raw material. Commodities such as chewing gum, chocolate, washing powder and even chocolates use it as the sole ingredient. The industries producing them therefore have an advantage and since they can easily access this product, they can easily expand their businesses. The produce cannot be consumed internally only. Most of this produce is exported to other countries and so the GDP of the country becomes more favourable and increases substantially. The growth of the economy can thus be attributed to this. (develop more) 2. Economic The Indonesian economy is based essentially on agricultural, mining and industrial activities. In the agricultural sector, this produces rice, maize, cassava, sweet potato, tobacco, tea and coffee. Also associated to this sector, is also forestry activity that produces natural rubber and exotic woods. Moreover, the mining activity has grown day by day, due to increased oil and gas exploration. However, other minerals are extracted as nickel, bauxite, gold and copper. As for the industrial sector, which since the mid-80s has been striving to become the main Indonesian industry, is part of a policy of import raw materials to be further processed and exported. Thus, there are the industries linked to chemicals, electronic components, cement, tires, paper and textiles. In short, this country's economy is under development, benefiting from its privileged position within international institutions such as ASEAN (Association of Southeast Asian Nations), ESCAP (Economic and Social Commission for Asia and the Pacific ) and OPEC (Organization of Petroleum Exporting Countries). The main Indonesian trading partners are Japan, the United States, Singapore and Germany. It also highlights the environmental indicator: the amount of carbon dioxide emissions per capita (metric tons, 1999), is 1.2. What economical investements has the government did in logging? The high rate of logging results in increased rate of emissions. This emissions which is mostly carbon can be turned into a lucrative business. Sale of carbon credits generates income for the government and this money can then be used to enhance the conservation of the forest covers. These carbon credits are bought by developed countries from developing countries to substitute for their large carbon emissions. Carbon trading is therefore a very lucrative business for Indonesia. Logging definitely leads to the presence of timber. This timber is used as a raw material for making commodities such as papers, pulp and books. As a result of sale of this products, that is a definite business at hand and therefore the government has come up with laws that seek to tax such activities thereby generating income from them Logging is sometimes done for the purpose of providing other sources of energy such as burning coal and oil. These can be used as a source of energy and therefore the government has put into place ways and methods of taxing this products thereby benefiting from them. This also somehow discourages logging as the people involved know that they ultimately have to pay for getting involved in such practices Most of the logging takes place as a result of palm oil cultivation practices. It is known that Indonesia is the biggest supplier of palm oil in the world and so that is already an economic activity practiced . Palm oil cultivation is considered to be among the largest sources of income in Indonesia and so logging for the purpose of this cultivation is not entirely a loss The government of Indonesia has invested heavily in forming tribunals that seek to deal with this ever growing problem. Corruption being among the major source of this problem is dealt with and considered serious since it has ultimately led to the increase in this vice. How much much money, employment, does the looging represent? The latest investment in timber initiated by the Indonesian government is becoming a lucrative economic activity in Indonesia. A recently signed memorandum by the president of Indonesia in 2012 imposing a 2 year moratorium on forest conversion ensures that the logging is carried out in a sensible manner which when directed to the timber business becomes beneficial and the government ends up making money out of it The logging business, though not as lucrative as the palm oil industry provides employment opportunities to a number of people who are involved in the cutting and even transportation of the logs. When carrying out legal logging, these people benefit substantially and are guaranteed of a good pay. What about palm oil? And pulp? As we have realized, Indonesia is the leading producer of palm oil in the world. This has led to a significant contribution in the countries GDP. According to research, in 2012, Indonesia reported a GDP of $877.2 billion. This was ranked 16th out of 175 countries. The biggest contributor of this attractive GDP was palm oil and so it is no doubt that it has led to the development of the country. Palm oil is the third largest earner of exports in the country. This therefore means that income due to exports is undoubtedly high thereby improving the economy of the country considerably. When it comes to employment, these palm oil vegetation have provided employment opportunities to millions of people. Palm oil cultivation is labor intensive and requires people to cultivate, plant and harvest the produce when it is ready. All this does not in any way require skilled labor. Any healthy person can do it and so it improves the living standards of so many people. According to the international France corporation survey in 2013, the palm oil industry has provided employment to up to 4 million people. This represents close to 2.7% of the total task force and so it is safe to say that palm oil cultivation benefits the economy in a major way. Currently, Indonesia is the third largest democracy in the world (heading for 250 million inhabitants) and one of the Asian countries with the greatest potential for economic growth. The population is very young (70% are under 40 years) and the country is rich in raw materials: oil, gas, tin, bauxite, among others. However, for decades, poor governance and corruption have left the country with a poor infrastructure. The fact that it is an archipelago of over 13,000 islands is also an obstacle. Less than half of Indonesians have access to the electricity network and are even fewer have drinking water in their homes. Since 2004, Indonesia try the path of reforms, noting a clear improvement in the management of public accounts and external competitiveness. The growth rate exceeded 6% per year between 2007 and 2012, except in 2009. This year, the IMF forecasts 5.4%, a good performance even with many key sectors still closed to competition and foreign investment. Regarding the budget deficit this has been reduced (-2.5% of GDP in 2014) as the public debt (26% of gross domestic product). The State has the financial means to revitalize the country's infrastructure network and improve the training of the workforce. These are essential to increase productivity and achieve the goal of raising the potential for economic growth to over 7% per year. Taking into account these reforms, there are challenges to be overcome. The first challenge will be the removal of high fuel subsidies. The artificially low prices reduce the cost level of middle class life, but result in an intolerable burden. In some years, subsidies came to weigh 25% of public expenditure. In addition, they induce an excessive and inefficient consumption. Despite the wealth of raw materials, Indonesia has a negative current account since 2012. 3. Political a) International relations Indonesia is a member of several international organizations, especially the United Nations (UN) which is part since 1950. He was a founder countries of the Non-Aligned Movement and the Organization of Islamic Conference (OIC). The country has signed the free trade agreement ASEAN, the Cairns Group and the World Trade Organization (WTO). It is also member of the Organization of Petroleum Exporting Countries (OPEC), although it has withdrawn from the organization in 2008, as the country was no longer a liquid exporter of oil. What were the polical treaties made about palm oil? Looging?pulp? Over the years, Indonesia has signed a number of treaties in a bid to address the deforestation problem that it is undergoing. These treaties are supposed to put checks in place and regulate the overall activities that concern this problem. Some of the treaties signed include; The regional haze treaty. On September 16th 2014, the Indonesian government ratified this agreement on air pollution. This treaty was meant to require the Indonesian government put in place measures by which pollution which was caused by extensive deforestation was minimized. This pollution which was mostly witnessed in the peat lands of Sumatra and Kalimantan was so extensive that prohibitory measures had to be put in place to deal with this pollution. The Indonesian government put laws into place that prohibited fires which were mostly used to clear the forests and as a result led to pollution. The slash and burn method often resulted in health implications and extended to affect Malaysia and Singapore. The two neighboring countries even declared a state of emergency as the level of pollution became too much and unbearable. The governments of these countries condemned Indonesia and had to come up will a sure way of eliminating this problem. That is how the regional haze treaty came into place. The Indonesian palm oil pledge. On September 24th 2014, the Indonesian government signed the Indonesian palm oil pledge whose sole purpose was to commit to industry leading sustainability practices. This treaty endorsed by the united nations climate summit was directed to key palm oil producing countries. Some of the issues discussed was the disadvantages of planting palm on peat lands and high carbon emission lands. The united nations is committed on working with the various signatories to ensure that the treaty serves its purpose and is followed to the latter. The Malaysia-Indonesia investment treaty. This treaty aimed at promoting investment between the two countries came in handy at the wake of economic transformation between the two countries. The investment treaty was meant to ease investment among the two countries which was forecast to result to improved economic conditions in the states. The treaty mainly focused on the agricultural sector which mostly comprises of the palm oil plantations. What about declaration about borneo? What did the contries agreeded? The acronym BORNEO represents a conglomerate of three countries, Brunei, Indonesia and Malaysia. In February 2007, they signed a historic declaration in a bid to show their commitment to securing a sustainable future in their highlands. The main aim is to push the countries towards providing solutions related to deforestation and pollution that comes along with that. The effective management of forest resources is highly encouraged and the declaration brought about the formation of safe areas in the areas. The three countries have one conservative vision and the declarations include; They will work towards protecting the forest resources, putting the needs of the people first and co-operate in ensuring that a network of protected areas are put into place Being avid followers of the law and abiding by the rules and regulations, respecting each other and what they believe in Using research and development, education and training as well as fund raising and other relevant activities to trans boundary management and also co operate based on sustainable development principles. The three countries then prepared their documents to show their commitment to this declaration. Done at Bali, 2007, the three copies were presented officially. 4. Legal a) Legislation about environment law that penalizes illicit trafficking in one of the most precious and rare species in the country, the blanket; whats the diference between illegal logging and legal? Illegal logging refers to the the cutting of trees in violation to the laws. This kind of deforestation is in most cases harmful and as such leads to the destruction of the environment. The extraction without permission is prohibited and so the people involved go against the law. Legal logging on the other hand refers to the cutting of trees which is backed by the government. The logging may be as a result of activities and services such as construction activities and such. What are the laws from legal looging have to follow? Logging can be done for various purposes. The legal purposes may include construction purposes which may require the clearing of a place. Many hotels prefer a serene setting which may be in the deep forests. As such, to enable construction activities a part of a forest has to be cleared. To effectively carry out legal logging activities, one has to get the relevant permits which are found in government offices. Depending on the location, the officials may either decline or accept. They will give reasons for the decline and if they accept the necessary documentations is done and one can go ahead will the logging. b) Governmental Indonesian projects REDD+ since 2011, Indonesia has committed to reducing its emissions from land use and forestry up to 26% by 2020. Thus, Indonesia implemented the REDD+ mechanism, which allow Indonesia to nbecome eligible to receive financial payments based on forest carbon credits. A substantial amount of Indonesia carbon emissions are caused by deforestation and forest degradation from land conversion activities, forest fires and illegal logging, with the latter having significant impacts as a driver of deforestation. Therefore, initiatives to curb illegal logging will have to form a central part of any emission reduction strategy. REDD+ is the potential help to reduce illegal logging activities by creating financial incentives to encourage compliance with the law, changes in behaviour and wider governance reforms. Since 2001, several initiatives in Indonesia have attempted to address the problem of illegal logging. These include international initiatives such as the Forest Law Enforcement, Governance and Trade (FLEGT) process; bilateral agreements between Indonesia and major importers of timber; and market instruments such as timber certification. National initiatives include joint security sweeps to combat illegal logging, anti-money laundering approaches to tackle illegal finance in the sector and the expansion of timber plantations to increase the supply of timber. This occasional paper explores ways in which the ongoing design of REDD+ mechanisms and institutions can benefit from these experiences. 5. Tecnological Indonesia has invested in technological development, by creating an online payment system, called Indomog. This project aims not only to innovate and build, but also help define the landscape of the future of technology in Indonesia. Other sectors have also been explored, such as aviation, ICT, telecommunications, energy, defense and medicine. The aviation market in Indonesia is growing at 20 percent per year. Molds, components, machinery and equipment and services (currently 70 percent of the aircraft are sent abroad for maintenance) are an opportunity along with the need for construction and development of airports, air traffic control, logistics and ground equipment. Indonesia is the country with the highest growth of domestic air traffic in the world. The number of domestic passengers reached 57.8 million in 2011, 60.6 million in 2012 and 58.9 million in 2013. The agreement ASEAN Opens Skies Agreement with effect from 2015, will further increase so significantly more demand. The banking market, which is expanding, has proved to be very competitive offering significant opportunities for the ICT sector (software vendors and banking technology). For telecommunications, the Indonesian market has potential for wireless equipment. The rapid expansion of mobile networks in the country has driven the increase in spending on telecommunications infrastructure. As for the network of public infrastructure (undeveloped) it remains one of the major national challenges and can represent great opportunities in the railway area, port and other land transport, as well as municipal infrastructure of water supply and sewerage systems. The projects of power generation, conventional and renewable, should continue to increase over the next decade. The energy sector in Indonesia has been witnessing high growth in demand, between 7 and 9 percent annually over the past five years. In 2014, the Indonesian government predicts growth in demand by 9 percent. According to the Ministry of Energy and Mineral Resources, in September 2013, the electrification ratio reached 79.47 percent. The government is offering the opportunity to develop public-private partnerships in this sector. With the increase in the defense budget, there are opportunities for sale of military aircraft and parts, vehicles, communication systems, spare parts and maintenance services. Monitoring and protection of maritime traffic can also provide new investment opportunities. Indonesia aims to modernize and expand its military operations and was allocated to the sector a budget of 18,200 million by 2017. For the year 2014, Defense Minister, Purmono Yusgiantoro, said the budget is 7,700 million dollars. Regarding to health, it is a priority area in the national development agenda. The central and regional governments continue to equip health centers and hospitals to increase the capacity of services in 33 provinces. The state wants to have seven internationally accredited hospitals at the end of 2014. In the next five years the private sector plans to develop 30 new hospitals. Indonesia began to implement a national health care system that provides cover the entire population in 2019 6. Social The IAR , an international non-profit organization (Indonesia), has found save animals from suffering around the world. In Borneo, the organization tries to rescue primates from captivity, due to deforestation in the construction of oil palm plantations. Does people recognize this problem? The current population does not really recognize this problem. This is because wildlife is a bit detached from the wildlife since they do not really affect the day to day activities of the people. Deforestation results to the destruction of the natural habitat. Wildlife suffers and some even die in the process. People will always be self centered. They think about themselves first and do not consider the bigger wildlife situation. They will definitely be more interested in making money in relation to conserving the environment. Some people recognize this problem though. Most are the animal lovers and the conservatives who find the destruction annoying and even unbearable. Do they support them? Who are the groups? Movements? Journalists? Deforestation is a very big problem. Many people who know the value of the environment support them and are always willing to work hand in hand with the various humanitarian groups fighting for this rights. Journalists will always be on the forefront reporting what is happening and trying to make the bigger public aware about their activities but in most cases than not this is not enough. People will always watch and expect other people take charge of the situation. They will not be willing to take the first step and this is a very disturbing habit. The wildlife conservation society in Indonesia is the most common group that deals with this form of conservation in Indonesia. It has always been on the forefront to try to educate the public and get it to conform with the laws of wildlife protection and this has gone a long way in somehow protecting the environment. complete with more information ( for exemple demographics, education levels, consumption, habits) The wildlife conservation society of Indonesia has been on the forefront to protect the tigers and the elephants in the highly deforested Kalimantan forest. The wildlife which was once spread out in the forest is decreasing at a very alarming rate. The society has resulted to developing protective homes for the wildlife so as to keep it from becoming extinct. Teaching the public about the importance of such wildlife has become the norm and the people can therefore think before acting and determine the repercussion of their careless logging activities. It is noted that the elite in society rarely get involved in such matters. They always take care not to ruin the environment since they know the implications. The less educated people on the other hand are a bit careless and will not consider the outcomes of their actions and as such result to increased destruction of the environment. Other information Studies Studies have been released in about deforestation and logging in Indonesia: 4.1. Study 1: Sinan A. Abood, Janice Ser Huay Lee, Zuzana Burivalova, John Garcia-Ulloa and Lian Pin Koh. Relative contributions of the logging, fiber, oil palm and mining industries to forest loss in Indonesia. Conservation Letters DOI: 10.1111/conl.12103  Interesting NOTE:"Gaveau et al. (2013) showed that logging concessions maintained forest cover as efficiently as protected areas, provided they were not reclassified for industrial plantation development. A growing number of studies also suggest that selectively logged forests might be valuable for biodiversity conservation. Indeed, well-managed logging concessions might present a realistic and cost effective strategy for forest protection in addition to protected areas." The authors suggest that "clarifying land ownership and concession boundaries" would not only help address environmental problems, but "could also help reduce the level of social conflicts with local communities." 4.2. Study 2: Chatham House, 2010 4.3. Study 3: Greenpeace 2013, Eyes on the Forest 2012 4.4. Study 4: Lessons for REDD+ from measures to control illegal logging in Indonesia. Authors: Luttrell, C.; Obidzinski, K.; Brockhaus, M.; Muharrom, E.; Petkova, E.; Wardell, A.;Halperin, J. Targets to Analyse: Indonesia's new Minister of Environment and Forestry Siti Nurbaya Bakar; President Joko "Jokowi" Widodo.  Indonesian Journalists: Rhett A. Butler, mongabay.com;  Robert S. Eshelman Mongabay.org ;Michael Bachelard Victoria (complete with people that you would think that would be influential to the process) Sources: http://news.mongabay.com/2014/1120-eshelman-indonesia-logging-moratorium.html#ixzz3Tyoq8yTl http://news.mongabay.com/2014/0410-deforestation-with-Indonesian-concession-areas.html http://www.illegal-logging.info/regions/indonesia http://www.theage.com.au/victoria/worlds-worst-illegal-logging-in-indonesia-20140630-zsq5j.html http://www.cifor.org/library/3505/lessons-for-redd-from-measures-to-control-illegal-logging-in-indonesia/ www.iedi.org.br www.internationalanimalrescue.org www.infopedia.pt http://photos.state.gov/libraries/amgov/133183/portuguese/P_Entrepreneurship_EmergingRoleModelsInEmergingMarkets_Portuguese_digital.pdf http://www.jornaldenegocios.pt/analises_deco/detalhe/acoes_da_indonesia_250_milhoes_de_razoes_para_investir.html http://greensavers.sapo.pt/2015/02/13/indonesia-cria-a-primeira-lei-para-proteger-as-mantas/ http://www.secomunidades.pt/web/guest/listapaises/ID Read More