Region/Countries: Asia, Indonesia, Singapore Industry: Multiple Sectors Date: March 2020

Why this is important to Wisconsin businesses: Both markets can serve as a gateway into Southeast Asia for Wisconsin companies.

The COVID-19 pandemic has brought about disruptions in global supply chains, leading to scarcity of raw materials and essential supplies. This crisis has accelerated the trend of companies looking to diversify their sources beyond existing supply bases in China. It is also leading to the adoption of technologies and innovations that foster business continuity and minimize operational risks. Market developments in Indonesia and Singapore present good examples of such opportunities.

Unlike other economies that are export-reliant and are coping with order cancellations from countries heavily hit by COVID-19, Indonesia's economy is largely driven by domestic activity. With a 2018 GDP of $1.04 trillion USD and a population of 268 million, Indonesia is the largest economy in Southeast Asia and the third-fastest-growing economy among G20 countries, just behind China and India.

The disruption caused by the pandemic has impacted Indonesia’s supply chain in the form of dwindling raw materials for domestic manufacturing and a slowdown for many businesses. In response, the Indonesian government has laid out plans to stimulate trade.

The measures include simplification of regulations and reduction of restrictions on exports and imports. For imported goods, this applies particularly to raw materials, and covers up to 50% of the list of restricted import goods, which currently includes steel, steel alloys and their derivative products, food products as raw materials, ceramics, textiles, footwear and medical products. Meanwhile, to sustain business activities through exports, some requirements are being eased, unless they are based on the requirements of the importing countries.

In addition, the trade process will be expedited by fast tracking approval of applications for restricted imports and exports by traders who have demonstrated a high level of compliance. As of mid-March, there were more than 700 traders recognized as such by the Indonesian government. Meanwhile, to increase logistics efficiency, the National Logistics Ecosystem, a logistics platform that will integrate information systems between the government and the private sector, is expected to be completed by June 2020.

Lastly, to keep Indonesian companies liquid during this global crisis, various tax discounts or deferment are in place, such as exempting 19 manufacturing sectors from having to pay import taxes.

Singapore imports 90% of its food supply from more than 170 countries. Notwithstanding this diversification, supply lines are being impacted due to the global nature of the pandemic. To plug in gaps and keep trade lines open, Singapore is enhancing its cooperation with many countries. While the lockdown in some countries has limited supplies of products such as pork, other suppliers are stepping in. For instance, one Indonesian company has seen its daily live pig exports to Singapore double over the past month.

In addition, the city-state set a goal to increase its domestic food production to 30% by 2030 through innovative agricultural technologies and research and development activities. In light of the current global crisis, efforts are on the way to fast-track this target.

Meanwhile, COVID-19 has also accelerated the trends of decoupling from China’s supply chains and diversification of strategic manufacturing operations beyond China. While other countries are seeking to attract labor-intensive factories shifting away from China or are adopting a “China plus one” strategy, as a regional financial, logistics and innovation hub, Singapore is at the center of this transforming business landscape. For instance, in the area of innovation, it is expected to play a key role in the region and in the world in the development of automated factories and intelligent supply chains that reduce risks and enable more diversified, better coordinated supply chains.

Moreover, state and non-state actors coping with supply challenges are turning to expertise and services from Singapore’s world-class logistics ecosystem. The Port Authority of Singapore and its business partners are in high demand for containerization, warehousing and port operations around the region.

These market developments are further raising the importance of Singapore as a gateway into the Southeast Asia region for Wisconsin companies.