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Indonesia – Economic Giant within ASEAN

COUNTRY FACTSHEET INDONESIA


1. COUNTRY INTRODUCTION:

Country Profiles - IndonesiaIndonesia is the largest economy in the ASEAN States, and a thriving democracy with significant regional autonomy. It is located on one of the world’s major trade routes and has extensive natural resource wealth distributed over an area the size of the United States and comprised of over 17,000 islands. With its almost 260 million inhabitants, Indonesia is the fourth largest country in the world in terms of population. Indonesia is also the world’s third most populous democracy, the world’s largest archipelagic state, and the world’s largest Muslim-majority nation. Since becoming a G20 member in 2003, Indonesia has enjoyed steady economic growth, pulling the country into middle-income status: Sound macroeconomic policies, combined with growing domestic demand and high commodity prices, have helped economic expansion from 2003-2013. President Joko Widowo – elected in July 2014 – has committed to improving infrastructure and reducing barriers to business in Indonesia as a means to increase the country’s GDP growth rate to 7% by 2017. He has also committed to developing Indonesia’s infrastructure, including significantly increasing Indonesia’s power generation capacity. Widowow reduced fuel subsidies in early 2015, an important but unpopular move which has helped the government redirect its spending to other priorities.
Though markets initially responded positively to Widowo’s measures, there are many urgent issues that need to be tackled to ensure Indonesia’s continued growith: Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among its regions. Protectionist policies, corruption at all levels of government, poor infrastructure, a weak rule of law, and labour rigidity have all taken their toll. Other c urrent issues include: improving education, preventing terrorism, consolidating democracy after four decades of authoritarianism, implementing economic and financial reforms, reforming the criminal justice system, holding the military and police accountable for human rights violations, addressing climate change, and controlling infectious diseases, particularly those of global and regional importance. Indonesia, with the nine other ASEAN members, will continue to move towards participation in the ASEAN Economic Community, though full implementation of economic integration has not yet materialized.

 

2. KEY ECONOMIC DATA:

Population: 258.31 million
GDP (Current US$): US$ 940.95 billion / EUR 888.78 billion1
GDP (Current US$, per capita): US$ 3,636.00 / EUR 3434.00
GDP (PPP): US$ 3.028 trillion / EUR 2.86 trillion
GDP (PPP, per capita): US$ 11,699.00 / EUR 11,050.00
Real GDP Growth: 4.9% year-on-year
Consumer Price Index (CPI): 3.7%
Labour Force: 123.7 million
Unemployment Rate: 5.6%
Main Industries: Petroleum and natural gas, textiles, automotive, electrical appliances, apparel, footwear, mining, cement, medical instruments and appliances, handicrafts, chemical fertilisers, plywood, rubber, processed food, jewellery, and tourism
Main Exports: Mineral fuels, animal or vegetable fats (includes palm oil), electrical machinery, rubber, machinery and mechanical appliance parts
Exports Partners: Japan 12%, US 10.8%, China 10%, Singapore 8.4%, India 7.8%, South Korea 5.1%, Malaysia 5.1% (2015)
Main Imports: Mineral fuels, boilers, machinery, and mechanical parts, electric machinery, iron and steel, foodstuffs
Imports Partners: China 20.6%, Singapore 12.6%, Japan 9.3%, Malaysia 6%, South Korea 5.9%, Thailand 5.7%, US 5.3% (2015)
Currency: Indonesian rupiah (IDR)
Ethnic groups: Javanese 40.1%, Sundanese 15.5%, Malay 3.7%, Batak 3.6%, Madurese 3%, Betawi 2.9%, Minangkabau 2.7%, Buginese 2.7%, Bantenese 2%, Banjarese 1.7%, Balinese 1.7%, Acehnese 1.4%, Dayak 1.4%, Sasak 1.3%, Chinese 1.2%, other 15%
Religions: Muslim 87.2%, Protestant 7%, Roman Catholic 2.9%, Hindu 1.7%, other 0.9% (includes Buddhist and Confucian), unspecified 0.4%
Languages: Bahasa Indonesia (official, modified form of Malay), English, Dutch, local dialects (of which the most widely spoken is Javanese)
Literacy Rate: 93.9%

1 All exchange rates as of March 2017
 

3. BUSINESS ENVIRONMENT:

Despite challenges, Indonesia continues to attract foreign investment. Private consumption is the backbone of the economy and the middle class is growing, making Indonesia a promising place for consumer product companies. Indonesia has ambitious plans to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country. Indonesia continues to attract foreign franchises and consumer product manufacturers. Since October 2014, the Indonesian government has prioritised boosting investment, including foreign investment, to support Indonesia’s economic growth goals, and has committed to reducing bureaucratic barriers to investment, including announcing the creation of a “one-stop-shop” for permits and licenses at the Investment Coordination Board.
However, factors such as a decentralised decision-making process, legal uncertainty, economic nationalism, and powerful domestic vested interests create a complex and difficult investment climate. The Indonesian government’s requirements, both formal and informal, to partner with Indonesian companies and purchase goods and services locally, restrictions on some imports and exports, and pressure to make substantial, long-term investment commitments, also factor into foreign investors’ plans. Investors continue to cite corruption as an obstacle to pursuing opportunities in Indonesia. Other barriers include poor government coordination, the slow rate of land acquisition for infrastructure projects, poor enforcement of contracts, an uncertain regulatory environment, and lack of transparency in the development of laws and regulations. New regulations are at times difficult to decipher and often lack sufficient notice and socialisation for those impacted. The lack of coordination among ministries creates redundant and slow processes, such as for securing business licenses and import permits and, at times, conflicting regulations.
Indonesia restricts foreign investment in some sectors through a Negative Investment List. The latest version, issued in 2014, details the sectors in which foreign investment is restricted and outlines the foreign equity limits in a number of sectors. In February, 2016 the Indonesian government announced a major revision to the Negative Investment List; however the revised regulation with details of this potential liberalization had not been issued as of May 2016. So, for the time being, telecommunications, pharmaceuticals, e-commerce, film and creative industries, construction and other sectors remain closed to foreign investment. Energy and mining also face significant investment barriers. Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaty agreements (BITs) in February 2014, allowing the agreements to expire.

 

4. MARKET OPPORTUNITIES:

Indonesia offers an enormous domestic market, stable growth rates of likely over 6% p.a., political and social stability, religious tolerance and an increasingly affluent middle class, which is predicted to increase from the current 74 to 135 million people by 2020. Specifically, the number of households in Indonesia earning US$5,000 to US$15,000 (EUR 4,720 to EUR 14,170) in annual disposable income is expected to expand from 36% of the population to more than 58% by 2020. The Indonesian consumer is ranked as one of the most confident in the world, and 50% of Indonesia’s citizens are under the age of 30. Consumer-related market opportunities will thus continue to lead growth, with more opportunities in the retail and consumer goods, health, education, telecom and financial services sectors. An expanding financial services market offers significant opportunities for IT and banking equipment, software and technology providers. Indonesia’s under-developed public infrastructure remains a major national challenge and could present significant opportunities in aviation, rail, ports and land transport, as well as in municipal infrastructure projects such as water supply and wastewater systems. Emerging opportunities include palm oil, biofuel processing, clean energy and technology to improve local production capacity, and green building products and services.

 

5. SOURCES:

Country Introduction & Key Economic Data:

The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/id.html
Statistical information – UNCTAD Stat: http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/360/index.html
Economist Intelligence Unit Country Reports: http://country.eiu.com/indonesia
Knoema “World Data Atlas”: https://knoema.com/atlas/indonesia

Business Environment & Market Opportunities:

Indonesia Doing Business Guide: https://www.export.gov/article?id=Indonesia-Market-Overview

Rankings:

IFC/World Bank “Doing Business” Report 2017 – Ranked 91 / 191:
http://www.doingbusiness.org/~/media/wbg/doingbusiness/documents/profiles/country/idn.pdf
Transparency International “Corruption Perception Index” – Ranked 90 / 176:
http://www.transparency.org/country/idn
World Economic Form – Global Competitiveness Report (2016/2017) – Ranked 41 / 138: http://reports.weforum.org/global-competitiveness-index/country-profiles/#economy=IDN

 

ASEAN Business Partners maintains excellent contacts to the BKPM, other organizations and government- related agencies, both in Germany as well as in Indonesia (partly via cooperation partners). Combined with our international management know-how and our local expertise in selecting the right partners on the ground, cooperating with ASEAN Business partners will be instrumental for your business success in Indonesia.

 

Useful Links:

https://country.eiu.com/indonesia

https://www.cia.gov/library/publications/the-world-factbook/geos/id.html

http://www.adb.org/publications/indonesia-fact-sheet

http://www.worldbank.org/en/country/indonesia

http://www.asidnet.org/web/

http://countrystudies.us/indonesia/

http://cpi.transparency.org/cpi2013/results/

http://www.weforum.org/reports/global-competitiveness-report-2013-2014

 

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