What is the first thing you think of when you hear the word “Indonesia”? Long white sand beaches? Endless tropical forests? Exotic cuisines? You would not be wrong in thinking so. However, do you know that Indonesia is one of the prime destinations for setting up overseas businesses in ASEAN? In fact many foreign nationals have decided to invest in Indonesia and are reaping its benefits. Wondering how you can do that too? Read on to learn more.
Although not in the news always like its ASEAN counterparts Vietnam and Singapore, Indonesia has a stable and ever growing economy. In fact, it is the biggest economy among the ASEAN countries in terms of GDP. Indonesia is a member of the G-20 countries, a consortium of the biggest and most powerful economies in the world. Other plaudits include a rapid reduction in poverty rate in the past 20 odd years and getting the upper-middle income countries status in 2019. With more and more people entering the middle class, the economy is along going to go up. So, if you ask us, this is the best time to start investing in Indonesia. The economy is not too advanced that you face local competition but not so downcast that there are no takers for your products and services.
Indonesia came out of a dictatorship just 23 years ago. You might think that is a bad sign for setting up businesses in a country, however, since the end of authoritarian rule, the political climate has been very stable. In fact, it ranks on par with other ASEAN nations according to the Lowy Institute. Besides, the current crop of governments have become more and more investment friendly. They have introduced various schemes and policies that aim to reduce red tape and increase the ease of doing business. The main aim of all the national governments is to make it simple to invest in indonesia.
Indonesia’s investment climate is one of the most conducive one’s you can find in ASEAN. The current president. Mr. Jokowi Widodo’s main aim when he came to power in 2014 was to make Indonesia appeal to international investors. In this regard, the president has taken multiple steps and initiatives like improvement in infrastructure, reducing red tape, improving HDI etc. The Covid-19 crisis has provided more incentive for the Indonesian government to bring in foreign investment to the island nation. One such initiative is the omnibus law of 2020 that aims to reduce corporate taxes, simplify labour laws and remove unimportant regulatory barriers.
When talking about natural resources, Indonesia is second to none. In fact, it is 2nd most bio-diverse country on the planet after Brazil. Lush green tropical rain forests, coal and minerals, oil and natural gas reserves, abundant agricultural land and plantations for spices, rubber, wood and other commodities make Indonesia the perfect ASEAN country to invest in, if you company’s main product depends on natural resources. Thinking about the future of energy and want to invest in renewable forms of energy? The country has all the natural resources required to do just that. Moreover, the government is ready to provide incentives for such investments too
As a person looking to invest in Indonesia, you must be aware of the demographic advantage that it provides. Indonesia is one of the few large countries and economies in the world that can boast about a positive demographic bonus. Furthermore, it is said to be in net positive till 2035. So, if you needed more reason to believe it is the best time to invest in Indonesia, here It is. As we have already discussed, the current govt is also putting a lot of emphasis on human resource development. Combine this with a young workforce and you have the perfect recipe for success.
For starters, Indonesia is the 4th most populace country in the world. Also, the projections are that it will increase furthermore in the future. Add to this the ever growing middle class population and reduction of poverty. This will result in a massive local market where you can sell your products right where you manufacture them, without needing to relay more on exports.
A straight up fact that all economists agree on is that Indonesia’s economy will be the 6th largest in the world come 2030. It will be a trillion dollar economy with one of the highest population of middle class people in the world. The amount consumers spend in Indonesia will grow at an average of 7.7% every year, in-line with the predictions we made in the previous section on why you should invest in Indonesia. The biggest achievement in the recent past has been how the economy was able to deal with the covid-19 pandemic. Although we cannot say the affect was nil, Indonesia did a lot better than the western countries and its own ASEAN counterparts.
According to this article by the world bank, Indonesia experienced a milder recession while the whole world was going through one of the worst economic crises in memory. The government’s social assistance program was also a huge success.For the past 16 years, Indonesia has been running an economic program called the RPJNM. It was planned to run from 2005-2025 with 4 intervals of a 5-year plan. The country is currently working on the final 5 year plan of the RPJNM and the main focus of the current plan is to improve Indonesia’s human capital and compete more on the international scale in terms of economic activity.
The World Bank and Indonesia have been in a fruitful partnership since the country has come out of autocratic rule. The UN body has continuously provided aid both in the form of monetary benefits as well as knowledge to help Indonesia achieve its RPJNM goals. In fact, as a sign of continued support, the World Bank plans to lend 2.2 Billion Dollars to the country, the highest amount since 2017 On top of that, the world bank is helping indonesia prosper by drawing up a country partnership framework (CPF). The implementation of the project started in 2016 and is currently going on. Through this plan, the country stands to benefit in terms of infrastructure, better taxation and spending. Inside the economy, the sectors of international importance that are set to grow at the highest rate are energy, agriculture and the fishing industry.
Indonesia has a lot of untapped oil and natural gas resources that will help it become a force to reckon with in the future. Agriculture will continue to be a large part of its economy as it is blessed with fertile land and abundant natural resources.
Indonesia is currently lead by president Jokowi, a populist leader with ardent followers. His popularity is due to his modest background and stellar work since he came to power. Political analysts all around the world agree that Jokowi’s time as president has led to Indonesia becoming more investor friendly and his focus on Infrastructure development is the right strategy. His main criticism has been the handling of the covid crisis as Indonesia is the worst affected ASEAN country in terms of cases and deaths. However, the effect on the economy has been negligible when compared the the rest of the world economies. Indonesia also rolled out incentives for those affected economically and arrested the rising poverty rate. All these measures indicate that Indonesian government is focusing a lot on economic development and there should be no worries if you are planning to invest in Indonesia..
Indonesia has been aiming to be an investor-friendly nation since the early 2000s but has faced some challenges along the road. To overcome these challenges, the governments, past and present have introduced various laws and policies. The main policy that aimed at making Indonesia an economic powerhouse through foreign investments was the MP3EI. It was a policy brought in by the previous president Susuilo Bambang Yudhoyono but has been continued by the current government under a different name. It is worth noting that the framework and objectives of both policies are the same. MP3EI set a goal of a 7.5% GDP growth rate and a 3% inflation rate. Jokowi’s government is also aiming for the same and has also introduced another scheme by the name of “nawacita” plan. It consists of 9 priorities that are set make it easier to invest in Indonesia. All in all, here are the main takeaways from the government policies that impact people like you who want to invest in Indonesia.
Other than the MP3EI and the long term RPJPN plan, the Jokowi government added the Omnibus law in 2020. This is the law that impacts foreign investment in Indonesia the most. This law has lowered the corporate taxes in Indonesia, simplified the labour laws to a great extent and reduced bureaucratic interventions in foriegn investments. However, the biggest reforms in terms of regulations is with respect to the allowance of FDI in Indonesia. The government has allowed 100% FDI in sectors like telecom, construction, distribution, drilling services etc. While many ASEAN countries and others around the world are reducing FDI in lieu of the covid-19 pandemic, Indonesia has takenan opposite route, Another area of improvement that the government is focusing on is the labour market. Historically,
Indonesia is known as a country that was always pro-labour. However, the new government is trying to change that perception by bringing in labour laws that are on par for the region and the world. In particular, there has been a lot of relaxation in outsourcing of work and the fixed-term contract employees. Some of the other incentives taken by the government to attract investors are subsidized electricity, tax incentives for the automotive, construction, real estate and other industries, and an increase in income tax for the ultra rich etc. Interesting Facts
1. Indonesia is innovating to make it easy to set up a business in the country. SInce 2018, several reforms have taken place that make the entire process of opening an enterprise paperless, even for foreign nationals. This is called as the online single submission or the OSS system that came into effect in July 2018.
2. A positive investment list has been listed by the government that details all the sectors where foreign nationals can invest and claim 100% ownership of the company. Moreover, there have been reforms that make it straightforward for foreign nationals to own property in Indonesia
3.There has been a substantial decrease in corruption in the bureaucracy. The government has brought in the corruption eradication commission (KPK) and due to its efforts, the country has climbed a lot of places in the corruption perception index since 2013.
4. New tax reforms have been brought in to make Investment in Indonesia much more attractive. There are 18 sectors that have been given “Tax Holiday” status. This means there is a lower threshold for the tax slab.
Due to its abundant natural resources, Indonesia’s main exports are mostly natural products like Coal, Palm Oil, Gold, Natural Gas, and Rubber. However, the country is going under rapid industrialization and this has led to car exports being in the top 5 things that are manufactured and sent out of Indonesia. Likewise, exports of other industrially produced products are picking up too. One of these sectors is the electrical appliances sector which is also undergoing industrialization. Another sector that can appeal to foreign investors for exports in the future is the fishing industry. However, it is currently highly regulated to stop foreign nationals from investing. Rest assured, if there is any positive news in that regard, we will be the first ones to inform you. If you want to receive updates on investing in Indonesia, please subscribe to our mailing list. We only send out relevant information that you will be eager to know about. Indonesia also imports a lot of products and commodities. In fact, Indonesia has a trade deficit, which means, imports are higher than exports. If you want to export your products to indonesia, here is what Indonesia imports the most. Another sector that can appeal to foreign investors for exports in the future is the fishing industry. However, it is currently highly regulated to stop foreign nationals from investing. Rest assured, if there is any positive news in that regard, we will be the first ones to inform you. If you want to receive updates on investing in Indonesia, please subscribe to our mailing list. We only send out relevant information that you will be eager to know about. Indonesia also imports a lot of products and commodities. In fact, Indonesia has a trade deficit, which means, imports are higher than exports. If you want to export your products to indonesia, here is what Indonesia imports the most.
Statistics show that Indonesia has oil reserves of up to 87 billion barrels and gas of about 594 TSCF. This means that it can be very profitable to start investing in this sector currently. If you are looking for a country in ASEAN to invest in this sector Indonesia has to be at the top of your list.The government too is supporting investors who want to make use of Indonesia’s oil and gas reserves. It plans to extract 1 million barrels per day and is inviting foreign companies to explore the country’s landscape to look for new sites viable to extract oil and gas. The success ratio of exploration activities is also pretty decent at 38%. Sulawesi offshore, Papua offshore and Nusa Tenggara are some areas where exploration is being encouraged by the government.
By now, you will know that Indonesia is the 4th most populated country on earth. Add to this the ever-increasing number of middle class people and it can only mean the continuous growth of the real-estate market. More and more people are moving to the urban centers in search of jobs and better quality of life, moving away from the agriculture and fishing centric rural areas. The government itself is investing in property development areas. Over the past few years, this project has seen rapid success and has led to a year-on-year increase in the property price index for urban areas. Furthermore, the government just made it easier for foreign nationals to hold properties in the country. That can be another way for you to invest in Indonesia.
Amongst ASEAN countries, Indonesia’s pharmacy sector is growing at the highest rate. This is really encouraging news for all investors. The social security system that has been implemented requires medicines for the elderly to be supplied constantly. To reduce costs, the government is incentivizing the production and supply of medicines inside Indonesia itself. The figures we are about to discuss sound promising. Indonesia’s pharmacy market isworth more than $5 billion and is only going to increase. Foreign companies are expected to make up more than 30% of it.
Just last year, the current government allowed 100% FDI in the telecommunications sector. Moreover, Indonesians are becoming more and more reliant on the internet for their daily life. The pandemic has only made the internet and mobile communication an essential part of life. However, compared to the rest of the world, Indonesia lacks in terms of speed of the internet as well as prices. This is something that needs to change. and bringing foreign technology and investment into this sector can be the solution. A lot of foreign investors are keen on investing in Indonesian startups seeing that the huge population will be more reliant on internet based services and apps in the future. This can be a fruitful idea for people who want to invest in Indonesia.
As we already discussed, Indonesia is undergoing industrialization. For the first time, many of Indonesia’s top exports are products produced in factories than the natural resources like Palm Oil, Rubber, Oil and Gas etc. This has been the result of the current government’s push for making Indonesia a competitive market for foreign investors to set up manufacturing plants both on a medium scale as well as large scale. Currently, there is an ongoing shift in industries. Capital-centric industries are becoming more in number. Hence, labor-intensive industries are reducing in number due to advanced machinery and robots. The effect is being seen in metal, automotive and chemical industries. Anyone who sets up a capital centric manufacturing unit stands to gain a lot when the competition is relying on manual labour for work.
Indonesia is a vast country made up of thousands of islands. However, to travel between these islands or even within islands, there aren’t many convenient transport options. Hence, the government is inviting foreign nationals to invest in this sector . Although change and competition is required in all forms of public transport like railways and road transport, the most promising sector is the airline industry.The demand for air travel from the people of Indonesia is among the highest in the world, but there are not many airlines looking to offer what the consumers want. If you want your company to enter into the airline industry of indonesia in a small scale or large scale, there won’t be a better time than this to do it.
Probably the most promising among all the sectors we have mentioned here is the food and beverage industry. Indonesia is still quite rural in nature but it is undergoing rapid urbanization. With more and more people transitioning into the middle class and living in cities, the need for packaged food and drinks has to be met. Competition among
companies is not as fierce as in other ASEAN countries currently but that might change sooner rather than later.
Indonesia is home to many active volcanoes which can cause disturbances to air traffic and daily life. Furthermore, it sits right in a high-activity seismic zone, making it very prone to large earthquakes and tsunamis. The 2004 earthquake and tsunami is a prime example. However, these are once in a lifetime events that we have no control over.
The Indonesian Rupiah is weak when compared to most of the common currencies in the world. For example, 14,000 rupiah is equal to just one US dollar, Besides, the exchange rate continuously fluctuates, making it difficult. for investors to asses the cost of production, their services, raw materials etc. Also, since Rupiah is gradually, but constantly declining, the investments you make today will not be worth the same amount in the future.
Although there has been a significant drop in corruption rates going by trusted metrics, it is still a problem that plagues the country. On top of that, most of the other ASEAN countries fare better when we talk about corruption. This leads to a reduction in the ease of doing business, which might be unappealing to a lot of investors .
In the end, we can say that Indonesia can be one of the best countries to invest in ASEAN, depending on the sector. The main attraction is the comparatively low competition and the massive population that are looking for better products and services. That also means a young and energetic work force that is hungry to strive and achieve their goals. Moreover, the track record of the Indonesian governments over the past 20 years have always been pro business and pro foreign investment no matterwhich party is in power. All these positive things outweigh the minor niggles that you might have to face when you invest in Indonesia
The President and his administration are focused on economic development and attracting people to invest in Indonesia
Strong fundamentals with bright future potential as a potential vibrant business hub.
Large infrastructure conglomerates form backbone of nation’s business and industry