WHY YOU SHOULD INVEST IN INDONESIA?
GENERAL OVERVIEW:
- The Population Census (SP2020) in September 2020 recorded a population of 270.20 million people with more than 70% are in productive age.
- Indonesia's labor force participation rate reached an all-time high of 69.32 percent in 2019.
- The middle class is growing, every year, approximately 7 million people are expected to enter the middle class.
- The World Bank's 2020 Ease of Doing Business Index ranked Indonesia at 73 in 2019 from 190 countries.
ECONOMY
- The Gross Domestic Product (GDP) reaching Rp. 15,434.2 trillion and the GDP per capita reaching Rp. 56.9 million or US $ 3,911.7.
- Able to consistently maintain GDP growth at five percent before the onset of the COVID-19 pandemic.
- Indonesia's GDP is expected to rebound to 6% growth in 2021,
- Prices of food commodities (palm oil & soybeans) and mining products (tin, iron ore, and copper) in the international market in Q4-2020 have increased both (q-to-q) and (y-on-y).
- The Indonesian government has allocated a massive sum of Rp 2.75 quadrillion (US$193.24 billion) to its National Economic Recovery Program.
CONSUMER BEHAVIOR
- In 2018, Indonesia saw a 5.05 percent increase in consumer spending and a 5.04 percent increase in 2019.
- consumer spending increased in the third quarter of 2020, more than 70% of them make online transactions at least once a month.
GOVERNMENT REGULATIONS
- Indonesia offers the elimination or reduction of tariffs (FTA). All taxable goods imported into Indonesia are subject to a 7.5 percent import duty and a 10% value-added tax.
- Indonesia's Special Economic Zones (SEZs) provide benefits from tax allowance and withholding import tax, reduce the tax burden, business permits, and property rights.
- Indonesia has cut the corporate income tax (CIT) rate from 25% to 22% for the 2020-2021 fiscal year, and it will be reduced further to 20% in 2022.
INVESTMENT POTENTIAL
- Agriculture . Indonesia is the world's 5th largest shrimp exporter and the world's 2nd largest shrimp producer after China, with total production of 627,643 in 2013.
- Mining. Indonesia’s main export group is palm oil, which is followed by coal and is the 4th largest nickel producer among the world's with more than 60% of global nickel output.
- Tourism. The government has listed 10 new Bali for development.
- Manufacturing. This industry contributes 20% of GDP and hires 15% of the population with the government targeting to raise this to 25% of GDP by 2030, rivals with Germany and South Korea. 20% of Indonesia's GDP comes from electronics, automobiles, textiles, footwear, food and drinks, and chemicals.
- Fast Moving Consumer Goods. Indonesia's retail market is forecast to expand by US$37.2 billion between 2021 and 2025 and will grow annually by 4.06%
- Infrastructure.The Government of Indonesia (GoI) needs IDR 2,877 trillion (60 percent of overall infrastructure funding needs) to close the funding gap. It is critical to increase private investment by up to 40% using the Public Private Partnership (PPP) as an innovative financing method.
DEMOGRAPHIC
Indonesia
is a diverse archipelago nation with over 300 ethnic groups and the largest
economy in Southeast Asia. Indonesia is the world's fourth most populous
country. The population density of Indonesia is 141 people per km2 with Indonesia's
land area of 1.9 million km2. The results of the Population Census (SP2020) in
September 2020 recorded a population of 270.20 million people with more than
70% are in productive age. The generation distribution is 25.87% are
millennials with age between 24 -39 years (1981 - 1996), 27.94% are gen z with
age between 8 - 23 years (1997 - 2012) and 21.88% are gen x with age between 40
-55 years (1965 - 1980).
According to Trading Economics, Indonesia's labor
force participation rate reached an all-time high of 69.32 percent in 2019, up
from 69.2 percent in 2018. Indonesia also has a large consumer base with
rapidly rising purchasing power. In Indonesia, the middle class is growing.
Every year, approximately 7 million people are expected to enter the middle
class.
The World Bank's 2020 Ease of Doing Business Index, which evaluated 190 countries, ranked Indonesia at 73, the same as in 2019, when it fell one level from 72 in 2018. Indonesia had the second fastest growing economy in the G-20 from 2012 to the COVID-19 outbreak in 2020. According to Bloomberg data collected in September 2020, it has ranked third among G-20 economies in terms of economic growth since the pandemic, trailing only China and South Korea.
INDONESIA’S ECONOMY
The Indonesian government has allocated a massive sum of Rp 2.75
quadrillion (US$193.24 billion) to its National Economic Recovery Program. Indonesia's GDP is
expected to rebound to 6% growth with the global economy set to enter a slow
recovery in 2021 (Cekindo, 2020). According to the most recent Oxford Economics
economic forecast, restoring investor interest in Indonesia. According to
surveys by BPS in 2020, various countries' economies performed well in the
fourth quarter of 2020, though growth remained slow. This is shown by the
global PMI index, which increased in October before slowing in November and
December 2020. However, this progress has been delayed by the high number of
COVID-19 cases worldwide. Here are some of the survey’s result:
- The Indonesian economy in 2020 is measured by the Gross Domestic Product (GDP) reaching Rp. 15,434.2 trillion and the GDP per capita reaching Rp. 56.9 million or US $ 3,911.7.
- In 2020, the Indonesian economy grew by 2.07 percent (c-to-c) less than it did in 2019.
- The Indonesian economy contracted by 2.19 percent in the fourth quarter of 2020 compared to the fourth quarter of 2019. (y-on-y).
-
The Indonesian economy contracted by 0.42 percent in the fourth quarter
of 2020 compared to the previous quarter (q-to-q).
-
Prices of food commodities (palm oil & soybeans) and mining products
(tin, iron ore, and copper) in the international market in Q4-2020 have
increased both (q-to-q) and (y-on-y).
GOVERNMENT REGULATIONS
Indonesia offers enormous opportunities for foreign
investors, with the government keen to implement cautious macroeconomic
policies and reforms to boost the investment landscape. Of the most important
ones are:
-
As a member of ASEAN's regional free trade arrangements, Indonesia
offers a host of advantages, including the elimination or reduction of tariffs
(FTA). Generally, all taxable goods imported into Indonesia are subject to a
7.5 percent import duty and a 10% value-added tax. However, under the deal,
products originating in ASEAN benefit from a tariff rate of 0-5 percent.
-
In order to channel investment into particular areas, Indonesia's
Special Economic Zones (SEZs) provide developers with preferential
administrative infrastructure and taxes. Businesses established in these zones
benefit from fiscal benefits such as tax allowance and withholding import tax,
which tend to reduce the tax burden on a newly established business. Non-financial rewards are also offered in the areas of
immigration, business permits, and property rights to assist companies in
launching their activities smoothly.
-
As the largest labor market in ASEAN, the government provides tax breaks
for developing training programs for unskilled laborers, making the nation
suitable for labor-intensive manufacturing.
-
Indonesia has cut the
corporate income tax (CIT) rate from 25% to 22% for the 2020-2021 fiscal year,
and it will be reduced further to 20% in 2022.
Such CIT rates that
could be applicable are:
-
Public corporations that sell a minimum of 40% of total equity value are
entitled to a 5% tax reduction from the ordinary rate, enabling them to pay 20%
CIT.
-
Companies with an annual revenue of 50 billion rupiah (US$3.5 million)
are eligible for a 50% tax reduction from the ordinary rate, which is levied
proportionally on the portion of the gross turnover of 4.8 billion rupiah
(US$341,000); while companies with a gross turnover of less than 4.8 billion
rupiah (US$341,000) are entitled to a 0.5 percent tax on overall turnover.
INVESTMENT POTENTIAL
Agriculture
Historically,
agriculture has become the leading field in terms of both employment and
production. The nation has a diverse variety of natural resources that have
been mined over the last four decades. Indonesia is the world's fifth largest
shrimp exporter and the world's second largest shrimp producer after China,
with total production of 627,643 in 2013. The Ministry of Marine Affairs and
Fisheries has also designated an Indonesian site for the shrimp pond
revitalization scheme.
Mining
The country's main
export group is palm oil, which is followed by coal (and other mining goods),
petroleum, agricultural products, electrical machinery and equipment, and
fishery products. Indonesia is the fourth largest nickel producer among the
world's top five nickel producing nations, accounting for more than 60% of
global nickel output. Indonesia produces 190 thousand tons of nickel per year.
Indonesia has 8% of the world's nickel reserves.
Tourism
The government has listed
10 priority tourism destinations for development to become the new Bali, which
are Danau Toba (North Sumatera), Kepulauan Seribu (DKI Jakarta), Borobudur
(Central Java), Bromo Tengger Semeru (East Java), Labuan Bajo (East Nusa
Tenggara) and Wakatobi (South East Sulawesi), Tanjung Kelayang (Bangka
Belitung), Tanjung Lesung (Banten), Mandalika (West Nusa Tenggara) and Morotoi
(North Maluku).
Manufacturing
Indonesia is eager to
diversify and expand its manufacturing market, as well as to move from low-value
manufacturing skills to higher-value goods. The industry reportedly contributes
20% of GDP and hires 15% of the population, with the government targeting to
raise this to 25% of GDP by 2030, transforming Indonesia into a manufacturing
center that rivals Germany and South Korea by 2030. Electronics, automobiles,
textiles, footwear, food and drinks, and chemicals have all made important
contributions to the economy. It currently accounts for 20% of Indonesia's GDP
and has grown at a rate of 4% per year since 2016. This sub-sectors are populated (99%) by micro, nano,
or medium-sized businesses (MSMEs). The bulk of the country's industrial
centers are concentrated on the island of Java, which accounts for 58% of total
GDP. The government is attempting to spread this to other parts of the world.
Fast Moving Consumer Goods
According to Technavio market study, Indonesia's
retail market is forecast to expand by US$37.2 billion between 2021 and 2025.
In addition, the industry will grow at a compound annual growth rate of 4.06
percent. In 2019, the Global Retail Development Index rated
Indonesia's retail industry fifth in terms of investment attractiveness, making
FMCG one of the profitable sectors that international investors can consider.
Infrastructure
The Government of Indonesia (GoI) has stated that
approximately IDR 2,877 trillion (60 percent of overall infrastructure funding
needs) is expected to close the funding gap. It is critical to increase private
investment in accelerating infrastructure growth in Indonesia by up to 40%
using the Public Private Partnership (PPP) scheme as an alternative innovative
financing method.
CONSUMER BEHAVIOR
In the face of
economic instability, consumer spending fell significantly in the first half of
2020. While consumer spending increased in the third quarter of 2020, this
means that a drastic change in consumer behavior toward a more conservative and
conscious spending trend is on the horizon. Despite this, we see that customer
confidence has been stable. While levels have fallen slightly from 89 percent
in 2019 to 82 percent in 2020, general morale remains comparable to previous
years.
In line with their high levels of digital engagement, more than 70% of them make online transactions at least once a month. In 2018, Indonesia saw a 5.05 percent increase in consumer spending and a 5.04 percent increase in 2019 (Delloite, 2020).
References links:
https://www.bps.go.id/pressrelease/2021/01/21/1854/hasil-sensus-penduduk-2020.html
https://www.aseanbriefing.com/news/planning-your-2021-investment-budget-opportunities-in-indonesia/
https://www.investindonesia.go.id/en/why-invest
https://www.cekindo.com/blog/prospective-business
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