Indonesia: A Rising Star
Despite the global spread of economic difficulty, Indonesia’s economy recorded a growth
rate of 6.5% — its highest since 1996. With global interest and foreign investments flooding into this country, we take a look at why Indonesia is attracting so many investors.
Jakarta, Indonesia
“Planning a business trip to Indonesia? Here’s a tip — book early…” The Wall Street
Journal article titled ‘Another Sign Indonesia is Booming: Less Room at the Inn’
referred to how difficult it is to find a hotel room while dealing with the current
economic status of Indonesia.
Many experts see Indonesia as a rising star
in the emerging markets and it’s easy to see
why. There are five main reasons for the
optimism around Indonesia: a large, youthful
population, an abundance of natural
resources, an expanding manufacturing
base, a growing domestic market, and a
steady influx of foreign investments. These
reasons combined with the Indonesian
government’s strong economic development policy is attracting investors from
across the globe.
In May 2011, the Indonesian government
announced an economic development
master plan named ‘MP3EI’ (Masterplan
Percepatan dan Perluasan Pembangunan
Ekonomi Indonesia). MP3EI divides Indonesia into six economic corridors and identifies
22 main economic activities such as steel,
shipping, palm oil, rubber, and cocoa as
drivers of growth. This is a long-term plan
running for 15 years (2011 to 2025) with an
estimated $468 billion to be invested. The
Indonesian government plans to grow its
INDONESIA: A RISING STAR
PAGE 2
Indonesia boasts a wide variety of resources including
natural rubber, coal, tin, cocoa, coffee, nickel, natural gas,
gold, and oil.
DID YOU KNOW?
Indonesia’s population
GDP from $700 billion (in 2010) to $4.5
trillion by 2025.1 The government’s plan is to
ultimately develop the nation into one of the
top 10 economic powers in the world.
is the world’s fourth
A LARGE, YOUTHFUL POPULATION
largest at
240
million
Among the reasons economists have
chosen to focus on Indonesia, population is
at the top of the list. The population of
Indonesia is approximately 240 million,
ranking after China, India, and the US. In
1971 the population of Indonesia was 119
million, which steadily increased and
exceeded 200 million by the year 2000. In a
mere 40 years, the population had doubled.
However, the total population is only part of
the story. What’s so interesting about
Indonesia’s population is the sheer size of its
youth. People between the ages of 15 to 64
make up 66.5% of the nation’s total
population.2 Experts expect the number of
working age people in Indonesia to increase
through 2030. The high percentage of the
young population entering the labor market
will help boost productivity in the economy.
The quality of human capital in the country
has also improved. In 2010, the United
Nations’ Human Development Index (HDI)
scored Indonesia at 0.60 — a significant
increase from 0.39 in 1980. The highest HDI
score, which is based on a country’s
education, income, and average life
expectancy, is 1.00.
AN ABUNDANCE OF NATURAL RESOURCES
Indonesia boasts a wide variety of resources
including natural rubber, coal, tin, cocoa,
coffee, nickel, natural gas, gold, and oil.
Indonesia is the world’s largest producer
and exporter of crude palm oil.1 The Jakarta
Post, Indonesia’s leading English language
newspaper, forecasts that by 2015, global
demand for palm oil will exceed 60 million
tons. This year, the Indonesian Palm Oil
Association (also known as GAPKI) anticipates 18 million tons of palm oil to be
exported. In addition to the country’s
substantial supply of palm oil, Indonesia is
also the world’s second largest exporter of
coal and the second largest producer of
cocoa and tin.1
Amcham Indonesia, “Masterplan: Acceleration and Expansion of Indonesia Economic Development 2011-2015”, 2011
CIA — The World Factbook
1
2
PAGE 3
The Indonesian government is working fast to revolutionize its
manufacturing industry and has set targets for raising the
manufacturing industry’s portion of GDP.
DID YOU KNOW?
Indonesia’s domestic
consumption accounts for
56%
Natural gas is also another resource
Indonesia has in abundance. In 2010, it is
estimated that Indonesia produced over 82
billion cubic meters of natural gas and
exported over 42 billion cubic meters,
making it the world’s 8th largest exporter of
natural gas.2
Indonesian export growth has virtually
emerged unscathed, staying at around 14%
annual growth over the past two years,3
despite the drop in demand from Europe
and the US since Indonesia exports
relatively little to these two countries. Strong
demand from China and India, specifically
for crude palm oil and coal, continues to
keep Indonesia’s exports buoyant.
AN EXPANDING MANUFACTURING BASE
Manufacturing, which historically has
been the key driver of growth in Indonesia,
continues to be the most popular sector for
foreign investment. This sector has captured
the largest share of foreign direct investments, averaging 37.9% over six years from
2004 to 2010.4 The main manufacturing
The World Bank
Global Business Guide Indonesia, 2011
3
4
areas (excluding oil and gas) in Indonesia
are automobiles and fiber, textiles &
garments (FTG). In 2011, Indonesia’s auto
industry produced over 837,000 cars, an
increase of 19.3% from the year before and
ranking 2nd in Southeast Asia following
Thailand.4 According to the Global Business
Guide Indonesia, the FTG sector is one of
Indonesia’s oldest and most significant
industries, with export sales of $11.3 billion
in 2010, up from $9.34 billion in 2009.
The Indonesian government is working fast
to revolutionize its manufacturing industry
and has set targets for raising the manufacturing industry’s portion of GDP. In order to
achieve industrial diversification, the
government is aiming to grow its raw
material and subsidiary material industries
(chemical, automobile, and machinery
parts), along with its manufacturing (steel,
cement, chemical, ceramics, machinery
parts, textile, clothes, and medicine), and
transportation industries (automobile,
shipping, airline, and railway).
of GDP
A GROWING DOMESTIC MARKET
The optimism surrounding Indonesia is a
direct result of the growth of their economy.
Despite the current Eurozone crisis and
global slowdown, Indonesia posted a GDP
growth rate of 6.5% in 2011.3 This can be
attributed to its consumer-driven economy,
with household consumption accounting for
56% of GDP.3
Indonesia is seeing a sharp rise of the
middle class population. The McKinsey
Global Institute is projecting the middle class
to triple in size, from 45 million today to 135
million people by 2030. In other words, by
2030, more than half (56%) of Indonesia’s
total population will be middle class (defined
as having household disposable income of
over $3,000 per year). Going hand in hand
with the expansion of the middle class is an
increase in disposable income. Euromonitor
International depicted Indonesia as having a
household annual disposable income of
$6,901 in 2011, representing an average
growth rate of 5% per year from 2006-2011.
INDONESIA: A RISING STAR
PAGE 4
DID YOU KNOW?
In 2011, foreign investments
in Indonesia reached
$18.2
billion
Indonesia’s ever expanding middle class is
transforming the country’s consumer market
as they spend more on non-essential
goods. The Jakarta Globe reported that
motorcycle sales in 2011 reached record
level highs, with over 8 million units sold.
The Indonesian Motorcycle Industry
Association (AISI) is forecasting 10% to 15%
growth in sales for this year. AISI is also
predicting record sales for cars, expecting it
to reach 1 million by 2013 (870,000 units
were sold in 2011).
AN INFLUX OF FOREIGN INVESTMENTS
The growth of the middle class and the
increase in consumption has not gone
unnoticed. In 2009, foreign direct invest-
5
ments (FDI) into Indonesia amounted to
$4.9 billion. Last year, FDI into Indonesia
increased to $18.2 billion.3 Credit rating
agencies, Moody and Fitch, have both
upgraded Indonesia to investment grade
status, helping to boost foreign investments.
The top 5 countries making investments in
Indonesia are Singapore, Japan, South
Korea, USA and Australia (as of 2Q2012).5
The Jakarta Post reported that South
Korea’s retail giant, Lotte Mart, will be
investing $6 billion over the next four years
in Indonesia. Lotte Mart will be expanding
their footprint in Indonesia by expanding
from 19 stores (in 2011) to 60 stores by
2015. The Jakarta Post also reported this
summer that the US will be investing $5
billion to help develop infrastructure projects
in Indonesia. LVMH, the world’s biggest
luxury goods group, is so positive on
Indonesia that they told CNBC in March
2012 that they expect Indonesia to become
the world’s largest luxury market in Southeast Asia in the next few years. LVMH is
planning on opening 20 to 22 new cosmetic
stores under their Sephora brand in
Indonesia over the next 2 to 3 years. In
addition to the new Sephora stores, they
intend on opening a new Fendi flagship
store within the next year.
The 17,504 islands that make up Indonesia
are brimming with opportunity. With
Indonesia’s dynamic economy and expanding middle class, investors are cashing in on
the bright future of this country.
BKPM Indonesia Investment Coordinating Board, “The Domestic and Foreign Direct Investment Realization Board, Quarter II and January-June 2012”
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