Population (2020)1: 268 million GDP (2020): US$1.15 trillion World Bank "Ease of Doing Business" Rank (2019): 73 Bilateral Trade with Singapore: S$48.8 billion
Indonesia is Southeast Asia’s largest economy, and its most populous one. Its relatively young population of 268 million represents both a sizeable workforce and pool of consumers. The country saw steady economic growth of about 5% from 2016 to 20202. While the COVID-19 pandemic has resulted in a 2.1% dip in its Gross Domestic Product (GDP) in 2021, analysts expect Indonesia’s economy to recover3 as economic activity resumes in the coming months.
Majority of the population is young, with more than 40% of the population under the age of 24, and 85% under the age of 55. Urban consumers account for about 57% of Indonesia’s total population and is expected to reach 71% (209 million consumers) by 2030. These consumers are likely to be concentrated in its 12 large cities – including Jakarta, Medan, Surabaya.
These strong fundamentals make Indonesia one of Southeast Asia’s most attractive investment locations. This is a sentiment echoed by Singapore firms – almost half of 1,075 firms surveyed by the Singapore Business Federation (SBF)4 ranked Indonesia as their top overseas destination.
1 Source: BPS Indonesia 2020 2 Source: World Bank 2021 3 Source: IMF Country Focus, 2021 4 Source: SBF National Business Survey 2020/2021
Singapore is consistently among one of Indonesia’s top foreign investors and top trading partners.
In 2020, Singapore continued to be Indonesia’s top source of foreign direct investments, with investments totalling US$9.8 billion. Indonesia also remained one of Singapore’s top ten trading partners in 2020, with bilateral trade reaching S$48.8 billion5.
The governments of Indonesia and Singapore enjoy a strong economic relationship, with key members of both administrations meeting frequently. Such strong relations pave the way for closer economic collaboration, in turn boding well for Singapore firms looking to venture to Indonesia.
For example, the Singapore-Indonesia Bilateral Investment Treaty (BIT), which came into force in March 2021, aims at encouraging greater trade and investment flows between both countries. The BIT establishes rules on the treatment of investors and investments from both countries and grants investors additional protection on their investments. Singapore and Indonesia also updated the Singapore-Indonesia Avoidance of Double Taxation Agreement (DTA) in 2021. The changes include a reduction in withholding tax rates on royalties and branch profits, as well as provision for tax exemption in the source state for certain capital gains. It also incorporates international standards to counter treat abuse.
5Source: MTI Press Release on the Singapore-Indonesia Bilateral Investment Treaty
Investment attraction will continue to be a priority for the Indonesian government, underpinned by Indonesia’s ambitious plans to be within the world’s top ten economies by 2030.
Indonesia passed the Omnibus Law in 2020 to revise barriers to investments and improve the ease of doing business, in a bid to attract more investments to drive economic growth and create jobs. The Omnibus Law will simplify processes to get business licenses and introduce flexibility in the country’s labour market by easing recruitment and outsourcing.
These improvements include the launch of the Online Single Submission (OSS), which integrates licensing services to ease the process of setting up business in Indonesia. In addition, Indonesia also issued a regulation on the Positive Investment List as part of the Omnibus Law, which would see Indonesia opening sectors such as energy, telecommunication, transport, and construction services for full foreign investment.