Population (2017): 263 million GDP: US$1.02 trillion World Bank “Ease of Doing Business” Rank (2018): 72 Bilateral Trade with Singapore: S$59.4 billion Trading Partner Rank (2017): 6
Indonesia is Southeast Asia’s largest economy, and also its most populous one. Its relatively young population of 260 million represents both a sizeable workforce and pool of consumers. This is complemented by the country’s steady economic growth of 5.1% in 2017, and 5.1-5.5% expected for 2018.
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 1,100 firms surveyed by the Singapore Business Federation (SBF) ranked Indonesia as their top overseas destination.
Economic packages and policy reforms rolled out over the previous few years to make it easier for investors to do business in Indonesia have paid off. The 2018 World Bank rankings on the ease of doing business saw Indonesia climb 19 spots from 2017’s position – an even larger jump than 2017’s increase of 15 rungs 1 .
Back in 2016, President Joko “Jokowi” Widodo ratified much-awaited changes to Indonesia’s Negative Investment List (Daftar Negatif Investasi). The end goal was to make it easier for foreign investors to do business in Indonesia. These changes were meant to reduce red tape, develop Indonesia’s ecosystem of small and medium enterprises, and attract greater foreign investment. While certain challenges still remain, these changes have made it easier for businesses to do business in Indonesia on the whole.
More recently, Indonesia’s sovereign debt also achieved investment grade by all major credit rating agencies for the first time – a development that has not gone unnoticed by investors looking to realise the potential of Southeast Asia’s largest economy.
The current administration has also clearly articulated its focus on priority sectors such as tourism, the digital economy, distributed energy solutions, infrastructure & maritime connectivity. This has given businesses in these sectors the confidence to press ahead with their initiatives as they know these are in line with the government’s long-term development plans.
1“Doing Business”, World Bank Group, 2017
Singapore is consistently among one of Indonesia’s top foreign investors and top trading partners. In 2017 alone, Singapore’s realised investments into Indonesia amounted to US$$8.4 billion 2.
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.
The strong bilateral relationship is best underscored by the annual Leaders Retreat – where Singapore’s Prime Minister and Indonesia’s President convene to discuss key bilateral issues and announce areas for joint cooperation. Both countries have also formed 6 Economic Bilateral Working Groups which look at strengthening collaboration in the areas of (i) Batam, Bintan and Karimun (BBK) & Special Economic Zones (SEZs) (ii) Investment (iii) Tourism (iv) Transport (v) Manpower (vi) Agri-business.
2Source: Singapore Department of Statistics
As competition and overheads in Jakarta increase, many Singapore companies wanting to do business in Indonesia are gradually looking beyond the capital city. In particular, with the 2017 opening of Kendal Industrial Park in Central Java and increased emphasis on the development of East Java, firms are looking beyond Jakarta.
This is also in line with the government’s emphasis on developing regions outside Jakarta. One such region is eastern Indonesia – a region that still remains underdeveloped despite it being home to 130 million people, or half of Indonesia’s entire population. Favourable fundamentals such as an abundance of natural resources, lower levels of competition and a growing middle class are propelling the region’s growth. Cities in eastern Indonesia such as Surabaya, Semarang and Yogyakarta, are developing rapidly as foreign investment pours into the region. This is reflected by the fact that some of Indonesia’s fastest growing provinces are in eastern Indonesia. South Sulawesi (7.86%), Central Kalimantan (6.89%) and Bali (6.61%) all experienced higher growth rates than the national average of 5.64% in the first half of the decade 3. Here’s an in-depth look at what opportunities the region offers for your business.
Within eastern Indonesia, Central Java - where labour costs are approximately half that of Jakarta – is attracting significant attention. The region is home to the recently opened Kendal Industrial Park, and experiencing an upturn in growth for manufacturing.
3Badan Pusat Statistik (BPS), 2015