This is a priority sector for the current administration, which has laid out an ambitious US$327 billion infrastructure project pipeline from 2016 to 2020. Planned projects include toll roads, seaports and airports, and are part of the government’s plans to bridge regions and spur growth in more developing areas. Cold chain logistics is another nascent area of growth, especially in East Indonesia where the fishery industry is thriving and there is an urgent need for proper facilities to process stock for export.
Utilities-wise, the government also plans to ramp up electrification efforts and increase Indonesia’s generation capacity by 35,000MW. It also wants to build more water treatment facilities to ensure all its citizens have access to clean drinking water.
With plans to significantly increase the proportion of renewables in the energy mix to 23% by 2025, renewable energy projects are also in demand. Areas which Singapore companies traditionally have expertise in include biomass power, mini-hydro and solar. Projects in the renewables space enjoy preferential tariffs, which were just released in a 2018 Presidential Regulation.
Securing financing remains a critical element for many infrastructure projects. Indonesia’s agencies such PT Sarana Multi Infrastruktur (PT SMI) and the Indonesia Infrastructure Guarantee Fund (IIGF) have been working together to structure and manage projects and make them more attractive to investors. Singapore agencies are also collaborating with their Indonesian counterparts to explore more financing avenues. For example, Enterprise Singapore and Indonesia’s Ministry of Finance held a joint workshop in February 2018 on preparing infrastructure projects to make them more bankable and appealing to investors.
Beyond financing, Singapore companies are also well-placed to share their expertise in developing and operating actual assets. For example, homegrown water engineering firm Memiontec is partnering Jakarta province owned enterprise Jakarta Propertindo (Jakpro) for two water treatment facilities in Jakarta – one a Build, Own and Operate (BOO) project and the other a toll-operate-transfer (TOT) project. ESG’s MOU with Makassar City will also see more Singapore firms with the regional government on smart city solutions such as the development of e-government platforms, intelligent transportation and smart street lighting.
As many Indonesian home-grown companies play significant roles in the sector, it is imperative Singapore companies build strong relationships and foster partnerships with private sector players, including key SOEs. This is especially relevant for sectors which have limits to foreign shareholding, such as small-scale power plants with a capacity of less than 10MW (49%), seaport infrastructure (49%) and warehousing (67%).
Indonesia’s digital economy has been growing rapidly, with this boom spearheaded by the country’s four unicorns of Go-Jek, Tokopedia, Traveloka and Bukalapak. Cross-border technology investments in Indonesia hit US$3 billion in 2017 – making it the top investment draw across all sectors 4. This is largely due to a mix of key ingredients which help to spur innovation in Indonesia - a young and large population, growing demand for products and services across the sprawling archipelago, and cash-flushed firms looking to deploy their capital into startups.
The tech sector is dominated by companies in the e-commerce and fintech spaces – a reflection of the country’s large population and growing consumption levels. The size of the market also means that companies with a unique value proposition will find it easier to scale.
Current growth rates are happening from a low base. Indonesia’s e-commerce penetration rate is only about 2%, and its GDP per capita is US$3,800. With stronger 3G/4G connectivity and the ubiquity of low-cost smartphones, there’s much potential for growth. Services that were previously inaccessible can now be delivered through digital platforms. Singapore’s digital companies such as Shopback, 99.co and Style Theory have established themselves in the market and are running successfully, acquiring users for their products as well as expanding their business beyond the main cities in Indonesia.
Five key in-demand areas Singapore startups can look at are : e-commerce services, logistics and fulfilment, fintech, e-health services, and deep tech. With more unicorns expected to spring from Indonesia in the next few years, Singapore startups serious about expanding into the country need to ride the wave of growth. Our Regional Group Director (Jakarta) explains why Singapore companies cannot be absent from this market if they are serious about the startup and tech sector. Read more here.
Initiatives such as the Global Innovation Alliance (Jakarta) also make it easier for Singapore and Indonesia startups to better collaborate. The Alliance will facilitate easier market access, develop talent and expose more firms to innovation hotbeds. Block71 Jakarta is one such launchpad Singapore firms can leverage under the Alliance. The incubation space is a joint venture between NUS Enterprise and Indonesia’s Salim Group, and is home to over 20 Singapore startups.
For more on how you can succeed in Indonesia’s digital economy, click here to view the key takeaways of our five-day in-market iAdvisory workshop.
4“Investors target Indonesia’s 260m population”, Financial Times, 10 April 2018
Indonesia is the world’s fourth most populous country – only China, India and the United States are home to more people. With Indonesia’s middle class set to hit over 70 million by the end of the decade, the archipelago nation is a very attractive destination for international brands.
Indonesia consumers are familiar with Singapore brands due to the proximity between both countries. In 2017 alone, 2.95 million Indonesians visited Singapore - making them the second largest group of tourist arrivals5. Tourism receipts from Indonesian tourists accounted for S$1.98 billion – a testament to their demand for Singapore goods and services. Indeed, Singapore brands are often perceived as high-quality and reliable, especially in sectors such as health & wellness, as well as education services.
Reaching out to consumers in Indonesia requires an integrated offline and online strategy. Brick-and-mortar shops remain the primary mode of sales but companies cannot afford to ignore digital media and e-commerce channels. As Internet penetration increases, firms can consider using social media to create brand awareness and boost sales as Indonesians are heavy social media users. With over 130 million accounts, the nation is home to the world’s fourth largest Facebook user base 6.
As more Indonesians enter the middle class, consumption patterns are also set to change. Industry watchers expect consumers to place greater emphasis on health & wellness as they aspire to a higher standard of living. That being said, Singapore firms looking to expand to Indonesia still need to be aware of the strict regulations governing the sector. Our in-market iAdvisory workshop details how Singapore firms can successfully tap the potential of Indonesia’s healthcare industry.
Another result of growing affluence is a change in dining habits. There is greater appreciation for specialty shops which focus on niche dining offerings rather than mass market outlets. More are also spending on food & beverage when visiting malls. All these point to significant opportunities for Singapore food firms wanting a slice of the pie.
5“China tourists top arrivals here, surpassing Indonesia”, The Straits Times, 13 Feb 2018
6“Indonesia, fourth highest number of Facebook users in the world”, The Jakarta Post, 4 Mar 2018
Manufacturing accounts for close to a quarter of Indonesia’s GDP, and employs 13.7% of its workforce. Labour is abundant, and overall production costs are still relatively competitive compared to other countries in the region..
Indonesia is also home to an abundance of raw materials. This means manufacturers can also source materials locally – allowing them to bypass inconveniences associated with importation. This is especially relevant for businesses such as coffee production, meat processing and garment manufacturing.
Another boon for manufacturing in Indonesia is the potential to cater to the sizeable domestic demand. This is especially as certain goods manufactured in Indonesia are mandated to require local content. For example, mobile phones sold in Indonesia require at least 30% local content.
Indonesia is also home to established industrial parks which businesses can leverage. With their ancillary services and proximity to logistics nodes, these industrial parks can serve as landing pads for both established and new players. The 2,700 ha Kendal Industrial Park, a joint venture between Singapore’s Sembcorp Development and Indonesia’s PT Jababeka, is one such industrial park. Located in Central Java, the industrial park is expected to house over 100,000 workers by 2021. There are also developments catered to specific sectors. For example, the Bintan Offshore Marine Centre, a joint-venture between Singaporean firm Singatac and Australia’s Qube, provides a platform for marine & offshore firms to expand land-intensive client work.
Looking ahead, the administration also has plans to move up the value chain and explore how technology can play a bigger role in the sector. The Industry 4.0 roadmap was launched on 4 April 2018 and focuses on five sectors: food & beverage, automotive, electronics, chemicals and textile & garments.