Indonesia’s status as an emerging economic powerhouse makes it an ideal investment destination for forward-looking companies. It has a large and young population with growing spending power, a positive investment climate, and an abundance of natural resources. Now is the perfect time to enter Indonesia. Here are 5 reasons why.
Indonesia has a stable and fast-growing economy. Data from the World Bank shows that its GDP has grown an impressive six-fold over the past two decades (from US$165 billion in 2000, to US$1058 billion in 2020) and is expected to increase by 5.2% on average per year over the next five years. Already the largest economy in Southeast Asia and ranked 16th in the world, it is forecasted to rise to one of the top five largest economies by 2030, surpassing Germany, Japan, Russia, Turkey and Brazil. It is also the only G20 member state from its region and holds the presidency for 2022.
In 2019, Indonesia officially became an upper-middle income country when its Gross National Income surpassed the World Bank’s threshold of US$4,050. Twenty percent of its population, roughly 52 million Indonesians, are considered middle class; and 115 million more are considered aspiring middle class. There is plenty of space for growth as domestic consumption is expected to continue its upward trajectory.
Indonesia came out of a dictatorship in 1998 and subsequently underwent four years of constitutional reforms. Since then, the political climate has proved to be stable. It ranks on par with Brazil and other ASEAN nations, and ahead of India, Mexico and other CIVETS countries such as Egypt, Colombia and Turkey (based on rankings by the Lowy Institute and the Global Economy using data points from the World Bank.) Political stability, particularly under President Widodo’s leadership, has enabled the government to focus on promoting policies that attract investors and increase the ease of doing business in the country.
The investment climate in Indonesia is one of the most conducive in the Southeast Asian region. Since he came to power in 2014, President Widodo has focused on strengthening Indonesia’s appeal to international investors. His initiatives include opening more sectors to foreign investment, improving critical infrastructure and reducing red tape for investors.
For example, the Omnibus Law on Job Creation was enacted in 2020 and is designed to reduce corporate taxes, simplify labour laws and reduce regulatory barriers. Although it has recently encountered legal challenges, many experts agree that foreign investors are not affected in the interim and that the issues raised may even allow the government to address the bill’s deficiencies early on. The Presidential Regulation 10/2021, also known as Priority List or Positive Investment List, provides foreign investors with greater access to numerous industries and sectors, and also presents a range of fiscal and non-fiscal investment incentives. Out of the 245 priority sectors detailed therein, 183 are eligible for tax allowances, 18 are eligible for tax holidays, and 44 are eligible to apply for investment allowances.
The 13,000-island archipelago is an incredibly bio-diverse country, second only in the world Brazil. It has the 3rd largest tropical rainforests on the planet, which support its timber industry; is rich in energy sources (oil, natural gas, coal) and mineral resources (tin, copper, gold and nickel); and has abundant agricultural land and plantations for spices, rubber, palm oil, and other commodities. Indonesia currently accounts for 40% of Southeast Asia’s energy consumption and this number is predicted to increase by 80%, driven by population growth and economic development. As it also houses 40% of the world’s geothermal resources, the potential for investments in clean energy – hydropower, solar, tidal and geothermal – is massive.
A key advantage of Indonesia is its strong demographic: it has a young population, with a median age of 30.2 years, and a total labor force of 140 million people. The top employment sectors are agriculture, forestry, and fisheries (approximately 30%, but this number is declining); trading (19%); and processing (14%). The adult literacy rate is 96%.
With our in-depth knowledge of and experience in Indonesia, we can help you make the most of the investment opportunities in the country.
Tripudjo Soemarko is the Advisor – Government Relations of our Indonesian subsidiary, Indonesia Business Partners. He is a career banker with over 30 years of work experience at HSBC.
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