Indonesia is the largest archipelago in the world and one of the fastest-growing economies in Southeast Asia. The country is the fourth-most populous country in the world. According to UN calculations, there are currently 284,492,380 people living in Indonesia. This is about 3.5% of the world’s population. By 2030, the population could grow to 295 million, a 14.7% increase from 2015.
Indonesia’s GDP is also growing strongly, with the figure increasing 15-fold over the past 20 years to $1.5 trillion, making it Asia’s third largest economy after China and India. The country is already ranked 16th in the world in terms of GDP and is increasingly being recognised as a top investment destination thanks to its rapid economic growth, young, fast-growing population, favourable strategic location and abundant natural resources.
KEY INDUSTRIES AND GROWTH DRIVERS
Many people associate Indonesia mainly with vacations in Bali, but the country has enormous reserves of mineral resources. It is also one of the largest producers of agricultural products due to its location.
• Natural resources: extraction and export of minerals
Indonesia is rich in deposits of various minerals: high-quality oil, tin, bauxite, nickel, manganese, lead, copper, zinc, chromium, gas deposits, and precious stones. For example, Indonesia is the leader in terms of predicted nickel reserves; according to the latest data from the USGS (United States Geological Survey) they are estimated at 55 million metric tons. The USGS estimates Indonesia’s production in 2023 in terms of pure metal at 1.8 million metric tons.
S&P Global Commodity Insights calculates that Indonesia produced 40.2% of the world’s nickel in 2023 and could increase production to 43.9% by 2027.
The Australian Department of Industry, Science and Resources, which uses slightly different figures, forecasts that Indonesia’s production will continue to increase— from 2 million metric tons in 2023 to 2.5 million metric tons in 2025, which would be equivalent to 56% of global supply.
In addition to nickel, Indonesia is also actively capturing the global coal market, following a similar pattern: supplying large volumes of products of lower quality than its competitors but at a very competitive price. According to S&P, Indonesia produces thermal coal with low thermal conductivity and low ash and sulfur content and is its largest exporter. Indonesia’s coal production in 2023 reached a record high of 775.2 million metric tons, up 12% on the previous year and exceeding the 694 million metric tons target set by the Indonesian government.
Coal exports from Indonesia increased by 20% in H1 2024 to 208.50 million metric tons, compared to 173.77 million metric tons in H1 2023. In H1 2024, non-coking coal exports from Indonesia were 206.50 million metric tons, and coal exports were 2 million metric tons. Coal exports to Asian countries reached 205.88 million metric tons in the first half of 2024, compared to 170.99 million metric tons in the first half of 2023. This is 20.39% more than the previous year but 6.38% less than May, accounting for 98.73% of total exports.
China remains the main destination, with 61.42 million metric tons in H1 2024 shipments compared to 51.99 million metric tons in H1 2023, up 18.17% year-on-year.
“Indonesian nickel has flooded the market as low production costs allow the country to keep metal prices low while other producers are struggling,”— noted the analysts at S&P Global Commodity Insights.
• Tourism and infrastructure development
Indonesia is the largest island nation in the world, comprising more than 17,000 islands. Thanks to this unique ecosystem, tourism in the country is developing rapidly. Now, it is the second most popular destination in Asia among European tourists. According to Statista, about 7-8 million travelers flock to the islands with evergreen jungles, stunning fauna and f lora, and a rich underwater world of coral reefs annually. And their number is growing every year. For example, Indonesia’s most popular island, Bali, was visited by 24% more tourists in the first half of the year compared to the same period in 2023.
While the island used to be a destination of choice for budget holidaymakers, Bali is now considered a top holiday destination for affluent European tourists. According to statistics from Indonesia’s Central Agency, international tourists visiting Indonesia in 2023 spent about $1,625 per visit, up 12.25% from 2022. The demographics of travelers also explain the reason for this spending—the main occupation of tourists in Bali is managerial positions. The increase in average foreign tourist spending per visit in 2023 is partly due to an increase in the length of stay of foreign tourists from an average of 12.45 nights in 2022 to an average of 12.71 nights in 2024.
The development of tourism stimulates the construction of new infrastructure in Indonesia. Thus, in the fall of 2024, construction of the first railway, about 30 km long, began in Bali. The LRTBali light rail will connect the local airport Ngurah Rai with the city of Mengwi and should solve the problem of growing traffic jams. Also, in 2025, a theme park for children and adults called UniversalPark & Gardens Bali is scheduled to open on Bali’s west coast in the district of Jembrana. As the largest country in the region by area and population, Indonesia will also build a Formula 1 circuit in Bali.
These projects, as well as the new international airport, cruise ship port, Bali Metro, and railway, all contribute to the development of road and transport infrastructure and certainly increase the island’s attractiveness to tourists.
• Innovation in agriculture and the productive sector
Indonesia is one of the largest producers of food products. Agriculture employs about one-third of all workers (38.2 million people or 29.8%, including 18.1% in East Java Province, 12.1% in Central Java Province, and 9.6% in West Java Province).
32.5% of the country’s territory (62.3 million hectares) is agricultural land, of which 42.2% (26.3 million hectares) is arable land, 40.1% (25 million hectares) is perennial plantations, and 17.7% (11 million hectares) is pasture. There are 6.7 million hectares of irrigated land and 92.7 million hectares of forests (48.4% of Indonesia’s land area).
Indonesia’s main crops are rice, maize, oil palm, coffee, and sugar cane. The country’s livestock production is based on cattle breeding and fish farming. The most common cattle species are the Balinese bull and the Banteng, a breed of water buffalo. The total number of cattle in Indonesia is about 16.3 million.
Breeding freshwater fish, particularly tilapia and carp, is also an important livestock industry. Indonesia produces about 1.5 million metric tons of fish annually.
Palm oil is the mainstay of Indonesia’s agricultural exports, accounting for 45.7% of agro-industrial exports. The leading buyers are India, China, and the EU. In addition to palm oil, Indonesia exports rubber, copra, coffee, cocoa beans, spices, and other agricultural products.
The Indonesian government actively stimulates agricultural development through various measures. The key areas of state support include subsidizing interest rates on loans for farmers, developing rural infrastructure, and stimulating exports of agricultural products. About $2 billion from the state budget is allocated annually to support Indonesian agriculture.
INVESTMENT CLIMATE
The business environment in Indonesia is becoming increasingly favorable for foreign investors and entrepreneurs. The government is focusing on simplifying procedures for starting and running a business, which includes removing bureaucratic barriers, reforming the tax system, and ensuring the protection of property rights.
• Reforms to attract foreign investors
In 2024, Indonesian authorities launched a long-term visa program to attract foreign investors. Individual investors must set up a company worth $2.5 million to receive a f ive-year Golden Visa. For a 10-year visa, an investment of $5 million is required.
If the investor does not plan to set up a company, he must deposit $350,000 for a f ive-year visa and $700,000 for a ten-year visa. These funds can be used to buy Indonesian government bonds, shares in public companies, or deposits.
Corporate investors must invest $25 million to get five-year visas for directors and commissioners. A 10-year visa will require an investment of $50 million.
The immigration agency said investors in the new $32 billion capital, now under construction in the jungles of Borneo Island, will receive a five-year visa for a $5 million investment and a ten-year visa for a $10 million investment.
Indonesian Immigration Director General Silmi Karim expressed confidence that authorities will issue 1,000 “golden visas” by the end of this year.
“It’s not about a large number of visas because the Golden Visa is a very exclusive, specific program that should benefit Indonesia. This year’s target is 1,000 recipients, and hopefully, it will be achieved by the end of 2024,” he said.
In order to boost oil and gas exploration, the country’s authorities have offered investors participation in oil projects. Thus, at the end of 2024, Indonesia announced a tender for the development of six blocks with oil reserves, the potential of which is estimated at 48 billion barrels of oil equivalent.
• State business support programs
Indonesia has 15 Special Economic Zones (SEZs). They were established to stimulate economic development by attracting investment, accelerating industrial and economic growth, and improving access to global markets. The largest are:
1. SEZ Sebalu: industrial zone centered on agro-industry and palm oil;
2. SEZ Tanjung Api Api: predominantly focused on the processing of natural resources and their production;
3. SEZ Mandalika: main focus on tourism—offers well-developed infrastructure to support the tourism industry;
4. SEZ Batam: one of the oldest and most successful projects, focused on technology, manufacturing, and logistics, strategically located near Singapore. In SEZs, Indonesian enterprises are granted various tax incentives, simplified customs, and administrative procedures.
The Indonesian government actively supports foreign trade and foreign investors. Important aspects for those who want to invest in the country’s economy:
• Free trade agreements: Indonesia has signed numerous agreements with ASEAN countries, Australia, China, and others.
• Simplifying procedures: Automating customs procedures and reducing bureaucracy make the export process more transparent.
• Tax incentives: Tax incentives are available for companies investing in priority sectors.
In addition to attracting foreign investors, the authorities of the island state actively help local enterprises. For example, there is a whole system of grants and incentives for small and medium-sized businesses. With their help, the government tries to support enterprises that employ almost 95% of the country’s able-bodied population.
Among the most popular government business support programs are:
• Loan for business
• Startup Incubator Programme
• E-brochure programme
• Tax incentives
• Loan Restructuring Among the most popular government business support programs are:
• Microloan program for micro businesses
• Direct Assistance Programme
• Working Capital Policy
• Working capital loan guarantee scheme
Examples of successful investments In November 2024, British energy giant bp, along with its partners, announced the final investment decision for the Tangguh Ubadari Carbon Capture, Utilisation and Storage (CCUS) and Compression (UCC) project in Papua Barat, Indonesia. The $7 billion project aims to produce an additional 3 trillion cubic feet of gas resources, a significant step in meeting growing energy needs in the region.
“This project not only provides access to fantastic gas reserves but is also the first project in Indonesia to use CCUS to maximize gas recovery. BP has been operating in Indonesia for more than 55 years, and the strength of our relationship allows us to bring a wealth of technical expertise to bear on this innovative project. We are deeply grateful for the continued support of the Indonesian government and partners and look forward to helping the region meet its growing energy needs,” said Murray Ashincloss, CEO of BP.
Apple recently announced a $100 million investment in the Indonesian economy. This decision is related to the company’s desire to strengthen its presence in the Indonesian market and comply with local legislation—to ensure that at least 40% of product parts are manufactured directly in the country. The corporation plans to use these funds to build a factory to produce components and accessories for its devices.
RISKS AND CHALLENGES
Due to its geographical location and large area, Indonesia faces serious climate challenges and infrastructure development difficulties.
Vulnerability to climate change:
Composed of more than 17,000 islands and with a long coastline, Indonesia is particularly vulnerable to the effects of climate change. These include rising sea levels and extreme weather events such as f loods, droughts, and storms.
Some other factors that increase Indonesia’s vulnerability:
• High rate of forest loss. The country is one of the world’s largest sources of greenhouse gas emissions due to large-scale deforestation.
• Atmospheric air pollution. In some cities, it is caused by industrial and motor vehicle emissions; in rural areas, it is caused by the formation of haze and smog due to forest fires.
• Mining. Climate change exacerbates environmental risks as changing rainfall patterns reduce water availability and increase the risk of flooding and landslides.
• Living near the sea border in slums. These are the people who are most vulnerable to climate disasters, as they lack the means to move and improve their living conditions.
In 2021, experts from the environmental organization Nature Conservancy, who published an article in the journal Lancet Planetary Health, conducted a study that showed that deforestation and global warming in one Indonesian province led to an increase in temperature by almost a full degree Celsius in 16 years, which led to an 8% increase in mortality.
Problems with bureaucracy and infrastructure
Investors may face some problems with bureaucracy and infrastructure in Indonesia:
• Excessive regulation and a complex licensing process. This may discourage investors.
• Lack of coordination at the ministerial level. Because of this, some of the infrastructure required for Special Economic Zones (SEZs) has not yet been built.
• A limited number of skilled workers. In particular, this applies to those who have a high level of education and professional training and are needed by technology-based startups.
• Insufficient infrastructure development. For example, some SEZs have not yet developed the minimum necessary infrastructure, primarily the local network of roads and railways.
The Indonesian government has recognized these problems and is working to address them. For example, it offers new incentives to companies wishing to invest in SEZs and grants long-term land rights.
PERSPECTIVES FOR 2025
Indonesia is the largest and one of the fastest-growing markets in Southeast Asia. The country’s economy is expected to continue growing at a steady pace, and its GDP is expected to average 5.1% between 2024 and 2026.
However, the World Bank still defines Indonesia as a lower-middle-income economy. Although it is still a poor country, its economy has the potential to grow tenfold, making it an attractive investment destination.
Among the most promising niches for foreign investors, experts name:
• Logistics and infrastructure. For any country, transport infrastructure is a major unifying factor. For Indonesia, which is located on thousands of separate islands, it is also a fundamental problem. Niches for investment here are obvious—ports, airports, highways. There are problems with food logistics, such as difficulties with containers and freezer storage. There are still free niches in the sphere of marketplaces, stores, and distribution centers. J&T Express, a local company that organizes parcel delivery by car, became a “unicorn” at the beginning of 2022 with a valuation of $20 billion.
• Edtech. The Indonesian authorities are actively promoting the development of vocational training projects. Analysts estimate that by 2030, 113 million Indonesians will need vocational training. There are already almost 400 EdTech projects in the country, offering both full-fledged courses or online tutoring services and self-learning platforms. However, there are still prospects for new products.
• Medicine. Quality healthcare is now a top priority on the national agenda. In 2014, the Indonesian government launched a program for universal healthcare, BPJS-Kesehatan (also called JKN), with about 83% of the country’s population registered. This has made a significant contribution to the medical business as the program has indirectly increased the number of patients.
The central and regional governments are actively building new medical facilities, but there are still too few to fully meet demand. Today, Indonesia has 2,925 hospitals. They have just over 318,000 beds, or 1.17 beds per thousand population—the lowest in ASEAN (Association of Southeast Asian Nations). There is an opportunity for foreign investors to fill the current market deficit.
The pandemic has accelerated the growth of digital medicine, so another attractive segment is telemedicine. Since March 2020, local healthcare app Alodokter has registered more than 30 million active users. In a country with only one doctor per 2,500 people and a population living on more than 17,000 islands, telemedicine ensures medical services even in the most remote regions. It is obvious that this industry will develop rapidly in the near future, while there is no high competition in it today.
• FinTech. The fintech industry in Indonesia is at the beginning of its development. There are about 63 million UMKM (micro, small and medium enterprises) in the country, accounting for more than 60% of the country’s GDP. However, only 20% of these businesses use financial products such as e-money and wallets. Given this situation and the growing middle class, the need for FinTech startups is great.
Nearly half of the country’s population also does not have bank accounts. In the country as a whole, most transactions are still done using cash. Only 25–30% of the population regularly use electronic means of payment. This is a very low figure, although the share of such users is rapidly increasing.
Investors should also examine the market for credit cards, wallets, and POS products (point-of-sale loans). As of early 2024, Indonesia had only 16.3 million credit cards for a country of many millions—a very attractive starting point for investment in this industry.
CONCLUSION
Indonesia offers tremendous opportunities for investors due to its dynamic market, geographical advantages, and favorable investment climate. In addition to the sectors listed above, the potential for investors lies in agriculture, tourism, IT, and energy. However, success in the Indonesian market requires in-depth analyses, adapting offers, and establishing strong business relationships with local partners.
By Elen Boyer
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PHOTO: PXHERE.COM; PHOTO: BP.
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