Indonesia is South East Asia’s largest economy and holds a number of investment opportunities. The manufacturing, oil and gas, and infrastructure sectors all represent attractive options, while portfolio investment has traditionally been a key source of capital inflows. Businesses are able to make use of Indonesia’s strategic location on major global shipping lanes, which keeps import and export costs low. However, investors cannot ignore the country’s challenging business environment.

We keep our clients informed of the latest market moves and political developments in Indonesia, as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 23 of Indonesia’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you one step ahead, so you can operate with confidence in Indonesia.

Country Risk

Indonesia Country Risk

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Core Views

  • Indonesian President Joko Widodo, also known as Jokowi, has struggled to maintain his popularity since coming into power in October 2014. This trend will likely persist as Jokowi's anti-corruption drive continues to falter, while a spate of counterproductive measures and ongoing political uncertainty undermines business sentiments and economic growth.

  • Indonesia's trade balance remained in positive territory for the fifth consecutive month in April, following an improvement in the country's current account deficit to 1.8% of GDP in Q115. However, the deficit is likely to slightly widen over the coming quarters as government-backed infrastructure projects kick off in H215. As such, we maintain our forecast for Indonesia's current account deficit to come in at 2.4% of GDP in 2015.

  • Central Bank-imposed...

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Indonesia Operational Risk Coverage (9)

Indonesia Operational Risk

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BMI View: Investors in Indonesia face a variety of challenges that hinder the business environment in the country. Chief among these risks are the restrictions on foreign direct investment (FDI), excessive red tape associated with trading and setting up a business, a poorly skilled labour market, a disjointed and highly variable logistics network, and the threats to foreign workers and businesses from crime and terrorism. Having said that, we note that there are opportunities for investment in Indonesia, which is South East Asia's largest economy. The manufacturing, oil and gas, and infrastructure sectors all represent attractive options for FDI, while portfolio investment through increasingly sophisticated financial markets is a key...

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Indonesia Crime & Security

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Foreign workers and expatriates in Indonesia face a higher risk from terrorism and criminal activity than in many other countries in the region. Foreigners are specifically targeted by terrorist groups and could fall victim to bombings, shootings and kidnappings. Although violent crime is not common, gangs retain some degree of power and influence, and foreign workers and businesses will be at risk from general crimes such as petty theft, robbery and credit card fraud. Consequently, Indonesia is ranked lowly in BMI's Crime and Security Risk Index for the Asia region, in 21 st place out of 30 states, with a score of 44.1 out of 100. The country's only main advantage in this regard is its large army, which improves its international security position.

Membership of the Association of South East Asian Nations (ASEAN), a history of successful bilateral dispute management and a powerful army mean that the risk of...

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Indonesia Labour Market

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Indonesia performs poorly with regards to Labour Market risks, with low basic skills levels and high costs of employment. Low secondary and tertiary educational enrolment rates are also significant impediments to the development of a workforce capable of skilled, technical labour, which may result in having to import skilled labour, incurring high employment costs. Indonesia's overall score for Labour Market Risk is 43.5 out of 100, putting it 20 th regionally, between Samoa and Myanmar (on 44.8 and 45.6 points respectively.

Availability of labour risks are high for Indonesia, and the worst implication stemming from this is the higher wages for potential employers, particularly in skilled professions. A large proportion of Indonesia's workforce lack the skills and literacy to offer investors seeking anything but the most basic manual work. This is reflected in the country's low score of 44.9 out of 100 for availability of labour....

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Indonesia Logistics

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BMI View: Indonesia's poorly developed logistics network is one of the major barriers to economic growth in the country. The difficulties of constructing and maintaining infrastructure over a vast archipelago of 17,000 islands means that the transport and utilities network remains severely underdeveloped on most islands apart from Java. This will pose risks to business operations in the form of supply chain delays and utilities shortages, as growth in key industries such as mining and agriculture places a greater strain on the logistics network. On the other hand, maritime trade connectivity is improved due to the country's location close to vital global shipping lanes, and major transhipment hubs in Malaysia and Singapore. This has significantly reduced the costs of importing and exporting. Consequently, Indonesia is placed in the middle of the pack regionally in the overall BMI...

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Indonesia Trade & Investment

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BMI View: Investors in Indonesia are faced with a variety of hurdles in the process of setting up a business. The operating environment is undermined by a range of restrictions on foreign direct investment (FDI), high levels of bureaucracy, numerous trade barriers, endemic corruption and poor enforcement of intellectual property (IP) laws. Having said that, BMI emphasises that Indonesia is South East Asia's largest economy, and there are therefore opportunities for foreign investment, particularly through the stock exchange and in targeted industries such as infrastructure, oil and gas, and manufacturing. Consequently, Indonesia...

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Indonesia Industry Coverage (23)

Agribusiness

Indonesia Agribusiness

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BMI View: We hold an optimistic outlook towards Indonesia's agriculture sector and see significant growth opportunities in sub-sectors such as livestock, sugar and palm oil. The country's goal to become self sufficient in a large number of commodities is overly ambitious in light of the robust outlook for food and drink consumption. Agricultural production will struggle to expand in the coming years amidst scarce agricultural land, the lack of proper infrastructure and the existence of a large number of low-technology, small-scale farmers. While we believe that Indonesia will be able to reduce its dependence on rice imports in the coming years, sugar, corn and beef self-sufficiency are far-fetched. More worryingly, we expect coffee and cocoa...

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Autos

Indonesia Autos

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Indonesian auto sales have entered into a tailspin over the past few months, with their decline exacerbated by the hike in fuel prices in November 2014. We are now pushing back our expectations of a recovery until 2016 and are reversing our growth forecasts for 2015 as we see demand conditions remaining soft in the coming months. We forecast vehicle sales to decline 6.6% in 2015 revised down from our previous forecast of 4.3% growth.

The two salient factors, which have eroded consumers' purchasing power and crimped private consumption, are high inflation and elevated interest rates. Our Country Risk team expects this to persist for much of 2015 and this will continue to take a toll on passenger car demand. However, as the market gradually absorbs the rise in fuel prices and as further interest rate cuts are implemented, we see consumer demand for cars improving in the latter half of the year.

On the commercial...

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Commercial Banking

Indonesia Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Indonesia Consumer Electronics

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BMI View: The consumer story in Indonesia is one of the most attractive in the region over the next decade and has the potential to be a medium-term outperformer due to favourable demographic dynamics, rising levels of urbanisation, greater household leverage and more than a doubling of GDP per capita. These dynamics translate into our positive outlook for the consumer electronics market, which also has the low device penetration and local vendor investment to support our forecast at the industry-level. Encouraging uptake in the most advanced smartphones has become a focus for the Indonesian government since the start of 2015, following the launch of 4G by the major mobile operators. As the youthful Indonesian population sees its income rise...

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Defence & Security

Indonesia Defence & Security

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BMI View: Indonesia's domestic defence sector is large but needs the current modernization and reorganization efforts underway to realize its potential. The defence industry is largely state-owned, stifling innovation and preventing independent expansion. Current President Jokowi is not likely to prioritize the defence industry as much as previous President Yudhoyono, but as the government is already taking steps to improve procurement procedures and boost local industry by modernizing and re-structuring, the industry is nevertheless likely to slowly improve over the next few years. Efforts are especially being made in the Navy and Air force, and with foreign partnerships coming into place, the industry will likely have a boost regardless of the realization of the ambitious budget increase to 1.5% of GDP before 2020.

The economy is still under pressure, with a slower growth than...

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Food & Drink

Indonesia Food & Drink

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BMI View: Since last quarter, our Asia Country Risk team has revised down our GDP growth forecasts to 5.0% for 2015, on the back of weak consumer demand and significant headwinds in the export sector (due to low commodities prices and weak external demand) and slower-than-anticipated government infrastructure spending in H115. We expect growth to accelerate over the coming quarters, driven by additional interest rate cuts, a more streamlined investment process and a pick-up in the pace of infrastructure investment. With food, drink and retail sector investments likely to be more forthcoming in the coming years, dynamism in consumer-facing sectors will remain buoyant and support demand growth. ...

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Freight Transport

Indonesia Freight Transport

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BMI View: Across Indonesia's different freight modes, we are expecting cargo volume growth in a range of 0.5%-8% during 2015. Aviation and rail will lead the way, with road freight growing more slowly. Despite a slow start in Q115, both GDP and foreign trade expansion will support the freight sector. In the medium to longer term we continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. The new government wants to push forward on this front. Capacity problems remain an issue, but new investment projects in ports, airports, road and rail are being launched.

Despite a slower first quarter and some negative factors, such as adverse terms of trade and high interest rates, we remain optimistic over Indonesia's economic prospects in 2015. Q115 GDP growth slowed to 4.7%, down from 5.0% in Q414. This...

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Information Technology

Indonesia Information Technology

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BMI View: Low PC penetration rate, enterprise and public service modernisation and an emerging middle class coupled with strong economic growth will be driving the Indonesian IT sector growth. GDP growth of CAGR 6.5% over the next four years will outweigh depreciation of rupiah. Boosted by a number of key drivers, IT spending will increase to IDR289.7trn in 2019. BMI believes that retail hardware, enterprise software and cloud computing in particular would provide strong growth opportunities.

Headline Expenditure Projections

  • Computer Hardware Sales: IDR100.5trn in 2015 to IDR142.0trn in 2019, at a compound annual growth rate (CAGR) of 9.5% in local currency terms. Even after strong growth in recent years a high hardware spending growth rate should be maintained in Indonesia with plenty of spare capacity due to new...

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Infrastructure

Indonesia Infrastructure

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BMI View : The outlook for Indonesia's construction sector remains positive, underpinned by a pickup in disbursement of the government's infrastructure budget, progress on reforms, and improving funding availability. Political and currency risks will be the main challenges to project implementation.

Key Trends And Developments

  • We believe growth in Indonesia's infrastructure sector is gaining traction and maintain our real growth forecast to 7.0%in 2015. We highlight this is still conservative and is slower than the 10-year historical average growth rate of 7.2% per annum (between 2005 and 2014).

  • Despite slow disbursement of the infrastructure budget, progress on project tendering and contract awarding will help to accelerate disbursement in H215.

  • ...

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Insurance

Indonesia Insurance

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BMI View : Both the life and non-life insurance sectors offer enormous growth potential in Indonesia. The country offers a substantial potential consumer market via a large and youthful population, and is also experiencing healthy economic growth which is driving demand for a range of products including motor, credit and health insurance lines. There are some headwinds to growth, including currency fluctuations in the short term and the fragmented nature of the marketplace and uncertain regulatory environment over the medium term.

Indonesia's insurance market offers enormous potential for growth, particularly as it...

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Medical Devices

Indonesia Medical Devices

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BMI Industry View: The Indonesian medical device market remains one of the fastest growing worldwide with growth averaging 12.7% per annum. The best opportunities still remain in and around Java and surrounding areas but healthcare provision in the rural parts of the country remain underdeveloped.

Headline Industry Forecasts

  • The Indonesian medical device market, in US dollar terms, is projected to rise by a CAGR of 12.7%, which should bring it from an estimated USD672.8mn in 2013 to USD1,221.9mn in 2018. Indonesia's projected 2013-2018 CAGR ranks it amongst the top 15 fastest growing markets in the world. By individual product area, the CAGRs are expected to range from 20.3% for diagnostic imaging to 5.9% for other medical devices.

    ...

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Mining

Indonesia Mining

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BMI View: We do not expect any moderation of the ban on export of unprocessed ores in 2015 as the government seeks to attract foreign direct investment and add value to its mining sector. A possible moderation on the ban on bauxite ore is still on the cards for 2016 as GDP growth slows.

With the boom years in commodity prices behind us, we believe more miners in Indonesia will be forced to put the brakes on investment over the coming quarters. In January 2014, the government implemented the ban on unprocessed minerals, in order to stimulate smelter construction and increase mineral export value. The government has maintained its ban on ore exports given the steady pipeline of nickel smelters coming online which will help soak up mine production capacity. For bauxite, we believe a...

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Oil & Gas

Indonesia Oil & Gas

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BMI View: Economic growth, supportive demographics and a weak oil price environment will support consumption growth in Indonesia. However, a tough regulatory environment and weak oil prices will remain an impediment to hydrocarbon production over the next decade. More comprehensive reforms are required to turn Indonesia's upstream segment around.

Headline Forecasts (Indonesia 2013-2019)
2013 2014e 2015f 2016f...

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Petrochemicals

Indonesia Petrochemicals

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The Indonesian petrochemicals market will see robust growth throughout the next five years. However, this quarter we have revised down our 2015 forecast for the automotive industry, which is set for a contraction due to poor domestic sales and this will have an impact on a range of polymers and rubbers used in the sector, according to BMI's latest Indonesia Petrochemicals report.

The automotive industry is set to shrink by 5% in 2015 as the domestic vehicle market, which accounts for 90% of volume sold, shrinks by a forecast 6.6%. However, this will be offset by growth in construction. The petrochemicals industry will also be protected by a weak rupiah, while lower naphtha feedstock prices should support the local industry from external competition.

In the long term, the outlook is positive. A burgeoning local market is supporting investment growth. Chandra Asri...

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Pharmaceuticals & Healthcare

Indonesia Pharmaceuticals & Healthcare

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BMI View: Indonesia's healthcare expenditure will grow robustly. Key to this trajectory is rising household incomes which will have strong positive ramifications due to the dominant role of private spending as a source of healthcare financing. This will be further augmented by the roll out of universal healthcare which will improve access to medical services and in turn create commercial opportunities that will drive the expansion of private hospitals - a boon to Indonesia's healthcare infrastructure.

Headline Expenditure Projections

  • Pharmaceuticals: IDR70,402bn (USD5.9bn) in 2014 to IDR77,644bn(USD5.88bn) in 2015; +10.3% growth in local currency terms and -0.8% in US dollar terms. Forecast upgraded with the addition of new data.

  • ...

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Power

Indonesia Power

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BMI View: A broad range of projects in an extensive project pipeline underpin our expectations for sustained growth in the Indonesian power industry over the forecast period to 2024. The country is keen to expand its electricity grid and generation capability in order to meet growing demand. The government is undertaking market reform in order to attract a greater volume of foreign direct investment. The country's enormous growth potential and ambitious government targets along with a range of investment incentives are therefore sure to attract more developers moving forward.

At present, we are forecasting growth in electricity generation in 2015 of 6.7%, and increase on the 5.1% growth seen in 2015, as a number of projects under the Fast-Track Programmes (1 & 2) come online. Indonesia's power sector has an...

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Real Estate

Indonesia Real Estate

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BMI View:   Although we are forecasting no growth in rental rates in 2015 or 2016, we are optimistic on the Indonesian commercial real estate market's outlook for the longer term. Favourable demographic trends will boost demand within the country, driving development particularly in retail real estate. Meanwhile, the increasingly developed economy, international interest and closer integration with the rest of the Association of Southeast Asian Nations (ASEAN) will increase Indonesia's attractiveness to foreign investors.

We believe that Indonesia's economy will begin to pick up pace, with real GDP growth set to hit 6.0% in 2015, rising to 6.5% by the end of our forecast period in 2018. This growth will be supported by increasing consumer spending within the country, as well as an improving balance of payments situation. Although a strengthening...

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Renewables

Indonesia Renewables

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BMI View: Indonesia's renewables industry expansion will be driven by growth in the geothermal segment, resulting in Indonesia emerging as Asia's largest geothermal market by the end of our forecast period in 2024. Although there is significant potential for other renewables technologies, the regulatory environment is less conducive for investment when compared to geothermal; however, we highlight that there is scope for off-grid decentralised solar energy.

There are a number of strong fundamentals driving growth in Indonesia's renewables industry, including the pressing need to meet growing electricity demand across the country, the government's strong commitment to diversifying the power mix through the adoption of renewable energy, and Indonesia's geographic characteristics which favour renewable electricity generation. This is reflected in our...

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Retail

Indonesia Retail

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BMI View: Indonesia is home to the fourth largest population in the world and possesses one of the fastest growing economies in the world. Total household spending in the world's largest Muslim country will grow annually by 10.16 % on average over our forecast period. As a result, retailers increasingly perceive the country as a lucrative investment destination. Nevertheless, the number of foreign retailers remains somewhat limited with local Indonesian brands playing an important role in the competitive landscape.

A robust economic backdrop prevails in Indonesia, despite a slight slump in domestic consumption. For 2015, we forecast real GDP to remain steady, with growth of 5.5% expected and we believe this will increase to 6.3% in 2016. While we...

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Shipping

Indonesia Shipping

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BMI View: In 2015, we anticipate healthy growth for both of Indonesia's two main ports as the contractions of recent years become a thing of the past. Slightly neutering growth is the fact that key trade partner China is set to experience a continuing slowdown in growth, but consumer demand is set to grow at a healthy level over our forecast period and beyond.

Short Term: Imports To Pick Up Over Coming Quarters

Year-on-year growth in tonnage and box terms will increase at a higher rate in 2015 than 12 months previous at the country's largest port at Tanjung Priok (5.90% and 2.37%), while the second largest port in Indonesia at Palembang will see container throughput outperform tonnage (6.80% compared to 4.30%).

Despite the trade surplus recorded in H115, we believe that imports will pick up over the coming...

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Telecommunications

Indonesia Telecommunications

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BMI View: The launch of 4G in the refarmed 1,800MHz spectrum has stimulated 4G network expansion in Indonesia, with at least six operators announcing ambitious expansion plans. However, strong take-up is not expected in the near term, due to the high prices of smartphones and limited spending power. Furthermore, minimum local content requirements could have the effect of increasing production costs and, subsequently, the prices of smartphones. On the other hand, Indonesia's fibre broadband sector presents a positive outlook for growth. With the entrance of 'disruptive' ISP MyRepublic into the fibre broadband market, coupled with heavy investment from both the private and public sector, better connectivity and lower...

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Tourism

Indonesia Tourism

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BMI View: The Indonesian tourism market offers a broad range of opportunities for growth. International arrivals are growing steadily and demand for high-end luxury resorts in key locations such as Bali is strong. At the same time, domestic economic growth is boosting both internal travel and outbound travel leading which supports higher rates of tourism related expenditure. With the government increasingly supportive of the tourism industry and investment in supporting transport infrastructure gathering pace, we are optimistic that the future is bright for tourism in Indonesia.

Indonesia, covering such a vast geographic scope, offers a wide range of attractions for potential visitors. The country is home to eight UNESCO World Heritage Sites, including the world renowned Borobudur and Prambanan Temple Compounds and Komodo...

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Water

Indonesia Water

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Overall, we take a positive outlook with regard to the future of Indonesia's water sector as infrastructure and legislative improvements are undertaken. However, the sanitation sector remains extremely underdeveloped at present.

Compared with other sectors such as agriculture, electricity generation and housing developments, the water sector has always been a lower priority for the Indonesian government. It is primarily for this reason that the water sector remains underdeveloped. The situation has been exacerbated by attempts to decentralise responsibility for service in the sector and the lack of resources and operating capacity. However, with strong government support and ambitious targets, in addition to rising industrial water demand, we expect the...

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