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. While we remain optimistic on 2015 and forecast a recovery for this year, we are tempering our growth forecasts as we see demand conditions remaining soft in the coming months. We forecast vehicle sales to grow 4.3% in 2015 versus 9.6% previously.

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, we see consumer demand picking up in the latter half of the year; we forecast car sales to rise by 4.0% in 2015.

On the commercial vehicle (CV) side, government bureaucracy has...

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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 Indonesian consumer electronics market has the potential to be a medium-term outperformer due to broad-based economic growth, low device penetration rates and vendor investment in local presence over recent years. However, in the short term, the market continues to be disrupted by rupiah depreciation against the US dollar, which was a squeeze on demand in 2014, and will continue into 2015 (albeit to a lesser extent). Nonetheless, we have a bullish outlook for consumer electronics spending growth in...

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Defence & Security

Indonesia Defence & Security

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BMI View:  Indonesia benefits from economic, geographic and resource scale, giving the country a substantial advantage over its neighbours. While the co-operative stability of the ASEAN era has in some regards diminished the relevance of this strength, it provides Indonesia with the opportunity to become a key leader for the region. Boasting strong relations with the US, China and key neighbours, Indonesia's regional importance will continue to grow. Successes such as the Komodo multilateral military exercises will boost Jakarta's role in regional affairs.

On the whole, Jakarta has good relations with Beijing. However, Indonesia has at times expressed concern over some Chinese activities in the South China Sea, and Beijing must tread carefully in order to remain on good terms with South East Asia's key state. Indeed, Indonesian pressure will be critical in ensuring that...

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Food & Drink

Indonesia Food & Drink

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BMI View: We expect Indonesia's economy to pick up momentum over the course of 2015, following a disappointing performance in the first months of 2015. In Q115, real GDP growth came in below-consensus at 4.7% year-on-year (y-o-y), on the back of high borrowing costs and a challenging export outlook. Therefore, we have revised down our real GDP growth forecast to 5.3% versus 5.5% previously. 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...

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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: In 2015, we expect the drag of rupiah depreciation to be outweighed by the upside from strong economic growth, a low PC penetration rate, enterprise and public service modernisation and an emerging middle class. Balancing these trends, we forecast IT spending to increase to IDR176.3trn in 2015, up 15.1% from 2014, with the IT market estimated to account for 1.5% of GDP. Looking over the medium term, we identify retail hardware, enterprise software and cloud computing as growth...

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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, production weakness and infrastructure bottlenecks are constraints to further growth in consumption particularly in the second half of our forecast period from 2019 to 2024. 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: We have maintained Indonesia's non-hydro renewables forecasts this quarter as our underlying assumptions of the industry remain relevant. We expect strong growth across the renewables sector, primarily in the geothermal segment - driven by vast natural resources, the government's strong commitment to diversifying the power mix, and growing electricity demand across the country (particularly in remote, off-grid areas).

Growth will occur across the spectrum of renewable energy technologies in 2015, with opportunities for project developers and equipment manufacturers in solar, geothermal, wind and biomass energy. Our long-term outlook for the Indonesian renewable energy sector remains bullish as we continue to see solid fundamentals for growth. We expect non-hydropower renewable generation to grow by an annual average of 8.1...

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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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Key Ports Will See Positive Growth In 2015

With both economic growth and foreign trade activity gathering pace moderately in 2015, we expect activity levels at Indonesia's main ports to grow. But there will be leads and lags, with some short-term weaknesses in freight demand recovering later in the year. Growth will not be uniform. At the port of Tanjung Priok cargo handled will rise more rapidly than in 2014, with expansion in the 3-6% range across bulk tonnage and box handling. At the Port of Palembang however, while growth will remain positive, the pace of expansion will be a little lower than in 2014. Over the medium to long term, we continue to believe that the key to sustainable growth in shipping is investment in port infrastructure, including road and rail links in the hinterland areas. We are encouraged to see continuing evidence of progress on this front.

Despite a slower first...

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Telecommunications

Indonesia Telecommunications

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BMI View: Following the launch of LTE in December 2014, Indosat and Telkomsel have launched extensive capital expenditure plans to expand their 4G networks. Although the outlook for the technology will be limited by the low spending power of most Indonesians and the high price of LTE tariffs and smartphones, it represents a step forward in the development of the market. Further to this, Indonesia seems poised for strong fibre broadband growth, as both the government and the private sector are planning to invest heavily into this technology.

Increasing saturation of the mobile market and declining voice revenues will force Indonesia's largest telecoms operators to focus on the development of next-generation fixed and mobile data networks. The country's mobile operators are accelerating their tower outsourcing and managed services...

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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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