How will relations between Russia and Indonesia develop in the near future and what will this bring to Russian investors?

Indonesia is an important partner and friend of Russia in the Asia-Pacific region. After the G20 summit in 2022 and ASEAN in 2023, it became clear that, despite Western sanctions against Russia, Indonesia intends to maintain bilateral relations.

Olga Gorkhiyan, founder of Global Investment Property, spoke about the prospects for Russian business and investors in the Indonesian market.

What to expect from cooperation with Indonesia: ambitious projects

It is important to note several key projects in the economic sector that are at the discussion and development stage:

1. Construction of an oil refinery in Tuban (Java Island). This is a joint project of Rosneft and the Indonesian giant Pertamina. The total investment volume could amount to $24 billion.
2. Construction of floating nuclear power plants. Indonesia wants to work on a project together with Rosatom in the new capital of Nusantara. Here, Indonesia is interested in Russian technology, with the help of which it is possible to attach a nuclear power plant to large ships. Foreign partners are confident that such a development is indispensable in the event of a natural disaster.
3. Creation of a full-fledged nuclear power plant on land. It is too early to talk about the implementation of this project, but the Indonesian government has expressed interest in such cooperation.
4. Increasing trade volumes and exchange of IT developments in the agricultural sector. In 2023, agricultural exports from Russia to Indonesia exceeded $280 million, which is 6 times more than the year before. Experts predict that by 2030, the volume of products imported from Russia to Indonesia may exceed $650 million. In addition to grain, Indonesia is interested in importing fish: Pacific cod, sockeye salmon, pink salmon, sturgeon caviar, as well as meat and dairy products. In the field of IT solutions, the agricultural sector is among the top industries in terms of demand for new technologies. Indonesia is ready to exchange data with Russian developers, especially considering that there is a shortage of technology companies in the industry. For us, this means strengthening friendly relations in the political arena and successful experience. Indonesia is interested in importing fish: Pacific cod, sockeye salmon, pink salmon, and implementing joint projects.
5. Construction of a railway line and related infrastructure on the island of Kalimantan, where the new capital of Nusantara is being moved. Agreements on the development of a transport project between the Ministries of Transport of the Russian Federation and Indonesia were reached in 2018, but construction has not yet begun. There are no official comments from the authorities on this matter yet.
6. Russia's participation in the creation of infrastructure and tourist facilities in Nusantara. It is already known that 80% of the funds will be attracted as foreign investment. Our country can become an adviser in the creation of a transport and urban "smart" infrastructure.
7. At the end of 2022, the process of negotiations on the creation of a free trade zone and the preparation of a corresponding agreement between the EAEU and the government of Indonesia was launched. The creation of a free trade zone will increase trade turnover between the Eurasian Economic Union and Indonesia by $1.5 billion and reduce duties on the import of agricultural products.

Attracting private investment and business prospects

According to current legislation, investments serve as a means for the development of the national economy of Indonesia. In the next decade, the government wants to attract more than $50 billion in foreign capital to the country. The Investment Law provides various incentives and benefits to foreign investors.

The country has a system of reducing corporate tax, and new companies are subject to a turnover tax of 0.5% for three years until they reach a turnover of 4.8 billion Indonesian rupiah per year (more than $300,000).

A government regulation is currently being finalized, which will provide tax holidays for new investors for a period of 30 years. But this is subject to investments in utilities and infrastructure development in the amount of 10 billion Indonesian rupiah (more than $600,000). And also for a period of 20 years for companies building shopping centers and tourist facilities.

For research and development in certain areas, companies will be able to receive an extra tax deduction of up to 350%. There are also plans to stimulate the attraction of foreign capital by simplifying the system of import and export of materials and the procedure for obtaining business licenses, and to make land plots available for construction.

The Indonesian real estate market is attractive to private investors. The number of transactions in this sector is increasing annually. Investors are primarily attracted by the high yield, which can be up to 15% per annum depending on the location and the property itself, for example, if it is an apartment in the tourist area of Bali. At the same time, the average gross return on investment in real estate in the country is 7.55%. For comparison, in Thailand this figure was equal to 5.5-6% in 2023.

Not only economic factors: low inflation, GDP growth, increased tourist flow, etc. attract investors, but also the country's relief features. In Indonesia, there is a shortage of coastal area suitable for construction (only about 10%). This is because most of the territory is impenetrable jungle. Land prices here will grow and, accordingly, real estate prices too.

It seems that now is a favorable climate for investing in real estate. If you invest your money wisely, you can get a good income. At the moment, housing and commercial real estate prices have not reached their peak, but the growth index is gradually increasing (currently, the annual growth of the price index is 1.7%).

Indonesia easily issues Kitas to investors and entrepreneurs - an analogue of a residence permit - for a period of one to two years. You can get Kitas only when registering a legal entity. The owner of Kitas can register a vehicle in his name and obtain a driver's license, health insurance, and open a bank account.

An Indonesian golden visa for five years can be obtained by investors or foreign citizens who have created a company with a capital of $2.5 million and for 10 years with an investment volume of $5 million.

Anyone planning to purchase commercial or residential real estate on one of the islands of Indonesia needs to study the nuances associated with the registration of ownership. A foreigner cannot register housing as full property under a purchase and sale agreement. The long-term lease format is Leasehold.

The Indonesian economy is showing growth and interest in Russian business, which, after the introduction of restrictions by the EU countries, rushed to the east. At the same time, Indonesia needs an influx of capital, new technologies, goods and services. So now seems like a good time to tame the "new Asian tiger."