Investment in Indonesia

Given its positive economic development, huge domestic market and growth projections today, Indonesia is now attracting more attention from foreign businessmen. The country offers investors low wages, an increasingly attractive investment climate, a huge domestic market, as well as access to other ASEAN markets.

Political stability and a series of legislative and administrative reforms aimed at improving the investment and business climate have played an important role in making Indonesia the economic powerhouse of the region, as have its advantages in the form of a young population and rich natural resources.

Promising sectors for investment

Mining processing

As Southeast Asia's largest economy, Indonesia has experienced an export boom amid rising commodity prices. Thus, Indonesia's commodity exports will continue to be the backbone of the economy.

Beginning in 2014, the Indonesian government began banning mineral exports to encourage foreign investment in the mining sector and the development of local smelters, as well as stimulate exports of higher-value processed commodities and thereby increase government revenue.

Indonesia has a large and unexplored variety of mineral deposits and is the world's largest exporter of tin, palm oil and thermal coal, as well as a major exporter of nickel, copper, bauxite, rubber, manganese, zinc and lead. Mining accounts for approximately more than one-tenth of Indonesia's GDP and is integral to its economic growth.

The country is also home to the Grasberg mine — one of the largest gold mines and the third largest copper mine in the world, with reserves estimated at 275 billion ounces of copper and 14.2 million troy ounces of gold.

Production of electric vehicles

Indonesia's nickel reserves make the country indispensable to the global electric vehicle industry as the country strives to become a global production hub. Global electric vehicle (EV) manufacturers, including Tesla (still in discussion) and BYD of China (memorandums of understanding are being finalized), are considering investing in Indonesia. Indonesia aims to become one of the top three producers of electric vehicle batteries in the world by 2027.

In addition, in addition to the production of nickel-based batteries, the country is also developing lithium processing plants and the production of anode materials.

Indonesia, with a population of about 278 million, also provides opportunities for the sale of electric vehicles. Huge challenges and opportunities for investors include consumer affordability and lack of public charging infrastructure. The government has set an ambitious goal — have 2.5 million electric vehicle users by 2025.

Coal industry

Indonesia is the world's third largest coal exporter after China and India, and the world's largest exporter of thermal coal. In 2022, Indonesia produced 687 million tons of coal, of which 494 million tons were exported and the rest — for internal use. Coal exports generate approximately US$3 billion per month for the country, with China, India, South Korea and Japan accounting for 70% of exports. Vietnam and the Philippines are also expanding export markets for Indonesian coal.

The government left the thermal coal market in an unstable state in January 2022 when it introduced an export ban to meet domestic demand. The ban displaced approximately 4% of the world's seaborne supply, or 36 million tons of coal.

In 2023, the country exported about 518 million tons and produced about 695 million tons.

As with other commodities, the government is committed to developing Indonesia's coal processing industry, specifically covering the following seven sub-sectors:

• coal liquefaction;
• improving the quality of coal;
• coal gasification;
• coke production;
• underground gasification of coal;
• briquette production;
• production of water-coal mixture.

This strategy will require huge foreign investment, especially in infrastructure and technology.

Healthcare and pharmaceuticals

Given the large market size, Indonesia's healthcare sector represents a lucrative opportunity for foreign investors.

Annual government spending on health has risen sharply since the 2014 implementation of the Universal Health Care Program (BPJS), which has now become the world's largest, covering some 248 million people. Every citizen and foreigner residing in the country for more than 6 months is required to join it. Companies must also enroll their employees in the program, paying a percentage of the bonuses.

Increasing healthcare costs will impact important sub-sectors such as the medical device industry. Indonesia mainly imports sophisticated medical instruments such as PET-CT scanners and intensive care equipment, and also exports low-tech equipment such as gloves and syringes.

The pharmaceutical industry is dominated by generics (70%) and the rest of the drugs are sold over-the-counter (OTC). The BPJS program has increased domestic generic drug sales by more than $700 million.

Tourism

The country's Ministry of Tourism has opened the sector to foreign investment to develop sustainable tourism projects, 5 priority tourism destinations and 9 special economic zones focused on tourism. The ministry also emphasized that these opportunities are valued at a total of $1.5 billion and will create 1.5 million new jobs.

Currently, there are a total of 90 countries whose citizens do not require a visa to enter and stay in Indonesia (for a maximum period of 30 days). Meanwhile, the government has also introduced new regulations for cruise ships and yachts. It eliminates cabotage obligations for international cruise ships and yachts, meaning that international cruise ships can now pick up and disembark passengers at 5 Indonesian ports: Tanjung Priok (Jakarta), Tanjung Perak (Surabaya), Belawan (Medan), Soekarno- Hatta. (Makassar) and Benoa (Bali). Previously, only Indonesian ships were legally allowed to board and disembark passengers in Indonesian waters.

Through the Ministry of Tourism and Creative Economy, Indonesia is positioning itself as a tourism destination for foreign tourists through the "Wonderful Indonesia" campaign. It is important for the government to invest in such advertising campaigns to spread a positive image of Indonesia.

Aviation industry

Indonesia's aviation market is the second fastest growing in the world. Aircraft parts and services represent a significant market. There is also demand for air traffic control services and airport logistics, including ground support equipment. Given its high growth rate, the Indonesian aviation market needs infrastructure, training and components to sustain its business. With a projected CAGR of 6.5% from 2022 to 2028, Indonesia has a very favorable environment in the MRO sector. This growth is driven by rising demand and a plethora of opportunities for industry players. With a thriving aviation fleet, a thriving tourism industry and a government committed to developing the aviation sector, Indonesia has significant potential for MRO growth.

ICT

A competitive and expanding banking sector presents significant opportunities for IT and financial technology from hardware, software and technology providers. Opportunities exist for telecommunications infrastructure such as satellites and ground stations, handheld devices, and integration devices or enablers. Telecommunications equipment and services, as well as satellites, remain excellent areas for foreign products and services that have a comparative technological advantage.

Infrastructure

Indonesia's underdeveloped public infrastructure is a priority for the government and provides opportunities for aviation, railways, ports and land transport, as well as municipal infrastructure projects such as water supply, wastewater treatment systems and waste management facilities. Between 2020 and 2024, Indonesia plans to develop transport infrastructure, including toll roads (2,724 km/1,693 miles), new roads (3,224 km/2,003 miles) and bridges (38 km/24 miles). Public transport projects totaling US$8 billion are planned for the six metropolitan areas of Jakarta, Surabaya, Bandung, Semarang, Medan and Makassar to reduce economic losses due to congestion.

The Indonesian government truly understands the importance of private sector participation in infrastructure provision and therefore offers public-private partnerships (PPP) as an alternative financing scheme for the development of infrastructure projects. This scheme is provided for by Presidential Decree No. 38/2015 along with its derivative regulations. According to the regulation, there are two schemes for proposals for PPP projects: on-demand and non-on-demand. A solicited project is initiated by the government, while an unsolicited project is initiated by the private sector. According to the Minister of National Development Regulation No. 2/2020, for solicited proposals, the PPP project portfolio consists of 4 stages: planning, preparation, transaction and implementation. An unsolicited PPP proposal is initiated by the private sector of the proponent. There are 3 stages of an unsolicited project: preparation, transaction and implementation, and the preparation is carried out by the private sector as the proponent.

A government guarantee, also known as an infrastructure guarantee, is provided to PPP projects taking into account the principle of financial risk management and supervision in the public budget (APBN).

Electricity

Important opportunities outside Jakarta remain in the energy and electricity transmission services sector. Power generation projects, both conventional and renewable, including IPPs, are expected to continue to see significant growth over the next decade. New opportunities include sustainable biofuel processing, clean energy, energy efficiency and technologies to improve local productive capacity, dams and waste-to-energy projects. In terms of water and energy infrastructure, the government plans to build 18 multi-purpose dams at a cost of approximately US$6.2 billion, which will provide 2.4 GW of electricity and clean water for daily needs.

From a tax perspective, Indonesian investment promotion programs are comparable to those of other Southeast Asian countries. Indonesian tax law provides for tax reductions (tax holidays) in favor of certain “innovative industries.”

Tax incentives apply to businesses or investments in certain outer regions, including the provision of extended loss carry-forward schemes for up to ten years. The Investment Master List facilitates duty-free import of equipment and raw materials.

The relevant criteria for benefiting from the previous incentives are also similar to those offered by other Southeast Asian countries. They target investment projects in remote regions that provide opportunities for large numbers of local workers, enable technology transfer, and benefit the Indonesian economy or society, as well as Indonesia's export orientation.