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

  • Despite fears that Prabowo Subianto's red and white coalition would look to block Jokowi's policy-making efforts, the President was able to push through sweeping fuel subsidy reductions in both November and December 2014 on his own accord. This will greatly reduce the government's subsidy bill and improve its fiscal spending mix, and is also a positive sign in terms of Jokowi's reform intentions going forward.

  • We have downgraded Indonesia's real GDP growth forecast in 2015 to 5.5% (from 6.0% previously), as we note that tight monetary policy will keep a lid on investment activity throughout H115. That said, this rate still implies an acceleration from 2014's estimated 5.1% growth rate.

  • The government's subsidy savings, which are estimated...

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Indonesia Operational Risk Coverage (9)

Indonesia Operational Risk

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Overall, Indonesia performs poorly with regards to labour market risks due to low basic skills levels and high employment costs. Poor secondary and tertiary educational enrolment rates are significant impediments to the development of a workforce capable of skilled, technical labour, which may result in employers having to import foreign workers to meet the skills shortage, incurring high employment costs. The market suffers further from a low female participation rate. Indonesia's overall score for Labour Market Risk is 52.0 out of 100, putting it 15th regionally out of 30 Asian countries, and 76th globally. 

Low primary school enrolment rates and poor attainment levels for both secondary and tertiary education are the main impediment to a highly skilled workforce in Indonesia. The country's low score of 57.8 out of 100 for the Education pillar of BMI's Labour Market Risk Index reflects the fact that only 29.4% of...

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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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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 Logistics Risk Index, in 15th place out of 30 Asian countries with a...

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Indonesia Trade & Investment

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Investors in Indonesia are faced with a variety of hurdles in the process of setting up a business. The business environment is damaged 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. Consequently, Indonesia scores poorly in BMI's Trade and Investment Risk Index, with an overall score of 41.8 out of 100 placing the country 20th out of 30 states in Asia. 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. 

Indonesia enjoys a relatively well-developed financial market that provides opportunities for foreign investment, access to financing...

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Indonesia Industry Coverage (23)

Agribusiness

Indonesia Agribusiness

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BMI View: Overall, we hold an optimistic outlook on Indonesia's agriculture sector and see significant growth opportunities in sub-sectors such as livestock, palm oil and cocoa. While we believe the government's goal to reach self-sufficiency in rice by 2015 is attainable, we are less confident about other commodities such as sugar and corn. We also highlight that the country's aim to become the second largest coffee producer in the world by 2015 is unrealistic. Much of our scepticism relates to the lack of proper infrastructure and the existence of a large number of low-technology, small-scale farmers. We believe the shift from raw commodity exports to refined exports (especially for palm oil and cocoa) will warrant more public and private investment in order for the raw inputs industry to keep pace with downstream industries. Investments by Wilmar,...

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Autos

Indonesia Autos

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We have downgraded Indonesia's domestic auto sales growth forecast for both the passenger car and commercial vehicle (CV) segments, factoring in the weaker than expected sales seen in September and July. According to Gaikindo, domestic vehicle sales in Indonesia contracted 12.2% year-on-year (y-o-y) in September with sales coming in at 101,801 units. During the period between January to September, auto sales grew moderately at 2.6% y-o-y to 932,245 units.

Nonetheless, the passenger car segment remains a bright spot for the sector. For the first nine months of 2014, passenger car sales remained positive, growing 5.7% y-o-y. Despite an expected hike in fuel prices resulting in higher inflation, we believe that auto sales will remain resilient and should also be supported by the low cost green car segment. We forecast passenger car sales to grow by 6.0% in 2014.

On the commercial vehicles front, sales have been...

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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 computer hardware and AV segments contracted in US dollar terms in 2014 as a result of rupiah depreciation, but the market as a whole continued to grow, driven by the booming smartphone market. From 2015 we expect the market to return to broader based growth and we have a bullish outlook for consumer electronics spending growth in Indonesia over the medium term to 2018. Positive consumer electronics market fundamentals such as low device penetration and a strong economic growth story, combine to underpin our view that Indonesia will be a medium-term outperformer...

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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...

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Food & Drink

Indonesia Food & Drink

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BMI View:  Following a period of slowing economic growth, we believe that the Indonesian economy is likely nearing a bottom. Real GDP growth slowed to 5.1% year-on-year (y-o-y) in Q214, its slowest clip since Q309. Despite the recent slowdown in economic growth, we continue to remain sanguine on the long-term prospects of the Indonesian economy. With a positive demographic outlook that will make the country increasingly attractive in terms of manufacturing, real GDP growth should be relatively broad-based across the archipelago. With food/drink/retail sector investments likely to be more forthcoming in the coming years, dynamism in consumer-facing sectors will consequently remain buo...

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Freight Transport

Indonesia Freight Transport

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Freight Growth To Continue In 2015

Our freight transport forecast for 2015 shows cargo volume growth will continue at a similar pace to 2014. . 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. We are encouraged to see that 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.

BMI is trimming back its forecast for Indonesian GDP growth in 2015 by half a percentage point to 5.5%, down from 6.0% previously. We are maintaining our estimate for 2014 growth at 5.1%. The main reasons for being more cautious about the outlook in 2015 are the combined effects of...

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Information Technology

Indonesia Information Technology

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BMI View: After minor disruption to market growth in 2014 as a result of the depreciation of the rupiah against the US dollar, we expect the market to remain on a positive growth trajectory over the medium term. We expect IT market growth will be supported by strong economic growth, a low PC penetration rate, enterprise and public service modernisation and an emerging middle class. Retail hardware, enterprise software and cloud computing are identified as medium-term growth opportunities. However, there is short-to-medium term downside if the Indonesian growth story is derailed by regional or global economic headwinds. In the short-term...

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Infrastructure

Indonesia Infrastructure

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BMI View :  We continue to expect growth in Indonesia's construction and infrastructure sectors to slow down even though new data has prompted us to reassess our forecasts for the sectors. The primary reason for our bearish outlook is the significant change in political leadership in Indonesia and the lack of policy certainty resulting from such a change. Our bearish near-term outlook can also be attributed to the limited scope for government capital spending to increase, higher borrowing costs, declining purchasing power for companies, and bottlenecks in project execution.

The key factors that will facilitate growth are:

  • In April 2014, Indonesia's State-Owned Enterprises Minister Dahlan Iskan announced the government plans to build a 2,000MW coal-fired power plant in Jakarta, Java. According to Reuters, the project, is to be spearheaded...

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Insurance

Indonesia Insurance

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BMI View : Indonesia's insurance industry is experiencing a period of rapid growth, with both the life and non-life segments reflecting healthy gains in terms of premium value throughout our forecast period as well as market penetration (though this remains relatively low for non-life). Healthy domestic economic growth is providing a boost to the insurance market, while regulatory changes are further enabling sustainable longer term growth.

The non-life segment in Indonesia is dominated by motor vehicle insurance, which accounts for around a quarter of non-life insurance in the country. We expect to see double digit growth in terms of motor vehicle insurance from 2015 onwards, as the national fleet expands, including passenger cars, commercial vehicles and the heavy truck fleet, based on domestic economic growth. Property insurance (the second biggest non-life line in Indonesia) is also...

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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 US$672.8mn in 2013 to US$1,221.9mn 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...

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Mining

Indonesia Mining

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BMI View: The export ban on raw minerals will significantly impact production growth and hamper investment for Indonesia's mining industry. Although there is no imminent sign of the export ban being completely rolled back, we believe ban moderation is on the cards in the coming quarters, due mounting economic headwinds and practical consideration.

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. The export ban on raw minerals will significantly impact financial growth in Indonesia's mining sector. In January 2014, the government implemented the ban on unprocessed minerals, in order to stimulate smelter construction and increase mineral export...

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Oil & Gas

Indonesia Oil & Gas

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BMI View: We have modestly upgraded our production and consumption forecasts based on expectations that the election of reform-minded Joko 'Jokowi' Widodo as president would have a positive impact on Indonesia's business environment - which has hitherto limited the country from maximising its below-ground potential - and its economy. Our forecasts could surprise to the upside if Jokowi is more successful than expected in battling entrenched interests in the oil and gas industry to revamp its operating environment.

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Headline Forecasts (Indonesia 2012-2018)
2012

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Petrochemicals

Indonesia Petrochemicals

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Although the Indonesian petrochemicals market faced slower rates of growth across a broad range of products in 2014, it has not deterred investment in new capacity and BMI's latest Indonesia Petrochemicals report states that the country is on track for strong growth in output.

PVC and polymer tubing will be supported by rising growth in construction activity, although this will be limited by the lack of policy certainty as well as the limited scope for government capital spending to increase, higher borrowing costs, declining purchasing power for companies, and bottlenecks in project execution. Automotive production, which forms another crucial market segment as a major user of polymer and synthetic rubber, is set for slightly slower yet still impressive growth. We now expect auto production to grow by 45.1% from 2014 to 2018 to surpass 1.9mn units in 2018.

Strong consumer credit and rising...

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Pharmaceuticals & Healthcare

Indonesia Pharmaceuticals & Healthcare

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BMI View: Indonesia's pharmaceutical market holds strong promise due to the continued expansion of universal healthcare and positive economic outlook with the ongoing integration of the country into the ASEAN Economic Community. However, this potential is weighed on by the newly passed law requiring halal certification, which is expected to be enforced by 2019.

Headline Expenditure Projections

  • Pharmaceuticals: IDR63,806bn (USD6.11bn) in 2013 to IDR69,493bn (USD5.86bn) in 2014; +8.9% growth in local currency terms and -4.0% in US...

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Power

Indonesia Power

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BMI View:   Growth in the Indonesian power sector is set to accelerate in 2015. This is because several projects under the country's two Fast Track Programmes are due to come online, along with material changes to the country's business environment for power. These changes, initiated by recently elected President Joko Widodo, have also affected our long-term outlook for Indonesia's power, prompted us to revise up our long-term forecasts for the sector.

We forecast electricity generation in Indonesia to grow by 7.3% in 2015. This is slightly higher than the five-year historical average growth rate of 7.1%. The reasons for this outperformance are the progress made with the country's two Fast-Track Programmes (FTP) and the material changes to the business environment for power in 2015.We have revised up our long-term growth forecasts for electricity generation in Indonesia this quarter. This is...

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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 : Non-hydropower renewables generation in Indonesia will grow by 5.8% in 2015, with growth occurring across the spectrum of renewable energy technologies. Our long-term outlook for the sector is also rosy as there are solid fundamentals for growth, particularly for geothermal. We expect a surge of geothermal capacity in the next three years.

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 forecast non-hydropower renewable generation to grow by an average of 8.7% per annum between 2015 and 2023, which is significantly higher than our growth forecasts for...

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Retail

Indonesia Retail

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BMI View: With the fourth largest population in the world and a booming economy, Indonesia continues to provide retailers with almost-unparalleled growth opportunities. Total household spending in the world's largest Muslim country will be growing between 9% and 15% annually throughout our forecast period. The presence of foreign retailers remains quite limited; however, the Indonesian retail market welcomes well-known groceries and fashion retail brands. A young and rapidly-growing population will keep improving prospects for retailers in the country, which remains largely dominated by traditional retail.

The...

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Shipping

Indonesia Shipping

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Mixed Outlook For Indonesian Ports In 2015

Our shipping and ports forecast for 2015 shows growth rates picking up pace slightly at the port of Tanjung Priok, while they will decelerate a little at the smaller facility at Palembang. This reflects the slightly mixed freight demand picture as the Indonesian economy is set to slow marginally, while foreign trade picks up pace compared to 2014. Over the medium- to long-term, we continue to believe that the key to sustainable growth 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.

BMI is trimming back its forecast for Indonesian GDP growth in 2015 by half a percentage point to 5.5%, down from 6.0% previously. We are maintaining our estimate for 2014 growth at 5.1%. The main reasons for being more cautious about...

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Telecommunications

Indonesia Telecommunications

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BMI View: 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 wireline market is witnessing considerable investments in fibre-optic network infrastructure, a development that should drive the uptake of high-value converged services, including IPTV. The country's mobile operators are accelerating their tower outsourcing and managed services strategies in order to reduce operating costs. This is a sensible move...

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Tourism

Indonesia Tourism

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The future is looking bright for Indonesia's tourism market, with healthy growth forecast across inbound and outbound tourism, industry value and tourism-related expenditure. The government is highly supportive of the industry and is investing heavily in improving the country's transport infrastructure network in order to improve safety and access. Concerns remain, however, regarding the viability of the foreign investment environment and high crime rates.

The Indonesian government is increasingly supportive of the tourism industry, and following elections in 2014 it set up the first stand-alone Ministry of Tourism - tasked with promoting and expanding tourism in Indonesia. The new tourism board recently announced it is targeting annual tourism arrivals of 20mn by 2019. New measures, such as the removal of the USD35 visa on arrival for visitors from Australia, Japan, China, South Korea and Russia from early 2015 will certainly help to boost...

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Water

Indonesia Water

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BMI View:  This quarter we have substantially revised and upgraded our water forecasts, following the collection of additional data from a number of new sources. We now forecast household and non-mains water consumption, water losses, and extraction by source. Overall, we take a positive outlook with regard to the future of the country's water sector as infrastructure and legislative improvements are undertaken. However, the sanitation sector in particular remains extremely underdeveloped at present.

Water quality in Indonesia continues to be a significant problem, largely due to the large volumes of domestic waste discharged directly into rivers, owing to the lack of an adequate...

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