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

  • We have downgraded Indonesia's real GDP growth forecast in 2015 to 5.3% (from 5.5% previously), as we note that tight monetary policy and the weak rupiah are likely to keep a lid on private consumption throughout the year. That said, this rate still implies an acceleration from 2014's 5.0 rate of growth.

  • The government's subsidy savings, which are estimated at approximately USD18.2bn in 2015, will be channeled towards infrastructure investment as well as direct fiscal transfers for the poor. This should have a stimulative effect on economic growth in 2015, and represents a significantly more efficient spending programme going forward.

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Indonesia Operational Risk Coverage (9)

Indonesia Operational Risk

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 14th place out of 30 Asian...

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Indonesia Trade & Investment

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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Indonesian auto sales have entered into a tailspin over the past few months, with their decline exacerbated by the recent 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...

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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

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 : Growth in Indonesia's construction and infrastructure sectors will accelerate in 2015, underpinned by political stability, reform momentum and easing monetary policy. However, we highlight that political threats and persistent land disputes continue to pose downside risks to our outlook. With President Joko Widodo's vision of establishing Indonesia as a 'maritime axis', transport infrastructure will remain in focus, particularly the development of ports.

Key Trends And Developments

  • We believe growth in Indonesia's infrastructure sector is gaining traction and revise our real growth...

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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: The export ban on raw minerals will significantly impact production growth and hamper investment for Indonesia's mining industry. We do not expect any moderation of the ban 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.

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 value. Till this date, the government has maintained its strict ban on bauxite and nickel ore. For nickel, it...

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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

Pharmaceuticals & Healthcare

Indonesia Pharmaceuticals & Healthcare

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BMI View: Generic drugs sales in Indonesia will continue to see significant growth as they remain favoured by both low per capita pharmaceutical spending and inadequate intellectual property protection in the country. This is further reinforced by a growing chronic disease burden led by cardiovascular diseases and the roll out of universal healthcare in the country, which will help improve access to medicines.

Headline Expenditure Projections

  • Pharmaceuticals: IDR69,462bn (USD5.85bn) in 2014 to IDR75,497bn(USD5.95bn) in 2015; +8.7% growth in local currency terms and 1.6% in US dollar terms.

  • Healthcare: IDR327,811bn (USD27.62bn) in 2014 to IDR375,392bn (USD29.57bn) in...

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Power

Indonesia Power

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: Our bullish outlook for renewable energy in Indonesia is based on a number of key fundamentals. These include the pressing need to meet growing electricity demand across the country (particularly in off-grid remote areas), the government's strong commitment to diversifying the power mix through the adoption of renewable energy and Indonesia's significant geothermal and solar energy potential - stemming from favourable geographic characteristics.

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...

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Retail

Indonesia Retail

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BMI View: Rising disposable incomes combined with the ongoing development of modern retail formats are all expected to result in a strong boost to the Indonesian retail sector over the next few years. We remain especially positive about the future growth prospects for communications, health and personal care; however, we expect by far the highest proportion of the household budget to be spent on essential items such as food and drink throughout our forecast period.

Indonesia's economy has flourished in recent years and this has contributed significantly to growth in household spending as well as the general advancements seen within the retail sector. We are forecasting growth to remain moderate during 2015 at 5.5%, rising steadily to 6.3% during 2016. While we believe the Indonesian economy shows signs of resilience...

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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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The Indonesia tourism report examines a range of key market indicators in this flourishing tourism destination in the midst of the competitive Asia Pacific region. Building upon its reputation as an affordable yet luxurious holiday destination, Indonesia continues to attract visitors from both its Asia Pacific neighbours and key global markets including the UK, US and Saudi Arabia. With inbound travel increasing steadily, supported by a range of infrastructure investment projects, the future is looking bright for Indonesian tourism - as has been noted by many of the top global hotel groups.

Indonesia's government is highly supportive of the tourism industry. It has established the country's first standalone Ministry of Tourism and has announced a tourism arrivals target of 20mn visitors by 2019. In order to achieve this, the country is relaxing visa requirements and also investing in marketing campaigns such as '...

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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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