Our comprehensive assessment of Indonesia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Indonesia, as well as the latest industry developments that could impact Indonesia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Indonesia before your competitors.

Country Risk

Indonesia Country Risk

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Core Views

  • Despite the fact that Joko 'Jokowi' Widodo emerged victorious in July's presidential elections, significant political uncertainty remains. In particular, Prabowo Subianto's Red and White coalition has shown signs that it will be a particularly obstructionist opposition in parliament, creating additional risk to the implementation of Jokowi's policy agenda. While we remain generally positive on the incoming administration, this is a key risk to our view. .

  • While his policy platform has not yet been fully elaborated , Jokowi's ability to streamline bureaucratic inefficiencies, improve public finances, strike a balance between pro-business and pro-welfare policies, as well as willingness to take politically unpopular but necessary measures to right economic imbalances could...

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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:   T he 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 w e have a bullish outlook for consumer electronics spending growth in Indonesia over the medium term to 2018.   P ositive consumer electronic s 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: A fter 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 worl dwide 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 have a decisive impact on the fortunes of Indonesia's mining industry. While no official announcement has been made, our core view remains that the export ban will eventually be rolled back due to 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 have a decisive impact on the fortunes of Indonesia's mining sector. In an effort to push the construction of smelters and boost the value of mineral exports, the Indonesian government banned the export of unprocessed minerals with effect from January 2014. However...

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Oil & Gas

Indonesia Oil & Gas

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Headline Forecasts (Indonesia 2012-2018)
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Petrochemicals

Indonesia Petrochemicals

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Strong growth in petrochemicals capacity should improve Indonesia's self-sufficiency, but it will still need to import products. However, BMI's latest Indonesia Petrochemicals Report warns the country's naphtha-fed sector is competing with low-cost ethane-based producers in the Middle East and the US.

BMI has revised its forecasts to take into account the changes made to plans by Pertamin a and Thailand's PTT Global Chemical for a petrochemicals complex. The changes include an increase in investment from USD5bn to USD8bn with the tripling of oil refinery capacity to 360,000 barrels per day (b/d). The schedule for completion has also changed from 2018 to 2020, which is outside our five-year forecasts. While the delay is something of a setback for Indonesia's hopes of rapidly moving up the petrochemicals rankings, the expansion...

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Pharmaceuticals & Healthcare

Indonesia Pharmaceuticals & Healthcare

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BMI View:   Indonesia is one of the most promising markets for the pharmaceutical and healthcare companies in South East Asia. The country's large population, positive economic outlook and considerable disease burden bode well for growth in demand for drugs, medical devices and healthcare services.   The ongoing implementation of the universal healthcare scheme in Indonesia coupled with the impending launch of the ASEAN Economic Community will provide growth opportunities for pharmaceutical firms. However , we highlight that the universal healthcare scheme is still in its infancy, therefore it will take some time before pharmaceutical firms can reap rewards.

Headline Expenditure Projections

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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:   Indonesia's enormous and expanding population (the world's fourth largest, after China, India and the US), rising per capita incomes and the continued development of organised retail infrastructure are all expected to result in a strong rise in household spending across all retail subsectors over the next few years. We are particularly 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 food and drink throughout our forecast period, with transport and housing & utilities in second and third place respectively.

The Indonesia retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment...

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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 dec lining voice revenues will force Indo nesia's largest telecoms operators to focus on the development of next- generation fixe d 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, includ ing IPTV. T he 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 legislat ive 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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