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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Investors in Indonesia face a variety of challenges that hinder the business environment in the country. Chief among these issues are the limitations on foreign direct investment (FDI), excessive red tape associated with trading and setting up a business, a poorly skilled labour market, a disjointed and highly variable logistics network, and the risks posed to foreign workers and businesses from crime and terrorism. Having said that, we note that there are opportunities for investment in Indonesia, which is South East Asia's largest economy. The manufacturing, oil and gas, and infrastructure sectors all represent attractive options for FDI, while portfolio investment has traditionally been a key source of capital inflows. What's more, businesses in Indonesia are able to make use of the country's strategic location on vital global shipping lanes, which keeps the cost of importing and exporting low.

The challenges faced by businesses in...

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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 Risks Index, in 15 th place out of 29 Asian...

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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 41.9 out of 100 placing the country 19 th out of 29 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...

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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 forecast the passenger car segment to continue outperforming the commercial vehicle (CV) segment in 2014. Despite that, we expect a slight slowing in car sales growth to 8.5% in 2014. Auto sector growth will rebound to previous levels in 2015, with a 9.6% rise.

According to Association of Indonesian Automotive Industries (Gaikindo), domestic vehicle sales in June 2014 came in at 110,560 units, an increase of 6.0% year-on-year (y-o-y). Sales were boosted by the low-cost green car (LCGC) segment. This brought total H114 sales to 642,323 units, an increase of 6.7% y-o-y. For 2014, we forecast auto sales to grow 7.1%, to 1.32mn units. Production figures have remained steady in 2014. In June they were recorded at 116,840 and are expected to increase gradually in the second half of 2014 and into 2015.

We expect the passenger car segment to continue to outperform the CV segment in 2014. However we expect a slight...

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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:   W e have a bullish outlook for consumer electronics spending growth in Indonesia in 2014 and 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 . There is however downside as a result of rupiah depreciation and potential disruption from smartphone import taxe s - but the medium - term outlook...

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Defence & Security

Indonesia Defence & Security

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BMI View:   Indonesia benefits from a substantial size advantage over its neighbours, although the relevance of this has declined as the South East Asian region continues to display considerable stability. The success of ASEAN has fostered a diplomatic rationality, with only a handful of relatively minor confrontations enduring, most notably a Sino-Philippine dispute over a number of minor islands. In spite of this, Indonesian military moderni s ation will continue, despite the greatest threats to Indonesian security being internal ones.

For its part, Jakarta has good relations with Beijing. However, the Indonesian side has 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...

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Food & Drink

Indonesia Food & Drink

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BMI View:  Indonesia's slowing rate of economic growth is reflected in the fact that real GDP growth fell to 5.2% year-on-year in Q114, its slowest pace of expansion since Q309 and a marked contrast from Q413's 5.7% performance.   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 buoyed to support demand growth...

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Freight Transport

Indonesia Freight Transport

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Political Risk Coming Back Down After Elections

With the general elections now over and Joko Wikodo poised to take over from President Susilo Bambang Yudhoyono, political risk factors are beginning to subside and BMI retains a broadly optimistic outlook for the Indonesian economy. That said, we consider 2014 to be a relatively weak transition year prior to the recovery gathering pace in 2015. First quarter growth slowed to 5.2% year-on-year and we expect some further weakening because of the government ban on raw mineral exports and lower investment inflows. The mineral export ban is supposed to encourage more processing inside Indonesia, but we believe few international companies will make the major refinery and smelter investments required, and that the policy will be growth-negative. That said, President-elect Wikodo was clearly the more market-friendly of the two main presidential...

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Information Technology

Indonesia Information Technology

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BMI View: our bullish outlook for the Indonesian IT market is reflected in the latest consumer confidence survey released by Nielsen in July 2014, which found Indonesians to be the second most optimistic from a cross-section of 60 markets. This supports our forecast for the Indonesian IT market to be a regional outperform er over the medium term   - with IT market growth expected to benefit from strong economic growth, a low PC penetration rate , enterprise and public service modernisation and an emerging middle class....

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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: 2014 will likely be seen as a year of consolidation in a long period of fairly strong and, for many players, profitable growth in Indonesia's insurance sector. The main challenge, and one identified by the life insurers' trade association as well as by many of the leading life companies themselves, has been the uncertain political environment: legislative elections were held on April 9, while the presidential election - which was won by Joko Widodo - took place three months later. The impact of the uncertainty was a reluctance on the part of Indonesia's savers to investors to buy life insurance in H114. In the first three months of the year, life premiums were 7% lower than they had been in the previous corresponding period .

Press reports from mid-2014 indicated that the life insurers' trade association is looking for premiums to rise by one fifth for the...

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Medical Devices

Indonesia Medical Devices

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Espicom 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 medical devices....

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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)
  2012e 2013e 2014f 2015f 2016f 2017f 2018f

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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:   The Indonesian power sector will grow slower in 2014 than it has in the past five years, due to a slowing economy and higher electricity prices. We expect the country's electricity mix to change significantly over the long-term, and view the victory of Joko Widodo in the 2014 presidential elections as a risk to our forecasts.

We are forecasting electricity generation in Indonesia to grow by 6.3% in 2014. This is lower than the five-year historical average growth rate of 7.0%, which we attribute to slower economic growth and higher electricity prices. Our long-term growth forecasts for electricity generation in Indonesia are unchanged this quarter, with generation expected to grow an average of 6.5% per annum between 2014 and 2023. We highlight that the country's electricity mix is set to change significantly over our forecast period, with the share of oil-fired generation set to...

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Real Estate

Indonesia Real Estate

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BMI View: The confirmation of Joko 'Jokowi' Widodo as Indonesian president in July, solidifies the country ' s growing reputation as one of the most attractive emerging real estate investment markets. It had looked as though continued uncertainty surrounding the outcome of July ' s general election would deter investment, further adding to the effects of the country ' s cooling economic growth and stymied real estate demand.

With a focus on the three principal cities of Jakarta, Bandung and Bali, the Q4 2014 Indonesia Real Estate report covers the property fundamentals of the commercial real estate market rental market and examines the office, retail, industrial and construction segments throughout the country.

...

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Renewables

Indonesia Renewables

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BMI View : We have revised down our 2014 forecasts for non-hydropower renewables generation in Indonesia this quarter due to some project delays. However, our outlook for the sector beyond 2014 appears rosy as there are solid fundamentals for growth, such as a need to move away from oil-fired generation and strong public and private sector support. Our long-term outlook for the Indonesian renewable energy sector remains bullish as we continue to see solid fundamentals for growth. We are forecasting non-hydropower renewable generation to grow by an average of 8.6% per annum between 2014 and 2023, which is significantly higher than our growth forecasts for conventional generation sources.

Key T rends And Developments

  • The government extended its feed-in tariff (FiT)...

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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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Political Risk Coming Back Down After Elections

With the general elections now completed and Joko Wikodo poised to take over from President Susilo Bambang Yudhoyono, political risk factors are beginning to subside and BMI retains a broadly optimistic outlook for the Indonesian economy. That said, we consider 2014 to be a relatively weak transition year prior to the recovery gathering pace in 2015. First quarter growth slowed to 5.2% year-on-year and we expect some further weakening because of the government ban on raw mineral exports and lower investment inflows. The mineral export ban is supposed to encourage more processing inside Indonesia, but we believe few international companies will make the major refinery and smelter investments required, and that the policy will be growth-negative. That said, President-elect Wikodo was clearly the more market-friendly of the two main presidential candidates, so business...

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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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BMI's Indonesia tourism report examines a range of key indicators in this burgeoning Asia Pacific destination, including the expected growth in both inbound and outbound travel and the impact higher volumes of travellers will have on tourism-related expenditure and industry value. Supported by domestic economic reform, a more welcoming foreign investment environment and infrastructure development, we believe the future is looking very bright for tourism in Indonesia.

Indonesia is raising its profile on the international tourism stage, with government-sponsored marketing campaigns such as 'Wonderful Indonesia' highlighting the country's range of attractions and seeking to promote it as a safe destination. The government is highly supportive of tourism and is keen to expand a range of sectors, including cruise tourism. Indeed, the government is targeting 600,000 visitors by 2016 through the development of 10 ports that...

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Water

Indonesia Water

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BMI View: The ongoing change in political leadership in Indonesia and the lack of policy certainty that comes with this change - parliamentary and presidential elections are taking place in April and July 2014 respectively could impact investment in the water sector over the longer term. We have long highlighted that most governments typically put on hold key decisions on large-scale construction projects (such as project awards and approvals) and reform bills until after the ballot box. This is due to concerns about upsetting voter sentiment and insufficient parliamentary support for these projects, particularly if the country's parliament is significantly fragmented.

We expect conventional thermal sources to remain the dominant fuel for electricity generation in the coming years, given that there are numerous coal- and gas-fuelled power projects planned or under construction. This in turn...

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