Indonesia

Economic Overview of Indonesia

GDP and Economic Growth
• GDP (2024 estimate): $1.4 trillion USD (16th largest globally).
• Growth Rate: Indonesia’s economy is expected to grow by 5.1% in 2024, driven by domestic consumption, infrastructure development, and a burgeoning digital economy. While growth has moderated compared to previous years, Indonesia remains one of Southeast Asia’s largest and most dynamic economies, with strong resilience amid global uncertainties.

Key Economic Features
• Indonesia is a member of the G20 and Southeast Asia’s largest economy, with abundant natural resources and a young, growing population.
• The country benefits from a strategic geographical position, significant mineral exports, and a large domestic market.
• Key economic challenges include income inequality, infrastructure deficits, and the need for economic diversification beyond natural resources.

Key Sectors of the Indonesian Economy

1. Natural Resources and Mining
• Indonesia is one of the world’s largest producers of natural resources, including coal, palm oil, rubber, and tin.
• The government is focused on increasing the value-added processing of these resources and promoting sustainable practices.
• UK exporters of mining and energy technology, as well as sustainability solutions, can find opportunities in the natural resources sector.

2. Manufacturing
• Indonesia’s manufacturing sector is diversifying, with strong growth in electronics, automotive, textiles, and consumer goods.
• The government’s “Making Indonesia 4.0” initiative aims to increase the contribution of high-tech manufacturing to the economy.
• UK firms with expertise in advanced manufacturing and automation technologies can enter the growing market.

3. Digital Economy and E-commerce
• Indonesia is Southeast Asia’s largest digital economy, with rapid growth in e-commerce, digital payments, and fintech.
• The government has launched several initiatives to accelerate digital infrastructure and internet penetration.
• UK businesses in technology, digital services, and e-commerce platforms can tap into the growing demand for online solutions.

4. Renewable Energy
• Indonesia is focusing on diversifying its energy mix, with significant potential for renewable energy, particularly in geothermal, solar, and hydropower.
• The government has set ambitious renewable energy targets as part of its broader energy transition strategy.
• UK firms specializing in renewable energy technologies and sustainable infrastructure can capitalize on Indonesia’s push for a greener economy.

5. Agriculture and Food Processing
• Indonesia is a major producer of agricultural products such as palm oil, rice, coffee, and seafood.
• There is an increasing demand for higher-quality, processed, and packaged food products, particularly in urban areas.
• UK firms specializing in agritech, food processing, packaging, and cold chain logistics can find opportunities in Indonesia’s growing food sector.

6. Tourism
• Indonesia is one of the world’s most popular tourist destinations, with attractions such as Bali, Java, and Lombok drawing millions of visitors each year.
• The government has introduced policies to promote sustainable tourism and improve infrastructure in the sector.
• UK firms in the tourism, hospitality, and travel services sectors can explore opportunities in Indonesia’s vibrant tourism market.

Trade Environment

Main Export Partners
• China, United States, Japan, Singapore, and India.

Main Import Partners
• China, Japan, Singapore, Thailand, and the United States.

Trade Policies
• Indonesia is a member of the World Trade Organization (WTO) and the Association of Southeast Asian Nations (ASEAN), and has several trade agreements with other countries, including the ASEAN Free Trade Area (AFTA).
• The country is also seeking to diversify trade relationships and expand its economic ties with the UK and other partners through the ASEAN Economic Community (AEC).
• Indonesia continues to focus on reducing its dependence on imports and promoting domestic production through policies like “Made in Indonesia.”

Opportunities for UK Exporters to Indonesia

1. Technology and Digital Services
• With its growing digital economy, Indonesia presents significant opportunities for UK exporters in areas such as e-commerce, fintech, cybersecurity, and digital payment systems.
• UK companies can also contribute to Indonesia’s digital infrastructure development and provide technology solutions for key sectors such as banking, healthcare, and education.

2. Renewable Energy
• Indonesia is rich in renewable energy resources, particularly in geothermal energy, and has set ambitious renewable energy targets.
• UK businesses with expertise in renewable energy technologies, including solar, wind, and geothermal, can partner with Indonesian firms and government agencies to support the country’s energy transition.

3. Healthcare and Pharmaceuticals
• Indonesia’s healthcare market is growing, driven by an increasing population, rising incomes, and a greater demand for high-quality healthcare services and medical products.
• There are opportunities for UK firms in medical devices, healthcare infrastructure, pharmaceuticals, and biotechnology.

4. Infrastructure and Urban Development
• Indonesia is investing heavily in infrastructure projects, including transportation, urban development, and smart city initiatives.
• UK firms specializing in construction, engineering, and urban planning can engage in major projects and help build the country’s infrastructure.

5. Education and Training
• Indonesia’s education sector is expanding, with a strong demand for higher education and vocational training, particularly in STEM fields.
• UK universities and training providers have the opportunity to partner with Indonesian institutions to offer courses and certifications in high-demand fields.

6. Agriculture and Food Products
• Indonesia has a growing demand for higher-quality food products, including processed food, dairy, and packaged goods.
• UK firms specializing in food technology, food safety, and packaging can capitalize on this expanding market.

UK-Indonesia Trade Relations

1. Trade Agreement
• The UK and Indonesia are working to strengthen trade relations post-Brexit, with ongoing discussions about a potential Free Trade Agreement (FTA).
• Both countries are committed to increasing bilateral trade, with the UK particularly interested in expanding exports in sectors such as technology, energy, and consumer goods.

2. UK Exports to Indonesia (2023)
• Machinery and mechanical appliances: £650 million.
• Pharmaceuticals: £230 million.
• Electrical machinery: £150 million.
• Food and beverages: £120 million.
• Chemicals and plastics: £80 million.

3. Investment Climate
• Indonesia remains a key destination for foreign direct investment (FDI), particularly in sectors such as infrastructure, mining, and manufacturing.
• The government continues to promote investment through tax incentives and reforms aimed at improving the ease of doing business in Indonesia.

Market Entry Considerations

Challenges to Entry
1. Regulatory Environment: While the government has worked to improve the ease of doing business, navigating Indonesia’s regulatory framework can still be complex, particularly for foreign companies.
2. Cultural and Language Barriers: Bahasa Indonesia is the official language, and understanding local business culture and practices is essential for successful market entry.
3. Infrastructure Gaps: While significant infrastructure investments are underway, challenges remain in transportation, logistics, and rural connectivity.

Recommendations for UK Exporters
• Work with local partners to better understand the regulatory landscape and cultural nuances.
• Leverage trade agreements and partnerships between the UK and Indonesia to access tariff reductions and other benefits.
• Focus on sectors aligned with Indonesia’s long-term growth priorities, such as digital technology, renewable energy, and infrastructure development.
• Engage with the British Chamber of Commerce in Indonesia for market insights and networking opportunities.

Recent Political Developments

Economic Policy
• The Indonesian government is focused on increasing domestic production and diversifying the economy. The “Made in Indonesia” campaign aims to boost the local manufacturing sector and reduce reliance on imports.
• Investment in infrastructure, digitalization, and renewable energy is central to the government’s economic strategy.

Geopolitical Relations
• Indonesia maintains a neutral stance in global geopolitical tensions but actively seeks to strengthen its economic ties with major countries, including the UK, through trade agreements and regional partnerships.
• Indonesia’s participation in the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP) positions the country as a gateway to the Southeast Asian market.

Domestic Challenges
• Despite its strong economic growth, Indonesia faces challenges such as income inequality, unemployment, and the need for inclusive development.
• Infrastructure gaps, particularly in rural areas, continue to be a barrier to full economic integration.

Contact Information

British Embassy Jakarta
• Address: Jl. M.H. Thamrin No. 75, Jakarta 10310, Indonesia.
• Phone: +62 21 2356 5200.
• Email: info@ukindonesia.fco.gov.uk.

British Chamber of Commerce in Indonesia (BritCham)
• Address: The British Chamber of Commerce in Indonesia, Jakarta, Indonesia.
• Phone: +62 21 2992 5150.
• Email: info@britcham.or.id.

Conclusion

Indonesia offers a wealth of opportunities for UK exporters across multiple sectors, including technology, energy, healthcare, and infrastructure. Despite challenges such as regulatory complexity and infrastructure deficits, the country’s growing middle class, commitment to renewable energy, and expanding digital economy present a dynamic landscape for trade.

UK businesses can thrive in Indonesia by forming strategic partnerships, leveraging ongoing trade agreements, and aligning their offerings with the country’s growth priorities. By understanding the market and navigating the local business environment, UK firms can access the vast potential of Indonesia’s diverse economy.