What makes Indonesia an exciting place to invest?

◊ The Jokowi administration has made infrastructure development a priority in his attempt to guide Indonesia toward its ambitious goals, shifting budget allocations toward capital spending. Approvals for investments in infrastructure are on the rise, and the country’s largest construction companies have reported a jump in government contracts.

◊ At 17.3 million households, Indonesia has the world’s fourth largest middle class. The size of the country provides it with a wealth of potential for growth in this respect, and it expects the number to grow by almost 3 million by 2030. Furthermore, its purchasing power is set to rise strongly, which will provide Indonesia with a thriving consumer industry.

◊ Indonesia is the most stable democratic country in Southeast Asia, and the country has embraced President Jokowi’s developmental agenda. An October 2016 poll showed that 69% of the population were satisfied with the president’s performance, his highest ratings since taking office.

◊ Indonesia is a leading mobile-first nation, with over 70 percent of Internet traffic coming from mobile devices. With the physical characteristics of the archipelago making logistics difficult, this provides a great opportunity for e-commerce and technology growth.

Infrastructure

Today, Indonesia stands as the world’s 16th largest economy. But with a population of 261 million spread over 17,000 islands, realisation of projection state by 2030 Indonesia will be the world’s 7th largest, will be very much contingent on a strong pipeline of infrastructure development.

Infrastructure spending is and will be one of the key drivers of Indonesia’s economic growth. The government has said the country needs to spend $450 billion on infrastructure up until 2020, and a large proportion of this will be sourced via foreign direct investment, loans (such as from the Asian Development Bank, which arranged a $1.5 billion loan in 2016), and government funding. As a result, construction is predicted to grow at a rate of 8% until 2019, and the construction industry has outpaced the country’s overall growth for several years being anywhere between 0.8% and 2.6% higher than the national average.

The Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) 2011-2025, involves a mixture of government investment and private sector support via public-private partnerships. Significant spending is planned by the government by 2025, and $22.5 billion of infrastructure has been arranged from US firms, including General Electric, and Japanese Premier Abe has intimated his support for a range of projects including transport (particularly Japanese style high-speed trains), electricity supply and ports.

An expanding middle class means retail is booming, experiencing 8% year on year growth, and At least five additional shopping centres, are due to be constructed in Jakarta with shopping centre space nationally increasing by 500,000 square metres to reach approximately 4.9 million. The same cycle of prosperity and high urbanisation rates make for a similar story for office space and, as seen all over the world, where there is a high level of growth and prosperity, there is money to be made in the construction industry.

Fishing

With a renewed focus on efficiency, investment and a no-nonsense policy to illegal fishing, Indonesia is at last ready to reap the benefits of its maritime bounty. The Indonesian government has implemented a number measures to improve living standards among fishermen and boost investment in the fishery sector: this includes the opening of six sub-sectors in the fish processing industry to foreign investment, the provision of fishing equipment, storage and processing facilities (such as modern ships and cold storage), and facilitating access to financing.

Successes are evident in increase in the capture fishery production to 4.72 million tonnes and aquaculture which increased to 10.07 million tonnes – and one of the most important measures taken has been a firm stance against foreign vessels fishing illegally. Fisheries minister Ms Susi Pudjiastuti has been instrumental in this change; in November 2014 ex-foreign vessels were banned from fishing in Indonesian waters, and those violating the policy faced the threat of having their ships sunk.

Opportunities abound for the savvy investor: one constraining factor is the fact that that 95% of the 2.2 million people engaged in the sector are traditional fishermen – with low efficiency and lacking in the resources and capital to fully exploit the potential of the Indonesian seas. The Processing and Marketing Association of Indonesian Fishery Products estimates the investment needed by the capture fishery sector at around $9.6 billion, and for aquaculture this figure reaches $24 billion – however plans by the government to limit investment away from the capture fishery sector means the brightest opportunities for investment are in processing, logistics and storage.

Tourism

Indonesia boasts unique cultures, World Heritage Sites, pristine beaches, diving without equal, and some of the world’s most exotic wildlife. It has a tropical climate with temperatures between 28°C and 34°C in coastal areas and the lack of seasonal variation makes the archipelagic nation an ideal beach holiday destination. It has however, until now lagged behind some of its South East Asian neighbours, with Thailand the premier destination in the region: as it stands, tourism accounts for just 4% of GDP or $37 billion to the economy, a figure which the government hopes to double by 2020.

Since taking office in 2014, President Joko Widodo’s government has recognized tourism as a major pillar of economic growth and is working to change this. His government has set an ambitious target of 20 million annual visitors by 2020 (again double current figures) and at this point the industry is expected to be Indonesia’s biggest source of foreign exchange earnings.

To support its ambitions the government has removed visa requirements for the citizens from numerous countries: citizens of 169 countries are now able to travel to Indonesia without a visa, and this makes the archipelago one of the most open countries in the world.

Plans to improve infrastructure such as roads, aviation, ferries and utilities equally aims to make Indonesia as attractive as possible to foreign travellers. $343.1 million was spent, for example, on a third terminal at Soekarno-Hatta International Airport in Jakarta, the country’s busiest aviation hub, which opened in August 2016, and in 2014 the government committed to build 165 airports across the country, with 29 airports are currently set to be renovated to handle international traffic.

Financial services

Over the last five years the Indonesian banking sector has enjoyed a steady growth, with acompound annual growth rate of 16.9%, driven by an underpenetrated banking market, large consumer base and the rise of middle income population. Although non performing loans remain something of a concern recent years and a prudent attitude from a number of lenders has reduced this potential downside. There are 118 commercial banks in Indonesia, and the The Financial Services Authority aims to consolidate these over the coming years, into 60 or 70 banks.

One crucial area for improvement is in penetration: much of Indonesia’s rural population remain without access to banking: over than half the commercial banks are located in Java, and most of those in major cities.Only 21.9% of the poorest 40% of the Indonesian population has savings in a financial institution and over 40% of the population does not borrow, with only 13.1% having borrowed from a financial institution before. To this end, those consolidated banks are intended to fall into several categories – international, national, and rural – a specialisation which will aim to address this deficit and provide adequate service for all sections of the market.

Equally, new financial technology can help penetrate these rural areas, and open up the potential of Indonesia’s massive population. In 2015 the Indonesia Finech Association was set up, and to date counts on over 120 fintech players. With 326.3 million mobile subscriptions, 126% of the population, this could provide the backdoor to provide banking services for the rural population. With only 9% people using credit cards for payments, it’s no surprise that 43% of the fintech players in Indonesia are in the payment sector, from mobile payment to payment gateway companies: startups like Ruma, fidiGo and Kanopi provide access to a world of financial instruments sure to broaden the base of Indonesian prosperity.

Health and insurance

The WHO revealed in 2014 that Indonesia spent just 2.8% of GDP on healthcare compared with a global average of 9.9%. In the same year, however, the country’s private healthcare sector saw growth of over 20%. To address the problem, the government of the time introduced Badan Penyelenggara Jaminan Sosial (BPJS) to administer its new policy of national health insurance, which is aimed to cover 260 million Indonesians by 2019.

Since then, the sector has experienced rapid growth, and though the country faces many challenges in achieving this ambitious goal, the Jokowi administration’s commitment to delivering affordable healthcare to its citizens is evident: Under revisions made to the Negative Investment List last year, five sectors within the healthcare industry were opened up to 100% foreign investment, particularly to address the need for pharmaceutical raw materials. With a government committed to improving infrastructure and a burgeoning middle-class that will increase demand for private medical care in the future, there is a wealth of potential for this industry to grow in all areas in coming years.