Understanding Indonesia's Role in the ASEAN Economy

Understanding Indonesia’s Role in the ASEAN Economy

  • InCorp Editorial Team
  • 12 December 2023
  • 5 minute reading time

As ASEAN ascends to its status as an economic superpower, Indonesia has become a pivotal player in the region’s remarkable growth to become an economic superpower. With its dynamic economy, strategic location, and cultural diversity, Indonesia stands as a beacon of development in the Southeast Asian landscape. 

This article will delve into Indonesia’s instrumental role in propelling ASEAN’s trajectory toward becoming an economic superpower. We’ll also explore the key factors contributing to its rise as an economic superpower.

Overview of ASEAN as a Potential Economic Superpower

The Association of Southeast Asia Nations (ASEAN) has become prominent because of its economic growth. ASEAN showed successful regional integration and geopolitical importance, which makes it a significant player globally.

It’s no longer a secret that ASEAN’s economic growth has become one of the world’s fastest-growing consumer markets. With that said, the rising economic superpower now holds its reputation as the seventh-largest economy, solidifying its status as a global powerhouse.

By 2030, around 70% of ASEAN’s population is expected to join the middle class. Therefore, transforming the region into a thriving consumer market that could rank as the fourth-largest economy globally.

Despite economic challenges and the impact of the COVID-19 pandemic, ASEAN has demonstrated resilience, creating opportunities for sectors like e-commerce and online businesses.

Indonesia’s Contribution to ASEAN Economy

Indonesia's Impact on ASEAN's Economic Superpower

Indonesia is crucial in developing ASEAN, especially with its status as the most populous country in Southeast Asia.

Since its inception as one of the five founding members of ASEAN in 1967, Indonesia has played a pivotal role in shaping ASEAN’s vision, direction, and objectives. 

The country actively promotes regional integration, security, and stability across Southeast Asia. Indonesia’s influence extends to enhancing economic integration within ASEAN. With the fourth-largest economy in the region, Indonesia is a major producer of consumer goods and raw materials.

A remarkable illustration lies in Indonesia’s pivotal role in effectively finalizing negotiations for the Regional Comprehensive Economic Partnership (RCEP), recognized as the world’s most substantial free trade agreement.

RCEP involves ASEAN and several key trading partners, including China, Japan, and South Korea.

Why Indonesia is a Good Destination for Investment

As a country that actively facilitates investment in Southeast Asia, Indonesia possesses several advantages to be your following investment destination.

Strategic LocationIt’s strategically located for easy access to ASEAN and Asian markets, serving as an attractive alternative to China, with proximity to major shipping and transport routes.
Growing EconomyThe country has consistently maintained a GDP growth rate above 5%, primarily propelled by domestic consumption, constituting approximately 60% of the GDP.
Government ReformsThe government is committed to fostering foreign investment and has implemented robust economic reforms, offering attractive incentive programs.
Ease of Doing BusinessForeign investors benefit from favorable and improving rankings for ease of doing business.
Abundant WorkforceWith a labor force of nearly 137 million people, most of whom are under 30 years old, Indonesia offers a youthful and abundant workforce.
Special Economic ZonesIndonesia is actively developing Special Economic Zones, which provide incentives and benefits for investors.
Growing Positive Investment ListIt’s strategically located for easy access to ASEAN and Asian markets, serving as an attractive alternative to China, with proximity to major shipping and transport routes.
Growing Consumer SpendingConsumer spending is rising, with a population exceeding 237 million, a rapidly expanding middle class, and a services sector contributing more than 40% to GDP.
Network of Free Trade AgreementsIndonesia has signed over 14 Free Trade Agreements, offering trade advantages in Asia, ASEAN, Europe, and other global regions.
Abundance of Natural ResourcesIndonesia boasts a wealth of natural resources, including coal, silver, gold, nickel, copper, bauxite, thermal coal, tin, petroleum, and natural gas.

Investment Opportunities in Indonesia

Indonesia offers several advantages as one of the excellent investment destinations in ASEAN. Here are the key sectors as options for investment:

1. Mining and Petroleum

Indonesia’s mining and petroleum sector has been a cornerstone of its economy since the 1970s, contributing to about 60% of total exports.

2. Manufacturing

Currently making up 20% of GDP, Indonesia aims to boost this to 25% by 2030, aspiring to become a manufacturing hub comparable to Germany and South Korea.

3. Services

The services industry is the largest job provider, employing more than 45% of the workforce and contributing around 45% to GDP. Tourism and hospitality, especially the demand for hotels, are expected to rise significantly as more tourists and business travelers visit the country.

4. Agriculture

Agriculture is vital to the economy, engaging one-third of the workforce. It includes small-scale farming and large plantations producing various goods such as rice, rubber, palm oil, tropical fruits, nutmeg, cocoa, and coffee.

5. Digital Economy

Indonesia’s digital economy has experienced remarkable growth recently and is projected to reach USD 124 billion by 2025. A prosperous and tech-savvy consumer base is reshaping consumption patterns, offering ample opportunities for foreign investors.

6. Infrastructure

In 2014-2019, the Indonesian government announced an ambitious infrastructure plan worth USD 350 billion, with plans to invest an additional USD 400 billion in infrastructure projects nationwide.

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Start Incorporating with InCorp Indonesia

Indonesia, one of the original five members who founded ASEAN in 1967, occupies a vital position in ASEAN’s progress. The nation has shaped ASEAN’s vision, orientation, and goals for years.

Indonesia has numerous advantages that make it an attractive investment destination across various sectors.

To seize this opportunity, collaborate with InCorp Indonesia, which provides company registration and business license services to simplify your business operations in the country.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.