Indonesia’s Economic Outlook In 2021
With the global economy entering a subdued recovery in 2021, Indonesia’s GDP is expected to rebound to 6% growth in 2021, according to the latest economic outlook from Oxford Economics, restoring confidence for investment in Indonesia. This is under the assumption that consumer confidence improves and household income will be supported by a stronger job market backed by a nationwide vaccine program and re-opening of Indonesia’s borders.
The Indonesian government has allocated a massive sum of Rp 2.75 quadrillion (US$193.24 billion) to its National Economic Recovery Program – an important instrument in supporting Indonesian businesses in their recovery, fueling the economy and, funding development programs in its infrastructure, education and healthcare sectors, to name a few.
With the government eager to enact prudent macroeconomic policies and reforms to improve the investment landscape, Indonesia presents huge opportunities for foreign investors. Some key factors include:
- Indonesia provides a variety of benefits such as the removal or reduction of tariffs as it is a part of ASEAN’s regional free trade agreements (FTA). Typically, all taxable goods for import into Indonesia have a 7.5% import duty and a 10% value-added tax. However, under the agreement, goods originating from ASEAN benefit from an applied 0-5% tariff rate.
- The Special Economic Zones (SEZs) in Indonesia offer investors access to preferential regulatory infrastructure and taxation in an attempt to channel investment into specific locations. Businesses that are set up in these zones enjoy fiscal incentives such as tax allowance and withholding import tax that helps in reducing the tax burden on a newly setup business. Also, non-fiscal incentives are provided with respect to Immigration, Business licenses and land rights to help businesses seamlessly commence their operations.
- Being a host to ASEAN’s largest labor market, the government offers tax incentives for establishing training programs for the unskilled laborers, thus making the country ideal for labor-intensive manufacturing.
What Sectors Show Great Potential for Investment in Indonesia?
- Healthcare and Pharmaceuticals: With the introduction of Positive Investment List, Hospitals with more than 200 beds, pharmaceutical manufacture and wholesale industries are now open to 100% foreign shareholding. Given the sector’s large market-size, new demand for products treating chronic diseases and the government’s amplified spending, makes the healthcare sector a lucrative opportunity for foreign investors.
- Manufacturing: Production of electronics, automotive, textiles, footwear, food and beverages, and chemicals have significantly contributed to the economy. Currently, it forms 20% of Indonesia’s GDP and has a 4% year-on-year growth since 2016.
- E-Commerce and Digital Economy Based Industry: Indonesia’s digital economy has seen exponential growth and is expected to be valued at US$124 billion by 2025, making the country a prime location to invest in. Avenues such as Digital Wallets, Cloud Kitchen Services, Online Education and Consultation, Delivery Services and Digital Marketplaces are viable options for investors who seek to capture the digital space in Indonesia, for example, some of the tech giants now eying to acquire local low capital bank to form a digital bank.
- Fast Moving Consumer Goods: According to market research conducted by Technavio, Indonesia’s retail market is expected to grow by US$37.2 billion during 2021-2025. The market also will accelerate at a Compound Annual Growth Rate of 4.06%. In 2019, Global Retail Development Index also ranked Indonesia’s retail market in the fifth place based on its investment attractiveness, making FMCG as one of the fruitful sectors that foreign investors should put in mind.
- Infrastructure: Indonesia has shown improvement in its efforts to lower the risks of its infrastructure projects through schemes like viability gap funds (VGF) and public-private partnerships (PPP), as cited on Infrastructure Asia – a Singapore-based infrastructure investment advisory. Indonesia also aims to invest around US$430 billion in infrastructure from 2020-2024 – a 20% increase compared to 2019.
How Do You Start?
Despite the ample opportunities for investment in Indonesia, investing overseas comes with its fair share of challenges. While you focus on the strategic aspect of your business, Cekindo’s full range encompasses company registration, recruitment, and even your tax and accounting needs.