Indonesia’s Economic Outlook In 2022
Global economic growth in 2022 has been fluctuating. However, Indonesia can maintain its growth rate. The global market continued to shop for Indonesia’s abundant natural resources like palm oil, nickel, and tin. Thanks to the exports sector in Q1 of 2022 and other avenues of investment in Indonesia.
The steady trading condition indicates Indonesia’s economy is reaching the government’s economic growth target of about 5% at the end of the year. The increase in Indonesian export trade to Switzerland also contributes to the plan.
The export sector reached new highs compared to the first quarter of 2021. The total value of exports in early May 2022 was up to USD 1.2 billion, tenfold higher than the first quarter of 2021 of USD 115 million.
Indonesia’s imports from Switzerland in the first quarter of 2022 also show incremental growth to 2021. The 10% increase indicates that the economic relations between the two countries are positive, which resulted from EFTA CEPA in late 2021.
Other than trading, the Indonesian government lifted most travel restrictions in Indonesia. Foreign tourist arrivals almost tripled between January and March. Combining Indonesian exports of natural commodities with the travel boom, it is no surprise that Indonesia is well on its way to a full economic recovery.
With the government eager to enact prudent macroeconomic policies and reforms to improve the investment landscape, Indonesia presents vast opportunities for foreign investors. Some key factors include:
- Indonesia provides various benefits, such as removing or reducing tariffs, as it is part of ASEAN’s regional free trade agreements (FTA). Typically, all taxable goods imported 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 to channel investment into specific locations. Businesses in these zones enjoy fiscal incentives such as tax allowance and withholding import tax that help reduce the tax burden on a newly set up business. Also, non-fiscal incentives are provided for Immigration, Business licenses, and land rights to help enterprises seamlessly commence their operations.
- Being a host to ASEAN’s most prominent labor market, the government offers tax incentives for establishing training programs for unskilled laborers, thus making the country ideal for labor-intensive manufacturing.
What Sectors Show Great Potential for Investment in Indonesia?
1. Healthcare and Pharmaceuticals
With the introduction of the 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 make the healthcare sector a lucrative opportunity for foreign investors.
2. Manufacturing
Production of electronics, automotive, textiles, footwear, food and beverages, and chemicals have significantly contributed to the economy. It forms 20% of Indonesia’s GDP and has had a 4% year-on-year growth since 2016.
3. 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.
Avenues such as Digital Wallets, Cloud Kitchen Services, Online Education and Consultation, Delivery Services, and Digital Marketplaces are viable options for investors seeking to capture Indonesia’s digital space. For example, some tech giants are now acquiring businesses, such as local low-capital banks, to
4. 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 fifth place based on its investment attractiveness, making FMCG one of the productive sectors foreign investors should consider.
5. 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, InCorp Indonesia (formerly Cekindo) full range encompasses company registration, recruitment, and even your tax and accounting needs.
