About HKTDC | Media Room | Contact HKTDC | Register Now | MyExhibitors(0) | MyHKTDC | Fair Site Map | Login
In Style.Hong Kong


Print

Market Intelligence of Indonesia

 

Indonesia: Market Profile

Major Economic Indicators


Table: Industry data


Table: Industry data
 

Latest Development

  • The economy grew by 5.0% in 2014, slowing from the growth of 5.8% in 2013.
  • Indonesia's inflation rate surged to 8.4% YoY in December 2014 from 4.5% in September, mainly due to the cut in fuel subsidy and food price increase.
  • President Joko Widodo, who took office in October 2014, aims to improve infrastructure and public services as key policy priorities of the new administration.
  • Indonesia was Hong Kong’s 24th largest export destination in 2014. Hong Kong's total exports to Indonesia increased 4.7% to US$2.6 billion for that year.

Current Economic Situation

The Indonesian economy grew by 5.0% in 2014, slowing from 5.8% in 2013. The growth slowdown was mainly due to the contraction in exports resulting from the export ban of raw materials imposed since January 2014, weakening exports of coal and crude palm oil amid sluggish external demand and falling commodities prices. Private consumption is a key support to the country, with household consumption expenditure accounting for more than half of Indonesia’s GDP in 2013.

 

Consumer price inflation in Indonesia accelerated to 8.4% YoY in December 2014 from 4.5% YoY in September, surpassing the Indonesian central bank’s inflation target of 3.5%-5.5%. Higher inflation was mainly due to the fuel subsidy cuts and food price increase. The government’s fuel subsidy cuts in November 2014 drove up petrol and diesel prices by some 30%. In the face of rising inflation and currency depreciation, Bank Indonesia raised the administered rate by 0.25 percentage points in November 2014 to 7.75%, which was kept unchanged for the second consecutive month in January 2015.

 

Indonesia’s new president Joko Widodo (also known as Jokowi), former governor of Jakarta, took office in October 2014 to serve a five year term. Investment in infrastructure, provision of public services and institutional reform are among his key priorities. 

 

Indonesia’s major trading partners include China, Japan, the US and Singapore. The country’s exports remained weak in in the first 11 months of 2014, dropping by 2.4% YoY to US$161.7 billion. Major Indonesian exports were mineral fuels, raw materials and electrical equipment. Indonesia’s imports fell by 4.3% YoY to US$163.7 billion during the same period. Major imports included machinery, electrical equipment, iron and steel.

 

In an attempt to boost the domestic mineral processing industry and encourage exports of higher value-added mineral products, the Indonesian government implemented a ban on exports of unprocessed mineral ores in January 2014. Indonesia was the world’s largest exporter of nickel ore and is home to the largest gold mine. The export ban is expected to spur foreign investment in Indonesia’s metal processing industry. According to the Energy and Mineral Resources Ministry, total investment in processing plants is projected to reach US$18 billion by 2017, including 6 alumina refineries and 30 nickel smelters.

 

In November 2014, 29 Indonesian provinces set new provincial minimum wages for 2015, leading to an average increase of 13%. Jakarta, the country’s capital, raised the minimum monthly wage by 11% to IDR 2.7 million (about US$215), which is in line with the increase in 2014.

 

In addition to higher minimum wages, investors would have to take into account the country’s overall business environment. According to the World Bank’s Ease of Doing Business Index 2015, Indonesia ranked 114 out of 189 economies, advancing three places in the rankings compared with the previous year. In particular, starting a business and enforcing contracts are seen as the main difficulties of doing business in Indonesia. Nonetheless, Indonesia remains appealing to foreign investors, with inward foreign direct investment (FDI) increasing by 13.5% to about US$25 billion (Rp307 trillion) in 2014. Major FDI sources in 2014 included Singapore, Japan, Malaysia, the Netherland and the UK.

 

External Trade and Investment Policy

Indonesia is a member of the World Trade Organisation (WTO) since January 1995, and has since then been lowering tariffs and non-tariff trade barriers. Import tariffs are mostly imposed on an ad valorem basis in Indonesia. The import duty ranges between 0-20% for most items, except for certain food items, tobacco and cars, which have duties ranging from 30% to 150%.

 

Most of the imports are subject value-added tax (VAT) in Indonesia. The standard rate of VAT is currently 10%. In addition, there is a luxury sales tax imposed on items, such as large-size televisions, sports equipment, carpets, jewellery and etc. Currently, the luxury goods sales tax rates range from 10% to 75%.

 

However, exports to the free trade zones (FTZ) in Batam, Bintan and Karimun (south of Singapore) are free of import tariffs, VAT and luxury goods tax. These FTZ, particularly Batam, are popular offshore production bases for Singapore manufacturers.

 

A number of import items are subject to Indonesian restrictions such as special licences and limited import volume. For example, a special Importer Identification Number (NPIK), is needed for imports including textiles, footwear and electronics. In addition, certain goods are subject to Pre-shipment Inspection (PSI) as part of the Product Conformity Assessment (PCA) governed by Indonesia’s National Standardisation Agency (BSN). These products include ceramic goods, electronics, food and beverage, footwear, textiles and toys.

 

Indonesia is a member of ASEAN, and thus it is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only. ASEAN has signed individual free trade agreements (FTA) with China, Japan, Korea, India, Australia and New Zealand.

 

Under the China-ASEAN Free Trade Agreement (CAFTA), to which Indonesia is a signatory member, Chinese exports enjoy tariff-free access to the Indonesian market since July 2005, and tariffs on most goods were eliminated by 2010. CAFTA tariff elimination is seen as conducive to further expansion of trade between the two countries. In 2011, China surpassed Japan and became the largest importer of Indonesia’s non-oil exports (US$21.6 billion, 13.3% share of total). The share of Indonesian non-oil and gas exports to China increased from 8.5% in 2004 to 14.2% in 2013. The share of Indonesia’s non-oil imports from China increased from 11.6% in 2004 to 20.9% in 2013. In 2013, bilateral trade between China and Indonesia increased by 3.2% to about US$68 billion.

 

The Investment Coordinating Board of Indonesia (BKPM), the official foreign investment promotion agency, is responsible for issuing foreign investment licences and improving the investment climate. It provides one-stop services for foreign investors in the licensing process. Currently, FDI in Indonesia is governed by the Negative Investment List (DNI) under Presidential Regulation 39/2014, which stipulates the sectors that are open, wholly or partially to foreign investment. The DNI is reviewed every 3 years. In the latest revision (2014), a key change introduced by the latest DNI is the reduction of the permitted level of foreign ownership in storage, warehousing and distribution activities, which previously allowed 100% foreign ownership and are now capped at 33%. However, the sectors that are further liberalised include pharmaceuticals manufacturing, telecommunication services, and construction of public land transport and cargo terminals.

 

Hong Kong's Trade with Indonesia

Indonesia was Hong Kong’s 24th largest export destination in 2014, and the sixth largest destination in ASEAN for the same year. In 2014, Hong Kong’s exports to Indonesia grew 4.7% YoY to US$2.6 billion. Major export items included telecom equipment & parts (25.8% share), computers (11.3%), knitted or crocheted fabrics (6.2%). During the same period, Hong Kong’s imports from Indonesia dropped by 1.3% to US$2.5 billion. Major imports included coal, not agglomerated (32.8% share), jewellery (11%), edible products and preparations (8.2%).

 

Table: Hong Kong trade with Indonesia


Table: Hong Kong trade with Indonesia
 

Indonesian Involvement in the Hong Kong Economy

According to the Census & Statistics Department of Hong Kong, there were 19 Indonesian companies setting up local offices in Hong Kong as of June 2013, taking care of local businesses for their Indonesian parent companies, which include Lippo Ltd, a member of the Indonesian conglomerate Lippo Group. In addition, there is a large number of small and medium enterprises (SMEs) established by Indonesians in Hong Kong, with businesses in restaurants, supermarkets, and courier services.

In the first eight months of 2014, there were 346,087 Indonesians visiting Hong Kong, down by 1.5% from the year-earlier period. 

 

As at 31 August 2014, there were 166,611 Indonesian nationals residing in Hong Kong.

 

Related information: Indonesia infographics

 

Content provided by Picture: Jacqueline Yuen