Official name : Republic of Indonesia
Official language : Bahasa Indonesia (“Indonesian Language”)
First coined as the language of one people and one nation in the Youth Congress in Jakarta on 28 October 1928, 17 years before the Independence Declaration in 1945
Flag : Sang Saka Merah Putih (“The Sacred Red and White”), Sang Dwiwarna (The Bi-Color”)
Originated from the royal banner of Majapahit Empire that once ruled half Southeast Asia region from its base in Java Island in 1292-1500; red for courage and white for purity
National emblem : Garuda Pancasila
Anthem : Indonesia Raya (“Great Indonesia”)
Originally composed by Mr. Wage Rudolf Supratman as opening performance of the Youth Congress in Jakarta on 28 October 1928, 17 years before the Independence Declaration in 1945
Capital : Jakarta (about 664,01 km2), in Jawa Island
Total area : about 1.9 million km2 land, 3.2 million km2 sea
Archipelago : 17,508 islands, 6,000 of which are inhabited; 81,000 km-long beach line
Main islands : Kalimantan (544.150 km2), Sumatra (473.600 km2), Papua (418.707,7 km2), Sulawesi (174.600 km2), and Jawa (128.297 km2)
Population : 269,6 million (2020 estimate)
Ethnic profile : 330 ethnic groups; 580 local languages and dialects
Major religions : Islam, Protestant, Roman Catholic, Hindu, Buddhist, and Confucian
GDP per capita : USD 4,294.8 (2021, Word Bank)
Economic growth : 5.1 % (2022, as projected by Word Bank)
Major export : Coal, Palm Oil, Petroleum and natural gas, plywood, metal ores, textiles, mining, cement, food products, crude rubber, chemicals (material, compound and products), glass (material and products)
Major import : Heavy machinery, transportation and electrical equipment, chemicals
Indonesian Economy: Current and Outlook
In the effort to boost Indonesia’s economic growth, the Government sets three economic strategies: the green economy, the digitalization of micro, small and medium enterprises (MSMEs), and the development of downstream industries. It is also stated that 2022 will be the year of downstream industries in Indonesia by focusing on processing commodities into ready-to-use products, starting from nickel.
Indonesia possesses 21 million tons of nickel, the largest reserve in the world. Downstream raw nickel into products such as electric car batteries will add value to the commodity and stimulate economic growth. Indeed, partnerships within the industry have already commenced— for example, the partnership between Indonesia’s State-Owned Enterprise and LG with the value of USD9.8 billion.
The progress of mining and mineral-based downstream industries can be seen through the development programs of the smelter industry. Currently, the annual capacities of the smelters that are already in operation reach 12.3 million tons for nickel, 6 million tons for aluminum, 3.2 million tons for copper, and 19 million tons for steel. From 2015 to the third quarter of 2021, there were 69 companies in the metal smelter industry, with a total investment value of USD51.43 billion. Of all the downstream industries’ potential, The Ministry of Investment/BKPM is also committed to facilitate investors to get into the industries.
Fitch Ratings (Fitch) has affirmed Indonesia’s Sovereign Credit Rating at BBB (investment grade) with a stable outlook, as announced on June 28, 2022. Key factors that support the affirmation are a favorable medium-term growth outlook and a low government debt/GDP ratio. The Fitch’s affirmation shows strong confidence from international stakeholders on the Indonesia’s maintained macroeconomic stability and medium-term economic prospects, amidst elevated global economic uncertainty. It is supported by the credibility of the policies and the effective policy mix orchestrated by the Government and the Bank Central of Indonesia.
In their reports, Fitch expects that Indonesia’s economy continued to recover smoothly. GDP growth will gradually recover to 5.6% in 2022 and 5.8% in 2023. The recovery is supported by a pick-up in service sector and the strong exports supported by elevated commodity prices. Fitch projects that current account balance will record a small deficit of 0.4% of GDP in 2022 and 1.0% of GDP in 2023. With regards to inflation, Fitch views that the pressure on domestic inflation has been increasing, and yet inflation is still projected within target of 3+1%.
Strive and Rise: Economy
Over medium-term, the domestic economy will grow by 5.8% in 2024, boosted by the implementation of the Omnibus Law on Job Creation. The Law that was enacted in November 2020 aims to alleviate long-standing barriers to business and investment. The Law is considered a breakthrough in the country’s legal system as it revised 76 current laws simultaneously. By simplifying regulations and improving the investment climate, the law is expected to encourage more incoming investment, especially in labour intensive industries, and eventually create more jobs.
According to the government’s Strategic Investment 2020 – 2024, Indonesia has placed several business sectors as its focus:
Even though Covid-19 pandemic led to the global economic slowdown, Indonesia has attracted seven foreign companies to relocate their investment in 2020. As one of the top 5 host economies for the FDI Inflows, Indonesia’s wave of structural reforms shown a subsequent strong performance in terms of stable growth, enhanced investor confidence and increased FDI inflows.
As a member of the G-20 major economies, Indonesia is now the 15th largest economy in the world and by 2030 is predicted to become the 5th largest economy. In 2020, Indonesia is the 2nd most prospective investment destination. Not only inflow FDI, the Domestic Direct Investment of Indonesia continue to grow and proved to be resilient.
The government of Indonesia plans to improve conectivity across the archipelago and promote balanced growth between the western and eastern parts of Indonesia. The government has introduced a “sea toll road” concept to connect Indonesia’s archipelago through seaports in the main corridor between western and eastern islands to reduce high logistics costs.
Clean and Green
Indonesia throws support behind crude palm oil role in biofuel energy. Providing sustainable clean and renewable energy is critical for Indonesia because of declining fossil-based fuel stocks. It also contributes to protecting the environment, which is essential for the health of its population.
Indonesia is the home of palm oil, and its waste is great for bioenergy. Kalimantan and Sumatera islands are the centres of the palm oil industry, with around 90% of the country’s palm oil plantations. The industry is growing rapidly, as seen by the increasing pace of public plantations at 24% per year from 1990 to 2015. The positive industry profile can also be seen through the contribution of CPO – in 2016, Indonesia provided 53.4% of total global CPO.
The investment prospects of the biofuel industry in Indonesia are extensive. The government has issued pro-investment regulations for the biofuel industry. Through Presidential Decree No. 44 Year 2016, investment in biofuel production can have 100% foreign ownership. Mandatory B30 policy, requiring a 30% mixture of palm oil-based biofuel in diesel fuel, has also been introduced.
The Ministry of Finance also gives special tax facilities and customs for investors in the renewable energy sector. It launched Ministry of Finance Regulation No. 21/ PMK.011/2010 on Taxation Facility Allotment and Customs for renewable energy activities in 2010. The regulation contains an income tax payment (PPh) facility that will reduce net income of 30% from the capital investment amount. The ministry will only charge 5% per year for the investors for six years.
Indonesia Towards 2045