International Trade in Indonesia

News Related to International Trade in Indonesia

Business outline for Indonesia

Main Industry Sectors

The agricultural sector contributes to nearly 14% of the country's GDP and employs nearly 40% of the active population. Indonesia is one of the largest rubber producers in the world. Other major crops are rice, sugar cane, coffee, tea, tobacco, palm oil, coconuts and spices. Indonesia is the only Asian country to be an member of the OPEC to which it assures 5% of its production. However, it is still a net importer of oil. The country has great exploitable timber lands and mainly exports timber. 

Industries contribute to around half of the GDP. The industrial sector includes manufacturing of textiles, cement, chemical fertilizers, electronic products, rubber tires, clothing and shoes (most of these are for the American market). Wood processing is also a major activity.

The tertiary sector (financial institutions, transportation and communications) contributes to around 40% of the GDP. The banking sector is well-developed. The Islamic bank  Syariah  has expanded rapidly during these recent years. Tourism is a major source of revenue, however, the sector has suffered from terrorist threats and natural catastrophes.

Economic Overview

Due to the unfavorable international economic situation, the Indonesian growth rate has evidently slowed down in 2009 (4.5%).  However, it has shown more resistance than its neighboring countries due to the low amount of exports on its economy and the importance of private consumption since the country has a significant domestic market.  The country adopted a stimulus plan which lowered taxes, increased subsidies and commitments for supplemental expenditures, which have allowed to soften the effects of the crisis.  The growth, estimated at 6% of the GDP, has accelerated in 2010, under the effects of the revival of investments and the continuous growth of private consumption.

Despite the good results from the main economic indicators, structural reforms are required.  A large program of development of infrastructures has been issued.  The country suffers from sub-investment, the authorities are strongly promoting public-private partnerships.  The government has also re-confirmed its priority to the fight against corruption.  In addition, the protection of the environment is a major challenge in Indonesia.

The unemployment level remains high and many workers are in a precarious condition.  A large part of the population lives below the poverty line and the gap between the very rich and the very poor does not diminish.

FDI in Figures

Foreign direct investment (FDI) in Indonesia, which had collapsed due to the Asian economic crisis in 1997-1998, was evidently increasing since 2007, the country had become attractive to investors again thanks to the progress of the business regulation framework.  The flows of FDI have, nevertheless, suffered from the global recession in 2009 and even if they have started to increase again in 2010, they still remain insufficient  considering the size and the potential of the country's economy.  The reinforcement of political and economic stability has suppressed certain investment risks and has improved the market tone.  But some restraints still persist, such as the high cost of credit, the poor investment climate, the excessive weight and unpredictability of regulations, the poor condition of the infrastructures, the control of terrorist risk and the high level of corruption.

FDI Government Measures

Incentives to investment are accessible to all investors, national and foreign. More specifically, these are reductions of duties on imports and equipment goods and additional incentives for export investors and investments made in certain regions.

At the beginning of 2006, the government announced a program for the improvement of the investment climate, which aims to submit to Parliament a bill on investment, the drawing up of a new negative list applicable on investments, the drastic reduction of the time required for the creation of a company, the acceleration of the re-examination process of local regulations likely to harm the enterprising spirit, as well as the rationalization of customs procedures and the improvement of customs regulations. A privatization program mainly concerning key sectors such as transport and finance and which was initiated in 1998, is regularly updated.

Country Strong Points

Indonesia has almost 230 million inhabitants, which represents an enormous market. Additionally, the country has abundant natural resources (timber, fish, oil, natural gas, metals) and enourmous biodiversity.

Country Weak Points

The main hindrance to investment lies in the high cost of illegal deductions, which can be as much as 60%. For the procedures of starting a company - the number of formalities to carry out, time limits for starting up, registration rules and the threshold of the initial capital - a World Bank study has shown that Indonesia is less efficient than other Asian countries. Legal unpredictability is often denounced and several levels of justice are said to be ineffective and corrupted. The tax and customs authorities are still viewed, in the business circles, as generally being corrupted and arbitrary.

Foreign Trade Overview

Indonesia is a member of the WTO and ASEAN (Association of South-East Asian nations).  Indonesia is open to foreign trade, which represented more than 40% of the GDP in 2009. 

The trade balance of the country is structurally positive.  However, this balance was degraded under the effect of the global recession and the fall of the price in raw materials; but,  it still remained on a surplus due to a small contraction of exports in relation to imports.  The revival of exports as well as imports in 2010 did not change this positive trend. 

The three main export partners of Indonesia are Japan, the United States and Southeast Asia.  The commodities that are mainly exported are mineral fuels and hydrocarbons, electrical equipment, animal and vegetable fats & oils, nuclear reactors & boilers, and rubber.  Its main export partners are Southeast Asia, Japan and China.  The commodities that are mainly imported are mineral fuels & oils, nuclear reactors & boilers, iron & steel, electric & electronic equipment, and organic chemicals.