Trade Guide: Indonesia

Do you know?

Indonesia(officially the Republic of Indonesia) is a sovereign country in Asia and Oceania. It is the largest island country in the world by the number of islands, with more than fourteen thousand islands. Indonesia has an estimated population of over 255 million people and is the world's fourth most populous country and the most populous Muslim-majority country.

Economic Overview

Indonesia's developing economy continues its transition towards sustainable growth. With future development set to become less dependent on primary sector and consumer-led spending. Instead, Indonesia will increasingly focus on trading and manufacturing to provide national growth.

Where only a few years ago Indonesia’s economic development had been on a decelerating trend, Indonesia’s GDP has been steadily increasing at an annual rate of 5% since 2014. Per capita income is at around US$1850, and Indonesia has the world’s fourth largest middle class, with 17.3 million households. Only 8 million away from the US. In terms of sustainability of the nation’s workforce, Indonesia has a comparatively young population, with a median age of only 30.

Japan, China and the United States have been important trading partners for Indonesia. Followed closely by Singapore, India and South Korea.

As a means of improving Indonesia’s economic performance and boosting confidence amongst foreign investors, the Indonesian government unveiled a new economic reform package at the end of 2015. With the aim of improving economic growth in Indonesia, the package incorporates policies around deregulation, reducing administration costs, improvements in law enforcement, and business assurance. The key goal of this new economic reform package is to boost Indonesia’s economic growth in the middle of the unclear global context.

However, despite the significant GDP growth and new economic policies, Indonesia still faces a number of key challenges. One major obstacle to long term sustainable growth is the high level of unemployment and poverty amongst the population. Although the government has taken proactive steps to combat these problems in the economic reform package, it will still take a significant amount of time to overcome them. Another big challenge for Indonesia is that their national currency, the rupiah, has depreciated significantly in 2015 and foreign exchange reserves have also decreased significantly.

The major bank in Indonesia, Bank Indonesia, increased the interest rate, which rapidly resolved the situation. However, it will take Indonesia some considerable effort to maintain stability in the face of a rapidly changing global economic environment.

Although Indonesia has encountered a number of key challenges to sustainable growth, the rise in living standards for Indonesians has created new opportunities within the economy. One of the high-growth industries is fast-moving consumer products (FMCG). Because of the improved living standards, Indonesians are increasingly more likely to buy from different brands within groups which have a good brand reputation. With the rise of technology and the emergence of e-commerce in Indonesia, has ensured the population have more purchasing methods than ever before. Especially amongst Indonesia’s rising middle-class and affluent consumer, whom are more eager to purchase premium items.

In spite of the challenges, future predictions for Indonesia's financial growth are still quite positive. The Indonesian government has a very ambitious plan, the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) and they hope Indonesia will become one of the biggest global economies by 2025. The government is also hoping that with increased investment on infrastructure, Indonesia’s economy will be able to soar to a much higher level than before.

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