- Last Updated on 13 February 2015
With the GDP over US$ 1trillion in 2014, Indonesia is the largest economy in Southeast Asia. Much less affected by the global financial crisis compared to its neighboring countries, Indonesia is the fastest growing G-20 economy after China. Indonesia grew by 5.8 % in 2013 and is expected to grow between 5.1 to 5.5% 6.3% in 2014. Future economic expansion is expected to include more inclusive growth as nominal per-capita GDP is expected to quadruple by 2020, according to Standard Chartered. McKinsey projected Indonesia will be the 7th largest economy in the world by 2030.
A large part of Indonesian economic success is a result of prudent fiscal stewardship that focused on reducing the debt burden. Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to less than 26.2% by the end of 2013, the lowest among ASEAN countries, aside from Singapore which has no government debt.
As a result, Moody’s, Standard & Poor’s and Fitch had put Indonesia’s credit rating to investment grade status. The rating reflects Indonesia’s resilience to the global financial crisis, improving government and external credit-metrics, and an ability to manage domestic political challenges to the reform agenda.
Economically strong, politically stable and reform minded, Indonesia is an emerging global powerhouse in Asia.
Stronger Investment Climate
Indonesia’s economic policies are on a firm footing. So are its measures to attract foreign investment. Below are a few of Indonesia’s latest improvements to our investment climate:
Investment Law No. 25/2007:
This updated investment law redefines “capital investment” as all investments, whether by domestic or foreign investors, for the first time offering equal treatment to all investors. There is no longer a limit of 30 years on foreign investment permits, and gone is the provision in Law 1/1967 for there to be divestment. Additionally, the new law allows for the unimpeded reparation of capital.
Burgeoning Domestic Market
Having the 4th largest population in the world, Indonesia has a large domestic market to offer, over 53% of which lives in urban areas and adopts a modern lifestyle. A growing and affluent middle class supports GDP growth. About 7 million people are expected to join the middle class each year. Consumer expenditure has grown at 12.3% from 2007-2012 and is expected to continue at 9.1% rate from 2012-2017.
Strategic Location and Expanding Global Influence
Indonesia lies at the intersection of the Pacific Ocean, along the Malacca Straits and the Indian Ocean. Over half of all international shipping goes through Indonesian waters. Increasingly, Indonesia is playing a more dominant role in global affairs. It is Southeast Asia’s only member in the G-20 and an active voice for developing world’s concerns. Standard Chartered sees Indonesia’s inclusion in the G-7 by 2030, projecting that Indonesia’s economy could be the 10th largest in 2020 and the 5th largest in 2030. While McKinsey projected Indonesia would be the 7th largest in 2030.
Indonesia has also become part of a new grouping called “Growth Markets” by Goldman Sachs’ Jim O’Neill. The Growth Markets grouping includes four countries (Indonesia, South Korea, Mexico and Turkey) each representing 1% of the total world’s GDP.
Being the leading member of the Association of Southeast Asian Nations (ASEAN), Indonesia shapes integrative approaches in the region for security, trade and commerce, and the integral part of the ASEAN Economic Community in 2015.
Finally, Indonesia is emerging as a key player on cross-cutting international policy issues such as climate change and the global financial architecture, which will have direct and indirect impacts on business and investment decisions.
BASIC ECONOMIC DATA:
$ 1.01 trillion (2014 est.)
$ 903.6 billion (2013)
$ 824 billion (2012)
5.1-5.5 % (2014 est.)
6.2 % (2012)
GDP - per capita (PPP)
$3,475 (2013 est.)
$3,551 (2012 est.)
$3,469 (2011 est.)
Source: World Bank
GDP - composition by sector
services: 37.6% (2010 est.)
116.5 million (2010 est.)
Labor force - by occupation
services: 48.9% (2010 est.)
6.3% (2013 est.)
6.1% (2012 est.)
6.6% (2011 est)
Source: World Bank
Distribution of family income - Gini index
Source: World Bank
Investment realization in January-December 2014 reached Rp. 463,1 trillion ($ 36 billion), an increase around 16.2% from the same period in previous year. The value of investment is based on investment realization report by the DDI and FDI companies (oil and gas, banking, non-bank financial institution, insurance, leasing and SMEs are excluded).
The top five leading sectors in FDI investment realization along 2014 are mining ($4.67 billion); food industry ($ 3.14 billion); transportation, warehouse and telecommunication ($ 3 billion); metal, machinery and electronic industry ($ 2.47 billion); and chemical and petrochemical industry ($ 2.32 billion).